[G.R. No. L-52027. April 27, 1982.] The first shipment is known as No.
The first shipment is known as No. 167 and the other shipment as Nos. 168 and 168-A. The
COMMERCIAL UNION ASSURANCE COMPANY LIMITED and NORTH BRITISH
& MERCANTILE INSURANCE CO., LTD., Petitioners, v. LEPANTO
CONSOLIDATED MINING COMPANY and COURT OF APPEALS, Respondents.
Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos, for Petitioners.
Sycip, Salazar, Feliciano, Hernandez & Castillo for Private Respondent.
SYNOPSIS
Respondent company shipped to a consignee in the United States certain cargoes covered by
two "all risks" marine insurance policies issued by petitioners containing express stipulations
that respondent company has an interest therein. The shipments, which were undertaken in
accordance with the instructions of the insurers surveyor, sustained damage in transit
prompting private respondent to file the corresponding insurance claims which were rejected.
Consequently, respondent company filed with the Court of First Instance a complaint for
recovery of damages which was dismissed for lack of cause of action. On appeal, the Court of
Appeals reversed the Commercial Union Assurance Company Limited, Et. Al. v. Lepanto
Consolidated Mining Company, Et. Al. trial courts order of dismissal. Hence, this petition
for certiorari (herein treated as an appeal) wherein petitioners contend, among others, that
respondent company is not the real party in interest and has no personality to sue and that
respondents complaint has no cause of action against the insurers.
On review, the Supreme Court, without prejudging the merits of respondents case and
petitioners affirmative defenses, held that there is prima facie showing in respondents
complaint and pleadings that it is a real party in interest under the policies and that it has a
cause of action against petitioners as insurers.
Judgment of the Court of Appeals, affirmed.
SYLLABUS
REMEDIAL LAW; ACTIONS; PARTIES; RESPONDENT IN CASE AT BAR PRIMA
FACIE SHOWN A REAL PARTY IN INTEREST. Where, based (1) on express stipulation
in the two subject marine insurance policies that respondent company has an interest therein
and (2) on the facts that it was the shipper (and presumably the owner) of the insured cargoes,
that the shipments were undertaken in accordance with the instructions of the insurers marine
surveyor and that it was respondent company that filed the corresponding claim with the
adjuster when the cargoes were damaged, the Supreme Court, without prejudging the merits of
respondent companys case and petitioners affirmative defenses, ruled that there is prima
facie showing in respondents complaint and pleadings that it is a real party in interest under
the policies and that it has a cause of action against the petitioners as insurers.
DECISION
AQUINO, J.:
This is a marine insurance case. Lepanto Consolidated Mining Company alleged in its
complaint of February 7, 1974 that on November 8 and 23, 1971 it shipped (for smelting)
copper ore concentrates on board the vessels M/S Hermosa and M/S General Aguinaldo from
Poro Point, San Fernando, La Union to Tacoma, Washington, U.S.A.
copper ore concentrates were stored on board the carrying vessels under the supervision and
approval of a marine surveying firm designated by the insurer (pp. 8-9, Record on Appeal).
American Smelting and Refining Co., Ltd. (Asarco) was the consignee. The ore was to be
discharged at the wharf of Asarcos smelter at Tacoma (pp. 75-76, 98-9, Record on Appeal).
The shipments were covered by two "all risks" marine insurance policies issued to Asarco by
North British & Mercantile Insurance Company Limited, a subsidiary of Commercial Union
Assurance Company Limited. The first policy was for US$4,509,014 or 80% of the agreed
total value of US$5,636,268 while the second policy was for US$6,230,591.03 or 80% of the
agreed total value of US$7,788,233.79. The 20% balance was covered by insurance policies
issued by Malayan Insurance Co., Inc.
Both policies contain this stipulation: "It is hereby noted and agreed that Lepanto
Consolidated Mining Co. have (has) an interest on this Policy" (pp. 22 and 58, Record on
Appeal). From the opening clause of the policies (couched in Chaucerian English), it may be
inferred that Asarco and all persons having an interest in the shipments were covered by the
insurance (pp. 20-21, 45-46, Record on Appeal).
Because the two shipments were damaged in transit, Lepanto filed claims under the policies.
Commercial Union Assurance and North British denied the claims.
: red
On February 8, 1974, Lepanto filed a complaint in the Court of First Instance of Rizal, Pasig
Branch 22, against Commercial Union Assurance and North British wherein it prayed that
they be ordered to pay Lepanto the sums of US$523,139.20 and US$553,564.80, representing
80% of the damages suffered by Lepanto plus interest, litigation expenses and attorneys fees.
On motion to dismiss filed by the defendants, the lower court dismissed the complaint for lack
of cause of action. Lepanto appealed to the Court of Appeals which in its decision dated
September 27, 1979 reversed the order of dismissal (CA-G.R. No. 55948-R).
In a resolution dated November 12, 1979, it denied the motion for reconsideration filed by
Commercial Union Assurance and North British. A copy of that resolution was received by
their lawyers on November 19. Twelve days later, or on December 1, they filed a special civil
action of certiorari in this Court wherein they alleged that the Court of Appeals acted without
jurisdiction in entertaining Lepantos appeal. The certiorari petition was treated as an appeal.
As directed, the parties filed their briefs.
The petitioners contend in their first assignment of error that the Court of Appeals had no
jurisdiction over Lepantos appeal because it raised only a pure question of law.
That contention is devoid of merit because Lepanto in its notice of appeal expressly stated that
it was appealing on questions of fact and law and because in its assignment of errors it
contended that the trial court erred in finding that the marine policies were issued solely in
favor of Asarco, in not finding that Lepanto was insured under the said policies and in not
finding that the insurers were estopped to deny that Lepanto was an insured party.
The ventilation of those factual issues would explain why the Court of Appeals did not certify
the case to this Court as a case involving a pure question of law.
The petitioners in their other assignments of error argue that the Court of Appeals gravely
abused its discretion in taking into account Lepantos manifestation which is not a part of its
complaint; in finding that Lepanto claimed ownership of the cargo covered by the marine
insurance policies; in not finding that Lepanto is not the real party in interest and has no
personality to sue and in not finding that under the ultimate facts alleged in Lepantos
complaint Lepanto has no cause of action against the insurers.chanrobles.com : virtual law
library

The issue is the correctness of the trial courts conclusion that Lepanto has no right to sue the
insurers since it has no cause of action against them (p. 119, Record on Appeal), or, as stated
by the Appellate Court, whether Lepanto can legally sue on the marine insurance policies.

We hold, without prejudging the merits of Lepantos case and petitioners affirmative
defenses, that there is a prima facie showing in Lepantos complaint and pleadings that it is a
real party in interest under the policies and that it has a cause of action against the petitioners
as insurers.

This holding is based (1) on the stipulation (already quoted) in the two policies that it has an
interest therein and (2) on the facts that it was the shipper (and presumably the owner) of the
insured cargoes, that the shipments were undertaken in accordance with the instructions of the
insurers marine surveyor and that it was Lepanto that filed the corresponding claim with the
adjuster when the cargoes were damaged (pp. 34-37, Record on Appeal).

It is noteworthy that when Commercial Union Assurance Company Limited rejected

Lepantos claims it did not question Lepantos right and personality to file the claims nor did it
state that Lepanto had no interest in the marine policies and that it was not an insured party.
Commercial Union rejected the claims, not on those grounds, but because "both cargoes were
inherently vicious" (pp. 37-45, Record on Appeal).

To say that Lepanto has no interest under the policies would render meaningless the said
stipulation in its favor. To say that Lepanto as shipper of the insured property had no
proprietary interest therein before its delivery at Asarcos wharf in Tacoma is to imply that the
insured property was res nullius. These conclusions are preposterous.

Hence, the trial court erred in dismissing the complaint. Whether after hearing the parties it
would appear that Lepantos claims for damages are justified or not is an issue on which we
make no anticipatory and premature finding.

WHEREFORE, the decision of the Court of Appeals is affirmed. Costs against the petitioners.

SO ORDERED.

