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Republic of the Philippines



G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,
CORPORATION, respondent.


This petition for certiorari asks for the review of the decision of the Intermediate
Appellate Court which absolved the respondent insurance company from liability on
the grounds that the vessel carrying the insured cargo was unseaworthy and the
loss of said cargo was caused not by the perils of the sea but by the perils of the

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a
common carrier, entered into a contract with the petitioners whereby the former
would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs
from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured
the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of
Manila, but the shipment never reached its destination because Mable 10 sank with
the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.

As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that
it developed a leak. The appellate court further found that one of the hatches was
left open causing water to enter the barge and because the barge was not provided
with the necessary cover or tarpaulin, the ordinary splash of sea waves brought
more water inside the barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment
of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits
but the latter ignored the demand. Another letter was sent to respondent Pioneer
claiming the full amount of P100,000.00 under the insurance policy but respondent
refused to pay on the ground that its hability depended upon the "Total loss by Total
Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599 against
Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion
of the decision reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer

Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in

addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;

(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed,

for lack of merit, but as to its cross-claim against its co-defendant Manila Bay
Lighterage Corporation, the latter is ordered to reimburse the former for whatever
amount it may pay the plaintiffs as such surety;

(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed

for lack of merit;

(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's
fees in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent
(6%) from March 25, 1975, until amount is fully paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did
not appeal. According to the petitioners, the transportation company is no longer
doing business and is without funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it
had salvaged part of the logs. The court ordered them to be sold to the highest
bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and
absolved Pioneer from liability after finding that there was a breach of implied
warranty of seaworthiness on the part of the petitioners and that the loss of the
insured cargo was caused by the "perils of the ship" and not by the "perils of the
sea". It ruled that the loss is not covered by the marine insurance policy.

After the appellate court denied their motion for reconsideration, the petitioners
filed this petition with the following assignments of errors:








In their first assignment of error, the petitioners contend that the implied warranty
of seaworthiness provided for in the Insurance Code refers only to the responsibility
of the shipowner who must see to it that his ship is reasonably fit to make in safety
the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship,
has nothing to do with its seaworthiness. They argue that a cargo owner has no
control over the structure of the ship, its cables, anchors, fuel and provisions, the
manner of loading his cargo and the cargo of other shippers, and the hiring of a
sufficient number of competent officers and seamen. The petitioners' arguments
have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did
not bother to appeal the questioned decision. However, the petitioners state that
Manila Bay has ceased operating as a firm and nothing may be recovered from it.
They are, therefore, trying to recover their losses from the insurer.

The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides:

In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term
"cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of

Canton (40 Phil. 40):

The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured
is immaterial in ordinary marine insurance and may not be used by him as a
defense in order to recover on the marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S.

There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. The shipper
of cargo may have no control over the vessel but he has full control in the choice of
the common carrier that will transport his goods. Or the cargo owner may enter into
a contract of insurance which specifically provides that the insurer answers not only
for the perils of the sea but also provides for coverage of perils of the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this
case. As stated by the private respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinary nature, or
arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage
(as in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not
be reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec.
384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L.
ed. 787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of
the cargo was caused by the perils of the sea, not by the perils of the ship because
as found by the trial court, the barge was turned loose from the tugboat east of
Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also
maintain that barratry, against which the cargo was also insured, existed when the
personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the
stranding and foundering of Mable 10 was due to improper loading of the logs as
well as to a leak in the barge which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was
occasioned by the perils of the sea characterized by the "storm and waves" which
buffeted the vessel, the records show that the court ruled otherwise. It stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves,
a condition which is natural and normal in the open sea. The evidence shows that
the sinking of Mable 10 was due to improper loading of the logs on one side so that
the barge was tilting on one side and for that it did not navigate on even keel; that
it was no longer seaworthy that was why it developed leak; that the personnel of
the tugboat and the barge committed a mistake when it turned loose the barge
from the tugboat east of Cabuli point where it was buffeted by storm and waves,
while the tugboat proceeded to west of Cabuli point where it was protected by the
mountain side from the storm and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of

defendant carrier developed a leak which allowed water to come in and that one of
the hatches of said barge was negligently left open by the person in charge thereof
causing more water to come in and that "the loss of said plaintiffs' cargo was due to
the fault, negligence, and/or lack of skill of defendant carrier and/or defendant
carrier's representatives on barge Mable 10."

It is quite unmistakable that the loss of the cargo was due to the perils of the ship
rather than the perils of the sea. The facts clearly negate the petitioners' claim
under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins.
Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary

course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner
to provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.

In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened
during the voyage, but to the failure of the ship's owner properly to repair a defect
of the existence of which he was apprised. The loss was therefore more analogous

to that which directly results from simple unseaworthiness than to that which result
from the perils of the sea.

xxx xxx xxx

Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts
the perils of the sea from his engagement under the bill of lading, while this is the
very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the
shipowner for redress and not to the insurer.

Neither can petitioners allege barratry on the basis of the findings showing
negligence on the part of the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part
of master or crew in pursuance of some unlawful or fraudulent purpose without the
consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No

honest error of judgment or mere negligence, unless criminally gross, can be
barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel's crew. There was only simple negligence or lack of
skill. Hence, the second assignment of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount
of P8,000.00 representing the amount of the salvaged logs should have been
awarded to them. However, this should be deducted from the amounts which have
been adjudicated against Manila Bay Lighterage Corporation by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the
amount of P8,000.00 representing the value of the salvaged logs which was ordered
to be deposited in the Manila Banking Corporation in the name of Civil Case No.

86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged
against Manila Bay Lighterage Corporation in the decision of the trial court is
accordingly reduced by the same amount.


G.R. No. L-43706 November 14, 1986



Conrado Q. Crucillo for petitioner.

Gregorio D. David for private respondent.


This is a petition for review on certiorari seeking to set aside: (a) the judgment of
respondent Court of Appeals dated March 25, 1976 in CA-G.R. No. 50112-R, entitled
National Power Corporation, Plaintiff-Appellee vs. The Philippine American Insurance
Company, Inc. Defendant-Appellant, which reversed the decision of the Court of
First Instance of Manila in Civil Case No. 70811 entitled "National Power Corporation
v. Far Eastern Electric, Inc., et al." and (b) respondent's Court's resolution dated

April 19, 1976 denying petitioner National Power Corporation's Motion for
Reconsideration (Petition, p. 13, Rollo).

The undisputed facts of this case are as follows:

The National Power Corporation (NPC) entered into a contract with the Far Eastern
Electric, Inc. (FFEI) on December 26, 1962 for the erection of the Angat Balintawak
115-KW-3-Phase transmission lines for the Angat Hydroelectric Project. FEEI agreed
to complete the work within 120 days from the signing of the contract, otherwise it
would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed
to pay the sum of P97,829.00 as consideration. On the other hand, Philippine
American General Insurance Co., Inc. (Philamgen) issued a surety bond in the
amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as

The condition of the bond reads:


under this bond will expire One (1) year from final Completion and Acceptance and
said bond will be cancelled 30 days after its expiration, unless surety is notified of
any existing obligation thereunder. (Exhibit 1-a)

in correlation with the provisions of the construction contract between Petitioner

and Far Eastern Electric, Inc. particularly the following provisions of the
Specifications. to wit:

1. Par. 1B-2l Release of Bond

1B-21 Release of Bond

The Contractor's performance bond will be released by the National Power

Corporation at the expiration of one (1) year from the completion and final
acceptance of the work, pursuant to the provisions of Act No. 3959, and subject to
the General Conditions of this contract. (Page 49, Printed Record on Appeal); and

2. GP-19 of Specifications, which reads:

(a) Should the Contractor fail to complete the construction of the work as herein
specified and agreed upon, or if the work is abandoned, ... the Corporation shall
have the power to take over the work by giving notice in writing to that effect to the
Contractor and his sureties of its intention to take over the construction work.

