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G.R. No.

119599, March 20, 1997


MALAYAN INSURANCE CORPORATION, PETITIONER, VS. THE HON. COURT OF APPEALS AND TKC MARKETING
CORPORATION, RESPONDENTS.

DECISION
ROMERO, J.:

FACTS
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya
bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage
from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by
petitioner Malayan Insurance Corporation (MIC) for which it issued two (2) Marine Cargo Policy Nos. M/LP
97800305 amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated
September 1989.

Enroute to Manila from Durban, South Africa, the civil authorities arrested and detained it because of a lawsuit
on a question of ownership and possession. TKC notified MIC on October 4, 1989 of the arrest of the vessel
and made a formal claim for the amount of US$916,886.66 for non-delivery of the cargo. MIC denied the
claim arguing that the arrest of the vessel by civil authority was not a peril covered by the policies.

TKC transshiped the goods and asked MIC to extend the insurance coverage until actual transhipment, to
which MIC agreed. However, TKC was forced to sell the goods at a lower price because it will not stand the
time of voyage due to its perishable nature. Thereafter, TKC reduced its claim against MIC to US$448,806.09
(or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private
respondent's loss after the proceeds of the sale were deducted from the original claim of $916,886.66 or
P20,184,159.55.

MIC maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an
excepted risk under the marine insurance policies. This prompted TKC to file a complaint for damages praying
that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it paid
for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private respondent asked
for moral damages amounting to P200,000.00, exemplary damages amounting to P200,000.00 and attorney's
fees equivalent to 30% of what will be awarded by the court.

RTC ruled in favor of TKC. CA affirmed.

ISSUE
Is arrest by civil authorities via ordinary legal processes covered under the Perils clause of the insurance
policy?

HELD
YES. Petitioner MIC is overly straining its interpretation of the provisions of the policy in order to avoid being
liable for private respondent's claim.

This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned
by executive or political acts of government which is interpreted as not referring to those caused by ordinary
legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest
occasioned by executive or political acts of the government and naturally, also those caused by ordinary
legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which
now includes in the coverage risks of arrest due to executive or political acts of a government but then still
excludes "arrests" occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses
should also have included "arrests" previously excluded from the coverage of the F.C. & S. Clause.

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd
conclusion or to render the policy nonsensical, should, by all means, be avoided. Likewise, it must be borne
in mind that such contracts are invariably prepared by the companies and must be accepted by the insured
in the form in which they are written. Any construction of a marine policy rendering it void should be avoided.
Such policies will, therefore, be construed strictly against the company in order to avoid a forfeiture, unless no
other result is possible from the language used.

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If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract
by special proviso, exception, or exemption, it should express such limitation in clear and unmistakable
language. Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1
of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by
ordinary judicial process was expressly indicated as an exception in the subject policies, there would have
been no controversy with respect to the interpretation of the subject clauses.

Be that as it may, exceptions to the general coverage are construed most strongly against the company.
Even an express exception in a policy is to be construed against the underwriters by whom the policy is
framed, and for whose benefit the exception is introduced.

An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into
the contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result
from the natural and reasonable meaning of language in the policy. Where restrictive provisions are open to
two interpretations, that which is most favorable to the insured is adopted.

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against
the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its obligations.

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

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G.R. No. L-16215, June 29, 1963
SIMEON DEL ROSARIO, PLAINTIFF AND APPELLEE VS. THE EQUITABLE INSURANCE AND "CASUALTY CO., INC.,
DEFENDANT AND APPELLANT.

DECISION
PAREDES, J.:

FACTS
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident
Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee,
binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured.

On February 24, 1957, the insured Francisco del Ecsario alias Paquito Bolero, while on board the motor launch
"ISLAMAM together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to
jump off said launch on account of fire which broke out on said vessel, resulting to the death by drowning, of
the insured and beneficiary in the waters of Jolo.

Simeon del Rosario, father of the insured, filed a claim for payment with defendant company, and on
September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1
of Part 1 of the policy.

Atty. Vicente J. Francisco, wrote defendant that said amount was not the correct one. To him, it should be
P1500.00 under Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured
occurred under the circumstances similar to that provided under the aforecited section which reads: Injury
sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the
insured is travelling as a fare-paying passenger P1.500.00.

Defendant referred the matter to the Insurance Commissioner who rendered that the liability of the company
was only P1,000.00, pursuant to Section 1, Part 1 which reads: Injury sustained other than those specified
below unless excepted hereinafter P1.000.00. Thus, defendant refused to pay more than P1,000.00. In a
subsequent letter to the defendant, Atty. Francisco asked for P3,000.00 which the defendant refused to pay.
Hence, a complaint for the recovery of the balance of P2,000;00 more was instituted with the CFI of Rizal
(Pasay City, Branch VIII), praying for a further sum of P10,000.00 as attorney's fees, expenses of litigation and
costs.

RTC rendered its decision, thus: In the face of the policy Exhibit 'A' itself, death by drowning is a ground for
recovery a part from the bodily injury because death by bodily injury is covered by Part I of the policy while
death by drowning is covered by Part VI thereof. But while the policy mentions specific amounts that may be
recovered for death for bodily injury, yet, there is no specific amount mentioned in the policy for death thru
drowning although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the
defendant has bound itself to pay P1,000.00 to P3,000.00 as indemnity for the death of the insured but the
policy does not positively state any definite amount that may be recovered in case of death by drowning,
there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured
and strictly against the insurer so as to allow a greater indemnity. Plaintiff is therefore entitled to recover
P3,000.00. The defendant had already paid the amount of P1,000.00 to the plaintiff so that there still remains
a balance of P2,000.00 of the amount to which plaintiff is entitled to recover under the policy exhibit. However,
since it is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court
cannot award plaintiff's claim for attorney's fees and expenses of litigation.

CA forwarded the matter to SC as it is of purely legal question.

ISSUE
How much may the plaintiff recover?

HELD
P3000. 00. All the parties agree that indemnity has to be paid. The conflict centers on how much should the
indemnity be. We believe that under the proven facts and circumstances, the findings and conclusions of the
trial court are well taken, for they are supported by the generally accepted principles or rulings on insurance,
which enunciate that where there is an ambiguity with respect to the terms and conditions of a policy, the
same will be resolved against the one responsible thereof. It should be recalled in this connection, that
generally, the insured, has little, if any, participation in the preparation of the policy, together with the drafting
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of its terms and conditions. The interpretation of, obscure stipulations in a contract should not favor the party-
who caused the obscurity (Art. 1377, N.C.C.), which, "in the case at bar, is the insurance company.

And so it has been generally held that the 'terms in an insurance policy, which are ambiguous, equivocal or
uncertain * * * are to be construed strictly against, the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved,'
(29 Am. Jur. 181) and the reason for this rule is that the 'insured usually has no voice in the selection or
arrangement of the words employed and that the language of the contract is selected with great care and
deliberation by expert and legal advisers employed by, and acting exclusively in the interest of, the insurance
company' (44 C. J. S. 1174). Calanoc vs. Court of Appeals, et al. 98 Phil., 79.

Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which
allows the greater indemnity will prevail. (L'Engel vs. Scotish Union & Nat. F. Ins. Co. 48 Fla. 82, 37 So. 462, 67
LRA 581, 111 Am. St. Rep. 70, 5 Ann. Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and the
appellant insurance company agreed to pay P1,000.00 to P3,000.00, as indemnity for death of the insured.

WHEREFORE, The judgment appealed from is hereby AFFIRMED. With out costs.

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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.

DECISION
DAVIDE, JR., J.:

FACTS
The plaintiff was insured by the defendants and an insurance policy was issued. 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. 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 Management Systems with
the plaintiff by virtue of an Agreement executed on August 7, 1983. 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.

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. The Fiscal of Pasay City then filed an information
charging the aforesaid persons with the said crime.

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, specifically under
page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as follows:
The company shall not be liable under this policy in respect of xxx (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. xxx.

Plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer,
employee, x x x trustee or authorized representative x x x at the time of the robbery.

RTC and CA held that there should be recovery.

ISSUE
The resolution of the matter hinges on the question: Do Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy?

HELD
THEY QUALIFY AS AUTHORIZED REPRESENTATIVES.

There is marked disagreement between the parties on the correct meaning of the terms "employee" and
"authorized representatives. It is clear to us that insofar as Fortune is concerned, it was its intention to exclude
and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any 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.

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are
"labor-only" contracts. Producers; however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and Unicorn Security
Services that the drivers and the security guards each shall supply to Producers are not the latter's employees,
it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in
the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. And there is a paucity

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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.

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance
policy.

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. Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general 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 into consideration its purpose and always in accordance with the general principles of
insurance law.

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 have found it necessary to fill up their policies with
countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all
losses due to the hazards insured against. Persons frequently excluded under such provisions are those in the
insured's service and employment. The purpose of the exception is to guard against liability should the theft
be committed by one having unrestricted access to the property. In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in common speech. The terms "service" and
"employment" are generally associated with the idea of selection, control, and compensation.

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the
insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of
liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the
insurer from non-compliance with its obligation. 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 enlarged or
diminished by judicial construction. An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's
liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.

WHEREFORE, the instant petition is hereby GRANTED.

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G.R. No. 75605, January 22, 1993
RAFAEL (REX) VERENDIA, PETITIONER, VS. COURT OF APPEALS AND FIDELITY & SURETY CO. OF THE PHILIPPINES,
RESPONDENT.

G.R. NO. 76399. JANUARY 22, 1993


FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., PETITIONER, VS. RAFAEL VERENDIA AND THE COURT OF APPEALS,
RESPONDENTS.

DECISION
MELO, J.:

FACTS
The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance of
its Fire Insurance Policy effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's
residential building in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad &
Savings Bank. Verendia also insured the same building with two other companies, namely, The Country
Bankers Insurance for P56,000.00 expiring on May 12, 1981, and The Development Insurance for P400,000.00
expiring on June 30, 1981.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire on
the early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands,
refused payment under its policy, thus prompting Verendia to file a complaint with the CFI of Quezon City,
praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The
complaint was later amended to include Monte de Piedad as an "unwilling defendant.

Fidelity, among other things, averred that the policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was leased under a contract executed on
June 25, 1980 to a certain Roberto Garcia, when actually it was Marcelo Garcia who was the lessee.

Trial court rendered a decision ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial
court ruled that Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance.
Appellate court reversed for the following reasons: (a) there was no misrepresentation concerning the lease
for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the
policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by
Fidelity as shown by its conduct in attempting to settle the claim of Verendia.

ISSUE
May Verendia recover from the insurance company?

HELD
NO. Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee",
inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor
of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with
two other insurance companies for a total coverage of around P900,000, and created a dead-end for the
adjuster by the disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the
insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the
insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de
Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and strictly against the insurer company which
usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract
to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed
against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is
expressed in terms that are clear and unambiguous, that all 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, or if any
fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form
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of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the
absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs. Court of Appeals, supra).
Worse yet, by presenting a false lease contract, Verendia reprehensibly disregarded the principle that
insurance contracts are uberrimae fidae and demand the most abundant good faith (Velasco vs. Apostol,
173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity
bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77.
While the said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had
signed it. It is even incomplete as the blank spaces for a witness and his address are not filled up. More
significantly, the same receipt states that Verendia had received the aforesaid amount. However, that
Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed the
complaint for the full amount of P385,000,00 stated in the policy. It might be that there had been efforts to
settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence
as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting the will
of the Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the
decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the
trial court is hereby REINSTATED and UPHELD.

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G.R. No. 94071, March 31, 1992
NEW LIFE ENTERPRISES AND JULIAN SY, PETITIONERS, VS. HON. COURT OF APPEALS, EQUITABLE INSURANCE
CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. AND WESTERN GUARANTY CORPORATION,
RESPONDENTS.

DECISION
REGALADO, J.:

FACTS
Julian Sy and Jose Sy Bang have formed a business partnership in the name of New Life Enterprises in the City
of Lucena. The partnership engaged in the sale of construction materials at its place of business, a two storey
building situated at Iyam, Lucena City. Julian Sy insured the stocks in trade under fire insurance policy with
Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc., and Equitable Insurance Corporation,
respectively.

Due to some electrical problems, the building occupied by the New Life Enterprises was gutted by fire at
about 2:00 o'clock in the morning of October 19, 1982. As the stocks in trade inside said building were insured
against fire in the total amount of P1,550,000.00, Julian Sy went to the agent of Reliance Insurance whom he
asked to accompany him to the office of the company so that he can file his claim. He averred that in support
of his claim, he submitted the fire clearance, the insurance policies and inventory of stocks. He further testified
that the three insurance companies are sister companies, and as a matter of fact when he was following-up
his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and if said
company agrees to pay, they would also pay. The same treatment was given him by the other insurance
companies. Ultimately, the three insurance companies denied plaintiffs' claim for payment.

Petitioner filed separate civil actions against the former before the Regional Trial Court of Lucena City which
ruled in its favor, ordering the defendants to pay the claims of the petitioner. Court of Appeals reversed said
judgment of the trial court, hence this petition.

ISSUE
The crux herein is were Conditions Nos. 3 and 27 of the insurance contracts violated by petitioners thereby
resulting in their forfeiture of all the benefits thereunder?

HELD
YES. Condition No. 3 reads: The insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless such notice
be given and the particulars of such insurance or insurances be stated therein or endorsed on this policy
pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of loss or damage is not more than
P200,000.00.

The coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were
neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all
benefits thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon
Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the
additional insurance coverage and that they were not informed about the requirement that such other or
additional insurance should be stated in the policy, as they have not even read said policies. [8] These
contentions cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the
insurer any other insurance and its particulars which he may have effected on the same subject matter. The
knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is
not the "notice" that would estop the insurers from denying the claim. Besides, the so-called theory of imputed
knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious
applicability here has likewise been roundly refuted by respondent court whose factual findings we find
acceptable.

