1

SECOND DIVISION xxx

G.R. No. 198588 July 11, 2012 PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the
properties of the Assured or held by them in trust, on commissions, or on joint
UNITED MERCHANTS CORPORATION, Petitioner, account with others and/or for which they are responsible in the event of loss
vs. and/or damage during the currency of this policy, whilst contained in the building of
COUNTRY BANKERS INSURANCE CORPORATION, Respondent. one lofty storey in height, constructed of concrete and/or hollow blocks with
portion of galvanized iron sheets, under galvanized iron rood, occupied as
DECISION Christmas lights storage.5

CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals
Decision2 dated 16 June 2011 and its Resolution3 dated 8 September 2011 in CA-
G.R. CV No. 85777. The Court of Appeals reversed the Decision 4of the Regional Trial
Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy is
void.
The Facts
The facts, as culled from the records, are as follows:
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice
No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides
that UMCs stocks in trade were insured against additional perils, to wit: "typhoon,
flood, ext. cover, and full earthquake." The sum insured was also increased
toP50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC
issued Endorsement F/96-157 where the name of the assured was changed from
Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by reason of
the fire. CBICs reinsurer, Central Surety, likewise requested the National Bureau of
Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through
CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its
loss.

Petitioner United Merchants Corporation (UMC) is engaged in the business of On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of
buying, selling, and manufacturing Christmas lights. UMC leased a warehouse at 19- its claim from CBIC. On 25 February 1997, UMC received CBICs letter, dated 10
B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC January 1997, rejecting UMCs claim due to breach of Condition No. 15 of the
assembled and stored its products. Insurance Policy. Condition No. 15 states:

On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in If the claim be in any respect fraudulent, or if any false declaration be made or used
trade of Christmas lights against fire with defendant Country Bankers Insurance in support thereof, or if any fraudulent means or devices are used by the Insured or
Corporation (CBIC) for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or
(Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996, states: damage be occasioned by the willful act, or with the connivance of the Insured, all
the benefits under this Policy shall be forfeited. 6
AMOUNT OF INSURANCE: FIFTEEN
MILLION PESOS On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila.
PHILIPPINE UMC anchored its insurance claim on the Insurance Policy, the Sworn Statement of
CURRENCY Formal Claim earlier submitted, and the Certification dated 24 July 1996 made by
Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the Bureau of Fire
Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10
P.M. of July 3, 1996, a fire broke out at United Merchants Corporation located at
19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of
Fifty-Five Million Pesos (P55,000,000.00) to the building and contents, while the
reported insurance coverage amounted to Fifty Million Pesos (P50,000,000.00) with
Country Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the
establishment was willfully, feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in
nature.8
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted
the issuance of the Insurance Policy to UMC but raised the following defenses: (1)
that the Complaint states no cause of action; (2) that UMCs claim has already
prescribed; and (3) that UMCs fire claim is tainted with fraud. CBIC alleged that
UMCs claim was fraudulent because UMCs Statement of Inventory showed that it
had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to P25,000,000.00. UMCs GIS
and Financial Reports further revealed that it had insufficient capital, which meant
UMC could not afford the alleged P50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the
Insurance Policy. UMC claimed that it did not make any false declaration because
the invoices were genuine and the Statement of Inventory was for internal revenue
purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora
(Ebora), UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the
time of the fire, consisted of: (1) raw materials for its Christmas lights; (2) Christmas
lights already assembled; and (3) Christmas lights purchased from local suppliers.
These stocks in trade were delivered from August 1995 to May 1996. She stated
that Straight Cargo Commercial Forwarders delivered the imported materials to the
warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had
no importations and only bought from its local suppliers. Ebora identified the
suppliers as Fiber Technology Corporation from which UMC bought stocks
worth P1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines
from which UMC bought stocks worth P19,500,000.00 from 20 January 1996 to 23
February 1996; and Tomco Commercial Press from which UMC bought several
Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora
2
also presented UMCs Balance Sheet, Income Statement and Statement of Cash
Flow. Per her testimony, UMCs purchases amounted to P608,986.00 in
1994;P827,670.00 in 1995; and P20,000,000.00 in 1996. Ebora also claimed that
UMC had sales only from its fruits business but no sales from its Christmas lights for
the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided
about 25 workers to assemble and pack Christmas lights for UMC from 28 March
1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company
(MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit with MBTC
for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the
delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse on 13 August 1995, 6 September 1995, 8
September 1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19
December 1995. Lastly, CRMs adjuster Dominador Victorio testified that he
inspected UMCs warehouse and prepared preliminary reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan
(Caguindagan), a Securities and Exchange Commission (SEC) representative, Atty.
Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro).
Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took
pictures of it and referred the claim to an independent adjuster. The SEC
representatives testimony was dispensed with, since the parties stipulated on the
existence of certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs
Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not file
GIS or Financial Reports for certain years; and (4) UMCs Statement of Inventory as
of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate
UMCs claim. On 19 November 1996, they concluded that arson was committed
based from their interview with barangay officials and the pictures showing that
blackened surfaces were present at different parts of the warehouse. On cross-
examination, Lazaro admitted that they did not conduct a forensic investigation of
the warehouse, nor did they file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the
documents of UCPB General Insurance, the insurer of Perfect Investment Company,
Inc., the warehouse owner. When asked to bring documents related to the
insurance of Perfect Investment Company, Inc., Batallones brought the papers of
Perpetual Investment, Inc.
 3

The Ruling of the Regional Trial Court The CRM Adjustment report found no arson and confirmed substantial stocks in the
burned warehouse (Exhs. QQQ) [underscoring supplied]. This is bolstered by the
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, BFP certification that there was no proof of arson and the fire was accidental (Exhs.
the dispositive portion of which reads: PPP). The certification by a government agency like BFP is presumed to be a regular
performance of official duty. "Absent convincing evidence to the contrary, the
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering presumption of regularity in the performance of official functions has to be upheld."
defendant to pay plaintiff: (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances adjuster
also found no arson so that the burned warehouse owner PIC was indemnified. 12
a) the sum of P43,930,230.00 as indemnity with interest thereon at 6% per
annum from November 2003 until fully paid; Hence, CBIC filed an appeal with the Court of Appeals (CA).

b) the sum of P100,000.00 for exemplary damages; The Ruling of the Court of Appeals

c) the sum of P100,000.00 for attorneys fees; and On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive
portion of the Decision reads:
d) the costs of suit.
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and
the Decision of the Regional Trial Court, of the National Judicial Capital Region,
Defendants counterclaim is denied for lack of merit.
Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-87370 is
REVERSED and SET ASIDE. The plaintiff-appellees claim upon its insurance policy is
SO ORDERED.11
deemed avoided.

The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the
SO ORDERED.13
RTC ruled for UMCs entitlement to the insurance proceeds, as follows:
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that
Fraud is never presumed but must be proved by clear and convincing evidence. (see
the fire was intentional in origin, considering the array of evidence submitted by
Alonso v. Cebu Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by
CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as
clear and convincing evidence that the documents submitted to the SEC and BIR
opposed to UMCs failure to explain the details of the alleged fire accident. In
were true. It is common business practice for corporations to have 2 sets of
addition, it found that UMCs claim was overvalued through fraudulent
reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 transactions. The CA ruled:
8) may not have been accurate.
We have meticulously gone over the entirety of the evidence submitted by the
The conflicting findings of defendants adjuster, CRM Adjustment [with stress] and
parties and have come up with a conclusion that the claim of the plaintiff-appellee
that made by Atty. Cabrera & Mr. Lazaro for Central Surety shall be resolved in
was indeed overvalued by transactions which were fraudulently concocted so that
favor of the former. Definitely the formers finding is more credible as it was made
the full coverage of the insurance policy will have to be fully awarded to the
soon after the fire while that of the latter was done 4 months later. Certainly it
plaintiff-appellee.
would be a different situation as the site was no longer the same after the clearing
up operation which is normal after a fire incident. The Christmas lights and parts
First, We turn to the backdrop of the plaintiff-appellees case, thus, [o]n September
could have been swept away. Hence the finding of the latter appears to be
6, 1995 its stocks-in-trade were insured for Fifteen Million Pesos and on May 7,
speculative to benefit the reinsurer and which defendant wants to adopt to avoid
liability.
 4

1996 the same was increased to 50 Million Pesos. Two months thereafter, a fire
April 19, 1996
gutted the plaintiff-appellees warehouse.
April 26, 1996
May 3, 1996
Second, We consider the reported purchases of the plaintiff-appellee as shown in May 10, 1996
its financial report dated December 31, 1996 vis--vis the testimony of Ms. Ebora May 17, 1996
thus: May 24, 1996
June 7, 1996
1994 - P608,986.00 June 14, 1996
June 21, 1996
1995 - P827,670.00 June 28, 1996
July 5, 1996
1996 - P20,000,000.00 (more or less) which were purchased for a period of
Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995
one month.
"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
Third, We shall also direct our attention to the alleged true and complete purchases
materials September 4, 1995
of the plaintiff-appellee as well as the value of all stock-in-trade it had at the time
October 2, 1995
that the fire occurred. Thus:
October 27, 1995
January 8, 1996
Exhibit Source Amount (pesos) Dates Covered March 19, 1996

Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996 Exhs. "GGG-11" SCCFI statements 384,794.38 June 15, 1995
inclusive Manufacturer Phils. January 31, 1996 - "GGG-24", of account June 28, 1995
February 12, 1996 "HHH-12", "HHH- August 1, 1995
February 20, 1996 22", "III-11", "III- September 4, 1995
February 23, 1996 14", September 8, 1995
"JJJ-13", "KKK-11", September 11, 1995
Exhs. "EE"-"HH", Tomco Commercial 1,712,000.00 December 19, 1995 "LLL-5" October 30, 199[5]
inclusive Press January 24, 1996 November 10, 1995
February 21, 1996 December 21, 1995
November 24, 1995
TOTAL 44,315,024.31
Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996
inclusive Trading January 19, 1996
January 26, 1996 Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly
February 3, 1996 looking through the pieces of evidence that it adduced during the trial. The latter
February 13, 1996 alleged that fraud is present in the case at bar as shown by the discrepancy of the
February 20, 1996 alleged purchases from that of the reported purchases made by plaintiff-appellee. It
February 27, 1996 had also averred that fraud is present when upon verification of the address of Fuze
Industries, its office is nowhere to be found. Also, the defendant-appellant
Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996 expressed grave doubts as to the purchases of the plaintiff-appellee sometime in
"EEE", inclusive Services April 12, 1996

1996 when such purchases escalated to a high 19.5 Million Pesos without any
contract to back it up.14
On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in
its Resolution dated 8 September 2011. Hence, this petition.
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH
LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE
OF ARSON AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING
EVIDENCE."
II.
WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH
LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT
PETITIONER BREACHED ITS WARRANTY.16
The Ruling of the Court
At the outset, CBIC assails this petition as defective since what UMC ultimately
wants this Court to review are questions of fact. However, UMC argues that where
the findings of the CA are in conflict with those of the trial court, a review of the
facts may be made. On this procedural issue, we find UMCs claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically provides that
only questions of law may be raised. The findings of fact of the CA are final and
conclusive and this Court will not review them on appeal, 17subject to exceptions as
when the findings of the appellate court conflict with the findings of the trial
court.18Clearly, the present case falls under the exception. Since UMC properly
raised the conflicting findings of the lower courts, it is proper for this Court to
resolve such contradiction. Having settled the procedural issue, we proceed to the
primordial issue which boils down to whether UMC is entitled to claim from CBIC the
full coverage of its fire insurance policy.
5
UMC contends that because it had already established a prima facie case against
CBIC which failed to prove its defense, UMC is entitled to claim the full coverage
under the Insurance Policy. On the other hand, CBIC contends that because arson
and fraud attended the claim, UMC is not entitled to recover under Condition No.
15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law,19 which is preponderance of
evidence in civil cases.20 The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of proof to obtain a favorable
judgment.21Particularly, in insurance cases, once an insured makes out a prima facie
case in its favor, the burden of evidence shifts to the insurer to controvert the
insureds prima facie case.22 In the present case, UMC established a prima facie case
against CBIC. CBIC does not dispute that UMCs stocks in trade were insured against
fire under the Insurance Policy and that the warehouse, where UMCs stocks in
trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire
insurance. However, since CBIC alleged an excepted risk, then the burden of
evidence shifted to CBIC to prove such exception.1wphi1
An insurer who seeks to defeat a claim because of an exception or limitation in the
policy has the burden of establishing that the loss comes within the purview of the
exception or limitation.23 If loss is proved apparently within a contract of insurance,
the burden is upon the insurer to establish that the loss arose from a cause of loss
which is excepted or for which it is not liable, or from a cause which limits its
liability.24 In the present case, CBIC failed to discharge its primordial burden of
establishing that the damage or loss was caused by arson, a limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where the
evidence establishes: (1) the corpus delicti, that is, a fire caused by a criminal act;
and (2) the identity of the defendants as the one responsible for the crime. 25 Corpus
delicti means the substance of the crime, the fact that a crime has actually been
committed.26This is satisfied by proof of the bare occurrence of the fire and of its
having been intentionally caused.27
In the present case, CBICs evidence did not prove that the fire was intentionally
caused by the insured. First, the findings of CBICs witnesses, Cabrera and Lazaro,
were based on an investigation conducted more than four months after the fire.
The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as
told to them by barangay officials, are hearsay because the barangay officials were
not presented in court. Cabrera and Lazaro even admitted that they did not conduct
a forensic investigation of the warehouse nor did they file a case for

arson.28 Second, the Sworn Statement of Formal Claim submitted by UMC, through
CRM, states that the cause of the fire was "faulty electrical wiring/accidental in
nature." CBIC is bound by this evidence because in its Answer, it admitted that it
designated CRM to evaluate UMCs loss. Third, the Certification by the Bureau of
Fire Protection states that the fire was accidental in origin. This Certification enjoys
the presumption of regularity, which CBIC failed to rebut.
Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it
also failed to prove fraud. Qua Chee Gan v. Law Union29 does not apply in the
present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based
on the dismissal of the arson case against the insured, because the evidence was
identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the
present civil action, the insurers evidence, to judge from the decision in the
criminal case, is practically identical in both cases and must lead to the same result,
since the proof to establish the defense of connivance at the fire in order to defraud
the insurer "cannot be materially less convincing than that required in order to
convict the insured of the crime of arson" (Bachrach vs. British American Assurance
Co., 17 Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on two
different sets of evidence, either of which can void the insurance claim of UMC. The
absence of one does not necessarily result in the absence of the other. Thus, on the
allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the
policy shall be forfeited, if the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devices are used by the
Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if
the loss or damage be occasioned by the willful act, or with the connivance of the
Insured, all the benefits under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a
fire insurance policy provides that "if the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the Insured or anyone acting on his behalf to obtain
any benefit under this Policy," and the evidence is conclusive that the proof of claim
6
which the insured submitted was false and fraudulent both as to the kind, quality
and amount of the goods and their value destroyed by the fire, such a proof of
claim is a bar against the insured from recovering on the policy even for the amount
of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting
to P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together
with the following documents: (1) letters of credit and invoices for raw materials,
Christmas lights and cartons purchased; (2) charges for assembling the Christmas
lights; and (3) delivery receipts of the raw materials. However, the charges for
assembling the Christmas lights and delivery receipts could not support its
insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs
stocks in trade. UMC defined stock in trade as tangible personal property kept for
sale or traffic.33 Applying UMCs definition, only the letters of credit and invoices for
raw materials, Christmas lights and cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the
stocks in trade purchased for 1996 amounts to P20,000,000.00 which were
purchased in one month. Thus, UMC needs to prove purchases amounting
to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in
the Statement of Inventory it submitted to the BIR, which is considered an entry in
official records,34 UMC stated that it had no stocks in trade as of 31 December 1995.
In its defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on 31 December 1995.
However, as proof of its loss, UMC submitted invoices for raw materials, knowing
that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries
Manufacturer Phils. were suspicious. The purchases, based on the invoices and
without any supporting contract, amounted to P19,550,400.00 worth of Christmas
lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of
Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at
"55 Mahinhin St., Teachers Village, Quezon City," the business address appearing in
the invoices and the records of the Department of Trade & Industry. Cabrera
testified that:
A: Then we went personally to the address as I stated a while ago appearing in the
record furnished by the United Merchants Corporation to the adjuster, and the
adjuster in turn now, gave us our basis in conducting investigation, so we went to
this place which according to the records, the address of this company but there
was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover
the address indicated by the United Merchants as the place of business of Fuze
Industries Manufacturer, Phils. was a residential place, what then did you do after
determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department
of Trade & Industry record, and as appearing a certain Chinese name Mr. Huang,
and the address as appearing there is somewhere in Binondo. We went personally
there together with the NBI Agent and I am with them when the subpoena was
served to them, but a male person approached us and according to him, there was
no Fuze Industries Manufacturer, Phils., company in that building sir. 35
In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36 the Court ruled that the
submission of false invoices to the adjusters establishes a clear case of fraud and
misrepresentation which voids the insurers liability as per condition of the policy.
Their falsity is the best evidence of the fraudulent character of plaintiffs
claim.37 InVerendia v. Court of Appeals,38 where the insured presented a fraudulent
lease contract to support his claim for insurance benefits, the Court held that by its
false declaration, the insured forfeited all benefits under the policy provision similar
to Condition No. 15 of the Insurance Policy in this case.
Furthermore, UMCs Income Statement indicated that the purchases or costs of
sales are P827,670.00 for 1995 and P1,109,190.00 for 1996 or a total
of P1,936,860.00.39 To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases made in 1995?
A: The purchases made by United Merchants Corporation for the last year 1995
is P827,670.[00] sir
Q: And how about in 1994?
A: In 1994, its P608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994 respectively,
am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
7
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly
executed during the 4 December 2002 hearing, it had P1,050,862.71 as total assets
and P167,058.47 as total liabilities.41
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five
times the claim UMC seeks to enforce. The RTC itself recognized that UMC padded
its claim when it only allowed P43,930,230.00 as insurance claim. UMC supported
its claim of P50,000,000.00 with the Certification from the Bureau of Fire Protection
stating that "x x x a fire broke out at United Merchants Corporation located at 19-B
Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty-
Five Million Pesos (P55,000,000.00) to the building and contents x x x." However,
this Certification only proved that the estimated damage of P55,000,000.00 is
shared by both the building and the stocks in trade.
It has long been settled that a false and material statement made with an intent to
deceive or defraud voids an insurance policy.42 In Yu Cua v. South British Insurance
Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire
Insurance Co,44 eight times; and in Tuason v. North China Insurance Co.,45 six times.
In the present case, the claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere
innocent error in estimating or counting but to a deliberate intent to demand from
insurance companies payment for indemnity of goods not existing at the time of the
fire.46 This constitutes the so-called "fraudulent claim" which, by express agreement
between the insurers and the insured, is a ground for the exemption of insurers
from civil liability.47
In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in
its statements were not covered by the warranty such that any discrepancy in the
declaration in other instruments or documents as to matters that may have some
relation to the insurance coverage voids the policy."48
On UMCs allegation that it did not breach any warranty, it may be argued that the
discrepancies do not, by themselves, amount to a breach of warranty. However, the
Insurance Code provides that "a policy may declare that a violation of specified
provisions thereof shall avoid it."49 Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance Policy, a fraudulent
discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC
padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the
Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under
the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer
company,51 contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have
used.52 If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Courts are not permitted to
make contracts for the parties; the function and duty of the courts is simply to
enforce and carry out the contracts actually made.53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and
the 8 September 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 85777.
SO ORDERED.
FACTS:
Country Bankers Insurance Corporation (Country Bankers) issued Warehouse
Bonds by which Nelson Santos was the bond principal, Lagman was the surety and
the Republic of the Philippines, through the NFA was the oblige. The said bonds
were used by Nelson as a requirement for his application for Warehouse business.
In consideration of these issuances, corresponding Indemnity Agreements were
executed by Santos, as bond principal, together with Ban Lee Lim Santos (BanLee
Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound
themselves jointly and severally liable to Country Bankers for any damages which it
may sustain as a consequence of the said bond. Santos then secured a loan using
his warehouse receipts as collateral. When the loan matured, Santos
defaulted in his payment. By virtue of the surety bonds, Country Bankers was
compelled to pay P1,166,750.37. Consequently, Country Bankers filed a complaint
for a sum of money. The bond principals, Santos and Ban Lee Lim, were not served
with summons because they could no longer be found.12 The case was eventually
dismissed against them without prejudice. the trial court rendered judgment
declaring Reguine and Lagman jointly and severally liable to pay Country Bankers.
Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797.
8
He insisted that the lifetime of the 1989 Bonds, as well as the corresponding
Indemnity Agreements was only 12 months. The CA reversed the decision of the
trial court.
ISSUE: Whether or not the warehouse bonds were effective only for one year.
RULING:
The official receipts in question serve as proof of payment of the premium for
one year on each surety bond. It does not, however, automatically mean that the
surety bond is effective for only one (1) year. In fact, the effectivity of the bond is
not wholly dependent on the payment of premium. Section 177 of the Insurance
Code expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the contract
of suretyship or bond is perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety: Provided, That if the contract
of suretyship or bond is not accepted by, or filed with the obligee, the surety shall
collect only reasonable amount, not exceeding fifty per centum of the premium due
thereon as service fee plus the cost of stamps or other taxes imposed for the
issuance of the contract or bond: Provided, however, That if the non-acceptance of
the bond be due to the fault or negligence of the surety, no such service fee,
stamps or taxes shall be collected. (Emphasis supplied)
The 1989 Bonds have identical provisions and they state in very clear terms the
effectivity of these bonds, viz:
NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the
depositors PALAY received by him for STORAGE at any time that demand therefore
is made, or shall pay the market value therefore in case he is unable to return the
same, then this obligation shall be null and void; otherwise it shall remain in full
force and effect and may be enforced in the manner provided by said Act No. 3893
as amended by Republic Act No. 247 and P.D. No. 4. This bond shall remain in force
until cancelled by the Administrator of National Food Authority. This provision in
the bonds is but in compliance with the second paragraph of Section 177 of the
Insurance Code, which specifies that a continuing bond, as in this case where there
is no fixed expiration date, may be cancelled only by the obligee, which is the NFA,
by the Insurance Commissioner, and by the court.

EN BANC
G.R. No. L-5715 December 20, 1910
E. M. BACHRACH, plaintiff-appellee,
vs.
BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant.
JOHNSON, J.:
On the 13th of July, 1908, the plaintiff commenced an action against the defendant
to recover the sum of P9,841.50, the amount due, deducting the salvage, upon the
following fire insurance policy issued by the defendant to the plaintiff:
[Fire policy No. 3007499.]
This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila (hereinafter
called the insured), having paid to the undersigned, as authorized agent of the
British American Assurance Company (hereinafter called the company), the sum of
two thousand pesos Philippine currency, for insuring against loss or damage by fire,
as hereinafter mentioned, the property hereinafter described, in the sum of several
sums following, viz:
Ten thousand pesos Philippine currency, on goods, belonging to a general furniture
store, such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus,
washstands, mirrors, and sea-grass furniture (in accordance with warranty "D" of
the tariff attached hereto) the property of the assured, in trust, on commission or
for which he is responsible, whilst stored in the ground floor and first story of house
and dwelling No. 16 Calle Martinez, district 3, block 70, Manila, built, ground floor
of stone and or brick, first story of hard wood and roofed with galvanized iron
bounded in the front by the said calle, on one side by Calle David and on the other
two sides by buildings of similar construction and occupation.
Co-insurance allowed, particulars of which to be declared in the event of loss or
claim.
The company hereby agrees with the insured (but subject to the conditions on the
back hereof, which are to be taken as a part of this policy) that if the property
above described, or any part thereof, shall be destroyed or damaged by fire, at any
time between the 21st day of February, 1908, and 4 o'clock in the afternoon of the
9
21st day of February, 1909, or (in case of the renewal of this policy) at any time
afterwards, so long as, and during the period in respect of which the insured shall
have paid to the company, and they shall have accepted, the sum required for the
renewal of this policy, the company will, out of their capital stock, and funds, pay or
make good to the insured the value of the property so destroyed, or the amount of
such damage thereto, to any amount not exceeding, in respect of each or any of the
several matters above specified, the sum set opposite thereto, respectively, and not
exceeding in the whole the sum of ten thousand pesos, and also not exceeding, in
any case, the amount of the insurable interest therein of the insured at the time of
the happening of such fire.
In witness whereof, the British American Assurance Company has accused these
presents to be signed this 21st day of February, in the year of our Lord 1908.
For the company.
W. F. STEVENSON & Co. LTD.,
"By...............................................,
"Manager Agents."
And indorsed on the back the following:
The within policy and includes a "Calalac" automobile to the extent of (P1,250)
twelve hundred and fifty pesos Philippine currency.
Memo: Permission is hereby granted for the use of gasoline not to exceed 10
gallons for the above automobile, but only whilst contained in the reservoir of the
car. It is further warranted that the car be neither filled nor emptied in the within-
described building or this policy be null and void.
Manila, 27th February, 1908.
"W. F. STEVENSON & Co. LTD.,
"By.......................................................,
"Manager Agents."
The defendant answered the complaint, admitting some of the facts alleged by the
plaintiff and denying others. The defendant also alleged certain facts under which it

claimed that it was released from all obligations whatever under said policy. These
special facts are as follows:
First. That the plaintiff maintained a paint and varnish shop in the said building
where the goods which were insured were stored.
Second. That the plaintiff transferred his interest in and to the property covered by
the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to
said company, and also that the plaintiff had transferred his interest in certain of
the goods covered by the said policy to one Macke, to secure certain obligations
assumed by the said Macke for and on behalf of the insured. That the sanction of
the said defendant had not been obtained by the plaintiff, as required by the said
policy.
Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the
outbreak of the alleged fire, willfully placed a gasoline can containing 10 gallons of
gasoline in the upper story of said building in close proximity to a portion of said
goods, wares, and merchandise, which can was so placed by the plaintiff as to
permit the gasoline to run on the floor of said second story, and after so placing
said gasoline, he, the plaintiff, placed in close proximity to said escaping gasoline a
lighted lamp containing alcohol, thereby greatly increasing the risk of fire.
Fourth. That the plaintiff made no proof of the loss within the time required by
condition five of said policy, nor did the insured file a statement with he municipal
or any other judge or court of the goods alleged to have been in said building at the
time of the alleged fire, nor of the goods saved, nor the loss suffered.
The plaintiff, after denying nearly all of the facts set out in the special answer of the
defendant, alleged:
First. That he had been acquitted in a criminal action against him, after a trial duly
and regularly had, upon a charge of arson, based upon the same alleged facts set
out in the answer of the defendant.
Second. That her had made no proof of the loss set up in his complaint for the
reason that immediately after he had, on the 20th of April, 1908, given the
defendant due notice in writing of said loss, the defendant, on the 21st of April,
1908, and thereafter on other occasions, had waived all right to require proof of
said loss by denying all liability under the policy and by declaring said policy to be
null and void.
10
After hearing the evidence adduced during the trial of the cause, the lower court
found that the defendant was liable to the plaintiff and rendered a judgment
against the defendant for the sum of P9,841.50, with interest for a period of one
year at 6 per cent, making a total of P10,431.99, with costs.
From that decision the defendant appealed and made the following assignments of
error:
1. The court erred in failing to hold that the use of the building, No. 16 Calle
Martinez, as a paint and varnish shop annulled the policy of insurance.
2. The court erred in failing to hold the execution of the chattel mortgages without
the knowledge and consent of the insurance company annulled the policy of
insurance.
3. The court erred in holding that the keeping of gasoline and alcohol not in bottles
in the building No. 16 Calle Martinez was not such a violation of the conditions of
the policy as to render the same null and void.
4. The court erred in failing to find as a fact that E. M. Bachrach, the insured,
willfully placed a gasoline can containing about 10 gallons of gasoline in the upper
story of said building, No. 16 Calle Martinez, in close proximity to a portion of the
goods, wares, and merchandise stored therein, and that said can was so placed by
said Bachrach as to permit the gasoline to run on the floor of said second story.
5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said
gasoline can in close proximity to the goods, wares, and merchandise covered by
the policy of insurance, the he (Bachrach) placed in close proximity to said escaping
gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk of
fire.
6. The court erred in holding that the policy of insurance was in force at the time of
said fire, and that the acts or omissions on the part of the insured which cause, or
tended to cause, the forfeiture of the policy, were waived by the defendant.
7. The court erred in holding the defendant liable for the loss under the policy.
8. The court erred in refusing to deduct from the loss sustained by Bachrach the
value of the automobile, which was saved without damage.

