not give his assent to the proposition, for the reason that the new house would be smaller

[G.R. No. 22738. December 2, 1924.]

and of materials of lower kind than those employed in the construction of the house
destroyed. Upon this point the trial judge very aptly says in his decision: "It would be an
ONG GUAN CAN and THE BANK OF THE PHILIPPINE imposition unequitable, as well as unjust, to compel the plaintiff to accept the rebuilding
ISLANDS, plaintiffs-appellees, vs. THE CENTURY INSURANCE CO., of a smaller house than the one burnt, with a lower kind of materials that those of said
LTD., defendant-appellant. house, without offering him an additional indemnity for the difference in size between the
two houses, which circumstances were taken into account when the insurance applied
for by the plaintiff was accepted by the defendant." And we may add: Without tendering
VILLAMOR, J p: either the insured value of the merchandise contained in the house destroyed, which
amounts to the sum of P15,000.
On April 19, 1924, the Court of the First Instance of Iloilo rendered a judgment in We find in the record nothing to justify the reversal of the finding of the trial
favor of the plaintiff, sentencing the defendant company to pay him the sum of P45,000, judge, holding that the election alleged by the appellant to rebuild the house burnt
the value of certain policies of fire insurance, with legal interest thereon from February instead of paying the value of the insurance is improper. To our mind, the judgment
28, 1923, until payment, with the costs. The defendant company appealed from this appealed from is in accordance with the merits of the case and the law, and must be, as
judgment, and now insists that the same must be modified and that it must be permitted is hereby, affirmed with the costs against the appellant. So ordered.
to rebuild the house burnt, subject to the alignment of the street where the building was
||| (Ong Guan Can v. Century Insurance Co., Ltd., G.R. No. 22738, [December 2, 1924], 46
erected, and that the appellant be relieved from the payment of the sum in which said
PHIL 592-594)ii
building was insured.

A building of the plaintiff was insured against fire by the defendant in the sum of
P30,000, as well as the goods and merchandise therein contained in the sum of P15,000.
The house and merchandise insured were burnt early in the morning of February 28,
1923, while the policies issued by the defendant in favor of the plaintiff were in force.
The appellant contends that under clause 14 of the conditions of the policies, it
may rebuilt the house burnt, and although the house may be smaller, yet it would be
sufficient indemnity to the insured for the actual loss suffered by him.
The clause cited by the appellant is as follows:
"The Company may at its option reinstate or replace the property
damaged or destroyed, or any part thereof, instead of paying the amount of
the loss or damage, or may join with any other Company or insurers in so
doing, but the Company shall not be bound to reinstate exactly or
completely, but only as circumstances permit and in reasonable sufficient
manner, and in no case shall the Company be bound to expend more in
reinstatement than it would have cost to reinstate such property as it was at
the time of the occurrence of such loss or damage, nor more than the sum
insured by the Company thereon."
If this clause of the policies is valid, its effect is to make the obligation of the
insurance company an alternative one, that is to say, that it may either pay the insured
value of the house, or rebuild it. It must be noted that in alternative obligations, the
debtor, the insurance company in this case, must notify the creditor of his election,
stating which of the two presentations he is disposed to fulfill, in accordance with article
1133 of the Civil Code. The object of this notice is to give the creditor, that is, the plaintiff
in the instant case, opportunity to express his consent, or to impugn the election made
by the debtor, and only after said notice shall the election take legal effect when
consented by the creditor, or if impugned by the latter, when declared proper by a
competent court. In the instant case, the record shows that the appellant company did
not give a formal notice of its election to rebuild, and while the witnesses, Cedrun and
Cacho, speak of the proposed reconstruction of the house destroyed, yet the plaintiff did

1
 [G.R. No. 200784. August 7, 2013.]
MALAYAN INSURANCE COMPANY, INC., petitioner, vs. PAP CO., LTD.
(PHIL. BRANCH), respondent.
DECISION
MENDOZA, J p:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the
October 27, 2011 Decision 1 of the Court of Appeals (CA), which affirmed with modification the
September 17, 2009 Decision 2 of the Regional Trial Court, Branch 15, Manila(RTC), and its
February 24, 2012 Resolution 3 denying the motion for reconsideration filed by petitioner
Malayan Insurance Company, Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire
Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the
latter's machineries and equipment located at Sanyo Precision Phils. Bldg.,
Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The
insurance, which was for Fifteen Million Pesos (P15,000,000.00) and
effective for a period of one (1) year, was procured by PAP Co. for Rizal
Commercial Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance
coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant thereto,
a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by
Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998. CcAESI
On October 12, 1997 and during the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fire. Hence, PAP Co.
filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the
ground that, at the time of the loss, the insured machineries and equipment
were transferred by PAP Co. to a location different from that indicated in the
policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14,
Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the
denial, PAP Co. argued that Malayan cannot avoid liability as it was informed
of the transfer by RCBC, the party duty-bound to relay such information.
However, Malayan reiterated its denial of PAP Co.'s claim. Distraught, PAP
Co. filed the complaint below against Malayan. 4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP
Company Ltd. (PAP) an indemnity for the loss under the fire insurance policy as well as for
attorney's fees. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff. Defendant is hereby ordered:
a) To pay plaintiff the sum of FIFTEEN MILLION PESOS
(P15,000,000.00) as and for indemnity for the loss under
the fire insurance policy, plus interest thereon at the rate
of 12% per annum from the time of loss on October 12,
1997 until fully paid;
b) To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS
(PhP500,000.00) as and by way of attorney's fees; [and,]
c) To pay the costs of suit.
SO ORDERED. 5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire
insurance policy because, although there was a change in the condition of the thing insured as
a result of the transfer of the subject machineries to another location, said insurance company
failed to show proof that such transfer resulted in the increase of the risk insured against. In
the absence of proof that the alteration of the thing insured increased the risk, the contract of
fire insurance is not affected per Article 169 of theInsurance Code.
The RTC further stated that PAP's notice to Rizal Commercial Banking
Corporation (RCBC) sufficiently complied with the notice requirement under the policy
considering that it was RCBC which procured the insurance. PAP acted in good faith in
notifying RCBC about the transfer and the latter even conducted an inspection of the machinery
in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial
court erred in ordering it to indemnify PAP for the loss of the subject machineries since the
latter, without notice and/or consent, transferred the same to a location different from that
indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision
but deleted the attorney's fees. The decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified,
Malayan Insurance Company must indemnify PAP Co. Ltd. the amount of
Fifteen Million Pesos (PhP15,000,000.00) for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum from
the time of loss on October 12, 1997 until fully paid. However, the Five
Hundred Thousand Pesos (PhP500,000.00) awarded to PAP Co., Ltd. as
attorney's fees is DELETED. With costs.
SO ORDERED. 6
2
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of 27, 45 AND 74 IN RELATION TO SECTION 31 OF
the insured properties during the efficacy of the insurance policy. Malayan also failed to show THE INSURANCE CODE, RESPECTIVELY. IHDCcT
that its contractual consent was needed before carrying out a transfer of the insured properties.
Despite its bare claim that the original and the renewed insurance policies contained provisions B. RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID
on transfer limitations of the insured properties, Malayan never cited the specific NOT COMMIT CONCEALMENT, MISREPRESENTATION OR
provisions. TEcAHI BREACH OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED
TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT
The CA further stated that even if there was such a provision on transfer restrictions of the THE INSURED PROPERTIES HAD BEEN TRANSFERRED TO A
insured properties, still Malayan could not escape liability because the transfer was made LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE
during the subsistence of the original policy, not the renewal policy. PAP transferred the insured INSURANCE POLICY.
properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in
September 1996. Therefore, Malayan was aware or should have been aware of such transfer C. IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT
when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance THERE ARE CONDITIONS AND LIMITATIONS TO THE
policy was a contract of adhesion, any ambiguity must be resolved against the party that RENEWAL POLICY WHICH ARE THE REASONS WHY ITS
prepared the contract, which, in this case, was Malayan. CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE
BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES
Finally, the CA added that Malayan failed to show that the transfer of the insured properties THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT
increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL
the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER
sue Malayan to enforce its rights on the policy because it remained a party to the insurance MALAYAN OF THE TRANSFER AS REQUIRED BY THE
contract. INSURANCE POLICY.

Not in conformity with the CA decision, Malayan filed this petition for review anchored on the D. MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT
following: THERE WAS AN INCREASE IN RISK BECAUSE OF THE
UNILATERAL TRANSFER OF THE INSURED PROPERTIES. IN
GROUNDS FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY
I RESPONDENT PAP CO.

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT
IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF
THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF
THE TRIAL COURT AND THUS RULING IN THE QUESTIONED
DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE
UNDER THE INSURANCE CONTRACT BECAUSE:
A. CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT
DENIED, THAT ON THE FACE OF THE RENEWAL POLICY
ISSUED TO RESPONDENT PAP CO., THERE IS AN
AFFIRMATIVE WARRANTY OR A REPRESENTATION MADE BY
THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT
THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT
WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT
PAP CO., THE INSURED PROPERTIES WERE NOT AT THE
SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION,
THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS
DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST
OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF
ALREADY ENTITLES PETITIONER MALAYAN TO CONSIDER
THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW,
BECAUSE OF CONCEALMENT, MISREPRESENTATION AND
BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY,
THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE
COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE
PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.
A. JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN
INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF
MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF TO
AN AWARD OF INTEREST AT THE RATE OF TWELVE
PERCENT (12%) PER ANNUM.
B. MORE IMPORTANTLY, SECTIONS 234 AND 244 OF
THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED
BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER
ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY
REFUSED OR WITHHELD THE PROCEEDS OF THE
INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE
WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION
ON WHETHER RESPONDENT PAP CO. COMMITTED
CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER

3
 MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied as factory that
CONSIDER THE CLAIM AS VOIDED. repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.

III PAP's position

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT On the other hand, PAP counters that there is no evidence of any misrepresentation,
IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF concealment or deception on its part and that its claim is not fraudulent. It insists that it can
THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT still sue to protect its rights and interest on the policy notwithstanding the fact that the
AND HELD IN THE QUESTIONED DECISION THAT THE PROCEEDS OF proceeds of the same was payable to RCBC, and that it can collect interest at the rate of 12%
THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO. per annum on the proceeds of the policy because its claim for indemnity was unduly delayed
DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE without legal justification.
INSURANCE POLICY.
The Court's Ruling
IV The Court agrees with the position of Malayan that it cannot be held liable for the loss of the
insured properties under the fire insurance policy.
THE COURT OF APPEALS ERRED AND DEPARTED FROM
ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a
QUESTIONED DECISION AND RESOLUTION THAT THE P15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment
INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured
ADOPTED. 7 properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15,
EPZA, Rosario, Cavite"; that before its expiration, the policy was renewed 11 on an "as is" basis
Malayan basically argues that it cannot be held liable under the insurance contract because
for another year or until May 13, 1998; that the subject properties were later transferred to the
PAP committed concealment, misrepresentation and breach of an affirmative warranty under
Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal
the renewal policy when it transferred the location of the insured properties without informing
policy, a fire broke out at the Pace Factory which totally burned the insured properties.
it. Such transfer affected the correct estimation of the risk which should have enabled Malayan
to decide whether it was willing to assume such risk and, if so, at what rate of premium. The The policy forbade the removal
transfer also affected Malayan's ability to control the risk by guarding against the increase of of the insured properties unless
the risk brought about by the change in conditions, specifically the change in the location of sanctioned by Malayan
the risk.
Condition No. 9 (c) of the renewal policy provides:
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance
Code 8 when it did not inform Malayan of the actual and new location of the insured properties. 9. Under any of the following circumstances the insurance ceases to attach
In fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that as regards the property affected unless the insured, before the occurrence of
there would be no changes in the renewal policy. Malayan also argues that PAP is guilty of any loss or damage, obtains the sanction of the company signified by
breach of warranty under the renewal policy in violation of Section 74 of the Insurance endorsement upon the policy, by or on behalf of the Company:
Code 9 when, contrary to its affirmation in the renewal policy that the insured properties were xxx xxx xxx
located at the Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds
that PAP is guilty of misrepresentation upon a material fact in violation of Section 45 of (c) If property insured be removed to any building or place other
the Insurance Code 10 when it informed Malayan that there would be no changes in the than in that which is herein stated to be insured. 12
original policy, and that the original policy would be renewed on an "as is" basis. CIaHDc
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of property to any building or place required the consent of Malayan. Any transfer effected by the
the insured properties under the insurance policy was with its knowledge and consent. insured, without the insurer's consent, would free the latter from any liability.
Granting that PAP informed RCBC of the transfer or change of location of the insured
properties, the same is irrelevant and does not bind Malayan considering that RCBC is a The respondent failed to notify, and
corporation vested with separate and distinct juridical personality. Malayan did not consent to to obtain the consent of, Malayan
be the principal of RCBC. RCBC did not also act as Malayan's representative. regarding the removal

With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase The records are bereft of any convincing and concrete evidence that Malayan was notified of
in risk as a result of the unilateral transfer of the insured properties. According to Malayan, the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has
the Sanyo Factory was occupied as a factory of automotive/computer parts by the assured and combed the records and found nothing that would show that Malayan was duly notified of the
factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., transfer of the insured properties.