(b) ... It is expressly agreed that in the event the corporation takes over the work
from the Contractor, the latter and his bondsmen shall continue to be liable under
this contract for any expense in the completion of the work in excess of the contract
price and the bond filed by the Contractor shall be answerable for the same and for
any and all damages that the Corporation may suffer as a result thereof. (pp. 76-78,
Printed Record on Appeal)

FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI
and Philamgen wrote NPC requesting the assistance of the latter to complete the
project due to unavailability of the equipment of FEEI. The work was abandoned on
June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint
letter, Philamgen and FEEI informed NPC that FEEI was giving up the construction
due to financial difficulties. On the same date, NPC wrote Philamgen informing it of
the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen
liable for the cost of the work to be completed as of July 20, 1962 plus damages.

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC
notified Philamgen that FEEI had an outstanding obligation in the amount of
P75,019.85, exclusive of interest and damages, and demanded the remittance of
the amount of the surety bond the answer for the cost of completion of the work. In
reply, Philamgen requested for a detailed statement of account, but after receipt of
the same, Philamgen did not pay as demanded but contended instead that its
liability under the bond has expired on September 20, 1964 and claimed that no
notice of any obligation of the surety was made within 30 days after its expiration.
(Record on Appeal, pp. 191-194; Rollo, pp. 62-64).

NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to
complete the work abandoned; P144,000.00 as liquidated damages and P20,000.00
as attorney's fees. Only Philamgen answered while FEEI was declared in default.

The trial court rendered judgment in favor of NPC, the dispositive portion of which

WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the plaintiff
the sum of P75,019.86 plus interest at the legal rate from September 21, 1967 until
fully paid. Out of said amount, both defendants, Far Eastern Electric, Inc., and the
Philippine American Insurance Company, Inc., are ordered to pay, jointly and
severally, the amount of P30,672.00 covered by Surety Bond No. 26268, dated
December 26, 1962, plus interest at the legal rate from September 21, 1967 until
fully paid,

Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's
fees and costs.

On appeal by Philamgen, the Court of Appeals reversed the lower court's decision
and dismissed the complaint.

Hence this petition.

Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo, p.
62) in compliance with the resolution dated June 16, 1976 of the First Division of this
Court (Rollo, p. 52) while petitioner NPC filed its Reply to the comment of
respondent (Rollo, p. 76) as required in the resolution of this Court of August 16,
1976, (Rollo, p. 70). In the resolution of September 20, 1976, the petition for
certiorari was given due course (Rollo, p. 85). Petitioner's brief was filed on
November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the
required period and this case was submitted for decision without respondent's brief
in the resolution of this Court of February 25. 1977) Rollo, p. 103).

In its brief, petitioner raised the following assignment of errors:









The decisive issue in this case is the correct interpretation and/or application of the
condition of the bond relative to its expiration, in correlation with the provisions of
the construction contract, the faithful performance of which, said bond was issued
to secure.

The bone of contention in this case is the compliance with the notice requirement as
a condition in order to hold the surety liable under the bond.

Petitioner claims that it has already complied with such requirement by virtue of its
notice dated July 19, 1963 of abandonment of work by FEEI and of its takeover to
finish the construction, at the same time formally holding both FEEI and Philamgen
liable for the uncompleted work and damages. It further argued that the notice
required in the bond within 30 days after its expiration of any existing obligation, is
applicable only in case the contractor itself had completed the contract and not
when the contractor failed to complete the work, from which arises the continued
liability of the surety under its bond as expressly provided for in the contract.
Petitioner's contention was sustained by the trial court.

On the other hand, private respondent insists that petitioner's notice dated July 19,
1983 is not sufficient despite previous events that it had knowledge of FEEI's failure
to comply with the contract and claims that it cannot be held liable under the bond
without notice within thirty days from the expiration of the bond, that there is a
subsisting obligation. Private respondent's contention is sustained by the Court of

The petition is impressed with merit.

As correctly assessed by the trial court, the evidence on record shows that as early
as May 30, 1963, Philamgen was duly informed of the failure of its principal to
comply with its undertaking. In fact, said notice of failure was also signed by its
Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was
abandoning the construction job, the latter forthwith informed Philamgen of the fact
on the same date. Moreover, on August 1, 1963, the fact that Philamgen was
seasonably notified, was even bolstered by its request from NPC for information of
the percentage completed by the bond principal prior to the relinquishment of the
job to the latter and the reason for said relinquishment. (Record on Appeal, pp. 193195). The 30-day notice adverted to in the surety bond applies to the completion of
the work by the contractor. This completion by the contractor never materialized.

The surety bond must be read in its entirety and together with the contract between
NPC and the contractors. The provisions must be construed together to arrive at
their true meaning. Certain stipulations cannot be segregated and then made to

Furthermore, it is well settled that contracts of insurance are to be construed

liberally in favor of the insured and strictly against the insurer. Thus ambiguity in
the words of an insurance contract should be interpreted in favor of its beneficiary.
(Serrano v. Court of Appeals, 130 SCRA 327, July 16, 1984).

In the case at bar, it cannot be denied that the breach of contract in this case, that
is, the abandonment of the unfinished work of the transmission line of the petitioner
by the contractor Far Eastern Electric, Inc. was within the effective date of the
contract and the surety bond. Such abandonment gave rise to the continuing
liability of the bond as provided for in the contract which is deemed incorporated in
the surety bond executed for its completion. To rule therefore that private
respondent was not properly notified would be gross error.

PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution
dated April 19, 1976 of the Court of Appeals are hereby SET ASIDE, and a new one
is hereby rendered reinstating the decision of the Court of First Instance of Manila in
Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric,
Inc., et al."


G.R. No. L-59919 November 26, 1986

MALAYAN INSURANCE CO., INC., petitioner-appellant,


Edgardo Elumba, Yulo, Sedonio, Alejandro and Associates for petitioner-appellant.

Filomeno B. Tan, Jr., Soberrano, Leong, Amihan, Tan, Escuerte, Parel and Associates
for private respondent-appellee.


This is an appeal by certiorari, for the review of the Decision of the respondent
Court of Appeals (C.A.) in CA-G.R. No. 63398-R, entitled "Aurelio Lacson, (appellee)
vs. Malayan Insurance Co., Inc., (appellant), which affirmed the decision of the Court
of First Instance (CFI) of Negros Occidental holding petitioner liable to pay private
respondent Aurelio Lacson the amount of P20,000.00, less deductible franchise,
which is the maximum coverage of the insurance policy, with legal interest thereon
from the date of filing of the complaint, the amount of P5,000.00 as attorney's fees
and expenses in litigation, and to pay the costs.