MRS. HENRY E. HARDING, and her husband, plaintiffs-appellees, vs. COMMERCIAL
UNION ASSURANCE COMPANY, defendant-appellant.
This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest,
alleged to be due under the terms of a policy of insurance. The trial court gave plaintiffs
judgment for the amount demanded, with interest and costs, and from that decision the
defendant appeals.
The court below stated the issues made by the pleadings in this case, and its finding of fact, as
follows:
It is alleged by plaintiffs and admitted by defendant that plaintiffs are husband and
wife and residents of the city of Manila; that the defendant is a foreign corporation
organized and existing under and by virtue of the laws of Great Britain and duly
registered in the Philippine Islands, and Smith, Bell & Co. (limited), a corporation
organized and existing under the laws of the Philippine Islands, with its principal
domicile in the city of Manila, is the agent in the Philippine Islands of said
defendant.
The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs. Henry E. Harding
was the owner of a Studebaker automobile, registered number 2063, in the city of
Manila; that on said date; in consideration of the payment to the defendant of the
premium of P150, by said plaintiff, Mrs. Henry E. Harding, with the consent of her
husband, the defendant by its duly authorized agent, Smith, Bell & Company
(limited), made its policy of insurance in writing upon said automobile was set forth
in said policy to be P3,000 that the value of said automobile was set forth in said
policy (Exhibit A) to be P3,000; that on March 24, 1916, said automobile was totally
destroyed by fire; that the loss thereby to plaintiffs was the sum of P3,000; that
thereafter, within the period mentioned in the said policy of insurance, the plaintiff,
Mrs. Henry E. Harding, furnished the defendant the proofs of her said loss and
interest, and otherwise performed all the conditions of said policy on her part, and
that the defendant has not paid said loss nor any part thereof, although due demand
was made upon defendant therefor.
The defendant, by its answer, admitted the allegations of the residence and status of
the parties and denied all the other allegation of the said complaint, and for a
separate and affirmative defense alleged (1) that on February 17, 1916, at the city of
Manila, P.I. the defendant upon request of plaintiff, Mrs. Henry E. Harding, issued
to the said plaintiff the policy of insurance on an automobile alleged by the said
plaintiff to be her property; that the said request for the issuance of said policy of
insurance was made by means of a proposal in writing signed and delivered by said
plaintiff to the defendant, guaranteeing the truth of the statements contained therein
which said proposal is referred to in the said policy of insurance made a part thereof;
(2) that certain of the statements and representations contained in said proposal and
warranted by said plaintiff to be true, to wit: (a) the price paid by the proposer for
the said automobile; (b) the value of said automobile at the time of the execution
and delivery of the said proposal and (c) the ownership of said automobile, were
false and known to be false by the said plaintiff at the time of signing and delivering
the said proposal and were made for the purpose of misleading and deceiving the
defendant, and inducing the defendant, relying upon the warranties, statements, and
representations contained in the said proposal and believing the same to be true,
issued the said policy of insurance.
The defendant prays that judgment be entered declaring the said policy of insurance
to be null and void, and that plaintiffs take nothing by this action; and for such
further relief as to the court may seem just and equitable.
The evidence in this case shows that some time in the year 1913 Levy Hermanos,
the Manila agents for the Studebaker automobile, sold the automobile No. 2063 to
John Canson for P3,200 (testimony of Mr. Diehl); that under date of October 14,
1914, John Canson sold the said automobile to Henry Harding for the sum of P1,500
(Exhibit 2); that under date of November 19, 1914, the said Henry Harding sold the
said automobile No. 2063 to J. Brannigan, of Los Baos, Province of Laguna, P.I.,
for the sum of P2,000 (Exhibit 3); that under date of December 20, 1915, J. C.
Graham of Los Baos, Province of Laguna, P.I., sold the said automobile No. 2063
to Henry Harding of the city of Manila for the sum of P2,800 (Exhibit 4 and
testimony of J. C. Graham); that on or about January 1, 1916, the said Henry
Harding gave the said automobile to his wife; Mrs. Henry E. Harding, one of the
plaintiffs, as a present; that said automobile was repaired and repainted at the Luneta
Garage at a cost of some P900 (testimony of Mr. Server); that while the said
automobile was at the Luneta Garage; the said Luneta Garage, acting as agent for
Smith, Bell & Company, (limited), solicited of the plaintiff Mrs. Harding the
insurance of said automobile by the defendant Company (testimony of Mrs. Henry
Harding and Mr. Server); that a proposal was filled out by the said agent and signed
by the plaintiff Mrs. Henry E. Harding, and in said proposal under the heading
"Price paid by proposer," is the amount of "3,500" and under another heading
"Present value" is the amount of "3,000" (Exhibit 1).
The evidence tends to show that after the said proposal was made a representative of
the Manila agent of defendant went to the Luneta Garage and examined said
automobile No. 2063 and Mr. Server, the General Manager of the Luneta Garage, an
experienced automobile mechanic, testified that at the time this automobile was
insured it was worth about P3,000, and the defendant, by and through its said agent
Smith, Bell & Company (limited), thereafter issued a policy of insurance upon
proposal in which policy the said automobile was described as of the "present value"
of P3,000 and the said defendant charged the said plaintiff Mrs. Henry E. Harding as
premium on said policy the sum of P150, or 5 per cent of the then estimated value of
P3,000. (Exhibit A.)
The "Schedule" in said policy of insurance describes the automobile here in
question, and provides in part of follows:
"Now it is hereby agreed as follows:
"That during the period above set forth and during any period for which
the company may agree to renew this policy the company will subject to
the exception and conditions contained herein or endorsed hereon
indemnify the insured against loss of or damage to any motor car
described in the schedule hereto (including accessories) by whatever cause
such loss or damage may be occasioned and will further indemnify the
insured up to the value of the car or P3,000 whichever is the greater
against any claim at common law made by any person (not being a person
in the said motor car nor in the insured's service) for loss of life or for
accidental bodily injury or damage to property caused by the said motor
car including law costs payable in connection with such claim when
incurred with the consent of the company."
The evidence further shows that on March 24, 1916, the said automobile was totally
destroyed by fire, and that the iron and steel portions of said automobile which did
not burn were taken into the possession of the defendant by and through its agent
Smith, Bell & Company (limited), and sold by it for a small sum, which had never
 been tendered to the plaintiff prior to the trial of this case, but in open court during
the trial the sum of P10 as the proceeds of such sale was tendered to plaintiff and
refused.
Upon the facts so found, which we hold are supported by the evidence, the trial judge decided
that there was no proof of fraud on the part of plaintiff in her statement of the value of the
automobile, or with respect to its ownership; that she had an insurable interest therein; and that
defendant, having agreed to the estimated value, P3,000, and having insured the automobile
for that amount, upon the basis of which the premium was paid, is bound by it and must pay
the loss in accordance with the stipulated insured value. The assignments of error made on
behalf of appellant put in issue the correctness of those conclusions of law, and some others of
minor importance relating to the exclusion of evidence. Disposing of the minor objections
first, as we have reached the conclusion that the trial court was right in holding that the
defendant is bound by the estimated value of the automobile upon which policy was issued,
and that the plaintiff was not guilty of fraud in regard thereto, the exclusion of the testimony
of the witness Diehl is without importance. It merely tended to show the alleged actual value
of the automobile, and in the view we take of the case such evidence was irrelevant.
Appellant contends that Mrs. Harding was not the owner of the automobile at the time of the
issuance of the policy, and, therefore, had no insurable interest in it. The court below found
that the automobile was given to plaintiff by her husband shortly after the issuance of the
policy here in question. Appellant does not dispute the correctness of this finding, but
contends that the gift was void, citing article 1334 of the Civil Code which provides that "All
gifts between spouses during the marriage shall be void. Moderate gifts which the spouses
bestow on each other on festive days of the family are not included in this rule."
We are of the opinion that this contention is without merit. In the case of Cook vs. McMicking
27 Phil. Rep., 10), this court said:
It is claimed by the appellants that the so-called transfer from plaintiff's husband to
her was completely void under article 1458 of the Civil Code and that, therefore, the
property still remains the property of Edward Cook and subject to levy under
execution against him.
In our opinion the position taken by appellants is untenable. They are not in a
position to challenge the validity of the transfer, if it may be called such. They bore
absolutely no relation to the parties to the transfer at the time it occurred and had no
rights or interests inchoate, present, remote, or otherwise, in the property in question
at the time the transfer occurred. Although certain transfers from husband to wife or
from wife to husband are prohibited in the article referred to, such prohibition can
be taken advantage of only by persons who bear such a relation to the parties
making the transfer or to the property itself that such transfer interferes with their
rights or interests. Unless such a relationship appears the transfer cannot be attacked.
Even assuming that defendant might have invoked article 1334 as a defense, the burden would
be upon it to show that the gift in question does not fall within the exception therein
established. We cannot say, as a matter of law, that the gift of an automobile by a husband to
his wife is not a moderate one. Whether it is or is not would depend upon the circumstances of
the parties, as to which nothing is disclosed by the record.
Defendant contends that the statement regarding the cost of the automobile was a warranty,
that the statement was false, and that, therefore, the policy never attached to the risk. We are of
the opinion that it has not been shown by the evidence that the statement was false on the
contrary we believe that it shows that the automobile had in fact cost more than the amount
mentioned. The court below found, and the evidence shows, that the automobile was bought
by plaintiff's husband a few weeks before the issuance of the policy in question for the sum of
P2,800, and that between that time and the issuance of the policy some P900 was spent upon it
in repairs and repainting. The witness Server, an expert automobile mechanic, testified that the
automobile was practically as good as new at the time the insurance was effected. The form of
proposal upon which the policy was issued does not call for a statement regarding the value of
the automobile at the time of its acquisition by the applicant for the insurance, but merely a
statement of its cost. The amount stated was less than the actual outlay which the automobile
represented to Mr. Harding, including repairs, when the insurance policy was issued. It is true
that the printed form calls for a statement of the "price paid by the proposer," but we are of the
opinion that it would be unfair to hold the policy void simply because the outlay represented
by the automobile was made by the plaintiff's husband and not by his wife, to whom he had
given the automobile. It cannot be assumed that defendant should not have issued the policy
unless it were strictly true that the price representing the cost of the machine had been paid by
the insured and by no other person that it would no event insure an automobile acquired by
gift, inheritance, exchange, or any other title not requiring the owner to make a specific cash
outlay for its acquisition.
Furthermore, the court below found and the evidence shows, without dispute, that the proposal
upon which the policy in question was issued was made out by defendant's agent by whom the
insurance was solicited, and that appellee simply signed the same. It also appears that an
examiner employed by the defendant made an inspection of the automobile before the
acceptance of the risk, and that the sum after this examination. The trial court found that Mrs.
Harding, in fixing the value of the automobile at P3,000, acted upon information given her by
her husband and by Mr. Server, the manager of the Luneta Garage. The Luneta Garage, it will
be remembered, was the agent of the defendant corporation in the solicitation of the insurance.
Mrs. Harding did not state of her own knowledge that the automobile originally cost P3,000,
or that its value at the time of the insurance was P3,000. She merely repeated the information
which had been given her by her husband, and at the same time disclosed to defendant's agent
the source of her information. There is no evidence to sustain the contention that this
communication was made in bad faith. It appears that the statements in the proposal as to the
price paid for the automobile and as to its value were written by Mr. Quimby who solicited the
insurance on behalf of defendant, in his capacity as an employee of the Luneta Garage, and
wrote out the proposal for Mrs. Harding to sign. Under these circumstances, we do not think
that the facts stated in the proposal can be held as a warranty of the insured, even if it should
have been shown that they were incorrect in the absence of proof of willful misstatement.
Under such circumstance, the proposal is to be regarded as the act of the insurer and not of the
insured. This question was considered in the case of the Union Insurance
Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in which the Supreme Court of the
United States said:
This question has been decided differently by courts of the highest respectability in
cases precisely analogous to the present. It is not to be denied that the application
logically considered, is the work of the assured, and if left to himself or to such
assistance as he might select, the person so selected would be his agent, and he
alone would be responsible. On the other hand, it is well-known, so well that no
court would be justified in shutting its eyes to it, that insurance companies organized
under the laws of one State, and having in that State their principal business office,
send these agents all over the land, with directions to solicit and procure applications
for policies furnishing them with printed arguments in favor of the value and
necessity of life insurance, and of the special advantages of the corporation which
the agent represents. They pay these agents large commissions on the premiums thus
obtained, and the policies are delivered at their hands to the assured. The agents are
stimulated by letters and instructions to activity in procuring contracts, and the party
who is in this manner induced to take out a policy, rarely sees or knows anything
about the company or its officers by whom it is issued, but looks to and relies upon
the agent who has persuaded him to effect insurance as the full and complete
representative of the company, in all that is said or done in making the contract. Has
he not a right to so regard him? It is quite true that the reports of judicial decisions
 are filled with the efforts of these companies, by their counsel, to establish the The ordinary test of the value of property is the price it will commend in the market
doctrine for the acts of these agents to the simple receipt of the premium and if offered for sale. But that test cannot, in the very nature of the case, be applied at
delivery of the policy, the argument being that, as to all other acts of the agent, he is the time application is made for insurance. Men may honestly differ about the value
the agent of the assured. This proposition is not without support in some of the of property, or as to what it will bring in the market; and such differences are often
earlier decision on the subject; and, at a time when insurance companies waited for very marked among those whose special business it is to buy and sell property of all
parties to come to them to seek assurance, or to forward applications on their own kinds. The assured could do no more than estimate such value; and that, it seems,
motion, the doctrine had a reasonable foundation to rest upon. But to apply such a was all that he was required to do in this case. His duty was to deal fairly with the
doctrine, in its full force, to the system of selling policies through agents, which we Company in making such estimate. The special finding shows that he discharged
have described, would be a snare and a delusion, leading, as it has done in numerous that duty and observed good faith. We shall not presume that the Company, after
instances, to the grossest frauds, of which the insurance corporations receive the requiring the assured in his application to give the "estimated value," and then to
benefits, and the parties supposing themselves insured are the victims. The tendency covenant that he had stated all material facts in regard to such value, so far as known
of the modern decisions in this country is steadily in the opposite direction. The to him, and after carrying that covenant, by express words, into the written contract,
powers of the agent are, prima facie, co-extensive with the business intrusted to his intended to abandon the theory upon which it sought the contract, and make the
care, and will not be narrowed by limitations not communicated to the person with absolute correctness of such estimated value a condition precedent to any insurance
whom he deals. (Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins. whatever. The application, with its covenant and stipulations, having been made a
Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins. Co., 16 Wis., 241; part of the policy, that presumption cannot be indulged without imputing to the
Davenport vs. Ins. Co., 17 Iowa, 276.) An insurance company, establishing a local Company a purpose, by studied intricacy or an ingenious framing of the policy, to
agency, must be held responsible to the parties with whom they transact business, entrap the assured into incurring obligations which, perhaps, he had no thought of
for the acts and declarations of the agent, within the scope of his employment, as if assuming.
they proceeded from the principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517; Section 163 of the Insurance Law (Act No. 2427) provides that "the effect of a valuation in a
Hortwitz vs.Ins. Co., 40 Mo., 557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins. policy of fire insurance is the same as in a policy of marine insurance."
Co. vs. Bruner, 23 Pa., 50.) By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance is
In the fifth edition of American Leading Cases, 917, after a full consideration of the conclusive if the insured had an insurable interest and was not guilty of fraud.
authorities, it is said: We are, therefore, of the opinion and hold that plaintiff was the owner of the automobile in
"By the interested or officious zeal of the agents employed by the question and had an insurable interest therein; that there was no fraud on her part in procuring
insurance companies in the wish to outbid each other and procure the insurance; that the valuation of the automobile, for the purposes of the insurance, is
customers, they not unfrequently mislead the insured, by a false or binding upon the defendant corporation, and that the judgment of the court below is, therefore,
erroneous statement of what the application should contain; or, taking the correct and must be affirmed, with interest, the costs of this appeal to be paid by the appellant.
preparation of it into their own hands, procure his signature by an So ordered.
assurance that it is properly drawn, and will meet the requirements of the
policy. The better opinion seems to be that, when this course is pursued,
the description of the risk should, though nominally proceeding from the
insured, be regarded as the act of the insurers." (Rowley vs. Empire Ins.
Co., 36 N.Y., 550.)
The modern decisions fully sustain this proposition, and they seem to us founded on
reason and justice, and meet our entire approval. This principle does not admit oral
testimony to vary or contradict that which is in writing, but it goes upon the idea that
the writing offered in evidence was not the instrument of the party whose name is
signed to it; that it was procured under such circumstances by the other side as
estops that side from using it or relying on its contents; not that it may be
contradicted by oral testimony, but that it may be shown by such testimony that it
cannot be lawfully used against the party whose name is signed to it. (See also Am.
Life Ins. Co. vs. Mahone, 21 Wallace, 152.)
The defendant, upon the information given by plaintiff, and after an inspection of the
automobile by its examiner, having agreed that it was worth P3,000, is bound by this valuation
in the absence of fraud on the part of the insured. All statements of value are, of necessity, to a
large extent matters of opinion, and it would be outrageous to hold that the validity of all
valued policies must depend upon the absolute correctness of such estimated value. As was
said by the Supreme Court of the United States in the case of the First National
Bank vs. Hartford Fire Insurance Co. (5 Otto, 673; 24 L. ed., 563), at. p. 565 of the Lawyers
Edition:

G.R. No. L-9401 March 30, 1915
ANTONINA LAMPANO, plaintiff-appellee, vs. PLACIDA A. JOSE, ET AL., defendants-
appellants.
TRENT, J.:
The defendant, Mariano R. Barretto, constructed a house for the other defendant, Placida A.
Jose, on land described as No. 72, plot F. Estate of Nagtahan, district of Sampaloc, city of
Manila, for the agreed price of P6,000. Subsequent thereto and on November 12, 1912,
Placida A. Jose sold the house to the plaintiff, Antonina Lampano, for the sum of P6,000. On
March 22, 1913, the house was destroyed by fire. At the time of the fire Antonina Lampano
still owed Placida A. Jose the sum of P2,000, evidenced by a promissory note, and Placida A.
Jose still owed Mariano R. Barretto on the cost of the construction the sum of P2,000. After
the completion of the house and sometime before it was destroyed, Mariano R. Barretto took
out an insurance policy upon it in his own name, with the consent of Placida A. Jose, for the
sum of P4,000. After its destruction, he collected P3,600 from the insurance company, having
paid in premiums the sum of P301.50.
The plaintiff alleged in her complaint that there was a verbal agreement between her and
Placida A. Jose, at the time of the purchase and sale of the house, to the effect that the latter
agreed to deliver to her the insurance policy on the building; that she did not learn that the
policy was in the name of Barretto until after the fire; and the neither Placida A. Jose nor
Mariano R. Barretto has any right to the insurance or to the money received therefrom. She
prayed for judgment against each of them for the sum of P3,600, the amount of the insurance
collected.
To this complaint the defendant, Placida A. Jose, answered, denying that she agreed to transfer
the policy of insurance to the plaintiff and alleging (a) that the insurance was taken out and
paid for by Barretto before the sale of the house to the plaintiff; (b) that Barretto did this
because he had constructed the house and she was owing him therefor; and (c) that the
insurance was entirely for the personal account and in the exclusive interest of Barretto. In her
cross-complaint she asked for judgment against the plaintiff for the sum of P2,000, the balance
due on the purchase price. Barretto answered, reciting the facts giving rise to his taking out the
insurance on the house and denying any obligation to the plaintiff in connection therewith.
Judgment was entered against Barretto and in favor of Placida A. Jose for the sum of
P1,298.50, being the difference between the amount collected by Barretto on the insurance
and the amount yet due him for the construction of the house, including the premiums paid.
Judgment was also entered in favor of the defendant, Placida A. Jose, against the plaintiff for
the sum of P2,000, being the balance of the purchase price of the house. The plaintiff was
authorized to offset this judgment against her for P2,000 by the P2,000 which the court
declared had been paid the defendant, Placida A. Jose, by Barretto out of the insurance money.
A final judgment was entered in favor of the plaintiff against the defendant, Placida A. Jose,
for the sum of P1,298.50, being the amount of the judgment against Barretto. From this
judgment Barretto alone appealed.
The court found that there was no privity of contract between the plaintiff and the defendant
Barretto. In consequence, no judgment was entered in favor of the plaintiff against the
defendant. The court decided the respective rights of the two defendants to the insurance
money and entered judgment against Barretto and in favor of Placida A. Jose for the sum of
P1,298.50. This was done upon the theory that the insurance policy was held in trust for
Placida A. Jose, and that any balance, resulting after deducting the amount owing upon the
construction contract and paid for premiums, belonged to her. Neither by the pleading nor
upon the trial was there any claim made by Placida A. Jose against Barretto for the insurance
money, nor for any participation therein. Placida A. Jose's answer specifically alleged that
such insurance was for Barretto's personal account and in his exclusive rights. Her testimony
is equally positive upon this point. She says:
Q. Was the house insured when you sold it to Antonina Lampano?
A. It was insured by Mariano Barretto because he is the one constructed that
house.
Q. Did you have any interest in that insurance?
A. I was indebted to him and he insured the house in his own name from 1911.
Q. Did you have any right, interest or participation in that insurance?
A. I have none.
Q. Who was paying the premiums on that insurance?
A. M. Barretto.
The result is that there was no controversy between the defendants concerning this insurance,
nor was any issue presented which required an adjudication of their respective rights thereto.
So far as Barretto was concerned, the only issue raised, either by the pleadings or at the trial,
was, Has the plaintiff any right to recover from Barretto any portion of the insurance money?
The plaintiff sought to recover from Barretto all of the P3,600, but she is now contented with a
judgment against Placida A. Jose for P1,298.50. Her right to recover this amount of the
insurance rests upon an alleged verbal agreement between herself and Placida A. Jose to the
effect that the latter agreed, at the time of the purchase and sale of the house, to transfer to her
the insurance policy, the policy being held in trust by Barretto for the benefit of the Jose
woman. The plaintiff does not contend that Barretto participated in this sale, or even had any
knowledge of it, until sometime after it was consummated. Placida A. Jose denies that she
agreed to transfer the policy to the plaintiff, and the deed of purchase and sale makes no
mention of such an agreement. The policy is not mentioned in this document, although it was
agreed that the vendor would transfer to the vendee all of the former's right, title, and interest
in the leasehold to the land upon which the house was built. It would seem that if the vendor
agreed to transfer the policy, this agreement would have been inserted in the document of
purchase and sale, the same as that with reference to the lease. The trial court did not find that
such an agreement existed and we think the plaintiff has failed to establish this verbal
agreement.
If Barretto had an insurable interest in the house, he could insure this interest for his sole
protection. The policy was in the name of Barretto alone. It was, therefore, a personal contract
between him and the company and not a contract which ran with the property. According to
this personal contract the insurance policy was payable to the insured without regard to the
nature and extent of his interest in the property, provided that he had, as we have said, an
insurable interest at the time of the making of the contract, and also at the time of the fire.
Where different persons have different interests in the same property, the insurance taken by
one in his own right and in his own interest does not in any way insure to the benefit of
another. This is the general rule prevailing in the United States and we find nothing different
in this jurisdiction. (19 Cyc., 883.)
in a court of law, to the proceeds of it, unless there be some contract or trust, expressed or
implied, between the insured and third persons."
In Burlingane vs. Goodspeed (10 L. R. A., 495), the court says that where a mortgage at his
own expense and without any agreement or understanding with he mortgagor obtains
insurance upon his interest as a mortgage and collects the money from the insurer after a loss,
he is not bound to account for it to the mortgagor.
In the case at bar Barretto assumed the responsibility for the insurance. The premiums, as we
have indicated, were paid by him without any agreement or right to recoup the amount paid
therefor should no loss result to the property. It would not, therefore, be in accordance with t
he law and his contractual obligations to compel him to account for the insurance money, or
any par thereof, to the plaintiff, who assumed no risk whatever.
That Barretto had an insurable interest in the house, we think there can be no question. He
construed the building, furnishing all the materials and supplies, and insured it after it had
been completed (pars. 3 and 5, art. 1923, Civil Code; Manresa, Vol. 12, pp. 692-695; citing
decision of the supreme court of Spain of December 30, 1896).

In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L. R. A., 461, Mrs. Shagett For the foregoing reasons the judgment appealed from, in so far as it affects the appellant, is
received a piano as a gift from her husband and insured it. She knew that it was the obligation reversed and he is absolved. Without costs. So ordered.
of her husband to insure he piano for the benefit of the vendor. The court held, however, that
the vendor (mortgagee) was not entitled to the proceeds of the insurance as "there was no
undertaking on the part of Mrs. Shadgett to either insure for complainant's benefit, or to
assume her husband's obligation to so insure, and mere knowledge of that obligation did not
impose it upon her."

The court further said: "The contract of insurance was wholly between the defendant and the
insurance company, and was personal, in the sense that the money agreed to be paid in case of
loss was not to stand in the place of the piano itself, but was a mere indemnity against the loss
of defendant's interest therein. If her interest was small, on account of incumbrances existing
in favor of the complainant, that fact was for the consideration only of the insurer and
defendant, for complaint has no concern with the adjustment of the loss between them. We
know of no principle, either of law or equity, which would bind defendant to carry out her
donor's contract to insure, in the absence of any agreement on her part to do so, even though
the property in her hands was subject to complainant's rights therein as a conditional vendor."