4
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer A Only one, sir.
to RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan
and RCBC might have been sister companies, but such fact did not make one an agent of the Q Do you know a certain Maricar Jardiniano?
other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent A Yes, sir. HIESTA
and bind the said insurance company. After the referral, PAP dealt directly with Malayan.
Q Why do you know her?
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel
stipulated in open court that it was Malayan's authorized insurance agent, Rodolfo Talusan, A Because she is my secretary.
who procured the original policy from Malayan, not RCBC. This was the reason why Talusan's
testimony was dispensed with. Q So how many secretaries did you have at that time?

Moreover, in the previous hearing held on November 17, 2005, 14 PAP's hostile witness, A Two, sir.
Alexander Barrera, Administrative Assistant of Malayan, testified that he was the one who
Q What happened with the instruction that you gave to your secretary Dory
procured Malayan's renewal policy, not RCBC, and that RCBC merely referred fire insurance
Ramos about the matter of informing the defendant Malayan
clients to Malayan. He stressed, however, that no written referral agreement exists between
Insurance Co. of the new location of the insured properties?
RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the
renewal policy was issued. He added that PAP, through Maricar A She informed me that the notification was already given to Malayan
Jardiniano (Jardiniano), informed him that the fire insurance would be renewed on an "as is Insurance.
basis." 15
Q Aside from what she told you how did you know that the information was
Granting that any notice to RCBC was binding on Malayan, PAP's claim that it notified RCBC properly relayed by the said secretary, Dory Ramos, to Malayan
and Malayan was not indubitably established. At best, PAP could only come up with the hearsay Insurance?
testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified
as follows: A I asked her, Dory Ramos, did you inform Malayan Insurance and she said
yes, sir.
Q What did you do as Branch Manager of Pap Co. Ltd.?
Q Now after you were told by your secretary, Dory Ramos, that she was able
A What I did I instructed my Secretary, because these equipment was to inform Malayan Insurance Company about the transfer of the
bank loan and because of the insurance I told my secretary to notify. properties insured to the new location, do you know what happened
insofar this information was given to the defendant Malayan
Q To notify whom?
Insurance?
A I told my Secretary to inform the bank.
A I heard that someone from Malayan Insurance came over to our company.
Q You are referring to RCBC?
Q Did you come to know who was that person who came to your place at
A Yes, sir. Pace Pacific?

xxx xxx xxx A I do not know, sir.

Q After the RCBC was informed in the manner you stated, what did you do Q How did you know that this person from Malayan Insurance came to your
regarding the new location of these properties at Pace Pacific Bldg. place?
insofar as Malayan Insurance Company is concerned?
A It is according to the report given to me.
A After that transfer, we informed the RCBC about the transfer of the
Q Who gave that report to you?
equipment and also Malayan Insurance but we were not able to
contact Malayan Insurance so I instructed again my secretary to A Dory Ramos.
inform Malayan about the transfer.
Q Was that report in writing or verbally done?
Q Who was the secretary you instructed to contact Malayan Insurance, the
defendant in this case? A Verbal. 16 [Emphases supplied]

A Dory Ramos. The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal
knowledge of the notice to either Malayan or RCBC. PAP should have presented his secretaries,
Q How many secretaries do you have at that time in your office? Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.