Plaintiff Aurelio Lacson (private respondent herein) is the owner of a Toyota NP Land
Cruiser, Model 1972, bearing Plate No. NY-362 and with engine Number F-374325.
Said vehicle was insured with defendant company (petitioner herein) under "private
car comprehensive" policy No. BIFC/PV-0767 for a one year period, from Dec. 3,
1974 to Dec. 3, 1975. On Dec. 1, 1975 plaintiff caused the delivery of subject
vehicle to the shop of Carlos Jamelo for repair. On Dec. 2, 1975 while the vehicle
was in Carlos Jamelo's shop, a certain Rogelio Mahinay, together with his other coemployees in the shop, namely Johnny Mahinay, Rogelio Macapagong and Rogelio
Francisco took and drove the Toyota Land Cruiser, as a result of which it met with an
accident at Bo. Taculing Bacolod City, causing damage thereto, in an estimated
amount of P21,849.62. Shop-owner Carlos Jamelo reported the incident to the police
and later on instituted a criminal case for Qualified Theft against his employees who
had taken plaintiff's vehicle. Plaintiff sought indemnification under his insurance
policy from defendant company but the latter refused to pay on the ground that the
claim is not covered by the policy inasmuch as the driver of the insured vehicle at
the time of the accident was not a duly licensed driver. This act of defendant
company prompted Plaintiff to file a civil case for damages docketed as Civil Case
No. 12447 of the CFI of Negros Occidental. Defendant in its answer raised among
other things as affirmative and special defenses that plaintiff has no cause of action,
claim is not covered by the insurance policy, and non-joinder of indispensable party.
After trial the Court a quo rendered a favorable judgment for the plaintiff. On appeal
the Court of Appeals affirmed said decision and denied a motion for reconsideration
of the same. Hence, the instant petition by defendant company relying on the
following grounds:

1. the respondent Court of Appeals erred in holding that conviction of theft is not
necessary for claim to be compensable under the "theft" coverage of the insurance
policy, which ruling establishes a bad and dangerous precedent to the detriment
and prejudice of insurance industry.

2. the respondent Court of Appeals erred in holding petitioner liable for actual
damage of the vehicle without sufficient and come tent evidentiary basis.

3. the respondent Court of Appeals erred in holding petitioner liable to private

respondent Aurelio Lacson in disregard of the real party in interest BIFC in violation
of the principle embodied in the Rules of Court, that every action must be
prosecuted in the name of the real party in interest.

4. the respondent Court of Appeals erred in holding petitioner liable for interest from
firing of the complaint and not from the date of decision or its finality, also in
disregard of established doctrines laid down by the Honorable Supreme Court.

Petitioner's contentions hold no water. The first assignment of error was

satisfactorily disposed of by the trial court as well as by the appellate court as
shown by the ruling that "the taking of the vehicle by another person without
permission or authority from the owner or person-in-charge thereof is sufficient to
place it within the ambit of the word theft as contemplated in the policy, and is
therefore, compensable." The fact that one of the accused persons in the criminal
case (filed against those who took the jeep from the repair shop) pleaded guilty to
the charge of having unlawfully taken the insured vehicle did away with the
necessity of a final disposition of the criminal case in order for plaintiff to recover
under his insurance policy. At any rate, accused Rogelio Mahinay was convicted of
Theft after he pleaded guilty to the charge.

There is no question that the vehicle of private respondent was damaged because
the unlawful taker, accused Rogelio Mahinay, drove it and met with a vehicular
accident. The damages therefore were sustained in the course of the unlawful
taking. The testimonies of plaintiff and his witness in this respect remain
unrebutted. The fact remains that plaintiff's claim is substantiated by competent
evidence. The appellate court ruled:

Appellant contends that the trial court erred in awarding the amount of P20,000.00
actual damage without sufficient evidentiary basis and imposing interest from date
of filing of the complaint. We do not see anything erroneous with this finding of the
trial court. As estimated by a reputed motor company, Fidelity Motor Company, the

damage which the insured vehicle sustained amounts to P21,849,62. Actual repair is
not necessary for the purpose, as the insured has the option, either to advance
expenses for the repair of or to wait for the proceeds of the insurance.
Likewise in the very insurance policy (Exh. "A") covering the damaged vehicle,
petitioner's liability is fixed at P20,000 less deductible franchise of P800.00. As
borne out by the evidence, private respondent before instituting the present action
against petitioner wrote a letter of demand (Exh. "H") to petitioner for the payment
of his claim in the amount of P21,849.62 as estimated by Fidelity Motor Company.
This notwithstanding, petitioner failed and refused to pay respondent's claim
prompting the latter to file the present action in court.
As to petitioner's third assignment of error, after considering the facts and
circumstances of the case as found by the trial court and the respondent appellate
court, We cannot see any reason to depart from the ruling set down by the
respondent Court of Appeals. In this connection, the CA said:
the memorandum on the policy states LOSS on DAMAGE, IF ANY, under this policy
shall be payable to the Bacolod IFC 1 as their interest may appear, subject
otherwise to the terms and conditions, clauses and warranties of this policy. Since
as testified to by plaintiff-appellee, 2 Bacolod IFCs interest in the insured vehicle
was in the amount of P2,000.00 only compared to plaintiff's P26,000.00 it is well to
presume that Bacolod IFC did not deem it wise to be impleaded as party-plaintiff in
this case. Had Bacolod IFC been interested in the insurance proceeds, it could thru
its duly authorized office, have taken the initiative to join plaintiff in the suit, but it
did not. As a matter of fact, as testified to by the plaintiff, Atty. Morravilla of the BIFC
knew fully well that he (plaintiff) was pursuing a claim for insurance from defendantappellant. This inaction on the part of BIFC will only show that it was not really
interested to intervene.

Petitioner's fourth assignment of error is untenable. Respondent has sufficiently

established his demand for the award of damages plus interest as sanctioned under
Arts. 1169, 1170 and 2209 of the Civil Code. Thus, a debtor who is in delay (default)
is liable for damages (Art. 1170) generally from extrajudicial or judicial demand (Art.
1169) in the form of interest. (See Art. 2209, Civil Code).

WHEREFORE, premises considered, the present petition is hereby DENIED for lack of
merit and the judgment appealed from AFFIRMED in toto.

[G.R. No. L-34768. February 24, 1984.]

JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL STEPHEN

ADOLFSON, Plaintiffs-Appellees, v. MALAYAN INSURANCE CO., INC., DefendantAppellant.

Rodrigo M. Nera for Plaintiffs-Appellees.

Pio B. Salomon, Jr., for Defendant-Appellant.



A CONDITION PRECEDENT TO RECOVERY. A contract of insurance is a contract of
indemnity upon the terms and conditions specified therein. When the insurer is
called upon to pay in case of loss or damage, he has the right to insist upon
compliance with the terms of the contract. If the insured cannot bring himself within
the terms and conditions of the contract, he is not entitled as a rule to recover for
the loss or damage suffered. For the terms of the contract constitute the measure of
the insurers liability, and compliance therewith is a condition precedent to the right
of recovery. (Young v. Midland Textile Insurance Co., 30 Phil. 617.)

2. ID.; ID.; ID.; "AUTHORIZED DRIVER" CLAUSE, MEANING. Under the "authorized
driver" clause, an authorized driver must not only be permitted to drive by the
insured. It is also essential that he is permitted under the law and regulations to
drive the motor vehicle and is not disqualified from so doing under any enactment
or regulation. At the time of the accident, Stokes had been in the Philippines for
more than 90 days. Hence, under the law, he could not drive a motor vehicle
without a Philippine drivers license. He was therefore not an "authorized driver"
under the terms of the insurance policy in question, and MALAYAN was right in
denying the claim of the insured.