The court further says: "A contract of insurance made for the insurer's (insured) indemnity
only, as where there is no agreement, express or implied, that it shall be for the benefit of a
third person, does not attach to or run with the title to the insured property on a transfer
thereof personal as between the insurer and the insured. In such case strangers to the contract
cannot require in their own right any interest in the insurance money, except through an
assignment or some contract with which they are connected."

In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was held that the mortgage is
not entitled to the proceeds of an insurance policy procured by the mortgages, there being no
agreement that such insurance should be effected by the latter for the benefit of the former.
The court says: "It is well settled that a policy of insurance is a distinct independent contract
between the insured and insurers, and third person have no right either in a court of equity, or

G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner, vs. INSURANCE COMPANY OF NORTH
AMERICA, Respondent.
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-
322 and upheld the causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." 2 The policies defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." 3 The policies also provide for the
following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect
of the merchandise sold and delivered by the Insured which are outstanding at the
date of loss for a period in excess of six (6) months from the date of the covering
invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days
after the close of every calendar month all amount shown in their books of accounts
as unpaid and thus become receivable item from their customers and dealers. x x x 4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed
by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges
that IMC and LSPI filed with respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of
IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for payment upon petitioner but these went
unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be
held liable because the property covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was due to fire which it could
not prevent or foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured. 6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on
the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held
that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise remains
the property of the vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-
appellant to the insured Inter Capitol Marketing Corporation, plus legal interest from
the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant
to the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand
until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by
petitioner since the proviso contained in the sales invoices is an exception under Article 1504
(1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk
is borne by the owner of the thing at the time the loss under the principle of res perit domino;
that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation to pay is not extinguished, even if the
fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the
vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER
UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of the
non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over
credit, there was no loss as the accounts were not yet due since no prior demands were made
by IMC and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer
IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.
For its part, respondent counters that while ownership over the ready- made clothing materials
was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said
goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire was caused
through petitioner's negligence in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short circuit unless there are
defects in their installation or when there is lack of proper maintenance and supervision of the
property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's
valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses
and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before
it from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them. 18 The Supreme Court
is not a trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the
Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making
its findings the CA went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion. 21 Exceptions (4), (5), (7),
and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction.22 In this case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and
defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided
in the questioned insurance policies that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. 25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods are
at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk
of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but whether insured has
substantial economic interest in the property. 28
Section 13 of our Insurance Code defines insurable interest 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." Parenthetically, under Section
14 of the same Code, an insurable interest in property may consist in: (a) an existing interest;
(b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured. 29 Anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its
destruction.30Indeed, a vendor or seller retains an insurable interest in the property sold so long
as he has any interest therein, in other words, so long as he would suffer by its destruction, as
where he has a vendor's lien. 31 In this case, the insurable interest of IMC and LSPI pertain to
the unpaid accounts appearing in their Books of Account 45 days after the time of the loss
covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of money, the failure of the debtor to make
the payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The
rationale for this is that the rule that an obligor should be held exempt from liability when the
loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation
is generic in the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation. 35 This rule is based
on the principle that the genus of a thing can never perish. Genus nunquan perit. 36 An
obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any
specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount
of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit
"F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and marked
as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle
the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991
from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the
amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11,
2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00
to respondent is DELETED for lack of factual basis.
No pronouncement as to costs. SO ORDERED.
VICENTE ONG LIM SING, JR., G.R. No. 168115
Petitioner,
Present:
YNARES-SANTIAGO, J.,
- versus - Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.
FEB LEASING & FINANCE CORPORATION, Promulgated:
Respondent.
June 8, 2007
x------------------------------------------------------------------------------------x
NACHURA, J.:
This is a petition for review on certiorari assailing the Decision [1] dated March 15, 2005and the
Resolution[2] dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease [3]of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong
Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement [4] with FEB to guarantee the
prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates [5] over the
equipment and motor vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand
Four Hundred Ninety-Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in
arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos
(P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the
said amount. However, JVL failed to pay.[6]
On December 6, 2000, FEB filed a Complaint [7] with the Regional Trial Court of
Manila, docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin
against JVL, Lim, and John Doe.
In the Amended Answer,[8] JVL and Lim admitted the existence of the lease
agreement but asserted that it is in reality a sale of equipment on installment basis, with FEB
acting as the financier. JVL and Lim claimed that this intention was apparent from the fact that
they were made to believe that when full payment was effected, a Deed of Sale will be
executed by FEB as vendor in favor of JVL and Lim as vendees. [9] FEB purportedly assured
them that documenting the transaction as a lease agreement is just an industry practice and that
the proper documentation would be effected as soon as full payment for every item was
made. They also contended that the lease agreement is a contract of adhesion and should,
therefore, be construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court stressed the contradictory terms it
found in the lease agreement. The pertinent portions of the Decision dated November 22,
2002 read:
A profound scrutiny of the provisions of the contract which is a contract of
adhesion at once exposed the use of several contradictory terms. To name
a few, in Section 9 of the said contract disclaiming warranty, it is stated
that the lessor is not the manufacturer nor the latters agent and therefore
does not guarantee any feature or aspect of the object of the contract as to
its merchantability. Merchantability is a term applied in a contract of sale
of goods where conditions and warranties are made to apply. Article 1547
of the Civil Code provides that unless a contrary intention appears an
implied warranty on the part of the seller that he has the right to sell and to
pass ownership of the object is furnished by law together with an implied
warranty that the thing shall be free from hidden faults or defects or any
charge or encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in advance and parties
are not given a real arms length opportunity to transact, the Courts treat
this kind of contract strictly against their architects for the reason that the
party entering into this kind of contract has no choice but to accept the
terms and conditions found therein even if he is not in accord therewith
and for that matter may not have understood all the terms and
stipulations prescribed thereat. Contracts of this character are prepared
unilaterally by the stronger party with the best legal talents at its disposal.
It is upon that thought that the Courts are called upon to analyze closely
said contracts so that the weaker party could be fully protected.
Another instance is when the alleged lessee was required to insure the
thing against loss, damage or destruction.
In property insurance against loss or other accidental causes, the assured
must have an insurable interest, 32 Corpus Juris 1059.
xxxx
It has also been held that the test of insurable interest in property is
whether the assured has a right, title or interest therein that he will be
benefited by its preservation and continued existence or suffer a direct
pecuniary loss from its destruction or injury by the peril insured against. If
the defendants were to be regarded as only a lessee, logically the lessor
who asserts ownership will be the one directly benefited or injured and
therefore the lessee is not supposed to be the assured as he has no
insurable interest.
There is also an observation from the records that the actual value of each
object of the contract would be the result after computing the monthly
rentals by multiplying the said rentals by the number of months specified
when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of
Absolute Sale by and between the same parties, plaintiff and defendants
which was an exhibit of the defendant where the plaintiff sold to the same
defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in
said Deed, The Court noticed that the same terms as in the alleged lease
were used in respect to warranty, as well as liability in case of loss and
other conditions. This action of the plaintiff unequivocally exhibited their
real intention to execute the corresponding Deed after the defendants have
paid in full and as heretofore discussed and for the sake of emphasis the
obscurity in the written contract cannot favor the party who caused the
obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. If the words appear to be contrary
to the evident intention of the parties, their contemporaneous and
subsequent acts shall be principally considered. If the doubts are cast upon
the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall
be null and void.[10]
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no
chattel mortgage on the thing sold, but it appears amongst the Complaints
prayer, that the plaintiff elected to exact fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance
of the price because of the previous payments made by the defendants for
the reasonable use of the units, specially so, as it appears, these returned
vehicles were sold at auction and that the plaintiff can apply the proceeds
to the balance. However, with respect to the unreturned units and
machineries still in the possession of the defendants, it is this Courts view
and so hold that the defendants are liable therefore and accordingly are
ordered jointly and severally to pay the price thereof to the plaintiff
together with attorneys fee and the costs of suit in the sum of
Php25,000.00.
SO ORDERED.[11]
On December 27, 2002, FEB filed its Notice of Appeal. [12] Accordingly, on January
17, 2003, the court issued an Order[13] elevating the entire records of the case to the CA. FEB
averred that the trial court erred:
A. When it ruled that the agreement between the Parties-Litigants is one
of sale of personal properties on installment and not of lease;
B. When it ruled that the applicable law on the case is Article 1484 (of the
Civil Code) and not R.A. No. 8556;
C. When it ruled that the Plaintiff-Appellant can no longer recover
the unpaid balance of the price because of the previous payments made by
the defendants for the reasonable use of the units;
D. When it failed to make a ruling or judgment on the Joint and
Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-Appellant. [14]
On March 15, 2005, the CA issued its Decision[15] declaring the transaction between
the parties as a financial lease agreement under Republic Act (R.A.) No. 8556.[16] The fallo of
the assailed Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed
Decision dated 22 November 2002 rendered by the Regional Trial Court
of Manila, Branch 49 in Civil Case No. 00-99451
is REVERSED and SET ASIDE, and a new judgment is
hereby ENTERED ordering appellees JVL Food Products and Vicente
Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance
Corporation the amount of Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty Eight Pesos and 75/100
(Php3,414,468.75), with interest at the rate of twelve percent (12%) per
annumstarting from the date of judicial demand on 06 December 2000,
until full payment thereof. Costs against appellees.
SO ORDERED.[17]
Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
I
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY
SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM
RESPONDENTS BOARD OF DIRECTORS AND/OR SECRETARYS
CERTIFICATE.
 II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES
OF CIVIL PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-
09 SC (JUNE 8, 2004).
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT
DISMISSING THE APPEAL FOR FAILURE OF THE RESPONDENT
TO FILE ON TIME ITS APPELLANTS BRIEF AND TO SEPARATELY
RULE ON THE PETITIONERS MOTION TO DISMISS.
IV
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT
THE CONTRACT BETWEEN THE PARTIES IS ONE OF A
FINANCIAL LEASE AND NOT OF A CONTRACT OF SALE.
V technicalities." "Lawsuits unlike duels are not to be won by a rapier's
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE PAYMENTS PAID BY THE PETITIONER TO THE
RESPONDENT ARE RENTALS AND NOT INSTALLMENTS PAID
FOR THE PURCHASE PRICE OF THE SUBJECT MOTOR
VEHICLES, HEAVY MACHINES AND EQUIPMENT.
VI
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-UP
VEHICLE IS OF NO CONSEQUENCE.
VII
THE HONORABLE COURT OF APPEALS FAILED TO TAKE
INTO CONSIDERATION THAT THE CONTRACT OF LEASE, A
CONTRACT OF ADHESION, CONCEALED THE TRUE INTENTION
OF THE PARTIES, WHICH IS A CONTRACT OF SALE.
VIII
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE PETITIONER IS A LESSEE WITH INSURABLE INTEREST
OVER THE SUBJECT PERSONAL PROPERTIES.
IX
THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING
THE INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE
TERM MERCHANTABILITY.[18]
We affirm the ruling of the appellate court.
First, Lim can no longer question Galangs authority as FEBs authorized
representative in filing the suit against Lim. Galang was the representative of FEB in the
proceedings before the trial court up to the appellate court. Petitioner never placed in issue the
validity of Galangs representation before the trial and appellate courts. Issues raised for the
first time on appeal are barred by estoppel. Arguments not raised in the original proceedings
cannot be considered on review; otherwise, it would violate basic principles of fair play. [19]
Second, there is no legal basis for Lim to question the authority of the CA to go
beyond the matters agreed upon during the pre-trial conference, or in not dismissing the
appeal for failure of FEB to file its brief on time, or in not ruling separately on the petitioners
motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties right to due process. In numerous cases, this Court
has allowed liberal construction of the rules when to do so would serve the demands of
substantial justice and equity.[20] In Aguam v. Court of Appeals, the Court explained:
The court has the discretion to dismiss or not to dismiss an appellant's
appeal. It is a power conferred on the court, not a duty. The "discretion
must be a sound one, to be exercised in accordance with the tenets of
justice and fair play, having in mind the circumstances obtaining in each
case." Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's primary duty is
to render or dispense justice. "A litigation is not a game of
thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided on their merits
and not on technicality. Every party litigant must be afforded the amplest
opportunity for the proper and just determination of his cause, free from
the unacceptable plea of technicalities. Thus, dismissal of appeals purely
on technical grounds is frowned upon where the policy of the court is to
encourage hearings of appeals on their merits and the rules of procedure
ought not to be applied in a very rigid, technical sense; rules of procedure
are used only to help secure, not override substantial justice. It is a far
better and more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on appeal to
attain the ends of justice rather than dispose of the case on technicality and
cause a grave injustice to the parties, giving a false impression of speedy
disposal of cases while actually resulting in more delay, if not a
miscarriage of justice.[21]
Third, while we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters into an
adhesion contract is free to reject the stipulations entirely. [22] If the terms thereof are accepted
without objection, then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute the
entire agreement between them, and that no representations have been
made other than as set forth herein. This Agreement shall not be amended
or altered in any manner, unless such amendment be made in writing and
signed by the parties hereto.
Petitioners claim that the real intention of the parties was a contract of sale of personal
property on installment basis is more likely a mere afterthought in order to defeat the rights of
the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section
3(d) thereof defines financial leasing as:
[A] mode of extending credit through a non-cancelable lease contract
under which the lessor purchases or acquires, at the instance of the lessee,
machinery, equipment, motor vehicles, appliances, business
and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy (70%) of the purchase price
or acquisition cost, including any incidental expenses and a margin of
profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property with the
right to expense the lease rentals paid to the lessor and bears the cost of
repairs, maintenance, insurance and preservation thereof, but with no
obligation or option on his part to purchase the leased property from the
owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in consideration of a
monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to
amortize at least 70% of the purchase price or acquisition cost of the said movables in
accordance with the Lease Schedules with Delivery and AcceptanceCertificates. The
basic purpose of a financial leasing transaction is to enable the prospective buyer of
equipment, who is unable to pay for such equipment in cash in one lump sum, to lease such
equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of
the acquisition cost (including the expenses and a margin of profit for the financial lessor)
with the expectation that at the end of the lease period the buyer/financial lessee will be able to
pay any remaining balance of the purchase price. [23]
The allegation of petitioner that the rent for the use of each movable constitutes the
value of the vehicle or equipment leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make the transaction between the parties
a sale of personal property on installment. In fact, the value of the lease, usually constituting
the value or amount of the property involved, is a benefit allowed by law to the lessor for the
use of the property by the lessee for the duration of the lease. It is recognized that the value of
these movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC
Finance Corporation,[24] we stated that:
Generally speaking, a financing company is not a buyer or seller of goods;
it is not a trading company. Neither is it an ordinary leasing company; it
does not make its profit by buying equipment and repeatedly leasing
out such equipment to different users thereof. But a financial lease must be
preceded by a purchase and sale contract covering the equipment which
becomes the subject matter of the financial lease. The financial lessor
takes the role of the buyer of the equipment leased. And so the formal or
documentary tie between the seller and the real buyer of the equipment,
i.e., the financial lessee, is apparently severed. In economic reality,
however, that relationship remains. The sale of the equipment by the
supplier thereof to the financial lessor and the latter's legal ownership
thereof are intended to secure the repayment over time of the purchase
price of the equipment, plus financing charges, through the payment of
lease rentals; that legal title is the upfront security held by the financial
lessor, a security probably superior in some instances to a chattel
mortgagee's lien.[25]
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld.
JVL entered into the lease contract with full knowledge of its terms and conditions. The
contract was in force for more than four years. Since its inception on March 9, 1995, JVL and
Lim never questioned its provisions. They only attacked the validity of the contract after they
were judicially made to answer for their default in the payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and
conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the force
of law between the parties. [26] Contracting parties may stipulate on terms and conditions as
they may see fit and these have the force of law between them. [27]
The stipulation in Section 14 [28] of the lease contract, that the equipment shall be
insured at the cost and expense of the lessee against loss, damage, or destruction from fire,
theft, accident, or other insurable risk for the full term of the lease, is a binding and valid
stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor
vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable
interest in property is the extent to which the insured might be damnified by loss or injury
thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or
destruction of any of the properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not
warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease
contract is stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE
EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR
SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER
THEREOF AND THAT THERE ARE NO WARRANTIES,
CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY
OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR
ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO
ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT
WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR
SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS.
[29]
In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, in case of defect
of any kind that will be found by the lessee in any of the equipment, recourse should be made
to the manufacturer. The financial lessor, being a financing company, i.e., an extender of credit
rather than an ordinary equipment rental company, does not extend a warranty of the fitness of
the equipment for any particular use. Thus, the financial lessee was precisely in a position to
enforce such warranty directly against the supplier of the equipment and not against the
financial lessor. We find nothing contra legem or contrary to public policy in such a
contractual arrangement.[30]
Fifth, petitioner further proffers the view that the real intention of the parties was to
enter into a contract of sale on installment in the same manner that a previous transaction
between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by
an agreement denominated as a lease and eventually became the subject of a Deed of Absolute
Sale.
We join the CA in rejecting this view because to allow the transaction involving the
pick-up to be read into the terms of the lease agreement would expand the coverage of the
agreement, in violation of Article 1372 of the New Civil Code. [31] The lease contract subject
of the complaint speaks only of a lease. Any agreement between the parties after the lease
contract has ended is a different transaction altogether and should not be included as part of
the lease. Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of
a contract are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to
determine the parties' intent.[32]
WHEREFORE, in the light of all the foregoing, the petition is DENIED. The
Decision of the CA in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution
dated May 23, 2005 are AFFIRMED. Costs against petitioner.
SO ORDERED.
[G.R. No. L-6442. September 21, 1954.]
TRADERS INSURANCE & SURETY CO., recurrente, contra JUAN GOLANGCO Y
OTRA, recurridos.
Sres. Quisumbing, Sycip, Quisumbing y Salazar, en representacion del recurrente.
Sres. Ramon Diokno y Jose W. Diokno, en representacion del recurrido.
SYLLABUS
1. APELACION; RELACION DE ERRORES; ESTA OBLIGADO EL TRIBUNAL DE
APELACION A CONSIDERAR TODOS LOS ERRORES SEALADOS EN LA
RELACION DE ERRORES, PERO NO TODAS QUE SE SUSCITEN EN EL CURSO DE
LOS ARGUMENTOS. La Ley No. 296 se discutio y se aprobo en ingles; tenemos que
adoptar el texto ingles y no la traduccion al castellano. El artivulo 22 de dicha ley, hablar de
cuestiones que se susciten debidamente ante el Tribunal de Apelacion no quire decir este tiene
que resolver todas las cuestiones que de los argumentos. No es ese el lugar apropriado; hay
que suscitarlo en la relacion de errores. Notese que emplea las plabras "properly raised" y no
raised solamente. No basta suscitar la cuestion: es necesario suscitarla en el lugar y tiempo
opurtunos. Es una bien establecida practica forense la de que no se considerara ninguna
cuestion que no se haya suscitado debidamente en la relacion de errores, a menos que se trate
de falta de jurisdiccion, que se puede suscitar en cuaquier estado del asunto.
PABLO, M. :
Se trata del cobro de una poliza de seguro contra incendio porvalor de P10,000. El
demandante tenia derecho a recibir P1,100 mensuales de Melitona Estrella en concepto de
alquileres del edificio No. 34 Plaza Sta. Cruz, Manila, por espacio de cinco aos. El
demandante aseguro este derecho, pago la prima y la demandada expidio la poliza
correspondiente. Dos meses despues de haberse incendiado el edificio, el demandante requirio
a la Traders Insurance & Surety Co. el pago del importe del seguro. Como la demandada
rehusaba pagarlo, el demandante acudio al Juzgado de Primera Instancia de Manila, el cual
dicto sentencia a favor de este. El Tribunal de Apelacion confirmo la sentencia.
En recurso de certiorari, la Traders Insurance & Surety Co. acude a este Tribunal, alegando
que el Tribunal de Apelacion cometio dos errores: 1 (a) al dictar sentencia sin una completa
conclusion de hechos de todas las cuestiones suscitadas, como requiere el articulo 33 de la Ley
No. 296, y 1 (b) al no hacer conclusiones de hecho en cuanto a la aplicacion de la regla de
prueba oral; y (2) al dictar sentencia sin conclusiones de hecho en cuanto a los Exhibits 10-H
y 10-I.
Cuanto al error 1 (a). Cuales son las cuestiones que habian sido propiamente suscitadas ante
el Tribunal de Apelacion? La mejor contestacion es la primera pagina del alegato de la
apelante (hoy recurrente) que dice asi:virtual 1aw
BRIEF FOR THE APPELLANT"ASSIGNMENT OF ERRORS
I
"THE LOWER COURT ERRED IN HOLDING THAT THE FIRE INSURANCE POLICY
EXHIBIT A COVERS ALL APPELLEES INTERESTS IN THE PREMISES NO. 34
PLAZA STA. CRUZ, MANILA, ESPECIALLY HIS RIGHT TO COLLECT RENTALS
THEREFROM,
II
"THE LOWER COURT ERRED IN HOLDING THAT THE APPELLEE HAD INSURABLE
INTEREST CONSISTING OF A RIGHT TO RECEIVE RENTALS BOTH AT THE TIME
WHEN THE INSURANCE TOOK EFFECT AND WHEN THE LOSS OCCURRED."cralaw
virtua1aw library
Al resolver estas cuestiones el Tribunal de Apelacion, despues de transcribir toda la decision
del Juzgado de Primera Instancia, dijo lo siguiente en su decision:jgc:chanrobles.com.ph
"As stated by the lower court, the basic facts on which both parties base their respective
contentions are not disputed, and we have quoted the decision appealed from in full because
we find that the facts established in the case cannot lead to other conclusions than those
arrived at by the trial judge. There is no doubt in our mind that both at the time of the
execution of the fire policy (Exhibit A) on April 7, 1949, and on June 5, 1949, when the
destruction by fire of the property for which the said policy was issued took place, plaintiff
Juan Golangco had an insurable interest on the property insured which included the rents of
premises No. 34 Plaza Sta. Cruz, Manila, Philippines, District 4, Block No. 47; and it is
particularly so because the policy prepared and issued by the very defendant specifically states
that all insurance covered under said policy, includes the rent or other subject matter of
insurance in respect of or in connection with any building or any property contained in any
building. Under the evidence on record We cannot alter in the least the decision aforequoted
which is hereby adopted by this Court."cralaw virtua1aw library
Las conclusiones de hecho del Juzgado de Primera Instancia (sin incluir la relacion de hechos)
que fueron adoptadas por el Tribunal de Apelacion son las siguientes:jgc:chanrobles.com.ph
"After considering the manner of testifying of these witnesses, the evasiveness of the witness
Limpe, the improbability of his testimony, and the failure of defendant to present Antonio
Paredes, the clerk who admittedly investigated the premises in question, the Court finds that
plaintiffs version is more credible; that, before the policy (Exhibit A) was issued, plaintiff
made full and clear exposal of his interests in the premises; and that the said fire policy,
(Exhibit A) covers all of plaintiffs interests in the premises No. 34 Plaza Sta. Cruz, Manila,
especially his right to collect rentals therefrom under the decision of this Court in Civil Case
No. 6306 (Exhibit C). This finding is further strengthened by the fact that paragraph 4 of the
said fire policy (Exhibit A), above quoted, includes insurance on rent; and accords with rule
that a policy is to be interpreted in favor of the assured.
"The argument of the defendant that, under section 49 of the Insurance Law, a policy of
insurance must specify the interest of the insured in the property insured, if he is not the
absolute owner thereof, is not meritorious because it was the defendant, not plaintiff, who
prepared that policy, and it cannot take advantage of its own acts to plaintiffs detriment; and,
in any case, this provision was substantially complied with by plaintiff when he made a full
and clear statement of his interests to defendants manager.
"Having found that the policy covered all of plaintiffs interests in the premises described
therein, including his right to receive rentals, we must next determine whether he had any
insurable interest therein when the policy was issued and when the fire occurred. We find that
he did so have. By virtue of the contract between Tomas B. Lianco and the Archbishop,
Lianco erected the building of which the premises in question form part and became owner
thereof (Exhibit 4-D). He transferred the ownership of the premises in question to kaw Eng Si
(Exhibit D), who in turn transferred it to plaintiff Juan Golangco (Exhibit E). Lianco and the
actual occupant of the premises acknowledged plaintiffs right to collect rentals thereon in a
compromise agreement which was incorporated in a judicial judgment (Exhibit C). Both at the
time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal
possession of the premises, collecting rentals from its occupant (tr., Nov. 7, 1950, pp. 8, 10). It
seems plain that if the premises were destroyed as they were by fire, Golangco would
be, as he was, directly damnified thereby; and hence he had an insurable interest therein
(section 12, Insurance Law).
"Defendants contrary contentions are without merit. The contract between Lianco and the
Archbishop only forbade Lianco from transferring his rights as LESSEE (Exhibit. 4-D); but
the contracts Lianco made in favor of Kaw Eng Si (Exhibit D) and plaintiff Golangco (Exhibit
C) did not transfer such rights; and hence no written consent thereto was necessary. At worst,
the contract would be voidable, but not a void contract, at the option of the Archbishop; but
this would not deprive Golangco of his insurable interest until such option were exercised; and
it does not appear that it was ever exercised.
"The ejectment case filed by the Archbishop against Lianco did not remove nor destroy
plaintiffs insurable interest: first, because plaintiff was not a party thereto and cannot be
bound thereby; and second, because the judgment of the Municipal Court, at least as late as
February 14, 1950, had not been executed so far as possession of the premises were concerned
(Exhibit G-10). In fact, not even garnishments were issued against Melitona Estrella, So Eng
Si (her husband) or plaintiff Golangco, the actual and legal possessors of the premises (Exhibit
F); so that, as far as plaintiff Golangco was concerned, his right to the premises and to the
rentals thereon continued to exist on June 5, 1949 when the fire took place."cralaw virtua1aw
library
Las conclusiones de hecho adoptadas por el Tribunal de Apelacion establecen que el
demandante aseguro su interes en el edificio No. 34 Plaza Sta. Cruz, consistente en el derecho
de cobrar alquileres y que dicho inters asegurable existia al tiempo del seguro y al ocurrir el
incendio.
Carece de base, por tanto, la contencion de la recurrente de que la decision del Tribunal de
Apelacion no contiene conclusiones de hecho de las cuestiones debidamente suscitadas. Error
1 (b). La contencion de la recurrente de que el Tribunal de Apelacion debio de haber hecho
constar en su decision las conclusiones de hecho relativas a la aplicacion de la regla sobre
prueba oral tampoco tiene fundamento. Si la apelante queria suscitar la indebida admision del
testimonio oral del demandante, o si queria pedir el descarte de dicho testimonio, debio de
haberlo sealado en la relacion de errores, diciendo que el juez erro al admitir el testimonio
oral del demandante, o que el Juez erro al no descartar el testimonio oral del demandante a
pesar de la peticion debidamente presentada.
En el parrafo 3 de los argumentos en apoyo del primer error, bajo el titulo de Argument, (pag.
13 del alegato presentado en el Tribunal de Apelacion), es cuando tal cuestion se planteo por
primera vez, en vez de suscitarla en la relacion de errores: no se planteo, pues, en su debido
lugar y en el tiempo oportuno. (Regla 48, art. 17). El Tribunal de Apelacion no es un buzo que
tiene que buscar en los argumentos del alegato cuales son los errores cometidos.
En cuanto al segundo error, o sea, que el Tribunal de Apelacion no ha establecido conclusiones
de hecho sobre los Exhibits 10-H y 10- I, opinamos que esta despojado de merito, por dos
razones: 1. porque no se suscito en la relacion de errores, y 2.a porque en la decision existen
tales conclusiones, aunque no son del agrado de la recurrente. Ella dice en su alegato, pagina
31:jgc:chanrobles.com.ph
"The Court of Appeals adopted the finding of the trial court that not even garnishment was
issued against Melitona Estrella, So Eng Si (her husband), or plaintiff Golangco. The decision
of the Court of Appeals should therefore contain the following finding of fact:chanrob1es
virtual 1aw library
(a) That Exhibits 10-H and 10-I clearly prove that notice of garnishment was served on No.
34 Plaza Sta. Cruz (the property in question) and the occupants of No. 34 Plaza Sta. Cruz
made return to the said garnishment."cralaw
virtua1aw library
Por lo visto, la recurrente desea que este Tribunal enmiende las conclusiones de hecho del
Tribunal de Apelacion sobre los Exhibits 10- H y 10-I, cosa que no podemos hacer. No
revisamos las pruebas. De si ha errado o no el Tribunal de Apelacion en dichas conclusiones,
no esta en nosotros el enderezarlas. No debemos inmiscuirnos en las funciones que, por
disposicion de la ley, corresponden a dicho tribunal.
La ley citada por la recurrente dice asi:jgc:c
hanrobles.com.ph "Error no apuntado en la relacion de errores en una causa civil se considera error consentido
"Every decision of the Court of Appeals shall contain complete findings of fact on all issues por la parte interesada." (Vitug v. Montemayor, 49 Off. Gaz., 5350.)
properly raised before it."cralaw
virtua1aw library Declaramos que una cuestion no especificada en la relacion de errores no esta debidamente
Pero en espaol dice asi:jgc:chanrobles planteada, y el Tribunal de Apelacion no esta obligado a resolverla.
.com.ph
"Toda decision del Tribunal de Apelaciones contendra una relacion completa de los hechos de Se deniega la peticion con costas contra la recurrente.
todas las cuestiones que se susciten ante el mismo."cralaw
virtua1aw library
La traduccion al castellano no es exacta. Si nos atuviesemos a la traduccion al espaol, la
decision del Tribunal de Apelacion no deberia contener mas que una "relacion completa de los
hechos de todas las cuestiones" que se hubieren suscitado en el mismo. Faltaria algo, a saber:
las conclusiones de hecho del tribunal. La "relacion completa de los hechos" no es equivalente
a "la relacion completa de las conclusiones de hecho." La relacion de hechos "statement of
facts" viene a ser la narracion de los hechos del asunto para que se sepa en que consiste. La ley
en ingles habla de complete findings of fact o conclusiones completas de hecho. Las
conclusiones de hecho (findings of fact) son las que el tribunal adopta despues de estudiar,
discutir y considerar las pruebas contradictorias presentadas en juicio. Como la Ley No. 296
se discutio y se aprobo en ingles, tenemos que adoptar el texto ingles y no la deficiente
traduccion al castellano.