9. The court erred in refusing to grant the motion for a new trial.
10. The court erred in refusing to enter judgment in favor of the defendant and
against the plaintiff.
With reference to the first above assignment of error, the lower court in its decision
said:
It is claimed that either gasoline or alcohol was kept in violation of the
policy in the bodega containing the insured property. The testimony on
this point is somewhat conflicting, but conceding all of the defendant's
claims, the construction given to this claim by American courts would not
justify the forfeiture of the policy on that ground. The property insured
consisted mainly of household furniture kept for the purpose of sale. The
preservation of the furniture in a salable condition by retouching or
otherwise was incidental to the business. The evidence offered by the
plaintiff is to the effect that alcohol was used in preparing varnish for the
purpose of retouching, though he also says that the alcohol was kept in
store and not in the bodegawhere the furniture was. It is well settled that
the keeping of inflammable oils on the premises, though prohibited by the
policy, does not void it if such keeping is incidental to the business. Thus,
where a furniture factory keeps benzine for the purposes of operation
(Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs.
American Fire Insurance Company, 91 Wis., 158), or where it is used for
the cleaning machinery (Mears vs. Humboldt Insurance Company, 92 Pa.
St., 15; 37 Am. Rep., 647), the insurer can not on that ground avoid
payment of loss, though the keeping of the benzine on the premises is
expressly prohibited. These authorities also appear sufficient to answer the
objection that the insured automobile contained gasoline and that the
plaintiff on one occasion was seen in the bodega with a lighted lamp. The
first was incidental to the use of the insured article and the second being a
single instance falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy prohibiting the keeping of
paints and varnishes upon the premises where the insured property was stored. If
the company intended to rely upon a condition of that character, it ought to have
been plainly expressed in the policy.
With reference to the second above assignment of error, the defendant and
appellant contends that the lower court erred in failing to hold that the execution
of the said chattel mortgage, without the knowledge and consent of the insurance
11
company and without receiving the sanction of said company, annulled the said
policy of insurance.
With reference to this assignment of error, upon reading the policy of insurance
issued by the defendant to the plaintiff, it will be noted that there is no provision in
said policy prohibiting the plaintiff from placing a mortgage upon the property
insured, but, admitting that such a provision was intended, we think the lower court
has completely answered this contention of the defendant. He said, in passing upon
this question as it was presented:
It is claimed that the execution of a chattel mortgage on the insured
property violated what is known as the "alienation clause," which is now
found in most policies, and which is expressed in the policies involved in
cases 6496 and 6497 by a purchase imposing forfeiture if the interest in
the property pass from the insured. (Cases 6496 and 6497, in which are
involved other action against other insurance companies for the same loss
as in the present action.)
This clause has been the subject of a vast number of judicial decisions (13
Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the
great weight of authority that the interest in property insured does not
pass by the mere execution of a chattel mortgage and that while a chattel
mortgage is a conditional sale, there is no alienation within the meaning of
the insurance law until the mortgage acquires a right to take possession by
default under the terms of the mortgage. No such right is claimed to have
accrued in the case at bar, and the alienation clause is therefore
inapplicable.
With reference to the third assignment of error above noted, upon a reading of the
decision of the lower court it will be found that there is nothing in the decision of
the lower court relating to the facts stated in this assignment of error, neither is
there any provision in the policy relating to the facts alleged in said assignment of
error.
Assignment of error numbers 4 and 5 above noted may be considered together.
The record discloses that some time prior to the commencement of this present
action, a criminal action was commenced against the plaintiff herein in the Court of
First Instance of the city of Manila, in which he was charged with willfully and
maliciously burning the property covered by the policy in the present case. At the
conclusion of the criminal action and after hearing the evidence adduced during the

trial, the lower court, with the assistance of two assessors, found that the evidence
was insufficient to show beyond peradventure of doubt that the defendant was
guilty of the crime. The evidence adduced during the trial of the criminal cause was
introduced as evidence in the present cause. While the evidence shows some very
peculiar and suspicious circumstances concerning the burning of the goods covered
by the said policy, yet, nevertheless, in view of the findings of the lower court and in
view of the apparent conflict in the testimony, we can not find that there is a
preponderance of evidence showing that the plaintiff did actually set fire or cause
fire to be set to the goods in question. The lower court, in discussing this question,
said:
As to the claim that the loss occurred through the voluntary act of the
insured, we consider it unnecessary to review the evidence in detail. That
was done by another branch of this court in disposing of the criminal
prosecution brought against the insured, on the same ground, based
mainly on the same evidence. And regardless of whether or not the
judgment in that proceeding is res adjudicata as to anything here, we are
at least of the opinion that the evidence to establish this defense should
not be materially less convincing than that required in order to convict the
insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep., 644.) In
order to find that the defense of incendiarism was established here, we
would be obliged, therefore, in effect to set aside the findings of the judge
and assessors in the criminal cause, and this we would be loath to do even
though the evidence now produced were much stronger than it is.
With reference to the sixth assignment of error above noted, to wit:itc@alf That the
court erred in holding that the policy of insurance was in force at the time of said
fire and that the acts or omissions on the part of the insured which caused or
tended to cause a forfeiture of the policy were waived by the defendant, the lower
court, in discussing this question, said:
Regardless of the question whether the plaintiff's letter of April 20 (Exhibit
B) was a sufficient compliance with the requirement that he furnish notice
of loss, the fact remains that on the following day the insurers replied by a
letter (Exhibit C) declaring that the "policies were null and void," and in
effect denying liability. It is well settled by a preponderance of authorities
that such a denial is a waiver of notice of loss, because if the "policies are
null and void," the furnishing of such notice would be vain and useless. (13
Am. & Eng. Encyc. of Law, 347, 348, 349.) Besides, "immediate notice" is
construed to mean only within a reasonable time.
12
Much the same may be said as to the objection that the insured failed to
furnish to the insurers his books and papers or to present a detailed
statement to the "juez municipal," in accordance with article 404 of the
Code of Commerce. The last-named provision is similar to one appearing in
many American policies requiring a certificate from a magistrate nearest
the loss regarding the circumstance thereof. A denial of liability on other
grounds waives this requirement (O'Niel vs. Buffalo Fire Insurance
Company, 3 N. Y., 122; Peoria Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as
well as that relating to the production of books and papers (Ga. Home Ins.
Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured
might have had difficulty in attempting to comply with this clause, for
there is no longer an official here with the title of "juez municipal."
Besides the foregoing reasons, it may be added that there was no requirement in
the policy in question that such notice be given.
With reference to the assignments of error numbers 7, 9, and 10, they are too
general in their character to merit consideration.
With reference to the eight assignment of error above noted, the defendant and
appellant contends that he was entitled to have the amount of his responsibility
reduced by the full value (P1,250) of the said automobile.
It does not positively appear of record that the automobile in question was not
included in the other policies. It does appear that the automobile was saved and
was considered as a part of the salvaged. It is alleged that the salvage amounted to
P4,000, including the automobile. This amount (P4,000) was distributed among the
different insurers and the amount of their responsibility was proportionately
reduced. The defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now made
for the first time. No reason is given why the objection was not made at the time of
the distribution of the salvage, including the automobile, among all of the insurers.
The lower court had no opportunity to pass upon the question now presented for
the first time. The defendant stood by and allowed the other insurers to share in
the salvage, which he claims now wholly belonged to him. We think it is now too
late to raise the question.
For all the foregoing reasons, we are of the opinion that the judgment of the lower
court should be affirmed, and it is hereby ordered that judgment be entered against
the defendant and in favor of the plaintiff for the sum of P9,841.50, with interest at
the rate of 6 per cent from the 13th of July, 1908, with costs. So ordered.

FACTS:
E. M. Bachrach insured goods belonging to a general furniture store, such as
iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands,
mirrors, and sea-grass furniture stored in the ground floor and first story of
house and dwelling with an authorized agent of the British American Assurance
Company
British American Assurance Company denied alleging that:
property covered by the policy to H. W. Peabody & Co. to secure certain
indebtedness due and owing to said company
interest in certain of the goods covered by the said policy is trasnferred to
Macke to secure certain obligations assumed by Macke and on behalf of
Bachrach
willfully placed a gasoline can containing 10 gallons of gasoline close to the
insured goods
made no proof of the loss with the time required by the condition
RTC: British American Assurance Company liable to bACHRACH
ISSUE: W/N Bachrach can claim
HELD: YES. lower court affirmed
keeping of inflammable oils on the premises, though prohibited by the policy,
does not void it if such keeping is incidental to the business
It may be added that there was no provision in the policy prohibiting the
keeping of paints and varnishes upon the premises where the insured property
was stored. If the company intended to rely upon a condition of that character,
it ought to have been plainly expressed in the policy.
alienation clause - forfeiture if the interest in the property pass from the
insured
there is no alienation within the meaning of the insurance law until the
mortgage acquires a right to take possession by default under the terms of the
mortgage. No such right is claimed to have accrued in the case at bar, and the
alienation clause is therefore inapplicable.
we can not find that there is a preponderance of evidence showing that the
plaintiff did actually set fire or cause fire to be set to the goods in question
13
It does not positively appear of record that the automobile in question was not
included in the other policies. It does appear that the automobile was saved and
was considered as a part of the salvaged. It is alleged that the salvage amounted
to P4,000, including the automobile. This amount (P4,000) was distributed
among the different insurers and the amount of their responsibility was
proportionately reduced. The defendant and appellant in the present case
made no objection at any time in the lower court to that distribution of the
salvage. The claim is now made for the first time.
Bachrach insured properties of its general furniture shop with British. The
properties were subsequently destroyed by fire.
Bachrach claims from the insurance company. The claim was denied on
the ff grounds:
o The policy was allegedly forfeited because the insured stored varnishes and
paints within the premises;
o Insured stored gasoline in the building; and
o Bachrach executed a chattel mortgage on the properties insured without the
consent of the insured.
Issue: Whether or not Bachrach can claim the proceeds of the policy.
Held:
Yes.
The policy was NOT forfeited due to the strong paints and varnishes. There was no
express provision pertaining to it and these paints and varnishes are incidental to
the business of the insured to keep the furniture in a saleable condition. The
gasoline stored within the premises was in the reservoir of the car and thus does
not violate any provision in the policy. There is no express prohibition against the
execution of a chattel mortgage on the property insured.
 14

EN BANC was only a casual estimate. They pulled out a few drawers of the wardrobes and
examined some of the wearing apparel contained in them. Mr. Dow testified that
G.R. No. L-8405 February 10, 1915 he made a rough estimate of the damage done. He estimated the value of the
goods on the first floor at P500, and said that from what he saw of the remains on
FRANCISCO GALIAN, plaintiff-appellant, the upper floor, P1,500 would be a liberal estimate of the damages done. He did
vs. not believe that there was P4,000 worth of property on the second floor. Mr. Laing,
THE STATE ASSURANCE COMPANY, LTD., defendant-appellant. agent of the defendant company, estimated the loss at P1,500. This, he thought,
was a very liberal estimate. He appears to have made a more careful estimate of
the value of the different articles than either of the other witnesses called by the
TRENT, J.:
defendant. He testified that nothing had been entirely consumed by the fire. In this
he is contradicted by the plaintiff, who claims that some of the furniture, even, was
This is an action upon an open policy of fire insurance of household effects. The
totally consumed. From the appearance of the bedroom, as portrayed by the
property was insured on January 25, 1912, for P3,000. On March 25, 1912, the day photograph (Exhibit 4), we are inclined to believe that some, at least, of the
following the fire, the insured presented an itemized statement of the goods
plaintiff's effects were completely destroyed by the fire.
contained in the house at the time of the fire, the total value of which he claims to
be P4,512. The insured property was not a total loss, and some of it was afterward
The court below declined to consider as competent the testimony of the plaintiff
sold by the insured at public auction for the net amount of P120.40 The complaint
and his brother as to the value of the property on the ground that neither was
prays for the recovery of the total amount of the policy less two-thirds of the
qualified to appraise the property. The testimony of the three experts was also
P120.40, or P2,919.74.
dismissed as not being a reliable basis for a findings as to damages. The court then
proceeded to determine that the property was worth P1,500 at the time of the fire,
The insurance company interposed a special defense to the effect that the policy
based upon an offer of compromise made to the plaintiff by the defendant
had been forfeited by reason of the fact that the claim presented by the plaintiff
company at the figure. This offer was introduced in evidence, it is claimed, without
was fraudulently false in that (a) the insured had alleged a total loss, (b) that not all
objection by the defendant company, and the court held that this failure of the
the articles listed in the plaintiff's claim of loss were in the house where and when
defendant to object to the admission of the offer of compromise rendered it
the fire occurred, and (c) that the plaintiff had attributed much greater value to the
competent evidence. Thereupon, a judgment in favor of the plaintiff was entered
articles included in the list than they were worth.
for P1,500, with interest from the date the complaint was filed. Both parties
excepted to this judgment, and moved for a new trial on the ground that the
Upon trial there was evidence for the plaintiff that the statement presented to the judgment was manifestly against the weight of the evidence. These motions being
insurance company after the fire was substantially correct, both in quantities and overruled, they have brought the case to this court by separate bills of exception.
values. The plaintiff testified that the statement was prepared from memory
immediately after the fire by himself with the assistance of his brother. The
The main issue on this appeal is as to the value of the property. After a careful
defendant introduced three witnesses, who were sent to the scene of the fire
examination of the evidence, we are of the opinion that there is no satisfactory
shortly after it occurred to estimate the value of the property contained in the
evidence that the plaintiff included in his itemized list of property contained in the
house. From photographs submitted in evidence it appears that the first floor of the
house at the time of the fire, any property which was not there. The plaintiff
plaintiff's residence was not damaged by the fire at all, but did suffer damage from
prepared the list from memory, and absolute accuracy could hardly be expected.
water and breakage. In the parlor on the second floor the rattan work on the chairs
With regard to the fact that the plaintiff claims there were about 25 chairs in the
was entirely consumed, but the woodwork was probably only charred or scorched.
house, it may be said that the remains of 8 chairs may be seen in the photograph
The fire did the most damages in the bedroom, where the roof partly fell in. Articles
(Exhibit 3), and 3 more in the photograph (Exhibit 1). This accounts for nearly half
of clothing contained in the wardrobes in this room are visible in the photograph,
the number claimed and the plaintiff asserts that a bundle of chairs was stored on
they having evidently been taken out for inspection after the fire. Mr. Young
top of some of the wardrobes in the bedroom. The remaining furniture described is
testified that upon request of the defendant company he had examined the
not of an amount or description which convinces us that the floor space in the
contents of the house and estimated the loss at P1,000. He said, however, that this

plaintiff's dwelling was too limited to contain all of it, in the absence of something
like definite figures as to the size of the house and of the furniture.
The inventory which the plaintiff gives of the wardrobe of himself and wife covers
an amount and quality of clothing which counsel is quite correct in saying is not
usually possessed by persons in the station of life of the plaintiff. It may be well to
state here that the evidence shows the plaintiff to have been a cashier of a local
business house with a salary of P175 per month. In addition to this he and his wife
each had shares of stock in a commercial concerns which brought them between
P25 and P30 per month dividends. He had inherited about P15,000 from his father,
and was administrator of his father's estate. While the family wardrobe denotes
what might be considered a high degree of extravagance, we cannot say from the
evidence before us that there was less or other clothing than that described by the
plaintiff. From the photograph (Exhibit 4) it is evident that there was considerable
clothing which had not been consumed and was only damaged by water or smoke.
It appears that the plaintiff's claim wherein this extraordinary list of wearing
apparel was set forth was submitted to the defendant before any of the three
experts made his examination of the property. The defendant was consequently
well aware of the claim which the plaintiff intended to make and could very easily
have made an exact list of the quantity and quality of the clothing which had not
been consumed by the fire, and which would doubtedless have aided us
considerably in determining whether the plaintiff's description of the family
clothing was correct. The cross-examination of the plaintiff at the trial did not
develop anything material in the way of contradiction to the list of property
submitted by him.
As to the values set out opposite the various items in the plaintiff's list, much the
same reasoning must be applied. If furniture or clothing of the kind and quality
described is not worth the amounts set out by the plaintiff, it would have been easy
for the experts introduced by the plaintiff to take each item separately and show
wherein and how much the price was erroneous. After an inspection of each
separate article in the list, we are not prepared to say that the prices are fabulous.
The testimony of the three witnesses introduced by the defendant we decline to
accept for two reasons: First, because it appears that some of the plaintiff's
property was entirely consumed by the fire and some was so badly damaged that it
was impossible to judge of its value. In the second place, the inspection made by
these several witnesses was so superficial, in view of their opportunity, that their
conclusions do not carry conviction.
15
As to the ruling of the trial court that the plaintiff and his brother were not qualified
to appraise the value of the household effects of the former, we must say that we
do not agree with the learned trial court on the point. There is nothing in the whole
list, except the jewelry, but what may be legitimately described as household
effects furniture, clothing, dishes, kitchen utensils, etc. They are with which all
people of ordinary education and refinement are reasonably familiar. Such articles
are on sale in retail shops everywhere and the prices are readily available to anyone
seeking the information. Not only this, but most of them are articles which persons
with a reasonably fair income purchase for their own convenience and comfort.
Hence, information as to their value must necessarily be acquired by all such
individuals. While the knowledge of some persons on the subject may be greater
than that possessed by others, this is true of all other branches of knowledge and
equally as true of experts. For these reasons we cannot subscribe to the proposition
that none but experts can testify as to the values of ordinary household articles.
The knowledge of values in most cases does not depend upon professional
or other special skill; and witnesses without having any special experience
or training as would entitle them to be called experts, may yet have gained
such knowledge of the land, or other subject under inquiry, as to aid the
court or jury in arriving at a conclusion. . . . Persons by their common
experience and observation necessarily gain some common use by all or
nearly all; and their evidence as to such values is not excluded by the fact
that experts may have more accurate knowledge as to such values.
Obviously the witness must have some means of knowledge as to the
nature and quality of the articles in question before he is qualified to
express an opinion as to values. It would be an idle ceremony to allow
witnesses to give their opinions in evidence, unless they had better means
of knowledge as to the subject matter of their testimony than the jury
might possess in common with all other persons. The qualification of the
witness is, of course, a question for the court. (Jones on Ev., sec. 363.)
The plaintiff was intimately acquianted with the articles described by him. He, no
doubt, had purchased most of them. One could hardly expected to be in much
better position to estimate the value of the articles than this. We conclude,
therefore, that the preponderance of the evidence is to the effect that the quantity
and quality of the goods contained in the house at the time of the fire were
substantially those described by the plaintiff in his claim of loss.
Having reached this conclusion, we presume that the defendant company will no
longer insist upon the remainder of its points, which would, if decided favorably to
its contention, tend to reduce the total value of the plaintiff's household effects,
 16

but not to a figure which would make the company's liability under the policy less
than that which they would be held liable under the coinsurance clause of the
policy.

We do not understand that the plaintiff at any time alleged a total loss. The list
presented by him the day after the fire is designated as a "Statement of household
furniture and personal effects . . . on hand" at the time of the fire. He latter offered
to abandon the remains of the fire, and still later caused these remains to be sold at
public auction. These facts clearly negative the assertion that he alleged a total loss.

Clause 17 of the conditions of the policy reads: "If the property hereby insured
shall, at the breaking out of any fire, be collectively of greater value than the sum
insured thereon, then the insured shall be considered as being his own insurer for
the difference, and shall bear a ratable proportion of the loss accordingly. Every
item, if more than one, of the policy shall be separately subject to this condition."

The property was worth P4,512. The salvage amounted to P120.40. This leaves a
partial loss amounting to P4,391.60. As the property was insured for only P3,000,
the insurer must bear a portion of the loss represented by a fraction the numerator
of which is the amount of the insurance and the denominator of which is the value
of the property at the time of the fire. This entitles the insured to a judgment
against the insurrer for 2,919.92. Let judgment be entered accordingly, without
costs in this instance. So ordered.

Arellano, C. J., Torres, Carson and Araullo, JJ., concur.


EN BANC
G.R. No. L-22738 December 2, 1924
ONG GUAN CAN and THE BANK OF THE PHILIPPINE ISLANDS, plaintiffs-appellees,
vs.
THE CENTURY INSURANCE CO., LTD., defendant-appellant.
VILLAMOR, J.:
On April 19, 1924, the Court of First Instance of Iloilo rendered a judgment in favor
of the plaintiff, sentencing the defendant company to pay him the sum of P45,000,
the value of certain policies of fire insurance, with legal interest thereon from
February 28, 1923, until payment, with the costs. The defendant company appealed
from this judgment, and now insists that the same must be modified and that it
must be permitted to rebuild the house burnt, subject to the alignment of the
street where the building was erected, and that the appellant be relieved from the
payment of the sum in which said building was insured.
A building of the plaintiff was insured against fire by the defendant in the sum of
P30,000, as well as the goods and merchandise therein contained in the sum of
P15,000. The house and merchandise insured were burnt early in the morning of
February 28, 1923, while the policies issued by the defendant in favor of the
plaintiff were in force.
The appellant contends that under clause 14 of the conditions of the policies, it may
rebuild the house burnt, and although the house may be smaller, yet it would be
sufficient indemnity to the insured for the actual loss suffered by him.
The clause cites by the appellant is as follows:lawphi1.net
The Company may at its option reinstate or replace the property damaged
or destroyed, or any part thereof, instead of paying the amount of the loss
of damages, or may join with any other Company or insurers in so doing,
but the Company shall not be bound to reinstate exactly or completely, but
only as circumstances permit and in reasonable sufficient manner, and in
no case shall the Company be bound to expend more in reinstatement that
it would have cost to reinstate such property as it was at the time of the
occurrence of such loss or damage, nor more than the sum insured by the
Company thereon.
17
If this clause of the policies is valid, its effect is to make the obligation of the
insurance company an alternative one, that is to say, that it may either pay the
insured value of house, or rebuild it. It must be noted that in alternative obligations,
the debtor, the insurance company in this case, must notify the creditor of his
election, stating which of the two prestations he is disposed to fulfill, in accordance
with article 1133 of the Civil Code. The object of this notice is to give the creditor,
that is, the plaintiff in the instant case, opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if impugned by the
latter, when declared proper by a competent court. In the instance case, the record
shows that the appellant company did not give a formal notice of its election to
rebuild, and while the witnesses, Cedrun and Cacho, speak of the proposed
reconstruction of the house destroyed, yet the plaintiff did not give his assent to
the proposition, for the reason that the new house would be smaller and of
materials of lower kind than those employed in the construction of the house
destroyed. Upon this point the trial judge very aptly says in his decision: "It would
be an imposition unequitable, as well as unjust, to compel the plaintiff to accept the
rebuilding of a smaller house than the one burnt, with a lower kind of materials
than those of said house, without offering him an additional indemnity for the
difference in size between the two house, which circumstances were taken into
account when the insurance applied for by the plaintiff was accepted by the
defendant." And we may add: Without tendering either the insured value of the
merchandise contained in the house destroyed, which amounts to the sum of
P15,000.
We find in the record nothing to justify the reversal of the finding of the trial judge,
holding that the election alleged by the appellant to rebuild the house burnt instead
of paying the value of the insurance is improper. To our mind, the judgment
appealed from is in accordance with the merits of the case and the law, and must
be, as is hereby, affirmed with the cost against the appellant. So ordered.
 PLAINTIFFS-APPELLEES: Ong Guan Can and the Bank of the Philippine Islands
DEFENDANT-APPELLANT: The Century Insurance Co., LTD.
18
PONENTE: Villamor, J.