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Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez
regarding the co-insurance on the property, he contradicted himself by inexplicably claiming that he had
not read the terms of the policies; that Yap Dam Chuan could not likewise have obtained such knowledge
for the same reason, aside from the fact that the insurance with Western was obtained before those of
Reliance and Equitable; and that the conclusion of the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was an agent for
both companies which also had the same insurance claims adjuster. Availment of the services of the same
agents and adjusters by different companies is a common practice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear and plain or readily understandable by
an ordinary reader thereof, there is absolutely no room for interpretation or construction anymore. [9] Courts
are not allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy
are ambiguous, equivocal, or uncertain.[10] The parties must abide by the terms of the contract because such
terms constitute the measure of the insurer's liability and compliance therewith is a condition precedent to
the insured's right of recovery from the insurer.[11]

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally
in favor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts,
are to be construed according to the sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense.[12] Moreover, obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.[13]

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care
and prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms
of the policy is implied from his failure to express any disagreement with what is provided for.[14] It may be true
that the majority rule, as cited by petitioners, is that insured persons may accept policies without reading
them, and that this is not negligence per se.[15] But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering
that he has been a businessman since 1965[16] and the contract concerns indemnity in case of loss in his
money-making trade of which important consideration he could not have been unaware as it was precisely
the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: [17] "x x x 'And
considering the terms of the policy which required the insured to declare other insurances, the statement in
question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were
no other insurance on the property. x x x `The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. 69,
Insurance Act). Such misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union
Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies is not open
to doubt. x x x "The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance
and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the
situation in which a fire would be profitable to the insured. According to Justice Story: The insured has no right
to complain, for he assents to comply with all the stipulations on his side, in order to entitle himself to the
benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the
performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for
those stipulations, would not have been entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., [18] we held: "It is not
disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of
Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was
deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have
hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud.

"As the insurance policy against fire expressly required that notice should be given by the insured of other
insurance upon the same property, the total absence of such notice nullifies the policy.

Page 10 of 36
To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need
merely to turn to Policy Condition No. 15 thereof, which reads in part: "15. x x x if any false declaration be
made or used in support thereof, x x x all benefits under this Policy shall be forfeited x x x.

Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint
for recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had
elapsed from petitioners' receipt of the insurers' letter of denial on November 29, 1982 a violation of Policy
Condition No. 27 of their insurance contract with Reliance.

"It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2
SCRA 945 [1961]) to wit: 'The condition contained in an insurance policy that claims must be presented within
one year after rejection is not merely a procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet disappeared.

"In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity of
bringing suits against the Insurer within one year from the rejection of the claim. The contention of the
respondents that the one-year prescriptive period does not start to run until the petition for reconsideration
had been resolved by the insurer, runs counter to the declared purpose for requiring that an action or suit be
filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the claim. To uphold
respondents' contention would contradict and defeat the very principle which this Court had laid down.
Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence
which may be considered against them is destroyed.

"While in the Eagle Star case (96 Phil. 701), this Court uses the phrase final rejection, the same cannot be
taken to mean the rejection of a petition for reconsideration as insisted by respondents. Such was clearly not
the meaning contemplated by this Court. The insurance policy in said case provides that the insured should
file his claim first, with the carrier and then with the insurer. The final rejection being referred to in said case
is the rejection by the insurance company.[22]

Furthermore, assuming arguendo, that petitioners felt the legitimate need to be clarified as to the policy
condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter
dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The one-year
prescriptive period was yet to expire on November 29, 1983 or about eight (8) months from the receipt of the
clarificatory letter, but petitioners let the period lapse without bringing their action in court. We accordingly
find no "peculiar circumstances" sufficient to relax the enforcement of the one-year prescriptive period and
we, therefore, hold that petitioners' claim was definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of Appeals, the same is
hereby AFFIRMED.

Page 11 of 36
G.R. No. L-43706, November 14, 1986
NATIONAL POWER CORPORATION, PETITIONER, VS. COURT OF APPEALS AND PHILIPPINE AMERICAN GENERAL
INSURANCE CO., INC., RESPONDENTS.

DECISION
PARAS, J.:

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

The condition of the bond reads: "The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC. under this bond will expire One (1) year from final Completion and Acceptance and said bond will be
cancelled 30 days after its expiration, unless surety is notified of any existing obligation thereunder."

It was in correlation with the provisions of the construction contract between Petitioner and Far Eastern
Electric, Inc. particularly the following provisions of the Specifications, to wit: "(b) x x x It is expressly agreed
that in the event the Corporation takes over the work from the Contractor, the latter and his bondsmen shall
continue to be liable under this contract for any expense in the completion of the work in excess of the
contract price and the bond filed by the Contractor shall be answerable for the same and for any and all
damages that the Corporation may suffer as a result thereof.

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

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC notified Philamgen that
FEEI had an outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and
demanded the remittance of the amount of the surety bond to answer for the cost of completion of the
work. In reply, Philamgen requested for a detailed statement of account, but after receipt of the same,
Philamgen did not pay as demanded but contended instead that its liability under the bond has expired on
September 20, 1964 and claimed that no notice of any obligation of the surety was made within 30 days after
its expiration. NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the
work abandoned; P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only Philamgen
answered while FEEI was declared in default.

Trial court rendered judgment in favor of NPC. On appeal by Philamgen, the Court of Appeals reversed the
lower court's decision and dismissed the complaint. Hence this petition.

ISSUE
Did petitioner comply with the notice requirement as a condition in order to hold the surety liable under the
bond?

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

Page 12 of 36
The surety bond must be read in its entirety and together with the contract between NPC and the
contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations
cannot be segregated and then made to control.

Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in
favor of its beneficiary.

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

PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution dated April 19, 1976 of the Court
of Appeals are hereby SET ASIDE, and a new one is hereby rendered reinstating the decision of the Court of
First Instance of Manila.

Page 13 of 36
G.R. No. L-31845, April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, PETITIONER, VS. HONORABLE COURT OF APPEALS, RESPONDENTS.

[G.R. NO. L-31878. APRIL 30, 1979]


LAPULAPU D. MONDRAGON, PETITIONER, VS. HON. COURT OF APPEALS AND NGO HING, RESPONDENTS.

DECISION
DE CASTRO, J.:

FACTS
On March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance
Company (Pacific Life) for a twenty-year endowment policy in the amount of P50,000.00 on the life of his one-
year old daughter Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote the data on the application form which
was signed by private respondent Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going
over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized
agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt (Exhibit E)
was issued to private respondent Ngo Hing.

On April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance application
(Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can consider the same under the Juvenile Triple
Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
Company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back
Pacific Life again strongly recommending the approval of the 20-year endowment life insurance.

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of
broncho-pneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance
of Cebu, which rendered the adverse decision as earlier referred to against both petitioners.