Acceptance of premium within the stipulated period for payment thereof, including

the agreed period of grace, merely assures continued effectivity of the insurance
policy in accordance with its terms. Such acceptance does not estop the insurer
from interposing any valid defense under the terms of the insurance policy.


The principle of estoppel is an equitable principle rooted upon natural justice
which prevents a person from going back on his own acts and representations to the
prejudice of another whom he has led to rely upon them. The principle does not
apply to the instant case. In accepting the premium payment of the insured,
MALAYAN was not guilty of any inequitable act or representation. There is nothing
inconsistent between acceptance of premium due under an insurance policy and the
enforcement of its terms.



This is an appeal by Malayan Insurance Company, Inc. (MALAYAN) from a decision of

Court of First Instance of Manila ordering it to pay the insured under a car insurance
policy issued by MALAYAN to Daniel Stephen Adolfson against own damage as well
as third party liability.chanrobles virtualawlibrary

The facts are not in dispute, Adolfson had a subsisting MALAYAN car insurance
policy with the above coverage on November 23, 1969 when his car collided with a
car owned by Cesar Poblete, resulting in damage to both vehicles. At the time of the
accident, Adolfsons car was being driven by James Stokes, who was authorized to
do so by Adolfson. Stokes, an Irish citizen who had been in the Philippines as a
tourist for more than ninety days, had a valid and subsisting Irish drivers license
but without a Philippine drivers license.

After the collision, Adolfson filed a claim with MALAYAN but the latter refused to pay,
contending that Stokes was not an authorized driver under the "Authorized Driver"
clause of the insurance policy in relation to Section 21 of the Land Transportation
and Traffic Code.

Under the insurance policy, "authorized driver" refers to

"(a) The insured

"(b) Any person driving on the insureds order or with his permission.

"PROVIDED that the person driving is permitted in accordance with the licensing or
other laws or regulations to drive the motor vehicle and is not disqualified from
driving such motor vehicle by order of a court of law or by reason of any enactment
or regulation in that behalf."cralaw virtua1aw library

The cited Section 21 of the Land Transportation and Traffic Code


"Operation of motor vehicles by tourists. Bona fide tourists and similar transients
who are duly licensed to operate motor vehicles in their respective countries may
be allowed to operate motor vehicles during but not after ninety days of their
sojourn in the Philippines.

"After ninety days, any tourist or transient desiring to operate motor vehicles shall
pay fees and obtain and carry a license as hereinafter provided." (Emphasis

Unable to convince MALAYAN to pay, Stokes and Adolfson brought suit before the
Court of First Instance of Manila and succeeded in getting a favorable judgment,
although Stokes had ceased to be authorized to drive a motor vehicle in the

Philippines at the time of the accident, he having stayed therein as a tourist for over
90 days without having obtained a Philippine drivers license. The Court held that
Stokes lack of a Philippine drivers license was not fatal to the enforcement of the
insurance policy; and the MALAYAN was estopped from denying liability under the
insurance policy because it accepted premium payment made by the insured one
day after the accident. It said:jgc:chanrobles.com.ph

"Defendant cannot evade liability under the policy by virtue of the above provision
of the Land Transportation and Traffic Code. This is an insurance case. The basis of
insurance contracts is good faith and trust between the insurer and the insured. The
matter of the failure on the part of Stokes to have a Philippine drivers license is not
such a defect that can be considered as fatal to the contract of insurance, because
the fact is that Stokes still had a valid and unexpired Irish license. As a matter of
fact, the traffic officer who investigated the incident gave Stokes a traffic violation
receipt and not a ticket for driving without license.

"Then the Court believes that defendant is in estoppel in this case because it
allowed the plaintiff to pay the insurance premium even after the accident occurred.
Admitting for the sake of argument that there was a violation of the terms of the
policy before the incident, the admission or acceptance by the insurance company
of the premium should be considered as a waiver on its part to contest the claim of
the plaintiffs."cralaw virtua1aw library

In this appeal, the two issues resolved by the court a quo are raised anew. We find
the appeal meritorious.

1. A contract of insurance is a contract of indemnity upon the terms and conditions

specified therein. When the insurer is called upon to pay in case of loss or damage,
he has the right to insist upon compliance with the terms of the contract. If the
insured cannot bring himself within the terms and conditions of the contract, he is
not entitled as a rule to recover for the loss or damage suffered. For the terms of the
contract constitute the measure of the insurers liability, and compliance therewith
is a condition precedent to the right of recovery. (Young v. Midland Textile Insurance
Co., 30 Phil. 617.)

Under the "authorized driver" clause, an authorized driver must not only be
permitted to drive by the insured. It is also essential that he is permitted under the
law and regulations to drive the motor vehicle and is not disqualified from so doing
under any enactment or regulation.chanrobles virtual lawlibrary

At the time of the accident, Stokes had been in the Philippines for more than 90
days. Hence, under the law, he could not drive a motor vehicle without a Philippine
drivers license. He was therefore not an "authorized driver" under the terms of the
insurance policy in question, and MALAYAN was right in denying the claim of the

2. Acceptance of premium within the stipulated period for payment thereof,

including the agreed period of grace, merely assures continued effectivity of the
insurance policy in accordance with its terms. Such acceptance does not estop the
insurer from interposing any valid defense under the terms of the insurance policy.

The principle of estoppel is an equitable principle rooted upon natural justice which
prevents a person from going back on his own acts and representations to the
prejudice of another whom he has led to rely upon them. The principle does not
apply to the instant case. In accepting the premium payment of the insured,
MALAYAN was not guilty of any inequitable act or representation. There is nothing
inconsistent between acceptance of premium due under an insurance policy and the
enforcement of its terms.
WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs
against the appellees.


G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,



The Court sets aside respondent Insurance Commission's dismissal of petitioner's

complaint and holds that where the insured's car is wrongfully taken without the
insured's consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980
of respondent insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00
Own Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck

veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was compelled
to institute the present action.

The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitionerinsured against loss or damage to the car (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; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for

recovery of the total loss of the vehicle against private respondent, sustaining
respondent insurer's contention that the accident did not fall within the provisions of
the policy either for the Own Damage or Theft coverage, invoking the policy
provision on "Authorized Driver" clause. 1

Respondent commission upheld private respondent's contention on the "Authorized

Driver" clause in this wise: "It must be observed that under the above-quoted
provisions, the policy limits the use of the insured vehicle to two (2) persons only,
namely: the insured himself or any person on his (insured's) permission. Under the
second category, it is to be noted that the words "any person' is qualified by the

... on the insured's order or with his permission.' It is therefore clear that if the
person driving is other than the insured, he must have been duly authorized by the
insured, to drive the vehicle to make the insurance company liable for the driver's
negligence. Complainant admitted that she did not know the person who drove her
vehicle at the time of the accident, much less consented to the use of the same
(par. 5 of the complaint). Her husband likewise admitted that he neither knew this
driver Benito Mabasa (Exhibit '4'). With these declarations of complainant and her
husband, we hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is a
violation of the 'Authorized Driver' clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car
was not stolen and therefore not covered by the Theft clause, ruling that "The
element of 'taking' in Article 308 of the Revised Penal Code means that the act of

depriving another of the possession and dominion of a movable thing is coupled ...
with the intention. at the time of the 'taking', of withholding it with the character of
permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must
have been shown a felonious intent upon the part of the taker of the car, and the
intent must be an intent permanently to deprive the insured of his car," and that
"Such was not the case in this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the withholding of the same, for a
joy ride should not be construed to mean 'taking' under Art. 308 of the Revised
Penal Code. If at all there was a 'taking', the same was merely temporary in nature.
A temporary taking is held not a taking insured against (48 A LR 2d., page 15)."