El articulo 33 de dicha ley, al hablar de cuestiones que se susciten debidamente ante el

Tribunal de Apelacion, no quiere decir que este tiene que resolver todas las cuestiones que se
susciten en cualquier estado de la causa o en el curso de los argumentos. No es ese el lugar
apropiado: hay que suscitarlo en la relacion de errores. Notese que emplea las palabras
"properly raised" y no raised solamente. No basta suscitar la cuestion: es necesario suscitarla
en el lugar y tiempo oportunos. Es una bien establecida practica forense la de que no se
considerara ninguna cuestion que no se haya suscitado debidamente en la relacion de errores, a
menos que se trate de falta de jurisdiccion, que se puede suscitar en cualquier estado del
asunto. (Enriquez y otros contra Enriquez y otra, 8 Jur. Fil., 574; Capellania de Tambobong
contra Antonio, 8 Jur. Fil., 693; Paterno contra Ciudad de Manila, 17 Jur. Fil., 26; Santiago
contra Felix, 24 Jur. Fil., 391; Tan Me Nio contra Administrador de Aduanas, 34 Jur. Fil., 992;
Granados y Granados contra Bandelaria, 45 Jur. Fil., 530; Gemora contra Concejo Municipal
de Ilog, 58 Jur. Fil., 377; Sanchez contra Director de Terrenos, 63 Jur. Fil., 403; Tan Si Kiok,
Et. Al. v. Macario Tiacho, 45 Off. Gaz., 2466, 79 Phil., 696; y Villareal v. The People of the
Philippines, 47 Off. Gaz., 191, 84 Phil., 264.)

"Where an appeal is taken to this court from any court, the appellant shall file with the clerk of
the court below, with his petition for appeal, an assignment of errors, which shall set out
separately and particularly each error asserted. No appeal shall be allowed unless such an
assignment of errors shall accompany the petition." (Rule 9, Revised Rules of the Supreme
Court of the United States, 11 U. S. Supreme Court Report Digest.)

"The Supreme Court of the United States will not consider a question not raised below, not
discussed by the lower court, and not included in the assignment of errors." (Pacific States
Box & Basket Co. v. S. T. White, Et Al., 80 L ed., 138.)

Podriamos enumerar una larga lista de decisiones de los Tribunales Supremos de los estados
de la Union Americana que tienen reglamento similar al nuestro; pero los casos citados
bastan.