ISSUES
1. Did the binding deposit receipt constitute a temporary contract of the life insurance in question?
2. Did Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void
the aforesaid deposit receipt?

HELD
YES. The binding deposit receipt is intended to be merely a provisional or temporary insurance contract and
only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant
was insurable on standard rates; (2) that if the company does not accept the application and offers to issue
a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to
the standard rates, and the company disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance
is merely conditional, and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself.

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life
disapproved the insurance application in question on the ground that it is not offering the twenty-year
endowment insurance policy to children less than seven years of age. What it offered instead is another plan
Page 14 of 36
known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting
of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment
life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have
been no insurance contract duly perfected between them. Accordingly, the deposit paid by private
respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents. x x x. The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing to
be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take
effect. There can be no contract of insurance unless the minds of the parties have met in agreement.

We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In the first place, there was no
contract perfected between the parties who had no meeting of their minds. Private respondent, being an
authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company
does not offer the life insurance applied for. When he filed the insurance application in dispute, private
respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his proposal that the
insurance company starts to offer the 20-year endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from
being an insurance agent and an office associate of petitioner Mondragon, private respondent Ngo Hing
must have known and followed the progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life insurance application.

YES. Private respondent had deliberately concealed the state of health and physical condition of his
daughter Helen Go. When private respondent supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor disguised. Nonetheless, private respondent, in
apparent bad faith, withheld the fact material to the risk to be assumed by the insurance company. As an
insurance agent of Pacific Life, he ought to know, as he surely must have known, his duty and responsibility to
supply such a material fact. Had he divulged said significant fact in the insurance application form, Pacific
Life would have verified the same and would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith (uberrima fides meaning good faith; absolute and
perfect candor or openness and honesty; the absence of any concealment or deception, however slight
[Black's Law Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer (Fieldman's
Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which
a party knows and ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional,
the concealment entitles the insurer to rescind the contract of insurance (Section 26, id.; Yu Pang Cheng vs.
Court of Appeals, et al., 105 Phil. 930; Saturnino vs. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with the non-
compliance of the conditions provided in the binding receipt, and concealment, as legally defined, having
been committed by herein private respondent.

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

Page 15 of 36
G.R. No. 124050, June 19, 1997
MAYER STEEL PIPE CORPORATION AND HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, PETITIONERS, VS.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. AND THE CHARTER INSURANCE
CORPORATION, RESPONDENTS.

DECISION
PUNO, J.:

FACTS
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014,
MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. Prior to the shipping, petitioner Mayer
insured the pipes and fittings against all risks with private respondents South Sea Surety and Insurance Co.,
Inc. (South Sea) and Charter Insurance Corp. (Charter). When the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the
balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused
to pay because the insurance surveyor's report allegedly showed that the damage is a factory defect. Thus
an action against private respondents to recover said sum was filed by the petitioners.

Trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents
are "all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are
those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the
insured. Appellate court affirmed the finding of the trial court that the damage is not due to factory defect
and that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer.
However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription.
It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only
on April 17, 1986, more than two years from the time the goods were unloaded from the vessel. Section 3(6)
of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when
the goods should have been delivered." Respondent court ruled that this provision applies not only to the
carrier but also to the insurer. Hence this petition.

ISSUE
Did the claim against the insurer already prescribe?

HELD
NO. Under the afore-mentioned COGSA provision, only the carrier's liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on
the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage
of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is
governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the other cases cited therein does not
support respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is
filed against the carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery
of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn,
filed a third-party complaint against the carrier for reimbursement of the amount it paid to the shipper. The
insurer filed the third-party complaint on January 9, 1978, more than one year after delivery of the goods on
December 17, 1977. The court held that the Insurer was already barred from filing a claim against the carrier
because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year
after delivery of the goods or the date when the goods should have been delivered. The court said that "the
coverage of the Act includes the insurer of the goods.

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed
a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was
Page 16 of 36
the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks" insurance
policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the
consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods
by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against
the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no
longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. An
insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to
indemnify another for loss or damage which he may suffer from a specified peril. An "all risks" insurance policy
covers all kinds of loss other than those due to willful and fraudulent act of the insured. Thus, when private
respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in
case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with
Article 1144 of the New Civil Code.

IN VIEW WHEREOF, the petition is GRANTED.

Page 17 of 36
G.R. No. 68037, July 29, 1992
PARAMOUNT INSURANCE CORPORATION, PETITIONER, VS. HON. MAXIMO M. JAPZON, PRESIDING JUDGE, BR.
36, RTC, MANILA; CITY SHERIFF AND DEPUTY SHERIFFS NESTOR MACABILIN & TEODORO EPISCOPE, PUBLIC
RESPONDENTS, JOSE LARA AND ARSENIO PAED, PRIVATE RESPONDENTS.

DECISION
ROMERO, J.:

FACTS
Jose Lara contracted the services of a passenger jeepney with Plate No. PUJ K5-826, owned and operated
by Willy Garcia (Garcia for brevity), to transport his family, relatives and friends from Manila to Pangasinan.
The said jeepney was then driven by Emilio Macasieb (Macasieb for brevity).

On the very same date, within the vicinity of Barangay Parsolingan in Gerona, Tarlac, a Ford truck F-600 with
Plate No. WL-628, then driven by Willy Manuel (Manuel for brevity) while cruising the National Highway on its
way to Manila, overtook an unidentified motor vehicle and in the process hit and sideswept the said
passenger jeepney then driven by Macasieb. As a consequence of such mishap, the two (2) passengers of
the jeepney, namely: Jose Lara (Lara for brevity) and Arsenio Paed (Paed for brevity) sustained physical
injuries of varying degrees. Specifically, Lara suffered serious physical injuries resulting in the amputation of his
right arm while Paed suffered serious physical injuries which incapacitated him to work for more than two (2)
weeks. Aside from bodily injuries suffered by its passengers, both vehicles suffered minor damages at their
respective points of impact. The insurer of said truck is herein petitioner Paramount Surety and Insurance Co.
Inc.

Accordingly, Lara and Paed filed on September 17, 1978 a civil case for damages docketed as Civil Case
No. 82-4416 against Garcia, Macasieb, Manuel, Natividad, and impleaded Paramount, the latter as insurer
of the Ford truck.

ISSUE
What is the measure of petitioner insurance corporations liability?

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

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

Page 18 of 36
G.R. No. 116940, June 11, 1997
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., PETITIONER, VS. COURT OF APPEALS AND
FELMAN SHIPPING LINES, RESPONDENTS.

DECISION
BELLOSILLO, J.:

FACTS
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink
bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines,
Inc., Cebu. The shipment was insured with petitioner Philippine American General Insurance Co., Inc.
(PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.

MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At
around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del
Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink
bottles.

The consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for
recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV Asilda.
Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which
paid its claim of P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed
any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of
money and damages. In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and
its cargo were due to the vessels unseaworthiness as she was put to sea in an unstable condition. It further
alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to take
appropriate measures to proceed to a nearby port or beach after the vessel started to list.

