G.R. No.
L-31845 April 30, 1979 application form his strong recommendation for the approval of the insurance
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases
seek similar relief, through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in toto the decision of
the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6%
from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application
with the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for
a twenty-year endownment policy in the amount of P50,000.00 on the life of his one-
year old daughter Helen Go. Said respondent supplied the essential data which
petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City
wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual premuim the sum of P1,077.75 going
over to the Company, but he reatined the amount of P1,317.00 as his commission for
being a duly authorized agebt of Pacific Life. Upon the payment of the insurance
premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo
Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the
application. Then on April 30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza
with complication of bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in his effort, he filed the
action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether
private respondent Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the
insurance application, ON or PRIOR to the date of medical examination ... said insurance
shan be in force and in effect from the date of such medical examination, for such
period as is covered by the deposit ..., PROVIDED the company shall be satisfied that on
said date the applicant was insurable on standard rates under its rule for the amount of
insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of
insurance and/or the kind of policy requested in the application but issue, or offers to
issue a policy for a different plan and/or amount ..., the insurance shall not be in force
and in effect until the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant does not accept
the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the
Company declines to approve the application the insurance applied for shall not have
been in force at any time and the sum paid be returned to the applicant upon the
surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit shall
be reftmded; and (3) that if the applicant is not ble according to the standard rates, and
the company disapproves the application, the insurance applied for shall not be in force
at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance premium and had accepted
the application subject for processing by the insurance company; and that the latter will
either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure
by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the insurance application in question on the
ground that it is not offering the twenty-year endowment insurance policy to children
less than seven years of age. What it offered instead is another plan known as the
Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing
over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the
latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no
insurance contract duly perfected between thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or
by their agents ... The contract, to be binding from the date of the application, must
have been a completed contract, one that leaves nothing to be dione, nothing to be
completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said company does
not offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and approval of the
application in question along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense associate of petitioner
Mondragon, private respondent Ngo Hing must have known and followed the progress
on the processing of such application and could not pretend ignorance of the Company's
rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-
M) nor the reply thereto of appellant Mondragon reiterating the desire for applicant's
father to have the application considered as one for a 20-year endowment plan was
ever duly communicated to Ngo; Hing, father of the minor applicant. I am not quite
conninced that this was so. Ngo Hing, as father of the applicant herself, was precisely
the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of
appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that
said Ngo Hing was "our associate" and that it was the latter who "insisted that the plan
be placed on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was not brought WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
home to his knowledge. He must have been duly apprised of the rejection of the hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
application for a 20-year endowment plan otherwise Mondragon would not have Assurance Company from their civil liabilities as found by respondent Court and
asserted that it was Ngo Hing himself who insisted on the application as originally filed, ordering the aforesaid insurance company to reimburse the amount of P1,077.75,
thereby implictly declining the offer to consider the application under the Juvenile Triple without interest, to private respondent, Ngo Hing. Costs against private respondent.
Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for minors below SO ORDERED.
7 years old. What he and Mondragon were apparently trying to do in the premises was
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.
merely to prod the company into going into the business of issuing endowment policies
for minors just as other insurance companies allegedly do. Until such a definite policy is Fernandez, J., took no part.
however, adopted by the company, it can hardly be said that it could have been bound
at all under the binding slip for a plan of insurance that it could not have, by then issued
at all. (Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief
that private respondent had deliberately concealed the state of health and piysical
condition of his daughter Helen Go. Wher private regpondeit supplied the required
essential data for the insurance application form, he was fully aware that his one-year
old daughter is typically a mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the insurance compary. As an
insurance agent of Pacific Life, he ought to know, as he surely must have known. his
duty and responsibility to such a material fact. Had he diamond said significant fact in
the insurance application fom Pacific Life would have verified the same and would have
had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any
concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for
the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance
(Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.
Philippine American Life Insurance Company, 7 SCRA 316). Private respondent appears
guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.
SECOND DIVISION
[G.R. No. 124050. June 19, 1997]
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, Petitioners, v. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, Respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of
respondent Court of Appeals dated December 14, 19951 and its Resolution dated
February 22, 19962 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe Corporation and
Hongkong Government Supplies Department v. South Sea Surety Insurance Co., Inc. and
The Charter Insurance Corporation.3chanroblesvirtuallawlibrary
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted
petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various
steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes and
fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025,
MSPC-1020, MSPC-1017 and MSPC-1022.4chanroblesvirtuallawlibrary
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks
with private respondents South Sea Surety and Insurance Co., Inc. (South Sea) and
Charter Insurance Corp. (Charter). The pipes and fittings covered by Invoice Nos. MSPC-
1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with
respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a
total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International)
Inc. as third-party inspector to examine whether the pipes and fittings are manufactured
in accordance with the specifications in the contract. Industrial Inspection certified all
the pipes and fittings to be in good order condition before they were loaded in the
vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a
substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75.
Petitioners demanded payment of the balance of HK$299,345.30 representing the cost
of repair of the damaged pipes. Private respondents refused to pay because the
insurance surveyor's report allegedly showed that the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the
sum of HK$299,345.30. For their defense, private respondents averred that they have
no obligation to pay the amount claimed by petitioners because the damage to the
goods is due to factory defects which are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not
due to manufacturing defects. It also noted that the insurance contracts executed by
petitioner Mayer and private respondents are "all risks" policies which insure against all
causes of conceivable loss or damage. The only exceptions are those excluded in the
policy, or those sustained due to fraud or intentional misconduct on the part of the
insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and
severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.5chanroblesvirtuallawlibrary
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to
factory defect and that it was covered by the "all risks" insurance policies issued by
private respondents to petitioner Mayer. However, it set aside the decision of the trial
court and dismissed the complaint on the ground of prescription. It held that the action
is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only
on April 17, 1986, more than two years from the time the goods were unloaded from
the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier
and the ship shall be discharged from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or the date when the goods
should have been delivered." Respondent court ruled that this provision applies not only
to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.6chanroblesvirtuallawlibrary
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action
had already prescribed on the mistaken application of the Carriage of Goods by Sea Act
and the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the
complaint.7chanroblesvirtuallawlibrary
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of
the Carriage of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall
be discharged from all liability for loss or damage to the goods if no suit is filed within
one year after delivery of the goods or the date when they should have been delivered.
Under this provision, only the carrier's liability is extinguished if no suit is brought within
one year. But the liability of the insurer is not extinguished because the insurer's liability
is based not on the contract of carriage but on the contract of insurance. A close reading
of the law reveals that the Carriage of Goods by Sea Act governs the relationship
between the carrier on the one hand and the shipper, the consignee and/or the insurer
on the other hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the shipper and the
insurer. The latter case is governed by the Insurance Code.
one-year period provided in the law. But it does not mean that the shipper may no
longer file a claim against the insurer because the basis of the insurer's liability is the
insurance contract. An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril.11 An "all risks" insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured. 12 Thus,
when private respondents issued the "all risks" policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the New Civil
Code.13chanroblesvirtuallawlibrary
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of
Appeals dated December 14, 1995 and its Resolution dated February 22, 1996 are
hereby SET ASIDE and the Decision of the Regional Trial Court is hereby REINSTATED. No
costs.
SO ORDERED.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
cases9 cited therein does not support respondent court's view that the insurer's liability
prescribes after one year if no action for indemnity is filed against the carrier or the
insurer. In that case, the shipper filed a complaint against the insurer for recovery of a
sum of money as indemnity for the loss and damage sustained by the insured goods.
The insurer, in turn, filed a third-party complaint against the carrier for reimbursement
of the amount it paid to the shipper. The insurer filed the third-party complaint on
January 9, 1978, more than one year after delivery of the goods on December 17, 1977.
The court held that the Insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the carrier must be
filed within one year after delivery of the goods or the date when the goods should have
been delivered. The court said that "the coverage of the Act includes the insurer of the
goods."10chanroblesvirtuallawlibrary

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it
was the insurer which filed a claim against the carrier for reimbursement of the amount
it paid to the shipper. In the case at bar, it was the shipper which filed a claim against
the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by
private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either
by the shipper, the consignee or the insurer. When the court said in Filipino Merchants
that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that
the insurer, like the shipper, may no longer file a claim against the carrier beyond the
G.R. No. L-68037 July 29, 1992
PARAMOUNT INSURANCE CORPORATION, petitioner,
vs.
HON. MAXIMO M. JAPZON, Presiding Judge, Br. 36, RTC, Manila; City Sheriff and
Deputy Sheriffs Nestor Macabilin & Teodoro Episcope, public respondents, JOSE LARA
and ARSENIO PAED, private respondents.
ROMERO, J.:
Assailed in this petition for certiorari and prohibition with preliminary injunction is the
decision 1 of the Regional Trial Court of Manila, Branch 36 dated August 30, 1983 in Civil
Case No. 82-4416 entitled "Jose Lara and Arsenio Paed v. Willy Garcia, Emilio Macasieb,
Domingo Natividad, Willy Manuel, and Paramount Insurance Co. Inc." ordering
petitioner to pay private respondents an aggregate sum of P175,000.00 as insurer of a
motor vehicle owned by Domingo Natividad despite the absence of jurisdiction over its
persons.
It appears that on May 27, 1978, Jose Lara contracted the services of a passenger
jeepney with Plate No. PUJ K5-826, owned and operated by Willy Garcia (Garcia for
brevity), to transport his family, relatives and friends from Manila to Pangasinan. The
said jeepney was then driven by Emilio Macasieb (Macasieb for brevity).
On the very same date, within the vicinity of Barangay Parsolingan in Gerona, Tarlac, a
Ford truck F-600 with Plate No. WL-628, then driven by Willy Manuel (Manuel for
brevity) while cruising the National Highway on its way to Manila, overtook an
unidentified motor vehicle and in the process hit and sideswept the said passenger
jeepney then driven by Macasieb. As a consequence of such mishap, the two (2)
passengers of the jeepney, namely: Jose Lara (Lara for brevity) and Arsenio Paed (Paed
for brevity) sustained physical injuries of varying degrees. Specifically, Lara suffered
serious physical injuries resulting in the amputation of his right arm while Paed suffered
serious physical injuries which incapacitated him to work for more than two (2) weeks.
Aside from bodily injuries suffered by its passengers, both vehicles suffered minor
damages at their respective points of impact. The insurer of said truck is herein
petitioner Paramount Surety and Insurance Co. Inc. 2
After the said accident, Natividad filed a notice of claim with Paramount and the latter
lost no time in dispatching and/or contracting an independent adjuster handling
casualty and marine claims, the EM Salvatierra Adjustment Office.
Thereafter, the adjustment of Natividad's claims were transferred to Speedway
Adjustment and Appraisal Corporation which investigated the facts surrounding the
incident and recommended petitioner to pay Natividad under its policy, using the "no
fault" clause under the Insurance Code as its basis of liability.
A check in the amount of Eight Hundred Pesos (P800.00) covered by Check No. EBC-
10036191F was paid to Paed's wife, Priscilla Paed. It was covered by Voucher No.
32358. 3
In addition to said amount, another check in the amount of Five Thousand Pesos
(P5,000.00) covered by EBC Check No. 3082 was paid by Paramount to Central Luzon
Doctor's Hospital covering the expense for medical treatment and hospitalization of the
victims, Lara and Paed. It was covered by Voucher No. 32196. 4
On or about June 5, 1978, Lara and Paed filed a criminal case against Manuel for
Reckless Imprudence resulting in Damage to Property docketed as Criminal Case No.
2227 before the Municipal Trial Court of Gerona, Tarlac. 5
During the pendency of said criminal case, Lara filed a manifestation reserving the right
to file a separate civil action against the operators of the two (2) vehicles, namely:
Natividad and Garcia as well as the two (2) drivers, Manuel and Macasieb. 6
Accordingly, Lara and Paed filed on September 17, 1978 a civil case for damages
docketed as Civil Case No. 82-4416 against Garcia, Macasieb, Manuel, Natividad, and
impleaded Paramount, the latter as insurer of the Ford truck. 7
A certain Atty. Segundo Gloria filed a notice of appearance dated November 16, 1978
where he informed the court that he was appearing for and in behalf of the defendants
Natividad, Manuel and Paramount. 8 Subsequently, on December 14, 1978, he filed an
answer with crossclaim and counterclaim. 9
During the trial of Criminal Case No. 2227 for Reckless Imprudence resulting in Damage
to Property, accused Manuel pleaded guilty to the crime charged on September 18,
1979, and was accordingly, sentenced to imprisonment of six months of arresto
mayor maximum under Article 365 of the Revised Penal Code. 10
In the interim period, a fire gutted the City Hall of Manila on November 19, 1981 and
the records of the case were burned to ashes. Subsequently, on January 25, 1982,
plaintiffs (herein private respondents Lara and Paed) filed a petition for reconstitution of
the judicial records of the case 11 which was approved without any opposition in the
order of the court dated November 4, 1982. 12
On February 17, 1983, the court reiterated its order before the reconstitution of the
judicial records declaring defendants Natividad, Manuel and Paramount in default in
view of their continued failure to appear during the trial of the case and allowed the
plaintiffs (Lara and Paed) to make a formal offer of exhibits and considered the case
submitted for decision. 13
After protracted proceedings which lasted for almost five years, the Regional Trial Court
of Manila, rendered a decision dated August 30, 1983, the decretal portion of which
states:
WHEREFORE, finding the evidence presented by plaintiff sufficient to prove the
allegations of the complaint, judgment is hereby rendered in favor of the plaintiffs and
against the defendants ordering the latter to pay jointly and severally plaintiff Jose Lara,
the amount of P15,000.00 for medical and hospitalization expenses; the sum of
P80,000.00 as moral and exemplary damages; the sum of P50,000.00 as compensatory
damages; to pay jointly and severally plaintiff Arsenio Paed the sum of P20,000.00 as
moral and actual damages and to pay the sum of P10,000.00 by way of attorney's fees
and the costs of suit. 14
A copy of the said decision was served on the petitioner's counsel, Atty. Segundo Gloria,
on October 5, 1981. 15 No appeal from the judgment having been filed within the
reglementary period or up to October 20, 1983, the same became final and executory.
So, on March 2, 1984, Lara and Paed, now private respondents, filed an ex-partemotion
for execution of the said judgment and the trial court granted the same on July 10,
1984. 16
It was only on March 3, 1984 that Paramount, now petitioner, filed a motion to set aside
the Decision raising the issue that the court has not validly acquired jurisdiction over its
person. 17
Hence, the present recourse.
After deliberating on the petition, the Court issued a temporary restraining order on July
30, 1984 as prayed for and enjoined the respondents from enforcing the Decision dated
August 30, 1983 and the Writ of Execution dated July 10, 1984, both rendered and
issued in Civil Case No. 82-4416. 18
The pivotal issue to be resolved in this case is whether or not the court validly acquired
jurisdiction over petitioner despite the appearance of Atty. Segundo M. Gloria who
allegedly was not retained or authorized to file an answer for it. 19
Petitioner now claims that the Decision of the trial court dated August 30, 1983, should
be set aside since the court has not validly acquired jurisdiction over its person, not
having been validly served with summons and a copy of the complaint nor did it actively
participate in the said proceedings. It alleged that Atty. Segundo Gloria was not its
retained counsel at that time nor was he authorized by petitioner to act for and in its
behalf; and that private respondents' claims for moral, exemplary and compensatory
damages as well as attorney's fees are not recoverable from petitioner. 20
The petition is devoid of merit.
Jurisdiction is the power with which courts are invested for administering justice, that is,
for hearing and deciding cases. 21 In order for the court to have authority to dispose of
the case on the merits, it must acquire jurisdiction over the subject matter and the
parties. 22
Jurisdiction over the person of the defendant in civil cases is acquired either by his
voluntary appearance in court and his submission to its authority or by service of
summons. The service of summons is intended to give notice to the defendant or
respondent that an action has been commenced against it. The defendant or
respondent is thus put on guard as to the demands of the plaintiff or the petitioner. 23
Consequently, petitioner's contentions that it was not properly served with summons
and that Atty. Segundo Gloria was not authorized to appear for and in its behalf are
untenable.
In the case at bar, although petitioner questioned the propriety of the service of
summons, it however failed to substantiate its allegation that it was not properly served
with summons. Hence, the disputable presumption that official duty has been regularly
performed prevails. 24
The records of the case, however, showed that all the pleadings, including the answer
with crossclaim and counterclaim filed by Atty. Segundo Gloria stated that he
represented the defendants Natividad, Manuel and Paramount. In fact, he even filed a
notice of appearance informing the court that he is representing the said defendants. 25
It is worth noting that this is not the first time petitioner raised the issue of warrant of
jurisdiction over its person as well as warrant of authority of a lawyer to appear for and
in its behalf. In the case docketed as G.R. No. 68066 entitled "Paramount Insurance
Corp. v. Luna," this Court had the opportunity to rule that "the mere filling of the
answer with crossclaim raised a presumption of authority to appear for petitioner
Paramount Insurance Corporation . . . in accordance with Section 21, Rule 138 of the
Rules of Court. Such presumption is rebuttable, but only by clear and positive proof.
In the absence of such clear and positive proof, the presumption of authority . . . should
prevail over the petitioner's self-serving denial of such authority.
It strains credulity that a counsel who has no personal interest in the case would fight
for and defend a case with persistence and vigor if he has not been authorized or
employed by the party concerned. 26