G.R. No. L-19189 November 27, 1922
FROILAN LOPEZ, plaintiff-appellant, vs. SALVADOR V. DEL ROSARIO and BENITA
QUIOGUE DE V. DEL ROSARIO, defendants-appellants.
MALCOLM, J.:
Both parties to this action appeal from the judgment of Judge Simplicio del Rosario of the
Court of First Instance of Manila awarding the plaintiff the sum of 88,495.21 with legal
interest from May 13, 1921, without special finding as to costs.
The many points pressed by contending counsel can be best disposed of by, first, making a
statement of the facts; next, considering plaintiff's appeal; next, considering defendant's
appeal; and, lastly, rendering judgment.
STATEMENT OF THE FACTS
On and prior to June 6, 1920, Benita Quiogue de V. del Rosario, whom we will hereafter call
Mrs. Del Rosario, was the owner of a bonded warehouse situated in the City of Manila. She
was engaged in the business of a warehouse keeper, and stored copra and other merchandise in
the said building. Among the persons who had copra deposited in the Del Rosario warehouse
was Froilan Lopez, the holder of fourteen warehouse receipts in his own name, and the name
of Elias T. Zamora. (Exhibits C, D, and R.)
The warehouse receipts, or negotiable warrants, or quedans (as they are variously termed) of
Lopez named a declared value of P107,990.40 (Exhibits L-1 to L-13). The warehouse receipts
provided: (1) For insurance at the rate of 1 per cent per month on the declared value; (2) the
company reserves to itself the right to raise and/or lower the rates of storage and/or of
insurance on giving one calendar month's notice in writing; (3) this warrant carries no
insurance unless so noted on the face hereof, cost of which is in addition to storage; (4) the
time for which storage and/or insurance is charged is thirty (30) days; (5) payment for storage
and/or insurance, etc., shall be made in advance, and/or within five (5) days after presentation
of bill. It is admitted that insurance was paid by Lopez to May 18, 1920, but not thereafter.
Mrs. Del Rosario secured insurance on the warehouse and its contents with the National
Insurance Co., Inc., the Commercial Union Insurance Company, the Alliance Insurance
Company, the South British Insurance Co., Ltd., and the British Traders Insurance Co., Ltd., in
the amount of P404,800. All the policies were in the name of Sra. Benita Quiogue de V. del
Rosario, with the exception of one of the National Insurance Company, Inc., for P40,000, in
favor of the Compaia Coprera de Tayabas. (Exhibits N, O, P, R-1 to R-4.)
The warehouse of Mrs. Del Rosario and its contents were destroyed by fire on June 6, 1920.
The warehouse was a total loss, while of the copra stored therein, only an amount equal to
P49,985 was salvaged.
Following an unsuccessful attempt by Henry Hunter Bayne, Fire Loss Adjuster, to effect a
settlement between the insurance companies and Mrs. Del Rosario, the latter, on August 24,
1920, authorized Attorney F. C. Fisher to negotiate with the various insurance companies.
(Exhibit A.) As a result, an agreement between Mrs. Del Rosario and the insurance companies
to submit the matter to administration was executed in September, 1920. (Exhibit B.) Mrs. Del
Rosario laid claim before the arbitrators, Messrs. Muir and Campbell, to P419,683.95, and the
proceeds of the salvage sale. The arbitrators in their report allowed Mrs. Del Rosario
P363,610, which, with the addition of the money received from the salvaged copra amounting
to P49,985, and interest, made a total of P414,258, collected by her from the companies.
(Exhibits E, F, G, H, and Q.)
Mrs. Del Rosario seems to have satisfied all of the persons who had copra stored in her
warehouse, including the stockholders in the Compaia Coprera de Tayabas (whose stock she
took over), with the exception of Froilan Lopez, the plaintiff. Ineffectual attempts by Mrs. Del
Rosario to effect a compromise with Lopez first for P71,994, later raised to P72,724, and
finally reduced to P17,000, were made. (Exhibits Y, 1, 3, 4, 6, 7, 8, 12.) But Lopez stubbornly
contended, or, at least, his attorney contended for him, that he should receive not a centavo
less than P88,595.43. (Exhibits 4, 5.)
PLAINTIFF'S APPEAL
Plaintiff, by means of his assignment of error, lays claim to P88,595.43 in lieu of P88,495.21
allowed by the trial court. The slight difference of P100.22 is asked for so that plaintiff can
participate in the interest money which accrued on the amount received for the salvaged copra.
(Exhibits EE and FF.) Defendant makes no specific denial of this claim. We think the
additional sum should accrue to the plaintiff.
Plaintiff's second and third assignment of error present the point that the defendant has
fraudulently and even criminally refrained from paying the plaintiff, and that the
plaintiff should recover interest at the rate of 12 per cent per annum. We fail to grasp plaintiff's
point of view. The defendant has not sought to elude her moral and legal obligations. The
controversy is merely one which unfortunately all too often arises between litigious persons.
Plaintiff has exactly the rights of any litigant, equally situated, and no more.
It has been the constant practice of the court to make article 1108 of the Civil Code the basis
for the calculation of interest. Damages in the form of interest at the rate of 12 per cent, as
claimed by the plaintiff, are too remote and speculative to be allowed. The deprivation of an
opportunity for making money which might have proved beneficial or might have been
ruinous is of too uncertain character to be weighed in the even balances of the law. (Civil
Code, art. 1108; Gonzales Quiros vs. Palanca Tan-Guinlay [1906], 5 Phil., 675; Tin
Fian vs. Tan [1909], 14 Phil., 126; Sun Life Insurance Co. of Canada vs. Rueda Hermanos &
Co. and Delgado [1918], 37 Phil., 844; Scvola, Codigo Civil, vol. 19, p. 576; 8 R. C. L., 463;
17 C. J., 864.)
DEFENDANT'S APPEAL
Counsel for defendant have adroitly and ingeniously attempted to avoid all liability. However,
we remain unimpressed by many of these arguments.lawph!l.net
Much time has been spent by counsel for both parties in discussing the question, of whether
the defendant acted as the agent of the plaintiff, in taking out insurance on the contents of
the bodega, or whether the defendant acted as a reinsurer of the copra. Giving a natural
expression to the terms of the warehouse receipts, the first hypothesis is the correct one. The
agency can be deduced from the warehouse receipts, the insurance policies, and the
circumstances surrounding the transaction.
After all, however, this is not so vitally important, for it might well be although we do not
have to decide that under any aspect of the case, the defendant would be liable. The law is
that a policy effected by bailee and covering by its terms his own property and property held
in trust; inures, in the event of a loss, equally and proportionately to the benefit of all the
owners of the property insured. Even if one secured insurance covering his own goods and
goods stored with him, and even if the owner of the stored goods did not request or know of
the insurance, and did not ratify it before the payment of the loss, yet it has been held by a
reputable court that the warehouseman is liable to the owner of such stored goods for his
share. (Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3; Broussard vs.South Texas Rice
Co., [1910], 103 Tex., 535; Ann. Cas., 1913-A, 142, and note; Home Insurance Co. of New
York vs. Baltimore Warehouse Co. [1876], 93 U. S., 527.)
Moreover, it has not escaped our notice that in two documents, one the agreement for
arbitration, and the other the statement of claim of Mrs. Del Rosario, against the insurance
companies, she acknowledged her responsibility to the owners of the stored merchandise,
against risk of loss by fire. (Exhibits B and C-3.) The award of the arbitrators covered not
alone Mrs. Del Rosario's warehouse but the products stored in the warehouse by Lopez and
others.
Plaintiff's rights to the insurance money have not been forfeited by failure to pay the insurance
provided for in the warehouse receipts. A preponderance of the proof does not demonstrate
that the plaintiff ever ordered the cancellation of his insurance with the defendant. Nor is it
shown that the plaintiff ever refused to pay the insurance when the bills were presented to him,
and that notice of an intention to cancel the insurance was ever given the plaintiff.
The record of the proceedings before the board of arbitrators, and its report and findings, were
properly taken into consideration by the trial court as a basis for the determination of the
amount due from the defendant to the plaintiff. In a case of contributing policies, adjustments
of loss made by an expert or by a board of arbitrators may be submitted to the court not as
evidence of the facts stated therein, or as obligatory, but for the purpose of assisting the court
in calculating the amount of liability. (Home Insurance Co. vs. Baltimore Warehouse
Co., supra.)
Counsel for the defendant have dwelt at length on the phraseology of the policies of the
National Insurance Company, Inc. Special emphasis has been laid upon one policy (Exhibit 9)
in the name of the Compaia Coprera de Tayabas. In this connection it may be said that three
members of the court, including the writer of this opinion, have been favorable impressed by
this argument, and would have preferred at least to eliminate the policy for which premiums
were paid, not by Mrs. Del Rosario on behalf of Lopez and others, but by Compaia Coprera
de Tayabas. A majority of the court, however, believe that all the assets should be marshalled
and that the plaintiff should receive the benefit accruing from the gross amount realized from
all the policies. Consequently, no deduction for this claim can be made.
The remaining contention of the defendant that the plaintiff cannot claim the benefits of the
agency without sharing in the expenses, is well taken. Although the plaintiff did not expressly
authorize the agreement to submit the matter to arbitration, yet on his own theory of the case,
Mrs. Del Rosario was acting as his agent in securing insurance, while he benefits from the
amicable adjustment of the insurance claims. As no intimation is made that the expenses were
exorbitant, we necessarily accept the statement of the same appearing in Exhibits Q and 8.
Of the insurance money, totalling P414,258, P382,558 was for copra and the remainder for
buildings, corn, etc. The expenses for collecting the P414,258 totalled P33,600.
382,558/414,258 of 33,600 equals P31,028.85, the proportionate part of the expenses with
reference to the copra. Of the expenses amounting, as we have said, to P31,028.85, plaintiff
would be liable for his proportionate share or 88,595.43/382,558.00 of P31,028.85 or
P7,185.875.
The parties finally agree that the plaintiff at the time of the fire was indebted to the defendant
for storage and insurance in the sum of P315.90.
JUDGMENT
In resume, the result is to sustain plaintiff's first assignment of error and to overrule his second
and third assignments of error, to overrule defendant's assignment of error 1, 2, 3, and 4
in toto and to accede to defendant's assignments of error, 5, 6, and 7 in part. If our
mathematics are correct, and the amounts can be figured in several different ways, plaintiff is
entitled to P88,595.43 minus P7,185.88, his share of the expenses, minus P315.90, due for
insurance and storage, or approximately a net amount of P81,093.65, with legal interest. This
sum the defendant must disgorge.
Wherefore, judgment is modified and the plaintiff shall have and recover from the defendants
the sum of P81,093.65, with interest at 6 per cent per annum from May 13, 1921, until paid.
Without special finding as to costs in either instance, it is so ordered.
G.R. No. L-14300 January 19, 1920
SAN MIGUEL BREWERY, ETC., plaintiff-appellee, vs. LAW UNION AND ROCK
INSURANCE CO., (LTD.) ET AL., defendants-appellees.
HENRY HARDING, defendant-appellant.
STREET, J.:
This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila
by the plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of
insurance underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and
the "Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring certain property
which has been destroyed by fire. The plaintiff, the San Miguel Brewery, is named as the party
assured in the two policies referred to, but it is alleged in the complaint that said company was
in reality interested in the property which was the subject of insurance in the character of a
mortgage creditor only, and that the owner of said property upon the date the policies were
issued was one D. P. Dunn who was later succeeded as owner by one Henry Harding.
Accordingly said Harding was made a defendant, as a person interested in the subject of the
litigation.
The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two
companies named for the sum of P15,000, with interest and costs, and further that upon
satisfaction of the balance of P4,505.30 due to the plaintiff upon the mortgage debt, and upon
the cancellation of the mortgage, the plaintiff be absolved from liability to the defendants or
any of them. The peculiar form of the latter part of the prayer is evidently due to the design of
the plaintiff to lay a foundation for Harding to recover the difference between the plaintiff's
credit and the amount for which the property was insured. Accordingly, as was to be expected,
Harding answered, admitting the material allegations of the complaint and claiming for
himself the right to recover the difference between the plaintiff's mortgage credit and the face
value of the policies. The two insurance companies also answered, admitting in effect their
liability to the San Miguel Brewery to the extent of its mortgage credit, but denying liability to
Harding on the ground that under the contracts of insurance the liability of the insurance
companies was limited to the insurable interest of the plaintiff therein. Soon after the action
was begun the insurance companies effected a settlement with the San Miguel Brewery by
paying the full amount of the credit claimed by it, with the result that the litigation as between
the original plaintiff and the two insurance companies came to an end, leaving the action to be
prosecuted to final judgement by the defendant Harding with respect to the balance claimed to
be due to him upon the policies.
Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of
action whatever against the companies and absolved them from liability without special
finding as to costs. From this decision the said Henry Harding has appealed.
The two insurance companies who are named as defendants do not dispute their liability to the
San Miguel Brewery, to the extent already stated, and the only question here under discussion
is that of the liability of the insurance companies to Harding. It is therefore necessary to take
account of such facts only as bear upon this aspect of the case.
In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the
property to which the insurance relates, mortgaged the same to the San Miguel Brewery to
secure a debt of P10,000. In the contract of mortgage Dunn agreed to keep the property
insured at his expense to the full amount of its value in companies to be selected by the
Brewery Company and authorized the latter in case of loss to receive the proceeds of the
insurance and to retain such part as might be necessary to cover the mortgage debt. At the
same time, in order more conveniently to accomplish the end in view, Dunn authorized and
requested the Brewery Company to effect said insurance itself. Accordingly on the same date
Antonio Brias, general manager of the Brewery, made a verbal application to the Law Union
and Rock Insurance Company for insurance to the extent of P15,000 upon said property. In
reply to a question of the company's agent as to whether the Brewery was the owner of the
property, he stated that the company was interested only as a mortgagee. No information was
asked as to who was the owner of the property, and no information upon this point was given.
It seems that the insurance company to whom this application was directed did not want to
carry more than one-half the risk. It therefore issued its own policy for P7,500 and procured a
policy in a like amount to be issued by the "Filipinas" Compania de Seguros. Both policies
were issued in the name of the San Miguel Brewery as the assured, and contained no reference
to any other interest in the property. Both policies contain the usual clause requiring
assignments to be approved and noted on the policy. The premiums were paid by the Brewery
and charged to Dunn. A year later the policies were renewed, without change, the renewal
premiums being paid by the Brewery, supposedly for the account of the owner. In the month
of March of the year 1917 Dunn sold the insured property to the defendant Henry Harding, but
not assignment of the insurance, or of the insurance policies, was at any time made to him.
We agree with the trial court that no cause of action in Henry Harding against the insurance
companies is show. He is not a party to the contracts of insurance and cannot directly maintain
an action thereon. (Uy Tam and Uy Yet vs.Leonard, 30 Phil. Rep., 471.) His claim is merely of
an equitable and subsidiary nature and must be made effective, if at all, through the San
Miguel Brewery in whose name the contracts are written. Now the Brewery, as mortgagee of
the insured property, undoubtedly had an insurable interest therein; but it could not, in any
event, recover upon these policies an amount in excess of its mortgage credit. In this
connection it will be remembered that Antonio Brias, upon making application for the
insurance, informed the company with which the insurance was placed that the Brewery was
interested only as a mortgagee. It would, therefore, be impossible for the Brewery mortgage
on the insured property.
This conclusion is not only deducible from the principles governing the operation and effect of
insurance contracts in general but the point is clearly covered by the express provisions of
sections 16 and 50 of the Insurance Act (Act No. 2427). In the first of the sections cited, it is
declared that "the measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof" (sec. 16); while in the other it is stated
that "the insurance shall be applied exclusively to the proper interest of the person in whose
name it is made unless otherwise specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the
ownership of the property had continued in him up to the time of the loss; and as regards
Harding, an additional insuperable obstacle is found in the fact that the ownership of the
property had been charged, prior to the loss, without any corresponding change having been
effected in the policy of insurance. In section 19 of the Insurance Act we find it stated that "a
change of interest in any part of a thing insured unaccompanied by a corresponding change of
interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person." Again in section 55 it
is declared that "the mere transfer of a thing insured does not transfer the policy, but suspends
it until the same person becomes the owner of both the policy and the thing insured."
Undoubtedly these policies of insurance might have been so framed as to have been "payable
to the Sane Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever,
during the continuance of the risk, may become the owner of the interest insured." (Sec 54,
Act No. 2427.) Such a clause would have proved an intention to insure the entire interest in
the property, not merely the insurable interest of the San Miguel Brewery, and would have
shown exactly to whom the money, in case of loss, should be paid. But the policies are not so
written.
It is easy to collect from the facts stated in the decision of the trial judge, no less than from the
testimony of Brias, the manager of the San Miguel Brewery, that, as the insurance was written
up, the obligation of the insurance companies was different from that contemplated by Dunn,
at whose request the insurance was written, and Brias. In the contract of mortgage Dunn had
agreed, at his own expense, to insure the mortgaged property for its full value and to indorse
the policies in such manner as to authorize the Brewery Company to receive the proceeds in
case of loss and to retain such part thereof as might be necessary to satisfy the remainder then
due upon the mortgage debt. Instead, however, of effecting the insurance himself Dunn
authorized and requested the Brewery Company to procure insurance on the property in the
amount of P15,000 at Dunn's expense. The Brewery Company undertook to carry this
mandate into effect, and it of course became its duty to procure insurance of the character
contemplated, that is, to have the policies so written as to protect not only the insurable
interest of the Brewery, but also the owner. Brias seems to have supposed that the policies as
written had this effect, but in this he was mistaken. It was certainly a hardship on the owner to
be required to pay the premiums upon P15,000 of insurance when he was receiving no benefit
whatever except in protection to the extent of his indebtedness to the Brewery. The blame for
the situation thus created rests, however, with the Brewery rather than with the insurance
companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make
themselves liable to that extent.
If during the negotiations which resulted in the writing of this insurance, it had been agreed
between the contracting parties that the insurance should be so written as to protect not only
the interest of the mortgagee but also the residuary interest of the owner, and the policies had
been, by inadvertence, ignorance, or mistake written in the form in which they were issued, a
court would have the power to reform the contracts and give effect to them in the sense in
which the parties intended to be bound. But in order to justify this, it must be made clearly to
appear that the minds of the contracting parties did actually meet in agreement and that they
labored under some mutual error or mistake in respect to the expression of their purpose.
Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it appeared that a
mortgage desiring to insure his own insurable interest only, correctly stated his interest, and
asked that the same be insured. The insurance company agreed to accept the risk, but the
policy was issued in the name of the owner, because of the mistaken belief of the company's
agent that the law required it to be so drawn. It was held that a court of equity had the power,
at the suit of the mortgage, to reform the instrument and give judgment in his favor for the loss
thereunder, although it had been exactly as it was. Said the court: "If the applicant correctly
states his interest and distinctly asks for an insurance thereon, and the agent of the insurer
agrees to comply with his request, and assumes to decide upon the form of the policy to be
written for that purpose, and by mistake of law adopts the wrong form, a court of equity will
reform the instrument so as to make it insurance upon the interest named." ( See
also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa,
334; 16 Am. St. Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31
Conn., 517; Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)
Similarly, in cases where the mortgage is by mistake described as owner, the court may grant
reformation and permit a recovery by the mortgage in his character as such.
(Dalton vs. Milwaukee etc. Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance
Co., 17 Fed., 568.) In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408), it
appeared that one Kearney made application to an insurance company for insurance on certain
property in his hands as receiver and it was understood between him and the company's agent
that, in case of loss, the proceeds of the policy should accrue to him and his successors as
receiver and to others whom it might concern. However, the policy, as issued, was so worded
as to be payable only to him as receiver. In an action brought on the policy by a successor of
Kearney, it was alleged that the making of the contract in this form was due to inadvertence,
accident, and mistake upon the part of both Kearney and the company.
Said the court:
If by inadvertence, accident, or mistake the terms of the contract were not fully set
forth in the policy, the plaintiff is entitled to have it reformed.
In another case the same court said:
We have before us a contract from which by mistake, material stipulations have been omitted,
whereby the true intent and meaning of the parties are not fully or accurately expressed. There
was a definite concluded agreement as to insurance, which, in point of time, preceded the
preparation and delivery of the policy, and this is demonstrated by legal and exact evidence,
which removes all doubt as to the sense and undertaking of the parties. In the agreement there
has been a mutual mistake, caused chiefly by that contracting party who now seeks to limit the
insurance to an interest in the property less than that agreed to be insured. The written
agreement did not effect that which the parties intended. That a court of equity can afford
relief in such a case, is, we think, well settled by the authorities. (Smell vs. Atlantic, etc., Ins.
Co., 98 U.S., 85, 89; 25 L. ed., 52.)
But to justify the reformation of a contract, the proof must be of the most satisfactory
character, and it must clearly appear that the contract failed to express the real agreement
between the parties. (Philippine Sugar Estates Development Company vs. Government of the
Philippine Islands, 62 L. ed., 1177, reversing Government of Philippine Island vs. Philippine
Sugar Estates Development Co., 30 Phil. Rep., 27.)
In the case now before us the proof is entirely insufficient to authorize the application of the
doctrine state in the foregoing cases, for it is by means clear from the testimony of Brias
and none other was offered that the parties intended for the policy to cover the risk of the
owner in addition to that of the mortgagee. It results that the defendant Harding is not entitled
to relief in any aspect of the case.
The judgment is therefore affirmed, with costs against the appellant. So ordered.
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.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set
aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October
1988.
2. One of the stipulations of the one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first obtaining
the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance
thereof without the consent of the LESSOR then the policy is deemed assigned and transferred
to the LESSOR for its own benefit; x x x[1]
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against
loss by fire their merchandise inside the leased premises for Five Hundred Thousand
(P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written
consent of private respondents CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its
consent), it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its
lease contract with Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and
United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering
therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses
to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision** dated 11 January 1996, affirming the trial court decision, deleting however the
awards for exemplary damages and attorneys fees. A motion for reconsideration by United
was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of
Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE
THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE
THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION
AND THEREFORE THE QUESTIONABLE PROVISION THEREIN
TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT
MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF
AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID
POLICY IN CONTRAVENTION OF THE INSURANCE LAW
IV
 THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET
AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID ASIDE and a new decision is hereby entered, awarding the proceeds of the fire insurance
FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY policy to petitioners Nilo Cha and Stella Uy-Cha.
DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION.[2]
SO ORDERED.
The core issue to be resolved in this case is whether or not the aforequoted paragraph 18
of the lease contract entered into between CKS and the Cha spouses is valid insofar as it
provides that any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS)
if said policy is obtained without the prior written of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract
cannot be contrary to law, morals, good customs, public order or public policy. [3]
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except
for the benefit of some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs. [4] The
basis of such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon which he has
no insurable interest and collecting the proceeds of said policy in case of loss of the
property.In such a case, the contract of insurance is a mere wager which is void under Section
25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods
and merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the extent to which
the insured might be damnified by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their
merchandise. This insurable interest over said merchandise remains with the insured, the Cha
spouses. The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public policy. The proceeds
of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha
(herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the property insured.
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.
 Roman Locson for the appellee Bank.