The plaintiff owned a building that was insured against fire by the defendant
in the sum of Php 30,000, including the merchandise therein contained in the
sum of Php 15,000. Both the house and merchandise insured were burned in
February 28, 1923 while the policies issued by the defendant in favor of the
plaintiff were still in force.

The CFI of Iloilo granted the case in favor of the plaintiff that The Century
Insurance Co. should pay Ong Guan Can the sum of Php 45,000 as the total
value of the insured house and merchandise. The Insurance Company
appealed that the judgment be modified to permit it to rebuild the house and
that they be relieved from the payment of the sum in which the building was
insured.

FACTS

Whether the defendant-appellant can rebuild the house burnt as a sufficient

ISSUE/S idemnity to the inured for the actual loss suffered by him.

Article 1199. A person alternatively bound by different prestations shall

completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. (1131)

LAWS

Yes. The defendant may build the house as an alternative prestation, freeing
him from the payment of the sum in which the building was insured. This
conclusion is in line with The Civil Codes Article 1131.
Paying the sum in which the building was insured is one of the 2 prestations
provided in one of the clauses stipulating the conditions of the policies.
Based on the same Article of the Civil Code, the complete performance of
one of them is sufficient to extinguish the obligation. While there are several
prestations, only one is due.

HOLDINGS
 19

EN BANC vehicle on the public highways without having procured a license for the current
year, nor while such license is delinquent, invalid, suspended or revoked."
G.R. No. L-17312 November 29, 1965
In rendering judgment for plaintiff the trial court adverted to the absence of
ARTURO R. TANCO, JR., plaintiff-appellee, evidence that Manuel Tanco had been "disqualified by order of a court of law or by
vs. reason of any enactment or regulation in that behalf from driving such motor
THE PHILIPPINE GUARANTY COMPANY, defendant-appellant. vehicle," and ruled that if there is any ambiguity in the definition of the term
"authorized driver" in the policy the ambiguity should be construed in favor of
MAKALINTAL, J.: plaintiff, since the policy had been prepared in its entirety by defendant. The trial
court's advertence is true as a matter of fact; and its ruling is correct as a matter of
law. But neither one nor the other is relevant in this case. Appellant does not rely
Plaintiff's automobile, while being driven at the southern approach of the Jones
on the portion of the proviso in the policy quoted by the court but on that which
bridge by his brother Manuel Tanco on September 1, 1959, figured in a collision
states that "the person driving is permitted in accordance with the licensing or
with a pick-up delivery van, as a result of which both vehicles were damaged.
other laws." And as to this there is no ambiguity whatsoever, because the Motor
Plaintiff paid for repairs the total sum of P2,536.99 and then filed his claim with
Vehicle Law expressly prohibits any person from operating a motor vehicle on the
defendant company under a car insurance policy issued by the latter. The claim was
highways without a license for the current year or while such license is delinquent
rejected, whereupon suit was commenced in the Municipal Court of Manila,
or invalid. That Manuel Tanco renewed his license on September 8,1959, one week
whence it was elevated on appeal to the Court of First Instance of Manila, which
after the accident did not cure the delinquency or revalidate the license which had
gave judgment for plaintiff in the amount stated, plus interest at 8% and P500.00 as
already expired.
attorney's fees. Appeal was taken by defendant directly to this Court, there being
no dispute as to the facts.
We are not aware that the question presented here has been decided by this Court
in any previous case. Indeed all the authorities cited by the parties consist of
The policy sued upon covers, up to a certain limit, loss or damage to the insured
decisions Courts United States. We note, however, that those relied upon by
vehicle as well as damage to property of third persons as a consequence of or
appellee are not in point by reason of material differences in the facts or issues
incident to the operation of said vehicle. There is an exception clause, however,
presented. InMessersmith vs. American Fidelity Co., 187 App. Div. 35, 175 N.Y. Supp.
which provides that "the company shall not be liable in respect of any accident,
169; and Fireman's Fund Insurance Co. vs. Haley, 129 Miss. 525, 90 So. 635, the
loss, damage or liability caused, sustained or incurred ... whilst (the insured vehicle)
question was whether the insured could recover on an automobile policy for
is ... being driven by or is for the purpose of being driven by him in the charge of any
damage sustained in a collision which occurred while the vehicle was being driven
person other than an Authorized Driver." The policy defined the term "Authorized
in violation of law in the first case by an infant at the instance of the insured, and
Driver" to be the insured himself and "(b) any person driving on the Insured's order
in the second by the insured himself beyond the statutory speed limit. In neither
or with his permission, provided that the person driving is permitted in accordance
case was there a provision in the policy expressly excluding liability by reason of the
with the licensing or other laws or regulations to drive the Motor Vehicle or has
particular violation involved. We have no reason to disagree with the
been permitted and is not disqualified by order of a court of law or by reason of any
pronouncement of the court in the second case, after citing the first, that "if such a
enactment or regulation in that behalf from driving such Motor Vehicle."
defense (that the vehicle was being driven in violation of law) were permissible
automobile insurance would be practically valueless."
At the time of the collision plaintiff's brother who was at the wheel, did not have a
valid license, the one he had obtained for the year 1958 not having been renewed
In MacMahon vs. Pearlman, 13 N.E. 154-156, a Massachusetts case, the defense of
on or before the last working day of February 1959, as required by section 31 of the
the insurer was also the violation of law by the insured, namely, that she was
Motor Vehicle Law, Act No. 3992. That section states that any license not so
driving without a license; but as stated in the decision, "the casualty company does
renewed "shall become delinquent and invalid," and section 21 states that "except
not urge that the unlawful conduct is forbidden in express terms, (but) that because
as otherwise specifically provided in this Act no person shall operate any motor
of public policy it ought not to be compelled to pay damages." The court,

citing Messersmith v. American Fidelity Co., supra, similarly allowed recovery, saying
that to restrict such insurance to cases where there has been no violation of
criminal law or ordinance would reduce indemnity to a shadow.
In the case before Us now appellant's defense does not rest on the general
proposition that if a law is violated at the time of the accident which causes the
damage or injury there can be no recovery, but rather on a specific provision in the
policy that appellant shall not be liable if the accident occurs while the vehicle is
being driven by any person other than an authorized driver and that an authorized
driver, if not the insured himself, is one who is acting on his order or with his
permission, provided he is permitted to drive under the licensing laws.
The cases cited by appellant are apropos. In Crahan v. Automobile Underwriters,
Inc., et al., 176 A. (Pa.) 817, a clause in the policy excluding loss while the motor
vehicle "is being operated by any person prohibited by law from driving an
automobile" was held to be free from doubt or ambiguity, reasonable in its terms
and in furtherance of the policy of the law prohibiting unlicensed drivers to operate
motor vehicles. In Zabonick v. Ralston, et al., 261 N.W. (Mich.) 316, the insured was
driving with an expired license, in violation of law (Act No. 91 of the Public Acts of
1931), when the accident occurred. Under a provision in the policy that the insurer
"shall not be liable while the automobile is operated ... by any person prohibited by
law from driving," the insurance company was absolved, the Supreme Court of
Michigan saying: "To require a person to secure an operator's license and meet
certain requirements before driving an automobile is a regulation for the protection
of life and property, the wisdom of which can scarcely be questioned. The
Legislature has also provided that every three years such licenses expire and may be
renewed under certain conditions. If one fails to comply with the regulation, the
statute says, he or she shall not drive a motor vehicle upon the highway. Under the
terms of the contract, while under such statutory prohibition, plaintiff could not
recover under his policy. To permit such recovery, notwithstanding the lack of a
driver's license, would tend to undermine the protection afforded the public by
virtue of Act No. 91."
The exclusion clause in the contract invoked by appellant is clear. It does not refer
to violations of law in general, which indeed would tend to render automobile
insurance practically a sham, but to a specific situation where a person other than
the insured himself, even upon his order or with his permission, drives the motor
vehicle without a license or with one that has already expired. No principle of law or
of public policy militates against the validity of such a provision.
The judgment appealed from is reversed, with costs.
20
FACTS:
While Tanco's automobile was driven by his brother Manuel Tanco, who at the
time didn't have a valid license since it was not renewed until the next week,
had a collision with a pick-up delivery van at the southern approach of the Jones
bridge
The repairs cost P2,536.99 so he filed a claim against the insurance company
which was rejected
He filed a claim in the Municipal Court of Manila and elevated to the Court of
First Instance of Manila on Appeal which favored Tanco
exception clause "the company shall not be liable in respect of any accident,
loss, damage or liability caused, sustained or incurred ... whilst (the insured
vehicle) is ... being driven by or is for the purpose of being driven by him in the
charge of any person other than an Authorized Driver.
Authorized Driver" to be the insured himself and "(b) any person driving on the
Insured's 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 or has been permitted and is not disqualified by order of a
court of law or by reason of any enactment or regulation in that behalf from
driving such Motor Vehicle.
ISSUE: W/N the Tanco can claim because it was not covered by the exemption
clause
HELD: NO. appealed from is reversed, with costs
The exclusion clause in the contract invoked by appellant is clear. It does not
refer to violations of law in general, which indeed would tend to render
automobile insurance practically a sham, but to a specific situation where a
person other than the insured himself, even upon his order or with his
permission, drives the motor vehicle without a license or with one that has
already expired. No principle of law or of public policy militates against the
validity of such a provision.

EN BANC
G.R. No. L-25920 January 30, 1970
CCC INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS (Fourth Division) and CARLOS F. ROBES, respondents.
REYES, J.B.L., J.:
Petition for review of the decision of the Court of Appeals, affirming that of the
Court of First Instance of Rizal (Quezon City) allowing insurance indemnification of
plaintiff for his damaged car and the payment of attorney's fees.
The following facts are not in dispute:
On 1 March 1961, Carlos F. Robes took an insurance, with the CCC Insurance
Corporation, on his Dodge Kingsway car against loss or damage through accident for
an amount not exceeding P8,000.00 (Policy No. M1156). On 25 June 1961, and
during the effectivity of the policy, the insured vehicle, while being driven by the
owner's driver, became involved in a vehicular collision along Rizal Avenue
Extension, Potrero, Malabon, Rizal. The car was damaged, and the repair was
estimated to cost P5,300.00.
As the insurance company refused either to pay for the repair or to cause the
restoration of the car to its original condition, Robes instituted Civil Case No. Q-
6063 in the Court of First Instance of Rizal for recovery not only of the amount
necessary for the repair of the insured car but also of actual and moral damages,
attorneys' fees and costs. Resisting plaintiff's claim, the insurance company
disclaimed liability for payment, alleging that there had been violation of the
insurance contract because the one driving the car at the time of the incident was
not an "authorized driver."
After due hearing, judgment was rendered for the plaintiff, and defendant insurer
was ordered to pay unto the former the cost of repair of the car in the sum of
P5,031.28; the sum of P150.00, for the hauling and impounding of the car at the
repair shop; P2,000.00 as actual damages; and P1,000.00 as attorneys' fees, plus
costs.
21
The insurance company went to the Court of Appeals, raising inter alia the
questions of the qualification of plaintiff's driver to operate the insured vehicle and
the correctness of the trial court's award to plaintiff of the amount of P5,013.28 as
cost of repairs, and of actual damages and attorneys' fees. In its decision of 31
January 1966, the Court of Appeals affirmed the ruling of the lower court except the
award of actual damages in the sum of P2,000.00, which was eliminated on the
ground that it was too speculative. Not content, the insurance company filed the
present petition for review of the aforesaid decision of the Court of Appeals on two
grounds: (1) that the proceedings observed in the trial court were irregular and
invalid; and (2) that the damage to the insured car was not covered by the
insurance policy because at the time of the accident it was being driven by one who
was not an authorized driver.
The second issue constitutes the main contention of herein appellant, and will be
considered first. It is vigorously urged by the insurer that the one driving the
insured vehicle at the time of the accident was not an authorized driver thereof
within the purview of the following provision of the insurance policy:
AUTHORIZED DRIVER:
Any of the following: (a) The insured;
(b) Any person driving on the Insured's order or with his permission, provided that
the person driving is permitted in accordance with licensing laws or regulations to
drive the motor vehicle covered by this Policy, or has been so permitted and is not
disqualified by order of a court of law or by reason of any enactment or regulation
from driving such Motor Vehicle. (Emphasis ours)
It has been found as a fact by the Court of Appeals that Domingo Reyes, the, driver
who was at the wheel of the insured car at the time of the accident, does not know
how to read and write; that he was able to secure a driver's license, without passing
any examination therefor, by paying P25.00 to a certain woman; and that the Cavite
agency of the Motor Vehicles Office has certified not having issued Reyes'
purported driver's license No. 271703 DP.
In holding that the damage sustained by the car comes within the coverage of the
insurance policy, the Court of Appeals argued that since Reyes' purported driver's
license (Exhibit "A") bears all the earmarks of a duly issued license, then it is a public
document, and petitioner insurance company then has the burden of disproving its
genuineness, which the latter has failed to do. In this respect the Court of Appeals
ruled:

... . The fact that the Cavite Agency of the Motor Vehicles Office states that
Driver's License No. 271703 DP was not issued by that office, does not
remove the possibility that said office may have been mistaken or that said
license was issued by another agency. Indeed Exhibit 13 shows that a
certain Gloria Presa made the notation thereon "no license issued" and
which notation was the basis of the 1st Indorsement, Exhibit 12, signed by
the MVO Cavite City Agency's officer-in-charge. Neither Gloria Presa nor
the officer-in-charge Marciano A. Monzon was placed on the witness stand
to be examined in order to determine whether said license is indeed void.
As it is, as heretofore pointed out, the fact remains that Domingo Reyes is
in possession of a driver's license issued by the Motor Vehicles Office
which on its face appears to have been regularly issued.
In effect, the Court of Appeals found that the driver's license No. 271703 DP was
genuine, that is, one really issued by the Motor Vehicles Office or its authorized
deputy; and this finding of fact is now conclusive and may not be questioned in this
appeal.
Nevertheless, the appellant insurer insists that, under the established facts of this
case, Reyes, being admittedly one who cannot read and write, who has never
passed any examination for drivers, and has not applied for a license from the duly
constituted government agency entrusted with the duty of licensing drivers, cannot
be considered an authorized driver.
The fatal flaw in appellant's argument is that it studiously ignores the provisions of
law existing at the time of the mishap. Under Section 24 of the Revised Motor
Vehicles Law, Act 3992 of the Philippine Legislature, as amended by Republic Acts
Nos. 587, 1204 and 2863,1
An examination or demonstration to show any applicant's ability to
operate motor vehicles may also be required in the discretion of the Chief,
Motor Vehicles Office or his deputies. (Emphasis supplied)
and reinforcing such discretion, Section 26 of the Act prescribes further:
SEC. 26. Issuance of chauffeur's license; professional badge: If, after
examination, or without the same, the Chief, Motor Vehicles Office or his
deputies, believe the applicant to possess the necessary qualifications and
knowledge, they shall issue to such applicant a license to operate as
chauffeur ... (Emphasis supplied)
22
It is thus clear that the issuance of a driving license without previous examination
does not necessarily imply that the license issued is invalid. As the law stood in
1961, when the claim arose, the examinations could be dispensed with in the
discretion of the Motor Vehicles Office official officials. Whether discretion was
abused in issuing the license without examination is not a proper subject of inquiry
in these proceedings, though, as a matter of legislative policy, the discretion should
be eliminated. There is no proof that the owner of the automobile knew that the
circumstance surrounding such issuance showed that it was irregular.
The issuance of the license is proof that the Motor Vehicles Office official
considered Reyes, the driver of the insured- appellee, qualified to operate motor
vehicles, and the insured was entitled to rely upon such license. In this connection,
it should be observed that the chauffeur, Reyes, had been driving since 1957, 2 and
without mishap, for all the record shows. Considering that, as pointed out by the
Court of Appeals, the weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the insurer,
We find no reason to diverge from the conclusion reached by the Court of Appeals
that no breach was committed of the above-quoted provision of the policy.
The next issue assigned is anchored on the fact that the decision of the trial court
was based on evidence presented to and received by the clerk of court who acted
as commissioner, although allegedly, there was no written court order constituting
him as such commissioner, no written request for his commission was made by the
parties; he did not take an oath prior to entering into the discharge of his
commission; no written report of his findings was ever submitted to the court; and
no notice thereof was sent to the parties, contrary to the specific provisions of Rule
33 of the Rules of Court.
Actually there is nothing basically wrong with the practice of delegating to a
commissioner, usually the clerk of court, who is a duly sworn court officer, the
reception of both parties and for him to submit a report thereon to the court. In
fact, this procedure is expressly sanctioned by Revised Rule 33 of the Rules of
Court.3 Petitioner's objection in this case, however, is directed not against its
referral to the clerk of court but against the alleged non-observance of the
prescribed steps in connection with such delegation.
We find no cause sufficient to invalidate the proceedings had in the trial court. We
note that this issue was brought up by the appellant insurance company or the first
time only in its motion for reconsideration filed in the Court of Appeals. It was not
raised in the trial court, where the defect could still be remedied. This circumstance
precludes ventilation of the issue of validity of the hearing at this stage; for, if such
 23

irregularity is to vitiate the proceeding, the question should have been seasonably
raised, i.e., either before the parties proceeded with the hearing or before the court
handed down its ruling.4 It is a procedural point that can be waived by consent of
the parties, express or implied.5
For the same reason, appellant cannot insist now on the annulment of the
proceeding on the basis of alleged lack of written consent of the parties to the
commission, or of an order appointing the clerk as commissioner, or of notice of the
submission of his report to the court. Furthermore, appellant has presented no
proof that the clerk of court committed any mistake or abuse in the performance of
the task entrusted to him, or that the trial court was not able to properly appreciate
the evidence in the case because it was received by another person. If indeed there
were errors at all, they would be non-prejudicial and could not justify the holding of
a new trial, as urged by herein petitioner. 6
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against
appellant CCC Insurance Corporation.
Lessons Applicable: Motor vehicle liability insurance - "Authoried Driver Clause"
(Insurance)
Laws Applicable:
(b) Any person driving on the Insured's order or with his permission, provided that
the person driving is permitted in accordance with licensing laws or regulations to
drive the motor vehicle covered by this Policy, or has been so permitted and is not
disqualified by order of a court of law or by reason of any enactment or regulation
from driving such Motor Vehicle.
RTC: favored Robes and CCC was order to pay
ISSUE: W/N Domingo Reyes was an authorized driver
HELD: YES. CA affirmed
Court of Appeals found that the driver's license No. 271703 DP was genuine
Domingo Reyes is in possession of a driver's license issued by the Motor
Vehicles Office which on its face appears to have been regularly issued
Neither Gloria Presa nor the officer-in-charge Marciano A. Monzon was placed
on the witness stand to be examined in order to determine whether said license
is indeed void
Section 24 of the Revised Motor Vehicles Law, Act 3992 of the Philippine
Legislature, as amended by Republic Acts Nos. 587, 1204 and 2863,1

An examination or demonstration to show any applicant's ability to operate

FACTS:
motor vehicles may also be required in the discretion of the Chief, Motor
Vehicles Office or his deputies.
Carlos F. Robes insured with the CCC Insurance Corporation his Dodge Kingsway
Section 26 of the Act prescribes further:
car against loss or damage through accident for an amount not exceeding
P8,000
SEC. 26. Issuance of chauffeur's license; professional badge: If, after
June 25 1961: Carlos' driver Domingo Reyes met a vehicular collision along Rizal
examination, or without the same, the Chief, Motor Vehicles Office or his
Avenue Extension, Potrero, Malabon, Rizal
deputies, believe the applicant to possess the necessary qualifications and
Ccc Insurance Corporation denied his claim reasoning that the driver was not
knowledge, they shall issue to such applicant a license to operate as chauffeur
an "authorized driver"
...
Reyes, who cannot read and write, who has never passed any examination for
There is no proof that the owner of the automobile knew that the circumstance
drivers, and has not applied for a license from the duly constituted government
surrounding such issuance showed that it was irregular
agency entrusted with the duty of licensing drivers, cannot be considered an
the weight of authority is in favor of a liberal interpretation of the insurance
authorized driver
policy for the benefit of the party insured, and strictly against the insurer
AUTHORIZED DRIVER:
Any of the following:
(a) The insured;

FIRST DIVISION
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.
TEEHANKEE, Acting C.J.:
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.
24
The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitioner-
insured 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
phrase
... 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.
25
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.
 26

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.
SO ORDERED.
JEWEL VILLACORTA vs. THE INSURANCE COMMISSIONG.R. No. L-54171, 28
October 1980100 SCRA 467
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.
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.

FACTS:

Villacorta had her Colt Lancer car insured with Empire Insurance Company against
own damage, theft and 3rd party liability. While the car was in the repair shop, one
of the employees of the said repair shop took it out for a joyride after which it
figured in a vehicular accident. This resulted to the death of the driver and some of
the passengers as well as to extensive damage to the car. Villacorta filed a claim for
total loss with the said insurance company. However, it denied the claim on the
ground 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. This was upheld by the Insurance Commission further stating that
the car was not stolen and therefore not covered by the Theft Clause because it is
not evident that the person who took the car for a joyride intends to permanently
deprive the insured of his/ her car.

ISSUE: Whether or not the insurer company should pay the said claim.

HELD:

Yes. Where the insureds car is wrongfully taken without the insureds 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.
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,

ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC., Plaintiff, v.
FIELDMENS INSURANCE CO., INC., Defendant-Appellant.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; COMPREHENSIVE POLICY; UNLAWFUL AND
WRONGFUL TAKING OF VEHICLE FOR A JOY RIDE CONSTITUTES THEFT WITHIN THE
MEANING OF INSURANCE POLICY; RECOVERY FOR DAMAGE NOT BARRED BY THE
ILLEGAL USE OF THE VEHICLE. The Comprehensive Policy issued by the insurance
company includes loss of or damage to the motor vehicle by "burglary . . . or theft."
It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril, Davao
City, constitutes theft within the meaning of the insurance policy and that recovery
for damage to the car is not barred by the illegal use of the car by one of the station
boys.
2. ID.; ID.; ID.; ID.; ID.; LIABILITY OF INSURER UNDER THE THEFT CLAUSE OF AN
INSURANCE POLICY; PRIOR CONVICTION NOT REQUIRED IN AN ACTION FOR
RECOVERY ON AN AUTOMOBILE INSURANCE; CASE AT BAR. There need be no
prior conviction for the crime of theft to make an insurer liable under the theft
clause of the policy. Upon the facts stipulated by the parties it is admitted that
Catiben had taken the vehicle for a joy ride and while the same was in his
possession he bumped it against an electric post resulting in damages. That act is
theft within a policy of insurance. In a civil action for recovery on an automobile
insurance, the question whether a person using a certain automobile at the time of
the accident stole it or not is to be determined by a fair preponderance of evidence
and not by the rule of criminal law requiring proof of guilt beyond reasonable doubt
(Villacorta v. Insurance Commission, 100 SCRA 467 [1980]). Besides, there is no
provision in the policy requiring prior criminal conviction for theft.
RESOLUTION
MELENCIO-HERRERA, J.:
This case for "Indemnity for Damages and Attorneys Fees" was elevated to this
Tribunal by the then Court of Appeals on a question of law.
The Stipulation of Facts submitted by the parties before the Court of First Instance
of Davao, Branch I, in Case No. 3789, reads as follows:
27
"COMES the parties in the above entitled case, through their respective counsels
and to this Honorable Court respectfully submit the following stipulations of
facts:chanrob1es virtual 1aw library
1. That plaintiff is a religious corporation duly organized and registered under the
laws of the Philippines, while defendant is also a domestic corporation duly
organized and existing under the laws of the Philippines;
2. That plaintiff, having an insurable interest in a Chevrolet Carry-all, 1955 Model,
with Motor No. 032433272555 and Plate No. E-73317 covered by Registration
Certificate No. 288141 Rizal, issued by the Davao Motor Vehicles Office Agency No.
20 and owned by Reverend Clinton Bonnel, insured said vehicle with the defendant
under Fieldmens Insurance Co., Inc. Private Car Comprehensive Policy No. 22 Jl
1107, attached hereto as Annex A to A-2 against loss or damage up to the
amount of P5,000.00;
3. That in the latter part of 1961, through plaintiffs representative, Dr. Antonio
Lim, the aforementioned Chevrolet Carry-all was placed at the Jones Monument
Mobilgas Service Station at Davao City, under the care of said stations operator,
Rene Te so that said carry-all could be displayed as being for sale, with the
understanding that the latter or any of his station boys would receive a 2%
commission should they sell said vehicle.
4. That on the night of January 18, 1962, Romeo Catiben one of the boys at the
aforementioned Jones Monument Service Station and a nephew of the wife of Rene
Te who is residing with them, took the aforementioned chevrolet carry-all for a joy
ride to Toril, Davao City, without the prior permission, authority or consent of either
the plaintiff or its representative Dr. Antonio Lim, or of Rene Te, and on its way back
to Davao City, said vehicle, due to some mechanical defect accidentally bumped an
electric post causing actual damages valued at P5,518.61.
5. That the issue before the Honorable Court is whether or not for the damage to
the abovementioned Chevrolet Carry-all to be compensable under the
aforementioned Fieldmens Private Car Comprehensive Policy No. 22 JL 11107,
there must be a prior criminal conviction of Romeo Catiben for theft.
WHEREFORE, it is respectfully prayed that this Honorable Court render judgment on
the facts and issues above stipulated after the parties shall have submitted their
respective memoranda."cralaw virtua1aw library
The Trial Court rendered judgment based on the facts stipulated and ordered
defendant insurance company to pay plaintiff association the amount of P5,000.00
 28

as indemnity for the damage sustained by the vehicle, P2,000.00 for attorneys fees, affirmed.
and costs. Dissatisfied, the insurance company interposed an appeal to the
Appellate Court, docketed as CA-G.R. No. 33543-R, which as above stated, elevated Costs against defendant Fieldmens Insurance Co., Inc.
it to this instance.
SO ORDERED.
We affirm. The Comprehensive Policy issued by the insurance company includes
loss of or damage to the motor vehicle by "burglary . . . or theft." It is settled that
the act of Catiben in taking the vehicle for a joy ride to Toril, Davao City, constitutes
theft within the meaning of the insurance policy and that recovery for damage to
the car is not barred by the illegal use of the car by one of the station boys.