5
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties
were transferred to a different location only after the renewal of the fire insurance policy.
COURT
Q When did you transfer the machineries and equipment before the renewal
or after the renewal of the insurance?
A After the renewal.
COURT
Q You understand my question?
A Yes, Your Honor. 17 [Emphasis supplied]
This enfeebles PAP's position that the subject properties were already transferred to the Pace
factory before the policy was renewed.
The transfer from the Sanyo Factory
to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured
properties to the Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to
the Pace Factory increased the hazard to which the insured properties were exposed. Malayan
wrote:
With regards to the exposure of the risk under the old location, this was
occupied as factory of automotive/computer parts by the assured, and
factory of zinc & aluminum die cast, plastic gear for copy machine by Sanyo
Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace
Pacific Mfg. Corporation this was occupied as factory that repacks silicone
sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there
was an increase in the hazard as indicated by the increase in rate. 18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to
a hazardous environment and negatively affected the fire rating stated in the renewal policy.
The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk
of loss. Such increase in risk would necessarily entail an increase in the premium payment on
the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the
importance of the issue, PAP failed to refute Malayan's argument on the increased risk.
Malayan is entitled to rescind
the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that the renewal
policy carried with it the same stipulations and limitations. The terms and conditions in the
renewal policy provided, among others, that the location of the risk insured against is at the
Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the
Pace Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated
in the renewal policy. There being an unconsented removal, the transfer was at PAP's own risk.
Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the
report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated
the fire incident at the Pace Factory, which opined that "[g]iven that the location of risk covered
under the policy is not the location affected, the policy will, therefore, not respond to this
loss/claim." 19
It can also be said that with the transfer of the location of the subject properties, without
notice and without Malayan's consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of
the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows: TAECaD
Section 68. An alteration in the use or condition of a thing insured from that
to which it is limited by the policy made without the consent of the insurer,
by means within the control of the insured, and increasing the risks, entitles
an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured's control; and
5) the alteration increases the risk of loss. 20
In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that
PAP removed the properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby
declared NOT liable for the loss of the insured machineries and equipment suffered by PAP Co.,
Ltd.
SO ORDERED.
||| (Malayan Insurance Co., Inc. v. PAP Co., Ltd., G.R. No. 200784, [August 7, 2013], 716 PHIL
155-171)
6
 [G.R. No. 151040. October 5, 2005.]
ALLIED BANKING CORPORATION, petitioner, vs. CHENG YONG and LILIA
GAW, respondents.
[G.R. No. 154109. October 5, 2005.]
CHENG YONG and LILIA GAW, petitioners, vs. ALLIED BANKING
CORPORATION and EX-OFFICIO SHERIFF OF MALABON, METRO
MANILA, respondents.
DECISION
GARCIA, J p:
Before us are these two (2) petitions for review on certiorari under Rule 45 of the Rules
of Court to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R.
CV 41280, to wit:
1. Decision dated 11 December 2001, 1 partially reversing and setting
aside an earlier decision of the Regional Trial Court at Makati,
Branch 145, in its Civil Case No. 10947; and
2. Resolution dated 01 July 2002, 2 denying Cheng Yong and Lilia Gaw's
motion for reconsideration.
The material facts:
Sometime before 1981, Philippine Pacific Fishing Company, Inc. (Philippine Pacific),
through its then Vice-Chairman of the Board and concurrent President Marilyn Javier, obtained
from Allied Banking Corporation (Allied Bank), a packing credit accommodation amounting to
One Million Seven Hundred Fifty Two Thousand Pesos (P1,752,000.00).
To secure the obligation, Marilyn Javier and the spouses Cheng Yong and Lilia Gaw
(spouses Cheng, for short), executed a Continuing Guaranty/Comprehensive Surety bearing
date 27 March 1981. 3
Later, Philippine Pacific, due to business reverses and alleged misuse of corporate
funds by its operating officers, defaulted in the payment of said obligation.
An intra-corporate dispute among its stockholders followed, prompting the filing
against Philippine Pacific of a petition for receivership before the Securities and Exchange
Commission (SEC), which petition was docketed as SEC Case No. 2042. Likewise, a criminal
case for Estafa was filed against Marilyn Javier.
Thereafter, the corporation was reorganized, following which the spouses Cheng Yong
and Lilia Gaw were elected as its president and treasurer, respectively. The spouses Cheng also
hold similar positions in another company, the Glee Chemicals Phils., Inc. (GCPI), which,
incidentally, also had a credit line with Allied Bank. EcaDCI
Meanwhile, on 27 July 1981, the parties in SEC Case No. 2042 agreed to create and
constitute a management committee, instead of placing Philippine Pacific under receivership.
Hence, in an order dated 14 August 1981, the SEC formally created a management committee
whose functions, include, among others, the following:
1. To take custody and possession of all assets, funds, properties and
records of the corporation and to prepare an inventory thereof;
2. To administer, manage and preserve such assets, funds and records;
xxx xxx xxx
7. To acquire, lease, sell, mortgage or otherwise encumber such assets with
the prior approval of the Commission. 4
It appears, however, that two (2) days prior to the constitution of the management
committee, Allied Bank and Philippine Pacific agreed to restructure and convert the packing
credit accommodation into a simple loan. Accordingly, Philippine Pacific executed in favor of
Allied Bank a promissory note dated 12 August 1981 5 in the same amount as the packing
credit accommodation. Aside from affixing their signatures on the same promissory note in
their capacity as officers of Philippine Pacific, the spouses Cheng also signed the note in their
personal capacities and as co-makers thereof.
As it turned out, Philippine Pacific failed to pay according to the schedule of payments
set out in the promissory note of 12 August 1981, prompting the spouses Cheng to secure the
note with substantial collateral by executing a deed of chattel mortgage in favor of Allied Bank
over a fishing vessel, "Jean III", a Japanese-manufactured vessel with refrigerated hatches and
glass freezers, owned by the spouses and registered in their names.
Philippine Pacific again defaulted payment. Hence, on 18 September 1984, Allied Bank
filed with the sheriff of Navotas an application for extra-judicial foreclosure of the chattel
mortgage constituted on "Jean III".
Pursuant thereto, notices of extra-judicial sale dated 21 September 1981 were served
on the concerned parties by the Ex-Officio sheriff of Malabon while the vessel was moored at
the Navotas Fishing Port Complex and under a charter contract with Lig Marine Products, Inc.
On 27 September 1984, the spouses Cheng, to prevent the auction sale of the vessel,
filed with the Regional Trial Court at Quezon City an action for declaratory relief with prayer
for injunctive remedies. Initially, that court issued a writ of preliminary injunction restraining
the sale but later lifted it upon dismissal of the main case for declaratory relief on 29 March
1985.
In the meantime, the vessel sank at the port of Navotas on 22 June 1985, resulting to
its total loss. As per certification of the Harbor Master of the Philippine Fisheries Development
Authority, the vessel sank due to unnoticed defects caused by its prolonged stay in the fish
port and the abandonment thereof. Shortly before the loss, charterer Lig Marine Products, Inc.
offered to purchase the vessel for Four Million Pesos (P4,000,000.00).
7
 On 26 June 1985, the spouses Cheng filed with the Regional Trial Court at Makati a
complaint for Injunction, Annulment of Contracts and Damages with the provisional remedy of
Preliminary Injunction, against Allied Bank and the Ex-Officio Sheriff of Malabon, therein
praying, inter alia, that the promissory note dated 12 August 1981 be declared void and
unenforceable because it was executed without the prior approval or ratification of the SEC-
created management committee in SEC Case No. 2042, and to declare invalid the deed of chattel
mortgage over the vessel "Jean III" for having been constituted to secure a void or unenforceable
obligation. The complaint was docketed as Civil Case No. 10947 and raffled to Branch 145 of
the court. EDHCSI
Meanwhile, on 02 August 1985, Allied Bank filed with the Ex-Officio Sheriff of Pasig an
application for extrajudicial foreclosure of the real estate mortgage 6 constituted by the Cheng
spouses over their parcel of land covered by TCT No. (222143) 23843, located in San Juan,
Metro Manila (hereinafter referred to as the San Juan property), together with the improvement
thereon, consisting of a two-storey building belonging to GCPI. It appears that said property
was mortgaged by the spouses in favor of Allied Bank on 31 May 1983 to partially secure the
payment of the time loan granted by the Bank to GCPI. Despite GCPI's full payment of said
loan, Allied Bank refused to release the mortgage on the San Juan property, theorizing that it
also secured the obligation of the spouses Cheng as Philippine Pacific's co-makers of the
promissory note dated 12 August 1981, in accordance with the stipulation in the deed of
mortgage extending coverage of the guaranty to "any other obligation owing to the mortgagee".
On 22 August 1985, the spouses Cheng filed in Civil Case No. 10947 an amended
complaint praying, among others, that: (a) the promissory note of 12 August 1981 be declared
void and unenforceable; (b) the vessel be declared a total loss; and (c) Allied Bank be ordered
to pay them the value of the loss. And, in order to prevent Allied Bank and the Ex-Officio Sheriff
of Pasig from foreclosing the real estate mortgage over their San Juan property, the spouses
Cheng filed a supplemental complaint with an application for a writ of preliminary injunction.
A writ of preliminary injunction was, thereafter, issued by the trial court.
On 17 October 1985, Allied Bank filed a motion to dismiss the amended as well as the
supplemental complaints.
In its order of 12 March 1986, the trial court denied the motion with respect to the
amended complaint, for lack of merit, while deferring the resolution thereof as regards the
supplemental complaint until after trial because the ground alleged did not appear to be
indubitable.
Eventually, in a decision dated 08 February 1989, 7 the trial court declared both the
promissory note dated 12 August 1981 and the deed of chattel mortgage over the vessel "Jean
III" invalid and unenforceable. Dispositively, the decision reads:
WHEREFORE, premises considered, the Court renders judgment
declaring both the promissory Note (Exh. "M") and the Deed of Chattel
Mortgage (Exh. "5") not valid and unenforceable; permanently enjoining
defendants Allied Banking Corporation and the ex-officio sheriff of Malabon
and his deputies, agents and representatives from proceeding with the
foreclosure and auction sale of the fishing vessel "JEAN III"; permanently
enjoining the defendants-bank and ex-officio sheriff of Pasig from proceeding
with the foreclosure and auction sale of the plaintiffs' real property covered
by TCT No. (222143) 23843 including the building thereon owned by Glee
Chemicals Philippines, Inc.; ordering defendant bank to pay plaintiffs the
sum of Four Million Pesos (P4,000,000.00), Philippine Currency, for the loss
of the aforementioned vessel, the sum of Thirty Thousand Pesos
(P30,000.00), Philippine Currency as moral and exemplary damages, the
further sum of Thirty Thousand Pesos (P30,000.00), Philippine Currency, as
attorney's fees; and the costs of the suit. HSaEAD
The motion to dismiss the supplemental complaint filed by
defendant is denied for lack of merit.
Finally, within three (3) days from the finality of this decision,
defendant bank is hereby compelled to execute the necessary release or
cancellation of mortgage covering the aforesaid parcels of land, and deliver
the two torrens titles in its possession to herein plaintiffs.
SO ORDERED.
Therefrom, Allied Bank went to the Court of Appeals (CA) via ordinary appeal under
Rule 41 of the Rules of Court, which appellate recourse was docketed as CA-G.R. CV No. 41280.
As stated at the outset hereof, the Court of Appeals, in its Decision dated 11 December
2001, partially reversed and set aside the appealed decision of the trial court insofar as it (a)
declared the promissory note as not valid and unenforceable and (b) ordered Allied Bank to pay
the spouses Cheng the amount of Four Million Pesos (P4,000,000.00) for the loss of the fishing
vessel and the sum of Thirty Thousand Pesos (P30,000.00) as moral and exemplary damages.
In all other respects, the appellate court affirmed the trial court, thus:
WHEREFORE, the foregoing considered, the appealed decision
is REVERSED and SET ASIDE insofar as it (1) DECLARED the Promissory
Note dated 12 August 1981 as NOT VALID and unenforceable, and
(2) ORDERED appellant Bank to pay to appellee-spouses Cheng the amount
of Four Million Pesos (P4,000,000.00) for the loss of the fishing vessel "JEAN
III" and the amount of Thirty Thousand Pesos (P30,000.00) for moral and
exemplary damages. In all other respects, the decision is AFFIRMED.
SO ORDERED.
Dissatisfied, Allied Bank immediately filed with this Court its petition for review
on certiorari in G.R. No. 151040, seeking to set aside and reverse only that portion of the
appellate court's decision which affirmed certain aspects of the trial court's decision, i.e.,
(a) enjoining Allied Bank and the Ex-Officio Sheriff of Pasig from proceeding with the foreclosure
of the Real Estate Mortgage over the San Juan property, (b) ordering Allied Bank to execute a
release of the same mortgage in favor of the spouses Cheng; (c) ordering Allied Bank to deliver
the two (2) torrens titles in favor of the spouses; and (d) ordering Allied Bank to pay attorney's
fees and costs. In short, Allied Bank faults the Court of Appeals for not reversing the trial
court's decision in its entirety. More specifically, it submits:
In General, THE HONORABLE COURT OF APPEALS GRAVELY
ERRED WHEN IT DID NOT REVERSE AND SET ASIDE THE DECISION OF
THE REGIONAL TRIAL COURT OF MAKATI CITY, BRANCH 145 IN ITS
ENTIRETY.
8
 In Particular, THE HONORABLE COURT OF APPEALS PATENTLY
ERRED WHEN IT UPHELD RESPONDENTS' ASSERTION THAT THE REAL
ESTATE MORTGAGE DATED MAY 31, 1983 CANNOT BE FORECLOSED
WITH RESPECT TO THE OBLIGATION OF PHILIPPINE PACIFIC TO
PETITIONER. AISHcD
For their part, the spouses Cheng filed with the Court of Appeals a motion for
reconsideration, disputing the appellate court's pronouncement that the August 12, 1981
promissory note and the deed of chattel mortgage over the fishing vessel "Jean III" are valid and
enforceable and that the loss of said vessel must be borne by them. In its resolution of 1 July
2002, the appellate court denied the motion.
Hence, the spouses Cheng's own petition for review on certiorari in G.R. No. 154109,
seeking the reversal and setting aside of both the appellate court's decision of 11 December
2001 and resolution of 01 July 2002, it being their submission that said court committed a
grave and serious reversible error in not holding that:
1. the subject Promissory Note is not valid and enforceable for non-
fulfillment of a suspensive condition and consequently, the Deed of Chattel
Mortgage, being a mere accessory agreement, is likewise not valid and
enforceable in the absence of a valid principal contract; and
2. the Loss of the mortgaged Fishing Vessel "Jean III" must be borne
by the respondent bank considering that the vessel was in its possession
and control at the time of the loss.
Per this Court's Resolution dated 20 November 2002, 8 the two (2) separate petitions
were ordered consolidated, involving, as they do, the same decision of the appellate court.
As we see it, the common issues to be resolved are:
I. Whether or not the promissory note dated 12 August 1981 is valid;
II. Whether or not the chattel mortgage over the fishing vessel "Jean III" can
be foreclosed for Philippine Pacific's failure to comply with its
obligation under the promissory note dated 12 August 1981; and
III. Whether or not the real estate mortgage constituted over spouses Cheng's
parcel of land covered by TCT No. (222143) 23843 [San Juan
property] also secured the spouses' obligation as co-makers of the
promissory note dated 12 August 1981.
In justifying its reversal of the trial court's finding that the validity and effectivity of the
promissory note dated 12 August 1981 were conditioned upon the ratification thereof by the
SEC-created management committee in SEC Case No. 2042, the appellate court explained that
the terms of the subject promissory note are clear and leave no doubt upon the intention of the
parties. On this score, it ruled that the parole evidence introduced by the Cheng spouses to the
effect that the validity and enforceability of the note are conditioned upon its approval and
ratification by the management committee should have been discarded by the trial court,
consistent with the parole evidence rule embodied in Rule 130, Section 9 of the Rules of
Court. 9 Says the appellate court in its challenged decision:
Instead, We agree with [Allied Bank] that there is no evidence to
support the court a quo's finding that the effectivity of the promissory note
was dependent upon the prior ratification or confirmation of the
management committee formed by the SEC in SEC Case No. 2042. AEITDH
To begin with, there is nothing on the face of the promissory note
requiring said prior ratification for it to become valid. Basic is the rule that
if the terms of the contract are clear and leave no doubt upon the intention
of the parties, the literal meaning of its stipulations shall control (Article
1370, Civil Code; Honrado, Jr. vs. CA, 198 SCRA 326).
This basic rule notwithstanding, the court a quo admitted in
evidence the alleged verbal stipulation made by [the spouses Cheng] to the
effect that the validity of the promissory note was dependent upon its
ratification by the management committee. Such parole evidence should not
have been allowed as it had the effect of altering the provisions of the
promissory note which are in clear and unequivocal terms.
Under the parole evidence rule, the terms of a contract are
conclusive upon the parties and evidence which shall vary a complete and
enforceable agreement embodied in a document is inadmissible (Magellan
Manufacturing Corporation vs. CA, 201 SCRA 106). 10(Words in bracket
ours).
We agree.
The appellate court is correct in declaring that under the parole evidence rule, when
the parties have reduced their agreement into writing, they are deemed to have intended such
written agreement to be the sole repository and memorial of everything that they have agreed
upon. All their prior and contemporaneous agreements are deemed to be merged in the written
document so that, as between them and their successors-in-interest, such writing becomes
exclusive evidence of the terms thereof and any verbal agreement which tends to vary, alter or
modify the same is not admissible. 11
Here, the terms of the subject promissory note and the deed of chattel mortgage are
clear and explicit and devoid of any conditionality upon which its validity depends. To be sure,
Allied Bank was not a party to SEC Case No. 2042 where the management committee was
ordered created; hence, it would not be correct to presume that it had notice of the existence
of the management committee which, incidentally, was still to be created when the subject
promissory note was executed on 12 August 1981. Notably, while the parties in SEC Case No.
2042 agreed to form the management committee on 27 July 1981, it was only on 14 August
1981 when the committee was actually created and its members appointed. Clearly then, the
subject promissory note was outside the realm of authority of the management committee.
Corollarily, the chattel mortgage accessory to it is likewise valid.
We thus declare and so hold that Allied Bank's foreclosure of the chattel mortgage
constituted over the vessel "Jean III" was justified. On this score, we also rule that the loss of
the mortgaged chattel brought about by its sinking must be borne not by Allied Bank but by
the spouses Cheng. As owners of the fishing vessel, it was incumbent upon the spouses to
insure it against loss. Thus, when the vessel sank before the chattel mortgage could be
foreclosed, uninsured as it is, its loss must be borne by the spouses Cheng.
We proceed to the third issue. Both the trial court and the appellate court are
unanimous in finding that the real estate mortgage executed by the spouses Cheng over
their San Juan property to. secure the loan of GCPI cannot be held to secure the spouses'
9
obligation as co-makers of the promissory note dated 12 August. 1981. We see no reason to
depart from the findings of the two courts below.

Article 2126 of the Civil Code is explicit:

ART. 2126. The mortgage directly and immediately subjects the

property upon which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it was constituted.

The agreement between the Cheng spouses and Allied Bank as evidenced by the receipt
signed by Allied Bank's representative is that the San Juan property shall collateralize the
approved loan of GCPI, thus indicating the specific loan to be secured and nothing else. To be
sure, the obligation of GCPI was already paid in full. Hence the real estate mortgage accessory
to it was inevitably extinguished. aAEIHC

All told, we find no reversible error committed by the appellate court in rendering the
assailed 11 December 2001 Decision and subsequent 01 July 2002 Resolution in CA-G.R. CV
41280.

WHEREFORE, the consolidated petitions are DENIED and the challenged decision and
resolution of the Court of Appeals AFFIRMED in toto.