To the mind of the Court, the instant petition is filed merely to derail its execution. It
took Paramount almost six years to question the jurisdiction of the lower court.
Moreover, as earlier adverted to, the controverted Decision of August 30, 1983, became
final and executory on October 20, 1983. In any event, it is axiomatic that there is no
justification in law and in fact for the reopening of a case which has long become final
and which in fact was already executed on July 18, 1984. Time and again, this Court has
said that the doctrine of finality of judgment is grounded on fundamental considerations
of public policy and sound practice and at the risk of occasional error, the judgments of
courts must become final at some definite date fixed by law. 27

However, there is merit in petitioner's contention that its liability is limited only to
P50,000.00 as expressed in Insurance Policy No. CV-3466 issued on February 23,
1978. 28 The said insurance policy clearly and categorically placed the petitioners liability
for all damages arising out of death or bodily injury sustained by one person as a result
of any one accident at P50,000.00. Said amount complied with the minimum fixed by
law then prevailing, Section 377 of Presidential Decree No. 6123 (which was retained by
P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land
transportation vehicle operators for bodily injuries sustained by a passenger arising out
of the use of their vehicles shall not be less than P12,000.00. Since the petitioner's
liability under the insurance contract is neither less than P12,000.00 nor contrary to law,
morals, good customs, public order or public policy, said stipulation must be upheld as
effective and binding between the parties. Therefore, the terms of the contract
constitute the measure of the insurer's liability. 29

WHEREFORE, the petition is DISMISSED and the temporary restraining order of July 30,
1984 is LIFTED. The decision of the Regional Trial Court of Manila, Branch 36, dated
August 30, 1983, is hereby AFFIRMED with the MODIFICATION that petitioner be held
liable to pay respondents Jose Lara and Arsenio Paed the amount of P50,000.00 each
which is the limit of its liability under the insurance policy minus the amounts of
P5,000.00 and P800.00 which it paid for the hospitalization and medical expenses,
respectively, of respondents.

Costs against petitioner.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

G.R. No. 116940 June 11, 1997
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure
to observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as
the right of the insurer to be subrogated to the rights of the insured upon payment of
the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a
vessel owned and operated by respondent Felman Shipping Lines (FELMAN for brevity),
7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City
to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.1 The shipment was
insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for
brevity), under Marine Open Policy No. 100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of
the same day. At around eight forty-five the following morning, 7 July 1983, the vessel
sank in the waters of Zamboanga del Norte bringing down her entire cargo with her
including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a
claim with respondent FELMAN for recovery of damages it sustained as a result of the
loss of its softdrink bottles that sank with "MV Asilda." Respondent denied the claim
thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its
claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent
FELMAN which disclaimed any liability for the loss. Consequently, on 29 November 1983
PHILAMGEN sued the shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its
cargo were due to the vessel's unseaworthiness as she was put to sea in an unstable
condition. It further alleged that the vessel was improperly manned and that its officers
were grossly negligent in failing to take appropriate measures to proceed to a nearby
port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative
defense that no right of subrogation in favor of PHILAMGEN was transmitted by the
shipper, and that, in any event, FELMAN had abandoned all its rights, interests and
ownership over "MV Asilda" together with her freight and appurtenances for the
purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce.2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal
the Court of Appeals set aside the dismissal and remanded the case to the lower court
for trial on the merits. FELMAN filed a petition for certiorari with this Court but it was
subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled
that "MV Asilda" was seaworthy when it left the port of Zamboanga as confirmed by
certificates issued by the Philippine Coast Guard and the shipowner's surveyor attesting
to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be
attributed to either a fortuitous event, in which case, no liability should attach unless
there was a stipulation to the contrary, or to the negligence of the captain and his crew,
in which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still
PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola Bottlers
Philippines, Inc.) had breached its implied warranty on the vessel's seaworthiness.
Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and
mistaken payment. Since it was not legally owing, it did not give PHILAMGEN the right of
subrogation so as to permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29
August 1994 respondent appellate court rendered judgment finding "MV Asilda"
unseaworthy for being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were
improperly stowed on deck. In other words, while the vessel possessed the necessary
Coast Guard certification indicating its seaworthiness with respect to the structure of
the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the
appellate court denied the claim of PHILAMGEN on the ground that the assured's
implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN
was not properly subrogated to the rights and interests of the shipper. Furthermore,
respondent court held that the filing of notice of abandonment had absolved the
shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy
when it left the port of Zamboanga; (b) whether the limited liability under Art. 587 of
the Code of Commerce should apply; and, (c) whether PHILAMGEN was properly
subrogated to the rights and legal actions which the shipper had against FELMAN, the
shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement,
the captain as well as the chief mate of the vessel confirmed that the weather was fine
when they left the port of Zamboanga. According to them, the vessel was carrying 7,500
cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2
cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the
empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck.4 The ship
captain stated that around four o'clock in the morning of 7 July 1983 he was awakened
by the officer on duty to inform him that the vessel had hit a floating log. At that time he
noticed that the weather had deteriorated with strong southeast winds inducing big
waves. After thirty minutes he observed that the vessel was listing slightly to starboard
and would not correct itself despite the heavy rolling and pitching. He then ordered his
crew to shift the cargo from starboard to portside until the vessel was balanced. At
about seven o'clock in the morning, the master of the vessel stopped the engine
because the vessel was listing dangerously to portside. He ordered his crew to shift the
cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the
engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain
could decide on his next move, some of the cargo on deck were thrown overboard and
seawater entered the engine room and cargo holds of the vessel. At that instance, the
master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda"
capsized and sank. He ascribed the sinking to the entry of seawater through a hole in
the hull caused by the vessel's collision with a partially submerged log. 5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The
report, which was adopted by the Court of Appeals, reads —
We found in the course of our investigation that a reasonable explanation for the series
of lists experienced by the vessel that eventually led to her capsizing and sinking, was
that the vessel was top-heavy which is to say that while the vessel may not have been
overloaded, yet the distribution or stowage of the cargo on board was done in such a
manner that the vessel was in top-heavy condition at the time of her departure and
which condition rendered her unstable and unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a
fishing vessel . . . and it was not designed to carry a substantial amount or quantity of
cargo on deck. Therefore, we believe strongly that had her cargo been confined to those
that could have been accommodated under deck, her stability would not have been
affected and the vessel would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the
vessel was rendered unseaworthy for the purpose of carrying the type of cargo because
the weight of the deck cargo so decreased the vessel's metacentric height as to cause it
to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be
pointed out that ships are precisely designed to be able to navigate safely even during
heavy weather and frequently we hear of ships safely and successfully weathering
encounters with typhoons and although they may sustain some amount of damage, the
sinking of ship during heavy weather is not a frequent occurrence and is not likely to
occur unless they are inherently unstable and unseaworthy . . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V
"Asilda" was her condition of unseaworthiness arising from her having been top-heavy
when she departed from the Port of Zamboanga. Her having capsized and eventually
sunk was bound to happen and was therefore in the category of an inevitable
occurrence (emphasis supplied).6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that
the proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to
the ship captain's allegations, evidence shows that approximately 2,500 cases of
softdrink bottles were stowed on deck. Several days after "MV Asilda" sank, an
estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the
sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola
cases recovered could have come only from the vessel's deck cargo. It is settled that
carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown
that the deck cargo will not interfere with the proper management of the ship.
However, in this case it was established that "MV Asilda" was not designed to carry
substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in
the decrease of the vessel's metacentric height 7 thus making it unstable. The strong
winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea
voyage and as such merely contributed to its already unstable and unseaworthy
condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at
bar.8 Simply put, the ship agent is liable for the negligent acts of the captain in the care
of goods loaded on the vessel. This liability however can be limited through
abandonment of the vessel, its equipment and freightage as provided in Art. 587.
Nonetheless, there are exceptional circumstances wherein the ship agent could still be
held answerable despite the abandonment, as where the loss or injury was due to the
fault of the shipowner and the captain.9 The international rule is to the effect that the
right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not
apply to cases where the injury or average was occasioned by the shipowner's own
fault. 10 It must be stressed at this point that Art. 587 speaks only of situations where
the fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was
top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision on
the part of the shipowner could have prevented this fatal miscalculation. As such,
FELMAN was equally negligent. It cannot therefore escape liability through the
expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the
Code of Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case . . ." In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN, the shipowner, was
not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV
Asilda" unseaworthy with reference to the cargo and therefore ruled that there was
breach of warranty of seaworthiness that rendered the assured not entitled to the
payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the
bottling firm there was in effect a "voluntary payment" and no right of subrogation
accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants
to the assurer that the vessel is seaworthy and such warranty is as much a term of the
contract as if expressly written on the face of the policy. 12 Thus Sec. 113 of the
Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or
freightage, or upon anything which is the subject of marine insurance, a warranty is
implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when
reasonably fit to perform the service, and to encounter the ordinary perils of the
voyage, contemplated by the parties to the policy." Thus it becomes the obligation of
the cargo owner to look for a reliable common carrier which keeps its vessels in
seaworthy condition. He may have no control over the vessel but he has full control in
the selection of the common carrier that will transport his goods. He also has full
discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this
case. In policies where the law will generally imply a warranty of seaworthiness, it can
only be excluded by terms in writing in the policy in the clearest language. 13 And where
the policy stipulates that the seaworthiness of the vessel as between the assured and
the assurer is admitted, the question of seaworthiness cannot be raised by the assurer
without showing concealment or misrepresentation by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two
(2) instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the
Marine Open Policy No. 100367-PAG reads "(t)he liberties as per Contract of
Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the
Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the
Assured and the Company shall not prejudice the insurance. The seaworthiness of the
vessel as between the Assured and the Assurers is hereby admitted."15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy
which states "(t)he seaworthiness of the vessel as between the Assured and
Underwriters in hereby admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one
or two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or,
(b) that the risk of unseaworthiness is assumed by the insurance company. 17 The
insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
cargo owners cannot control the state of the vessel. Thus it can be said that with such
categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the
ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation.
PHILAMGEN's action against FELMAN is squarely sanctioned by Art. 2207 of the Civil
Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by
the assurer to the assured operates as an equitable assignment to the assurer of all the
remedies which the assured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does
it grow out of any privity of contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate
payment of a debt by one who in justice, equity and good conscience ought to
pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines,
Inc., gave the former the right to bring an action as subrogee against FELMAN. Having
failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500
cases of 1-liter Coca-Cola softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered

to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred
Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest
thereon counted from 29 November 1983, the date of judicial demand, pursuant to
Arts. 2212 and 2213 of the Civil Code. 20

SO ORDERED.

Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

Padilla, J., is on leave.