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

". . . the Court sustains as the better view that which holds that when a person,
either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident
since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice
Ramon C. Aquino cites in his work Groizard who holds that the use of a thing
constitutes gain and Cuello Calon who calls it hurto de uso. 1

There need be no prior conviction for the crime of theft to make an insurer liable
under the theft clause of the policy. Upon the facts stipulated by the parties it is
admitted that Catiben had taken the vehicle for a joy ride and while the same was
in his possession he bumped it against an electric post resulting in damages. That
act is theft within a policy of insurance. In a civil action for recovery on an
automobile insurance, the question whether a person using a certain automobile at
the time of the accident stole it or not is to be determined by a fair preponderance
of evidence and not by the rule of criminal law requiring proof of guilt beyond
reasonable doubt. 2 Besides, there is no provision in the policy requiring prior
criminal conviction for theft.chanroblesvirtualawlibrary

ACCORDINGLY, finding no error in the judgment appealed from, the same is hereby

JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL
STEPHEN ADOLFSON, Plaintiffs-Appellees, v. MALAYAN INSURANCE CO.,
INC., Defendant-Appellant.
SYLLABUS
1. MERCANTILE LAW; INSURANCE CONTRACT; COMPLIANCE WITH TERMS THEREOF,
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.
3. ID.; ID.; ACCEPTANCE OF PREMIUM WITHIN THE STIPULATED PERIOD FOR
PAYMENT DOES NOT ESTOP INSURER FROM INTERPOSING ANY VALID DEFENSE.
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.
4. CIVIL LAW; PRINCIPLE OF ESTOPPEL, DEFINED; NOT APPLICABLE TO CASE AT BAR.
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.
29
DECISION
PLANA, J.:
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.
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."
The cited Section 21 of the Land Transportation and Traffic Code provides:
"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
supplied.)
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:
"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."
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.)
30
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.
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.
SO ORDERED.
FACTS:
Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against
own damage as well as 3rd party liability when his car figured in a vehicular
accident with another car, resulting to 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 tourist who had been in the Philippines for only
90 days, had a valid and subsisting Irish drivers license but without a Philippine
drivers license. 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
Office.
 31

ISSUE: Whether or not Malayan is liable to pay the insurance claim of Adolfson

HELD:

NO. 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. 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. WHEREFORE, the appealed judgment is reversed. The
complaint is dismissed. Costs against appellees.

SECOND DIVISION
G.R. No. L-26827 June 29, 1984
AGAPITO GUTIERREZ, plaintiff-appellee,
vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellant.
AQUINO, J.:
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."
32
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). 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 driver.
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 Law.
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.
SO ORDERED.
Facts:
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 anyone person. 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." On
May 29,1962, the insured jeepney had an accident at Buendia Avenue, Makati,Rizal.
As a result of said accident, a passenger named Agatonico Ballega fell off the vehicle
33
and died. Teofilo Ventura, the jeepney driver, was duly licensed for the years 1962
and 1963. 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". The
same traffic violation report, 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". It is
indisputable that at the time of the accident (May 29, 1962), Ventura was holding
an "expired Temporary Operator's Permit." Capital Insurance refused to make any
reimbursement with regard to Guttierez's payment to the widow, hence he filed on
October 14, 1963 in the city court of Manila an action for specific performance and
damages. Insurance Company contended 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)
Issue: Whether an insurance covers a jeepney whose driver's traffic violation report
or temporary operator's permit had already expired?
Rulling of the Court:
It was held that the following ruling has persuasive authority with regards to
Insurance :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 driver. 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 given case, 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 Law. That since he had
renewed his license one week after the accident, it 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 case is againstGutierrez.

SECOND DIVISION
G.R. No. L-59919 November 26, 1986
MALAYAN INSURANCE CO., INC., petitioner-appellant,
vs.
THE HONORABLE COURT OF APPEALS and AURELIO LACSON, respondents-
appellees.
PARAS, J.:
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 co-
employees 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 Courta quo rendered a favorable judgment for
34
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 defendant-
appellant. 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).
35
WHEREFORE, premises considered, the present petition is hereby DENIED for lack of
merit and the judgment appealed from AFFIRMED in toto. SO ORDERED.
Lessons Applicable: Motor Vehicle Liability Insurance - Authorized Driver Cause
(Insurance)
FACTS:
Aurelio Lacson ,owner of a Toyota NP Land Cruiser, Model 1972, bearing Plate
No. NY-362 and with engine Number F-374325 insured with Malayan Insurance
Co
Dec. 1, 1975: Aurelio brought it to the shop of Carlos Jamelo for repair
Dec. 2, 1975: Rogelio Mahinay, together with Johnny Mahinay, Rogelio
Macapagong and Rogelio Francisco took and drove the Toyota Land Cruiser and
it met an accident with Bo
Carlos reported the incident to the police and instituted a criminal case for
Qualified Theft against his employees
Rogelio Mahinay pleaded guilty and was convicted of theft
Aurelio was not allowed to claim 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
Trial Court: favored Aurelio
CA: Affirmed
ISSUE: W/N 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 in the policy
HELD: YES.
The damages therefore were sustained in the course of the unlawful taking
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. This inaction on the
part of BIFC will only show that it was not really interested to intervene.
 36

FIRST DIVISION
G.R. No. L-36480 May 31, 1988
ANDREW PALERMO, plaintiff-appellee,
vs.
PYRAMID INSURANCE CO., INC., defendant- appellant.
GRIO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the only
question involved is the interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the
Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by
the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed
the claim because at the time of the accident, the insured was driving his car with
an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering
the defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of
the motor vehicle in question and to pay the costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution
Pending Appeal." It was opposed by the defendant, but was granted by the trial
court on December 15, 1969.
defendant issued Private Car Comprehensive Policy No. MV-1251, marked
Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor,
Ng Sam Bok Motors Co., to secure the payment of the balance of the
purchase price, which explains why the registration certificate in the name
of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors
Co.
On April 17, 1968, while driving the automobile in question, the plaintiff
met a violent accident. The La Carlota City fire engine crashed head on,
and as a consequence, the plaintiff sustained physical injuries, his father,
Cesar Palermo, who was with am in the car at the time was likewise
seriously injured and died shortly thereafter, and the car in question was
totally wrecked.
The defendant was immediately notified of the occurrence, and upon its
orders, the damaged car was towed from the scene of the accident to the
compound of Ng Sam Bok Motors in Bacolod City where it remains
deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in
case of accident either to indemnify the plaintiff for loss or damage to the
car in cash or to replace the damaged car. The defendant, however,
refused to take either of the above-mentioned alternatives for the reason
as alleged, that the insured himself had violated the terms of the policy
when he drove the car in question with an expired driver's license.
(Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following provision of
the Private Car Comprehensive Policy MV-1251:

The trial court found the following facts to be undisputed:

AUTHORIZED DRIVER:

On October 12,1968, after having purchased a brand new Nissan Cedric de

Any of the following:
Luxe Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors
Co. in Bacolod City, plaintiff insured the same with the defendant
(a) The Insured.
insurance company against any loss or damage for P 20,000.00 and against
third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34
premium for one year, March 12, 1968 to March 12, 1969, for which (b) Any person driving on the Insured's 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. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized
to drive the insured motor vehicle because his driver's license had expired. The
driver of the insured motor vehicle at the time of the accident was, the insured
himself, hence an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on
the highway without a license or with an expired license, an infraction of the Motor
Vehicle Law on the part of the insured, is not a bar to recovery under the insurance
contract. It however renders him subject to the penal sanctions of the Motor
Vehicle Law.
The requirement that the driver be "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," applies only when the driver" is driving on
the insured's order or with his permission." It does not apply when the person
driving is the insured himself.
This view may be inferred from the decision of this Court in Villacorta vs. Insurance
Commission, 100 SCRA 467, where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from
its text, 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.
In an American case, where the insured herself was personally operating her
automobile but without a license to operate it, her license having expired prior to
the issuance of the policy, the Supreme Court of Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which
act is a statutory crime is not precluded by public policy from enforcing a
policy indemnifying her against liability for bodily injuries The inflicted by
use of the automobile." (Drew C. Drewfield McMahon vs. Hannah
Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)
37
WHEREFORE, the appealed decision is affirmed with costs against the defendant-
appellant.
SO ORDERED.
FACTS:
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the
Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by
the defendant (Exh. A). In its answer, the appellant Pyramid Insurance Co., Inc.,
alleged that it disallowed the claim because at the time of the accident, the insured
was driving his car with an expired driver's license. After the trial, the court a quo
rendered judgment on October 29, 1969 ordering the defendant "to pay the
plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in
question and to pay the costs." On November 26, 1969, the plaintiff filed a "Motion
for Immediate Execution Pending Appeal." It was opposed by the defendant, but
was granted by the trial court on December 15, 1969.
ISSUE: WON plaintiff was not authorized to drive the insured motor vehicle because
his driver's license had expired.
RULING:
There is no merit in the appellant's allegation that the plaintiff was not authorized
to drive the insured motor vehicle because his driver's license had expired. The
driver of the insured motor vehicle at the time of the accident was, the insured
himself, hence an "authorized driver" under the policy. While the Motor Vehicle
Law prohibits a person from operating a motor vehicle on the highway without a
license or with an expired license, an infraction of the Motor Vehicle Law on the
part of the insured, is not a bar to recovery under the insurance contract. It
however renders him subject to the penal sanctions of the Motor Vehicle Law. The
requirement that the driver be "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," applies only when the driver" is driving on the insured's
order or with his permission." It does not apply when the person driving is the
insured himself.
 38

In Andrew Palermo vs. Pyramid Insurance Co., Inc. (G.R. No. L-36480 May 31, 1988),
the authorized driver's clause was applied in connection with a total loss claim, and
it was worded in the following manner:
(a) The Insured.
(b) Any person driving on the Insured's 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.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on
the highway without a license or with an expired license, an infraction of the Motor
Vehicle Law on the part of the insured, is not a bar to recovery under the insurance
contract. It however renders him subject to the penal sanctions of the Motor
Vehicle Law.
RULING:
There is no merit in the appellant's allegation that the plaintiff was not authorized
to drive the insured motor vehicle because his driver's license had expired. The
driver of the insured motor vehicle at the time of the accident was, the insured
himself, hence an "authorized driver" under the policy. While the Motor Vehicle
Law prohibits a person from operating a motor vehicle on the highway without a
license or with an expired license, an infraction of the Motor Vehicle Law on the
part of the insured, is not a bar to recovery under the insurance contract. It
however renders him subject to the penal sanctions of the Motor Vehicle Law. The
requirement that the driver be "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," applies only when the driver" is driving on the insured's
order or with his permission." It does not apply when the person driving is the
insured himself.

The Supreme Court held that the requirement that the driver be "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," applies only
when the driver" is driving on the insured's order or with his permission." It does
not apply when the person driving is the insured himself.

FACTS:
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in
the Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc.,
for payment of his claim under a Private Car Comprehensive Policy MV-1251 issued
by the defendant (Exh. A). In its answer, the appellant Pyramid Insurance Co., Inc.,
alleged that it disallowed the claim because at the time of the accident, the insured
was driving his car with an expired driver's license. After the trial, the court a quo
rendered judgment on October 29, 1969 ordering the defendant "to pay the
plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in
question and to pay the costs." On November 26, 1969, the plaintiff filed a "Motion
for Immediate Execution Pending Appeal." It was opposed by the defendant, but
was granted by the trial court on December 15, 1969.

ISSUE: WON plaintiff was not authorized to drive the insured motor vehicle because
his driver's license had expired.

THIRD DIVISION
G.R. No. 81026 April 3, 1990
PAN MALAYAN INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.
CORTES, J.:
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a
decision of the Court of Appeals which upheld an order of the trial court dismissing
for no cause of action PANMALAY's complaint for damages against private
respondents Erlinda Fabie and her driver.
The principal issue presented for resolution before this Court is whether or not the
insurer PANMALAY may institute an action to recover the amount it had paid its
assured in settlement of an insurance claim against private respondents as the
parties allegedly responsible for the damage caused to the insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY
averred the following: that it insured a Mitsubishi Colt Lancer car with plate No.
DDZ-431 and registered in the name of Canlubang Automotive Resources
Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness,
recklessness, and imprudence" of the unknown driver of a pick-up with plate no.
PCR-220, the insured car was hit and suffered damages in the amount of
P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and,
therefore, was subrogated to the rights of CANLUBANG against the driver of the
pick-up and his employer, Erlinda Fabie; and that, despite repeated demands,
defendants, failed and refused to pay the claim of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of Particulars and a
supplemental motion thereto. In compliance therewith, PANMALAY clarified,
among others, that the damage caused to the insured car was settled under the
"own damage", coverage of the insurance policy, and that the driver of the insured
car was, at the time of the accident, an authorized driver duly licensed to drive the
vehicle. PANMALAY also submitted a copy of the insurance policy and the Release
of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.
39
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that
PANMALAY had no cause of action against them. They argued that payment under
the "own damage" clause of the insurance policy precluded subrogation under
Article 2207 of the Civil Code, since indemnification thereunder was made on the
assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder,
the RTC issued an order dated June 16, 1986 dismissing PANMALAY's complaint for
no cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for
reconsideration.
On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals
on November 27, 1987. Consequently, PANMALAY filed the present petition for
review.
After private respondents filed its comment to the petition, and petitioner filed its
reply, the Court considered the issues joined and the case submitted for decision.
Deliberating on the various arguments adduced in the pleadings, the Court finds
merit in the petition.
PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance
policy, it had indemnified CANLUBANG for the damage to the insured car resulting
from a traffic accident allegedly caused by the negligence of the driver of private
respondent, Erlinda Fabie. PANMALAY contended, therefore, that its cause of action
against private respondents was anchored upon Article 2207 of the Civil Code,
which reads:
If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover from the

wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment to the former of all
remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer [Compania
Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30,
1964, 12 SCRA 213; Fireman's Fund Insurance Company v. Jamilla & Company, Inc.,
G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
There are a few recognized exceptions to this rule. For instance, if the assured by
his own act releases the wrongdoer or third party liable for the loss or damage,
from liability, the insurer's right of subrogation is defeated [Phoenix Ins. Co. of
Brooklyn v. Erie & Western Transport, Co., 117 US 312, 29 L. Ed. 873 (1886);
Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d
705 (1956)]. Similarly, where the insurer pays the assured the value of the lost
goods without notifying the carrier who has in good faith settled the assured's claim
for loss, the settlement is binding on both the assured and the insurer, and the
latter cannot bring an action against the carrier on his right of subrogation
[McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the
insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting "voluntary payment", the former has no right of subrogation against the
third party liable for the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee
Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of the opinion that
PANMALAY was not legally subrogated under Article 2207 of the Civil Code to the
rights of CANLUBANG, and therefore did not have any cause of action against
private respondents. On the one hand, the trial court held that payment by
PANMALAY of CANLUBANG's claim under the "own damage" clause of the
insurance policy was an admission by the insurer that the damage was caused by
the assured and/or its representatives. On the other hand, the Court of Appeals in
applying theejusdem generis rule held that Section III-1 of the policy, which was the
basis for settlement of CANLUBANG's claim, did not cover damage arising from
collision or overturning due to the negligence of third parties as one of the
insurable risks. Both tribunals concluded that PANMALAY could not now invoke
Article 2207 and claim reimbursement from private respondents as alleged
wrongdoers or parties responsible for the damage.
40
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that the "own damage"
coverage under the policy implies damage to the insured car caused by the assured
itself, instead of third parties, proceeds from an incorrect comprehension of the
phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase
"own damage" a phrase which, incidentally, is not found in the insurance policy
to define the basis for its settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs for repairing the damage
to the insured vehicle [See PANMALAY's Compliance with Supplementary Motion for
Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the so-called "own
damage" coverage under Section III of the insurance policy is differentiated from
Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising
from the death of, or bodily injuries suffered by, third parties) and from Section IV-2
which refer to "Property Damage" coverage (liabilities arising from damage caused
by the insured vehicle to the properties of third parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured
risks under Section III-1 of the policy does not include to the insured vehicle arising
from collision or overturning due to the negligent acts of the third party. Not only
does it stem from an erroneous interpretation of the provisions of the section, but
it also violates a fundamental rule on the interpretation of property insurance
contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to
be construed according to the sense and meaning of the terms which the parties
thereto have used. In the case of property insurance policies, the evident intention
of the contracting parties, i.e., the insurer and the assured, determine the import of
the various terms and provisions embodied in the policy. It is only when the terms
of the policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, that the courts will
intervene. In such an event, the policy will be construed by the courts liberally in
favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc.
v. Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972, 47 SCRA 271;
National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14,
1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-
41014, November 28, 1988, 168 SCRA 1. Also Articles 1370-1378 of the Civil Code].
Section III-1 of the insurance policy which refers to the conditions under which the
insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage
to or loss of the insured vehicle, reads as follows:

SECTION III LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against
loss of or damage to the Scheduled Vehicle and its accessories and spare parts
whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking
or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to
such transit by road, rail, inland, waterway, lift or elevator.
[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for
Bill of Particulars; Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks under the above section,
specifically Section III-1(a), is comprehensive enough to include damage to the
insured vehicle arising from collision or overturning due to the fault or negligence of
a third party. CANLUBANG is apparently of the same understanding. Based on a
police report wherein the driver of the insured car reported that after the vehicle
was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20],
CANLUBANG filed its claim with PANMALAY for indemnification of the damage
caused to its car. It then accepted payment from PANMALAY, and executed a
Release of Claim and Subrogation Receipt in favor of latter.
Considering that the very parties to the policy were not shown to be in
disagreement regarding the meaning and coverage of Section III-1, specifically sub-
paragraph (a) thereof, it was improper for the appellate court to indulge in contract
construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to
the clear intention and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the
phrase "by accidental collision or overturning" found in the first paint of sub-
paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in
insurance contracts have not acquired a technical meaning, the Court has on
41
several occasions defined these terms to mean that which takes place "without
one's foresight or expectation, an event that proceeds from an unknown cause, or
is an unusual effect of a known cause and, therefore, not expected" [De la Cruz v.
The Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA
559; Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141,
November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these
terms, without qualification, exclude events resulting in damage or loss due to the
fault, recklessness or negligence of third parties. The concept "accident" is not
necessarily synonymous with the concept of "no fault". It may be utilized simply to
distinguish intentional or malicious acts from negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage
to, or loss of, the insured vehicle due to negligent or careless acts of third parties is
not listed under the general and specific exceptions to the coverage of insured risks
which are enumerated in detail in the insurance policy itself [See Annex "A-1" of
PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.]
The Court, furthermore. finds it noteworthy that the meaning advanced by
PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably
more beneficial to CANLUBANG than that insisted upon by respondents herein. By
arguing that this section covers losses or damages due not only to malicious, but
also to negligent acts of third parties, PANMALAY in effect advocates for a more
comprehensive coverage of insured risks. And this, in the final analysis, is more in
keeping with the rationale behind the various rules on the interpretation of
insurance contracts favoring the assured or beneficiary so as to effect the dominant
purpose of indemnity or payment [See Calanoc v. Court of Appeals, 98 Phil. 79
(1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-
16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529,
July 16, 1984, 130 SCRA 327].
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the
insurance policy does not cover damage to the insured vehicle caused by negligent
acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for
damages allegedly arising from a collision due to private respondents' negligence
would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's
complaint against private respondents for no cause of action would still be a grave
error of law.
For even if under the above circumstances PANMALAY could not be deemed
subrogated to the rights of its assured under Article 2207 of the Civil Code,
PANMALAY would still have a cause of action against private respondents. In the

pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra.,
the Court ruled that the insurer who may have no rights of subrogation due to
"voluntary" payment may nevertheless recover from the third party responsible for
the damage to the insured property under Article 1236 of the Civil Code.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY
as subrogee merely prays that it be allowed to institute an action to recover from
third parties who allegedly caused damage to the insured vehicle, the amount
which it had paid its assured under the insurance policy. Having thus shown from
the above discussion that PANMALAY has a cause of action against third parties
whose negligence may have caused damage to CANLUBANG's car, the Court holds
that there is no legal obstacle to the filing by PANMALAY of a complaint for
damages against private respondents as the third parties allegedly responsible for
the damage. Respondent Court of Appeals therefore committed reversible error in
sustaining the lower court's order which dismissed PANMALAY's complaint against
private respondents for no cause of action. Hence, it is now for the trial court to
determine if in fact the damage caused to the insured vehicle was due to the
"carelessness, recklessness and imprudence" of the driver of private respondent
Erlinda Fabie.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's
complaint for damages against private respondents is hereby REINSTATED. Let the
case be remanded to the lower court for trial on the merits.
SO ORDERED.
Facts:
Canlubang Automotive Resources Corp. obtained from Pan Malay a motor
vehicle insurance policy for its Mitsubishi Colt Lancer. While the policy was still
in effect, the insured car was allegedly hit by a pick-up owned by Erlinda
Fabie but driven by another person. The car suffered damages in the amount of
P42K. Pan Malay defrayed the cost of repair of the insured car. It then
demanded reimbursement from Fabie and her driver of said amount, but to no
avail. Pan Malay filed a complaint for damages with the RTC of Makati against Fabie
and the driver. It averred that the damages caused to the insured car was settled
under the own damage coverage of the insurance policy. Private respondents
filed a motion to dismiss alleging that Pan Malay had no cause of action since the
won damage clause of the policy precluded subrogation under Art.2207 of the
Civil Code. They contended that indemnification under said article is on the
assumption that there was no wrongdoer or no 3rd party at fault. The RTC
dismissed Pan Malays complaint and ruled that payment under the own
42
damage clause was an admission by the insurer that the damage was caused by
the assured and/or its representatives.7. CA affirmed but on different ground.
Applying the ejusdem generis rule, CA held that Section III-I of the policy, which was
the basis for the settlement of the claim against insurance, did not cover
damage arising from collision or overturning due to the negligence of 3rd
parties as one of the insurable risks.
Issue: Was Pan Malay subrogated to the rights of Canlubang against the driver and
his employer?
Held:
Yes. The Supreme Court remanded the case back to the trial court.
Ruling: Right of Subrogation of the Insurer. Article 2207 of the Civil Code is founded
on the well-settled principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured, will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as an
equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
There are three exceptions to this rule:
1. Where the assured by his own act releases the wrongdoer or third party liable for
the loss or damage
2. Where the insurer pays the assured the value of the lost goods without notifying
the carrier who has in good faith settled the assured's claim for loss3. where the
insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting "voluntary payment" None of these exceptions are present in this case. As
to the trial courts ruling: When PanMalay utilized the phrase "own damage"
a phrase which is not found in the insurance policy to define the basis
for its settlement of Canlubang's claim under the policy, it simply meant that it had
assumed to reimburse the costs for repairing the damage to the insured vehicle. It
is in this sense that the so-called "own damage" coverage under Section III of the
insurance policy is differentiated from Sections I and IV-1 which refer to "Third
Party Liability" coverage (liabilities arising from the death of, or bodily injuries
suffered by, third parties) andfrom Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to the
properties of third parties).