SO ORDERED.

||| (Allied Banking Corp. v. Cheng Yong, G.R. Nos. 151040 & 154109, [October 5, 2005], 509
PHIL 95-107)

10
 [G.R. No. 147039. January 27, 2006.]
DBP POOL OF ACCREDITED INSURANCE COMPANIES, petitioner, vs.
RADIO MINDANAO NETWORK, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J p:
This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the
review of the Decision 1 dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV
No. 56351, the dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the
Regional Trial Court of Makati City, Branch 138 in Civil Case No. 90-602 is
hereby AFFIRMED with MODIFICATION in that the interest rate is hereby
reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED. 2
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao
Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner)
and Provident Insurance Corporation (Provident) for recovery of insurance benefits. Respondent
owns several broadcasting stations all over the country. Provident covered respondent's
transmitter equipment and generating set for the amount of P13,550,000.00 under Fire
Insurance Policy No. 30354, while petitioner covered respondent's transmitter, furniture,
fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire Insurance
Policy No. F-66860.
In the evening of July 27, 1988, respondent's radio station located in SSS Building,
Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00. Respondent
sought recovery under the two insurance policies but the claims were denied on the ground
that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by
or through or in consequence, directly or indirectly, of any of the following
consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike
operations (whether war be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion,
revolution, military or usurped power. 3
The insurance companies maintained that the evidence showed that the fire was caused
by members of the Communist Party of the Philippines/New People's Army (CPP/NPA);
and consequently, denied the claims. Hence, respondent was constrained to file Civil
Case No. 90-602 against petitioner and Provident. aIEDAC
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a
decision in favor of respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff.
Defendant Provident Insurance Corporation is directed to pay plaintiff the
amount of P450,000.00 representing the value of the destroyed property
insured under its Fire Insurance Policy plus 12% legal interest from March
2, 1990 the date of the filing of the Complaint. Defendant DBP Pool
Accredited Insurance Companies is likewise ordered to pay plaintiff the sum
of P602,600.00 representing the value of the destroyed property under its
Fire Insurance Policy plus 12% legal interest from March 2, 1990.
SO ORDERED. 4
Both insurance companies appealed from the trial court's decision but the CA affirmed
the decision, with the modification that the applicable interest rate was reduced to 6% per
annum. A motion for reconsideration was filed by petitioner DBP which was denied by the CA
per its Resolution dated January 30, 2001. 5
Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the
following assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
THAT THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE
APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE
FIRE AT RESPONDENT'S RMN PROPERTY AT BACOLOD CITY WERE
MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT
ADJUDGED THAT RESPONDENT RMN CANNOT BEHELD [sic] FOR
DAMAGES AND ATTORNEY'S FEES FOR INSTITUTING THE PRESENT
ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND
2232 OF THE CIVIL CODE OF THE PHILIPPINES. 7
Petitioner assails the factual finding of both the trial court and the CA that its evidence
failed to support its allegation that the loss was caused by an excepted risk, i.e., members of
the CPP/NPA caused the fire. In upholding respondent's claim for indemnity, the trial court
found that:
The only evidence which the Court can consider to determine if the
fire was due to the intentional act committed by the members of the New
People's Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas
Torres and SPO3 Leonardo Rochar who were admittedly not present when
the fire occurred. Their testimony [sic] was [sic] limited to the fact that an
investigation was conducted and in the course of the investigation they were
informed by bystanders that "heavily armed men entered the transmitter
house, poured gasoline in (sic) it and then lighted it. After that, they went
out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons
whom they investigated and actually saw the burning of the station were not
11
 presented as witnesses. The documentary evidence particularly Exhibits "5"
and "5-C" do not satisfactorily prove that the author of the burning were
members of the NPA. Exhibit "5-B" which is a letter released by the NPA
merely mentions some dissatisfaction with the activities of some people in
the media in Bacolod. There was no mention there of any threat on media
facilities. 8
The CA went over the evidence on record and sustained the findings of the trial court,
to wit:
To recapitulate, defendants-appellants presented the following to
support its claim, to wit: police blotter of the burning of DYHB, certification
of the Negros Occidental Integrated National Police, Bacolod City regarding
the incident, letter of alleged NPA members Celso Magsilang claiming
responsibility for the burning of DYHB, fire investigation report dated July
29, 1988, and the testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo
Rochas. We examined carefully the report on the police blotter of the burning
of DYHB, the certification issued by the Integrated National Police of Bacolod
City and the fire investigation report prepared by SFO III Rochas and there
We found that none of them categorically stated that the twenty (20) armed
men which burned DYHB were members of the CPP/NPA. The said
documents simply stated that the said armed men were 'believed' to be or
'suspected' of being members of the said group. Even SFO III Rochas
admitted that he was not sure that the said armed men were members of the
CPP-NPA, thus:
xxx xxx xxx
In fact the only person who seems to be so sure that that the CPP-
NPA had a hand in the burning of DYHB was Lt. Col. Nicolas Torres.
However, though We found him to be persuasive in his testimony regarding
how he came to arrive at his opinion, We cannot nevertheless admit his
testimony as conclusive proof that the CPP-NPA was really involved in the
incident considering that he admitted that he did not personally see the
armed men even as he tried to pursue them. Note that when Lt. Col. Torres
was presented as witness, he was presented as an ordinary witness only and
not an expert witness. Hence, his opinion on the identity or membership of
the armed men with the CPP-NPA is not admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a
member of NPA-NIROC, being an admission of person which is not a party
to the present action, is likewise inadmissible in evidence under Section 22,
Rule 130 of the Rules of Court. The reason being that an admission is
competent only when the declarant, or someone identified in legal interest
with him, is a party to the action. 9
The Court will not disturb these factual findings absent compelling or exceptional
reasons. It should be stressed that a review by certiorari under Rule 45 is a matter of discretion.
Under this mode of review, the jurisdiction of the Court is limited to reviewing only errors of
law, not of fact. 10
Moreover, when supported by substantial evidence, findings of fact of the trial court as
affirmed by the CA are conclusive and binding on the parties, 11 which this Court will not
review unless there are exceptional circumstances. There are no exceptional circumstances in
this case that would have impelled the Court to depart from the factual findings of both the
trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove
that the loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of
the damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to
wit:
xxx xxx xxx
Any loss or damage happening during the existence of abnormal
conditions (whether physical or otherwise) which are occasioned by or
through in consequence directly or indirectly, of any of the said occurrences
shall be deemed to be loss or damage which is not covered by the insurance,
except to the extent that the Insured shall prove that such loss or damage
happened independently of the existence of such abnormal
conditions. acCDSH
In any action, suit or other proceeding where the Companies allege
that by reason of the provisions of this condition any loss or damage is not
covered by this insurance, the burden of proving that such loss or damage
is covered shall be upon the Insured. 12
An insurance contract, being a contract of adhesion, should be so interpreted as to
carry out the purpose for which the parties entered into the contract which is to insure against
risks of loss or damage to the goods. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer from noncompliance
with its obligations. 13
The "burden of proof" contemplated by the aforesaid provision actually refers to the
"burden of evidence" (burden of going forward). 14 As applied in this case, it refers to the duty
of the insured to show that the loss or damage is covered by the policy. The foregoing clause
notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss
was caused by an excepted risk in order to escape any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is preponderance of evidence in civil
cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has
the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never
parts. 15 For the defendant, an affirmative defense is one which is not a denial of an essential
ingredient in the plaintiff's cause of action, but one which, if established, will be a good defense
— i.e. an "avoidance" of the claim. 16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy which
insures against other perils or hazards, loss from such a risk constitutes a defense which the
insurer may urge, since it has not assumed that risk, and from this it follows that an insurer
seeking to defeat a claim because of an exception or limitation in the policy has the
burden of proving that the loss comes within the purview of the exception or limitation
set up. If a proof is made of a loss apparently within a contract of insurance, the burden is
12
upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which
it is not liable, or from a cause which limits its liability. 17
Consequently, it is sufficient for private respondent to prove the fact of damage or loss.
Once respondent makes out a prima facie case in its favor, the duty or the burden of evidence
shifts to petitioner to controvert respondent's prima facie case. 18 In this case, since petitioner
alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such
exception. It is only when petitioner has sufficiently proven that the damage or loss was caused
by an excepted risk does the burden of evidence shift back to respondent who is then under a
duty of producing evidence to show why such excepted risk does not release petitioner from
any liability. Unfortunately for petitioner, it failed to discharge its primordial burden of proving
that the damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of the
author of the damage. It argues that the trial court and the CA erred in not appreciating the
reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they interviewed
claimed that the perpetrators were members of the CPP/NPA as an exception to the hearsay
rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge,
which means those facts which are derived from his perception. 19 A witness may not testify
as to what he merely learned from others either because he was told or read or heard the same.
Such testimony is considered hearsay and may not be received as proof of the truth of what he
has learned. The hearsay rule is based upon serious concerns about the trustworthiness and
reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn
affirmation and, more importantly, have not been subjected to cross-examination by opposing
counsel to test the perception, memory, veracity and articulateness of the out-of-court
declarant or actor upon whose reliability on which the worth of the out-of-court statement
depends. 20
Res gestae, as an exception to the hearsay rule, refers to those exclamations and
statements made by either the participants, victims, or spectators to a crime immediately
before, during, or after the commission of the crime, when the circumstances are such that the
statements were made as a spontaneous reaction or utterance inspired by the excitement of
the occasion and there was no opportunity for the declarant to deliberate and to fabricate a
false statement. The rule in res gestae applies when the declarant himself did not testify and
provided that the testimony of the witness who heard the declarant complies with the following
requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the statements
were made before the declarant had the time to contrive or devise a falsehood; and (3) that the
statements must concern the occurrence in question and its immediate attending
circumstances. 21
The Court is not convinced to accept the declarations as part of res gestae. While it
may concede that these statements were made by the bystanders during a startling occurrence,
it cannot be said however, that these utterances were made spontaneouslyby the bystanders
and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and
Lt. Col. Torres received the bystanders' statements while they were making their investigations
during and after the fire. It is reasonable to assume that when these statements were noted
down, the bystanders already had enough time and opportunity to mill around, talk to one
another and exchange information, not to mention theories and speculations, as is the usual
experience in disquieting situations where hysteria is likely to take place. It cannot therefore
be ascertained whether these utterances were the products of truth. That the utterances may
be mere idle talk is not remote. SAHaTc
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements
were made may be considered as independently relevant statements gathered in the course of
their investigation, and are admissible not as to the veracity thereof but to the fact that they
had been thus uttered. 22
Furthermore, admissibility of evidence should not be equated with its weight and
sufficiency. 23 Admissibility of evidence depends on its relevance and competence, while the
weight of evidence pertains to evidence already admitted and its tendency to convince and
persuade. 24 Even assuming that the declaration of the bystanders that it was the members of
the CPP/NPA who caused the fire may be admitted as evidence, it does not follow that such
declarations are sufficient proof. These declarations should be calibrated vis-à-vis the other
evidence on record. And the trial court aptly noted that there is a need for additional convincing
proof, viz.:
The Court finds the foregoing to be insufficient to establish that the
cause of the fire was the intentional burning of the radio facilities by the
rebels or an act of insurrection, rebellion or usurped power. Evidence that
persons who burned the radio facilities shouted "Mabuhay ang NPA" does
not furnish logical conclusion that they are member [sic] of the NPA or that
their act was an act of rebellion or insurrection. Additional convincing proof
need be submitted. Defendants failed to discharge their responsibility to