SECOND DIVISION
G.R. No. L-27427 April 7, 1976
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY
OF THE PHILIPPINES, Plaintiffs-Appellants, vs. JAMILA & COMPANY, INC. and FIRST
QUEZON CITY INSURANCE CO., INC., defendants-appellees.
AQUINO, J.:
Fireman's Fund and Insurance Company (Fireman's Fund for short) and Firestone Tire
and Rubber Company of the Philippines appealed from the order dated October 18,
1966 of the Court of First Instance of Manila, dismissing their complaint against Jamila &
Co., Inc. (hereinafter called Jamila) for the recovery of the sum of P11,925.00 plus
interest, damages and attorney's fees (Civil Case No. 65658).chanrobles virtual law
library
The gist of the complaint is that Jamila or the Veterans Philippine Scouts Security Agency
contracted to supply security guards to Firestone; that Jamila assumed responsibility for
the acts of its security guards; that First Quezon City Insurance Co., Inc. executed a bond
in the sum of P20,000.00 to guarantee Jamila's obligations under that contract; that on
May 18, 1963 properties of Firestone valued at P11,925.00 were lost allegedly due to
the acts of its employees who connived with Jamila's security guard; that Fireman's
Fund, as insurer, paid to Firestone the amount of the loss; that Fireman's Fund was
subrogated to Firestone's right to get reimbursement from Jamila, and that Jamila and
its surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in
spite of repeated demands.chanrobles virtual law library
Upon defendants' motions, the lower court in its order of July 22, 1966 dismissed the
complaint as to Jamila on the ground that there was no allegation that it had consented
to the subrogation and, therefore, Fireman's Fund had no cause of action against
it.chanrobles virtual law library
In the same order the lower court dismissed the complaint as to First Quezon City
Insurance Co., Inc. on the ground of res judicata. It appears that the same action was
previously filed in Civil Case No. 56311 which was dismiss because of the failure of the
same plaintiffs and their counsel to appear at the pre trial.chanrobles virtual law library
Firestone and Fireman's Fund moved for the reconsideration of the order of dismissal.
The lower court on September 3, 1966 set aside its order of dismissal. It sustained
plaintiffs' contention that there was no res judicataas to First Quezon City Insurance Co.,
Inc. because Civil Case No. 56311 was dismissed without prejudice. Later, First Quezon
City Insurance Co., Inc. filed its answer to the complaint.chanrobles virtual law library
However, due to inadvertence, the lower court did not state in its order of September 3,
1966 why it set aside its prior order dismissing the complaint with respect to Jamila.
What is now to be recounted shows the lack of due care on the part of the lower court
and the opposing lawyers in their management of the case. Such lack of due care has
given the case a farcical ambiance and might partially explain the long delay in its
adjudication.chanrobles virtual law library
Jamila, upon noticing that the order of September 3, 1966 had obliterated its victory
without any reason therefor, filed a motion for reconsideration. It had originally moved
for the dismissal of the complaint on the ground of lack of cause of action. Its
contention was based on two grounds, to wit: (1) that the complaint did not allege that
Firestone, pursuant to the contractual stipulation quoted in the complaint, had
investigated the loss and that Jamila was represented in the investigation and (2) that
Jamila did not consent to the subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order of dismissal had
sustained the second ground.
Jamila in its motion for the reconsideration of the order of September 3, 1966 invoked
the first ground which had never been passed upon by the lower court. Firestone and
Fireman's Fund in their opposition joined battle, in a manner of speaking, on that first
ground.
But the lower court in its order of October 18, 1966, granting Jamila's motion for
reconsideration, completely ignored that first ground. It reverted to the second
ground which was relied upon in its order of September 3, 1966. The lower court
reiterated its order of July 22, 1966 that Fireman's Fund had no cause of action against
Jamila because Jamila did not consent to the subrogation. The court did not mention
Firestone, the co-plaintiff of Fireman's Fund.chanrobles virtual law library
At this juncture, it may be noted that motions for reconsideration become interminable
when the court's orders follow a seesaw pattern. That phenomenon took place in this
case.chanrobles virtual law library
Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's
order of October 18, 1966 on the ground that Fireman's Fund Insurance Company was
suing on the basis of legal subrogation whereas the lower court erroneously predicated
its dismissal order on the theory that there was no conventional subrogation because
the debtor's consent was lacking.chanrobles virtual law library
The plaintiffs cited article 2207 of the Civil Code which provides that "if the plaintiff's
property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract".
The lower court denied plaintiffs' motion. They filed a second motion for
reconsideration. In that motion they sensibly called the lower court's attention to the
fact that the issue of subrogation was of no moment because Firestone, the subrogor, is
a party-plaintiff and could sue directly Jamila in its own right. Without resolving that
contention, the lower court denied plaintiffs' second motion for
reconsideration.chanrobles virtual law library
In this appeal Firestone and Fireman's Fund contend that the trial court's dismissal of
their complaint is contrary to the aforementioned article 2207 which provides for legal
subrogation.
Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the
debtor's consent; that legal subrogation takes place in the cases mentioned in article
1302 of the Civil Code and the instant case is not among the three cases enumerated in
that article, and that there could be no subrogation in this case because according to the
plaintiffs the contract between. Jamila and Firestone was entered into on June
1, 1965 but the loss complained of occurred on May 18, 1963.
With respect to the factual point raised by Jamila, it should be stated that plaintiffs'
counsel gratuitously alleged in their brief that Firestone and Jamila entered into a
"contract of guard services" on June 1, 1965. That allegation, which was uncalled for
because it is not found in the complaint, created confusion which heretofore did not
exist. No copy of the contract was annexed to the complaint.chanrobles virtual law
library
That confusing statement was an obvious error since it was expressly alleged in the
complaint that the loss occurred on May 18, 1963. The fact that such an error was
committed is another instance substantiating our previous observation that plaintiffs'
counsel had not exercised due care in the presentation of his case.chanrobles virtual law
library
The issue is whether the complaint of Firestone and Fireman's Fund states a cause of
action against Jamila.chanrobles virtual law library
We hold that Firestone is really a nominal, party in this case. It had already been
indemnified for the loss which it had sustained. Obviously, it joined as a party-plaintiff in
order to help Fireman's Fund to recover the amount of the loss from Jamila and First
Quezon City Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its
cause of action against Jamila for breach of contract. Sufficient ultimate facts are alleged
in the complaint to sustain that cause of action.chanrobles virtual law library
On the other hand, Fireman's Fund's action against Jamila is squarely sanctioned by
article 2207. As the insurer, Fireman's Fund is entitled to go after the person or entity
that violated its contractual commitment to answer for the loss insured against (Cf.
Philippine Air Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal Surety & Insurance
Co. vs. Manila Railroad Company, L-24043, April 25, 1968, 23 SCRA 205).chanrobles
virtual law library
The trial court erred in applying to this case the rules on novation. The plaintiffs in
alleging in their complaint that Fireman's Fund "became a party in interest in this case
by virtue of a subrogation right given in its favor by" Firestone, were not relying on the
novation by change of creditors as contemplated in articles 1291 and 1300 to 1303 of
the Civil Code but rather on article 2207.chanrobles virtual law library
Article 2207 is a restatement of a settled principle of American jurisprudence.
Subrogation has been referred to as the doctrine of substitution. It "is an arm of equity
that may guide or even force one to pay a debt for which an obligation was incurred but
which was in whole or in part paid by another" (83 C.J.S. 576, 678, note 16, citing
Fireman's Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d
55).chanrobles virtual law library
"Subrogation is founded on principles of justice and equity, and its operation is
governed by principles of equity. It rests on the principle that substantial justice should
be attained regardless of form, that is, its basis is the doing of complete, essential, and
perfect justice between all the parties without regard to form"(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses, 287
U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the third
person whose. negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing
Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U. S. 294, 75 L.
ed. 1037).chanrobles virtual law library
The right of subrogation is of the highest equity. The loss in the first instance is that of
the insured but after reimbursement or compensation, it becomes the loss of the
insurer (44 Am. Jur. 2d 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St.
382).chanrobles virtual law library
"Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur.
2nd 746). Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to the insured makes the insurer an assignee in
equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456,142 SE 2d
18).chanrobles virtual law library

Whether the plaintiffs would be able to prove their cause of action against Jamila is
another question.chanrobles virtual law library

Finding the trial court's order of dismissal to be legally untenable, the same is set aside
with costs against defendant-appellee Jamila & Co., Inc.chanrobles virtual law library

SO ORDERED.

Barredo, Antonio, Concepcion, Jr. and Martin, JJ.,

concur.chanroblesvirtualawlibrarychanrobles virtual law library

Fernando, J., is on leave.chanroblesvirtualawlibrarychanrobles virtual law library

Martin, J., was designated to take part in this case.chanroblesvirtualawlibrarychanrobles

virtual law library
G.R. No. 81026 April 3, 1990
PAN MALAYAN INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.
Regulus E. Cabote & Associates for petitioner.
Benito P. Fabie for private respondents.
CORTES, J.:
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a
decision of the Court of Appeals which upheld an order of the trial court dismissing for
no cause of action PANMALAY's complaint for damages against private respondents
Erlinda Fabie and her driver.
The principal issue presented for resolution before this Court is whether or not the
insurer PANMALAY may institute an action to recover the amount it had paid its assured
in settlement of an insurance claim against private respondents as the parties allegedly
responsible for the damage caused to the insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the
following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and
registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG];
that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the
unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered
damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of
the insured car and, therefore, was subrogated to the rights of CANLUBANG against the
driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated
demands, defendants, failed and refused to pay the claim of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental
motion thereto. In compliance therewith, PANMALAY clarified, among others, that the
damage caused to the insured car was settled under the "own damage", coverage of the
insurance policy, and that the driver of the insured car was, at the time of the accident,
an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a
copy of the insurance policy and the Release of Claim and Subrogation Receipt executed
by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that
PANMALAY had no cause of action against them. They argued that payment under the
"own damage" clause of the insurance policy precluded subrogation under Article 2207
of the Civil Code, since indemnification thereunder was made on the assumption that
there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the
RTC issued an order dated June 16, 1986 dismissing PANMALAY's complaint for no cause
of action. On August 19, 1986, the RTC denied PANMALAY's motion for reconsideration.
On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on
November 27, 1987. Consequently, PANMALAY filed the present petition for review.
After private respondents filed its comment to the petition, and petitioner filed its reply,
the Court considered the issues joined and the case submitted for decision.
Deliberating on the various arguments adduced in the pleadings, the Court finds merit in
the petition.
PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it
had indemnified CANLUBANG for the damage to the insured car resulting from a traffic
accident allegedly caused by the negligence of the driver of private respondent, Erlinda
Fabie. PANMALAY contended, therefore, that its cause of action against private
respondents was anchored upon Article 2207 of the Civil Code, which reads:
If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If
the insured property is destroyed or damaged through the fault or negligence of a party
other than the assured, then the insurer, upon payment to the assured, will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured
operates as an equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance
claim by the insurer [Compania Maritima v. Insurance Company of North America, G.R.
No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v.
Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
There are a few recognized exceptions to this rule. For instance, if the assured by his
own act releases the wrongdoer or third party liable for the loss or damage, from
liability, the insurer's right of subrogation is defeated [Phoenix Ins. Co. of Brooklyn v.
Erie & Western Transport, Co., 117 US 312, 29 L. Ed. 873 (1886); Insurance Company of
North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d 705 (1956)]. Similarly,
where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assured's claim for loss, the settlement is
binding on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc.,
45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the former has no right of
subrogation against the third party liable for the loss [Sveriges Angfartygs Assurans
Forening v. Qua Chee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of the opinion that PANMALAY
was not legally subrogated under Article 2207 of the Civil Code to the rights of
CANLUBANG, and therefore did not have any cause of action against private
respondents. On the one hand, the trial court held that payment by PANMALAY of
CANLUBANG's claim under the "own damage" clause of the insurance policy was an
admission by the insurer that the damage was caused by the assured and/or its
representatives. On the other hand, the Court of Appeals in applying the ejusdem
generis rule held that Section III-1 of the policy, which was the basis for settlement of
CANLUBANG's claim, did not cover damage arising from collision or overturning due to
the negligence of third parties as one of the insurable risks. Both tribunals concluded
that PANMALAY could not now invoke Article 2207 and claim reimbursement from
private respondents as alleged wrongdoers or parties responsible for the damage.
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that the "own damage" coverage
under the policy implies damage to the insured car caused by the assured itself, instead
of third parties, proceeds from an incorrect comprehension of the phrase "own
damage" as used by the insurer. When PANMALAY utilized the phrase "own damage" —
a phrase which, incidentally, is not found in the insurance policy — to define the basis
for its settlement of CANLUBANG's claim under the policy, it simply meant that it had
assumed to reimburse the costs for repairing the damage to the insured
vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars,
p. 1; Record, p. 31]. It is in this sense that the so-called "own damage" coverage under
Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to
"Third Party Liability" coverage (liabilities arising from the death of, or bodily injuries
suffered by, third parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to the properties
of third parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks
under Section III-1 of the policy does not include to the insured vehicle arising from
collision or overturning due to the negligent acts of the third party. Not only does it
stem from an erroneous interpretation of the provisions of the section, but it also
violates a fundamental rule on the interpretation of property insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties
thereto have used. In the case of property insurance policies, the evident intention of
the contracting parties, i.e., the insurer and the assured, determine the import of the
various terms and provisions embodied in the policy. It is only when the terms of the
policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, that the courts will intervene. In such an
event, the policy will be construed by the courts liberally in favor of the assured and
strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co.,
Inc., G.R., No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v.
Court of Appeals, G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking
Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA
1. Also Articles 1370-1378 of the Civil Code].
Section III-1 of the insurance policy which refers to the conditions under which the
insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage to or
loss of the insured vehicle, reads as follows:
SECTION III — LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss
of or damage to the Scheduled 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;
(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or
theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to such
transit by road, rail, inland, waterway, lift or elevator.
xxx xxx xxx
[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars; Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks under the above section,
specifically Section III-1(a), is comprehensive enough to include damage to the insured
vehicle arising from collision or overturning due to the fault or negligence of a third
party. CANLUBANG is apparently of the same understanding. Based on a police report
wherein the driver of the insured car reported that after the vehicle was sideswiped by a
pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim
with PANMALAY for indemnification of the damage caused to its car. It then accepted
payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in
favor of latter.
Considering that the very parties to the policy were not shown to be in disagreement
regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a)
thereof, it was improper for the appellate court to indulge in contract construction, to
apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention
and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase
"by accidental collision or overturning" found in the first paint of sub-paragraph (a) is
untenable. Although the terms "accident" or "accidental" as used in insurance contracts
have not acquired a technical meaning, the Court has on several occasions defined these
terms to mean that which 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" [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No.
L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of
Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from
jurisprudence that these terms, without qualification, exclude events resulting in
damage or loss due to the fault, recklessness or negligence of third parties. The concept
"accident" is not necessarily synonymous with the concept of "no fault". It may be
utilized simply to distinguish intentional or malicious acts from negligent or careless acts
of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or
loss of, the insured vehicle due to negligent or careless acts of third parties is not listed
under the general and specific exceptions to the coverage of insured risks which are
enumerated in detail in the insurance policy itself [See Annex "A-1" of PANMALAY's
Compliance with Supplementary Motion for Bill of Particulars, supra.]
The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY
regarding the coverage of Section III-1(a) of the policy is undeniably more beneficial to
CANLUBANG than that insisted upon by respondents herein. By arguing that this section
covers losses or damages due not only to malicious, but also to negligent acts of third
parties, PANMALAY in effect advocates for a more comprehensive coverage of insured
risks. And this, in the final analysis, is more in keeping with the rationale behind the
various rules on the interpretation of insurance contracts favoring the assured or
beneficiary so as to effect the dominant purpose of indemnity or payment [SeeCalanoc
v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and
Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of
Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327].
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the
insurance policy does not cover damage to the insured vehicle caused by negligent acts
of third parties, and that PANMALAY's settlement of CANLUBANG's claim for damages
allegedly arising from a collision due to private respondents' negligence would amount
to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint against
private respondents for no cause of action would still be a grave error of law.
For even if under the above circumstances PANMALAY could not be deemed subrogated
to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still
have a cause of action against private respondents. In the pertinent case of Sveriges
Angfartygs Assurans Forening v. Qua Chee Gan, supra., the Court ruled that the insurer
who may have no rights of subrogation due to "voluntary" payment may nevertheless
recover from the third party responsible for the damage to the insured property under
Article 1236 of the Civil Code.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as
subrogee merely prays that it be allowed to institute an action to recover from third
parties who allegedly caused damage to the insured vehicle, the amount which it had
paid its assured under the insurance policy. Having thus shown from the above
discussion that PANMALAY has a cause of action against third parties whose negligence
may have caused damage to CANLUBANG's car, the Court holds that there is no legal
obstacle to the filing by PANMALAY of a complaint for damages against private
respondents as the third parties allegedly responsible for the damage. Respondent
Court of Appeals therefore committed reversible error in sustaining the lower court's
order which dismissed PANMALAY's complaint against private respondents for no cause
of action. Hence, it is now for the trial court to determine if in fact the damage caused
to the insured vehicle was due to the "carelessness, recklessness and imprudence" of
the driver of private respondent Erlinda Fabie.

WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's

complaint for damages against private respondents is hereby REINSTATED. Let the case
be remanded to the lower court for trial on the merits.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