On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over MV Asilda together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce.

Trial court rendered judgment in favor of FELMAN stating that MV Asilda was seaworthy when it left the port
of Zamboanga, thus the loss of the vessel and its entire shipment could only be attributed to either a fortuitous
event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the
negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.
Lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the
vessels seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong
and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so
as to permit it to bring an action in court as a subrogee.

Appellate court denied the claim of PHILAMGEN on the ground that the assureds implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights
and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonment had
absolved the shipowner/agent from liability under the limited liability rule.

ISSUES
1. Was MV Asilda seaworthy when it left the port of Zamboanga?
2. Should the limited liability under Art. 587 of the Code of Commerce apply; and,
3. Was PHILAMGEN properly subrogated to the rights and legal actions which the shipper had against
FELMAN, the shipowner.
HELD
NO. The sinking of MV Asilda was due to its unseaworthiness even at the time of its departure from the port
of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision
on the part of the shipowner could have prevented this fatal miscalculation.
Page 19 of 36
NO. As such unseaworthy, FELMAN was equally negligent. It cannot therefore escape liability through the
expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.

YES. In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy
with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that
rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid
the claim of the bottling firm there was in effect a voluntary payment and no right of subrogation accrued
in its favor. In other words, when PHILAMGEN paid it did so at its own risk.

It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the
vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of
the policy. Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance upon a ship or
freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that
the ship is seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform the service, and to
encounter the ordinary perils of the voyage, contemplated by the parties to the policy. Thus it becomes the
obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full control in the selection of the common
carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a
particular venture.

We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly
pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law will
generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the
clearest language. And where the policy stipulates that the seaworthiness of the vessel as between the
assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without
showing concealment or misrepresentation by the assured.

The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG
reads (t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent
Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the
Assured and the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the
Assured and the Assurers is hereby admitted.

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x The result of
the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the warranty
of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company. The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact
that cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver,
PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as
what occurred in this case, PHILAMGEN is liable.

Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against
FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides: Art. 2207. 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. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.

In Pan Malayan Insurance Corporation v. Court of Appeals, we said that payment by the assurer to the
assured operates as an equitable assignment to the assurer of all the remedies which the assured may have
against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company
of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim.

The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers
Page 20 of 36
Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
softdrink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., P755,250.00 plus legal interest thereon counted from
29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.

Page 21 of 36
G.R. No. L-27427, April 07, 1976
FIREMAN'S FUND INSURANCE COMPANY AND FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES,
PLAINTIFF-APPELLANTS, VS. JAMILA & COMPANY, INC. AND FIRST QUEZON CITY INSURANCE CO., INC.,
DEFENDANTS-APPELLEES.

DECISION
AQUINO, J.:

FACTS
The gist of the complaint is that Jamila or the Veterans Philippine Scouts Security Agency contracted to supply
security guards to Firestone; that Jamila assumed responsiblity for the acts of its security guards; that First
Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000 to guarantee Jamila's obligations
under that contract; that on May 18, 1963 properties of Firestone valued at P11,925 were lost allegedly due
to the acts of its employees who connived with Jamila's security guard; that Fireman's Fund, as insurer, paid
to Firestone the amount of the loss; that Fireman's Fund was subrogated to Firestone's right to get
reimbursement from Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay
the amount of the loss in spite of repeated demands.

Jamila moved for the dismissal of the complaint on the ground of lack of cause of action. Its contention was
based on two grounds, to wit: (1) that the complaint did not allege that Firestone, pursuant to the contractual
stipulation quoted in the complaint, had investigated the loss and that Jamila was represented in the
investigation and (2) that Jamila did not consent to the subrogation of Fireman's Fund to Firestone's right to
get reimbursement from Jamila and its surety. The lower court in its order of dismissal had sustained the second
ground. Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's order of
October 18, 1966 on the ground that Fireman's Fund Insurance Company was suing on the basis of legal
subrogation whereas the lower court erroneously predicated its dismissal order on the theory that there was
no conventional subrogation because the debtor's consent was lacking.

Trial court ruled in favor of Jamila. In this appeal Firestone and Fireman's Fund contend that the trial court's
dismissal of their complaint is contrary to the aforementioned article 2207 which provides for legal
subrogation. Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the debtor's
consent; that legal subrogation takes place in the cases mentioned in article 1302 of the Civil Code and the
instant case is not among the three cases enumerated in that article, and that there could be no subrogation
in this case because according to the plaintiffs the contract between Jamila and Firestone was entered into
on June 1, 1965 but the loss complained of occurred on May 18, 1963.

ISSUE
Does the complaint of Firestone and Fireman's Fund state a cause of action against Jamila?

HELD
YES. The trial court erred in applying to this case the rules on novation. The plaintiffs in alleging in their
complaint that Fireman's Fund "became a party in interest in this case by virtue of a subrogation right given
in its favor by" Firestone, were not relying on the novation by change of creditors as contemplated in articles
1291 and 1300 to 1303 of the Civil Code but rather on article 2207.

Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has been referred
to as the doctrine of substitution. It "is an arm of equity that may guide or even force one to pay a debt for
which an obligation was incurred but which was in whole or in part paid by another" (83 C.J.S. 576, 578, note
16, citing Fireman's Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).

"Subrogation is founded on principles of justice and equity, and its operation is governed by principles of
equity. It rests on the principle that substantial justice should be attained regardless of form, that is, its basis is
the doing of complete, essential, and perfect justice between all the parties without regard to form" (83 C.J.S.
579-80).
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed.
477). Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which
the insured may have against the third person whose negligence or wrongful act caused the loss (44 Am. Jur.
2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

Page 22 of 36
The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d 746, note 16, citing
Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

"Although many policies including policies in the standard form, now provide for subrogation, and thus
determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any express stipulation to that effect in the
policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all remedies which the insured may
have for the recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract,
or upon written assignment of claim, and payment to the insured makes the insurer an assignee in equity
(Shambley vs. Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456, 142 SE 2d 18).

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

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

Page 23 of 36
G. R. No. L-2294, May 25, 1951
FILIPINAS COMPAniA DE SEGUROS, PETITIONER, VS. CHRISTERN, HUENEFEID & CO., INC., RESPONDENT

DECISION
PARAS, C.J.:

FACTS
On October 1, 1941f the respondent corporation, Christern, Huenefeld & Co., Inc., after payment of
corresponding premium, obtained from the petitioner, Filipinas Cia. de Seguros, fire policy No. 29333 in the
sum of P100,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo,
Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy.
The salvaged goods were sold at public auction and, after deducting their value, the total loss suffered by
the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the United States declared war against
Germany, the respondent corporation (though organized under and by virtue of the laws of the Philippines)
being controlled by German subjects and the petitioner being a company under American jurisdiction when
said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director
of the Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the
sum of P92,650 on April 19, 1943. Such payment made during the Japanese military occupation was under
pressure. In short, petitioners contention is that the respondent corporation became an enemy when the
United States declared war against Germany.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of
recovering from the respondent the sum of P92,650 above mentioned. Court of First Instance of Manila
dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment
of the Court of First Instance of Manila was affirmed, with costs. Hence, this appeal by certiorari.