The Court finds respondent commission's dismissal of the complaint to be contrary

to the evidence and the law.

First, respondent commission's ruling that the person who drove the vehicle in the
person of Benito Mabasa, who, according to its finding, was one of the residents of
the Sunday Machine Works, Inc. to whom the car had been entrusted for general
check-up and repairs was not an "authorized driver" of petitioner-complainant is too
restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing
of his signature or his "adhesion" thereto, "obviously call for greater strictness and
vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary. 2

The main purpose of the "authorized driver" clause, as may be seen from its text,
supra, is that a person other than the insured owner, who drives the car on the
insured's order, such as his regular driver, or with his permission, such as a friend or
member of the family or the employees of a car service or repair shop must be duly
licensed drivers and have no disqualification to drive a motor vehicle.

A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are
presumed to have the insured's permission to drive the car for legitimate purposes
of checking or road-testing the car. The mere happenstance that the employee(s) of
the shop owner diverts the use of the car to his own illicit or unauthorized purpose
in violation of the trust reposed in the shop by the insured car owner does not mean
that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of
carrying out the owner's order to fetch the children from school takes out his girl

friend instead for a joy ride and instead wrecks the car. There is no question of his
being an "authorized driver" which allows recovery of the loss although his trip was
for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken,
it is the theft clause, not the "authorized driver" clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a
long trip to Montalban without the owner's consent or knowledge, such taking
constitutes or partakes of the nature of theft as defined in Article 308 of the Revised
Penal Code, viz. "Who are liable for theft. Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons nor force
upon things, shall take personal property of another without the latter's consent,"
for purposes of recovering the loss under the policy in question.

The Court rejects respondent commission's premise that there must be an intent on
the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."

The evidence does not warrant respondent commission's findings that it was a mere
"joy ride". From the very investigator's report cited in its comment, 3 the police
found from the waist of the car driver Benito Mabasa Bartolome who smashed the
car and was found dead right after the incident "one cal. 45 Colt. and one apple
type grenade," hardly the materials one would bring along on a "joy ride". Then,
again, it is equally evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was never
returned in serviceable and useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary"
and for a "joy ride", the Court sustains as the better view that which holds that
when a person, either with the object of going to a certain place, or learning how to
drive, or enjoying a free ride, takes possession of a vehicle belonging to another,
without the consent of its owner, he is guilty of theft because by taking possession
of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure.
Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it "hurt de uso. " 4

The insurer must therefore indemnify the petitioner-owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to

the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc.

ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal
interest from the filing of the complaint until full payment is made and to pay the
costs of suit.

G.R. No. L-30685 May 30, 1983

NG GAN ZEE, plaintiff-appellee,


Alberto Q. Ubay for plaintiff-appellee.

Santiago F. A lidio for defendant-appellant.


This is an appeal from the judgment of the Court of First Instance of Manila, ordering
the appellant Asian-Crusader Life Assurance Corporation to pay the face value of an
insurance policy issued on the life of Kwong Nam the deceased husband of appellee
Ng Gan Zee. Misrepresentation and concealment of material facts in obtaining the
policy were pleaded to avoid the policy. The lower court rejected the appellant's

theory and ordered the latter to pay appellee "the amount of P 20,000.00, with
interest at the legal rate from July 24, 1964, the date of the filing of the complaint,
until paid, and the costs. "

The Court of Appeals certified this appeal to Us, as the same involves solely a
question of law.

On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his
life for the sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On
the same date, appellant, upon receipt of the required premium from the insured,
approved the application and issued the corresponding policy. On December 6,
1963, Kwong Nam died of cancer of the liver with metastasis. All premiums had
been religiously paid at the time of his death.

On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to
appellant for payment of the face value of the policy. On the same date, she
submitted the required proof of death of the insured. Appellant denied the claim on
the ground that the answers given by the insured to the questions appealing in his
application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner, the
Hon. Francisco Y. Mandamus, and the latter, after conducting an investigation, wrote
the appellant that he had found no material concealment on the part of the insured
and that, therefore, appellee should be paid the full face value of the policy. This
opinion of the Insurance Commissioner notwithstanding, appellant refused to settle
its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he

answered "No" to the following question appearing in the application for life

Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied
for? If, so, name company and date.

In its brief, appellant rationalized its thesis thus:

... As pointed out in the foregoing summary of the essential facts in this case, the
insured had in January, 1962, applied for reinstatement of his lapsed life insurance
policy with the Insular Life Insurance Co., Ltd, but this was declined by the insurance
company, although later on approved for reinstatement with a very high premium
as a result of his medical examination. Thus notwithstanding the said insured
answered 'No' to the [above] question propounded to him. ... 1

The lower court found the argument bereft of factual basis; and We quote with
approval its disquisition on the matter-

On the first question there is no evidence that the Insular Life Assurance Co., Ltd.
ever refused any application of Kwong Nam for insurance. Neither is there any
evidence that any other insurance company has refused any application of Kwong
Nam for insurance.

... The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong
Nam's request for reinstatement and amendment of his lapsed insurance policy on
April 24, 1962 [Exh. L-2 Stipulation of Facts, Sept. 22, 1965). The Court notes from
said application for reinstatement and amendment, Exh. 'L', that the amount
applied for was P20,000.00 only and not for P50,000.00 as it was in the lapsed
policy. The amount of the reinstated and amended policy was also for P20,000.00. It
results, therefore, that when on May 12, 1962 Kwong Nam answered 'No' to the
question whether any life insurance company ever refused his application for
reinstatement of a lapsed policy he did not misrepresent any fact.

... the evidence shows that the application of Kwong Nam with the Insular Life
Assurance Co., Ltd. was for the reinstatement and amendment of his lapsed
insurance policy-Policy No. 369531 -not an application for a 'new insurance policy.
The Insular Life Assurance Co., Ltd. approved the said application on April 24, 1962.
Policy No. 369531 was reinstated for the amount of P20,000.00 as applied for by
Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy was issued by the Insular Life
Assurance Co., Ltd. to Kwong Nam in connection with said application for
reinstatement and amendment. Such being the case, the Court finds that there is no
misrepresentation on this matter. 2

Appellant further maintains that when the insured was examined in connection with
his application for life insurance, he gave the appellant's medical examiner false
and misleading information as to his ailment and previous operation. The alleged
false statements given by Kwong Nam are as follows:

Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been
associated with ulcer of stomach. Tumor taken out was hard and of a hen's egg size.
Operation was two [2] years ago in Chinese General Hospital by Dr. Yap. Now,
claims he is completely recovered.