G.R. No. 168402 August 6, 2008
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims
by the assured. As subrogee, the insurer steps into the shoes of the assured and may
exercise only those rights that the assured may have against the wrongdoer who caused
the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals
(CA) which reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered
petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and
attorney's fees in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA
UK Limited of London. The insurance was for a transshipment of certain wooden work
tools and workbenches purchased for the consignee Science Teaching Improvement
Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-
risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and
conditions printed hereon, does insure for MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any,
payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from
Hamburg, Germany on board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-
Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S
Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila
International Container Port where the container van was again off-loaded. On July 26,
1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz)
through its duly authorized booking representative, Aboitiz Transport System. The bill of
lading7 issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without
any notation on the condition of the cargo on the Stuffing/Stripping Report. 8 On August
1, 1993, the container van was loaded on board petitioner's vessel, MV Super Concarrier
I. The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving
apron of the Cebu International Port. It was then brought to the Cebu Bonded
Warehousing Corporation pending clearance from the Customs authorities. In the
Stripping Report9 dated August 5, 1993, petitioner's checker noted that the crates were
slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee,
Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High
School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13,
1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from
Willig informing him that the cargo sustained water damage. Perez, upon receiving the
call, immediately went to the bonded warehouse and checked the condition of the
container and other cargoes stuffed in the same container. He found that the container
van and other cargoes stuffed there were completely dry and showed no sign of
wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate
itself appeared to be completely dry and had no water marks. But he confirmed that the
tools which were stored inside the crate were already corroded. He further explained
that the "grounded outside warehouse" notation in the bill of lading referred only to the
container van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon
opening of the cargo.12 The letter stated that the crate was broken at its bottom part
such that the contents were exposed. The work tools and workbenches were found to
have been completely soaked in water with most of the packing cartons already
disintegrating. The crate was properly sealed off from the inside with tarpaper sheets.
On the outside, galvanized metal bands were nailed onto all the edges. The letter
concluded that apparently, the damage was caused by water entering through the
broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August
21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection
and survey of the damage. CAC reported to ICNA that the goods sustained water
damage, molds, and corrosion which were discovered upon delivery to consignee. 13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount
of P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on
official weather report from the Philippine Atmospheric, Geophysical and Astronomical
Services Administration, it would appear that heavy rains on July 28 and 29, 1993
caused water damage to the shipment. CAC noted that the shipment was placed outside
the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26,
1993. The shipment was placed outside the warehouse as can be gleaned from the bill
of lading issued by Aboitiz which contained the notation "grounded outside
warehouse." It was only on July 31, 1993 when the shipment was stuffed inside another
container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA
formally advised Aboitiz of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum
of P280,176.92, plus interest and attorney's fees.16 ICNA alleged that the damage
sustained by the shipment was exclusively and solely brought about by the fault and
negligence of Aboitiz when the shipment was left grounded outside its warehouse prior
to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal
bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no
personality to institute the suit, the cause of action was barred, and the suit was
premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive
portion of the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the
relief claimed in the complaint for being baseless and without merit. The complaint is
hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED for lack of
basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the
claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued
by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA.
However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is
its predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils.
Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee
must fail because the subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of
North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street,
London EC3M 7NA, no evidence has been adduced which would show that ICNA UK is
the same as or the predecessor-in-interest of plaintiff Insurance Company of North
America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts.,
Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to
ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International
Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B.
Francisco, claims that the signature below the name MSAS Cargo International is an
endorsement of the marine policy in favor of Science Teaching Improvement
Project. Plaintiff's witness, however, failed to identify whose signature it was and
plaintiff did not present on the witness stand or took (sic) the deposition of the person
who made that signature. Hence, the claim that there was an endorsement of the
marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science
Teaching Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly
signed by a representative of Science Teaching Improvement Project. Such
representative, however, was not presented on the witness stand. Hence, the
Subrogation Form is self-serving and has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign
corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity
to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign reimbursement from the defendant carrier by virtue of subrogation under the contract
insurance company duly authorized to do business in the Philippines. This allegation of insurance and as recognized by Philippine courts. x x x
was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996,
one of the issues defined by the court is whether or not the plaintiff has legal capacity to xxxx
sue and be sued. Under Philippine law, the condition is that a foreign insurance company
Plaintiff insurer, whether the foreign company or its duly authorized
must obtain licenses/authority to do business in the Philippines. These licenses/authority
Agent/Representative in the country, as subrogee of the claim of the insured under the
are obtained from the Securities and Exchange Commission, the Board of Investments
subject marine policy, is therefore the real party in interest to bring this suit and recover
and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign
the full amount of loss of the subject cargo shipped by it from Manila to the consignee
corporation doing business in the Philippines cannot sue before Philippine courts.
in Cebu City. x x x22
Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)
The CA ruled that the presumption that the carrier was at fault or that it acted
CA Disposition
negligently was not overcome by any countervailing evidence. Hence, the trial court
ICNA appealed to the CA. It contended that the trial court failed to consider that its erred in dismissing the complaint and in not finding that based on the evidence on
cause of action is anchored on the right of subrogation under Article 2207 of the Civil record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained
Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the by the subject cargo.
dorsal portion of the Open Policy.20
Issues
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that
The following issues are up for Our consideration:
the formal claim was not filed within the period required under Article 366 of the Code
of Commerce; that ICNA had no right of subrogation because the subrogation receipt (1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
should have been signed by MSAS, the assured in the open policy, and not Willig, who is THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF
merely the representative of the consignee. SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY
ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The CLAIM WAS MADE BY A WRONG CLAIMANT.
appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering
THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA
defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance
AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH
Company of North America the sum of P280,176.92 with interest thereon at the legal
AMERICA (U.K.) ("ICNA UK").
rate from the date of the institution of this case until fully paid, and attorney's fees in
the sum of P50,000, plus the costs of suit.21 (3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE
The CA opined that the right of subrogation accrues simply upon payment by the
ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE
insurance company of the insurance claim. As subrogee, ICNA is entitled to
CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF
reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation.
ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS
The CA ruled:
MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT
At any rate, We find the ground invoked for the dismissal of the complaint as legally A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.
untenable. Even assuming arguendo that the plaintiff-insurer in this case is an
unlicensed foreign corporation, such circumstance will not bar it from claiming
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING
THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS
CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent
ICNA the real party-in-interest that possesses the right of subrogation to claim
reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of
claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be
held liable on the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a license be necessary before it can
institute suits.24 It may, however, bring suits on isolated business transactions, which is
not prohibited under Philippine law.25 Thus, this Court has held that a foreign insurance
company may sue in Philippine courts upon the marine insurance policies issued by it
abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it
has no license to do business in this country. It is the act of engaging in business without
the prescribed license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which
issued the subject marine policy, the present suit was filed by the said company's
authorized agent in Manila. It was the domestic corporation that brought the suit and
not the foreign company. Its authority is expressly provided for in the open policy which
includes the ICNA office in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement
of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical
High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to
be brought against ICNA UK, the company who issued the insurance, or against any of
its listed agents worldwide.27 MSAS accepted said provision when it signed and accepted
the policy. The acceptance operated as an acceptance of the authority of the agents.
Hence, a formal indorsement of the policy to the agent in the Philippines was
unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and
conditions printed hereon, does insure MSAS Cargo International Limited &/or
Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any, payable
to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who
may file claims on behalf of the assured. This is in keeping with Section 57 of the
Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the
continuance of the risk, may become the owner of the interest insured. (Emphasis
added)
Respondent's cause of action is founded on it being subrogated to the rights of the
consignee of the damaged shipment. The right of subrogation springs from Article 2207
of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,28 payment by the insurer to the assured operates as an equitable assignment
of all remedies the assured may have against the third party who caused the damage.
Subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance
claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's
entitlement to subrogation equipped it with a cause of action against petitioner in case
of a contractual breach or negligence.30 This right of subrogation, however, has its
limitations. First, both the insurer and the consignee are bound by the contractual
stipulations under the bill of lading.31 Second, the insurer can be subrogated only to the
rights as the insured may have against the wrongdoer. If by its own acts after receiving
payment from the insurer, the insured releases the wrongdoer who caused the loss
from liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or
injury or the right to enforce the carrier's liability. Circumstances peculiar to this case
lead Us to conclude that the notice requirement was complied with. As held in the
case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice
requirement protects the carrier by affording it an opportunity to make an investigation
of the claim while the matter is still fresh and easily investigated. It is meant to
safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24)
hours from receipt of the cargo if the damage is not apparent from the outside of the
package. For damages that are visible from the outside of the package, the claim must
be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the
claim against the carrier for damages or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or
average which give rise to the claim cannot be ascertained from the outside part of such
packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition in which
the goods transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms
of the bill of lading, which is the contract between the parties. Notably, neither of the
parties in this case presented the terms for giving notices of claim under the bill of
lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the
carrier of the damage was dated August 15, 1993, that letter, together with the notice
of claim, was received by petitioner only on September 21, 1993. But petitioner admits
that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head
of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez
then immediately went to the warehouse and to the delivery site to inspect the goods in
behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35 the notice was allegedly made by the consignee through telephone. The
claim for damages was denied. This Court ruled that such a notice did not comply with
the notice requirement under the law. There was no evidence presented that the notice
was timely given. Neither was there evidence presented that the notice was relayed to
the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that
constrain Us to rule differently from the PCIC case, albeit this ruling is being made pro
hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the
right of recovery from a carrier must be given a reasonable and practical construction,
adapted to the circumstances of the case under adjudication, and their application is
limited to cases falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed
the information that the delivered goods were discovered to have sustained water
damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately,
Perez was able to investigate the claims himself and he confirmed that the goods were,
indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily
to be given a reasonable and practical, rather than a strict construction. 37 We give due
consideration to the fact that the final destination of the damaged cargo was a school
institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be
made before the package was opened. Upon opening and discovery of the damaged
condition of the goods, a report to this effect had to pass through the proper channels
before it could be finalized and endorsed by the institution to the claims department of
the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering
that the goods could not have corroded instantly overnight such that it could only have
sustained the damage during transit. Moreover, petitioner was able to immediately
inspect the damage while the matter was still fresh. In so doing, the main objective of
the prescribed time period was fulfilled. Thus, there was substantial compliance with
the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the
real party in interest to institute the claim for damages against petitioner; and pro hac
vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The
rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost,
destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence
required by law.38 Extraordinary diligence is that extreme measure of care and caution
which persons of unusual prudence and circumspection use for securing and preserving
their own property rights.39 This standard is intended to grant favor to the shipper who
is at the mercy of the common carrier once the goods have been entrusted to the latter
for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with
the findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a
representative from Trabajo Arrastre, and the crates opened, it was discovered that the
workbenches and work tools suffered damage due to "wettage" although by then they
were already physically dry. Appellee carrier having failed to discharge the burden of
proving that it exercised extraordinary diligence in the vigilance over such goods it
contracted for carriage, the presumption of fault or negligence on its part from the time
the goods were unconditionally placed in its possession (July 26, 1993) up to the time the
same were delivered to the consignee (August 11, 1993), therefore stands. The
presumption that the carrier was at fault or that it acted negligently was not overcome
by any countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage
on July 26, 1993. On the same day, it was stripped from the container van. Five days
later, on July 31, 1993, it was re-stuffed inside another container van. On August 1,
1993, it was loaded onto another vessel bound for Cebu. During the period between July
26 to 31, 1993, the shipment was outside a container van and kept in storage by
petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded
outside warehouse," suggesting that from July 26 to 31, the goods were kept outside
the warehouse. And since evidence showed that rain fell over Manila during the same
period, We can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely
show the possibility that some other party could be responsible for the damage. It must
prove that it used "all reasonable means to ascertain the nature and characteristic of
the goods tendered for transport and that it exercised due care in handling
them.42 Extraordinary diligence must include safeguarding the shipment from damage
coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the
crate for shipment but only to the carrier van, petitioner failed to mention where
exactly the goods were stored during the period in question. It failed to show that the
crate was properly stored indoors during the time when it exercised custody before
shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed
that it was rainwater that seeped into the cargo based on official data from the PAGASA
that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The
Surveyor specifically noted that the subject cargo was under the custody of appellee
carrier from the time it was delivered by the shipper on July 26, 1993 until it was stuffed
inside Container No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion
can be deduced from the foregoing established facts that damage from "wettage"
suffered by the subject cargo was caused by the negligence of appellee carrier in
grounding the shipment outside causing rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage"
to the subject goods by claiming that the notation "GROUNDED OUTSIDE WHSE."
actually refers to the container and not the contents thereof or the cargoes. And yet it
presented no evidence to explain where did they place or store the subject goods from
the time it accepted the same for shipment on July 26, 1993 up to the time the goods
were stripped or transferred from the container van to another container and loaded
into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on
August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to
Cebu City, appellee provided no explanation as to where said cargo was stored from July
26, 1993 to July 31, 1993. What the records showed is that the subject cargo was
stripped from the container van of the shipper and transferred to the container on
August 1, 1993 and finally loaded into the appellee's vessel bound for Cebu City on
August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not
indicate any such defect or damage, but when the container was stripped upon arrival in
Cebu City port after being discharged from appellee's vessel, it was noted that only one
(1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit
"F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to
satisfactorily prove that it exercised the extraordinary diligence required of common
carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
G.R. No. 194320 February 1, 2012
MALAYAN INSURANCE CO., INC., Petitioner,
vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.
DECISION
VELASCO, JR., J.:
The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set
aside the July 28, 2010 Decision1 of the Court of Appeals (CA) and its October 29, 2010
Resolution2 denying the motion for reconsideration filed by petitioner Malayan
Insurance Co., Inc. (Malayan Insurance). The July 28, 2010 CA Decision reversed and set
aside the Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in
Manila.
The Facts
At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the
corner of EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a
Nissan Bus operated by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker
with plate number PLR 684; (3) a Fuzo Cargo Truck with plate number PDL 297; and (4) a
Mitsubishi Galant with plate number TLM 732.4
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer
1 Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker was in front of the Mitsubishi
Galant with the Nissan Bus on their right side shortly before the vehicular incident. All
three (3) vehicles were at a halt along EDSA facing the south direction when the Fuzo
Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the
rear left portion of the Nissan Bus. Due to the strong impact, these two vehicles were
shoved forward and the front left portion of the Mitsubishi Galant rammed into the rear
right portion of the Isuzu Tanker.5
Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance
Policy No. PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the
assured), insuring the aforementioned Mitsubishi Galant against third party liability,
own damage and theft, among others. Having insured the vehicle against such risks,
Malayan Insurance claimed in its Complaint dated October 18, 1999 that it paid the
damages sustained by the assured amounting to PhP 700,000.6
Maintaining that it has been subrogated to the rights and interests of the assured by
operation of law upon its payment to the latter, Malayan Insurance sent several
demand letters to respondents Rodelio Alberto (Alberto) and Enrico Alberto Reyes
(Reyes), the registered owner and the driver, respectively, of the Fuzo Cargo Truck,
requiring them to pay the amount it had paid to the assured. When respondents refused
to settle their liability, Malayan Insurance was constrained to file a complaint for
damages for gross negligence against respondents.7
In their Answer, respondents asserted that they cannot be held liable for the vehicular
accident, since its proximate cause was the reckless driving of the Nissan Bus driver.
They alleged that the speeding bus, coming from the service road of EDSA, maneuvered
its way towards the middle lane without due regard to Reyes’ right of way. When the
Nissan Bus abruptly stopped, Reyes stepped hard on the brakes but the braking action
could not cope with the inertia and failed to gain sufficient traction. As a consequence,
the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the
rear end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the
Fuzo Cargo Truck, causing damage to the latter in the amount of PhP 20,000.
Respondents also controverted the results of the Police Report, asserting that it was