As to the Court of Appeals ruling: The Court of Appeals' ruling on the
coverage of insured risks stems from an erroneous interpretation of the
provisions of the policy. It violates a fundamental rule on the
interpretation of property insurance contracts where interpretation should be
liberally in favor of the assured and strictly against the insurer in cases of
disagreement between the parties. The meaning advanced by Pan Malay
regarding the coverage of the policy is undeniable more beneficial to
Canlubang than that insisted upon by the CA. In any case, the very parties to the
policy were not shown to be in disagreement regarding the meaning and coverage
of Section III-I. Hence, it was improper for CA to assert its own interpretation of the
contract that is contrary to the clear understanding and intention of the parties to
it.* Even assuming for the sake of argument that the insurance policy does not
cover damage to the insured vehicle caused by negligent acts of third parties, and
that Pan Malay's settlement of Canlubang's claim for damages allegedly arising
from a collision due to private respondents' negligence would amount to
unwarranted or "voluntary payment", insurer may still recover from the third party
responsible for the damage to the insured property under Article1236 of the Civil
Code.
Facts:
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY
averred the following: that it insured a Mitsubishi Colt Lancer car with plate No.
DDZ-431 and registered in the name of Canlubang Automotive Resources
Corporation [CANLUBANG]; that on May 26, 1985, due to the" carelessness,
recklessness, and imprudence" of the unknown driver of a pick-up with plate no.
PCR-220, the insured car was hit and suffered damages in the amount of
P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and,
therefore, was subrogated to the rights of CANLUBANG against the driver of the
pick-up and his employer, Erlinda Fabie; and that, despite repeated demands,
defendants, failed and refused to pay the claim of PANMALAY. On February 12,
1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no
cause of action against them. They argued that payment under the "own damage"
clause of the insurance policy precluded subrogation under Article 2207 of the Civil
Code, since indemnification there under was made on the assumption that there
was no wrongdoer or no third party at fault.
Issue: Whether or not the insurer PANMALAY may institute anaction to recover the
amount it had paid its assured in settlement of an insurance claim against private
respondents as the parties allegedly responsible for the damage caused to the
insured vehicle.
43
Held:
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the
phrase "by accidental collision or overturning "found in the first paint of sub-
paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in
insurance contracts have not acquired a technical meaning, the Court has on
several occasions defined these terms to mean that which takes place" without
one's foresight or expectation, an event that proceeds from an unknown cause, or
is an unusual effect of a known cause and, therefore, not expected" [De la Cruz v.
The Capital Insurance &Surety Co., Inc.,]. Certainly, it cannot be inferred from
jurisprudence that these terms, without qualification, exclude events resulting in
damage or loss due to the fault, recklessness or negligence of third parties. The
concept "accident" is not necessarily synonymous with the concept of "no fault". It
may be utilized simply to distinguish intentional or malicious acts from negligent or
careless acts of man. It must be reiterated that in this present case, the insurer
PANMALAY as subrogee merely prays that it be allowed to institute an action to
recover from third parties who allegedly caused damage to the insured vehicle, the
amount which it had paid its assured under the insurance policy. Having thus shown
from the above discussion that PANMALAY has a cause of action against third
parties whose negligence may have caused damage to CANLUBANG's car, the Court
holds that there is no legal obstacle to the filing by PANMALAY of a complaint for
damages against private respondents as the third parties allegedly responsible for
the damage. Respondent Court of Appeals therefore committed reversible error in
sustaining the lower court's order which dismissed PANMALAY's complaint against
private respondents for no cause of action. Hence, it is now for the trial court to
determine if in fact the damage caused to the insured vehicle was due to the
"carelessness, recklessness and imprudence" of the driver of private respondent
Erlinda Fabie.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's
complaint for damages against private respondents is hereby REINSTATED. Let the
case be remanded to the lower court for trial on the merits

SECOND DIVISION
G.R. No. 96452 May 7, 1992
PERLA COMPANIA DE SEGUROS, INC. petitioner,
vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de
Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No.
96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the
Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional
Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and
damages. The dispositive portion of the decision of the Court of Appeals reads, as
follows:
WHEREFORE, the decision appealed from is reversed; and appellee Perla
Compania de Seguros, Inc. is ordered to indemnify appellants Herminio
and Evelyn Lim for the loss of their insured vehicle; while said appellants
are ordered to pay appellee FCP Credit Corporation all the unpaid
installments that were due and payable before the date said vehicle was
carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to
pay appellants moral damages of P12,000.00 for the latter's mental
sufferings, exemplary damages of P20,000.00 for appellee Perla Compania
de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just
insurance claim of appellants by way of example and correction for public
good, and attorney's fees of P10,000.00 as a just and equitable
reimbursement for the expenses incurred therefor by appellants, and the
costs of suit both in the lower court and in this appeal. 2
The facts as found by the trial court are as follows:
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim
executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00,
payable in monthly installments according to the schedule of payment indicated in
said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser
1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is
registered under the name of private respondent Herminio Lim 4 and insured with
44
the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses,
assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and
interest on said promissory note and chattel mortgage as shown by the Deed of
Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked
at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private
respondent Evelyn Lim, who was driving said car before it was carnapped,
immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to
report said incident and thereafter, went to the nearest police substation at
Araneta, Cubao to make a police report regarding said incident, as shown by the
certification issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the
Land Transportation Commission in Quezon City, as shown by the letter of her
counsel to said office, 8 in compliance with the insurance requirement. She also
filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner
Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn
Lim, who was using the vehicle before it was carnapped, was in possession of an
expired driver's license at the time of the loss of said vehicle which is in violation of
the authorized driver clause of the insurance policy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the
Insured's order, or with his permission. Provided that the person driving is
permitted, in accordance with the licensing or other laws or regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified
by order of a Court of Law or by reason of any enactment or regulation in
that behalf. 11
On November 17, 1982, private respondents requests from petitioner FCP for a
suspension of payment on the monthly amortization agreed upon due to the loss of
the vehicle and, since the carnapped vehicle insured with petitioner Perla, said
insurance company should be made to pay the remaining balance of the promissory
note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP
demanded that private respondents pay the whole balance of the promissory note
or to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who
in turn filed an amended third party complaint against petitioner Perla on
December 8, 1983. After trial on the merits, the trial court rendered a decision, the
dispositive portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and
severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate
of 24% per annum from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's
fees; and the costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party
Complaint filed against Third-Party Defendant. 13
Not satisfied with said decision, private respondents appealed the same to the
Court of Appeals, which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the Court of
Appeals in its resolution of December 10, 1990, petitioners filed these separate
petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the part of the
appellate court in holding that private respondents did not violate the insurance
contract because the authorized driver clause is not applicable to the "Theft" clause
of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the
collateral exempted the debtor from his admitted obligations under the promissory
note particularly the payment of interest, litigation expenses and attorney's fees.
We find no merit in Perla's petition.
45
The comprehensive motor car insurance policy issued by petitioner Perla undertook
to indemnify the private respondents 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. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without
the owner's consent or knowledge, such taking constitutes theft, and, therefore, it
is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply.
As correctly stated by the respondent court in its decision:
. . . Theft is an entirely different legal concept from that of accident. Theft
is committed by a person with the intent to gain or, to put it in another
way, with the concurrence of the doer's will. On the other hand, accident,
although it may proceed or result from negligence, is the happening of an
event without the concurrence of the will of the person by whose agency it
was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation
or anticipation of accident in the legal sense in which it should be
understood, and not in contemplation or anticipation of an event such as
theft. The distinction often seized upon by insurance companies in
resisting claims from their assureds between death occurring as a result
of accident and death occurring as a result of intent may, by analogy, apply
to the case at bar. Thus, if the insured vehicle had figured in an accident at
the time she drove it with an expired license, then, appellee Perla
Compania could properly resist appellants' claim for indemnification for
the loss or destruction of the vehicle resulting from the accident. But in the
present case. The loss of the insured vehicle did not result from an
accident where intent was involved; the loss in the present case was
caused by theft, the commission of which was attended by intent. 15
It is worthy to note that there is no causal connection between the possession of a
valid driver's license and the loss of a vehicle. To rule otherwise would render car
insurance practically a sham since an insurance company can easily escape liability
by citing restrictions which are not applicable or germane to the claim, thereby
reducing indemnity to a shadow.
We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of
their obligation to pay the former the installments due on the promissory note on
account of the loss of the automobile. The chattel mortgage constituted over the
automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the
subject matter of the accessory contract. Therefore, the unpaid balance on the
promissory note should be paid, and not just the installments due and payable
before the automobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the
interest, litigation expenses and attorney's fees stipulated in the promissory note.
Because of the peculiar relationship between the three contracts in this case, i.e.,
the promissory note, the chattel mortgage contract and the insurance policy, this
Court is compelled to construe all three contracts as intimately interrelated to each
other, despite the fact that at first glance there is no relationship whatsoever
between the parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc.
the amount stated therein in accordance with the schedule provided for. To secure
said promissory note, private respondents constituted a chattel mortgage in favor
of Supercars, Inc. over the automobile the former purchased from the latter. The
chattel mortgage, in turn, required private respondents to insure the automobile
and to make the proceeds thereof payable to Supercars, Inc. The promissory note
and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the
knowledge of private respondents. Private respondents were able to secure an
insurance policy from petitioner Perla, and the same was made specifically payable
to petitioner FCP. 16
The insurance policy was therefore meant to be an additional security to the
principal contract, that is, to insure that the promissory note will still be paid in case
the automobile is lost through accident or theft. The Chattel Mortgage Contract
provided that:
THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE
THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST
LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE
YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY
OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT
LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE
OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH
46
POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS
INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR
POLICIES TO THE MORTGAGEE, . . . . 17
It is clear from the abovementioned provision that upon the loss of the insured
vehicle, the insurance company Perla undertakes to pay directly to the mortgagor
or to their assignee, FCP, the outstanding balance of the mortgage at the time of
said loss under the mortgage contract. If the claim on the insurance policy had been
approved by petitioner Perla, it would have paid the proceeds thereof directly to
petitioner FCP, and this would have had the effect of extinguishing private
respondents' obligation to petitioner FCP. Therefore, private respondents were
justified in asking petitioner FCP to demand the unpaid installments from petitioner
Perla.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages and
attorney's fees as stipulated in the promissory note. As mentioned above, the
contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid
claim of the private respondents should not in any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at the
expense of petitioner FCP since they will be required to pay the latter the unpaid
balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did not err in
requiring petitioner Perla to indemnify private respondents for the loss of their
insured vehicle. However, the latter should be ordered to pay petitioner FCP the
amount of P55,055.93, representing the unpaid installments from December 30,
1982 up to July 1, 1983, as shown in the statement of account prepared by
petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney's fees, private
respondents are legally entitled to the same since petitioner Perla had acted in bad
faith by unreasonably refusing to honor the insurance claim of the private
respondents. Besides, awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the Court. Such discretion, if well
exercised, will not be disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to
require private respondents to pay petitioner FCP the amount of P55,055.93, with
 47

legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby
affirmed as to all other respects. No pronouncement as to costs.

SO ORDERED.

FACTS:

Spouses Lim purchased a brand new red Ford Laser car from Supercars, Inc. in a
sale by installment secured by a chattel mortgage. The same car is insured with
Perla Compania deSeguros (Perla). On the same day, Supercars, Inc. assigned its
rights, title and interest to FCP Credit Corporation (FCP). On a later date, the vehicle
was carnapped. Spouses Lim filed a claim for loss with Perla but this was denied
on the g round that Evelyn Lim, who was using the
vehicle before it was carnapped, was in possession of an expired drivers license at
the time of the loss, in violation of the authorized driver clause of the insurance
policy.

ISSUE: Whether or not Perla is liable despite the alleged violation of the authorized driver clause in
the insurance contract

HELD:

The Supreme Court held that Perla is liable to pay the insurance claim.
Clearly, the risk against accident is distinct from the risk against theft. The
authorized driver clause in a typical insurance policy is in contemplation
or anticipation of accident in the legal sense in which it should be understood, and
not in contemplation or anticipation of an event such as theft. There is no causal
connection between the possession of a valid drivers license and the loss of a
vehicle. To rule otherwise would render car insurance practically a sham since an
insurance company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.

FIRST DIVISION
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face
value of P200,000.00. Two months later, he was dead with a bullet wound in his
head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her
claim was rejected. The petitioner agreed that there was no suicide. It argued,
however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on
October 6, 1982, at about 10 o'clock in the evening, after his mother's birthday
party. According to Nalagon, Lim was in a happy mood (but not drunk) and was
playing with his handgun, from which he had previously removed the magazine. As
she watched television, he stood in front of her and pointed the gun at her. She
pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped
to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and
was sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing
the face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory
damages; and P5,000.00 as attorney's fees, plus the costs of the suit. This decision
was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be construed and
considered according to the ordinary understanding and common usage and speech
of people generally. In-substance, the courts are practically agreed that the words
48
"accident" and "accidental" mean that which happens by chance or fortuitously,
without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an
event that takes place without one's foresight or expectation an event that
proceeds from an unknown cause, or is an unusual effect of a known case, and
therefore not expected. 4
An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and
not expected by the person to whom it happens. It has also been defined as an
injury which happens by reason of some violence or casualty to the injured without
his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in
Lim's death was indeed an accident. The petitioner, invoking the case of De la Cruz
v. Capital Insurance, 6 says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was
such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured
person's death.
The petitioner also cites one of the four exceptions provided for in the insurance
contract and contends that the private petitioner's claim is barred by such
provision. It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself to
needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the
petitioner contends that the insured willfully exposed himself to needless peril and
thus removed himself from the coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril
are in pari materia because they both signify a disregard for one's life. The only
difference is in degree, as suicide imports a positive act of ending such life whereas
the second act indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above the ground
and without any safety device may not actually be intending to commit suicide, but
his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim
had willfully exposed himself to needless peril and so came under the exception.
The theory is that a gun is per se dangerous and should therefore be handled
cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had
removed the magazine from the gun and believed it was no longer dangerous. He
expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for
his tendency to show off or for his miscalculations. They were intended to
provide for contingencies. Hence, when I miscalculate and jump from the
Quezon Bridge into the Pasig River in the belief that I can overcome the
current, I have wilfully exposed myself to peril and must accept the
consequences of my act. If I drown I cannot go to the insurance company
to ask them to compensate me for my failure to swim as well as I thought I
could. The insured in the case at bar deliberately put the gun to his head
and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance
company to ask for compensation. That might frighten the insurance people to
death. We also agree that under the circumstances narrated, his beneficiary would
not be able to collect on the insurance policy for it is clear that when he braved the
currents below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the
analogy fails. The petitioner's hypothetical swimmer knew when he dived off the
49
Quezon Bridge that the currents below were dangerous. By contrast, Lim did not
know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it
should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves the
insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most accidents are caused
by negligence. There are only four exceptions expressly made in the contract to
relieve the insurer from liability, and none of these exceptions is applicable in the
case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the
petitioner. The basic issue raised in this case is, as the petitioner correctly observed,
one of first impression. It is evident that the petitioner was acting in good faith then
it resisted the private respondent's claim on the ground that the death of the
insured was covered by the exception. The issue was indeed debatable and was
clearly not raised only for the purpose of evading a legitimate obligation. We hold
therefore that the award of moral and exemplary damages and of attorney's fees is
unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral
damages, the law requires that his act be wrongful. The adverse result of
an action does not per se make the act wrongful and subject the act or to
the payment of moral damages. The law could not have meant to impose a
penalty on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone
make his act in bringing the action wrongful because in most cases one
party will lose; we would be imposing an unjust condition or limitation on
the right to litigate. We hold that the award of moral damages in the case
at bar is not justified by the facts had circumstances as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation
expenses, since it is not the fact of winning alone that entitles him to

recover such damages of the exceptional circumstances enumerated in
Art. 2208. Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney's fees thereby putting a premium on the right
to litigate which should not be so. For those expenses, the law deems the
award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far
as it holds the petitioner liable to the private respondent in the sum of P200,000.00
representing the face value of the insurance contract, with interest at the legal rate
from the date of the filing of the complaint until the full amount is paid, but
MODIFIED with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit.
SO ORDERED.
An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances is unusual to and
not expected by the person to whom it happens. There is no accident when a
deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about their injury or death.
There is nothing in the policy that relieves the insurer of the responsibility to pay
the indemnity agreed upon if the insured is shown to have contributed to his own
accident.
Facts:
> On April 15, 1986, Bacani procured a life insurance contract for himself from Sun
Life. He was issued a life insurance policy with double indemnity in case of
accidental death. The designated beneficiary was his mother, Bernarda.
> On June 26, 1987, the insured died in a plane crash. Bernarda Bacani filed a claim
with Sun Life, seeking the benefits of the insurance. Sun Life conducted an
investigation and its findings prompted it to reject the claim.
> Sun Life discovered that 2 weeks prior to his application, Bacani was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis,
ultra-sonography and hematology tests. He did not reveal such fact in his
application.
> In its letter, Sun Life informed Berarda, that the insured did not disclosed material
facts relevant to the issuance of the policy, thus rendering the contract of insurance
50
voidable. A check representing the total premiums paid in the amount of
P10,172.00 was attached to said letter.
> Bernarda and her husband, filed an action for specific performance against Sun
Life. RTC ruled for Bernarda holding that the facts concealed by the insured were
made in good faith and under the belief that they need not be disclosed. Moreover,
it held that the health history of the insured was immaterial since the insurance
policy was "non-medical." CA affirmed.
Issue:
Whether or not the beneficiary can claim despite the concealment.
Held:
NO. Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and
which the other has no means of ascertaining.
Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making his
inquiries (The Insurance Code, Sec 31)
The terms of the contract are clear. The insured is specifically required to disclose
to the insurer matters relating to his health. The information which the insured
failed to disclose were material and relevant to the approval and the issuance of the
insurance policy. The matters concealed would have definitely affected petitioner's
action on his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it to
reasonably assess the risk involved in accepting the application.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose
the fact that he was hospitalized for two weeks prior to filing his application for
insurance, raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.

SECOND DIVISION
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order
and preliminary mandatory injunction to annul and set aside the decision of the
Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990
of the Insurance Commission 2 in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of the personal
accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was
insured with petitioner Finman General Assurance Corporation under Finman
General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No.
08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa,
died on October 18, 1988 as a result of a stab wound inflicted by one of the three
(3) unidentified men without provocation and warning on the part of the former as
he and his cousin, Winston Surposa, were waiting for a ride on their way home
along Rizal-Locsin Streets, Bacolod City after attending the celebration of the
"Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of
which reads:
51
In the light of the foregoing. we find respondent liable to pay complainant
the sum of P15,000.00 representing the proceeds of the policy with
interest. As no evidence was submitted to prove the claim for mortuary aid
in the sum of P1,000.00, the same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay
complainant the sum of P15,000.00 with legal interest from the date of the
filing of the complaint until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of
the appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death
of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance contracts have
not acquired any technical meaning, and are construed by the courts in
their ordinary and common acceptation. Thus, the terms have been taken
to mean that which happen by chance or fortuitously, without intention
and design, and which is unexpected, unusual, and unforeseen. An
accident is an event that takes place without one's foresight or expectation
an event that proceeds from an unknown cause, or is an unusual effect
of a known cause and, therefore, not expected.
. . . The generally accepted rule is that, death or injury does not result from
accident or accidental means within the terms of an accident-policy if it is
the natural result of the insured's voluntary act, unaccompanied by
anything unforeseen except the death or injury. There is no accident when
a deliberate act is performed unless some additional, unexpected,
independent, and unforeseen happening occurs which produces or brings
about the result of injury or death. In other words, where the death or
injury is not the natural or probable result of the insured's voluntary act, or
if something unforeseen occurs in the doing of the act which produces the

injury, the resulting death is within the protection of the policies insuring
against death or injury from accident. 5
As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering
the very nature of these crimes. In the first place, the insured and his
companion were on their way home from attending a festival. They were
confronted by unidentified persons. The record is barren of any
circumstance showing how the stab wound was inflicted. Nor can it be
pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt
the unknown perpetrator from criminal liability, the fact remains that the
happening was a pure accident on the part of the victim. The insured died
from an event that took place without his foresight or expectation, an
event that proceeded from an unusual effect of a known cause and,
therefore, not expected. Neither can it be said that where was a capricious
desire on the part of the accused to expose his life to danger considering
that he was just going home after attending a festival. 6
Furthermore, the personal accident insurance policy involved herein specifically
enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" the mention of one thing implies the exclusion of another thing is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. Moreover, it is well settled that
contracts of insurance are to be construed liberally in favor of the insured
52
and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary. 7
WHEREFORE, finding no irreversible error in the decision of the respondent Court of
Appeals, the petition forcertiorari with restraining order and preliminary injunction
is hereby DENIED for lack of merit.
SO ORDERED.
FACTS:
On October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman
General Assurance Corporation with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries. While said insurance policy was in full force and effect, the insured,
Carlie Surposa, died on October 18, 1988 as a result of a stab wound inflicted by
one of the three (3) unidentified men. Private respondent and the other
beneficiaries of said insurance policy filed a written notice of claim with the
petitioner insurance company which denied said claim contending that murder and
assault are not within the scope of the coverage of the insurance policy. Private
respondent filed a complaint with the Insurance Commission which rendered a
favorable response for the respondent. The appellate court ruled likewise.
Petitioner filed this petition alleging grave abuse of discretion on the part of the
appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy, since death resulting from murder and/or
assault are impliedly excluded in said insurance policy considering that the cause of
death of the insured was not accidental but rather a deliberate and intentional act
of the assailant. Therefore, said death was committed with deliberate intent which,
by the very nature of a personal accident insurance policy, cannot be indemnified.
ISSUE: Whether or not the insurer is liable for the payment of the insurance
premiums
HELD:
Yes, the insurer is still liable. 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. The terms
"accident" and "accidental" as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen by

chance or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen. Where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs in the doing
of the act which produces the injury, the resulting death is within the protection of
the policies insuring against death or injury from accident. In the case at bar, it
cannot be pretended that Carlie Surposa died in the course of an assault or murder
as a result of his voluntary act considering the very nature of these crimes. Neither
can it be said that where was a capricious desire on the part of the accused to
expose his life to danger considering that he was just going home after attending a
festival. Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no liability attaches to
petitioner insurance company for any injury, disability or loss suffered by the
insured as a result of any of the stimulated causes. The principle of " expresso unius
exclusio alterius" the mention of one thing implies the exclusion of another thing
is therefore applicable in the instant case since murder and assault, not having
been expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.
FACTS:
On October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman
General Assurance Corporation with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries. While said insurance policy was in full force and effect, the insured,
Carlie Surposa, died on October 18,1988 as a result of a stab wound inflicted by one
of the three (3) unidentified men. Private respondent and the other beneficiaries of
said insurance policy filed a written notice of claim with the petitioner insurance
company which denied said claim contending that murder and assault are not
within the scope of the coverage of the insurance policy. Private respondent fileda
complaint with the Insurance Commission which rendered a favorable response for
therespondent. The appellate court ruled likewise. Petitioner filed this petition
alleging grave abuse of discretion on the part of the appellate court in applying the
principle of "expresso unius exclusio alterius" in a personal accident insurance
policy, since death resulting from murder and/or assault are impliedly excluded in
said insurance policy considering that the cause of death of the insured was not
accidental but rather a deliberate and intentional act of the assailant. Therefore,
53
said death was committed withdeliberate intent which, by the very nature of a
personal accident insurance policy, cannot beindemnified.
ISSUE:
Whether or not the insurer is liable for the payment of the insurance premiums
HELD:
Yes, the insurer is still liable. 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. The terms
"accident" and "accidental" as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen by
chance or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen.Where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs in the doing
of the act which produces the injury, the resulting death is within the protection of
the policies insuring against death or injury from accident. In the case at bar, it
cannot be pretended that Carlie Surposa died in the course of an assault or murder
as a result of his voluntary act considering the very nature of these crimes. Neither
can it be said that where was a capricious desire on the part of the accused to
expose his life to danger considering that he was just going home after attending a
festival. Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no liability attaches to
petitioner insurance company for any injury, disability or loss suffered by the
insured as a result of any of the stimulated causes. The principle of " expresso unius
exclusio alterius" the mention of one thing implies the exclusion of another thing
is therefore applicable in the instant case since murder and assault, not having
been expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.
FACTS:
[P]etitioner filed this petition alleging grove abuse of discretion on the part of the
appellate court in applying the principle of expresso unius exclusio alterius in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death
 54

of the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified.

ISSUE: Whether or not death petitioner is correct that results from assault or
murder deemed are not included in the terms accident and accidental.

HELD:

NO. Petition for certiorari with restraining order and preliminary injunction was
denied for lack of merit.

RATIO:

The terms accident and accidental as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without ones foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.

[I]t 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.
The terms accident and accidental are construed by the courts in their ordinary
and common acceptation. The terms have been taken to mean that which happen
by chance, without intention and design, and which is unexpected, unusual and
unforeseen. Where the death or injury is not the natural or probable result of the
insureds voluntary act, the resulting death is within the protection of the policies
insuring against death or injury from accident.