To demonstrate the insured's misrepresentation, appellant directs Our attention to:

[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the
Chinese General Hospital on May 22, 1960, i.e., about 2 years before he applied for
an insurance policy on May 12, 1962. According to said report, Dr. Fu Sun Yuan had
diagnosed the patient's ailment as 'peptic ulcer' for which, an operation, known as a
'sub-total gastric resection was performed on the patient by Dr. Pacifico Yap; and

[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen
removed from the patient's body was 'a portion of the stomach measuring 12 cm.
and 19 cm. along the lesser curvature with a diameter of 15 cm. along the greatest

On the bases of the above undisputed medical data showing that the insured was
operated on for peptic ulcer", involving the excision of a portion of the stomach,
appellant argues that the insured's statement in his application that a tumor, "hard
and of a hen's egg size," was removed during said operation, constituted material

The question to be resolved may be propounded thus: Was appellant, because of

insured's aforesaid representation, misled or deceived into entering the contract or
in accepting the risk at the rate of premium agreed upon?

The lower court answered this question in the negative, and We agree.

Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract, and which
the other has not the means of ascertaining, and as to which he makes no warranty.

Thus, "concealment exists where the assured had knowledge of a fact material to
the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assurer, but he designedly and intentionally withholds the
same." 4

It has also been held "that the concealment must, in the absence of inquiries, be
not only material, but fraudulent, or the fact must have been intentionally
withheld." 5

Assuming that the aforesaid answer given by the insured is false, as claimed by the
appellant. Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that
fraudulent intent on the part of the insured be established to entitle the insurer to
rescind the contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an 'affirmative'
defense. The duty to establish such a defense by satisfactory and convincing
evidence rests upon the defendant. The evidence before the Court does not clearly
and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner
that the tumor for which he was operated on was "associated with ulcer of the
stomach." In the absence of evidence that the insured had sufficient medical
knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of the stomach, " should be
construed as an expression made in good faith of his belief as to the nature of his
ailment and operation. Indeed, such statement must be presumed to have been
made by him without knowledge of its incorrectness and without any deliberate
intent on his part to mislead the appellant.

While it may be conceded that, from the viewpoint of a medical expert, the
information communicated was imperfect, the same was nevertheless sufficient to
have induced appellant to make further inquiries about the ailment and operation of
the insured.

Section 32 of Insurance Law [Act No. 24271 provides as follows:

Section 32. The right to information of material facts maybe waived either by the
terms of insurance or by neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is communicated.

It has been held that where, upon the face of the application, a question appears to
be not answered at all or to be imperfectly answered, and the insurers issue a policy
without any further inquiry, they waive the imperfection of the answer and render
the omission to answer more fully immaterial. 6

As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had
such an important bearing on the question of whether the defendant would
undertake the insurance or not, the court cannot understand why the defendant or
its medical examiner did not make any further inquiries on such matters from the
Chinese General Hospital or require copies of the hospital records from the
appellant before acting on the application for insurance. The fact of the matter is
that the defendant was too eager to accept the application and receive the
insured's premium. It would be inequitable now to allow the defendant to avoid
liability under the circumstances."

Finding no reversible error committed by the trial court, the judgment appealed
from is hereby affirmed, with costs against appellant Asian-Crusader life Assurance


G.R. No. L-26827 June 29, 1984

AGAPITO GUTIERREZ, plaintiff-appellee,

CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.

Celso P. delas Alas for plaintiff-appellee.

Achacoso, Ocampo & Simbulan Law Office for defendant-appellant.


The issue in this case is whether an insurance covers a jeepney whose driver's
traffic violation report or temporary operator's permit had already expired.

Capital Insurance & Surety Co., Inc. insured on December 7, 1961 for one year the
jeepney of Agapito Gutierrez against passenger and third-party liability. The
passenger liability would not exceed P5,000 for any one person (Exh. 1 or C-2).

The policy provides in item 13 that the authorized driver must be the holder of a
valid and subsisting professional driver's license. "A driver with an expired Traffic
Violation Receipt or expired Temporary Operator's Permit is not considered an
authorized driver" (pp. 26-27, 107, Record on Appeal, Par. 13, Policy, Exh. C).

Item 13 is part of the "declarations" which formed part of the policy and had a
promissory nature and effect and constituted "the basis of the policy" (Exh. C, p. 7,
Record on Appeal).

On May 29, 1962, the insured jeepney figured in an accident at Buendia Avenue,
Makati, Rizal. As a result, a passenger named Agatonico Ballega fell off the vehicle
and died (Pars. 3 and 4, Exh. A).

Teofilo Ventura, the jeepney driver, was duly licensed for the years 1962 and 1963
(Exh. D). However, at the time of the accident he did not have the license. Instead,
he had a carbon copy of a traffic violation report (summons) issued by a policeman
on February 22, 1962, with the notation that he had committed the violation:
"Inattentive to driving (Inv. in accident) at 9:30 a.m., 2-22-62" (Exh. E-1).

The same TVR, which served as a receipt for his license, required him to report to
Branch 8 of the traffic court at the corner of Arroceros and Concepcion Streets,
Manila at nine o'clock in the morning of March 2, 1962. The TVR would "serve as a
temporary operator's permit for 15 days from receipt hereof" (p. 100, Record on
Appeal). It is indisputable that at the time of the accident (May 29, 1962), Ventura
was holding an "expired Temporary Operator's Permit."

Gutierrez paid P4,000 to the passenger's widow, Rosalina Abanes Vda. de Ballega,
by reason of her husband's death (5 tsn January 20, 1966; Exh. B and B-1).

As Capital Insurance refused to make any reimbursement, he filed on October 14,

1963 in the city court of Manila an action for specific performance and damages.

The city court in a decision dated April 20, 1965 held that Ventura was an
authorized driver because his TVR was coterminous with his license. However, it
dismissed the complaint because Gutierrez allegedly failed to prove that he paid
any amount to the heirs of Ballega. Gutierrez appealed.

The Court of First Instance in a decision dated April 18, 1966 held that Gutierrez's
Exhibits B and B-1 prove that he paid the widow of Ballega P4,099.95 and that his
driver, Ventura, was an authorized driver because his TVR was "coextensive with
the" two-year term of his confiscated license. It ordered the insurance company to
pay the Id amount. The insurance company appealed to this Court.

We hold that paragraph 13 of the policy, already cited, is decisive and controlling in
this case. It plainly provides, and we repeat, that "a driver with an expired Traffic
Violation Receipt or expired Temporary Operator's permit is not considered an
authorized driver within the meaning" of the policy. Obviously, Ventura was not an
authorized driver. His temporary operator's permit had expired. The expiration bars
recovery under the policy.

In liability insurance, "the parties are bound by the terms of the policy and the right
of insured to recover is governed thereby" (44 C.J.S. 934).

It may be that for purposes of the Motor Vehicle Law the TVR is coterminous with
the confiscated license. That is why the Acting Administrator of the Motor Vehicles
Office and the Manila deputy chief of police ventured the opinion that a TVR does
not suspend the erring driver's license, that it serves as a temporary license and

that it may be renewed but should in no case extend beyond the expiration date of
the original license (Exh. F and J, 67, 90-9 1, Record on Appeal).

But the instant case deals with an insurance policy which definitively fixed the
meaning of "authorized driver". That stipulation cannot be disregarded or rendered
meaningless. It is binding on the insured.

It means that to be entitled to recovery the insured should see to it that his driver is
authorized as envisaged in paragraph 13 of the policy which is the law between the
parties (Ty vs. First National Surety & Insurance Co., Inc., 111 Phil. 1122).lwphl@it
The rights of the parties flow from the insurance contract (Ang vs. Fulton Fire Ins.
Co., 112 Phil. 844).