based solely on the biased narration of the Nissan Bus driver. 8
After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance
presented the testimony of its lone witness, a motor car claim adjuster, who attested
that he processed the insurance claim of the assured and verified the documents
submitted to him. Respondents, on the other hand, failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in
favor of Malayan Insurance and declared respondents liable for damages. The
dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants
jointly and severally to pay plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of the filing of the
complaint;
2. Attorney’s fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.9
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No.
93112. In its Decision dated July 28, 2010, the CA reversed and set aside the Decision of
the trial court and ruled in favor of respondents, disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the
assailed Decision dated 2 February 2009 REVERSED and SET ASIDE. The Complaint dated
18 October 1999 is hereby DISMISSED for lack of merit. No costs.
SO ORDERED.10
The CA held that the evidence on record has failed to establish not only negligence on
the part of respondents, but also compliance with the other requisites and the
consequent right of Malayan Insurance to subrogation.11 It noted that the police report,
which has been made part of the records of the trial court, was not properly identified
by the police officer who conducted the on-the-spot investigation of the subject
collision. It, thus, held that an appellate court, as a reviewing body, cannot rightly
appreciate firsthand the genuineness of an unverified and unidentified document, much
less accord it evidentiary value.12
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a
police report is a prima facie evidence of the facts stated in it. And inasmuch as they
never questioned the presentation of the report in evidence, respondents are deemed
to have waived their right to question its authenticity and due execution. 13
In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration.
Hence, Malayan Insurance filed the instant petition.
The Issues
14
In its Memorandum dated June 27, 2011, Malayan Insurance raises the following
issues for Our consideration:
I the investigating police officer, it cannot be considered as part of the evidence on
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT SINCE THE
POLICE INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN
COURT THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR
DEFICIENT.
On the other hand, respondents submit the following issues in its Memorandum 15 dated
July 7, 2011:
I
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF
MALAYAN INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO ESTABLISH
THE NEGLIGENCE OF RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE
SUFFICIENT TO CLAIM FOR THE AMOUNT OF DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE
AND REQUISITES AS PROVIDED UNDER PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the police
report; (2) the sufficiency of the evidence to support a claim for gross negligence; and
(3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police
investigator who prepared the police report, said report is still admissible in evidence,
especially since respondents failed to make a timely objection to its presentation in
evidence.16 Respondents counter that since the police report was never confirmed by
record.17
Indeed, under the rules of evidence, a witness can testify only to those facts which the
witness knows of his or her personal knowledge, that is, which are derived from the
witness’ own perception.18 Concomitantly, a witness may not testify on matters which
he or she merely learned from others either because said witness was told or read or
heard those matters.19 Such testimony is considered hearsay and may not be received as
proof of the truth of what the witness has learned. This is known as the hearsay rule. 20
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or
statements; the general rule that excludes hearsay as evidence applies to written, as
well as oral statements."
There are several exceptions to the hearsay rule under the Rules of Court, among which
are entries in official records.22 Section 44, Rule 130 provides:
Entries in official records made in the performance of his duty by a public officer of the
Philippines, or by a person in the performance of a duty specially enjoined by law are
prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the admissibility
in evidence, as an exception to the hearsay rule of entries in official records, thus: (a)
that the entry was made by a public officer or by another person specially enjoined by
law to do so; (b) that it was made by the public officer in the performance of his or her
duties, or by such other person in the performance of a duty specially enjoined by law;
and (c) that the public officer or other person had sufficient knowledge of the facts by
him or her stated, which must have been acquired by the public officer or other person
personally or through official information.
Notably, the presentation of the police report itself is admissible as an exception to the
hearsay rule even if the police investigator who prepared it was not presented in court,
as long as the above requisites could be adequately proved. 24
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the
report, and he did so in the performance of his duty. However, what is not clear is
whether SPO1 Dungga had sufficient personal knowledge of the facts contained in his
report. Thus, the third requisite is lacking.
Respondents failed to make a timely objection to the police report’s presentation in
evidence; thus, they are deemed to have waived their right to do so. 25 As a result, the
police report is still admissible in evidence.
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck,
bumped the rear of the Mitsubishi Galant, he is presumed to be negligent unless proved
otherwise. It further contends that respondents failed to present any evidence to
overturn the presumption of negligence.26 Contrarily, respondents claim that since
Malayan Insurance did not present any witness who shall affirm any negligent act of
Reyes in driving the Fuzo Cargo truck before and after the incident, there is no evidence
which would show negligence on the part of respondents. 27
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police
report in evidence, still, respondents cannot evade liability by virtue of the res ipsa
loquitur doctrine. The D.M. Consunji, Inc. case is quite elucidating:
Petitioner’s contention, however, loses relevance in the face of the application of res
ipsa loquitur by the CA. The effect of the doctrine is to warrant a presumption or
inference that the mere fall of the elevator was a result of the person having charge of
the instrumentality was negligent. As a rule of evidence, the doctrine of res ipsa loquitur
is peculiar to the law of negligence which recognizes that prima facie negligence may be
established without direct proof and furnishes a substitute for specific proof of
negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening
of an accident or injury will not generally give rise to an inference or presumption that it
was due to negligence on defendant’s part, under the doctrine of res ipsa loquitur,
which means, literally, the thing or transaction speaks for itself, or in one jurisdiction,
that the thing or instrumentality speaks for itself, the facts or circumstances
accompanying an injury may be such as to raise a presumption, or at least permit an
inference of negligence on the part of the defendant, or some other person who is
charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the injury
complained of was under the control or management of the defendant, and that the
occurrence resulting in the injury was such as in the ordinary course of things would not
happen if those who had its control or management used proper care, there is sufficient
evidence, or, as sometimes stated, reasonable evidence, in the absence of explanation
by the defendant, that the injury arose from or was caused by the defendant’s want of
care.
One of the theoretical bases for the doctrine is its necessity, i.e., that necessary
evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in
charge of the instrumentality which causes the injury either knows the cause of the
accident or has the best opportunity of ascertaining it and that the plaintiff has no such
knowledge, and therefore is compelled to allege negligence in general terms and to rely
upon the proof of the happening of the accident in order to establish negligence. The
inference which the doctrine permits is grounded upon the fact that the chief evidence
of the true cause, whether culpable or innocent, is practically accessible to the
defendant but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a
plaintiff, without knowledge of the cause, reaches over to defendant who knows or
should know the cause, for any explanation of care exercised by the defendant in
respect of the matter of which the plaintiff complains. The res ipsa loquitur doctrine,
another court has said, is a rule of necessity, in that it proceeds on the theory that under
the peculiar circumstances in which the doctrine is applicable, it is within the power of
the defendant to show that there was no negligence on his part, and direct proof of
defendant’s negligence is beyond plaintiff’s power. Accordingly, some courts add to the
three prerequisites for the application of the res ipsa loquitur doctrine the further
requirement that for the res ipsa loquitur doctrine to apply, it must appear that the
injured party had no knowledge or means of knowledge as to the cause of the accident,
or that the party to be charged with negligence has superior knowledge or opportunity
for explanation of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the case at bar:
There is no dispute that appellee’s husband fell down from the 14th floor of a building
to the basement while he was working with appellant’s construction project, resulting
to his death. The construction site is within the exclusive control and management of
appellant. It has a safety engineer, a project superintendent, a carpenter leadman and
others who are in complete control of the situation therein. The circumstances of any
accident that would occur therein are peculiarly within the knowledge of the appellant
or its employees. On the other hand, the appellee is not in a position to know what
caused the accident. Res ipsa loquitur is a rule of necessity and it applies where
evidence is absent or not readily available, provided the following requisites are
present: (1) the accident was of a kind which does not ordinarily occur unless someone
is negligent; (2) the instrumentality or agency which caused the injury was under the
exclusive control of the person charged with negligence; and (3) the injury suffered
must not have been due to any voluntary action or contribution on the part of the
person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement while
performing work in a construction site unless someone is negligent[;] thus, the first
requisite for the application of the rule of res ipsa loquitur is present. As explained
earlier, the construction site with all its paraphernalia and human resources that likely
caused the injury is under the exclusive control and management of appellant[;] thus[,]
the second requisite is also present. No contributory negligence was attributed to the
appellee’s deceased husband[;] thus[,] the last requisite is also present. All the
requisites for the application of the rule of res ipsa loquitur are present, thus a
reasonable presumption or inference of appellant’s negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application of res ipsa
loquitur, but argues that the presumption or inference that it was negligent did not arise
since it "proved that it exercised due care to avoid the accident which befell
respondent’s husband."
Petitioner apparently misapprehends the procedural effect of the doctrine. As stated
earlier, the defendant’s negligence is presumed or inferred when the plaintiff
establishes the requisites for the application of res ipsa loquitur. Once the plaintiff
makes out a prima facie case of all the elements, the burden then shifts to defendant to
explain. The presumption or inference may be rebutted or overcome by other evidence
and, under appropriate circumstances a disputable presumption, such as that of due
care or innocence, may outweigh the inference. It is not for the defendant to explain or
prove its defense to prevent the presumption or inference from arising. Evidence by the
defendant of say, due care, comes into play only after the circumstances for the
application of the doctrine has been established.28
In the case at bar, aside from the statement in the police report, none of the parties
disputes the fact that the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant,
which, in turn, hit the rear end of the vehicle in front of it. Respondents, however, point
to the reckless driving of the Nissan Bus driver as the proximate cause of the collision,
which allegation is totally unsupported by any evidence on record. And assuming that
this allegation is, indeed, true, it is astonishing that respondents never even bothered to
file a cross-claim against the owner or driver of the Nissan Bus.
What is at once evident from the instant case, however, is the presence of all the
requisites for the application of the rule of res ipsa loquitur. To reiterate, res ipsa
loquitur is a rule of necessity which applies where evidence is absent or not readily
available. As explained in D.M. Consunji, Inc., it is partly based upon the theory that the
defendant in charge of the instrumentality which causes the injury either knows the
cause of the accident or has the best opportunity of ascertaining it and that the plaintiff
has no such knowledge, and, therefore, is compelled to allege negligence in general
terms and to rely upon the proof of the happening of the accident in order to establish
negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur rule are
the following: (1) the accident was of a kind which does not ordinarily occur unless
someone is negligent; (2) the instrumentality or agency which caused the injury was
under the exclusive control of the person charged with negligence; and (3) the injury
suffered must not have been due to any voluntary action or contribution on the part of
the person injured.29
In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the
Mitsubishi Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under
the exclusive control of its driver, Reyes. Even if respondents avert liability by putting
the blame on the Nissan Bus driver, still, this allegation was self-serving and totally
unfounded. Finally, no contributory negligence was attributed to the driver of the
Mitsubishi Galant. Consequently, all the requisites for the application of the doctrine of
res ipsa loquitur are present, thereby creating a reasonable presumption of negligence
on the part of respondents.
It is worth mentioning that just like any other disputable presumptions or inferences,
the presumption of negligence may be rebutted or overcome by other evidence to the
contrary. It is unfortunate, however, that respondents failed to present any evidence
before the trial court. Thus, the presumption of negligence remains. Consequently, the
CA erred in dismissing the complaint for Malayan Insurance’s adverted failure to prove
negligence on the part of respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant case, as
evidenced by the claim check voucher30 and the Release of Claim and Subrogation
Receipt31 presented by it before the trial court. Respondents, however, claim that the
documents presented by Malayan Insurance do not indicate certain important details
that would show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to
object to the presentation of its evidence. Thus, and as We have mentioned earlier,
respondents are deemed to have waived their right to make an objection. As this Court
held in Asian Construction and Development Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it admissible, and the
court cannot, on its own, disregard such evidence. We note that ASIAKONSTRUCT’s
counsel of record before the trial court, Atty. Bernard Dy, who actively participated in
the initial stages of the case stopped attending the hearings when COMFAC was about
to end its presentation. Thus, ASIAKONSTRUCT could not object to COMFAC’s offer of
evidence nor present evidence in its defense; ASIAKONSTRUCT was deemed by the trial
court to have waived its chance to do so.
Note also that when a party desires the court to reject the evidence offered, it must so
state in the form of a timely objection and it cannot raise the objection to the
evidence for the first time on appeal. Because of a party’s failure to timely object, the
evidence becomes part of the evidence in the case. Thereafter, all the parties are
considered bound by any outcome arising from the offer of evidence properly
presented.32(Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation
Receipt presented by Malayan Insurance are already part of the evidence on record, and
since it is not disputed that the insurance company, indeed, paid PhP 700,000 to the
assured, then there is a valid subrogation in the case at bar. As explained in Keppel Cebu
Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. The principle covers a
situation wherein an insurer has paid a loss under an insurance policy is entitled to all
the rights and remedies belonging to the insured against a third party with respect to
any loss covered by the policy. It contemplates full substitution such that it places the
party subrogated in the shoes of the creditor, and he may use all means that the
creditor could employ to enforce payment.1âwphi1
We have held that payment by the insurer to the insured operates as an equitable
assignment to the insurer of all the remedies that the insured may have against the
third party whose negligence or wrongful act caused the loss. The right of subrogation is
not dependent upon, nor does it grow out of, any privity of contract. It accrues simply
upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to accomplish justice;
and is the mode that equity adopts to compel the ultimate payment of a debt by one
who, in justice, equity, and good conscience, ought to pay. 33
Considering the above ruling, it is only but proper that Malayan Insurance be
subrogated to the rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and
October 29, 2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET
ASIDE. The Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-
95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
G.R. No. L-2294 May 25, 1951
FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de
Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained
in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or
during the Japanese military occupation, the building and insured merchandise were
burned. In due time the respondent submitted to the petitioner its claim under the
policy. The salvage goods were sold at public auction and, after deducting their value,
the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to
pay the claim on the ground that the policy in favor of the respondent had ceased to be
in force on the date the United States declared war against Germany, the respondent
Corporation (though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company under American
jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing, Philippine Executive
Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April
19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila
for the purpose of recovering from the respondent the sum of P92,650 above
mentioned. The theory of the petitioner is that the insured merchandise were burned
up after the policy issued in 1941 in favor of the respondent corporation has ceased to
be effective because of the outbreak of the war between the United States and
Germany on December 10, 1941, and that the payment made by the petitioner to the
respondent corporation during the Japanese military occupation was under pressure.
After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the
Court of First Instance of Manila was affirmed, with costs. The case is now before us on
appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent
corporation became an enemy when the United States declared war against Germany,
relying on English and American cases which held that a corporation is a citizen of the
country or state by and under the laws of which it was created or organized. It rejected
the theory that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation
were German subjects. This being so, we have to rule that said respondent became an
enemy corporation upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court of Appeals have lost
their force in view of the latest decision of the Supreme Court of the United States in
Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed.
Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In
"Enemy Corporation" by Martin Domke, a paper presented to the Second International
Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the
following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been
discussion in many countries, belligerent and neutral. A corporation was subject to
enemy legislation when it was controlled by enemies, namely managed under the
influence of individuals or corporations, themselves considered as enemies. It was the
English courts which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed
Arbitral established after the First World War.
The United States of America did not adopt the control test during the First World War.
Courts refused to recognized the concept whereby American-registered corporations
could be considered as enemies and thus subject to domestic legislation and
administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other enemy
interests were cloaked by domestic corporation structure. It was not only by legal
ownership of shares that a material influence could be exercised on the management of
the corporation but also by long term loans and other factual situations. For that reason,
legislation on enemy property enacted in various countries during World War II adopted
by statutory provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during
the last war, include as did other legislations the applications of the control test and
again, as in World War I, courts refused to apply this concept whereby the enemy
character of an American or neutral-registered corporation is determined by the enemy
nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United States
allowed to large degree the determination of enemy interest in domestic corporations
and thus the application of the control test. Court decisions sanctioned such
administrative practice enacted under the First War Powers Act of 1941, and more
recently, on December 8, 1947, the Supreme Court of the United States definitely
approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing
with a Swiss corporation allegedly controlled by German interest, the Court: "The
property of all foreign interest was placed within the reach of the vesting power (of the
Alien Property Custodian) not to appropriate friendly or neutral assets but to reach
enemy interest which masqueraded under those innocent fronts. . . . The power of
seizure and vesting was extended to all property of any foreign country or national so
that no innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support
of the appealed decision. However, we may add that, in Haw Pia vs. China Banking
Corporation,* 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation
came within the meaning of the word "enemy" as used in the Trading with the Enemy
Acts of civilized countries not only because it was incorporated under the laws of an
enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. — All intercourse between citizens of belligerent powers which
is inconsistent with a state of war is prohibited by the law of nations. Such prohibition
includes all negotiations, commerce, or trading with the enemy; all acts which will
increase, or tend to increase, its income or resources; all acts of voluntary submission to
it; or receiving its protection; also all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits
insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in
service with the enemy; this for the reason that the subjects of one country cannot be
permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest.
The purpose of war is to cripple the power and exhaust the resources of the enemy, and
it is inconsistent that one country should destroy its enemy's property and repay in
insurance the value of what has been so destroyed, or that it should in such manner
increase the resources of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy, which prior thereto
may have been lawful. All individuals therefore, who compose the belligerent powers,
exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch,
Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some
other specified term it is plain that when the parties become alien enemies, the
contractual tie is broken and the contractual rights of the parties, so far as not vested.
lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine
corporation) had ceased to be valid and enforcible, and since the insured goods were
burned after December 10, 1941, and during the war, the respondent was not entitled
to any indemnity under said policy from the petitioner. However, elementary rules of
justice (in the absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December 11,
1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the