THIRD DIVISION
G.R. No. 60506 August 6, 1992
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR,
LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and
ELVIRA, all surnamed MAGLANA, herein represented by their mother,
FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch
II, and AFISCO INSURANCE CORPORATION, respondents.
ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-
owner of a common carrier which figured in an accident causing the death of a third
person is sought to be defined in this petition for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of Customs whose work
station was at Lasa, here in Davao City. On December 20, 1978, early
morning, Lope Maglana was on his way to his work station, driving a
motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
accident that resulted in his death. He died on the spot. The PUJ jeep that
bumped the deceased was driven by Pepito Into, operated and owned by
defendant Destrajo. From the investigation conducted by the traffic
investigator, the PUJ jeep was overtaking another passenger jeep that was
going towards the city poblacion. While overtaking, the PUJ jeep of
defendant Destrajo running abreast with the overtaken jeep, bumped the
motorcycle driven by the deceased who was going towards the direction of
Lasa, Davao City. The point of impact was on the lane of the motorcycle
and the deceased was thrown from the road and met his untimely death. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for
damages and attorney's fees against operator Patricio Destrajo and the Afisco
Insurance Corporation (AFISCO for brevity) before the then Court of First Instance
of Davao, Branch II. An information for homicide thru reckless imprudence was also
filed against Pepito Into.
55
During the pendency of the civil case, Into was sentenced to suffer an
indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision
correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days
of prision correccional, as maximum, with all the accessory penalties provided by
law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve
thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency,
plus five thousand pesos (P5,000.00) in the concept of moral and exemplary
damages with costs. No appeal was interposed by accused who later applied for
probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo
had not exercised sufficient diligence as the operator of the jeepney. The
dispositive portion of the decision reads:
WHEREFORE, the Court finds judgment in favor of the plaintiffs against
defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00
for loss of income; to pay plaintiffs the sum of P12,000.00 which amount
shall be deducted in the event judgment in Criminal Case No. 3527-D
against the driver, accused Into, shall have been enforced; to pay plaintiffs
the sum of P5,901.70 representing funeral and burial expenses of the
deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which
shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D
against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as
attorney's fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant
Destrajo whatever amounts the latter shall have paid only up to the extent
of its insurance coverage.
SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of the
dispositive portion of the decision contending that AFISCO should not merely be
held secondarily liable because the Insurance Code provides that the insurer's
liability is "direct and primary and/or jointly and severally with the operator of the
vehicle, although only up to the extent of the insurance coverage." 4 Hence, they
argued that the P20,000.00 coverage of the insurance policy issued by AFISCO,
should have been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the
Insurance Code does not expressly provide for a solidary obligation, the
presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent of the
insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of
the insurer is direct, primary and solidary with the jeepney operator because the
petitioners became direct beneficiaries under the provision of the policy which, in
effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of
merit.
Hence, petitioners filed the instant petition for certiorari which, although it does
not seek the reversal of the lower court's decision in its entirety, prays for the
setting aside or modification of the second paragraph of the dispositive portion of
said decision. Petitioners reassert their position that the insurance company is
directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their
claim is as follows:
Sec. 1 LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy,
the Company will, in respect of the liability incurred to such person indemnify his
56
personal representatives in terms of, and subject to the terms and conditions
hereof. 7
The above-quoted provision leads to no other conclusion but that AFISCO can be
held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of
Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability,
the insurer's liability accrues immediately upon the occurrence of the injury or even
upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third
party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to
protect injured persons against the insolvency of the insured who causes such
injury, and to give such injured person a certain beneficial interest in the proceeds
of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00
under the no-fault clause, AFISCO's liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo.
In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity
to resolve the issue as to the nature of the liability of the insurer and the
insured vis-a-vis the third party injured in an accident. We categorically ruled thus:
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is
based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos (the injured third party), but it cannot, as incorrectly held by the
trial court, be made "solidarily" liable with the two principal tortfeasors,
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-
insurer were solidarily liable with said, two (2) respondents by reason of the
indemnity contract against third party liability under which an insurer
can be directly sued by a third party this will result in a violation of the
principles underlying solidary obligation and insurance contracts.
(emphasis supplied)
The Court then proceeded to distinguish the extent of the liability and manner of
enforcing the same in ordinary contracts from that of insurance contracts. While in
solidary obligations, the creditor may enforce the entire obligation against one of

the solidary debtors, in an insurance contract, the insurer undertakes for a
consideration to indemnify the insured against loss, damage or liability arising from
an unknown or contingent event. 11 Thus, petitioner therein, which, under the
insurance contract is liable only up to P20,000.00, can not be made solidarily liable
with the insured for the entire obligation of P29,013.00 otherwise there would
result "an evident breach of the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under
the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for
the total amount of P53,901.70 in accordance with the decision of the lower court.
Since under both the law and the insurance policy, AFISCO's liability is only up to
P20,000.00, the second paragraph of the dispositive portion of the decision in
question may have unwittingly sown confusion among the petitioners and their
counsel. What should have been clearly stressed as to leave no room for doubt was
the liability of AFISCO under the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based on the insurance contract is
direct, but not solidary with that of Destrajo which is based on Article 2180 of the
Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from
AFISCO and the balance from Destrajo or enforce the entire judgment from
Destrajo subject to reimbursement from AFISCO to the extent of the insurance
coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO's liability,
we noticed that the lower court erred in the computation of the probable loss of
income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded
P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a
"plain error," we opt to correct the same. 14 Furthermore, in accordance with
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15
WHEREFORE, premises considered, the present petition is hereby GRANTED. The
award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and
the death indemnity of P12,000.00 to P50,000.00.
SO ORDERED.
FACTS:
Lope Maglana met an accident while driving a motorcycle owned by
Bureau of Customs which resulted to his death. The jeep in which his motorcycle
collided was operated and owned by Destrajo. His widow filed an action for
57
damages against Destrajo and AFISCO Insurance Corporation. The RTC held
AFISCO to be secondarily liable for the awarded damages. Petitioner
asserted the lower courts decision and provided that the Insurance Code expressly
provides that the insurers liability is direct and primary and or jointly and severally
with the operator of the vehicle.
ISSUE: Whether or not the insured is solidarily liable with Destrajo.
HELD:
No. The liability of the insured is primary and direct but not solidarily with Destrajo.
Where the insurer directly insures liability, the liability accrues
immediately upon the concurrence of the injury or even upon which the liability
depends and does not depend on the recovery of the judgment by the injured
party against the insured, Therefore, the insurers liability is direct and primary,
but its liability is only up to the extent of the amount insured.
Facts:
Lope Maglana was an employee of the Bureau of Customs in Davao City. On
December 20, 1978, he was driving a motorcycle when he met an accident that
resulted to his death. The PUJ (jeepney) that bumped the deceased was driven by
Pepito Into. Patricio Destrajo was the owner and operator of the PUJ. An action for
damages was instituted by the heirs of against Destrajo and AFISCO Insurance
Corporation. The lower court rendered a decision finding that Destrajo had not
exercised sufficient dilligence as the operator of the jeepney. The insurance
company was also ordered to reimburse Destrajo of the amount the latter shall
have paid but only up to the extent of the insurance coverage. The heirs of Maglana
filed for a motion for reconsideration. They contended that AFISCO's should not be
merely held as secondarily liable as the Insurance Code provides that the insurer's
liability is "direct and primary and/or jointly and severally with the operator of the
vehicle, although only up to the extent of the insurance coverage." Thus, the
contention that the coverage of the insurance policy amounting to Php 20,000
issued by the company should have been awarded in their favor. The insurance
company, on the other hand, argued that their obligation is joint.
Issue: WON the liability of the insurer is direct, primary, and soliday with the
jeepney operator.
Held:
The Court held that the heirs cannot validly claim that AFISCO can be held solidarily
liable with
 58

Destrajo. The law and the terms on the insurance policy provides that AFISCO's
liability is only up to Php 20,000. The Court provided that the issue on the nature of
the liability of the insurer and insured as against the third party was already
resolved in the case of Malayan Insurance Co. Inc., vs. Court of Appeals. It ruled that
"While such third persons can directly sue the insurer, it does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found
at fault. The liability of the insurer is based on contract; that of the insured is based
on tort.

FIRST DIVISION
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is
whether the petitioner is liable under the Money, Security, and Payroll Robbery
policy it issued to the private respondent or whether recovery thereunder is
precluded under the general exceptions clause thereof. Both the trial court and the
Court of Appeals held that there should be recovery. The petitioner contends
otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro
Manila, by private respondent Producers Bank of the Philippines (hereinafter
Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter
Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy
issued by Fortune. The sum was allegedly lost during a robbery of Producer's
armored vehicle while it was in transit to transfer the money from its Pasay City
Branch to its head office in Makati. The case was docketed as Civil Case No. 1817
and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based
on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance policy was issued,
the duplicate original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash in the
sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its
Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on
June 29, 1987, was robbed of the said cash. The robbery took place while the
armored car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by
Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC
59
Management Systems with the plaintiff by virtue of an Agreement executed on
August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the
plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a
duplicate original copy of which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio,
Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery
Law) before the Fiscal of Pasay City. A copy of the complaint is hereto attached as
Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid persons
with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A
copy of the said information is hereto attached as Exhibit "E." The case is still being
tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay the amount of
the loss of P725,000.00, but the latter refused to pay as the loss is excluded from
the coverage of the insurance policy, attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit
"A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of the
Insured whether acting alone or in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and contends that Atiga
and Magalong are not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The
dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability
under Policy No. 0207 (as mitigated by the P40,000.00 special clause deduction and
by the recovered sum of P145,000.00), with interest thereon at the legal rate, until
fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's
fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver
guard. The finding is accordingly compelled that neither Magalong nor
Atiga were plaintiff's "employees" in avoidance of defendant's liability
under the policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly it was teller
60
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as
CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in
toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong
and Atiga were neither employees nor authorized representatives of Producers and
ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the
parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd.
vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The
word "employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-
employee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only to
ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that
the trial court and the Court of Appeals erred in holding it liable under the

insurance policy because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were Producers'
authorized representatives or employees in the transfer of the money and payroll
from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to
transfer its funds from one branch to another, they effectively and necessarily
became its authorized representatives in the care and custody of the money.
Assuming that they could not be considered authorized representatives, they were,
nevertheless, employees of Producers. It asserts that the existence of an employer-
employee relationship "is determined by law and being such, it cannot be the
subject of agreement." Thus, if there was in reality an employer-employee
relationship between Producers, on the one hand, and Magalong and Atiga, on the
other, the provisions in the contracts of Producers with PRC Management System
for Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as an
employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four
standards: (1) the manner of selection and engagement of the putative employee;
(2) the mode of payment of wages; (3) the presence or absence of a power to
dismiss; and (4) the presence and absence of a power to control the putative
employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor. 6 It asserts that the power of control over Magalong and Atiga was
vested in and exercised by Producers. Fortune further insists that PRC Management
System and Unicorn Security Services are but "labor-only" contractors under Article
106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers,
following the ruling in International Timber Corp. vs. NLRC 7 that a finding that a
contractor is a "labor-only" contractor is equivalent to a finding that there is an
61
employer-employee relationship between the owner of the project and the
employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its
employees since it had nothing to do with their selection and engagement, the
payment of their wages, their dismissal, and the control of their conduct. Producers
argued that the rule in International Timber Corp. is not applicable to all cases but
only when it becomes necessary to prevent any violation or circumvention of the
Labor Code, a social legislation whose provisions may set aside contracts entered
into by parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American
President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter
which assigned Magalong as the driver of Producers' armored car and was
responsible for his faithful discharge of his duties and responsibilities, and since
Producers paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract
with Unicorn Security Services which provides that the guards of the latter "are in
no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or
robbery insurance policy which is a form of casualty insurance. Section 174 of the
Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health
 62

insurance as written by non-life insurance companies, and other paragraph (b) of the general exceptions clause of the policy which, for easy
substantially similar kinds of insurance. (emphases supplied) reference, is again quoted:

Except with respect to compulsory motor vehicle liability insurance, the Insurance GENERAL EXCEPTIONS
Code contains no other provisions applicable to casualty insurance or to robbery
insurance in particular. These contracts are, therefore, governed by the general The company shall not be liable under this policy in respect of
provisions applicable to all types of insurance. Outside of these, the rights and
obligations of the parties must be determined by the terms of their contract, taking (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
into consideration its purpose and always in accordance with the general principles any officer, employee, partner, director, trustee or authorized representative of the
of insurance law. 9 Insured whether acting alone or in conjunction with others. . . . (emphases
supplied)
It has been aptly observed that in burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer the moral hazard is so great that insurers There is marked disagreement between the parties on the correct meaning of the
have found it necessary to fill up their policies with countless restrictions, many terms "employee" and "authorized representatives."
designed to reduce this hazard. Seldom does the insurer assume the risk of all
losses due to the hazards insured against." 10 Persons frequently excluded under
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude
such provisions are those in the insured's service and employment. 11 The purpose
and exempt from protection and coverage losses arising from dishonest, fraudulent,
of the exception is to guard against liability should the theft be committed by one
or criminal acts of persons granted or having unrestricted access to Producers'
having unrestricted access to the property. 12 In such cases, the terms specifying the
money or payroll. When it used then the term "employee," it must have had in
excluded classes are to be given their meaning as understood in common
mind any person who qualifies as such as generally and universally understood, or
speech. 13 The terms "service" and "employment" are generally associated with the
jurisprudentially established in the light of the four standards in the determination
idea of selection, control, and compensation. 14
of the employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which considers the
A contract of insurance is a contract of adhesion, thus any ambiguity therein should employees under a "labor-only" contract as employees of the party employing them
be resolved against the insurer, 15 or it should be construed liberally in favor of the and not of the party who supplied them to the employer. 22
insured and strictly against the insurer. 16 Limitations of liability should be regarded
with extreme jealousy and must be construed
Fortune claims that Producers' contracts with PRC Management Systems and
in such a way, as to preclude the insurer from non-compliance with its
Unicorn Security Services are "labor-only" contracts.
obligation. 17 It goes without saying then that if the terms of the contract are clear
and unambiguous, there is no room for construction and such terms cannot be
Producers, however, insists that by the express terms thereof, it is not the
enlarged or diminished by judicial construction. 18
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and
An insurance contract is a contract of indemnity upon the terms and conditions
the security guards each shall supply to Producers are not the latter's
specified therein. 19 It is settled that the terms of the policy constitute the measure
employees, it may, in fact, be that it is because the contracts are, indeed,
of the insurer's liability. 20 In the absence of statutory prohibition to the contrary,
"labor-only" contracts. Whether they are is, in the light of the criteria
insurance companies have the same rights as individuals to limit their liability and
provided for in Article 106 of the Labor Code, a question of fact. Since the
to impose whatever conditions they deem best upon their obligations not
parties opted to submit the case for judgment on the basis of their
inconsistent with public policy.
stipulation of facts which are strictly limited to the insurance policy, the
contracts with PRC Management Systems and Unicorn Security Services,
With the foregoing principles in mind, it may now be asked whether Magalong and the complaint for violation of P.D. No. 532, and the information therefor
Atiga qualify as employees or authorized representatives of Producers under filed by the City Fiscal of Pasay City, there is a paucity of evidence as to

whether the contracts between Producers and PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-
only" contracts, and PRC Management Systems and Unicorn Security Services were
truly independent contractors, we are satisfied that Magalong and Atiga were, in
respect of the transfer of Producer's money from its Pasay City branch to its head
office in Makati, its "authorized representatives" who served as such with its teller
Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the
specific duty to safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these particular tasks, the
three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another
in a special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of
the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET
ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Facts:
Producers Banks money was stolen while it was being transported from Pasay to
Makati. The people guarding the money were charged with the theft. The bank filed
a claim for the amount of Php 725,000, and such was refused by the insurance
corporation due to the stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of the
Insured whether acting alone or in conjunction with others. . . .
63
In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. Theappellate court affirmed on the basis that the
bank had no power to hire or dismiss the guard and could only ask for replacements
from the security agency.
Issue: Did the guards fall under the general exceptions clause of the insurance
policy and thus absolved the insurance company from liability?
Held: Yes to both. Petition granted.
Ratio:
The insurance agency contended that the guards automatically became the
authorized representatives of the bank when they cited International Timber Corp.
vs. NLRC where a contractor is a "labor-only" contractor in the sense that there is
an employer-employee relationship between the owner of the project and the
employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said: Contractor or subcontractor.
There is "labor-only" contracting where the person supplying workers to an
employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly related to
the principal business of such employer. In such cases, the person
or intermediary shall be considered merely as an agent of the employer who shall
be responsible to the workers in the same manner and extent as if the latter were
directly employed by him. The bank asserted that the guards were not its
employees since it had nothing to do with their selection and engagement, the
payment of their wages, their dismissal, and the control of their conduct.
They cited a case where an employee-employer relationship was governed by (1)
the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated
that casualty insurance awarded an amount to loss cause by accident or mishap.
The term "employee," should be read as a person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of
the four standards in the determination of the employer-employee relationship, or
as statutorily declared even in a limited sense as in the case of Article 106 of the
Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to
the employer.

But even if the contracts were not labor-only, the bank entrusted the suspects with
the duty to safely transfer the money to its head office, thus, they were
representatives. According to the court, a representative is defined as one who
represents or stands in the place of another; one who represents others or another
in a special capacity, as an agent, and is interchangeable with agent.
Facts:
On June 29, 1987, Producers Bank of the Philippines armored vehicle was robbed,
in transit, of seven hundred twenty-five thousand pesos (Php 725,000.00) that it
was transferring from its branch in Pasay to its main branch in Makati. To mitigate
their loss, they claim the amount from their insurer, namely Fortune Insurance
and Surety Co.. Fortune Insurance, however, assails that the general exemption
clause in the Casualty Insurance coverage had a general exemption clause, to wit:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of the
Insured whether acting alone or in conjunction with others. . . .
And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle
were charged with three others as liable for the robbery, Fortune denies
Producers Bank of its insurance claim. The trial court and the court appeals ruled in
favor of recovery, hence, the case at bar.
Issue: Whether recovery is precluded under the general exemption clause.
Held:
Yes, recovery is precluded under the general exemption clause.
Howsoever viewed, Producers entrusted the three with the specific duty to safely
transfer the money to its head office, with Alampay to be responsible for its custody
in transit; Magalong to drive the armored vehicle which would carry the money;
and Atiga to provide the needed security for the money, the vehicle, and his two
other companions. In short, for these particular tasks, the three acted as agents of
64
Producers. A "representative" is defined as one who represents or stands in the
place of another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
Facts: Producers Bank was insured by Fortune Insurance and Surety Co., Inc.
An armored car of the plaintiff, while in the process of transferring cash under the
custody of its teller from its Pasay Branch to its Head Office at Makati was robbed
of the said cash. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue
Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway
Robbery Law) before the Fiscal of Pasay City. Demands were made by the Producers
Bank upon the Insurer to pay the amount of the loss, but the latter refused to pay
as the loss is excluded from the coverage of the insurance policy, specifically
under "GeneralExceptions" Section (b), and which reads as follows:
the company shall not be liable under this policy in respect of any loss caused by
any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether
acting alone or in conjunction with others.
Issue: Whether recovery thereunder is precluded under the general exceptions
clause thereof.
Held:
Yes. The SC are satisfied that Magalong and Atiga were, in respect of the transfer of
Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely
transfer the money to its head office, with Alampay to be responsible for its custody
in transit; Magalong to drive the armored vehicle which would carry the money;
and Atiga to provide the needed security for the money ,the vehicle, and his two
other companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in the
place of another; one who represents others or another in a special capacity, as
an agent, and is interchangeable with "agent."

FIRST DIVISION
[G.R. No. 118889. March 23, 1998]
FGU INSURANCE CORPORATION, petitioner, vs., COURT OF APPEALS, FILCAR
TRANSPORT, INC., and FORTUNE INSURANCE CORPORATION,respondents.
DECISION
BELLOSILLO, J.:
For damages suffered by a third party, may an action based on quasi-delict prosper
against a rent-a-car company and, consequently, its insurer for fault or negligence
of the car lessee in driving the rented vehicle?
This was a two-car collision at dawn. At around 3 o'clock of 21 April 1987, two (2)
vehicles, both Mitsubishi Colt Lancers, cruising northward along Epifanio de los
Santos Avenue, Mandaluyong City, figured in a traffic accident. The car bearing
Plate No. PDG 435 owned by Lydia F. Soriano was being driven at the outer lane of
the highway by Benjamin Jacildone, while the other car, with Plate No. PCT 792,
owned by respondent FILCAR Transport, Inc. (FILCAR), and driven by Peter Dahl-
Jensen as lessee, was at the center lane, left of the other vehicle. Upon approaching
the corner of Pioneer Street, the car owned by FILCAR swerved to the right hitting
the left side of the car of Soriano. At that time Dahl-Jensen, a Danish tourist, did not
possess a Philippine driver's license.[1]
As a consequence, petitioner FGU Insurance Corporation, in view of its insurance
contract with Soriano, paid the latter P25,382.20. By way of subrogation,[2] it sued
Dahl-Jensen and respondent FILCAR as well as respondent Fortune Insurance
Corporation (FORTUNE) as insurer of FILCAR for quasi-delict before the Regional
Trial Court of Makati City.
Unfortunately, summons was not served on Dahl-Jensen since he was no longer
staying at his given address; in fact, upon motion of petitioner, he was dropped
from the complaint.
On 30 July 1991 the trial court dismissed the case for failure of petitioner to
substantiate its claim of subrogation.[3]
On 31 January 1995 respondent Court of Appeals affirmed the ruling of the trial
court although based on another ground, i.e., only the fault or negligence of Dahl-
Jensen was sufficientlyproved but not that of respondent FILCAR.[4] In other words,
65
petitioner failed to establish its cause of action for sum of money based on quasi-
delict.
In this appeal, petitioner insists that respondents are liable on the strength of the
ruling in MYC-Agro-Industrial Corporation v. Vda. de Caldo[5] that the registered
owner of a vehicle is liable for damages suffered by third persons although the
vehicle is leased to another.
We find no reversible error committed by respondent court in upholding the
dismissal of petitioner's complaint. The pertinent provision is Art. 2176 of the Civil
Code which states:"Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict x x x x"
To sustain a claim based thereon, the following requisites must concur: (a) damage
suffered by the plaintiff; (b) fault or negligence of the defendant; and, (c)
connection of cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff.[6]
We agree with respondent court that petitioner failed to prove the existence of the
second requisite, i.e., fault or negligence of defendant FILCAR, because only the
fault or negligence of Dahl-Jensen was sufficiently established, not that of FILCAR. It
should be noted that the damage caused on the vehicle of Soriano was brought
about by the circumstance that Dahl-Jensen swerved to the right while the vehicle
that he was driving was at the center lane. It is plain that the negligence was solely
attributable to Dahl-Jensen thus making the damage suffered by the other vehicle
his personal liability. Respondent FILCAR did not have any participation therein.
Article 2180 of the same Code which deals also with quasi-delict provides:
The obligation imposed by article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for
the damages caused by the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons
who are under their authority and live in their company.
The owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions.
 66

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not
when the damage has been caused by the official
to whom the task done properly pertains, in whichcase what is provided in article
2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they remain
in their custody.
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.
persons and damage to property. Intending to exculpate itself from liability, the
corporation raised the defense that at the time of the collision
it had no more control over the vehicle as it was leased to another; and, that the
driver was not its employee but of the lessee. The trial court was not persuaded as
it found that the true nature of the alleged lease contract was nothing more than a
disguise effected by the corporation to relieve itself of the burdens and
responsibilities of an employer. We upheld this finding and affirmed the declaration
of joint and several liability of the corporation with its driver.
WHEREFORE, the petition is DENIED. The decision of respondent Court of
Appeals dated 31 January 1995 sustaining the dismissal of petitioner's complaint by
the trial court is AFFIRMED. Costs against petitioner.
SO ORDERED.