present adequate proof that the loss was due to a risk excluded. 25
While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2)
the certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be
considered exceptions to the hearsay rule, being entries in official records, nevertheless, as
noted by the CA, none of these documents categorically stated that the perpetrators were
members of the CPP/NPA. 26 Rather, it was stated in the police blotter that: "a group of persons
accompanied by one (1) woman all believed to be CPP/NPA . . . more or less 20 persons
suspected to be CPP/NPA," 27 while the certification from the Bacolod Police station stated
that ". . . some 20 or more armed men believed to be members of the New People's Army
NPA," 28 and the fire investigation report concluded that "(I)t is therefore believed by this
Investigating Team that the cause of the fire is intentional, and the armed men suspected to
be members of the CPP/NPA where (sic) the ones responsible . . . " 29 All these documents
show that indeed, the "suspected" executor of the fire were believed to be members of the
CPP/NPA. But suspicion alone is not sufficient, preponderance of evidence being the quantum
of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated
November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351
are AFFIRMED in toto.
SO ORDERED.
||| (DBP Pool of Accredited Insurance Co. v. Radio Mindanao Network, Inc., G.R. No. 147039,
[January 27, 2006], 516 PHIL 110-123)
13
14
 [G.R. No. 183054. September 29, 2010.]
NFD INTERNATIONAL MANNING AGENTS, INC./BARBER SHIP
MANAGEMENT LTD., petitioners, vs. ESMERALDO C.
ILLESCAS, respondent.
DECISION
PERALTA, J p:
This is a petition for review on certiorari 1 of the Court of Appeals' Decision dated
October 23, 2007 in CA-G.R. SP No. 97941, and its Resolution dated May 9, 2008 denying
petitioners' motion for reconsideration. The Decision of the Court of Appeals nullified and
set aside the decision of the National Labor Relations Commission (NLRC), and ordered
petitioners to pay respondent the amount of US$90,000.00 as disability benefit. The
Resolution dated May 9, 2008 denied petitioners' motion for reconsideration and awarded
respondent attorney's fees.
The facts are as follows:
On September 6, 2002, respondent Esmeraldo C. Illescas entered into a Contract
of Employment with petitioner NFD International Manning Agents, Inc., acting for and in
behalf of its foreign principal, co-petitioner Barber Ship Management, Ltd. Under the
contract, respondent was employed as Third Officer of M/V Shinrei for a period of nine
months, with a basic monthly salary of US$854.00. The employment contract complied
with the Philippine Overseas Employment Administration (POEA) Standard Contract for
Seafarers, and the standard terms and conditions governing the employment of Filipino
seafarers on board ocean-going vessels under Department Order No. 4, series of 2000.
After respondent passed the pre-employment medical examination, he boarded the
vessel and started performing his job on October 6, 2002.
On May 16, 2003, when respondent had been on board the vessel for seven
months, Captain Jaspal Singh and Chief Officer Maydeo Rajev ordered respondent to carry
25 fire hydrant caps from the deck to the engine workshop, then back to the deck to refit
the caps. The next day, while carrying a heavy basketful of fire hydrant caps, respondent
felt a sudden snap on his back, with pain that radiated down to the left side of his hips. He
immediately informed the ship captain about his condition, and he was advised to take
pain relievers. As the pain was initially tolerable, he continued with his work. After a few
days, the pain became severe, and respondent had difficulty walking. SCHTac
On May 27, 2003, when the vessel was in Japan, respondent was brought to the
Higashiogishima Clinic. Respondent was diagnosed to be suffering from lumbago and
sprain. The doctor gave respondent medication and advised him to wear a corset, avoid
lifting heavy objects and get further examination and treatment if the symptoms
persisted. 2
Despite the lighter work assigned to respondent, he continued to experience
excruciating pain. On June 13, 2003, petitioner was referred to a doctor upon arrival
of M/V Shinrei at the port of Hay Point, Australia. The doctor declared that respondent was
unfit to work, and recommended that respondent return home for further management. 3
On June 14, 2003, respondent was repatriated to the Philippines. On June 17,
2003, respondent was referred to the Alegre Medical Clinic under the care of Dr. Natalio G.
Alegre II. Dr. Alegre advised respondent to undergo a lumbo-sacral x-ray, and later a
Magnetic Resonance Imaging (MRI) of his lumbo-sacral spine. The MRI revealed multi-level
disc desiccation, broad-based central and left-sided posterior disc herniation, L4 L5, with
severe canal stenosis. 4 Dr. Alegre recommended laminectomy and discectomy. 5
On August 27, 2003, respondent underwent a laminectomy with discectomy at the
St. Luke's Medical Center. He was discharged from the hospital on September 6, 2003.
Thereafter, he underwent physical rehabilitation. Nevertheless, medical examinations
showed that there was still restriction in respondent's truncal mobility and in the lifting
power of his trunk.
As his condition did not improve, respondent sought the expertise of Dr. Marciano
F. Almeda, Jr., a specialist in occupational medicine and orthopedics, at the Medical Center
Muntinlupa for the assessment and evaluation of his health condition and/or disability.
Dr. Almeda found that respondent sustained partial permanent disability with an
impediment Grade of 11 (14.93%), described as "slight rigidity or one-third loss of motion
or lifting power of the trunk" under the POEA Standard Contract for Seafarers.6 Dr. Almeda
declared that respondent was unfit to work at sea in any capacity as a seaman. 7
On December 29, 2003, petitioners received a letter 8 dated December 16, 2003
from respondent's counsel, demanding the payment of disability benefit. The claim was
referred to Pandiman Philippines, Inc., the local correspondent of the P&I Club with which
petitioner Barber Ship Management Ltd. was affiliated. In the meantime, respondent filed
a Complaint with the Arbitration Branch of the NLRC.
During the preliminary conferences in this case, the parties explored the possibility
of settlement. In a letter 9 dated April 12, 20004, Pandiman Philippines, Inc., in behalf of
petitioners, offered to pay respondent disability benefit in the amount of US$16,795.00,
corresponding to Grade 8 disability under the POEA Standard Contract for Seafarers.
Respondent, through counsel, refused the offer on the ground that the injury sustained by
him was caused by an accident, which was compensable in the amount of US$90,000.00
under the Collective Bargaining Agreement (CBA), thus: aAHDIc
If a seafarer/officer, due to no fault of his own, suffers permanent
disability as a result of an accident while serving on board or while
traveling to or from the vessel on Company's business or due to marine peril,
and as a result, his ability to work is permanently reduced, totally or
partially, the Company shall pay him a disability compensation which,
including the amounts stipulated by the POEA's Rules and Regulations Part
II, Section C, shall be maximum of US$70,000 for ratings and US$90,000
for officers. 10
Since the parties failed to arrive at an agreement, the NLRC directed them to file
their Position Papers.
In his Position Paper, 11 respondent submitted that Section 20 (B.6) of the POEA
Standard Contract for Seafarers provides:
15
 xxx xxx xxx
In case of permanent total or partial disability of a seafarer during the term
of employment caused by either injury or illness, the seafarer shall be
compensated in accordance with the schedule of benefits enumerated in
Section 32 of his Contract. Computation of his benefits arising from the
illness or disease shall be governed by the rates and the rules of
compensation applicable at the time the illness or disease was contracted.
However, respondent stated that he is a member of the Associated Marine Officers'
and Seamen's Union of the Philippines (AMOSUP), which has a CBA with petitioners. Under
the CBA, he is entitled to a higher disability benefit in the amount of US$90,000.00, since
his injury resulted from an accident while carrying a basketful of heavy fire hydrant caps
on board the vessel. 12
Respondent prayed that petitioners be ordered to pay him disability benefit in the
amount of US$90,000.00, illness allowance equivalent to 120 days, as well as moral and
exemplary damages, and attorney's fees.
In their Position Paper, 13 petitioners countered that it is the POEA Standard
Contract for Seafarers, and not the CBA, that governs this case. They stated that Black's
Law Dictionary defined "accident" as an unusual, fortuitous, unexpected, unforeseen or
unlooked for event. They argued that respondent's disability was not the result of an
accident, as respondent was merely performing his normal duty of transporting fire hydrant
caps from the deck to the engine workshop, then back to the deck to refit the caps. During
the performance thereof, no unusual, unforeseen and unexpected event transpired as
proved by the absence of any accident report. Moreover, respondent's Affidavit did not
mention the occurrence of any accident which gave rise to his injury. Petitioners argued
that, since no accident took place, the disability benefits under the CBA do not apply to
this case. CScTDE
Petitioners further averred that based on the assessment of its accredited-clinic,
the Alegre Medical Clinic, respondent suffered from Grade 8 disability, described as
"moderate rigidity or two-thirds (2/3) loss of motion or lifting power of the trunk." During
the preliminary conference, they offered to pay respondent disability benefit in the amount
of US$16,795.00 for the Grade 8 disability under Section 32 of the POEA Standard Contract
for Seafarers. 14
The main issue for resolution before the Labor Arbiter was whether the disability
of complainant (respondent) was compensable under the provision of Article 13 of the CBA
in the amount of US$90,000.00.
On January 6, 2005, the Labor Arbiter rendered a Decision 15 finding respondent
entitled to disability benefit under the CBA in the amount of US$90,000.00 as 100%
compensation; US$3,456.00 (US$864 x 4) as sickness allowance equivalent to 120 days;
and US$9,345.60 as attorney's fees, or a total of US$102,801.60. The dispositive portion
of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
the respondents NFD International Manning Agents, Inc. and Barber Ship
Management Ltd. to jointly and severally pay complainant Esmeraldo C.
Illescas the amount of ONE HUNDRED TWO THOUSAND EIGHT HUNDRED
ONE US DOLLARS & 60/100 (US$102,801.60) in its equivalent in Philippine
Peso at the prevailing rate of exchange at the time of actual payment
representing his disability benefits, sickness wages and attorney's fees.
All other claims are DISMISSED for lack of merit. 16
The Labor Arbiter held that the injury suffered by respondent was the result of an
accident arising out of, and in the course of, his employment while carrying the heavy fire
hydrant caps, and that his injury was unexpected and unforeseen by him.
Moreover, the Labor Arbiter stated that respondent was declared unfit to work by
the physician who treated him in Australia, which was confirmed by Dr. Marciano Almeda,
Jr. of the Medical Center in Muntinlupa when he declared complainant "unfit to work back
at sea in any capacity as a Seaman." The Labor Arbiter also noted that both Dr. Natalio
Alegre, the company physician, and Dr. Marciano Almeda, Jr., respondent's independent
doctor, assessed respondent's disability as "partial and permanent disability." Hence, the
Labor Arbiter held that respondent's disability was 100% compensable under the CBA in
the amount of US$90,000.00, and not merely under the Standard Crew Contract.
Petitioners appealed the Labor Arbiter's decision to the NLRC.
In a Decision 17 dated July 13, 2006, the NLRC modified the decision of the Labor
Arbiter, as it awarded respondent disability benefit under Section 32 of the POEA Standard
Contract for Seafarers. 18 The dispositive portion of the NLRC Decision reads: aACHDS
WHEREFORE, premises considered, the assailed decision is hereby modified
by deleting the award of US$102,801.60 and instead ordering respondent
NFD International Manning Agents, Inc. and Barber Ship Management Ltd.
to jointly and severally pay complainant Esmeraldo C. Illescas the amount
of Sixteen Thousand Seven Hundred Ninety-Five US Dollars (US$16,795.00)
at the prevailing rate of exchange at the time of actual payment representing
his disability benefit. 19
The NLRC held that the injury sustained by respondent was not the result of an
accident, although it arose out of his work. It stated that the task of carrying hydrant caps
was not a fortuitous, unusual or unforeseen event, or a marine peril. According to the
NLRC, back pains or chest-trunk-spine injuries are inherent in the job of carrying heavy
objects, and the injury may occur over a period of time or on the spot depending upon the
physical strength and posture of the workers.
The NLRC deleted the award for sickness allowance based on the letter dated June
9, 2004 of petitioner NFD International Manning Agents, Inc. to Pandiman Philippines, Inc.
The letter stated that respondent's illness allowance from June 15, 2003 to October 14,
2003 (120 days) had already been processed and remitted to respondent's bank account.
The NLRC held that the payment of the sickness allowance may be presumed, since
respondent did not dispute the letter.
The NLRC also deleted the attorney's fees awarded to respondent on the ground
that there was no unlawful withholding of payment of benefits in view of petitioners'
compromise offer of US$16,795.00, which was the amount of disability benefit awarded by
the NLRC to respondent.
Respondent's motion for reconsideration 20 was denied by the NLRC for lack of
merit in a Resolution 21 dated December 7, 2006.
16
 Respondent filed a special civil action for certiorari with the Court of Appeals,
alleging that the NLRC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in holding that his injury was not the result of an accident on board the vessel;
in not applying the pertinent provisions of the CBA; and in deleting the award of attorney's
fees.
On October 23, 2007, the Court of Appeals rendered a Decision 22 in favor of
respondent. The dispositive portion of the Decision states:
WHEREFORE, finding merit in the petition, We hereby GRANT the same. The
assailed Decision and Resolution of the NLRC are NULLIFIED and SET
ASIDE. Private respondents are ORDERED to pay petitioner the amount of
US$90,000.00 as disability benefits. 23
The Court of Appeals, citing Jarco Marketing v. Court of Appeals, 24 held that
respondent's disability resulted from an accident as the injury was unforeseen and
happened without any fault on his part. cSTHaE
The appellate court declared that the Labor Arbiter correctly applied Article 13 of
the CBA 25 in awarding respondent disability benefit in the amount of US$90,000.00. It
ruled that the NLRC acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in disregarding the CBA.
Petitioners and respondent filed separate motions for reconsideration. Petitioners
contended that the absence of an accident report negated the appellate court's finding that
the injury suffered by respondent was the result of an accident arising out of, and in the
course of, his employment. Respondent's motion for partial reconsideration sought an
additional award of attorney's fees equivalent to 10% of the total monetary award.