question of whether the policy in question became null and void upon the declaration of
war between the United States and Germany on December 10, 1941, and its judgment
in favor of the respondent corporation was predicated on its conclusion that the policy
did not cease to be in force. The Court of Appeals necessarily assumed that, even if the
payment by the petitioner to the respondent was involuntary, its action is not tenable in
view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals
held that "any intimidation resorted to by the appellee was not unjust but the exercise
of its lawful right to claim for and received the payment of the insurance policy," and
that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to
payment from the appellant was, well founded." Factually, there can be no doubt that
the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of
the respondent, merely obeyed the instruction of the Japanese Military Administration,
as may be seen from the following: "In view of the findings and conclusion of this office
contained in its decision on Administrative Case dated February 9, 1943 copy of which
was sent to your office and the concurrence therein of the Financial Department of the
Japanese Military Administration, and following the instruction of said authority, you are
hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The
payment of said claim, however, should be made by means of crossed check." (Emphasis
supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under
the circumstances on this case. However, the petitioner will be entitled to recover only
the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in
accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the
amount of the premium, in Philippine currency, that should be returned by the
petitioner for the unexpired term of the policy in question, beginning December 11,
1941. Without costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur.
G.R. No. 120959 November 14, 1996
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
YIP WAI MING, accused-appellant.
MELO, J.:
Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals,
came to Manila on vacation on July 10, 1993. The two were engaged to be married.
Hardly a day had passed when Lam Po Chun was brutally beaten up and strangled to
death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming, was
touring Metro Manila with Filipino welcomers while Lam Po Chun was left in the hotel
room allegedly because she had a headache and was not feeling well enough to do the
sights.
For the slaying, an Information was lodged against Yip Wai Ming on July 19, 1991, which
averred :
That on or about July 11, 1993, in the City of Manila, Philippines, the said accused did
then and there wilfully, unlawfully and feloniously with intent to kill with treachery and
evident premeditation, did then and there attack, assault and use personal violence
upon one Lam Po Chun by then and there mauling and strangling the latter, thereby
inflicting upon her mortal and fatal wounds which were the direct and immediate cause
of her death thereafter.
On May 15, 1995, Branch 44 of the Regional Trial Court of the National Capital Judicial
Region stationed in Manila and presided over by the Honorable Lolita O. Gal-lang
rendered a decision in essence finding that Yip Wai Ming killed his fiancee before he left
for the Metro Manila tour. Disposed thus the trial court:
WHEREFORE, in view of the forgoing established evidence, judgment is hereby rendered
convicting the accused Yip Wai Ming beyond reasonable doubt of the crime of Murder
as charged in the information and as defined in Article 248, paragraph 5 of the Revised
Penal Code, and in accordance therewith the aggravating circumstance of evident
premeditation which attended the commission of the offense, the said accused Yip Wai
Ming is hereby sentenced to suffer the penalty of Reclusion Perpetua with all the
accessory penalties provided for by law.
Accused is likewise ordered to pay the heirs of the deceased Lam Po Chun of Hongkong
the death indemnity for damages at Fifty Thousand (P50,000.00) Pesos; Moral and
compensatory damages of Fifty Thousand (P50,000.00) Pesos each or a total of One
Hundred Thousand Pesos (P100,000.00); plus costs of suit.
The accused being detained, he is credited with the full extent of the period under
which he was under detention, in accordance with the rules governing convicted
prisoners.
SO ORDERED.
(p. 69, Rollo.)
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the
killing is circumstantial. The key issue in the instant appeal is, therefore, whether or not
the circumstantial evidence linking accused-appellant to the killing is sufficient to
sustain a judgment of conviction beyond reasonable doubt.
The evidence upon which the prosecution convinced the trial court of accused-
appellant's guilt beyond reasonable doubt is summarized in the Solicitor-General's brief
as follows :
On or about 7 o'clock in the evening of July 10, 1993, appellant and his fiancee Lam Po
Chun who are both Hongkong nationals, checked in at Park Hotel located at No. 1032-34
Belen St., Paco, Manila. They were billeted at Room 210. Angel Gonzaga, the roomboy
on duty, assisted the couple in going up to their room located at the second floor of the
hotel (p. 14, tsn, October 13, 1993, p. 66, tsn, September 1, 1993). When they reached
Room 210, appellant got the key from Angel Gonzaga and informed the latter that they
do not need any room service, particularly the bringing of foods and other orders to
their room (pp. 67-69, tsn, September 1, 1993).
After staying for about an hour inside Room 210, the couple went down to the lobby of
the hotel. Appellant asked the front desk receptionist on duty to call a certain Gwen
delos Santos and to instruct her to pick them up the following day, July 11, 1993, a
Sunday at 10 o' clock in the morning (pp. 21-25, tsn, September 8, 1993).
At about past 8 o'clock in the same evening of July 10, 1993, Cariza Destresa, occupant
of Room 211 which is adjacent to Room 210, heard a noise which sounds like a heated
argument between a man and a woman coming from the room occupied by appellant
and Lam Po Chun. The heated discussions lasted for thirty (30) minutes and thereafter
subsided.
In the following morning, that is, July 11, 1993, at around 9:15, the same Cariza Destreza
again heard a banging which sounds like somebody was thrown and stomped on the
floor inside Room 210. Cariza, who became curious, went near the wall dividing her
room and Room 210. She heard a cry of a woman as if she cannot breathe (pp. 23-24,
tsn, August 30, 1993).
At about 10 o'clock a.m., Gwen delos Santos, together with two lady companions,
arrived at the lobby of the Park Hotel. The receptionist informed appellant by telephone
of her arrival. In response, appellant came down without his fiancee Lam Po Chun. After
a while, he together with Gwen delos Santos and the latter's companions, left the hotel.
Before leaving, he gave instruction to the front desk receptionist not to disturb his
fiancee at Room 210. He also ordered not to accept any telephone calls, no room
cleaning and no room service (pp. 37- 43, tsn, October 18, 1993).
When appellant left, the front desk receptionist, Enriquieta Patria, noticed him to be in a
hurry, perspiring and looking very scared (p. 32, tsn, September 22, 1993).
During the whole morning of July 11, 1993, after appellant left the hotel until his return
at 11 o'clock in the evening, he did not call his fiancee Lam Po Chun to verify her
physical condition (p. 44 tsn, October 18, 1993, p. 18, tsn, November 23, 1993).
When appellant arrived at 11 o'clock p.m. on that day, he asked the receptionist for the
key of his room. Then together with Fortunato Villa, the roomboy, proceeded to Room
210. When the lock was opened and the door was pushed, Lam Po Chun was found
dead lying face down on the bed covered with a blanket. Appellant removed the blanket
and pretended to exclaim "My God, she is dead" but did not even embrace his fiancee.
Instead, appellant asked the room boy to go down the hotel to inform the front desk,
the security guard and other hotel employees to call the police (pp. 8-27, tsn, October
18, 1993).
When the police arrived, they conducted an examination of the condition of the doors
and windows of the room as well as the body of the victim and the other surroundings.
They found no signs of forcible entry and they observed that no one can enter from the
outside except the one who has the key. The police also saw the victim wrapped in a
colored blanket lying face down. When they removed the blanket and tried to change
the position of her body, the latter was already in state of rigor mortis, which indicates
that the victim has been dead for ten (10) to twelve (12) hours. The police calculated
that Lam Po Chun must have died between 9 to 10 in the morning of July 11, 1993 (pp.
2-29), tsn, September 22, 1993).
Dr. Manuel Lagonera, medico-legal officer of the WPD, conducted an autopsy of the
body of the victim. His examination (Exh. V) revealed that the cause of death was
"asphyxia by strangulation." Dr. Lagonera explained that asphyxia is caused by lack of
oxygen entering the body when the entrance of air going to the respiratory system is
blocked (pp. 6-19, tsn, December 14, 1993).
Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was
insured with the Insurance Company of New Zealand in Causeway Bay, Hongkong, with
appellant as the beneficiary. The premium paid for the insurance was more than the
monthly salary of the deceased as an insurance underwriter in Hongkong (Exh. X).
It was on the bases of the foregoing facts that appellant was charged before the
Regional Trial Court in Manila for the crime of murder committed against the person of
Lam Po Chun.
(pp. 3-7, Appellee' Brief, ff. p. 176, Rollo.)
In his brief, accused-appellant offers explanatory facts and argues that the findings of
fact of the trial court are based mainly on the prosecution evidence displaying bias
against accused-appellant. He contends that the court made unwarranted and
unfounded conclusions on the basis of self-contradictory and conflicting evidence.
Accused-appellant, at the time of the commission of the crime, was a customer relations
officer of Well Motors Company in Kowloon, Hongkong. He met Lam Po Chun at a party
in 1991. Both were sportsminded and after a short courtship, the two began to have a
relationship, living together in the same apartment. The two toured China and Macao
together in 1992. In April, 1993 the two decided to get married. In May 1993, they
registered with the Hongkong Marriage Registry. The wedding was set for August 29,
1993.
An office-mate of accused-appellant named Tessie "Amay" Ticar encouraged him and
Lam Po Chun to tour the Philippines in celebration of their engagement. After finishing
the travel arrangements, the two were given by Ticar the names (Toots, Monique, and
Gwen) of her cousins in Manila and their telephone number. Photos of their Manila
contacts were shown to them. In addition to his Citibank credit card, accused-appellant
brought P24,000.00 secured at a Hongkong money exchange and HK$4,000.00. Lam Po
Chun had HK$3,000.00.
The two arrived in Manila on July 10, 1993 at about 5:40 P.M. on board Cathay Pacific
Flight CX 903. They arrived at Park Hotel around 7 P.M. From their hotel room, accused-
appellant called their contact, Gwen delos Santos, by telephone informing her of their
arrival. The two ate outside at McDonald's restaurant.
Accused-appellant woke up the following morning — Sunday, July 11, 1993 — at around
8 o'clock. After the usual amenities, including a shower, the two had breakfast in the
hotel restaurant, then they went back to their room. At around 10 o'clock that same
morning, accused-appellant received a phone call from the hotel staff telling him that
their visitors had arrived.
He then went to the lobby ahead of Lam Po Chun, introduced himself to the delos
Santos sisters, Gwen and Monique, and their mother. A few minutes later, Lom Po Chun
joined them. Two bottles of perfume were given to the sisters as arrival gifts.
Gwen delos Santos invited the couple to tour the city but Lam Po Chun decided to stay
behind as it was very hot and she had a headache. She excused herself and went up to
her room, followed later by accused-appellant to get another bottle of perfume.
Accused-appellant claims that before leaving, he instructed the clerk at the front desk to
give Lam Po Chun some medicine for headache and, as much as possible, not to disturb
her.
Accused-appellant, Gwen, Monique, and the sisters' mother took a taxicab to Landmark
Department Store where they window shopped. Accused-appellant states that from a
telephone booth in the store, he called Lam Po Chun but no one answered his call. From
Landmark where they had lunch, the four went to Shoemart Department Store in
Makati. Accused-appellant bought a Giordano T-shirt at Landmark and chocolates at
Shoemart. Gwen delos Santos brought the group to the house of her aunt, Edna Bayona,
at Roces, Quezon City. From Roces St., Gwen delos Santos brought the group to her
home in Balut, Tondo. Using the delos Santos telephone, accused-appellant called his
office in Hongkong. The PLDT receipt showed that the call was made at 6:44 P.M. on July
11, 1993. Accused-appellant claims that, afterwards, he called up Lam Po Chun at their
hotel room but the phone just kept on ringing with nobody answering it. The group had
dinner at the delos Santos house in Tondo. After dinner, Gwen delos Santos' brother
and sister-in-law arrived. They insisted in bringing their guest to a restaurant near
Manila Bay for coffee, but it was full so they proceeded to Tia Maria, a Mexican
restaurant in Makati.
Finally, the delos Santos family brought Andy Yip back to the Park Hotel, arriving there
at around 10:30 PM. Before the delos Santos group left, there was an agreement that
the following morning accused-appellant and Lam Po Chun would join them in another
city tour.
After accused-appellant's knocks at the door of their room remained unanswered, he
went back to the hotel front desk and asked the hotel staff to open the door for him.
The room was dark. Accused-appellant put on the light switch. He wanted to give the
roomboy who accompanied him a P20 or P30 tip but his smallest bill was P100. He went
to a side table to get some smaller change. It was then when he noticed the disordered
room, a glass case and wallet on the floor, and Lam Po Chun lying face down on one of
the beds.
Accused-appellant tried to wake Lam Po Chun up by calling her name but when she did
not respond, he lifted up her face, moving her body sidewards. He saw blood. Shocked,
he shouted at the roomboy to call a doctor.
Several people rushed to Room 210. A foreigner looked at Lam Po Chun and said she
was dead. The foreigner placed his arms around accused-appellant who was slumped on
the floor and motioned for him to leave the room. Accused-appellant refused, but he
was made to move out and to go to the lobby, at which place, dazed and crying, he
called up Gwen delos Santos to inform her of what happened. Gwen could not believe
what she heard, but she assured accused-appellant that they were going to the hotel.
Policemen then arrived.
In the instant appeal, accused-appellant, through his new counsel, former Justice
Ramon C. Fernandez, assigns the following alleged errors:
I
THE TRIAL COURT ERRED IN NOT FINDING THAT THE ACCUSED-APPELLANT WAS
ARRESTED WITHOUT WARRANT, WAS TORTURED AND WAS NOT INFORMED THAT HE
HAD THE RIGHT TO REMAIN SILENT AND BE ASSISTED BY INDEPENDENT AND
COMPETENT COUNSEL DURING CUSTODIAL INVESTIGATION.
II
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE VICTIM
APPLE INSURED AND LATER KILLED HER FOR THE INSURANCE PROCEEDS.
III
THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT COMMITTED A
CRIME OF MURDER AGGRAVATED BY EVIDENT PREMEDITATION.
IV
THE TRIAL COURT ERRED IN GIVING CREDENCE TO THE TESTIMONY OF OFFICER
ALEJANDRO YANQUILING, JR.
V
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONY OF CARISA DESTREZA WHO
INCURRED SERIOUS CONTRADICTIONS ON MATERIAL POINTS.
VI
THE TRIAL COURT ERRED IN RELYING ON THE TESTIMONIES OF THE OTHER
PROSECUTION WITNESSES THAT CONTRADICTED EACH OTHER ON MATERIAL POINTS.
VII
THE TRIAL COURT ERRED IN HOLDING THAT THE TESTIMONIES OF THE WITNESSES OF
THE ACCUSED ARE INCREDIBLE.
VIII
THE TRIAL COURT ERRED IN FINDING THAT THE PROSECUTION HAS ESTABLISHED THE
GUILT OF THE ACCUSED-APPELLANT BY PROOF BEYOND REASONABLE DOUBT.
IX
THE TRIAL COURT ERRED IN NOT COMPLETELY ACQUITTING THE ACCUSED-APPELLANT
OF THE CRIME CHARGED IN THE INFORMATION.
(pp. 80-82, Rollo.)
The trial court, in arriving at its conclusions, took the various facts presented by the
prosecution, tied them up together like parts of a jig-saw puzzle, and came up with a
complete picture of circumstantial evidence depicting not only the commission of the
crime itself but also the motive behind it.
Our review of the record, however, discloses that certain key elements, without which
the picture of the crime would be faulty and unsound, are not based on reliable
evidence. They appear to be mere surmises and assumptions rather than hard facts or
well-grounded conclusions.
A key element in the web of circumstantial evidence is motive which the prosecution
tried to establish. Accused-appellant and Lam Po Chun were engaged to be married.
They had toured China and Macao together. They were living together in one
apartment. They were registered with the Hongkong Marriage Registry in May 1993.
Marriage date was set for August 29, 1993. This date was only a month and a half away
from the date of death of Lam Po Chun. In the absence of direct evidence indubitably
showing that accused-appellant was the perpetrator of the killing, motive becomes
important. The theory developed by the prosecution was not only of a cold-blooded
crime but a well-planned one, including its timing up to the half hour. It is not the kind
of crime that a man would commit against his wife-to-be unless a strong motive for it
existed.
The trial court would have been justified in finding that there was evident premeditation
of murder if the story is proved that Lam Po Chun insured herself for the amounts of US
$498,750.00 and US $249,375.00 naming accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy for a big
amount in US dollars and indicated accused-appellant as the beneficiary. The
prosecution presented Exhibit "X", a mere xerox copy of a document captioned
"Proposal for Life Insurance" as proof the alleged insurance. It is not a certified copy, nor
was the original first identified.
The authenticity of the document has thus not been duly established. Exhibit "X" was
secured in Hongkong when Lam Chi Keung, the brother of the victim, learned that his
sister was murdered in Manila. It is not shown how and from whom the information
about any alleged insurance having been secured came. There is no signature indicating
that the victim herself applied for the insurance. There is no marking in Exhibit "X" of
any entry which purports to be the victim's signature. There is a signature of Apple Lam
which is most unusual for an insurance application because the victim's name is Lam Po
Chun. To be sure nobody insures himself or herself under a nickname. The entries in the
form are in block letters uniformly written by one hand. Below the printed name "Lam
Po Chun" are Chinese characters which presumably are the Chinese translation of her
name. Nobody was presented to identify the author of the "block" handwriting. Neither
the prosecution nor the trial court made any comparisons, such as the signature of Lam
Po Chun on her passport (Exh. "C"), with her purported signature or any other entry in
the form.
It needs not much emphasis to say that an application form does not prove that
insurance was secured. Anybody can get an application form for insurance, fill it up at
home before filing it with the insurance company. In fact, the very first sentence of the
form states that it merely "forms the basis of a contract between you and NZI Life."
There was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not like her
relationship with accused-appellant. After all the trouble that her brother went through
to gather evidence to pin down accused-appellant, the fact that all he could come up
with is an unsigned insurance application form shows there was no insurance money
forthcoming for accused-appellant if Lam Po Chun died. There is no proof that the
insurance company approved the proposal, no proof that any premium payments were
made, and no proof from the record of exhibits as to the date it was accomplished. It
appearing that no insurance was issued to Lam Po Chun with accused-appellant as the
beneficiary, the motive capitalized upon by the trial court vanishes. Thus, the picture
changes to one of the alleged perpetrator killing his fiancee under cold-blooded
circumstances for nothing.
There are other suspicious circumstances about the insurance angle. Lam Po Chun was
working for the National insurance Company. Why then should she insure her life with
the New Zealand Insurance Company? Lam's monthly salary was only HK $5,000.00. The
premiums for the insurance were HK $5,400.00 or US $702.00 per month. Why should
Lam insure herself with the monthly premiums exceeding her monthly salary? And why
should any insurance company approve insurance, the premiums of which the supposed
insured obviously con not afford to pay, in the absence of any showing that somebody
else is paying for said premiums. It is not even indicated whether or not there are rules
in Hongkong allowing a big amount of insurance to be secured where the beneficiary is
not a spouse, a parent, a sibling, a child, or other close relative.
Accused-appellant points out an apparent lapse of the trial court related to the matter
of insurance. At page 33 of the decision, the trial court stated:
Indeed, Yip Wai Ming testified that he met Andy Kwong in a restaurant in Hongkong and
told Yip and Lam Po Chun should be married and there must be an insurance for her life
....
(p. 33, RTC Decision; p. 66, Rollo.)
The source of the above finding is stated by the court as "tsn hearing Sept. 22, 1992."
But accused-appellant Yip Wai Ming did not testify on September 22, 1992. The entire
112 pages of the testimony on that date came from SP02 Yanquiling. The next hearing
was on September 29, 1993. All the 100 pages of the testimony on that date came from
Yanquiling. The next hearing on October 13, 1993 resulted in 105 pages of testimony,
also from Yanquiling. This Court is at a complete loss as to the reason of the trial court
sourcing its statement to accused-appellant's alleged testimony.
Lam Po Chun must have been unbelievably trusting or stupid to follow the alleged
advice of Andy Kwong. It is usually the man who insures himself with the wife or future
wife or beneficiary instead of the other way around. Why should Lam Po Chun, with her
relatively small salary which is not even enough to pay for the monthly premiums,
insure herself for such a big amount. This is another reason why doubts arise as to the
truth of the insurance angle.
Another key factor which we believe was not satisfactorily established is the time of
death. This element is material because from 10 A.M. of July 11, 1993 up to the time the
body was discovered late that evening, accused-appellant was in the company of Gwen
delos Santos, her sister Monique, and their mother, touring Metro Manila and going
from place to place. This much is established.
To go around this problem of accused-appellant being away from the scene of the crime
during the above mentioned hours, the prosecution introduced testimonial evidence as
to the probable time of death, always placing it within the narrow 45-minute period
between 9:15 and 10 A.M. of July 11, 1993, the time when Cariza Destresa, the
occupant of the adjoining room, heard banging sounds coming from the room of
accused-appellant, and the time accused-appellant left with his Filipino friends.
The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However,
Gwen delos Santos who never saw the couple before was categorical in declaring that
she met both of them at the lobby before the group left for the tour (tsn, Feb. 14, 1994,
p. 64; p. 20, RTC Decision; p. 150, Rollo), but Lam Po Chun asked to be excused because
of a headache. In fact, delos Santos was able to identify Lam Po Chun from pictures
shown during the trial. She could not have done this unless she really saw and met the
victim at the hotel lobby at around 10 A.M. of July 11, 1993.
The prosecution introduced an expert in the person of Dr. Manuel Lagonera to establish
the probable time of death. Dr. Lagonera, medico-legal officer of the PNP Western
Police District, after extensive questioning on his qualifications as on expert witness,
what he discovered as the cause of death (strangulation), the contents of the deceased's
stomach, injuries sustained, and the condition of the cadaver, was asked to establish the
time of death, to wit:
Q. If we use thirty six (36) hours to forty eight (48) hours, will you agree with me that it
is possible that the victim was killed in the morning of July 10, 1993?
A. I cannot, I have no basis whether the victim was killed in he morning or in the
afternoon
(tsn, Dec. 14, 1993, p. 31.)
Dr. Lagonera's testimony on the number of assailants was similar. He had no basis for an
answer, thusly:
ATTY. PASCUA:
Q. Would you be able to determine also based on your findings your autopsy whether
the assailants, the number of the assailants?
WITNESS:
A. I have no basis, Sir.
ATTY. PASCUA:
Q. You have no basis. And would it also have been possible, that there were more than
one assailants?
WITNESS: Q. All in front, meaning in terms of probability and based on your professional opinion,
the attack would have come from a frontal attack or the attacker would have come from
A. It is possible also. behind to inflict the frontal injuries of the victim?