Vicente de Vera for the other appellee.

SYLLABUS

WHEN INSURANCE COMPANY LIABLE Where G was the owner of a stock of

merchandise in a building which he did not own and desired to insure his merchandise, and
through a friend, applied for insurance and paid the premium, but by mistake the policy, which
was issued covered the building, which G did not own, and was written in the English
language which he could not read and did not understand, but he noted that the amount of the
policy was correct, and where later G assigned the policy to a bank as collateral security for
the payment of a loan, and the bank notified the insurance company in writing "that the
merchandise insured by you against fire in favor" of G, giving the amount and number of the
policy, and requested that the insurance company should make the proper endorsement in
favor of the bank, and the insurance company acknowledged receipt of the letter and complied
with the request, and nothing was said about the mistake, and where about six months later
both the building and the merchandise were destroyed by fire, upon the facts shown the
insurance company is liable for the amount of the policy which it issued to G.

STATEMENT

After formal pleas, the plaintiffs allege that on the 19th of March, 1918, in the City of Manila,
the plaintiff, Domingo Garcia, then a merchant and owner of a bazaar known as "Las
Novedades" in the district of Legaspi, municipality and Province of Albay, entered into a
contract with the defendant whereby it insured his merchandise in the sum of P15,000 at a
premium of P300 per annum; that in consideration of such premium, the defendant issued its
fire insurance policy No. 1951 in favor of the plaintiff, not on the merchandise in the building,
but on the building which contained the merchandise; that for such reason the policy does not
contain the true agreement and intent of the parties; that the plaintiff was not the owner of, and
did not have any interest in, the building; and that the policy was so issued through error,
carelessness and negligence of the defendant.

That on August 30, 1919, Garcia executed a mortgage to the plaintiff Bank on the merchandise
insured by the defendant, and that with the consent of the defendant, the plaintiff endorsed the
policy to the Bank; that on February 6, 1920, and while the policy was in force and effect, a
fire took place which destroyed the merchandise in the building of the value of P20,000,
together with the building itself; that demand was made upon the defendant for the payment of
P15,000, as provided for in the policy, and that payment was refused. Wherefore, plaintiffs
pray judgment for that amount, with legal interest from the date of the filing of the complaint,
and coasts.

For answer the defendant admits the formal allegations of the complaint, and denies generally
and specifically all other allegations.
[G.R. No. 20341. September 1, 1923. ]
As a result of the trial, the lower court rendered judgment for the plaintiff, as prayed for in the
complaint, from which the defendant appeals contends that the lower court erred in denying its
DOMINGO GARCIA and THE PHILIPPINE NATIONAL BANK, Plaintiffs-Appellees,
motion to make complaint more to testify to the contents of certain documents; in refusing to
v. THE HONG KONG FIRE & MARINE INSURANCE CO., LTD., Defendant-
strike them from the record; in finding that the defendant, through its agent, knew that it was
Appellant.
the merchandise which was insured and not the building; in failing to find the plaintiffs, and
Garcia in particular guilty of negligence; in finding that the defendant committed error in
Williams & Ferrier for Appellant.
making out the policy to cover the building rather than the merchandise; in rendering
judgment; and in denying defendants motion for new trial.
JOHNS., J. :
It appears that the policy was in the English language, of which the plaintiff Garcia is
ignorant. When he received it he noticed that the amount P15,000 is correct, and never
personally made any further investigation. He was the exclusive owner of the merchandise in
the building which, at the time of the fire, was of the probable value of P20,000. He did not
own or claim any interest in the building. Desiring to have his merchandise insured for
P15,000, he wrote a letter to "El Pilar," requesting that firm to have it insured, as a result of
which, the policy in question was issued and delivered to him, and it was issued on the
building which Garcia did not own, and did not cover the merchandise which he did own.
Desiring to obtain a loan from the Philippine National Bank, Garcia later delivered and
assigned the policy to the plaintiff Bank as collateral security for a loan. Upon receipt of the
policy, and as one of the conditions for the making of the loan, the Bank, through its manager,
addressed the following letter to the agents of the defendant on August 6, 1919.
"We beg to advise that the merchandise insured by you against fire in favor of Mr. Domingo
Garcia of Legaspi, Albay, P.I., for P15,000 for which you issued policy No. 1951, has been
mortgaged to this bank together with the policy to secure a credit and loans not to exceed
P6,000 in all.
"We would appreciate very much if you have our claims against the property and policy
covering it, on account of the mortgage entered in your records and advise us accordingly.
"Hoping to hear from you soon, we are,
"Very truly yours,"
This answered by the agents August 14, 1919, as follows:
"We beg to acknowledge receipt of your esteemed favor of the 6th inst., informing us that the
Hong Kong Fire Insurance Company, Ltd.s Policy in the name of Mr. Domingo Garcia, for
the sum P15,000 has been mortgaged to your goodselves. In order that this transaction may be
officially recorded, it will necessary to make an endorsement upon the original policy, and we
shall be glad, therefore, if you will return this document to us as soon as convenient.
"We are Dear Sirs,
"Yours faithfully."
August 18,1919, the Bank wrote the following letter to the agents:
"Complying with your request of the 13th ultimo, we beg to inclose herewith policy No. 1951
in favor of Mr. Domingo Garcia, Legaspi, Albay, for P15,000 which has been mortgaged to
this Bank to secure a credit and loan of not to exceed P 16,000 in all, for your proper
endorsement.
"Trusting to have your prompt action in this matter, we are,
"We respectfully yours."
September 1, 1919, the agents wrote the Bank as follows:
"We beg to acknowledge receipt of your favour of the 18th ultimo, enclosing Hong Kong Fire
Insurance Co., Ltd.s Policy No. 1951, in the name of Mr. Domingo Garcia, and in accordance
with your request have endorsed same in your favour, and beg to return the document
herewith. Please be good enough to acknowledge safe receipt in due course and oblige.
"Yours faithfully."
It clearly appears that where the word "merchandise" was written in the letter of August 6th
above quoted, some other word had been previously written and erased, and the word
"merchandise" was then written, as it now appears.
It is contended that when the letter was written, the Bank, which then had the possession of
the policy, knew that it covered the building and did not insure the merchandise. That having
such knowledge, it was the duty of the Bank to notify the defendant, and having failed to do
so, it cannot now contend that the policy was issued through a mistake. The remains that the
defendant, through it agents, received this letter, and that it recites:
"We beg to advise that the merchandise insured by your against fire in favor of Mr. Domingo
Garcia etc."
That was a personal notice to the defendant of the fact that the policy was on the merchandise.
It is pointed out that the Bank and not the defendant then had the policy, and, for such reason,
the Bank did not notice of the error. Although the policy was in possession of the Bank, the
defendant had among its own records all of the data and information upon which the policy
was issued, and, as a matter of fact, its agents knew or should have known the kind of property
insured.
It is possible that when the Bank wrote the letter, it know of the error in the issuance of the
policy. But that appearance of the letter itself, there is no evidence that the Bank had any
knowledge of the error.
Garcia had his dealings with the officials of the branch Bank at Legaspi where he was doing
business as a merchant, or which the officials of that Bank knowledge. Under such facts, the
presumption of knowledge if any, on the part of the Bank would be that the policy was on the
merchandise. Be that as it may, when the defendant received the letter from the Bank, it knew
from its own records that the policy was issued on the building and, as a matter of fair dealing,
it should have notified the Bank that the policy was on the building. It will be noted that the
letters in question were all written several months before the fire.
In the final analysis, Garcia wanted insurance upon a stock of goods, which he owned, and he
received and paid for a policy on a building, which he did own, and while the policy was in
force and effect, both the building, which he did not own, and the stock of merchandise, which
he did own, were completely destroyed by fire. Garcia was a well-known merchant, and his
merchandise was in the building described in the policy.

For some unknown reason, the party who applied for the insurance at the instance and request
of Garcia was not called as a witness, and, as stated, the answer of the defendant is confined to
general denial, and it did not offer any evidence.
In a well-written opinion, the trial court analyzed the evidence and made findings of fact upon
which it rendered judgment for the plaintiff. It is claimed that the letters and copy of the
telegram introduced in evidence were hearsay and not competent. If for other purpose, they
were competent to show that Garcia wanted insurance on his merchandise and the reason why
he wanted it.
The defense is purely technical, and is founded upon the contention that plaintiff cannot
recover, because the policy covers loss on a building, and does not cover loss of merchandise.
It is very apparent that a mistake was made in the issuance of the policy.
In its opinion the trial court says:
"Under these circumstances it seems clear and manifest that the insured, as well as the
manager of the National Bank at Legaspi, who interested in the policy, because the same
secured a loan of P6,000 made to Domingo Garcia, and the corporation of Wise & Co, Ltd.,
which represented the insurance company, have been in the belief that it was not the building
but the merchandise that was insured, for the reason that none of them paid attention to the
context of the policy."
The opinion of the trial court further points out that, under the pleadings and proof, there is
ground for the contention that the plaintiff would be entitled to recover on the policy for the
loss of the building.
All things considered, the judgment of the lower court is affirmed, with costs. So ordered.
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner,
vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the decision of the Insurance
Commission in IC Case #367 1 dismissing the complaint 2 for recovery of the alleged unpaid
balance of the proceeds of the Fire Insurance Policies issued by herein respondent insurance
company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land
and a building located at San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of S.S.S., which building
was insured with respondent S.S.S. Accredited Group of Insurers for
P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache Inc. in the amount of P100,000.00. To secure the payment of the
loan, a mortgage was executed over the land and the building in favor of
Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975,
Arsenio Chua, representative of Thai Tong Chuache & Co. insured the
latter's interest with Travellers Multi-Indemnity Corporation for
P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F-
02500 (Exhibit "A"), covering the building for P50,000.00 with
respondent Zenith Insurance Corporation. On July 16, 1975, another Fire
Insurance Policy No. 8459 (Exhibit "B") was procured from respondent
Philippine British Assurance Company, covering the same building for
P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:
Policy No.. Company Risk Insures Pays dited Group

MIRO Zenith Building P50,000 P17,610.93 of Insurers Building P25,000 P8,805.47

F-02500 Insurance Totals P195,000 P90,257.81

We are showing hereunder another apportionment of the loss which

Corp. includes the Travellers Multi-Indemnity policy for reference purposes.