In a Resolution dated May 9, 2008, the Court of Appeals denied the motion for
reconsideration of petitioners, but granted the motion for partial reconsideration of
respondent. The dispositive portion of the Resolution reads:
WHEREFORE, finding merit in the Motion for Partial Reconsideration filed
by petitioner, the same is hereby GRANTED. The Decision dated October 23,
2007 is MODIFIED in that private respondents are further ordered to pay
TEN PERCENT (10%) of the total monetary award as attorney's fees.
The motion for reconsideration filed by private respondents is DENIED.
SO ORDERED. 26
The Court of Appeals justified the award of attorney's fees under Article 111 27 of
the Labor Code and Article 2208 28 of the Civil Code, as respondent was forced to litigate
and has incurred expenses to protect his right and interest.
Petitioners filed this petition raising the following issues:
The petition is denied.
I.
The provisions of the CBA, which are relevant to this case, are as follows:
THE COURT OF APPEALS SERIOUSLY ERRED IN RULING THAT
RESPONDENT'S MEDICAL CONDITION WAS A RESULT OF AN ACCIDENT
DURING THE TERM OF HIS EMPLOYMENT WITH PETITIONERS, AND
HENCE, COVERED BY THE PROVISIONS OF THE CBA.
II.
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT ORDERED THE
PAYMENT OF ATTORNEY'S FEES TO RESPONDENT. 29
The issues raised before this Court are: (1) whether or not the disability suffered
by respondent was caused by an accident; (2) whether or not the disability is compensable
under the CBA; and (3) whether or not respondent is entitled to attorney's fees. ACaDTH
Petitioners contend that respondent did not suffer a disability as a result of an
"accident" as defined under existing laws or jurisprudence. They argue that Jarco Marketing
v. Court of Appeals, 30 the case citied by the Court of Appeals to support its decision,
defined an "accident" as:
. . . an unforeseen event in which no fault or negligence attaches to the
defendant. It is "a fortuitous circumstance, event or happening; an event
happening without any human agency, or if happening wholly or partly
through human agency, an event which under the circumstances is unusual
or unexpected by the person to whom it happens."
Petitioners point out that the above definition of the word "accident," subscribed to
by the Court of Appeals, explicitly states that it pertains to a fortuitous circumstance, event
or happening. 31 Petitioners cited Lasam v. Smith, 32 which defined "fortuitous event" as
"an unexpected event or act of God which could neither be foreseen or resisted, such as
floods, torrents, shipwrecks, conflagrations, lightning, compulsion, insurrections,
destruction of buildings by unforeseen accidents and other occurrences of similar nature."
Petitioners contend that the term "accident," as contemplated by the subject CBA provision,
refers to a separate event or incident which gives rise to the injury of the seafarer.
Petitioners argue that in this case, no such unusual, fortuitous, unexpected or
unforeseen event took place or was reported. Respondent merely went about his normal
duties when he transported fire hydrant caps from the deck to the engine workshop, then
back to the deck to refit the caps. The sudden snap respondent felt on his back while
carrying the fire hydrant caps cannot, by itself, qualify as an accident.
Hence, petitioners assert that respondent is not entitled to the benefits provided
under the CBA. They add that if the ruling of the Court of Appeals would be sustained, it
would open the floodgates for absurd claims for double or higher indemnity, especially in
insurance cases, considering that an employee who suffers a stroke, congenital heart
failure, or even appendicitis, while at work, would now be considered as resulting from an
accident, since the same may be regarded as an unusual and unexpected occurrence which
happened without the employee's fault.
Petitioners also contend that there is no basis for the award of attorney's fees, as
they did not act in gross and evident bad faith. They merely acted in the interest of what
was just and right, since respondent was not entitled to full disability benefit under the
CBA.
Art. 13. (Compensation for Death and Disability). —
If a seafarer/officer, due to no fault of his own, suffers permanent
disability as a result of an accident while serving on board or while
traveling to or from the vessel on Company's business or due to marine
17
 peril, and as a result, his ability to work is permanently reduced, totally
or partially, the Company shall pay him a disability compensation
which including the amounts stipulated by the POEA's Rules and
Regulations Part II, Section C, shall be maximum of US$70,000.00 for
ratings and US$90,000.00 for officers.
The degree of disability, which the Company, subject to this Agreement, is
liable to pay, shall be determined by a doctor appointed by the Company. If
a doctor appointed by the Seafarer and his Union disagrees with the
assessment, a third doctor may be agreed jointly between the Company and
the seafarer and his/her Union, and third doctor's decision shall be final and
binding on both parties.
A seafarer who is disabled as a result of an injury, and whose permanent
disability in accordance with the POEA schedule is assessed at 50% or more
shall, for the purpose of this paragraph, be regarded as permanently
disabled and be entitled to 100% compensation (USD90,000 for officers and
USD70,000 for ratings).
A seafarer/officer who is disabled as a result of any injury, and who is
assessed as less than 50% permanently disabled, but permanently unfit
for further service at sea in any capacity, shall also be entitled to a
100% compensation.
xxx xxx xxx
The applicable disability compensation shall be in accordance with the
degree of disability and rate of compensation indicated in the table
hereunder, to wit: HIAEaC
DEGREE OF DISABILITY RATE OF COMPENSATION
% RATINGS OFFICERS
US$
100 70,000 90,000
75 52,500 67,500
60 42,000 54,000
xxx xxx xxx
Any payment effected under any section of this article shall be without
prejudice to any claim for compensation made in law, but such payments
shall be deducted from any award of damages. 33
Was respondent's disability the result of an accident?
Black's Law Dictionary 34 defines "accident" as "[a]n unintended and unforeseen
injurious occurrence; something that does not occur in the usual course of events or that
could not be reasonably anticipated, . . . [a]n unforeseen and injurious occurrence not
attributable to mistake, negligence, neglect or misconduct."
The Philippine Law Dictionary 35 defines the word "accident" as "[t]hat which
happens by chance or fortuitously, without intention and design, and which is unexpected,
unusual and unforeseen."
"Accident," in its commonly accepted meaning, or in its ordinary sense, has been
defined as:
[A] fortuitous circumstance, event, or happening, an event happening
without any human agency, or if happening wholly or partly through human
agency, an event which under the circumstances is unusual and unexpected
by the person to whom it happens . . . .
The word may be employed as denoting a calamity, casualty, catastrophe,
disaster, an undesirable or unfortunate happening; any unexpected
personal injury resulting from any unlooked for mishap or occurrence;
any unpleasant or unfortunate occurrence, that causes injury, loss,
suffering or death; some untoward occurrence aside from the usual course
of events." 36
The Court holds that the snap on the back of respondent was not an accident, but
an injury sustained by respondent from carrying the heavy basketful of fire hydrant caps,
which injury resulted in his disability. The injury cannot be said to be the result of an
accident, that is, an unlooked for mishap, occurrence, or fortuitous event, because the
injury resulted from the performance of a duty. Although respondent may not have
expected the injury, yet, it is common knowledge that carrying heavy objects can cause
back injury, as what happened in this case. Hence, the injury cannot be viewed as unusual
under the circumstances, and is not synonymous with the term "accident" as defined
above. aDECHI
Although the disability of respondent was not caused by an accident, his disability
is still compensable under Article 13 of the CBA under the following provision:
A seafarer/officer who is disabled as a result of any injury, and who is
assessed as less than 50% permanently disabled, but permanently unfit for
further service at sea in any capacity, shall also be entitled to a 100%
compensation.
The Court notes that the CBA states that the degree of disability, which the
company is liable to pay, shall be determined by a doctor appointed by the company. In
this case, the POEA schedule is the basis of the assessment whether a seafarer's permanent
disability is 50 percent or more, or less than 50 percent. 37 The Alegre Medical Clinic,
petitioners' accredited clinic, found that respondent had a Grade 8 disability (33.59%),
described as "moderate rigidity or two-thirds (2/3) loss of motion or lifting power of the
trunk." Dr. Almeda, respondent's independent doctor, on the other hand, found respondent
to be suffering from Grade 11 disability (14.93%), described as "slight rigidity or one-third
(1/3) loss of motion or lifting power of the trunk."
In HFS Philippines, Inc. v. Pilar, 38 the Court held that a claimant may dispute the
company-designated physician's report by seasonably consulting another doctor. In such
a case, the medical report issued by the latter shall be evaluated by the labor tribunal and
the court based on its inherent merit. 39 In this case, petitioners never questioned the
weight given by the Labor Arbiter and the Court of Appeals to the findings of respondent's
independent doctor in regard to the disability of respondent.
18
 Dr. Almeda, respondent's independent doctor, and petitioners' accredited medical
clinic, both assessed respondent's disability in accordance with the POEA schedule as less
than 50% permanently disabled. Moreover, Dr. Almeda, who is a specialist in occupational
medicine and orthopedics, found that respondent was unfit to work in any capacity as a
seaman. The Medical Report 40 of Dr. Almeda states:
xxx xxx xxx
He is now three months post surgery, but still, Mr. Illescas continue to have
back pain. There is still on and off pain and numbness on his left thigh. He
is also unable to tolerate prolonged standing and walking. With his present
complaints, Mr. Illescas cannot withstand the demands of his previous work
at sea. Doing so could aggravate his existing back problem. I therefore
recommend a partial permanent disability with Grade 11
Impediment based on the POEA Contract.
Justification of Impediment:
Grade 11 (14.93%)
Slight rigidity or one-third (1/3) loss of motion or lifting power of the
trunk. DCTHaS
Mr. Illescas started having back problems in a workplace incident where he
lifted a basketful of hydrant caps. He underwent surgery which he claimed
as afforded him partial relief initially. However, up to the present time, the
residual symptoms continue to bother him. This has restricted him in the
active performance of certain tasks.
Often, symptoms following surgery are relieved only to recur after a variable
period. The causes may include insufficient removal of disc material and
further extrusion, rupture of another disc, adhesions about the nerve root
and formation of an osteophyte at the site of removal of bone. Even a
successful disc removal, therefore, does not guarantee a permanent cure as
fibrosis can produce a dense constricting scar tissue, which is presumed to
be a prime cause of recurrent symptoms.
Diagnostic imaging studies, although important, is but a single facet of the
overall evaluation of patients with suspected disc herniation or spinal
stenosis, which must include thorough history taking and physical
examination. It is not surprising to encounter some variation between the
neurologic symptoms and the result of the patient's imaging studies. Each
individual has a different spinal canal diameter. While a mild herniation may
not produce any symptom at all in one person, it may be significant in one
with a narrow spinal canal. DCSETa
Surgery can never stop the pathological process nor restore the back to its
previous state. Similar poor results have been found with repeated attempts
at surgical intervention for the relief of chronic low back pain. If long term
relief is desired, continued mechanical stress of postural or occupational
type must be avoided. Resuming his usual work, which includes increased
loading, twisting, or bending and extension of the back, will further expose
Mr. Illescas to dangers of enhancing his discomfort even more.
It is for this reason that I find him UNFIT to work back at sea in any
capacity as a Seaman. 41
The Court finds merit in the reasons stated by Dr. Almeda in his Medical Report
for declaring respondent unfit to work in any capacity as a seaman. Respondent is,
therefore, entitled to disability benefit in the amount of US$90,000.00 under the CBA, thus:
A seafarer/officer who is disabled as a result of any injury, and who is
assessed as less than 50% permanently disabled, but permanently unfit for
further service at sea in any capacity, shall also be entitled to a 100%
compensation.
xxx xxx xxx
The applicable disability compensation shall be in accordance with the
degree of disability and rate of compensation indicated in the table
hereunder, to wit:
DEGREE OF DISABILITY RATE OF COMPENSATION
% RATINGS OFFICERS
US$
100 70,000 90,000
75 52,500 67,500
60 42,000 54,000
xxx xxx xxx
In regard to the award of attorney's fees, the Court agrees with the Court of Appeals that
respondent is entitled to the same under Article 2208 of the Civil Code:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
xxx xxx xxx
(2) When the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his
interest; aCATSI
xxx xxx xxx
(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.
This case involves the propriety of the award of disability compensation under the
CBA to respondent, who worked as a seaman in the foreign vessel of petitioner Barber Ship
Management Ltd. The award of attorney's fees is justified under Article 2208 (2) of the Civil
Code.Even if petitioners did not withhold payment of a smaller disability benefit,
respondent was compelled to litigate to be entitled to a higher disability benefit. Moreover,
in HFS Philippines, Inc. v. Pilar 42 and Iloreta v. Philippine Transmarine Carriers,
Inc., 43 the Court sustained the NLRC's award of attorney's fees, in addition to disability
benefits to which the concerned seamen-claimants were entitled. It is no different in this
19
 case wherein respondent has been awarded disability benefit and attorney's fees by the
Labor Arbiter and the Court of Appeals. It is only just that respondent be also entitled to
the award of attorney's fees. In Iloreta v. Philippine Transmarine Carriers, Inc., 44 the Court
found the amount of US$1,000.00 as reasonable award of attorney's fees. CcTIAH
WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated
October 23, 2007 in CA-G.R. SP No. 97941, and its Resolution dated May 9, 2008
are AFFIRMED insofar as respondent is awarded disability benefit in the amount of
US$90,000.00, as well as attorney's fees, which is reduced to US$1,000.00. Petitioners
NFD International Manning Agents, Inc. and Barber Ship Management Ltd. are
hereby ORDERED to jointly and severally pay respondent Esmeraldo C. Illescas disability
benefit in the amount of NINETY THOUSAND DOLLARS (US$90,000.00) and attorney's
fees in the amount of ONE THOUSAND DOLLARS (US$1,000.00) in its equivalent in
Philippine Peso at the prevailing rate of exchange at the time of actual payment.
Costs against petitioners.