ATTY. PASCUA: WITNESS:

Q. It is possible also, who simultaneously inflicted the wounds of the victim? A. It can be the attack coming from behind in the front or both, sir.

WITNESS: ATTY. PASCUA:

A. It is possible. Q. But in your professional opinion or in your experience, based on the injuries
sustained including the location of the injuries on the body of the victim, would it be
ATTY. PASCUA:
more probable that the attack came from in front of the victim?
Q. Based also on your autopsy report, were there signs that the victim put a struggle?
WITNESS:
WITNESS:
A. Yes, it is possible, Sir.
A. There were no injuries in the hand or forearms or upper arms of the victim. So, there
(tsn, Dec. 14, 1993, pp. 60-63.)
were no sign of struggle on the part of the victim.
Dr. Lagonera placed the probable time of death as July 10, 1993 (tsn, Dec. 14, 1993, p.
ATTY. PASCUA:
108). It is undisputed that at around 8:30 A.M. of July 11, 1993 accused-appellant and
Q. And your basis in saying that there was no struggle on the part of the victim was that Lam Po Chun took breakfast together at the hotel restaurant. She could not have been
there were no apparent or seen injuries in the hands of the victim? killed on July 10, 1993. The autopsy conducted by Dr. Lagonera and the testimony of
accused-appellant coincided insofar as the food taken at breakfast is concerned. The
WITNESS: couple ate eggs, bacon, and toasted bread. But the doctor was insistent that the death
occurred the previous day.
A. Yes, sir.
Where a medico-legal expert of the police department could not, with any measure of
ATTY. PASCUA:
preciseness, fix the time of death, the police investigator was bold and daring enough to
Q. But you did not examine the fingernails? establish it. Surprisingly, the trial court accepted this kind of evidence. SP02 Alejandro
Yanquiling testified that he arrived at the Park Hotel at about 11:25 o'clock on the
WITNESS: evening of July 11, 1993 to conduct the investigation of the crime. At the time, the
victim showed signs of rigor mortis, stiffening of the muscle joints, with liquid and blood
A. No, I did not examine, Sir. oozing from the nose and mouth. On the basis of his observations, he declared that the
victim had been dead for 10 to 12 hours.
ATTY. PASCUA:
The trial court stated that if the victim had been dead from 10 to 12 hours at 11:35
Q. Were there also injuries at the back portion of the head of the victim?
o'clock in the evening, it is safe to conclude that she was killed between 9 and 10 o'clock
WITNESS: on the morning of July 11, 1993. The mathematics of the trial court is faulty. Twelve
hours before 11:35 P.M. would be 11:35 A.M.. Ten hours earlier would even be later —
A. No injuries at the back, all in front. 1.35 P.M. Since accused-appellant was unquestionably with Gwen delos Santos and her
group touring and shopping in megamalls between 10 A.M. and 11:35 P.M., the
ATTY. PASCUA:
assailant or assailants must have been other people who were able to gain entry into
the hotel room at that time.
The trial court stated that there was no sign of any forcible entry into the room, no
broken locks, windows, etc. The answer is simple. Somebody could have knocked on the
door and Lam Po Chun could have opened it thinking they were hotel staff.
Unfortunately, Detective Yanquiling was so sure of himself that after pinpointing
accused-appellant as the culprit, he did not follow any other leads. In the course of his
interviews with witnesses, his purpose was simply to nail down one suspect. His
investigation was angled towards pinning down Yip Wai Ming. In fact, Gwen delos
Santos testified that Yanquiling talked to her over the telephone almost daily urging her
to change her testimony.
Officer Yanquiling testified on cross-examination that he did not apply any mode of
scientific investigation. If a medico-legal expert of the same police department who
conducted an autopsy had no basis for giving the probable time of death, the police
officer who merely looked at the body and saw the blood oozing out of the victim's nose
and mouth must have simply guessed such time, plucking it out of thin air. The trial
court accepted the erroneous timing, conveniently placing it where a finding of guilt
would follow as a consequence.
Before a conviction can be had upon circumstantial evidence, the circumstances should
constitute an unbroken chain which leads to but one fair and reasonable conclusion,
which points to the accused, to the exclusion of all others, of the guilty person (U.S. vs.
Villos, 6 Phil. 510 [1906]; People vs. Subano, 73 Phil. 692 [1942]). Every hypothesis
consistent with innocence must be excluded if guilt beyond reasonable doubt is based
on circumstantial evidence (U.S. vs. Cajayon, 2 Phil. 570 [1903]; U.S. vs. Tan Chian, 17
Phil. 209 [1910]; U.S. vs. Levente, 18 Phil. 439 [1911]). All the evidence must be
consistent with the hypothesis that the accused is guilty, and at the same time
inconsistent with the hypothesis that he is innocent, and with every other rational
hypothesis except that of guilt (People vs. Andia, 2 SCRA 423 [1961]).
The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond
reasonable doubt have not been met in the case at bar.
The chain of circumstances is not unbroken. The most vital circumstantial evidence in
this case is that which proves that accused-appellant killed the victim so he could gain
from the insurance proceeds on the life of the victim. Another vital circumstance is the
time of death precisely between 9:15 and 10 A.M. Both were not satisfactorily
established by the prosecution. Where the weakest link in the chain of evidence is at the
same time the most vital circumstance, there can be no other alternative but to acquit
the accused (People vs. Maaborang, 9 SCRA 108 [1963]).
Since the sentence of conviction is based on the crime having been committed within a
short time frame, accused-appellant cannot be convicted on the strength of
circumstantial evidence if doubts are entertained as to where he was at that particular
time and reasonable conclusions can be had that other culprits could have entered the
room after accused-appellant left with the delos Santos family. Other people could have
killed the victim.
The trial court also relied heavily on the testimony of Cariza Destresa, a 19-year old
cultural dancer occupying with her Australian boyfriend Peter Humphrey, the adjoining
Room 211. Destresa testified that while she was in Room 211 at about 9:15 o'clock on
the morning of July 11, 1993, she heard banging sounds in Room 210, as if somebody
was being thrown, and there was stomping on the floor. The banging sounds lasted
about thirty (30) minutes, an improbably long time to kill a woman. Destresa stated that
she placed her ear near the wall and heard the cry of a woman having difficulty in
breathing.
The witness heard the banging sounds between 9:15 and 9:45 A.M. of July 11, 1993, not
before or after. The unreliability of Destresa's memory as to dates and time is shown by
the fact that when asked as to the date of her Australian boyfriend's arrival in the
Philippines, she stated, "July 29, 1993." Pressed by the prosecuting attorney if she was
sure of said date, she changed this to "July 16, 1993." Pressed further:
Q. Are you sure that he arrived in the Philippines on July 16, 1993?
A. I can't exactly remember the date of the arrival of my boyfriend here in the
Philippines because his coming was sudden, Sir.
(tsn, Sept. 30, 1993, p. 10.)
On July 16 and July 19, 1993 Lam Po Chun was already dead. If Peter Humphrey was still
in Australia on July 11, 1993, how could he occupy with his girlfriend the next door
room, Room 211, on that date at the Park Hotel. If Destresa cannot remember the date
her Australian boyfriend arrived, how could the trial court rely on her memory as to the
30-minute interval from 9:15 A.M. to 9:45 A.M. of July 11, 1993 when the alleged
murder took place. Asked what time on July 13, 1993 she gave her sworn statement to
the police, Destresa answered, "I am not sure, may be it was in the early morning
between 2 or 3 o'clock of that day, Sir." Destresa was asked how she could be certain of
July 13, 1993 as the date of her sworn statement. She answered that this was the day
her boyfriend left for Australia (tsn, Aug. 31, 1993, p. 29). In her testimony given on the
same day, Destresa states that she stayed in Room 211 for 3 months. She later changed
her mind and said she stayed there only when Peter Humphrey was in the Philippines.
According to the witness, Peter left on May 29, 1993; arrived in June and July; left in
June; arrived in July; left on July 13, 1993. Destresa was confused and evasive not only
as to dates, but also as to her employment, stating at the start of her testimony that she
was jobless, but later declaring that she was a dancer with the "Rampage" group and
performed in Dubai.
Destresa testified at one point that she heard an argument between a man and a
woman in a dialect she could not understand. This was supposed to be on the evening
of July 11, 1993. At that time, the victim had long been dead. Destresa gave various
contradictory statements in her August 30, 1993; August 31, 1993; and September 1,
1993 testimony. To our mind, the trial court gravely erred in relying on her testimony.
Accused-appellant was arrested on July 13, 1993, two days after the killing. There was
no warrant of arrest. Officer Yanquiling testified that there was no warrant and he
arrested the accused-appellant based on "series of circumstantial evidence." He had no
personal knowledge of Yip Wai Ming having committed the crime. Accused-appellant
stated that five police officers at the police station beat him up. They asked him to
undress, forced him to lie down on a bench, sat on his stomach, placed a handkerchief
over his face, and poured water and beer over his face. When he could no longer bear
the pain, he admitted the crime charged. participated in a re-enactment, and signed an
extrajudicial statement. All the while, he was not informed of his right to remain silent
nor did he have counsel of his choice to assist him in confessing the crime.
This Court has carefully gone over the record of this case. We simply cannot state that
the circumstantial evidence is in its entirety credible and unbroken and that the finding
of guilt excludes any other possibility that the accused-appellant may be innocent.
Most of the circumstantial evidence in this case came from the investigation conducted
by Officer Alejandro Yanquiling or from the prodding by him of various witnesses. The
desire of a police officer to solve a high profile crime which could mean a promotion or
additional medals and commendations is admirable. However, an investigator must
pursue various leads and hypotheses instead of singlemindedly pursuing one suspect
and limiting his investigation to that one possibility, excluding various other
probabilities. The killing of a tourist is a blot on the peace and order situation in the
Philippines and must be solved. Still, concentrating on pinning down an alien companion
of the victim and not pursuing the possibilities that other persons could have killed the
victim for her money and valuables does not speak well of our crime detection system.
It is not enough to solve a crime. The truth is more important and justice must be
rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-
appellant Yip Wai Ming is acquitted of the charge of murder on grounds of reasonable
doubt and his immediate release from custody is ordered unless he is being held on
other legal grounds.

The custodial interrogation of accused-appellant was violative of Section 12, Article III of SO ORDERED.
the Constitution. The Constitution provides that "(3) Any confession or admission
obtained in violation of this section or Section 17 hereof shall be inadmissible against Narvasa, C.J., Davide, Jr., Francisco and Panganiban, JJ., concur.
him." Section 17, Article III provides: "No person shell be compelled to be a witness
against himself." Any confession, including a re-enactment without admonition of the
right to silence and to counsel, and without counsel chosen by the accused is
inadmissible in evidence (People vs. Duero, 104 SCRA 379 [1981]).