The following ruling has persuasive authority:

Insurance; Automobile; When insurer exempt from liability; Case at bar. The
automobile insurance policy sued upon in the instant case exempts the insurer
company from liability for any accident loss, damage or liability caused, sustained
or incurred while the vehicle is being driven by any person other than an authorized

The policy defines the term 'authorized driver' to be the insured himself or any
person driving on the insured's order or with his permission provided he is permitted
to drive under the licensing laws.

In the case at bar, plaintiff's brother, who was at the wheel at the time of the
collision, did not have a valid license because the one he had obtained had already
expired and had not been renewed as required by Section 31 of the Motor Vehicle

That he had renewed his license one week after the accident did not cure the
delinquency or revalidate the license which had already expired (Syllabus, Tanco, Jr.
vs. Phil. Guaranty Co., 122 Phil. 709).

WHEREFORE. The judgment of the trial is reverse and set aside. The complaint is
dismissed. No costs.

G.R. No. L-44059 October 28, 1977


CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.


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

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 commonlaw wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular
Life Assurance Co., Ltd. commenced an action for Interpleader before the Court of
First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972,
after which, a pre-trial order was entered reading as follows: +.wph!1

During the pre-trial conference, the parties manifested to the court. that there is no
possibility of amicable settlement. Hence, the Court proceeded to have the parties
submit their evidence for the purpose of the pre-trial and make admissions for the
purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2)
that during the lifetime of the deceased, he was insured with Insular Life Assurance
Co. Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum
of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A
for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia
Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his
common-wife, Carponia Ebrado, with whom she had 2 children although he was not
legally separated from his legal wife; 4) that Buenaventura in accident on October
21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his
death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular
Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for
the proceeds of said policy 6) that in view ofthe adverse claims the insurance
company filed this action against the two herein claimants Carponia and Pascuala
Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of
the policy P11,745.73; 8) that the beneficiary designated by the insured in the
policy is Carponia Ebrado and the insured made reservation to change the
beneficiary but although the insured made the option to change the beneficiary,
same was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the
designation of the parties agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous
memoranda from the receipt of this order.


On September 25, 1972, the trial court rendered judgment declaring among others,
Carponia T. Ebrado disqualified from becoming beneficiary of the insured
Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds
to the estate of the deceased insured. The trial court held: +.wph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal
conviction for adultery or concubinage is not essential in order to establish the
disqualification mentioned therein. Neither is it also necessary that a finding of such
guilt or commission of those acts be made in a separate independent action brought
for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to declare
the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in question for the
disqualification and incapacity to exist and that it is only necessary that such fact be
established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T.
Ebrado were living together as husband and wife without being legally married and
that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado
was valid and still existing at the time the insurance in question was purchased
there is no question that defendant Carponia T. Ebrado is disqualified from
becoming the beneficiary of the policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on
July 11, 1976, the Appellate Court certified the case to Us as involving only
questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the
new Insurance Code (PD No. 612, as amended) does not contain any specific
provision grossly resolutory of the prime question at hand. Section 50 of the
Insurance Act which provides that "(t)he insurance shag be applied exclusively to
the proper interest of the person in whose name it is made" 1 cannot be validly

seized upon to hold that the mm includes the beneficiary. The word "interest" highly
suggests that the provision refers only to the "insured" and not to the beneficiary,
since a contract of insurance is personal in character. 2 Otherwise, the prohibitory
laws against illicit relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of insurance. Rather,
the general rules of civil law should be applied to resolve this void in the Insurance
Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special laws
shall be regulated by this Code." When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any
person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot make a
donation to him. 4 Common-law spouses are, definitely, barred from receiving
donations from each other. Article 739 of the new Civil Code provides: +.wph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the
time of donation;

Those made between persons found guilty of the same criminal offense, in
consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason

of his office.

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

2. In essence, a life insurance policy is no different from a civil donation insofar as

the beneficiary is concerned. Both are founded upon the same consideration:
liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts. The mandate of
Article 2012 cannot be laid aside: any person who cannot receive a donation cannot
be named as beneficiary in the life insurance policy of the person who cannot make
the donation. 5 Under American law, a policy of life insurance is considered as a

testament and in construing it, the courts will, so far as possible treat it as a will and
determine the effect of a clause designating the beneficiary by rules under which
wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a

barrier between common law spouses in record to Property relations since such hip
ultimately encroaches upon the nuptial and filial rights of the legitimate family
There is every reason to hold that the bar in donations between legitimate spouses
and those between illegitimate ones should be enforced in life insurance policies
since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients
of pure beneficence. So long as manage remains the threshold of family laws,
reason and morality dictate that the impediments imposed upon married couple
should likewise be imposed upon extra-marital relationship. If legitimate relationship
is circumscribed by these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7
this Court, through Justice Fernando, said: +.wph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L.
Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other
consort and his descendants because of and undue and improper pressure and
influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no
se enganen desponjandose el uno al otro por amor que han de consuno' (According
to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore
invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem);
then there is very reason to apply the same prohibitive policy to persons living
together as husband and wife without the benefit of nuptials. For it is not to be
doubted that assent to such irregular connection for thirty years bespeaks greater
influence of one party over the other, so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib.
32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest
the condition 6f those who incurred guilt should turn out to be better.' So long as
marriage remains the cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage should likewise attach to

It is hardly necessary to add that even in the absence of the above pronouncement,
any other conclusion cannot stand the test of scrutiny. It would be to indict the
frame of the Civil Code for a failure to apply a laudable rule to a situation which in
its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the
policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should not be

susceptible to such a reproach. If there is every any occasion where the principle of
statutory construction that what is within the spirit of the law is as much a part of it
as what is written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in an
interpretation purely literal of the language used must be remedied by an
adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before

the disabilities mentioned in Article 739 may effectuate. More specifically, with
record to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides: +.wph!1

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

The underscored clause neatly conveys that no criminal conviction for the offense is
a condition precedent. In fact, it cannot even be from the aforequoted provision that
a prosecution is needed. On the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for declaration of nullity of donation. And,
it would be sufficient if evidence preponderates upon the guilt of the consort for the
offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the
insured and the beneficiary has been conveniently supplied by the stipulations
between the parties in the pre-trial conference of the case. It case agreed upon and
stipulated therein that the deceased insured Buenaventura C. Ebrado was married
to Pascuala Ebrado with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his common-law wife, Carponia
Ebrado, with whom he has two children. These stipulations are nothing less than
judicial admissions which, as a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be
validly rendered without going through the rigors of a trial for the sole purpose of
proving the illicit liaison between the insured and the beneficiary. In fact, in that
pretrial, the parties even agreed "that a decision be rendered based on this
agreement and stipulation of facts as to who among the two claimants is entitled to
the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed.

Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late
Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds

of the policy are hereby held payable to the estate of the deceased insured. Costs
against Carponia T. Ebrado.


G.R. No. L-31845 April 30, 1979



G.R. No. L-31878 April 30, 1979


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.