F-84590 Phil. Household 70,000 24,655.31 Policy No. Company Risk Injures Pays

British MIRO/ Zenith

Assco. Co. F-02500 Insurance

Inc. FFF & F5 50,000 39,186.10 Corp. Building P50,000 P11,877.14

Policy No. Company Risk Insures Pays F-84590 Phil.

FIC-15381 SSSAccre British

 British Assurance Co., P11,877.14 by Zenith Insurance Corporation, and
P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6. Amended
Assco. Co. I-Building 70,000 16,628.00 Complaint). Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was refused. Hence,
complainants demanded from the other three (3) respondents the balance
of each share in the loss based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity in the amount of
II-Building P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and
P2,866.90, SSS Accredited) but the same was refused, hence, this action.

In their answers, Philippine British Assurance and Zenith Insurance

Corporation admitted the material allegations in the complaint, but denied
FFF & PE 50,000 24,918.79 liability on the ground that the claim of the complainants had already been
waived, extinguished or paid. Both companies set up counterclaim in the
total amount of P 91,546.79.

Instead of filing an answer, SSS Accredited Group of Insurers informed

PVC- SSS Accredited
the Commission in its letter of July 22, 1977 that the herein claim of
15181
complainants for the balance had been paid in the amount of P 5,938.57 in
full, based on the Adjustment Standards Corporation Report of September
22, 1975.

Group of Travellers Insurance, on its part, admitted the issuance of the Policy No.
599 DV and alleged as its special and affirmative defenses the following,
to wit: that Fire Policy No. 599 DV, covering the furniture and building of
complainants was secured by a certain Arsenio Chua, mortgage creditor,
for the purpose of protecting his mortgage credit against the complainants;
Insurers Building 25,000 5,938.50 that the said policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the policy contains an
endorsement in favor of Arsenio Chua as his mortgage interest may appear
to indicate that insured was Arsenio Chua and the complainants; that the
premium due on said fire policy was paid by Arsenio Chua; that
F-599 DV Insurers I-Ref 30,000 14,467.31 respondent Travellers is not liable to pay complainants.

On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No. F-559
DV, issued by respondent Travellers Multi-Indemnity.
Multi II-Building 70,000 16,628.00
Travellers Insurance, in answer to the complaint in intervention, alleged
that the Intervenor is not entitled to indemnity under its Fire Insurance
Policy for lack of insurable interest before the loss of the insured premises
and that the complainants, spouses Pedro and Azucena Palomo, had
Totals P295.000 P90,257.81 already paid in full their mortgage indebtedness to the intervenor. 3

As adverted to above respondent Insurance Commission dismissed spouses Palomos'

Based on the computation of the loss, including the Travellers Multi-
Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of the
loss. Complainants were paid the following: P41,546.79 by Philippine
complaint on the ground that the insurance policy subject of the complaint was taken out by
Tai Tong Chuache & Company, petitioner herein, for its own interest only as mortgagee of the
insured property and thus complainant as mortgagors of the insured property have no right of
action against herein respondent. It likewise dismissed petitioner's complaint in intervention in
the following words:
 We move on the issue of liability of respondent Travellers Multi-
Indemnity to the Intervenor-mortgagee. The complainant testified that she
was still indebted to Intervenor in the amount of P100,000.00. Such
allegation has not however, been sufficiently proven by documentary
evidence. The certification (Exhibit 'E-e') issued by the Court of First
Instance of Davao, Branch 11, indicate that the complainant was Antonio
Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration
but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an issue
not raised in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is
the one entitled to the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the decision
appealed from considering the manner it was written. 5 As correctly pointed out by respondent
insurance commission in their comment, the decision did not pronounce that it was Arsenio
Lopez Chua who has insurable interest over the insured property. Perusal of the decision
reveals however that it readily absolved respondent insurance company from liability on the
basis of the commissioner's conclusion that at the time of the occurrence of the peril insured
against petitioner as mortgagee had no more insurable interest over the insured property. It
was based on the inference that the credit secured by the mortgaged property was already paid
by the Palomos before the said property was gutted down by fire. The foregoing conclusion
was arrived at on the basis of the certification issued by the then Court of First Instance of
Davao, Branch II that in a certain civil action against the Palomos, Antonio Lopez Chua stands
as the complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that the case of a
party is constituted by his own affirmative allegations. Under Section 1, Rule 131 6 each party
must prove his own affirmative allegations by the amount of evidence required by law which
in civil cases as in the present case is preponderance of evidence. The party, whether plaintiff
or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial
such amount of evidence as required by law to obtain favorable judgment. 7 Thus, petitioner
who is claiming a right over the insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an affirmative defense of lack of
insurable interest on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the
insurance policy taken out by petitioner over the mortgaged property. Neither did it deny that
the said property was totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense of lack of insurable interest
on the part of the petitioner that before the occurrence of the peril insured against the Palomos
had already paid their credit due the petitioner. Respondent having admitted the material
allegations in the complaint, has the burden of proof to show that petitioner has no insurable
interest over the insured property at the time the contingency took place. Upon that point,
there is a failure of proof. Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For said respondent's failure, the
decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved respondent
insurance company from liability on the basis of the certification issued by the then Court of
First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache. From said evidence
respondent commission inferred that the credit extended by herein petitioner to the Palomos
secured by the insured property must have been paid. Such is a glaring error which this Court
cannot sanction. Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance proceeds
offered as evidence the contract of mortgage (Exh. 1) which has not been cancelled nor
released. It has been held in a long line of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it is presumed. 8 The validity of the
insurance policy taken b petitioner was not assailed by private respondent. Moreover,
petitioner's claim that the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still indebted to herein
petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan granted
to Azucena Palomo by petitioner the same should have been brought by Tai Tong Chuache or
by its representative in its own behalf. From the above premise respondent concluded that the
obligation secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed
out that the action must be brought in the name of the real party in interest. We agree.
However, it should be borne in mind that petitioner being a partnership may sue and be sued in
its name or by its duly authorized representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned. Petitioner's declaration that Arsenio Lopez Chua
acts as the managing partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may execute all acts of
administration 12 including the right to sue debtors of the partnership in case of their failure to
pay their obligations when it became due and demandable. Or at the very least, Chua being a
partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf of the firm. 13 Public respondent's
allegation that the civil case flied by Arsenio Chua was in his capacity as personal creditor of
spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of herein petitioner which
policy was of legal force and effect at the time of the fire, it is bound by its terms and
conditions. Upon its failure to prove the allegation of lack of insurable interest on the part of
the petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity
Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the amount of
P100,000.00. Costs against said private respondent.
SO ORDERED.