The liability imposed by Art. 2180 arises by virtue of a presumption juris tantum of
negligence on the part of the persons made
responsible thereunder, derived from their failure to exercise due care and vigilance
over the acts of subordinates to prevent them from causing damage. [7] Yet, as
correctly observed by respondent court, Art. 2180 is hardly applicable because
none of the
circumstances mentioned therein obtains in the case under consideration. Respond
ent FILCAR being engaged in a rent-a-car business was only the owner of the car
leased to Dahl-Jensen. As such, there was no vinculum juris between them as
employer and employee. Respondent FILCAR cannot in any way be responsible for
the negligent act of Dahl-Jensen, the former not being an employer of the latter.
We now correlate par. 5 of Art. 2180 with Art. 2184 of the same Code which
provides: "In motor vehicle mishap, the owner is solidarily liable with his driver, if
the former, who was in the vehicle, could have by the use of due diligence,
prevented the misfortune x x x x If the owner was not in the motor vehicle, the
provisions of article 2180 are applicable." Obviously, this provision of Art.
2184 is neither applicable because of the absence of master-driver relationship
between respondent FILCAR and Dahl-Jensen. Clearly, petitioner has no cause of
action against respondent FILCAR on the basis of quasi-delict; logically, its claim
against respondent FORTUNE can neither prosper.
Petitioner's insistence on MYC-Agro-Industrial Corporation is rooted in a
misapprehension of our ruling therein. In that case, the negligent and reckless
operation of the truck owned by petitioner corporation caused injuries to several

FIRST DIVISION
[G.R. No. 82036. May 22, 1997]
TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT
OF APPEALS and VICENTE MENDOZA, respondents.
DECISION
HERMOSISIMA, JR., J.:
The petition herein seeks the review and reversal of the decision [1] of respondent
Court of Appeals[2] affirming in toto the judgment[3] of the Regional Trial Court[4] in
an action for damages[5] filed by private respondent Vicente Mendoza, Jr. as heir of
his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner
of the taxicab, and the alleged insurer of the vehicle which featured in the vehicular
accident into one complaint. The erring taxicab was allegedly covered by a third-
party liability insurance policy issued by petitioner Travellers Insurance & Surety
Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the
name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman
Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was
bumped by a taxi that was running fast. Several persons witnessed the accident,
among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the
bumping, the old woman was seen sprawled on the pavement. Right away, the good
Samaritan that he was, Marvilla ran towards the old woman and held her on his lap
to inquire from her what had happened, but obviously she was already in shock and
could not talk. At this moment, a private jeep stopped. With the driver of that
vehicle, the two helped board the old woman on the jeep and brought her to the
Mary Johnston Hospital in Tondo.
x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street
from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was
on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother
who were crying near the scene of the accident. Upon learning that the two were the
sons of the old woman, Lopez told them what had happened. The Mendoza brothers
were then able to trace their mother at the Mary Johnston Hospital where they were
67
advised by the attending physician that they should bring the patient to the National
Orthopedic Hospital because of her fractured bones. Instead, the victim was brought
to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death
was caused by traumatic shock as a result of the severe injuries she sustained x x x x.
x x x The evidence shows that at the moment the victim was bumped by the vehicle,
the latter was running fast, so much so that because of the strong impact the old
woman was thrown away and she fell on the pavement. x x x In truth, in that related
criminal case against defendant Dumlao x x x the trial court found as a fact that
therein accused was driving the subject taxicab in a careless, reckless and imprudent
manner and at a speed greater than what was reasonable and proper without taking
the necessary precaution to avoid accident to persons x x x considering the condition
of the traffic at the place at the time aforementioned x x x. Moreover, the driver fled
from the scene of the accident and without rendering assistance to the victim. x x x
x x x Three (3) witnesses who were at the scene at the time identified the taxi
involved, though not necessarily the driver thereof. Marvilla saw a lone taxi speeding
away just after the bumping which, when it passed by him, said witness noticed to
be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar attached
on the baggage compartment and with an antenae[sic] attached at the right rear
side.The same descriptions were revealed by Ernesto Lopez, who further described
the taxi to have x x x reflectorized decorations on the edges of the glass at the
back. x x x A third witness in the person of Eulogio Tabalno x x x made similar
descriptions although, because of the fast speed of the taxi, he was only able to
detect the last digit of the plate number which is 8. x x x [T]he police proceeded to
the garage of Lady Love Taxi and then and there they took possession of such a taxi
and later impounded it in the impounding area of the agency concerned. x x x [T]he
eyewitnesses x x x were unanimous in pointing to that Lady Love Taxi with Plate No.
438, obviously the vehicle involved herein.
x x x During the investigation, defendant Armando Abellon, the registered owner of
Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact that the
vehicle was driven last July 20, 1980 by one Rodrigo Dumlao x x x x x x It was on the
basis of this affidavit of the registered owner that caused the police to apprehend
Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted
of the offense x x x. x x x [S]aid Dumlao absconded in that criminal case, specially at
the time of the promulgation of the judgment therein so much so that he is now a
fugitive from justice.[6]
Private respondent filed a complaint for damages against Armando Abellon as the
owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love

taxicab that bumped private respondents mother. Subsequently, private
respondent amended his complaint to include petitioner as the compulsory insurer
of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more
particularly the Heirs of the late Feliza Vineza de Mendoza, and against defendants
Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety
Corporation, by ordering the latter to pay, jointly and severally, the former the
following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest
thereon at the rate of 12% per annum from October 17, 1980, when the complaint
was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorneys fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED.[7]
Petitioner appealed from the aforecited decision to the respondent Court of
Appeals. The decision of the trial court was affirmed by respondent appellate
court. Petitioners Motion for Reconsideration[8] of September 22, 1987 was denied
in a Resolution[9] dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory
insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed
covered said taxicab for third-party liability insurance, private respondent failed to
file a written notice of claim with petitioner as required by Section 384 of P.D. No.
612, otherwise known as the Insurance Code.
68
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner as
party defendant and therein alleged that petitioner was the third-party liability
insurer of the Lady Love taxicab that fatally hit private respondents mother, private
respondent did not attach a copy of the insurance contract to the amended
complaint. Private respondent does not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the
insurer depends on whether the contract of insurance is intended to benefit third
persons also or only the insured.
[A] policy x x x whereby the insurer agreed to indemnify the insured against all sums
x x x which the Insured shall become legally liable to pay in respect of: a. death of or
bodily injury to any person x x x is one for indemnity against liability; from the fact
then that the insured is liable to the third person, such third person is entitled to
sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or on the insured. And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to whom
the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually discharged by
him thru payment to third persons, said third persons recourse being thus limited
to the insured alone.[10]
Since private respondent failed to attach a copy of the insurance contract to his
complaint, the trial court could not have been able to apprise itself of the real
nature and pecuniary limits of petitioners liability. More importantly, the trial court
could not have possibly ascertained the right of private respondent as third person
to sue petitioner as insurer of the Lady Love taxicab because the trial court never
saw nor read the insurance contract and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract
covering the Lady Love taxicab that fatally hit private respondents mother,
considering that petitioner precisely presented the defense of lack of insurance
coverage before the trial court. Neither did the trial court issue a subpoena duces
tecum to have the insurance contract produced before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found
petitioner liable jointly and severally with the owner and the driver of the Lady Love
taxicab, for damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private respondents
cause of action against the owner and the driver of the Lady Love taxicab and his
cause of action against petitioner. The former is based on torts and quasi-
delicts while the latter is based on contract. Confusing these two sources of
obligations as they arise from the same act of the taxicab fatally hitting private
respondents mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its
ignorance of the terms and conditions of the insurance contract and forthwith
found all three - the driver of the taxicab, the owner of the taxicab, and the alleged
insurer of the taxicab - jointly and severally liable for actual, moral and exemplary
damages as well as attorneys fees and litigation expenses. This is clearly a
misapplication of the law by the trial court, and respondent appellate court
grievously erred in not having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity contracts against third-party
liability does not mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.[11]
Applying this principle underlying solidary obligation and insurance contracts, we
ruled in one case that:
In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. On the other hand, insurance is defined as a contract whereby
one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
In the case at bar, the trial court held petitioner together with respondents Sio
Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total
amount of P29,103.00, with the qualification that petitioners liability is only up
to P20,000.00. In the context of a solidary obligation, petitioner may be compelled
by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding
the qualification made by the trial court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its insurance policy with
respondent Sio Choy for indemnity against third-party liability is
69
only P20,000.00? Moreover, the qualification made in the decision of the trial court
to the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary is an evident breach of the concept of
a solidary obligation.[12]
The above principles take on more significance in the light of the counter-allegation
of petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab
in question, its liability is limited to only P50,000.00, this being its standard amount
of coverage in vehicle insurance policies. It bears repeating that no copy of the
insurance contract was ever proffered before the trial court by the private
respondent, notwithstanding knowledge of the fact that the latters complaint
against petitioner is one under a written contract. Thus, the trial court proceeded to
hold petitioner liable for an award of damages exceeding its limited liability
of P50,000.00. This only shows beyond doubt that the trial court was under the
erroneous presumption that petitioner could be found liable absent proof of the
contract and based merely on the proof of reckless imprudence on the part of the
driver of the Lady Love taxicab that fatally hit private respondents mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate
court that, assuming arguendo that it had issued the insurance contract over the
Lady Love taxicab, private respondents cause of action against petitioner did not
successfully accrue because he failed to file with petitioner a written notice of claim
within six (6) months from the date of the accident as required by Section 384 of
the Insurance Code.
At the time of the vehicular incident which resulted in the death of private
respondents mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a
written notice of claim setting forth the amount of his loss, and/or the nature,
extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage
due to loss or injury must be brought in proper cases, with the Commission or the
Courts within one year from date of accident, otherwise the claimants right of
action shall prescribe [emphasis and underscoring supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De
Guzman,[13] we ruled that the one year prescription period to bring suit in court

against the insurer should be counted from the time that the insurer rejects the
written claim filed therewith by the insured, the beneficiary or the third person
interested under the insurance policy. We explained:
It is very obvious that petitioner company is trying to use Section 384 of the
Insurance Code as a cloak to hide itself from its liabilities. The facts of these cases
evidently reflect the deliberate efforts of petitioner company to prevent the filing of
a formal action against it. Bearing in mind that if it succeeds in doing so until one
year lapses from the date of the accident it could set up the defense of prescription,
petitioner company made private respondents believe that their claims would be
settled in order that the latter will not find it necessary to immediately bring suit. In
violation of its duties to adopt and implement reasonable standards for the prompt
investigation of claims and to effectuate prompt, fair and equitable settlement of
claims, and with manifest bad faith, petitioner company devised means and ways of
stalling the settlement proceedings. x x x [N]o steps were taken to process the claim
and no rejection of said claim was ever made even if private respondent had
already complied with all the requirements. x x x
This Court has made the observation that some insurance companies have been
inventing excuses to avoid their just obligations and it is only the State that can give
the protection which the insuring public needs from possible abuses of the
insurers.[14]
It is significant to note that the aforecited Section 384 was amended by B.P. Blg.
874 to categorically provide that action or suit for recovery of damage due to loss or
injury must be brought in proper cases, with the Commissioner or the Courts within
one year from denial of the claim, otherwise the claimants right of action shall
prescribe [emphasis ours].[15]
We have certainly ruled with consistency that the prescriptive period to bring suit in
court under an insurance policy, begins to run from the date of the insurers
rejection of the claim filed by the insured, the beneficiary or any person claiming
under an insurance contract. This ruling is premised upon the compliance by the
persons suing under an insurance contract, with the indispensable requirement of
having filed the written claim mandated by Section 384 of the Insurance Code
before and after its amendment. Absent such written claim filed by the person
suing under an insurance contract, no cause of action accrues under such insurance
contract, considering that it is the rejection of that claim that triggers the running of
the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first
place, as in the instant case.
70
The one-year period should instead be counted from the date of rejection by the
insurer as this is the time when the cause of action accrues. x x x
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiffs cause of action did not accrue until his claim was finally rejected by
the insurance company. This is because, before such final rejection, there was no
real necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA
vs. Alpha Insurance and Surety Co., viz.:
Since a cause of action requires, as essential elements, not only a legal right of the
plaintiff and a correlative obligation of the defendant but also an act or omission of
the defendant in violation of said legal right, the cause of action does not accrue
until the party obligated refuses, expressly or impliedly, to comply with its duty. [16]
When petitioner asseverates, thus, that no written claim was filed by private
respondent and rejected by petitioner, and private respondent does not dispute
such asseveration through a denial in his pleadings, we are constrained to rule that
respondent appellate court committed reversible error in finding petitioner liable
under an insurance contract the existence of which had not at all been proven in
court. Even if there were such a contract, private respondents cause of action can
not prevail because he failed to file the written claim mandated by Section 384 of
the Insurance Code. He is deemed, under this legal provision, to have waived his
rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil
Case No. 135486 are REVERSED and SET ASIDE insofar as Travellers Insurance &
Surety Corporation was found jointly and severally liable to pay actual, moral and
exemplary damages, death indemnity, attorneys fees and litigation expenses in Civil
Case No. 135486. The complaint against Travellers Insurance & Surety Corporation
in said case is hereby ordered dismissed.
No pronouncement as to costs.
SO ORDERED.
 71

TRAVELLERS INSURANCE & SURETY CORP. v.CA (MENDOZA)272 SCRA Commissioner or the Courts within one year from denial of the claim, otherwise the
536HERMOSISIMA, JR; May 22, 1997 claimant's right of action shall prescribe" ).He is deemed, under this legal provision,
to have waived his rights as against petitioner-insurer.
NATURE:
Disposition: petition granted.
The petition herein seeks the review and reversal of the decision of respondent
Court of Appeals affirming in toto the judgment of the Regional Trial Court in an
action for damages filed by private respondent Vicente Mendoza, Jr. as heir of his
mother who was killed in a vehicular accident.

FACTS-

An old lady was hit by a taxicab. The taxicab was later identified and a case was filed
against the driver and owner. Later, an amendment was filed to include the
insurance company. RTC and CA ordered that the owner, driver as well as the
insurance company beheld solidarily liable.

ISSUE: WON RTC and CA erred

HELD:

YES- Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable can sue the insurer. Where the
contract is for indemnity against actual loss or payment, then third persons cannot
proceed against the insurer, the contract being solely to reimburse the insured for
liability actually discharged by him thru payment to third persons, said third
persons' recourse being thus limited to the insured alone. But in the case at bar,
there was no contract shown. What then was the basis of the RTC and the CA to say
that the insurance contract was a third-party liability insurance policy?
Consequently, the trial court was confused as it did not distinguish between the
private respondent's cause of action against the owner and the driver of the Lady
Love taxicab and his cause of action against petitioner. The former is based on torts
and quasi-delicts while the latter is based on contract.- Even assuming arguendo
that there was such a contract, private respondent's cause of action cannot prevail
because he failed to file the written claim mandated by the Insurance Code
(beforeit was amended-action must be brought within six months from date of the
accident (this is whats applicable here); after amendment - "action or suit for
recovery of damage due to loss or injury must be brought in proper cases, with the

FIRST DIVISION
G.R. No. 103883 November 14, 1996
JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner,
vs.
HON. COURT OF APPEALS and FORTUNE INSURANCE & SURETY COMPANY,
INC., respondents.
VITUG, J.:
The petition for review on certiorari in this case seeks the reversal of the
decision 1 of the Court of Appeals setting aside the judgment of the Regional Trial
Court of Manila, Branch 55, which has ordered private respondent Fortune
Insurance & Surety Company, Inc., to pay petitioner Jacqueline Jimenez vda. de
Gabriel, the surviving spouse and beneficiary in an accident (group) insurance of her
deceased husband, the amount of P100,000.00, plus legal interest.
Marcelino Gabriel, the insured, was employed by Emerald Construction &
Development Corporation ("ECDC") at its construction project in Iraq. He was
covered by a personal accident insurance in the amount of P100,000.00 under a
group policy 2 procured from private respondent by ECDC for its overseas workers.
The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other
cause" 3 result in death or disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on
12 July 1983, ECDC reported Gabriel's death to private respondent by
telephone. 4 Among the documents thereafter submitted to private respondent
were a copy of the death certificate 5 issued by the Ministry of Health of the
Republic of Iraq which stated
REASON OF DEATH: UNDER EXAMINATION NOW NOT YET
KNOWN 6
and an autopsy report 7 of the National Bureau of Investigation ("NBI") to
the effect that "(d)ue to advanced state of postmortem decomposition,
cause of death (could) not be determined." 8 Private respondent referred
the insurance claim to Mission Adjustment Service, Inc.
72
Following a series of communications between petitioner and private respondent,
the latter, on 22 September 1983, ultimately denied the claim of ECDC on the
ground of prescription. 9 Petitioner went to the Regional Trial Court of Manila. In
her complaint against ECDC and private respondent, she averred that her husband
died of electrocution while in the performance of his work and prayed for the
recovery of P100,000.00 for insurance indemnification and of various other sums by
way of actual, moral, and exemplary damages, plus attorney's fees and costs of suit.
Private respondent filed its answer, which was not verified, admitting the
genuineness and due execution of the insurance policy; it alleged, however, that
since both the death certificate issued by the Iraqi Ministry of Health and the
autopsy report of the NBI failed to disclose the cause of Gabriel's death, it denied
liability under the policy. In addition, private respondent raised the defense of
"prescription," invoking Section 384 10 of the Insurance Code. Later, private
respondent filed an amended answer, still unverified, reiterating its original
defenses but, this time, additionally putting up a counterclaim and a crossclaim.
The trial court dismissed the case against ECDC for the failure of petitioner to take
steps to cause the service of the fourth alias summons on ECDC. The dismissal was
without prejudice.
The case proceeded against private respondent alone. On 28 May 1987, the trial
court rendered its decision 11 in favor (partly) of petitioner's claim. In arriving at its
conclusion, the trial court held that private respondent was deemed to have waived
the defense, i.e., that the cause of Gabriel's death was not covered by the policy,
when the latter failed to impugn by evidence petitioner's averment on the matter.
With regard to the defense of prescription, the court considered the complaint to
have been timely filed or within one (1) year from private respondent's denial of
the claim.
Petitioner and private respondent both appealed to the Court of Appeals. Petitioner
contended that the lower court should have awarded all the claims she had asked
for. Private respondent asserted, on its part, that the lower court erred in ruling (a)
that the insurer had waived the defense that Gabriel's death was not caused by the
insured peril ("violent accidental external and visible means") specified in the policy
and (b) that the cause of action had not prescribed.
The Court of Appeals, on 18 September 1991, reversed the decision of the lower
court. The appellate court held that petitioner had failed to substantiate her
allegation that her husband's death was caused by a risk insured against. The
appellate court observed that the only evidence presented by petitioner, in her

attempt to show the circumstances that led to the death of the insured, were her
own affidavit and a letter allegedly written by a co-worker of the deceased in Iraq
which, unfortunately for her, were held to be both
hearsay. 12
The motion for reconsideration was denied. 13
Petitioner's recourse to this Court must also fail.
On the issue of "prescription," private respondent correctly invoked Section 384 of
the Insurance Code; viz:
Sec. 384. Any person having any claim upon the policy issued
pursuant to this chapter shall, without any unnecessary delay,
present to the insurance company concerned a written notice of
claim setting forth the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim
must be filed within six months from date of the accident,
otherwise, the claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be brought, in
proper cases, with the Commissioner or the Courts within one
year from denial of the claim, otherwise, the claimant's right of
action shall prescribe.
The notice of death was given to private respondent, concededly, more
than a year after the death of petitioner's husband. Private respondent, in
invoking prescription, was not referring to the one-year period from the
denial of the claim within which to file an action against an insurer but
obviously to the written notice of claim that had to be submitted within six
months from the time of the accident.
Petitioner argues that private respondent must be deemed to have waived its right
to controvert the claim, that is, to show that the cause of death is an excepted peril,
by failing to have its answers (to the Request for Admission sent by petitioner) duly
verified. It is true that a matter of which a written request for admission is made
shall be deemed impliedly admitted "unless, within a period designated in the
request, which shall not be less than ten (10) days after service thereof, or within
such further time as the court may allow on motion and notice, the party to whom
the request is directed serves upon the party requesting the admission a sworn
statement either denying specifically the matters of which an admission is
requested or setting forth in detail the reasons why he cannot truthfully either
73
admit or deny those matters;" 14 however, the verification, like in most cases
required by the rules of procedure, is a formal, not jurisdictional, requirement, and
mainly intended to secure an assurance that matters which are alleged are done in
good faith or are true and correct and not of mere speculation. When
circumstances warrant, the court may simply order the correction of unverified
pleadings or act on it and waive strict compliance with the rules in order that the
ends of justice may thereby be served. 15 In the case of answers to written requests
for admission particularly, the court can allow the party making the admission,
whether made expressly or deemed to have been made impliedly, "to withdraw or
amend it upon such terms as may be just." 16
The appellate court acted neither erroneously nor with grave abuse of discretion
when it seconded the court a quo and ruled:
As to the allegation of the plaintiff-appellant that the matters requested by her to
be admitted by the defendant-appellant under the Request for Admission were
already deemed admitted by the latter for its failure to answer it under oath, has
already been properly laid to rest when the lower court in its Order of May 28, 1987
correctly ruled:
At the outset, it must be stressed that the defendant indeed filed a written answer
to the request for admission, sans verification. The case of Motor Service
Co., Inc. vs. Yellow Taxicab Co., Inc., et al. may not therefore be controlling, or
actually opposite. In said case, there was an absolute failure on the part of the
defendant to answer the request for admission, and thus the court was justified in
rendering a summary judgment. Here, however, as clearly intimated elsewhere
above, the defendant answered in writing practically every question posed in the
request for admission. The Court believes, under the peculiar circumstance, that
the more controlling jurisprudence on the mater would be those cited by the
defendant in its memorandum, particularly the case of Quimpo vs. de la Victoria, 46
SCRA 139.
Prescinding from the foregoing, there is absolutely no basis in fact and in law for the
lower court to hold that the appellant insurance company was deemed to have
waived the defense, that the death of plaintiff-appellant's husband was not caused
by violent accidental external and visible means' as contemplated in the insurance
policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10), more than
controverted the allegation of the plaintiff-appellant as to the cause of death of her
husband. 17

The insurance policy expressly provided that to be compensable, the injury or death
should be caused by "violent accidental external and visible means." In attempting
to prove the cause of her husband's death, all that petitioner could submit were a
letter sent to her by her husband's co-worker, stating that Gabriel died when he
tried to haul water out of a tank while its submerged motor was still
functioning, 18 and petitioner's sinumpaang
salaysay 19 which merely confirmed the receipt and stated contents of the letter.
Said the appellate court in this regard:
. . . . It must be noted that the only evidence presented by her to prove the
circumstances surrounding her husband's death were her purported
affidavit and the letter allegedly written by the deceased co-worker in Iraq.
The said affidavit however suffers from procedural infirmity as it was not
even testified to or identified by the affiant (plaintiff-appellant) herself.
This self-serving affidavit therefore is a mere hearsay under the rules, . . . .
In like manner, the letter allegedly written by the deceased's co-worker
which was never identified to in court by the supposed author, suffers
from the same defect as the affidavit of the plaintiff-appellant. 20
Not one of the other documents submitted, to wit, the POEA decision,
dated 06 June 1984, 21 the death certificate issued by the Ministry of
Health of Iraq and the NBI autopsy report, 22 could give any probative value
to petitioner's claim. The POEA decision did not make any categorical
holding on the specific cause of Gabriel's death. Neither did the death
certificate issued by the health authorities in Iraq nor the NBI autopsy
report provide any clue on the cause of death. All that appeared to be
clear was the fact of Gabriel's demise on 22 May 1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the insured suffered from an
accidental death, the risk covered by the policy. In an accident insurance, the
insured's beneficiary has the burden of proof in demonstrating that the cause of
death is due to the covered peril. Once that fact is established, the burden then
shifts to the insurer to show any excepted peril that may have been stipulated by
the parties. An "accident insurance" is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the cause thereof, would
normally be compensable. The latter is akin in property insurance to an "all risk"
coverage where the insured, on the aspect of burden of proof, has merely to show
the condition of the property insured when the policy attaches and the fact of loss
or damage during the period of the policy and where, thereafter, the burden would
be on the insurer to show any "excluded peril." When, however, the insured risk is
74
specified, like in the case before us, it lies with the claimant of the insurance
proceeds to initially prove that the loss is caused by the covered peril.
While petitioner did fail in substantiating her allegation that the death of her
husband was due to an accident, considering, however, the uncertainty on the real
cause of death, private respondent might find its way clear into still taking a second
look on the matter and perhaps help ease the load of petitioner's loss.
WHEREFORE, the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
FACTS:
Marcelino Gabriel was employed by Emerald Construction &
DevelopmentCorporation (Emerald Construction for brevity) at its construction
project in Iraq. He was covered by a personal accident insurance in the amount of
P100,000.00 under a group policy procured from Fortune Insurance & Surety
Company (Fortune Insurance for brevity)by Emerald Construction for its overseas
workers. The insured risk was for bodily injury caused by violent accidental external
and visible means which injury would solely and independently of any other cause
result in death or disability. On 22 May 1982, within the life of the policy, Gabriel
died in Iraq. On 12 July 1983,Emerald Construction reported Gabriels death to
Fortune Insurance by telephone. Among the documents thereafter submitted to
Fortune Insurance were a copy of the death certificate issued by the Ministry of
Health of the Republic of Iraq which stated that an autopsy report by the National
Bureau of Investigation was conducted to the effect that due to advanced state of
postmortem decomposition, the cause of death of Gabriel could not be determined
(emphasis added). Because of this development Fortune Insurance ultimately
denied the claim of Emerald Construction on the ground of prescription. Gabriels
widow, Jacqueline Jimenez, went to the to the lower court. In her complaint against
Emerald Construction and Fortune Insurance, she averred that her husband died of
electrocution while in the performance of his work. Fortune Insurance alleged that
since both the death certificate issued by the Iraqi Ministry of Health and the
autopsy report of the NBI failed to disclose the cause of Gabriels death, it denied
liability under the policy. In addition, private respondent raised the defense of
prescription, invoking Section 384 of the Insurance Code.
ISSUE: WON Jacqueline Jimenez vda. de Gabriels claim against Fortune Insurance
should be denied on the ground of prescription
 75

HELD:
Yes. Section 384 of the Insurance Code provides: Sec. 384. Any person having any
claim upon the policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the nature, extent and duration of the injuries sustained as
certified by a duly licensed physician. Notice of claim must be filed within six
months from date of the accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury must be brought, in
proper cases, with the Commissioner or the Courts within one year from denial of
the claim, otherwise, the claimants right of action shall prescribe. The notice of
death was given to Fortune Insurance, concededly, more than a year after the
death of vda. de Gabriels husband. Fortune Insurance, in invoking prescription,
said affidavit, however, suffers from procedural infirmity as it was not even testified
to or identified by vda. de Gabriel herself. This affidavit therefore is a mere hearsay
under the law. In like manner, the letter allegedly written by the deceaseds co-
worker which was never identified to in court by the supposed author, suffers from
the same defect as the affidavit of vda. de Gabriel. Not one of the other documents
submitted, to wit, the POEA decision, the death certificate issued by the Ministry of
Health of Iraq and the NBI autopsy report, could give any probative value to vda. de
Gabriels claim. The POEA decision did not make any categorical holding on the
specific cause of Gabriels death. In summary, evidence is utterly wanting to
establish that the insured suffered from an accidental death, the risk covered by the
policy.