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 form his strong recommendation for the
approval of the insurance 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

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 noncompliance 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 20year 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 home to his knowledge. He must have
been duly apprised of the rejection of the application for a 20-year endowment plan
otherwise Mondragon would not have asserted that it was Ngo Hing himself who
insisted on the application as originally filed, thereby implictly declining the offer to
consider the application under the Juvenile Triple 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 7 years old. What he and
Mondragon were apparently trying to do in the premises was 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 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


WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof,
one is hereby entered absolving petitioners Lapulapu D. Mondragon and Great
Pacific Life Assurance Company from their civil liabilities as found by respondent
Court and ordering the aforesaid insurance company to reimburse the amount of
P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private

G.R. No. L-25317 August 6, 1979


WOODWORKS, INC., defendant-appellant.

Zosimo Rivas for appellant.

Manuel O. Chan for appellee.


This case was certified to this Tribunal by the Court of Appeals in its Resolution of
October 4, 1965 on a pure question of law and "because the issues raised are
practically the same as those in CA-G.R. No. 32017-R" between the same parties,
which case had been forwarded to us on April 1, 1964. The latter case, "Philippine
Phoenix Surety & Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L22684, was decided on August 31, 1967 and has been reported in 20 SCRA 1270.

Specifically, this action is for recovery of unpaid premium on a fire insurance policy
issued by plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of
defendant Woodworks, Inc.

The following are the established facts:

On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire
Insurance Policy No. 9749 for P500,000.00 whereby plaintiff insured defendant's
building, machinery and equipment for a term of one year from July 21, 1960 to July
21, 1961 against loss by fire. The premium and other charges including the margin
fee surcharge of P590.76 and the documentary stamps in the amount of P156.60
affixed on the Policy, amounted to P10,593.36.

It is undisputed that defendant did not pay the premium stipulated in the Policy
when it was issued nor at any time thereafter.

On April 19, 1961, or before the expiration of the one-year term, plaintiff notified
defendant, through its Indorsement No. F-6963/61, of the cancellation of the Policy
allegedly upon request of defendant. 1 The latter has denied having made such a
request. In said Indorsement, plaintiff credited defendant with the amount of
P3,110.25 for the unexpired period of 94 days, and claimed the balance of
P7,483.11 representing ,learned premium from July 21, 1960 to 18th April 1961 or,
say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment of
said amount. 2 Defendant, through counsel, disclaimed any liability in its replyletter of August 15, 1961, contending, in essence, that it need not pay premium
"because the Insurer did not stand liable for any indemnity during the period the
premiums were not paid." 3

On January 30, 1962, plaintiff commenced action in the Court of First Instance of
Manila, Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as
"earned premium." Defendant controverted basically on the theory that its failure
"to pay the premium after the issuance of the policy put an end to the insurance
contract and rendered the policy unenforceable." 4

On September 13, 1962, judgment was rendered in plaintiff's favor "ordering

defendant to pay plaintiff the sum of P7,483.11, with interest thereon at the rate of
6%, per annum from January 30, 1962, until the principal shall have been fully paid,
plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit."

From this adverse Decision, defendant appealed to the Court of Appeals which, as
heretofore stated, certified the case to us on a question of law.

The errors assigned read:

1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a
binding contract even if the premium stated in the policy has not been paid.

2. That the lower court erred in sustaining that the premium in Insurance Policy,
Exhibit B, became an obligation which was demandable even after the period in the
Policy has expired.

3. The lower court erred in not deciding that a premium not paid is not a debt
enforceable by action of the insurer.

We find the appeal meritorious.

Insurance is "a contract whereby one undertakes for a consideration to indemnify

another against loss, damage or liability arising from an unknown or contingent
event." 5 The consideration is the "premium". "The premium must be paid at the
time and in the way and manner specified in the policy and, if not so paid, the policy
will lapse and be forfeited by its own terms." 6

The provisions on premium in the subject Policy read:


WOODWORKS, INC. hereinafter called the Insured, paying to the PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., hereinafter called the Company, the sum
the first period hereinafter mentioned. ...

xxx xxx xxx

THE COMPANY HEREBY AGREES with the Insured ... that if the Property above
described, or any part thereof, shall be destroyed or damaged by Fire or Lightning

after payment of Premium, at any time between 4:00 o'clock in the afternoon of the
TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY and 4:00 o'clock
in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and
SIXTY ONE. ... (Emphasis supplied)

Paragraph "2" of the Policy further contained the following condition:

2. No payment in respect of any premium shall be deemed to be payment to the

Company unless a printed form of receipt for the same signed by an Official or dulyappointed Agent of the Company shall have been given to the Insured.

Paragraph "10" of the Policy also provided:

10. This insurance may be terminated at any time at the request of the Insured, in
which case the Company will retain the customary short period rate for the time the
policy has been in force. This insurance may also at any time be terminated at the
option of the Company, on notice to that effect being given to the Insured, in which
case the Company shall be liable to repay on demand a ratable proportion of the
premium for the unexpired term from the date of the cancelment.

Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the
policy is tendered the insured must pay the premium unless credit is given or there
is a waiver, or some agreement obviating the necessity for prepayment." 7 To
constitute an extension of credit there must be a clear and express agreement
therefor." 8

From the Policy provisions, we fail to find any clear agreement that a credit
extension was accorded defendant. And even if it were to be presumed that plaintiff
had extended credit from the circumstances of the unconditional delivery of the
Policy without prepayment of the premium, yet it is obvious that defendant had not
accepted the insurer's offer to extend credit, which is essential for the validity of
such agreement.

An acceptance of an offer to allow credit, if one was made, is as essential to make a

valid agreement for credit, to change a conditional delivery of an insurance policy to
an unconditional delivery, as it is to make any other contract. Such an acceptance
could not be merely a mental act or state of mind, but would require a promise to
pay made known in some manner to defendant. 9

In this respect, the instant case differs from that involving the same parties entitled
Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., 10 where recovery
of the balance of the unpaid premium was allowed inasmuch as in that case "there
was not only a perfected contract of insurance but a partially performed one as far
as the payment of the agreed premium was concerned." This is not the situation
obtaining here where no partial payment of premiums has been made whatsoever.

Since the premium had not been paid, the policy must be deemed to have lapsed.

The non-payment of premiums does not merely suspend but put, an end to an
insurance contract, since the time of the payment is peculiarly of the essence of the
contract. 11

... the rule is that under policy provisions that upon the failure to make a payment of
a premium or assessment at the time provided for, the policy shall become void or
forfeited, or the obligation of the insurer shall cease, or words to like effect, because
the contract so prescribes and because such a stipulation is a material and essential
part of the contract. This is true, for instance, in the case of life, health and
accident, fire and hail insurance policies. 12

In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had
a valid defense against recovery under the Policy it had issued. Explicit in the Policy
itself is plaintiff's agreement to indemnify defendant for loss by fire only "after
payment of premium," supra. Compliance by the insured with the terms of the
contract is a condition precedent to the right of recovery.

The burden is on an insured to keep a policy in force by the payment of premiums,

rather than on the insurer to exert every effort to prevent the insured from allowing
a policy to elapse through a failure to make premium payments. The continuance of
the insurer's obligation is conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the contractual relation between the
parties having ceased. 13

Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity." 14

The foregoing findings are buttressed by section 77 of the Insurance Code

(Presidential Decree No. 612, promulgated on December 18, 1974), which now
provides that no contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, notwithstanding any
agreement to the contrary.

WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint

hereby dismissed.

Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ., concur.

Makasiar, J., is on leave.