G.R. No. L-5715 December 20, 1910
E. M. BACHRACH, plaintiff-appellee, vs. BRITISH AMERICAN
ASSURANCE COMPANY, a corporation, defendant-appellant.
JOHNSON, J.:
On the 13th of July, 1908, the plaintiff commenced an action against the
defendant to recover the sum of P9,841.50, the amount due, deducting
the salvage, upon the following fire insurance policy issued by the
defendant to the plaintiff:
[Fire policy No. 3007499.]
This policy of insurance witnesseth, that E. M. Bachrach, esq.,
Manila (hereinafter called the insured), having paid to the
undersigned, as authorized agent of the British American
Assurance Company (hereinafter called the company), the sum
of two thousand pesos Philippine currency, for insuring against
loss or damage by fire, as hereinafter mentioned, the property
hereinafter described, in the sum of several sums following, viz:
Ten thousand pesos Philippine currency, on goods, belonging to
a general furniture store, such as iron and brass bedsteads, toilet
tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea-
grass furniture (in accordance with warranty "D" of the tariff
attached hereto) the property of the assured, in trust, on
commission or for which he is responsible, whilst stored in the
ground floor and first story of house and dwelling No. 16 Calle
Martinez, district 3, block 70, Manila, built, ground floor of stone
and or brick, first story of hard wood and roofed with galvanized
iron bounded in the front by the said calle, on one side by
Calle David and on the other two sides by buildings of similar
construction and occupation.
Co-insurance allowed, particulars of which to be declared in the
event of loss or claim.
The company hereby agrees with the insured (but subject to the
conditions on the back hereof, which are to be taken as a part of
this policy) that if the property above described, or any part
thereof, shall be destroyed or damaged by fire, at any time
between the 21st day of February, 1908, and 4 o'clock in the
afternoon of the 21st day of February, 1909, or (in case of the
renewal of this policy) at any time afterwards, so long as, and
during the period in respect of which the insured shall have paid
to the company, and they shall have accepted, the sum required
for the renewal of this policy, the company will, out of their capital
stock, and funds, pay or make good to the insured the value of
the property so destroyed, or the amount of such damage
thereto, to any amount not exceeding, in respect of each or any
of the several matters above specified, the sum set opposite
thereto, respectively, and not exceeding in the whole the sum of
ten thousand pesos, and also not exceeding, in any case, the
amount of the insurable interest therein of the insured at the time
of the happening of such fire.
In witness whereof, the British American Assurance Company
has accused these presents to be signed this 21st day of
February, in the year of our Lord 1908.
For the company.
W. F. STEVENSON & Co. LTD.,
"By...............................................,
"Manager Agents."
And indorsed on the back the following:
 The within policy and includes a "Calalac" automobile to
the extent of (P1,250) twelve hundred and fifty pesos
Philippine currency.
Memo: Permission is hereby granted for the use of
gasoline not to exceed 10 gallons for the above
automobile, but only whilst contained in the reservoir of
the car. It is further warranted that the car be neither filled
nor emptied in the within-described building or this policy
be null and void.
Manila, 27th February, 1908.
"W. F. STEVENSON & Co. LTD.,
"By.......................................................,
"Manager Agents."
The defendant answered the complaint, admitting some of the facts
alleged by the plaintiff and denying others. The defendant also alleged
certain facts under which it claimed that it was released from all
obligations whatever under said policy. These special facts are as
follows:
First. That the plaintiff maintained a paint and varnish shop in the said
building where the goods which were insured were stored.
Second. That the plaintiff transferred his interest in and to the property
covered by the policy to H. W. Peabody & Co. to secure certain
indebtedness due and owing to said company, and also that the plaintiff
had transferred his interest in certain of the goods covered by the said
policy to one Macke, to secure certain obligations assumed by the said
Macke for and on behalf of the insured. That the sanction of the said
defendant had not been obtained by the plaintiff, as required by the said
policy.
Third. That the plaintiff, on the 18th of April, 1908, and immediately
preceding the outbreak of the alleged fire, willfully placed a gasoline can
containing 10 gallons of gasoline in the upper story of said building in
close proximity to a portion of said goods, wares, and merchandise,
which can was so placed by the plaintiff as to permit the gasoline to run
on the floor of said second story, and after so placing said gasoline, he,
the plaintiff, placed in close proximity to said escaping gasoline a lighted
lamp containing alcohol, thereby greatly increasing the risk of fire.
Fourth. That the plaintiff made no proof of the loss within the time
required by condition five of said policy, nor did the insured file a
statement with he municipal or any other judge or court of the goods
alleged to have been in said building at the time of the alleged fire, nor of
the goods saved, nor the loss suffered.
The plaintiff, after denying nearly all of the facts set out in the special
answer of the defendant, alleged:
First. That he had been acquitted in a criminal action against him, after a
trial duly and regularly had, upon a charge of arson, based upon the
same alleged facts set out in the answer of the defendant.
Second. That her had made no proof of the loss set up in his complaint
for the reason that immediately after he had, on the 20th of April, 1908,
given the defendant due notice in writing of said loss, the defendant, on
the 21st of April, 1908, and thereafter on other occasions, had waived all
right to require proof of said loss by denying all liability under the policy
and by declaring said policy to be null and void.
After hearing the evidence adduced during the trial of the cause, the
lower court found that the defendant was liable to the plaintiff and
rendered a judgment against the defendant for the sum of P9,841.50,
with interest for a period of one year at 6 per cent, making a total of
P10,431.99, with costs.
From that decision the defendant appealed and made the following
assignments of error:
1. The court erred in failing to hold that the use of the building, No. 16
Calle Martinez, as a paint and varnish shop annulled the policy of
insurance.
2. The court erred in failing to hold the execution of the chattel mortgages
without the knowledge and consent of the insurance company annulled
the policy of insurance.
3. The court erred in holding that the keeping of gasoline and alcohol not
in bottles in the building No. 16 Calle Martinez was not such a violation of
the conditions of the policy as to render the same null and void.
4. The court erred in failing to find as a fact that E. M. Bachrach, the
insured, willfully placed a gasoline can containing about 10 gallons of
gasoline in the upper story of said building, No. 16 Calle Martinez, in
close proximity to a portion of the goods, wares, and merchandise stored
therein, and that said can was so placed by said Bachrach as to permit
the gasoline to run on the floor of said second story.
5. The court erred in failing to find as a fact that E. M. Bachrach, after
placing said gasoline can in close proximity to the goods, wares, and
merchandise covered by the policy of insurance, the he (Bachrach)
placed in close proximity to said escaping gasoline a lighted lamp
containing alcohol, thereby greatly increasing the risk of fire.
6. The court erred in holding that the policy of insurance was in force at
the time of said fire, and that the acts or omissions on the part of the
insured which cause, or tended to cause, the forfeiture of the policy, were
waived by the defendant.
7. The court erred in holding the defendant liable for the loss under the
policy.
lawphil.net
8. The court erred in refusing to deduct from the loss sustained by
Bachrach the value of the automobile, which was saved without damage.
9. The court erred in refusing to grant the motion for a new trial.
10. The court erred in refusing to enter judgment in favor of the defendant
and against the plaintiff.
With reference to the first above assignment of error, the lower court in its
decision said:
It is claimed that either gasoline or alcohol was kept in violation of
the policy in the bodega containing the insured property. The
testimony on this point is somewhat conflicting, but conceding all
of the defendant's claims, the construction given to this claim by
American courts would not justify the forfeiture of the policy on
that ground. The property insured consisted mainly of household
furniture kept for the purpose of sale. The preservation of the
furniture in a salable condition by retouching or otherwise was
incidental to the business. The evidence offered by the plaintiff is
to the effect that alcohol was used in preparing varnish for the
purpose of retouching, though he also says that the alcohol was
kept in store and not in the bodega where the furniture was. It is
well settled that the keeping of inflammable oils on the premises,
though prohibited by the policy, does not void it if such keeping is
incidental to the business. Thus, where a furniture factory keeps
benzine for the purposes of operation (Davis vs. Pioneer
Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire
Insurance Company, 91 Wis., 158), or where it is used for the
cleaning machinery (Mears vs. Humboldt Insurance Company, 92
Pa. St., 15; 37 Am. Rep., 647), the insurer can not on that ground
avoid payment of loss, though the keeping of the benzine on the
premises is expressly prohibited. These authorities also appear
sufficient to answer the objection that the insured automobile
contained gasoline and that the plaintiff on one occasion was
seen in the bodega with a lighted lamp. The first was incidental to
the use of the insured article and the second being a single
instance falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy prohibiting the
keeping of paints and varnishes upon the premises where the insured
property was stored. If the company intended to rely upon a condition of
that character, it ought to have been plainly expressed in the policy.
With reference to the second above assignment of error, the defendant
and appellant contends that the lower court erred in failing to hold that
the execution of the said chattel mortgage, without the knowledge and
consent of the insurance company and without receiving the sanction of
said company, annulled the said policy of insurance.
With reference to this assignment of error, upon reading the policy of
insurance issued by the defendant to the plaintiff, it will be noted that
there is no provision in said policy prohibiting the plaintiff from placing a
mortgage upon the property insured, but, admitting that such a provision
was intended, we think the lower court has completely answered this
contention of the defendant. He said, in passing upon this question as it
was presented:
It is claimed that the execution of a chattel mortgage on the
insured property violated what is known as the "alienation
clause," which is now found in most policies, and which is
expressed in the policies involved in cases 6496 and 6497 by a
purchase imposing forfeiture if the interest in the property pass
from the insured. (Cases 6496 and 6497, in which are involved
other action against other insurance companies for the same loss
as in the present action.)
This clause has been the subject of a vast number of judicial
decisions (13 Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.),
and it is held by the great weight of authority that the interest in
property insured does not pass by the mere execution of a chattel
mortgage and that while a chattel mortgage is a conditional sale,
there is no alienation within the meaning of the insurance law
until the mortgage acquires a right to take possession by default
under the terms of the mortgage. No such right is claimed to have
accrued in the case at bar, and the alienation clause is therefore
inapplicable.
With reference to the third assignment of error above noted, upon a
reading of the decision of the lower court it will be found that there is
nothing in the decision of the lower court relating to the facts stated in this
assignment of error, neither is there any provision in the policy relating to
the facts alleged in said assignment of error.
Assignment of error numbers 4 and 5 above noted may be considered
together.
The record discloses that some time prior to the commencement of this
present action, a criminal action was commenced against the plaintiff
herein in the Court of First Instance of the city of Manila, in which he was
charged with willfully and maliciously burning the property covered by the
policy in the present case. At the conclusion of the criminal action and
after hearing the evidence adduced during the trial, the lower court, with
the assistance of two assessors, found that the evidence was insufficient
to show beyond peradventure of doubt that the defendant was guilty of
the crime. The evidence adduced during the trial of the criminal cause
was introduced as evidence in the present cause. While the evidence
shows some very peculiar and suspicious circumstances concerning the
burning of the goods covered by the said policy, yet, nevertheless, in
view of the findings of the lower court and in view of the apparent conflict
in the testimony, we can not find that there is a preponderance of
evidence showing that the plaintiff did actually set fire or cause fire to be
set to the goods in question. The lower court, in discussing this question,
said:
As to the claim that the loss occurred through the voluntary act of
the insured, we consider it unnecessary to review the evidence in
detail. That was done by another branch of this court in disposing
of the criminal prosecution brought against the insured, on the
same ground, based mainly on the same evidence. And
regardless of whether or not the judgment in that proceeding
is res adjudicata as to anything here, we are at least of the
opinion that the evidence to establish this defense should not be
materially less convincing than that required in order to convict
the insured of the crime of arson. (Turtell vs. Beamount, 25 Rev.
Rep., 644.) In order to find that the defense of incendiarism was
established here, we would be obliged, therefore, in effect to set
aside the findings of the judge and assessors in the criminal
cause, and this we would be loath to do even though the
evidence now produced were much stronger than it is.
With reference to the sixth assignment of error above noted, to wit: That
itc@alf
the court erred in holding that the policy of insurance was in force at the
time of said fire and that the acts or omissions on the part of the insured
which caused or tended to cause a forfeiture of the policy were waived by
the defendant, the lower court, in discussing this question, said:
Regardless of the question whether the plaintiff's letter of April 20
(Exhibit B) was a sufficient compliance with the requirement that
he furnish notice of loss, the fact remains that on the following
day the insurers replied by a letter (Exhibit C) declaring that the
"policies were null and void," and in effect denying liability. It is
well settled by a preponderance of authorities that such a denial
is a waiver of notice of loss, because if the "policies are null and
void," the furnishing of such notice would be vain and useless.
(13 Am. & Eng. Encyc. of Law, 347, 348, 349.) Besides,
"immediate notice" is construed to mean only within a reasonable
time.
Much the same may be said as to the objection that the insured
failed to furnish to the insurers his books and papers or to present
a detailed statement to the "juez municipal," in accordance with
article 404 of the Code of Commerce. The last-named provision
is similar to one appearing in many American policies requiring a
certificate from a magistrate nearest the loss regarding the
circumstance thereof. A denial of liability on other grounds waives
this requirement (O'Niel vs. Buffalo Fire Insurance Company, 3 N.
Y., 122; Peoria Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as well
as that relating to the production of books and papers (Ga. Home
Ins. Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides,
the insured might have had difficulty in attempting to comply with
this clause, for there is no longer an official here with the title of
"juez municipal."
Besides the foregoing reasons, it may be added that there was no
requirement in the policy in question that such notice be given.
With reference to the assignments of error numbers 7, 9, and 10, they
are too general in their character to merit consideration.
With reference to the eight assignment of error above noted, the
defendant and appellant contends that he was entitled to have the
amount of his responsibility reduced by the full value (P1,250) of the said
automobile.
It does not positively appear of record that the automobile in question
was not included in the other policies. It does appear that the automobile
was saved and was considered as a part of the salvaged. It is alleged
that the salvage amounted to P4,000, including the automobile. This
amount (P4,000) was distributed among the different insurers and the
amount of their responsibility was proportionately reduced. The
defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now
made for the first time. No reason is given why the objection was not
made at the time of the distribution of the salvage, including the
automobile, among all of the insurers. The lower court had no opportunity
to pass upon the question now presented for the first time. The defendant
stood by and allowed the other insurers to share in the salvage, which he
claims now wholly belonged to him. We think it is now too late to raise the
question.
For all the foregoing reasons, we are of the opinion that the judgment of
the lower court should be affirmed, and it is hereby ordered that judgment
be entered against the defendant and in favor of the plaintiff for the sum
of P9,841.50, with interest at the rate of 6 per cent from the 13th of July,
1908, with costs. So ordered.
G.R. No. L-14300 January 19, 1920
SAN MIGUEL BREWERY, ETC., plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-
appellees.
HENRY HARDING, defendant-appellant.
Crossfield and O'Brien for appellant Harding.
Lawrence and Ross for appellee Law Union etc. Ins. Co.
Sanz and Luzuriaga for appellee "Filipinas, Compaia de Seguros."
No appearance for the other appellee.
STREET, J.:
This action was begun on October 8, 1917, in the Court of First Instance
of the city of Manila by the plaintiff, the San Miguel Brewery, for the
purpose of recovering upon two policies of insurance underwritten
respectively by Law Union and Rock Insurance Company (Ltd.), and the
"Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring
certain property which has been destroyed by fire. The plaintiff, the San
Miguel Brewery, is named as the party assured in the two policies
referred to, but it is alleged in the complaint that said company was in
reality interested in the property which was the subject of insurance in the
character of a mortgage creditor only, and that the owner of said property
upon the date the policies were issued was one D. P. Dunn who was later
succeeded as owner by one Henry Harding. Accordingly said Harding
was made a defendant, as a person interested in the subject of the
litigation.
The prayer of the complaint is that judgment be entered in favor of the
plaintiff against the two companies named for the sum of P15,000, with
interest and costs, and further that upon satisfaction of the balance of
P4,505.30 due to the plaintiff upon the mortgage debt, and upon the
cancellation of the mortgage, the plaintiff be absolved from liability to the
defendants or any of them. The peculiar form of the latter part of the
prayer is evidently due to the design of the plaintiff to lay a foundation for
Harding to recover the difference between the plaintiff's credit and the
amount for which the property was insured. Accordingly, as was to be
expected, Harding answered, admitting the material allegations of the
complaint and claiming for himself the right to recover the difference
between the plaintiff's mortgage credit and the face value of the policies.
The two insurance companies also answered, admitting in effect their
liability to the San Miguel Brewery to the extent of its mortgage credit, but
denying liability to Harding on the ground that under the contracts of
insurance the liability of the insurance companies was limited to the
insurable interest of the plaintiff therein. Soon after the action was begun
the insurance companies effected a settlement with the San Miguel
Brewery by paying the full amount of the credit claimed by it, with the
result that the litigation as between the original plaintiff and the two
insurance companies came to an end, leaving the action to be
prosecuted to final judgement by the defendant Harding with respect to
the balance claimed to be due to him upon the policies.
Upon hearing the evidence the trial judge came to the conclusion that
Harding had no right of action whatever against the companies and
absolved them from liability without special finding as to costs. From this
decision the said Henry Harding has appealed.
The two insurance companies who are named as defendants do not
dispute their liability to the San Miguel Brewery, to the extent already
stated, and the only question here under discussion is that of the liability
of the insurance companies to Harding. It is therefore necessary to take
account of such facts only as bear upon this aspect of the case.
In this connection it appears that on January 12, 1916, D. P. Dunn, then
the owner of the property to which the insurance relates, mortgaged the
same to the San Miguel Brewery to secure a debt of P10,000. In the
contract of mortgage Dunn agreed to keep the property insured at his
expense to the full amount of its value in companies to be selected by the
Brewery Company and authorized the latter in case of loss to receive the
proceeds of the insurance and to retain such part as might be necessary
to cover the mortgage debt. At the same time, in order more conveniently
to accomplish the end in view, Dunn authorized and requested the
Brewery Company to effect said insurance itself. Accordingly on the
same date Antonio Brias, general manager of the Brewery, made a verbal
application to the Law Union and Rock Insurance Company for insurance
to the extent of P15,000 upon said property. In reply to a question of the
company's agent as to whether the Brewery was the owner of the
property, he stated that the company was interested only as a
mortgagee. No information was asked as to who was the owner of the
property, and no information upon this point was given.
It seems that the insurance company to whom this application was
directed did not want to carry more than one-half the risk. It therefore
issued its own policy for P7,500 and procured a policy in a like amount to
be issued by the "Filipinas" Compania de Seguros. Both policies were
issued in the name of the San Miguel Brewery as the assured, and
contained no reference to any other interest in the property. Both policies
contain the usual clause requiring assignments to be approved and noted
on the policy. The premiums were paid by the Brewery and charged to
Dunn. A year later the policies were renewed, without change, the
renewal premiums being paid by the Brewery, supposedly for the account
of the owner. In the month of March of the year 1917 Dunn sold the
insured property to the defendant Henry Harding, but not assignment of
the insurance, or of the insurance policies, was at any time made to him.
We agree with the trial court that no cause of action in Henry Harding
against the insurance companies is show. He is not a party to the
contracts of insurance and cannot directly maintain an action thereon.
(Uy Tam and Uy Yet vs.Leonard, 30 Phil. Rep., 471.) His claim is merely
of an equitable and subsidiary nature and must be made effective, if at
all, through the San Miguel Brewery in whose name the contracts are
written. Now the Brewery, as mortgagee of the insured property,
undoubtedly had an insurable interest therein; but it could not, in any
event, recover upon these policies an amount in excess of its mortgage
credit. In this connection it will be remembered that Antonio Brias, upon
making application for the insurance, informed the company with which
the insurance was placed that the Brewery was interested only as a
mortgagee. It would, therefore, be impossible for the Brewery mortgage
on the insured property.
This conclusion is not only deducible from the principles governing the
operation and effect of insurance contracts in general but the point is
clearly covered by the express provisions of sections 16 and 50 of the
Insurance Act (Act No. 2427). In the first of the sections cited, it is
declared that "the measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or injury thereof"
(sec. 16); while in the other it is stated that "the insurance shall be
applied exclusively to the proper interest of the person in whose name it
is made unless otherwise specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt at recovery even
by D. P. Dunn, if the ownership of the property had continued in him up to
the time of the loss; and as regards Harding, an additional insuperable
obstacle is found in the fact that the ownership of the property had been
charged, prior to the loss, without any corresponding change having
been effected in the policy of insurance. In section 19 of the Insurance
Act we find it stated that "a change of interest in any part of a thing
insured unaccompanied by a corresponding change of interest in the
insurance, suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested in the
same person." Again in section 55 it is declared that "the mere transfer of
a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing
insured."
Undoubtedly these policies of insurance might have been so framed as to
have been "payable to the Sane Miguel Brewery, mortgagee, as its
interest may appear, remainder to whomsoever, during the continuance
of the risk, may become the owner of the interest insured." (Sec 54, Act
No. 2427.) Such a clause would have proved an intention to insure the
entire interest in the property, not merely the insurable interest of the San
Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
It is easy to collect from the facts stated in the decision of the trial judge,
no less than from the testimony of Brias, the manager of the San Miguel
Brewery, that, as the insurance was written up, the obligation of the
insurance companies was different from that contemplated by Dunn, at
whose request the insurance was written, and Brias. In the contract of
mortgage Dunn had agreed, at his own expense, to insure the mortgaged
property for its full value and to indorse the policies in such manner as to
authorize the Brewery Company to receive the proceeds in case of loss
and to retain such part thereof as might be necessary to satisfy the
remainder then due upon the mortgage debt. Instead, however, of
effecting the insurance himself Dunn authorized and requested the
Brewery Company to procure insurance on the property in the amount of
P15,000 at Dunn's expense. The Brewery Company undertook to carry
this mandate into effect, and it of course became its duty to procure
insurance of the character contemplated, that is, to have the policies so
written as to protect not only the insurable interest of the Brewery, but
also the owner. Brias seems to have supposed that the policies as written
had this effect, but in this he was mistaken. It was certainly a hardship on
the owner to be required to pay the premiums upon P15,000 of insurance
when he was receiving no benefit whatever except in protection to the
extent of his indebtedness to the Brewery. The blame for the situation
thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that
the insurance companies were requested to write insurance upon the
insurable interest of the owner or intended to make themselves liable to
that extent.
If during the negotiations which resulted in the writing of this insurance, it
had been agreed between the contracting parties that the insurance
should be so written as to protect not only the interest of the mortgagee
but also the residuary interest of the owner, and the policies had been, by
inadvertence, ignorance, or mistake written in the form in which they
were issued, a court would have the power to reform the contracts and
give effect to them in the sense in which the parties intended to be
bound. But in order to justify this, it must be made clearly to appear that
the minds of the contracting parties did actually meet in agreement and
that they labored under some mutual error or mistake in respect to the
expression of their purpose. Thus, in Bailey vs. American Central
Insurance Co. (13 Fed., 250), it appeared that a mortgage desiring to
insure his own insurable interest only, correctly stated his interest, and
asked that the same be insured. The insurance company agreed to
accept the risk, but the policy was issued in the name of the owner,
because of the mistaken belief of the company's agent that the law
required it to be so drawn. It was held that a court of equity had the
power, at the suit of the mortgage, to reform the instrument and give
judgment in his favor for the loss thereunder, although it had been exactly
as it was. Said the court: "If the applicant correctly states his interest and
distinctly asks for an insurance thereon, and the agent of the insurer
agrees to comply with his request, and assumes to decide upon the form
of the policy to be written for that purpose, and by mistake of law adopts
the wrong form, a court of equity will reform the instrument so as to make
it insurance upon the interest named." (See also Fink vs. Queens
Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa,
334; 16 Am. St. Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak
Insurance Co., 31 Conn., 517; Balen vs. Hanover Fire Insurance Co., 67
Mich., 179.)
Similarly, in cases where the mortgage is by mistake described as owner,
the court may grant reformation and permit a recovery by the mortgage in
his character as such. (Dalton vs. Milwaukee etc. Insurance Co., 126
Iowa, 377; Spare vs. Home Mutual Insurance Co., 17 Fed., 568.)
In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408),
it appeared that one Kearney made application to an insurance company
for insurance on certain property in his hands as receiver and it was
understood between him and the company's agent that, in case of loss,
the proceeds of the policy should accrue to him and his successors as
receiver and to others whom it might concern. However, the policy, as
issued, was so worded as to be payable only to him as receiver. In an
action brought on the policy by a successor of Kearney, it was alleged
that the making of the contract in this form was due to inadvertence,
accident, and mistake upon the part of both Kearney and the company.
Said the court:
If by inadvertence, accident, or mistake the terms of the contract
were not fully set forth in the policy, the plaintiff is entitled to have
it reformed.
In another case the same court said:
We have before us a contract from which by mistake, material
stipulations have been omitted, whereby the true intent and meaning of
the parties are not fully or accurately expressed. There was a definite
concluded agreement as to insurance, which, in point of time, preceded
the preparation and delivery of the policy, and this is demonstrated by
legal and exact evidence, which removes all doubt as to the sense and
undertaking of the parties. In the agreement there has been a mutual
mistake, caused chiefly by that contracting party who now seeks to limit
the insurance to an interest in the property less than that agreed to be
insured. The written agreement did not effect that which the parties
intended. That a court of equity can afford relief in such a case, is, we
think, well settled by the authorities. (Smell vs. Atlantic, etc., Ins. Co., 98
U.S., 85, 89; 25 L. ed., 52.)

But to justify the reformation of a contract, the proof must be of the most
satisfactory character, and it must clearly appear that the contract failed
to express the real agreement between the parties. (Philippine Sugar
Estates Development Company vs. Government of the Philippine Islands,
62 L. ed., 1177, reversing Government of Philippine Island vs. Philippine
Sugar Estates Development Co., 30 Phil. Rep., 27.)

In the case now before us the proof is entirely insufficient to authorize the
application of the doctrine state in the foregoing cases, for it is by means
clear from the testimony of Brias and none other was offered that
the parties intended for the policy to cover the risk of the owner in
addition to that of the mortgagee. It results that the defendant Harding is
not entitled to relief in any aspect of the case.

The judgment is therefore affirmed, with costs against the appellant. So

ordered.