ISSUE
Did the policy in question become null and void upon the declaration of war between the United States and
Germany on December 10, 194?

HELD
YES. There is no question that majority of the stockholders of the respondent corporation were German
subjects. This being so, we have to rule that said respondent became an enemy corporation upon the
outbreak of the war between the United States and Germany. The English and American cases relied upon
by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions,
No. 4, pp. 148-153, in which the control test has been adopted. In "Enemy Corporations" by Martin Domke, a
paper presented to the Second International Conference of the Legal Profession held at The Hague
(Netherlands) in August, 1948, the following enlightening passages appear:

"Since World War I, the determination of enemy nationality of corporations has been discussed in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations themselves considered as
enemies. It was the English courts which first in the Daimler case applied this new concept of "piercing the
corporate veil', which was adopted by the Peace Treaties of 1919 and the Mixed Arbitral Tribunals established
after the First World War "World War II revived the problem again. It was known that German and other
enemy interests were cloaked by domestic corporation structure. It was not only by legal ownership of shares
that a material influence could be exercised on the management of the corporation but also by long-term
loans and other factual situations. For that reason, legislation on enemy property enacted in various countries
during World War II adopted by statutory provisions the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in
determining enemy character of domestic corporation "Measures of blocking foreign funds, the so called
freezing regulations, and other administrative practice in the treatment of foreign-owned property in the
United States allowed to a large degree the determination of enemy interests in domestic corporations and
thus the application of the control test. Court decisions sanctioned such administrative practice enacted
under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the
United States definitely approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing
with a Swigs corporation allegedly controlled by German interests, the Court said: 'The property of all foreign
interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate
Page 24 of 36
friendly or neutral assets but to reach enemy interests which masqueraded under those innocent fronts. * * *
The power of seizure and vesting was extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed
decision. However, we may add that, in Haw Pia vs. China Banking Corporation, 45 Off. Gaz., (Supp. 9) 229,
we already held that the China Banking Corporation came within the meaning of the word "enemy" as used
in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws
of an enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended), in section 8, provides that "anyone except a public
enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an
insured becomes a public enemy.

"Effect of war, generally.All intercourse between citizens of belligerent powers which is inconsistent with a
state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or
trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or of receiving its protection; also, all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or
by the enemy, and upon the life or lives of aliens engaged in service with the enemy; this for the reason that
the subjects of one country cannot be permitted to lend their assistance to protect by insurance the
commerce or property of belligerent, alien subjects, or to do anything detrimental to their country's interest.
The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that
one country should destroy its enemy's property and repay in insurances the value of what has been so
destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior
thereto may have been lawful. All individuals, therefore, who compose the belligerent powers, exist, as to
each other, in a state of utter exclusion, and are public enemies." (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

"In the case of an ordinary fire policy, which grants insurance only from year to year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested, lost." (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued
in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and
enforceable, and since the insured goods were burned after December 10, 1941, and during the war, the
respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary
rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by
the respondent for the period covered by its policy from December 11, 1941, should be returned by the
petitioner. It results that the petitioner is entitled to recover what was paid to the respondent under the
circumstances of this case. However, the petitioner will be entitled to recover only the equivalent, in actual
Philippine currency, of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne
scale.

WHEREFORE, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to
the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine
currency, that should be returned by the petitioner for the unexpired term of the policy in question, beginning
December 11. 1941.

Page 25 of 36
G.R. No. 120959, November 14, 1996
PEOPLE OF THE PHILIPPINES, PLAINTIFF-APPELLEE, VS. YIP WAI MING, ACCUSED-APPELLANT.

DECISION
MELO, J.:

FACTS
Accused-appellant and Lam Po Chun were engaged to be married. They had toured China and Macao
together. They were living together in one apartment. They were registered with the Hongkong Marriage
Registry in May 1993. Marriage date was set for August 29, 1993. Both Hongkong nationals, came to Manila
on vacation on July 10, 1993. Hardly a day had passed when Lam Po Chun was brutally beaten up and
strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai Ming, was touring Metro
Manila with Filipino welcomers while Lam Po Chun was left in the hotel room allegedly because she had a
headache and was not feeling well enough to do the sights.

RTC found that Yip Wai Ming killed his fiancee before he left for the Metro Manila tour. The trial court, in arriving
at its conclusions, took the various facts presented by the prosecution, tied them up together like parts of a
jig-saw puzzle, and came up with a complete picture of circumstantial evidence depicting not only the
commission of the crime itself but also the motive behind it. In the absence of direct evidence indubitably
showing that accused-appellant was the perpetrator of the killing, motive becomes important. The theory
developed by the prosecution was not only of a cold-blooded crime but a well-planned one, including its
timing up to the half hour. It is not the kind of crime that a man would commit against his wife-to-be unless a
strong motive for it existed.

The trial court would have been justified in finding that there was evident premeditation of murder if the story
is proved that Lam Po Chun insured herself for the amounts of US $498,750.00 and US $249,375.00 naming
accused-appellant as the beneficiary.

ISSUE
Was there an insurance contract between the victim and the New Zealand Insurance Company, the
beneficiary of which is the accused Yip Wai Ming?

HELD
NO. There is no evidence that the victim secured an insurance policy for a big amount in US dollars and
indicated accused-appellant as the beneficiary. The prosecution presented Exhibit "X", a mere xerox copy
of a document captioned "Proposal for Life Insurance" as proof of the alleged insurance. It is not a certified
copy, nor was the original first identified.

The authenticity of the document has thus not been duly established. Exhibit "X" was secured in Hongkong
when Lam Chi Keung, the brother of the victim, learned that his sister was murdered in Manila. It is not shown
how and from whom the information about any alleged insurance having been secured came. There is no
signature indicating that the victim herself applied for the insurance. There is no marking in Exhibit "X" of any
entry which purports to be the victims signature. There is a signature of Apple Lam which is most unusual for
an insurance application because the victims name is Lam Po Chun. To be sure nobody insures himself or
herself under a nickname. The entries in the form are in block letters uniformly written by one hand. Below
the printed name "Lam Po Chun" are Chinese characters which presumably are the Chinese translation of
her name. Nobody was presented to identify the author of the "block" handwriting. Neither the prosecution
nor the trial court made any comparisons, such as the signature of Lam Po Chun on her passport (Exh. "C"),
with her purported signature or any other entry in the form.

It needs not much emphasis to say that an application form does not prove that insurance was
secured. Anybody can get an application form for insurance, fill it up at home before filing it with the
insurance company. In fact, the very first sentence of the form states that it merely "forms the basis of a
contract between you and NZI Life." There was no contract yet.