was not referring to the one-year period from the denial of the claim within which
to file an action against an insurer but obviously to the written notice of claim that
had to be submitted within six months from the time of the accident.Vda. de
Gabriel argues that Fortune Insurance must be deemed to have waived itsright to
show that the cause of death is an excepted peril, by failing to have its answers duly
verified. It is true that a matter of which a written request for admission is made
shall be deemed impliedly admitted unless, within a period designated in the
request, which shall not be less than 10 days after service thereof, or within such
further time as the court may allow on motion and notice, the party to whom the
request is directed serves upon the party requesting the admission a sworn
statement either denying specifically the matters of which an admission is
requested or setting forth in detail the reasons why he cannot truthfully either
admit or deny those matters; however, the verification, like in most cases required
by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly
intended to secure an assurance that matters which are alleged are done in good
faith or are true and correct and not of mere speculation. When circumstances
warrant, the court may simply order the correction of unverified pleadings or act on
it and waive strict compliance with the rules in order that the ends of justice may
thereby be served. In the case of answers to written requests for admission
particularly, the court can allow the party making the admission, whether made
expressly or deemed to have been made impliedly, to withdraw or amend it upon
such terms as may be just. The insurance policy expressly provided that to be
compensable, the injury or death should be caused by violent accidental external
and visible means. In attempting to prove the cause of her husbands death, all that
vda. de Gabriel could submit were a letter sent to her by her husbands co-worker,
stating that Gabriel died when he tried to haul water out of a tank while its
submerged motor was still functioning, and vda. de Gabriels sworn affidavit. The

G.R. No. 173773 : November 28, 2012
PARAMOUNT INSURANCE CORPORATION, Petitioner, v. SPOUSES YVES and MARIA
TERESA REMONDEULAZ, Respondents.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the reversal and setting aside of the Decision 1rll dated April 12, 2005
and Resolution2rll dated July 20, 2006 of the Court of Appeals in CA-G.R. CV No.
61490.
The undisputed facts follow.
On May 26, 1994, respondents insured with petitioner their 1994
Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one
year.
During the effectivity of said insurance, respondents car was unlawfully taken.
Hence, they immediately reported the theft to the Traffic Management Command
of the PNP who made them accomplish a complaint sheet. In said complaint sheet,
respondents alleged that a certain Ricardo Sales (Sales) took possession of the
subject vehicle to add accessories and improvements thereon, however, Sales failed
to return the subject vehicle within the agreed three-day period.
As a result, respondents notified petitioner to claim for the reimbursement of their
lost vehicle. However, petitioner refused to pay.
Accordingly, respondents lodged a complaint for a sum of money against petitioner
before the Regional Trial Court of Makati City (trial court) praying for the payment
of the insured value of their car plus damages on April 21, 1995.
After presentation of respondents evidence, petitioner filed a Demurrer to
Evidence.
Acting thereon, the trial court dismissed the complaint filed by respondents. The
full text of said Order reads:
76
Before the Court is an action filed by the plaintiffs, spouses Yves and Maria Teresa
Remondeulaz against the defendant, Paramount Insurance Corporation, to recover
from the defendant the insured value of the motor vehicle.
It appears that on 26 May 1994, plaintiffs insured their vehicle, a 1994 Toyota
Corolla XL with chassis number EE-100-9524505, with defendant under Private Car
Policy No. PC-37396 for Own Damage, Theft, Third-Party Property Damage and
Third-Party Personal Injury, for the period commencing 26 May 1994 to 26 May
1995. Then on 1 December 1994, defendants received from plaintiff a demand
letter asking for the payment of the proceeds in the amount of PhP409,000.00
under their policy. They alleged the loss of the vehicle and claimed the same to be
covered by the policys provision on "Theft." Defendant disagreed and refused to
pay.
It appears, however, that plaintiff had successfully prosecuted and had been
awarded the amount claimed in this action, in another action (Civil Case No. 95-
1524 entitled Sps. Yves and Maria Teresa Remondeulaz versus Standard Insurance
Company, Inc.), which involved the loss of the same vehicle under the same
circumstances although under a different policy and insurance company. This,
considered with the principle that an insured may not recover more than its
interest in any property subject of an insurance, leads the court to dismiss this
action.
SO ORDERED.
Not in conformity with the trial courts Order, respondents interposed an appeal to
the Court of Appeals (appellate court).
In its Decision dated April 12, 2005, the appellate court reversed and set aside the
Order issued by the trial court, to wit:
Indeed, the trial court erred when it dismissed the action on the ground of double
recovery since it is clear that the subject car is different from the one insured with
another insurance company, the Standard Insurance Company. In this case,
defendant-appellee herein petitioner denied the reimbursement for the lost vehicle
on the ground that the said loss could not fall within the concept of the "theft
clause" under the insurance policy x x x
WHEREFORE, the October 7, 1998 Order of the Regional Trial Court of Makati City,
Branch 63, is hereby REVERSED and SET ASIDE

SO ORDERED.
Petitioner, thereafter, filed a motion for reconsideration against said Decision, but
the same was denied by the appellate court in a Resolution dated July 20, 2006.
Consequently, petitioner filed a petition for review on certiorari before this Court
praying that the appellate courts Decision and Resolution be reversed and set aside.
In its petition, petitioner raises this issue for our resolution:
Whether or not the Court of Appeals decided the case a quo in a way not in accord
with law and/or applicable jurisprudence when it promulgated in favor of the
respondents Remondeulaz, making Paramount liable for the alleged "theft" of
respondents vehicle.
Essentially, the issue is whether or not petitioner is liable under the insurance policy
for the loss of respondents vehicle.
Petitioner argues that the loss of respondents vehicle is not a peril covered by the
policy. It maintains that it is not liable for the loss, since the car cannot be classified
as stolen as respondents entrusted the possession thereof to another person.
We do not agree.
Adverse to petitioners claim, respondents policy clearly undertook to indemnify the
insured against loss of or damage to the scheduled vehicle when caused by theft, to
wit:
SECTION III LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the insured against
loss of or damage to the Scheduled Vehicle and its accessories and spare parts
whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking
or theft;
77
(c) by malicious act;
(d) whilst in transit (including the process of loading and unloading) incidental to
such transit by road, rail, inland waterway, lift or elevator.
Apropos, we now resolve the issue of whether the loss of respondents vehicle falls
within the concept of the "theft clause" under the insurance policy.
In People v. Bustinera,8rll this Court had the occasion to interpret the "theft
clause" of an insurance policy. In this case, the Court explained that when one takes
the motor vehicle of another without the latters consent even if the motor vehicle
is later returned, there is theft there being intent to gain as the use of the thing
unlawfully taken constitutes gain.
Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the
taking of a vehicle by another person without the permission or authority from the
owner thereof is sufficient to place it within the ambit of the word theft as
contemplated in the policy, and is therefore, compensable.
Moreover, the case of Santos v. People10rll is worthy of note. Similarly in Santos,
the owner of a car entrusted his vehicle to therein petitioner Lauro Santos who
owns a repair shop for carburetor repair and repainting. However, when the owner
tried to retrieve her car, she was not able to do so since Santos had abandoned his
shop. In the said case, the crime that was actually committed was Qualified Theft.
However, the Court held that because of the fact that it was not alleged in the
information that the object of the crime was a car, which is a qualifying
circumstance, the Court found that Santos was only guilty of the crime of Theft and
merely considered the qualifying circumstance as an aggravating circumstance in
the imposition of the appropriate penalty. The Court therein clarified the distinction
between the crime of Estafa and Theft, to wit:
The principal distinction between the two crimes is that in theft the thing is taken
while in estafa the accused receives the property and converts it to his own use or
benefit. However, there may be theft even if the accused has possession of the
property. If he was entrusted only with the material or physical (natural) or de facto
possession of the thing, his misappropriation of the same constitutes theft, but if he
has the juridical possession of the thing his conversion of the same constitutes
embezzlement or estafa.11rll
 78

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it
is apparent that the taking of repondents vehicle by Sales is without any consent or
authority from the former.

Records would show that respondents entrusted possession of their vehicle only to
the extent that Sales will introduce repairs and improvements thereon, and not to
permanently deprive them of possession thereof. Since, Theft can also be
committed through misappropriation, the fact that Sales failed to return the subject
vehicle to respondents constitutes Qualified Theft. Hence, since repondents car is
undeniably covered by a Comprehensive Motor Vehicle Insurance Policy that allows
for recovery in cases of theft, petitioner is liable under the policy for the loss of
respondents vehicle under the "theft clause."

All told, Sales act of depriving respondents of their motor vehicle at, or soon after
the transfer of physical possession of the movable property, constitutes theft under
the insurance policy, which is compensable.12rll

WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and
Resolution dated July 20, 2006 of the Court of Appeals are hereby AFFIRMED in
toto.rllbrr

SO ORDERED.
 79

SECOND DIVISION On 26 August 1988, Reynaldo Anzures instituted a complaint against Teresita
SECURITY PACIFIC ASSURANCE G.R. No. 144740 Villaluz (Villaluz) for violation of Batas Pambansa Blg. 22. The criminal information
CORPORATION, was brought before the Regional Trial Court, City of Manila, and raffled off to
Petitioner,
Branch 9, then presided over by Judge Edilberto G. Sandoval, docketed as Criminal
Promulgated:
- versus - Case No. 89-69257.
August 31, 2005
THE HON. AMELIA TRIA-INFANTE, In An Ex-Parte Motion for Preliminary Attachment[3] dated 06 March 1989 was filed by
her official capacity as Presiding Reynaldo Anzures praying that pending the hearing on the merits of the case, a Writ
Judge, Regional Trial Court, Branch 9,
Manila; THE PEOPLE OF THE of Preliminary Attachment be issued ordering the sheriff to attach the properties of
PHILIPPINES, represented by Spouses Villaluz in accordance with the Rules.
REYNALDO and ZENAIDA ANZURES;
and REYNALDO R. BUAZON, In his On 03 July 1989, the trial court issued an Order[4] for the issuance of a writ of
official capacity as Sheriff IV, Regional
Trial Court, Branch 9, Manila, preliminary attachment upon complainants posting of a bond which is hereby fixed
Respondents. atP2,123,400.00 and the Courts approval of the same under the condition
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
prescribed by Sec. 4 of Rule 57 of the Rules of Court.
DECISION
An attachment bond[5] was thereafter posted by Reynaldo Anzures and approved by
the court. Thereafter, the sheriff attached certain properties of Villaluz, which were
CHICO-NAZARIO, J.: duly annotated on the corresponding certificates of title.

Before Us is a petition for review on certiorari, assailing the Decision[1] and
Resolution[2] of the Court of Appeals in CA-G.R. SP No. 58147, dated 16 June
2000 and 22 August 2000, respectively. The said Decision and Resolution declared
that there was no grave abuse of discretion on the part of respondent Judge in
issuing the assailed order dated 31 March 2000, which was the subject in CA-G.R. SP
No. 58147.
THE FACTS
The factual milieu of the instant case can be traced from this Courts decision in G.R.
No. 106214 promulgated on 05 September 1997.
On 25 May 1990, the trial court rendered a Decision[6] on the case acquitting Villaluz
of the crime charged, but held her civilly liable. The dispositive portion of the said
decision is reproduced hereunder:
WHEREFORE, premises considered, judgment is hereby rendered
ACQUITTING the accused TERESITA E. VILLALUZ with cost de
oficio. As to the civil aspect of the case however, accused is
ordered to pay complainant Reynaldo Anzures the sum of TWO
MILLION ONE HUNDRED TWENTY THREE THOUSAND FOUR
HUNDRED (P2,123,400.00) PESOS with legal rate of interest from
December 18, 1987 until fully paid, the sum of P50,000.00 as
attorneys fees and the cost of suit.[7]

Villaluz interposed an appeal with the Court of Appeals, and on 30 April 1992, the
latter rendered its Decision,[8] the dispositive portion of which partly reads:
WHEREFORE, in CA-G.R. CV No. 28780, the Decision of the
Regional Trial Court of Manila, Branch 9, dated May 25, 1990, as
to the civil aspect of Criminal Case No. 89-69257, is hereby
AFFIRMED, in all respects.
The case was elevated to the Supreme Court (G.R. No. 106214), and during its
pendency, Villaluz posted a counter-bond in the amount of P2,500,000.00 issued by
petitioner Security Pacific Assurance Corporation.[9] Villaluz, on the same date[10] of
[11]
the counter-bond, filed an Urgent Motion to Discharge Attachment.
On 05 September 1997, we promulgated our decision in G.R. No. 106214,
affirming in toto the decision of the Court of Appeals.
In view of the finality of this Courts decision in G.R. No. 106214, the private
complainant moved for execution of judgment before the trial court. [12]
On 07 May 1999, the trial court, now presided over by respondent Judge, issued a
Writ of Execution.[13]
Sheriff Reynaldo R. Buazon tried to serve the writ of execution upon Villaluz, but the
latter no longer resided in her given address. This being the case, the sheriff sent a
Notice of Garnishment upon petitioner at its office in Makati City, by virtue of the
counter-bond posted by Villaluz with said insurance corporation in the amount
of P2,500,000.00. As reported by the sheriff, petitioner refused to assume its
obligation on the counter-bond it posted for the discharge of the attachment made
by Villaluz.[14]
Reynaldo Anzures, through the private prosecutor, filed a Motion to Proceed with
Garnishment,[15] which was opposed by petitioner[16] contending that it should not
be held liable on the counter-attachment bond.
80
The trial court, in its Order dated 31 March 2000,[17] granted the Motion to Proceed
with Garnishment. The sheriff issued a Follow-Up of Garnishment[18] addressed to
the President/General Manager of petitioner dated 03 April 2000.
On 07 April 2000, petitioner filed a Petition for Certiorari with Preliminary
Injunction and/or Temporary Restraining Order[19] with the Court of Appeals,
seeking the nullification of the trial courts order dated 31 March 2000 granting the
motion to proceed with garnishment. Villaluz was also named as petitioner. The
petitioners contended that the respondent Judge, in issuing the order dated 31
March 2000, and the sheriff committed grave abuse of discretion and grave errors
of law in proceeding against the petitioner corporation on its counter-attachment
bond, despite the fact that said bond was not approved by the Supreme Court, and
that the condition by which said bond was issued did not happen. [20]
On 16 June 2000, the Court of Appeals rendered a Decision, [21] the dispositive
portion of which reads:
WHEREFORE, premises considered, the Court finds no grave abuse
of discretion on the part of respondent judge in issuing the
assailed order. Hence, the petition is dismissed.
A Motion for Reconsideration[22] was filed by petitioner, but was denied for lack of
merit by the Court of Appeals in its Resolution[23] dated 22 August 2000.
Undeterred, petitioner filed the instant petition under Rule 45 of the 1997 Rules of
Civil Procedure, with Urgent Application for a Writ of Preliminary Injunction and/or
Temporary Restraining Order.[24]
On 13 December 2000, this Court issued a Resolution [25] requiring the private
respondents to file their Comment to the Petition, which they did. Petitioner was
required to file its Reply[26] thereafter.

Meanwhile, on 17 January 2001, petitioner and the spouses Reynaldo and Zenaida
Anzures executed a Memorandum of Understanding (MOU). [27] In it, it was
stipulated that as of said date, the total amount garnished from petitioner had
amounted to P1,541,063.85, and so the remaining amount still sought to be
executed was P958,936.15.[28] Petitioner tendered and paid the amount
of P300,000.00 upon signing of the MOU, and the balance of P658,936.15 was to be
paid in installment at P100,000.00 at the end of each month from February 2001 up
to July 2001. At the end of August 2001, the amount of P58,936.00 would have to
be paid. This would make the aggregate amount paid to the private
respondents P2,500,000.00.[29] There was, however, a proviso in the MOU which
states that this contract shall not be construed as a waiver or abandonment of the
appellate review pending before the Supreme Court and that it will be subject to all
such interim orders and final outcome of said case.
On 13 August 2001, the instant petition was given due course, and the parties were
obliged to submit their respective Memoranda.[30]
ISSUES
The petitioner raises the following issues for the resolution of this Court:
Main Issue - WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR IN AFFIRMING THE 31 MARCH
2000 ORDER OF PUBLIC RESPONDENT JUDGE WHICH ALLOWED
EXECUTION ON THE COUNTER-BOND ISSUED BY THE PETITIONER.
Corollary Issues (1) WHETHER OR NOT THE COURT OF APPEALS
CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY
OF VILLALUZ WAS DISCHARGED WITHOUT NEED OF COURT
APPROVAL OF THE COUNTER-BOND POSTED; and (2) WHETHER
OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THE
ATTACHMENT ON THE PROPERTY OF VILLALUZ WAS DISCHARGED
BY THE MERE ACT OF POSTING THE COUNTER-BOND.
81
THE COURTS RULING
Petitioner seeks to escape liability by contending, in the main, that the writ of
attachment which was earlier issued against the real properties of Villaluz was not
discharged. Since the writ was not discharged, then its liability did not accrue. The
alleged failure of this Court in G.R. No. 106214 to approve the counter-bond and to
cause the discharge of the attachment against Villaluz prevented the happening of a
condition upon which the counter-bonds issuance was premised, such that
petitioner should not be held liable thereon.[31]
Petitioner further asserts that the agreement between it and Villaluz is not a
suretyship agreement in the sense that petitioner has become an additional debtor
in relation to private respondents. It is merely waiving its right of excussion[32] that
would ordinarily apply to counter-bond guarantors as originally contemplated in
Section 12, Rule 57 of the 1997 Rules.
In their Comment,[33] the private respondents assert that the filing of the counter-
bond by Villaluz had already ipso facto discharged the attachment on the properties
and made the petitioner liable on the bond. Upon acceptance of the premium,
there was already an express contract for surety between Villaluz and petitioner in
the amount ofP2,500,000.00 to answer for any adverse judgment/decision against
Villaluz.
Petitioner filed a Reply[34] dated 09 May 2001 to private respondents Comment,
admitting the binding effect of the bond as between the parties thereto. What it did
not subscribe to was the theory that the attachment was ipso facto or automatically
discharged by the mere filing of the bond in court. Such theory, according to
petitioner, has no foundation. Without an order of discharge of attachment and
approval of the bond, petitioner submits that its stipulated liability on said bond,
premised on their occurrence, could not possibly arise, for to hold otherwise would
be to trample upon the statutorily guaranteed right of the parties to contractual
autonomy.

Based on the circumstances present in this case, we find no compelling reason to
reverse the ruling of the Court of Appeals.
Over the years, in a number of cases, we have made certain pronouncements about
counter-bonds.
In Tijam v. Sibonghanoy,[35] as reiterated in Vanguard Assurance Corp. v. Court of
Appeals,[36] we held:
. . . [A]fter the judgment for the plaintiff has become executory
and the execution is returned unsatisfied, as in this case, the
liability of the bond automatically attaches and, in failure of the
surety to satisfy the judgment against the defendant despite
demand therefore, writ of execution may issue against the surety
to enforce the obligation of the bond.
In Luzon Steel Coporation v. Sia, et al.: [37]
. . . [C]ounterbonds posted to obtain the lifting of a writ of
attachment is due to these bonds being security for the payment
of any judgment that the attaching party may obtain; they are
thus mere replacements of the property formerly attached, and
just as the latter may be levied upon after final judgment in the
case in order to realize the amount adjudged, so is the liability of
the countersureties ascertainable after the judgment has become
final. . . .
In Imperial Insurance, Inc. v. De Los Angeles,[38] we ruled:
. . . Section 17, Rule 57 of the Rules of Court cannot be construed
that an execution against the debtor be first returned unsatisfied
even if the bond were a solidary one, for a procedural may not
amend the substantive law expressed in the Civil Code, and
further would nullify the express stipulation of the parties that the
suretys obligation should be solidary with that of the defendant.
82
In Philippine British Assurance Co., Inc. v. Intermediate Appellate Court,[39] we
further held that the counterbond is intended to secure the payment of any
judgment that the attaching creditor may recover in the action.
Petitioner does not deny that the contract between it and Villaluz is one of surety.
However, it points out that the kind of surety agreement between them is one that
merely waives its right of excussion. This cannot be so. The counter-bond itself
states that the parties jointly and severally bind themselves to secure the payment
of any judgment that the plaintiff may recover against the defendant in the action.
A surety is considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable.[40]
Suretyship is a contractual relation resulting from an agreement whereby one
person, the surety, engages to be answerable for the debt, default or miscarriage of
another, known as the principal. The suretys obligation is not an original and direct
one for the performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the contract of a
surety is in essence secondary only to a valid principal obligation, his liability to the
creditor or promise of the principal is said to be direct, primary and absolute; in
other words, he is directly and equally bound with the principal. The surety
therefore becomes liable for the debt or duty of another although he possesses no
direct or personal interest over the obligations nor does he receive any benefit
therefrom.[41]
In view of the nature and purpose of a surety agreement, petitioner, thus, is barred
from disclaiming liability.
Petitioners argument that the mere filing of a counter-bond in this case cannot
automatically discharge the attachment without first an order of discharge and
approval of the bond, is lame.

Under the Rules, there are two (2) ways to secure the discharge of an attachment.
First, the party whose property has been attached or a person appearing on his
behalf may post a security. Second, said party may show that the order of
attachment was improperly or irregularly issued.[42] The first applies in the instant
case. Section 12, Rule 57,[43]provides:
SEC. 12. Discharge of attachment upon giving counter-bond. After
a writ of attachment has been enforced, the party whose property
has been attached, or the person appearing on his behalf, may
move for the discharge of the attachment wholly or in part on the
security given. The court shall, after due notice and hearing, order
the discharge of the attachment if the movant makes a cash
deposit, or files a counter-bond executed to the attaching party
with the clerk of the court where the application is made, in an
amount equal to that fixed by the court in the order of
attachment, exclusive of costs. But if the attachment is sought to
be discharged with respect to a particular property, the counter-
bond shall be equal to the value of that property as determined
by the court. In either case, the cash deposit or the counter-bond
shall secure the payment of any judgment that the attaching party
may recover in the action. A notice of the deposit shall forthwith
be served on the attaching party. Upon the discharge of an
attachment in accordance with the provisions of this section, the
property attached, or the proceeds of any sale thereof, shall be
delivered to the party making the deposit or giving the counter-
bond, or to the person appearing on his behalf, the deposit or
counter-bond aforesaid standing in place of the property so
released. Should such counter-bond for any reason be found to be
or become insufficient, and the party furnishing the same fail to
file an additional counter-bond, the attaching party may apply for
a new order of attachment.
It should be noted that in G.R. No. 106214, per our Resolution dated 15 January
1997,[44] we permitted Villaluz to file a counter-attachment bond. On 17 February
83
1997,[45] we required the private respondents to comment on the sufficiency of the
counter-bond posted by Villaluz.
It is quite palpable that the necessary steps in the discharge of an attachment upon
giving counter-bond have been taken. To require a specific order for the discharge
of the attachment when this Court, in our decision in G.R. No. 106214, had already
declared that the petitioner is solidarily bound with Villaluz would be mere
surplusage. Thus:
During the pendency of this petition, a counter-attachment bond
was filed by petitioner Villaluz before this Court to discharge the
attachment earlier issued by the trial court. Said bond amounting
to P2.5 million was furnished by Security Pacific Assurance, Corp.
which agreed to bind itself jointly and severally with petitioner for
any judgment that may be recovered by private respondent
against the former.[46]
We are not unmindful of our ruling in the case of Belisle Investment and Finance
Co., Inc. v. State Investment House, Inc.,[47] where we held:
. . . [T]he Court of Appeals correctly ruled that the mere posting of
a counterbond does not automatically discharge the writ of
attachment. It is only after hearing and after the judge has
ordered the discharge of the attachment if a cash deposit is made
or a counterbond is executed to the attaching creditor is filed,
that the writ of attachment is properly discharged under Section
12, Rule 57 of the Rules of Court.
The ruling in Belisle, at first glance, would suggest an error in the assailed ruling of
the Court of Appeals because there was no specific resolution discharging the
attachment and approving the counter-bond. As above-explained, however,
consideration of our decision in G.R. No. 106214 in its entirety will readily show that
this Court has virtually discharged the attachment after all the parties therein have
been heard on the matter
 84

On this score, we hew to the pertinent ratiocination of the Court of Appeals as Insurance companies are prone to invent excuses to avoid their just obligation.[50] It
regards the heretofore cited provision of Section 12, Rule 57 of the 1997 Rules of seems that this statement very well fits the instant case.
Civil Procedure, on the discharge of attachment upon giving counter-bond:
WHEREFORE, in view of all the foregoing, the Decision and Resolution of the Court
of Appeals dated 16 June 2000 and 22 August 2000, respectively, are both
AFFIRMED. Costs against petitioner.
. . The filing of the counter-attachment bond by petitioner Villaluz
has discharged the attachment on the properties and made the
SO ORDERED.
petitioner corporation liable on the counter-attachment bond.
This can be gleaned from the DEFENDANTS BOND FOR THE
DISSOLUTION OF ATTACHMENT, which states that Security Pacific
Assurance Corporation, as surety, in consideration of the
dissolution of the said attachment jointly and severally, binds
itself with petitioner Villaluz for any judgment that may be
recovered by private respondent Anzures against petitioner
Villaluz.

The contract of surety is only between petitioner Villaluz and

petitioner corporation. The petitioner corporation cannot escape
liability by stating that a court approval is needed before it can be
made liable. This defense can only be availed by petitioner
corporation against petitioner Villaluz but not against third
persons who are not parties to the contract of surety. The
petitioners hold themselves out as jointly and severally liable
without any conditions in the counter-attachment bond. The
petitioner corporation cannot impose requisites before it can be
made liable when the law clearly does not require such
requisites to be fulfilled.[48] (Emphases supplied.)

Verily, a judgment must be read in its entirety, and it must be construed as a whole
so as to bring all of its parts into harmony as far as this can be done by fair and
reasonable interpretation and so as to give effect to every word and part, if
possible, and to effectuate the intention and purpose of the Court, consistent with
the provisions of the organic law.[49]