This Court notes that accused-appellant did not file any complaint or charges against the
police officers who allegedly tortured him. But he was a foreign national, a tourist
charged with a serious crime, finding himself in strange surroundings. In Hongkong,
there would have been family members and friends who could have given him moral
support. He would have known that he was being questioned in his own country, being
investigated under the laws of that country. The degree of intimidation needed to
coerce a person to confess to the commission of a crime he did not commit would be
much less if he is in a strange land. Accused-appellant states that his lawyers told him
not to file any charges against the policemen. He followed their advice, obviously not
wanting to get into more trouble.
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:
I legally and validly effected. Both the law and the policy do not provide for any other
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
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.
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.

Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the Melencio-Herrera (Chairperson), Sarmiento and Regalado, JJ., concur.
insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries
Padilla, J., took no part.
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.
[G.R. NO. 181132 : June 5, 2009]
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA
PANGILINAN MARAMAG, Petitioners, v. EVA VERNA DE GUZMAN MARAMAG, ODESSA
DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE
MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, Respondents.
DECISION
NACHURA, J.:
This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse
and set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-
G.R. CV No. 85948, dismissing petitioners' appeal for lack of jurisdiction.
The case stems from a petition3 filed against respondents with the Regional Trial Court,
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loreto's illegitimate family; (2) Eva de
Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the
latter, thus, she is disqualified to receive any proceeds from his insurance policies from
Insular Life Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance
Corporation (Grepalife);5 (3) the illegitimate children of Loreto Odessa, Karl Brian, and
Trisha Angelie were entitled only to one-half of the legitime of the legitimate children,
thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha
Angelie were inofficious and should be reduced; and (4) petitioners could not be
deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged,
among others, that part of the insurance proceeds had already been released in favor of
Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and
Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners
also prayed for the total amount of P320,000.00 as actual litigation expenses and
attorney's fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained
that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided
the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries; and that it released Odessa's share as she was of age, but withheld the
release of the shares of minors Karl Brian and Trisha Angelie pending submission of
letters of guardianship. Insular alleged that the complaint or petition failed to state a
cause of action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No. A001544070
and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as
inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no
settlement of Loreto's estate had been filed nor had the respective shares of the heirs
been determined. Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as beneficiaries pursuant to Section
53 of the Insurance Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian,
and Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and,
thus, not more than 65 years old when he signed it in September 2001; that the case
was premature, there being no claim filed by the legitimate family of Loreto; and that
the law on succession does not apply where the designation of insurance beneficiaries is
clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of
Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners,
declared them in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues
raised in their respective answers be resolved first. The trial court ordered petitioners to
comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was
purely legal - whether the complaint itself was proper or not - and that the designation
of a beneficiary is an act of liberality or a donation and, therefore, subject to the
provisions of Articles 7528 and 7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong
exclusively to the designated beneficiaries in the policies, not to the estate or to the
heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary
when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of
which reads'
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular
Life and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha
Maramag. The action shall proceed with respect to the other defendants Eva Verna de
Guzman, Insular Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus'
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the
(sic) special laws. Matters not expressly provided for in such special laws shall be
regulated by this Code. The principal law on insurance is the Insurance Code, as
amended. Only in case of deficiency in the Insurance Code that the Civil Code may be
resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance
proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made, unless otherwise specified in the policy. Since the defendants
are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also
included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to
them. This is because the beneficiary has a vested right to the indemnity, unless the
insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of
Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on
testamentary succession in order to defeat the right of herein defendants to collect the
insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken
in the law of donation. The rules on testamentary succession cannot apply here, for the
insurance indemnity does not partake of a donation. As such, the insurance indemnity
cannot be considered as an advance of the inheritance which can be subject to collation
(Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees' Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the following
pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the
estate of the person whose life was insured, and that such proceeds are the separate
and individual property of the beneficiary and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine obtains in
these Islands by virtue of Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie
Maramag for the reduction and/or declaration of inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the
named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his
concubine Eva Verna De Guzman. Any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy of the
person who cannot make any donation to him, according to said article (Art. 2012, Civil
Code). If a concubine is made the beneficiary, it is believed that the insurance contract
will still remain valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming of the
improper beneficiary. In such case, the action for the declaration of nullity may be
brought by the spouse of the donor or donee, and the guilt of the donor and donee may
be proved by preponderance of evidence in the same action (Comment of Edgardo L.
Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva
Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by
the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which
this court may properly take cognizance as the action for the declaration for the nullity
of a void donation falls within the general jurisdiction of this Court. 11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in
the main, that the petition failed to state a cause of action. Insular further averred that
the proceeds were divided among the three children as the remaining named
beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already
been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that
whether the complaint may be dismissed for failure to state a cause of action must be
determined solely on the basis of the allegations in the complaint, such that the
defenses of Insular and Grepalife would be better threshed out during
trial.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration
filed by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the
portion of the Resolution of this Court dated 21 September 2004 which ordered the
prosecution of the case against defendant Eva Verna De Guzman, Grepalife and Insular
Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court
considered the allegations of Insular that Loreto revoked the designation of Eva in one
policy and that Insular disqualified her as a beneficiary in the other policy such that the
entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to
Section 53 of the Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is disqualified, that
the proceeds should be paid to the estate of the insured. As to the claim that the
proceeds to be paid to Loreto's illegitimate children should be reduced based on the
rules on legitime, the trial court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of the Civil Code are
irrelevant and inapplicable. With respect to the Grepalife policy, the trial court noted
that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha
Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further
held that the matter of Loreto's misrepresentation was premature; the appropriate
action may be filed only upon denial of the claim of the named beneficiaries for the
insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal
for lack of jurisdiction, holding that the decision of the trial court dismissing the
complaint for failure to state a cause of action involved a pure question of law. The
appellate court also noted that petitioners did not file within the reglementary period a
motion for reconsideration of the trial court's Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said
Resolution had already attained finality.
Hence, this petition raising the following issues:
A. In determining the merits of a motion to dismiss for failure to state a cause of action,
may the Court consider matters which were not alleged in the Complaint, particularly
the defenses put up by the defendants in their Answer?cralawred
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a
cause of action, did not the Regional Trial Court engage in the examination and
determination of what were the facts and their probative value, or the truth thereof,
when it premised the dismissal on allegations of the defendants in their answer - which
had not been proven?cralawred
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should not have
been dismissed for failure to state a cause of action because the finding that Eva was
either disqualified as a beneficiary by the insurance companies or that her designation
was revoked by Loreto, hypothetically admitted as true, was raised only in the answers
and motions for reconsideration of both Insular and Grepalife. They argue that for a
motion to dismiss to prosper on that ground, only the allegations in the complaint
should be considered. They further contend that, even assuming Insular disqualified Eva
as a beneficiary, her share should not have been distributed to her children with Loreto
but, instead, awarded to them, being the legitimate heirs of the insured deceased, in
accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court's finding that the
petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the
Rules of Court, which reads'
SECTION 1. Grounds. - Within the time for but before filing the answer to the complaint
or pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds:
xxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A
complaint states a cause of action when it contains the three (3) elements of a cause of
action' (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant;
and (3) the act or omission of the defendant in violation of the legal right. If any of these
elements is absent, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon should be
based only on the facts alleged in the complaint. The court must resolve the issue on the
strength of such allegations, assuming them to be true. The test of sufficiency of a cause
of action rests on whether, hypothetically admitting the facts alleged in the complaint to
be true, the court can render a valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no
hypothetical admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties
or in the course of the hearings related to the case.18
Petitioners are third parties to the insurance contracts with Insular and Grepalife and,
thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and
Grepalife have no legal obligation to turn over the insurance proceeds to petitioners.
The revocation of Eva as a beneficiary in one policy and her disqualification as such in
another are of no moment considering that the designation of the illegitimate children
as beneficiaries in Loreto's insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the
insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in
view of the prohibition on donations under Article 739 of the Civil Code or by the
insurers themselves for reasons based on the insurance contracts, must be awarded to
the said illegitimate children, the designated beneficiaries, to the exclusion of
petitioners. It is only in cases where the insured has not designated any beneficiary, 23 or
when the designated beneficiary is disqualified by law to receive the proceeds, 24 that
the insurance policy proceeds shall redound to the benefit of the estate of the insured.

In this case, it is clear from the petition filed before the trial court that, although In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld.
petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in In the same light, the Decision of the CA dated January 8, 2008 should be sustained.
the insurance policies issued by Insular and Grepalife. The basis of petitioners' claim is Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the
that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from issue of failure to state a cause of action is a question of law and not of fact, there being
being designated as beneficiary of the insurance policies, and that Eva's children with no findings of fact in the first place.25
Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
policies. They also argued that pursuant to Section 12 of the Insurance Code, 19 Eva's
share in the proceeds should be forfeited in their favor, the former having brought SO ORDERED.
about the death of Loreto. Thus, they prayed that the share of Eva and portions of the
shares of Loreto's illegitimate children should be awarded to them, being the legitimate
heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a
favorable judgment in light of Article 2011 of the Civil Code which expressly provides
that insurance contracts shall be governed by special laws, i.e., the Insurance Code.
Section 53 of the Insurance Code states'

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest
of the person in whose name or for whose benefit it is made unless otherwise specified
in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy.20The exception to this rule is a situation
where the insurance contract was intended to benefit third persons who are not parties
to the same in the form of favorable stipulations or indemnity. In such a case, third
parties may directly sue and claim from the insurer. 21
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary
in the life insurance policy of a legally married man claim the proceeds thereof in case of
death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance
Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental
Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the
revocable beneficiary in his policy. He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit
by a failing branch of a tree. As the policy was in force, The Insular Life Assurance Co.,
Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face
value of the policy in the amount of P5,882.00 plus the additional benefits for accidental
death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium
due November, 1969, minus the unpaid premiums and interest thereon due for January
and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the
designated beneficiary therein, although she admits that she and the insured
Buenaventura C. Ebrado were merely living as husband and wife without the benefit of
marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She
asserts that she is the one entitled to the insurance proceeds, not the common-law
wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. commenced an action for Interpleader before the Court of First
Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after
which, a pre-trial order was entered reading as follows: ñé+.£ªwph!1
During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married
to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando, Cresencio,
Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929
whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the
defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of
Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom
she had 2 children although he was not legally separated from his legal wife; 4) that
Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and
affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado
filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado
who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims
the insurance company filed this action against the two herein claimants Carponia and
Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as
proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in
the policy is Carponia Ebrado and the insured made reservation to change the
beneficiary but although the insured made the option to change the beneficiary, same
was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the designation
of the parties agreed that a decision be rendered based on and stipulation of facts as to
who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others,
Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura
Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the
deceased insured. The trial court held: ñé+.£ªwph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of such
guilt or commission of those acts be made in a separate independent action brought for
the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the nullity of the
donation).
It is, however, essential that such adultery or concubinage exists at the time defendant
Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the
marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and
still existing at the time the insurance in question was purchased there is no question
that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the
policy in question and as such she is not entitled to the proceeds of the insurance upon
the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July
11, 1976, the Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new
Insurance Code (PD No. 612, as amended) does not contain any specific provision
grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which
provides that "(t)he insurance shag be applied exclusively to the proper interest of the
person in whose name it is made" 1 cannot be validly seized upon to hold that the mm
includes the beneficiary. The word "interest" highly suggests that the provision refers
only to the "insured" and not to the beneficiary, since a contract of insurance is personal
in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could easily be
circumvented by modes of insurance. Rather, the general rules of civil law should be
applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code
states: "The contract of insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed
by the general rules of the civil law regulating contracts. 3 And under Article 2012 of the
same Code, "any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a fife insurance policy by the person who cannot make a
donation to him. 4 Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides: ñé+.£ªwph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time
of donation;
Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his
office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of the policy which the insured
pays out of liberality, the beneficiary will receive the proceeds or profits of said
insurance. As a consequence, the proscription in Article 739 of the new Civil Code
should equally operate in life insurance contracts. The mandate of Article 2012 cannot
be laid aside: any person who cannot receive a donation cannot be named as
beneficiary in the life insurance policy of the person who cannot make the
donation. 5 Under American law, a policy of life insurance is considered as a testament
and in construing it, the courts will, so far as possible treat it as a will and determine the
effect of a clause designating the beneficiary by rules under which wins are
interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier
between common law spouses in record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate family There is every
reason to hold that the bar in donations between legitimate spouses and those between
illegitimate ones should be enforced in life insurance policies since the same are based
on similar consideration As above pointed out, a beneficiary in a fife insurance policy is
no different from a donee. Both are recipients of pure beneficence. So long as manage
remains the threshold of family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon extra-marital
relationship. If legitimate relationship is circumscribed by these legal disabilities, with
more reason should an illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes
of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and
his descendants because of and undue and improper pressure and influence upon the
donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen
desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas
(Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem
spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there
is very reason to apply the same prohibitive policy to persons living together as husband
and wife without the benefit of nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater influence of one party over the
other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would
not be just that such donations should subsist, lest the condition 6f those who incurred
guilt should turn out to be better.' So long as marriage remains the cornerstone of our
family law, reason and morality alike demand that the disabilities attached to marriage
should likewise attach to concubinage.
In the caw before Us, the requisite proof of common-law relationship between the
insured and the beneficiary has been conveniently supplied by the stipulations between
the parties in the pre-trial conference of the case. It case agreed upon and stipulated
therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala
Ebrado with whom she has six legitimate children; that during his lifetime, the deceased
insured was living with his common-law wife, Carponia Ebrado, with whom he has two
children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the
basis of these admissions, a judgment may be validly rendered without going through
the rigors of a trial for the sole purpose of proving the illicit liaison between the insured
and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be
rendered based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy."

It is hardly necessary to add that even in the absence of the above pronouncement, any ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia
other conclusion cannot stand the test of scrutiny. It would be to indict the frame of the T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura
Civil Code for a failure to apply a laudable rule to a situation which in its essentials C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are
cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law hereby held payable to the estate of the deceased insured. Costs against Carponia T.
which embodies a deeply rooted notion of what is just and what is right would be Ebrado.
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 SO ORDERED.
reproach. If there is every any occasion where the principle of statutory construction
Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and Guerrero, JJ.,
that what is within the spirit of the law is as much a part of it as what is written, this is it.
concur.1äwphï1.ñët
Otherwise the basic purpose discernible in such codal provision would not be attained.
Whatever omission may be apparent in an interpretation purely literal of the language
used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the
disabilities mentioned in Article 739 may effectuate. More specifically, with record to
the disability on "persons who were guilty of adultery or concubinage at the time of the
donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a
condition precedent. In fact, it cannot even be from the aforequoted provision that a
prosecution is needed. On the contrary, the law plainly states that the guilt of the party
may be proved "in the same acting for declaration of nullity of donation. And, it would
be sufficient if evidence preponderates upon the guilt of the consort for the offense
indicated. The quantum of proof in criminal cases is not demanded.
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
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 marine 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 willful 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 asks" 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 risk 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 —
... 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 y. 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. 18The 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 be 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
petitioners 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 (Chairperson), J., is on leave.
[G.R. No. 124520. August 18, 1997]
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., Petitioners,
v. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, Respondents.
. 8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
DECISION
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
x1chanroblesvirtuallawlibrary
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their 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 respondents 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 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
attorneys fees and costs of suit.
decision** dated 11 January 1996, affirming the trial court decision, deleting however
the awards for exemplary damages and attorneys fees. A motion for reconsideration by
United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of
Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE
STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF
LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE
TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION.2chanroblesvirtuallawlibrary
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 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.3chanroblesvirtuallawlibrary
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.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha
spouses obtained a fire insurance policy over their own merchandise, without the
consent of CKS, is a separate and distinct issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE
and a new decision is hereby entered, awarding the proceeds of the fire insurance policy
to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.
Bellosillo, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

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 of injury thereof."

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured,
the Cha spouses. The automatic assignment of the policy to CKS under the provision of
the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses
Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.