There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-
appellant. After all the trouble that her brother went through to gather evidence to pin down accused-
appellant, the fact that all he could come up with is an unsigned insurance application form shows there was
no insurance money forthcoming for accused-appellant if Lam Po Chun died. There is no proof that the
insurance company approved the proposal, no proof that any premium payments were made, and no proof
from the record of exhibits as to the date it was accomplished. It appearing that no insurance was issued to
Page 26 of 36
Lam Po Chun with accused-appellant as the beneficiary, the motive capitalized upon by the trial court
vanishes. Thus, the picture changes to one of the alleged perpetrator killing his fiancee under cold-blooded
circumstances for nothing.

There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the
National Insurance Company. Why then should she insure her life with the New Zealand Insurance Company?
Lams monthly salary was only HK $5,000.00. The premiums for the insurance were HK $5,400.00 or US $702.00
per month. Why should Lam insure herself with the monthly premiums exceeding her monthly salary? And why
should any insurance company approve insurance, the premiums of which the supposed insured obviously
can not afford to pay, in the absence of any showing that somebody else is paying for said premiums. It is
not even indicated whether or not there are rules in Hongkong allowing a big amount of insurance to be
secured where the beneficiary is not a spouse, a parent, a sibling, a child, or other close relative.

It is usually the man who insures himself with the wife or future wife as beneficiary instead of the other way
around. Why should Lam Po Chun, with her relatively small salary which is not even enough to pay for the
monthly premiums, insure herself for such a big amount. This is another reason why doubts arise as to the truth
of the insurance angle.

Epilogue: The case ends in a discussion of insufficient evidence and testimony against the accused, rendering
him acquitted on grounds of reasonable doubt.

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-appellant Yip Wai Ming
is acquitted of the charge of murder on grounds of reasonable doubt and his immediate release from custody
is ordered unless he is being held on other legal grounds.

Page 27 of 36
G.R. No. 54216, July 19, 1989
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, PETITIONER, VS. HONORABLE GREGORIO G. PINEDA, IN
HIS CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE OF RIZAL, AND RODOLFO C. DIMAYUGA,
RESPONDENTS.

DECISION
PARAS, J.:

FACTS
On January 15, 1968, private respondent procured an ordinary life insurance policy from the petitioner
company and designated his wife and children as irrevocable beneficiaries of said policy. Under date
February 22, 1980 private respondent filed a petition which was docketed as Civil Case No. 9210 of the then
Court of First Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable
to revocable.

Petitioner filed its Comment and/or Opposition to Petition. Respondent Judge Gregorio G. Pineda denied
petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence, the consequence of
which was the issuance of the questioned Order granting the petition. Petitioner promptly filed a Motion for
Reconsideration but the same was denied in an Order dated June 10, 1980. Hence, this petition raising the
following issues for resolution:

ISSUES
1. May the designation of the irrevocable beneficiaries be changed or amended without the consent of
all the irrevocable beneficiaries?
2. May the irrevocable beneficiaries herein, one of whom is already deceased while the others are all
minors, validly give consent to the change or amendment in the designation of the irrevocable
beneficiaries?

HELD
NO. Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No.
2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary designated
in a life insurance contract cannot be changed without the consent of the beneficiary because he has a
vested interest in the policy (Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the
International Assurance Co., Ltd., 72 Phil. 71).

In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms part of
Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of the
beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex C of the Petition for Review
on Certiorari), to wit: It is hereby understood and agreed that, notwithstanding the provisions of this policy to
the contrary, inasmuch as the designation of the primary/ contingent beneficiary/ beneficiaries in this Policy
has been made without reserving the right to change said beneficiary/beneficiaries, such designation may
not be surrendered to the Company, released or assigned; and no right or privilege under the Policy may be
exercised, or agreement made with the Company to any change in or amendment to the Policy, without the
consent of the said beneficiary/beneficiaries.

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then
applicable, it is only with the consent of all the beneficiaries that any change or amendment in the policy
concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the policy
do not provide for any other exception, thus, abrogating the contention of the private respondent that said
designation can be amended if the Court finds a just, reasonable ground to do so.

NO. Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife
predeceased the insured) cannot be considered an effective ratification to the change of the beneficiaries
from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were
minors at that time,* for which reason, they could not validly give their consent. Neither could they act
through their father-insured since their interests are quite divergent from one another. In point is an excerpt
from the Notes and Cases on Insurance Law by Campos and Campos, 1960, reading "The insured xxx can
do nothing to divest the beneficiary of his rights without his consent. He cannot assign his policy, nor even
take its cash surrender value without the consent of the beneficiary. Neither can the insured's creditors seize
Page 28 of 36
the policy or any right thereunder. The insured may not even add another beneficiary because by doing so,
he diminishes the amount which the beneficiary may recover and this he cannot do without the beneficiary's
consent.

Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract,
for otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential.

Of equal importance is the well-settled rule that the contract between the parties is the law binding on both
of them and for so many times, this court has consistently issued pronouncements upholding the validity and
effectivity of contracts. Where there is nothing in the contract which is contrary to law, good morals, good
customs, public policy or public order the validity of the contract must be sustained. Likewise, contracts which
are the private laws of the contracting parties should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties,
for contracts are obligatory, no matter in what form they may be, whenever the essential requisites for their
validity are present.

Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does not
in any way violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change in the
designation of beneficiaries could be validly effected means that it was never within the contemplation of
the parties. The lower court, in gratuitously providing for such contingency, made a new contract for them,
a proceeding which we cannot tolerate.

WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified and
set aside.

Page 29 of 36
G.R. No. L-44059, October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., PLAINTIFF-APPELLEE, VS. CARPONIA T. EBRADO AND PASCUALA
VDA. DE EBRADO, DEFENDANTS-APPELLANTS.

DECISION
MARTIN, J.:

FACTS
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Insular Life Assurance Co., Ltd., Policy
No. 009929 on a whole-life plan for P5,882.00 with a rider for Accidental Death Benefits for the same
amount. Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in his
policy. He referred to her as his wife. On October 21, 1969, Buenaventura C. Ebrado died as a result of an
accident when he was hit by a falling branch of a tree. As the insurance policy was in force, The Insular Life
Assurance Co., Ltd. stands liable to pay the coverage in the total amount of P11,745.73, representing the face
value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the
amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed (the common-law wife) with the insurer a claim for the proceeds of the policy as the
designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado (the legal wife) also filed her claim as the widow of the deceased insured. She
asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

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

CFI rendered judgment declaring, among others, Carponia T. Ebrado disqualified from becoming beneficiary
of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the
estate of the deceased insured. Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976,
the Appellate Court certified the case to Us as involving only questions of law.

ISSUE
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance
policy of a legally married man claim the proceeds thereof in case of death of the latter?

HELD
NO. We affirm the judgment of the lower court.