SO ORDERED.

||| (NFD International Manning Agents, Inc. v. Illescas, G.R. No. 183054, [September 29, 2010],
646 PHIL 244-265)

20
 [G.R. No. L-25579. March 29, 1972.]
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL
T. BIAGTAN and GRACIA T. BIAGTAN, plaintiffs-appellees, vs. THE
INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
Tanopo, Millora, Serafica & Sañez for plaintiffs and appellees.
Araneta, Mendoza, Papa & Associates for defendant and appellant.
SYLLABUS
1. INSURANCE LAW; INSURANCE CONTRACT; EXCEPTION TO ACCIDENTAL BENEFIT
CLAUSE, CONSTRUED. — It should be noted that the exception in the accidental benefit
clause invoked by the appellant does not speak of the purpose whether homicidal or not — of
a third party in causing the injuries, but only of the fact that such injuries have been
"intentionally" inflicted — this obviously to distinguish the from injuries which, although
received at the hands of a third party, are purely accidental.
2. ID.; ID.; ID.; CASE AT BAR. — But where a gang of robbers enter a house and coming face
to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason
and logic to say that his injuries are not intentionally inflicted, regardless of whether they
prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have
been accused and convicted of the crime of robbery with homicide. Under the circumstance,
the insurance company was correct in refusing to pay the additional sum of P2,000.00 under
the accidental death benefit clause which expressly provided that it would not apply where
death resulted from an injury "intentionally" inflicted by a third party.
3. ID.; ID.; ID.; CASE OF CALANOC vs. COURT OF APPEALS DISTINGUISHED FROM CASE
AT BAR. — Where a shot was fired and it turned out afterwards that the watchman was hit in
the abdomen, the wound causing his death, the Court held that it could not be said that the
killing was intentional for there was the possibility that the malefactor had fired the shot to
scare the people around for his own protection and not necessarily to kill or hit the victim. A
similar possibility is clearly ruled out by the facts in the case now before Us. For while a
single shot fired from a distance, and by a person who was not even seen aiming at the
victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted
with bladed weapons at close range cannot conceivably be considered as innocent insofar as
such intent is concerned. The manner of execution of the crime permits no other conclusion.
4. ID.; ID.; ID.; INTENTIONAL, CONSTRUED IN AMERICAN JURISDICTION. — It has been
held in American jurisdiction that "intentional" as used in an accident policy excepting
intentional injuries inflicted by the insured or any other person, etc., implies the exercise of
the reasoning faculties, consciousness, and volition.
5. ID.; ID.; ID.; INTENTION OF PARTIES CONTROLLING; AMERICAN JURISPRUDENCE. —
Where a provision of the policy excludes intentional injury, it is the intention of the person
inflicting the injury that is controlling.
6. ID.; ID.; ID.; INJURIES INTENTIONAL; INSURER RELIEVED FROM LIABILITY. — If the
injuries suffered by the insured clearly resulted from the intentional act of a third party the
insurer is relieved from liability.
7. ID.; ID.; ID.; ID.; CASE OF HUCTHCRAFT'S EX'R vs. TRAVELERS' INS. CO. — In the case
of Hucthcraft's Ex'r vs. Travelers' Ins. Co. where the insured was waylaid and assassinated
for the purpose of robbery, the court rendered judgment for the insurance company and held
that while the assassination of the insured was as to him an unforeseen event and therefore
accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or
injury is intentionally inflicted by any other person, applies to this case."
DECISION
MAKALINTAL, J p:
This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil
Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant Insular Life Assurance
Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary
contract denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if
"the death of the Insured resulted directly from bodily injury effected solely through external
and violent means sustained in an accident . . . and independently of all other causes." The
clause, however, expressly provided that it would not apply where death resulted from an
injury "intentionally inflicted by a third party."
On the night of May 20, 1964 or during the first hours of the following day a band of robbers
entered the house of the insured Juan S. Biagtan. What happened then is related in the
decision of the trial court as follows:
". . .; that on the night of May 20, 1964 or the first hours of
May 21, 1964, while the said life policy and supplementary contract
were in full force and effect, the house of insured Juan S. Biagtan
was robbed by a band of robbers who were charged in and convicted
by the Court of First Instance of Pangasinan for robbery with
homicide; that in committing the robbery, the robbers, on reaching
the staircase landing of the second floor, rushed towards the doors of
the second floor room, where they suddenly met a person near the
door of one of the rooms who turned out to be the insured Juan S.
Biagtan who received thrusts from their sharp-pointed instruments,
causing wounds on the body of said Juan S. Biagtan resulting in his
death at about 7 a.m. on the same day, May 21, 1964;"
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance
company paid the basic amount of P5,000.00 but refused to pay the additional sum of
P5,000.00 under the accidental death benefit clause, on the ground that the insured's death
resulted from injuries intentionally inflicted by third parties and therefore was not covered.
21
Plaintiffs filed suit to recover, and after due hearing the court a quo rendered judgment in
their favor. Hence the present appeal by the insurer.
The only issue here is whether under the facts are stipulated and found by the trial court the
wounds received by the insured at the hands of the robbers — nine in all, five of them mortal
and four non-mortal — were inflicted intentionally. The court, in ruling negatively on the
issue, stated that since the parties presented no evidence and submitted the case upon
stipulation, there was no "proof that the act of receiving thrust (sic) from the sharp-pointed
instrument of the robbers was intended to inflict injuries upon the person of the insured or
any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted
facts. Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-
pointed instruments wielded by the robbers. This is a physical fact as to which there is no
dispute. So is the fact that five of those wounds caused the death of the insured. Whether the
robbers had the intent to kill or merely to scare the victim or to ward off any defense he might
offer, it cannot be denied that the act itself of inflicting the injuries was intentional. It should
he noted that the exception in the accidental benefit clause invoked by the appellant does not
speak of the purpose — whether homicidal or not — of a third party in causing the injuries,
but only of the fact that such injuries have been "intentionally" inflicted — this obviously to
distinguish them from injuries which, although received at the hands of a third party, are
purely accidental. This construction is the basic idea expressed in the coverage of the clause
itself, namely, that "the death of the insured resulted directly from bodily injury effected
solely through external and violent means sustained in an accident . . . and independently of
all other causes." A gun which discharges while being cleaned and kills a bystander; a hunter
who shoots at his prey and hits a person instead; an athlete in a competitive game involving
physical effort who collides with an opponent and fatally injures him as a result: these are
instances where the infliction of the injury is unintentional and therefore would be within the
coverage of an accidental death benefit clause such as that in question in this case. But
where a gang of robbers enter a house and coming face to face with the owner, even if
unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his
injuries are not intentionally inflicted, regardless of whether they prove fatal or not. As it was,
in the present case they did prove fatal, and the robbers have been accused and convicted of
the crime of robbery with homicide.
Court decisions in the American jurisdiction, where similar provisions in accidental death
benefit clauses in insurance policies have been construed, may shed light on the issue before
Us. Thus, it has been held that "intentional" as used in an accident policy excepting
intentional injuries inflicted by the insured or any other person, etc., implies the exercise of
the reasoning faculties, consciousness, and volition. 1 Where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling. 2 If the injuries suffered by the insured clearly resulted from the intentional act of
a third person the insurer is relieved from liability as stipulated. 3
In the case of Hutchcraft's Ex'r. v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep.
484, the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses
were interposed to the action to recover indemnity, namely: (1) that the insured having been
killed by intentional means, his death was not accidental, and (2) that the proviso in the
policy expressly exempted the insurer from liability in case the insured died from injuries
intentionally inflicted by another person. In rendering judgment for the insurance company
the Court held that while the assassination of the insured was as to him an unforeseen event
and therefore accidental, "the clause of the proviso "that excludes the (insurer's) liability, in
case death or injury is intentionally inflicted by any other person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the
insured was shot three times by a person unknown late on a dark and stormy night, while
working in the coal shed of a railroad company. The policy did not cover death resulting from
"intentional injuries inflicted by the insured or any other person." The inquiry was as to the
question whether the shooting that caused the insured's death was accidental or intentional;
and the Court found that under the facts, showing that the murderer knew his victim and
that he fired with intent to kill, there could be no recovery under the policy which excepted
death from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.
||| (Biagtan v. Insular Life Assurance Co., Ltd., G.R. No. L-25579, [March 29, 1972], 150 PHIL
880-901)

The case of Calanoc vs. Court of Appeals, 98 Phil 79, is relied upon by the trial court in
support of its decision. The facts in that case, however, are different from those obtaining
here. The insured there was a watchman in a certain company, who happened to be invited
by a policeman to come along as the latter was on his way to investigate a reported robbery
going on in a private house. As the two of them, together with the owner of the house,
approached and stood in front of the main gate, a shot was fired and it turned out afterwards
that the watchman was hit in the abdomen, the wound causing his death. Under those
circumstances this Court held that it could not be said that the killing was intentional for
there was the possibility that the malefactor had fired the shot to scare the people around for
his own protection and not necessarily to kill of hit the victim. A similar possibility is clearly
ruled out by the facts in the case now before Us. For while a single shot fired from a distance,
and by a person who was not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed weapons at close range
cannot conceivably be considered as innocent insofar as such intent is concerned. The
manner of execution of the crime permits no other conclusion.