It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD
No. 612, as amended) does not contain any specific provision grossly resolutory of the prime question at
hand. Section 50 of the Insurance Act which provides that "(t)he insurance shall be applied exclusively to the
proper interest of the person in whose name it is made"[1] cannot be validly seized upon to hold that the same
includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and
not to the beneficiary, since a contract of insurance is personal in character.[2] Otherwise, the prohibitory laws
against illicit relationships especially on property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to
resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this
Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts.[3] And under Article 2012 of the same
Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make a donation to him." [4] Common-law
spouses are, definitely, barred from receiving donations each other. Article 739 of the new Civil Code
provides:

"The following donations shall be void:


"1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
Page 30 of 36
"2. Those made between persons found guilty of the same criminal offense, in consideration thereof;
"3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

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

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid
aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation.[5] Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine
the effect of a clause designating the beneficiary by rules under which wills are interpreted.

Policy considerations and dictates of morality rightly justify the institution of a barrier between common-law
spouses in regard to property relations since such relationship ultimately encroaches upon the nuptial and
filial rights of the legitimate family. There is every reason to hold that the bar in donations between legitimate
spouses and those between illegitimate ones should be enforced in life insurance policies since the same are
based on similar consideration. As above pointed out, a beneficiary in a life insurance policy is no different
from a donee. Both are recipients of pure beneficence. So long as marriage remains the threshold of family
laws, reason and morality dictate that the impediments imposed upon married couple should likewise be
imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities,
with more reason should an illicit relationship be restricted by these disabilities.

We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned
in Article 739 may effectuate. More specifically, with regard to the disability on ''persons who were guilty of
adultery or concubinage at the time of the donation," Article 739 itself provides: "In the case referred to in No.
1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of
the donee may be proved by preponderance of evidence in the same action.

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

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby
declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As
a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased
insured. Costs against Carponia T. Ebrado.

Page 31 of 36
G.R. No. 85141, November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., PETITIONER, VS. COURT OF APPEALS AND CHOA TIEK SENG,
RESPONDENTS.

DECISION
REGALADO, J.:

FACTS
On December 1976, plaintiff insured said shipment with defendant insurance company under said cargo
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new
gunny bags of 90 kilos each from Bangkok, Thailand to Manila against ALL RISKS under warehouse to
warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF
Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at Manila
unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified that in such
discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre
contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes
Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6-Razon. The
cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the
condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863
and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor has conducted a final
and detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the
findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos,
Exhibit F-1.

Based on said computation the plaintiff made a formal claim against the defendant Filipino Merchants
Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal
claim statement was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B,
but the defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the
plaintiff brought an action against said defendant as adverted to above and defendant presented a third
party complaint against the vessel and the arrastre contractor.

Trial court ruled in favor of the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co.
Appellate court affirmed the decision of the lower court insofar as the award on the complaint is concerned
and modified the same with regard to the adjudication of the third-party complaint. A motion for
reconsideration of the aforesaid decision was denied, hence this petition.

Petitioner contends that an "all risks" marine policy has a technical meaning in insurance in that before a
claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause"
to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the
burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous
event precludes his right to recover from the insurance policy. Petitioner further contends also that private
respondent had no insurable interest in the subject cargo, hence, the marine insurance policy taken out by
private respondent is null and void.

ISSUES
1. What is the nature of an all-risk policy and who bears the burden of proving the same?
2. Does private respondent have no insurable interest (this issue however was raised only on appeal)?

HELD
An "ALL RISKS POLICY" should be read literally as meaning all risks whatsoever and covering all losses by an
accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have
not acquired any technical meaning. They are construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously,
without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event
that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or
is an unusual effect of a known cause and, therefore, not expected.[6]
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any
loss other than a wilful and fraudulent act of the insured. [7] This is pursuant to the very purpose of an "all risks"
insurance to give protection to the insured in those cases where difficulties of logical explanation or some
mystery surround the loss or damage to property.[8] An "all risks" policy has been evolved to grant greater
protection than that afforded by the "perils clause," in order to assure that no loss can happen through the
Page 32 of 36
incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that
is, attributable to external causes.[9]

The term "all risks" cannot be given a strained technical meaning, the language of the clause under the
Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses
suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b)
loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it
seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the
cargo was in good condition when the policy attached and that the cargo was damaged when unloaded
from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. [10] As
we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd.[11] the basic rule is that the insurance
company has the burden of proving that the loss is caused by the risks excepted and for want of such proof,
the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which
extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid
coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. [12] A
marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating
a special insurance and extending to other risks than are usually contemplated, and covers all losses except
such as arise from the fraud of the insured.[13] The burden of the insured, therefore, is to prove merely that the
goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the
precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks"
insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer
is liable under the policy.

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The
agreement has the force of law between the parties. The terms of the policy constitute the measure of the
insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense.
YES. Private respondent, as consignee of the goods in transit under an invoice containing the terms under "C
& F Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien
upon or possession of the property.[16] Insurable interest in property may consist in (a) an existing interest; (b)
an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest
in that out of which the expectancy arises.[17]

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as
may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected
contract of sale.[18] The perfected contract of sale between him and the shipper of the goods operates to
vest in him an equitable title even before delivery or before he performed the conditions of the sale. [19] The
contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination
of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale
even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to
be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by
the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the
delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that
Page 33 of 36
time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering
them.[20]

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost
of the goods and freight to the named destination.[21] It simply means that the seller must pay the costs and
freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is
transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.

If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue
of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this
case and also to dispose of petitioner's third assignment of error which consequently needs no further
discussion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.

Page 34 of 36
G.R. No. 124520, August 18, 1997
SPOUSES NILO CHA AND STELLA UY CHA, AND UNITED INSURANCE CO., INC., PETITIONERS, VS. COURT OF
APPEALS AND CKS DEVELOPMENT CORPORATION, RESPONDENTS.

DECISION
PADILLA, J.:

FACTS
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

One of the stipulations of the one (1) year lease contract states: 18. x x x. The LESSEE shall not insure against
fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the
insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to
the LESSOR for its own benefit; x x x

Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance
Co., Inc. (hereinafter United) without the written consent of private respondents CKS.

On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned
of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United)
be paid directly to CKS, based on its lease contract with Cha spouses. United refused to pay CKS. Hence, the
latter filed a complaint against the Cha spouses and United.

RTC ordered defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay
P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and costs of suit. CA affirmed the trial court
decision, deleting however the awards for exemplary damages and attorneys fees. A motion for
reconsideration by United was denied on 29 March 1996. Hence, this petition.

ISSUE
Is the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha spouses valid
insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is
obtained without the prior written of the latter?

HELD
NO. It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy. Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person from taking out an insurance
policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case
of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section
25 of the Insurance Code, which provides: SECTION 25. Every stipulation in a policy of Insurance for the
payment of loss, whether the person insured has or has not any interest in the property insured, or that the
policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering,
is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: Section
17. The measure of an insurable interest in property is the extent to which the insured might be damnified by
loss of injury thereof.

Page 35 of 36
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of
the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over
said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-
Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire
insurance policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue
which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is
hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

Page 36 of 36