22
 [G.R. No. L-8151. December 16, 1955.]
VIRGINIA CALANOC, petitioner, vs. COURT OF APPEALS and THE
PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.
Lucio Javillonar for petitioner.
J.A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes, for
respondents.
SYLLABUS
1. INSURANCE LAW; ACCIDENTAL DEATH; AMBIGUOUS TERMS IN
INSURANCE POLICY; HOW CONSTRUED. — While as a general rule "the parties may
limit the coverage of the policy to certain particular accidents and risks or causes of less,
and may expressly except other risks or causes of loss therefrom" (45 C. J. S, 781-782),
however, it is to be desired that the terms and phraseology of the exception clause be
clearly expressed so as to be within the easy grasp and understanding of the insured, for
if the terms are doubtful or obscure the same must of necessity be interpreted or resolved
against the one who has caused the obscurity. (Article 1377, new Civil Code.) And so it
has been generally held that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain . . . are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeited is involved" (29 Am. Jur.,
181), and the reason for this rule is that the "insured usually has no voice in the selection
or arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)
DECISION
BAUTISTA ANGELO, J p:
This suit involves the collection of P2,000 representing the value of a
supplemental policy covering accidental death which was secured by one Melencio Basilio
from the Philippine American Life Insurance Company. The case originated in the
Municipal Court of Manila and judgment being favorable to the plaintiff it was appealed
to the court of first instance. The latter court affirmed the judgment but on appeal to the
Court of Appeals the judgment was reversed and the case is now before us on a petition
for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner
of Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine
American Life Insurance Company in the amount of P2,000 to which was attached a
supplementary contract covering death by accident. On January 25, 1951, he died of a
gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda at the
corner of Oroquieta and Zurbaran streets. Virginia Calanoc, the widow, was paid the sum
of P2,000, face value of the policy, but when she demanded the payment of the additional
sum of P2,000 representing the value of the supplemental policy, the company refused
alleging, as main defense, that the deceased died because he was murdered by a person
who took part in the commission of the robbery and while making an arrest as an officer
of the law which contingencies were expressly excluded in the contract and have the
effect of exempting the company from liability.
The pertinent facts which need to be considered for the determination of the
questions raised are those reproduced in the decision of the Court of Appeals as follows:
"The circumstances surrounding the death of Melencio Basilio
show that when he was killed at about seven o'clock in the night of
January 25, 1951, he was on duty as watchman of the Manila Auto Supply
at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty.
Antonio Ojeda who had his residence at the corner of Zurbaran and
Oroquieta, a block away from Basilio's station, had come home that night
and found that his house was well-lighted, but with the windows closed;
that getting suspicious that there were culprits in his house, Atty. Ojeda
retreated to look for a policeman and finding Basilio in khaki uniform,
asked him to accompany him to the house, with the latter refusing on the
ground that he was not a policeman, but suggesting that Atty. Ojeda
should ask the traffic policeman on duty at the corner of Rizal Avenue and
Zurbaran; that Atty. Ojeda went to the traffic policeman at said corner and
reported the matter, asking the policeman to come along with him, to
which the policeman agreed; that on the way to the Ojeda residence, the
policeman and Atty. Ojeda passed by Basilio and somehow or other invited
the latter to come along; that as the three approached the Ojeda residence
and stood in front of the main gate which was covered with galvanized iron,
the fence itself being partly concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty. Ojeda and the policeman
sought cover; that the policeman, at the request of Atty. Ojeda, left the
premises to look for reinforcement; that it turned out afterwards that the
special watchman Melencio Basilio was hit in the abdomen, the wound
causing his instantaneous death; that the shot must have come from
inside the yard of Atty. Ojeda, the bullet passing through a hole waist-high
in the galvanized iron gate; that upon inquiry Atty. Ojeda found out that
the savings of his children in the amount of P30 in coins kept in his
aparador contained in stockings were taken away, the aparador having
been ransacked; that a month thereafter the corresponding investigation
conducted by the police authorities led to the arrest and prosecution of
four persons in Criminal Case No. 15104 of the Court of First Instance of
Manila for 'Robbery in an Inhabited House and in Band with Murder'."
It is contended in behalf of the company that Basilio was killed which "making an
arrest as an officer of the law" or as a result of an "assault or murder" committed in the
place and therefore his death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability. This contention was
23
upheld by the Court of Appeals and, in reaching this conclusion, made the following that the killing was intentional for there is the possibility that the malefactor had fired
comment: the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
"From the foregoing testimonies, we find that the deceased was a
triggerman from liability for the damage done, the fact remains that the happening was a
watchman of the Manila Auto Supply, and, as such, he was not bound to
pure accident on the part of the victim. The victim could have been either the policeman
leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the
or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased
trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact,
precisely because he wanted to take his life.
according to the finding of the lower court, Atty. Ojeda finding Basilio in
uniform asked him to accompany him to his house, but the latter refused
on the ground that he was not a policeman and suggested to Atty. Ojeda to
We take note that these defenses are included among the risks excluded in the
ask help from the traffic policeman on duty at the corner of Rizal Avenue
supplementary contract which enumerates the cases which may exempt the company
and Zurbaran, but after Atty. Ojeda secured the help of the traffic
from liability. While as a general rule "the parties may limit the coverage of the policy to
policeman, the deceased went with Ojeda and said traffic policeman to the
certain particular accidents and risks or causes of loss, and may expressly except other
residence of Ojeda; and while the deceased was standing in front of the
risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that
main gate of said residence, he was shot and thus died. The death,
the terms and phraseology of the exception clause be clearly expressed so as to be within
therefore, of Basilio, although unexpected, was not caused by an accident,
the easy grasp and understanding of the insured, for if the terms are doubtful or obscure
being a voluntary and intentional act on the part of the one who robbed, or
the same must of necessity be interpreted or resolved against the one who has caused the
one of those who robbed, the house of Atty. Ojeda. Hence, it is our
obscurity. (Article 1377, new Civil Code) And so it has been generally held that the "terms
considered opinion that the death of Basilio, though unexpected, cannot be
in an insurance policy, which are ambiguous, equivocal, or uncertain . . . are to be
considered accidental, for his death occurred because he left his post and
construed strictly and most strongly against the insurer, and liberally in favor of the
joined policeman Magsanoc and Atty. Ojeda to repair to the latter's
insured so as to effect the dominant purpose of indemnity or payment to the
residence to see what happened thereat. Certainly, when Basilio joined
insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for
Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger
this rule is that the "insured usually has no voice in the selection or arrangement of the
to which he was exposing himself, yet, instead of remaining in his place, he
words employed and that the language of the contract is selected with great care and
went with Atty. Ojeda and Patrolman Magsanoc to see what was the
deliberation by experts and legal advisers employed by, and acting exclusively in the
trouble in Atty. Ojeda's house and thus he was fatally shot."
interest of, the insurance company." (44 C. J. S., p. 1174.)
We dissent from the above findings of the Court of Appeals. For one thing, Basilio
"Insurance is, in its nature, complex and difficult for the layman to
was a watchman of the Manila Auto Supply which was a block away from the house of
understand. Policies are prepared by experts who know and can anticipate
Atty. Ojeda where something suspicious was happening which caused the latter to ask for
the bearing and possible complications of every contingency. So long as
help. While at first he declined the invitation of Atty. Ojeda to go with him to his
insurance companies insist upon the use of ambiguous, intricate and
residence to inquire into what was going on because he was not a regular policeman, he
technical provisions, which conceal rather than frankly disclose, their own
later agreed to come along when prompted by the traffic policeman, and upon
intentions, the courts must, in fairness to those who purchase insurance,
approaching the gate of the residence he was shot and died. The circumstance that he
construe every ambiguity in favor of the insured." (Algoe vs. Pacific Mut. L.
was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
taken as a capricious desire on his part to expose his life to danger considering the fact
that the place he was in duty-bound to guard was only a block away. In volunteering to "An insurer should not be allowed, by the use of obscure phrases
extend help under the situation, he might have thought, rightly or wrongly, that to know and exceptions, to defeat the very purpose for which the policy was
the truth was in the interest of his employer it being a matter that affects the security of procured." (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)
the neighborhood. No doubt there was some risk coming to him in pursuing that errand, We are therefore persuaded to conclude that the circumstances unfolded in the
but that risk always existed it being inherent in the position he was holding. He cannot present case do not warrant the finding that the death of the unfortunate victim comes
therefore be blamed solely for doing what he believed was in keeping with his duty as a within the purview of the exception clause of the supplementary policy and, hence, do not
watchman and as a citizen. And he cannot be considered as making an arrest as an exempt the company from liability.
officer of the law, as contended, simply because he went with the traffic policeman, for
certainly he did not go there for that purpose nor was he asked to do so by the policeman. Wherefore, reversing the decision appealed from, we hereby order the company to
pay petitioner-appellant the amount of P2,000, with legal interest from January 26, 1951
Much less can it be pretended that Basilio died in the course of an assault or until fully paid, with costs.
murder considering the very nature of these crimes. In the first place, there is no proof
that the death of Basilio is the result of either crime for the record is barren of any ||| (Calanoc v. Court of Appeals, G.R. No. L-8151, [December 16, 1955], 98 PHIL 79-85)
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the
criminal case now pending in court as regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be said

24
 [G.R. No. 100970. September 2, 1992.]
FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. THE
HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; 'ACCIDENT' AND 'ACCIDENTAL'; DEFINED. — "The
terms 'accident' and 'accidental', as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and
unforeseen. An accident is an event that takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected." ". . . The generally accepted rule is that, death or injury does
not result from accident or accidental means within the terms of an accident-policy if it is, the
natural result of the insured's voluntary act, unaccompanied by anything unforeseen except
the death or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which produces or
brings about the result of injury or death. In other words, where the death or injury is not the
natural or probable result of the insured's voluntary act, or if something unforeseen occurs in
the doing of the act which produces the injury, the resulting death is within the protection of
the policies insuring against death or injury from accident." [De la Cruz vs. Capital Insurance
& Surety Co., Inc., 17 SCRA 559 (1966)].
2. ID.; ID.; PRINCIPLE OF EXPRESSO UNIUS EXCLUSIO ALTERIUS; APPLICATION IN CASE AT
BAR. — The personal accident insurance policy involved herein specifically enumerated only
ten (10) circumstances wherein no liability attaches to petitioner insurance company for any
injury, disability or loss suffered by the insured as a result of any of the stipulated causes.
The principle of "expresso unius exclusio alterius" — the mention of one thing implies the
exclusion of another thing — is therefore applicable in the instant case since murder and
assault, not having been expressly included in the enumeration of the circumstances that
would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to include
death resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.
3. CIVIL LAW; CONTRACTS; INTERPRETATION OF OBSCURE WORDS OR STIPULATIONS
THEREIN; RULE. — Article 1377 of the Civil Code of the Philippines provides that: "The
interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity."
4. ID.; ID.; ID.; ID.; APPLICATION IN CONTRACT OF INSURANCE; RULE. — Moreover, "it is
well settled that contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance contract should
be interpreted in favor of its beneficiary." [National Power Corporation vs. Court of Appeals,
145 SCRA 533 (1986)].
DECISION
NOCON, J p:
This is a petition for certiorari with a prayer for the issuance of a restraining order and
preliminary mandatory injunction to annul and set aside the decision of the Court of Appeals
dated July 11, 1991 1 affirming the decision dated March 20, 1990 of the Insurance
Commission 2 in ordering petitioner Finman General Assurance Corporation to pay private
respondent Julia Surposa the proceeds of the personal accident insurance policy with
interest. prcd
It appears on record that on October 22, 1986, deceased Carlie Surposa was insured with
petitioner Finman General Assurance Corporation under Finman General Teachers Protection
Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia
and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed
Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on
October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men
without provocation and warning on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City
after attending the celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy filed a
written notice of claim with the petitioner insurance company which denied said claim
contending that murder and assault are not within the scope of the coverage of the insurance
policy.
On February 24, 1989, private respondent filed a complaint with the Insurance Commission
which subsequently rendered a decision, the pertinent portion of which reads:
"In the light of the foregoing, we find respondent liable to pay complainant
the sum of P15,000.00 representing the proceeds of the policy with
interest. As no evidence was submitted to prove the claim for mortuary aid
in the sum of P1,000.00, the same cannot be entertained.
"WHEREFORE, judgment is hereby rendered ordering respondent to pay
complainant the sum of P15,000.00 with legal interest from the date of the
filing of the complaint until fully satisfied. With costs." 4
On July 11, 1991, the appellate court affirmed said decision.
25
Hence, petitioner filled this petition alleging grave abuse of discretion on the part of the
appellate court in applying the principle of "expresso unius exclusio alterius" in a personal
accident insurance policy since death resulting from murder and/or assault are impliedly
excluded in said insurance policy considering that the cause of death of the insured was not
accidental but rather a deliberate and intentional act of the assailant in killing the former as
indicated by the location of the lone stab wound on the insured. Therefore, said death was
committed with deliberate intent which, by the very nature of a personal accident insurance
policy, cannot be indemnified. Cdpr
We do not agree.
any injury, disability or loss suffered by the insured as a result of any of the stipulated
causes. The principle of "expresso unius exclusio alterius" — the mention of one thing implies
the exclusion of another thing — is therefore applicable in the instant case since murder and
assault, not having been expressly included in the enumeration of the circumstances that
would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to include
death resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death. LibLex

"The terms 'accident' and 'accidental', as used in insurance contracts have

not acquired any technical meaning, and are construed by the courts in
their ordinary and common acceptation. Thus, the terms have been taken
to mean that which happen by chance or fortuitously, without intention
and design, and which is unexpected, unusual, and unforeseen. An
accident is an event that takes place without one's foresight or expectation
— an event that proceeds from an unknown cause, or is an unusual effect
of a known cause and, therefore, not expected."
". . . The generally accepted rule is that, death or injury does not result
from accident or accidental means within the terms of an accident-policy if
it is, the natural result of the insured's voluntary act, unaccompanied by
anything unforeseen except the death or injury. There is no accident when
a deliberate act is performed unless some additional, unexpected,
independent, and unforeseen happening occurs which produces or brings
about the result of injury or death. In other words, where the death or
injury is not the natural or probable result of the insured's voluntary act,
or if something unforeseen occurs in the doing of the act which produces
the injury, the resulting death is within the protection of the policies
insuring against death or injury from accident." 5
Article 1377 of the Civil Code of the Philippines provides that:
"The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity."
Moreover,
"it is well settled that contracts of insurance are to be construed liberally in
favor of the insured and strictly against the insurer. Thus ambiguity in the
words of an insurance contract should be interpreted in favor of its
beneficiary." 7
WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals,
the petition for certiorari with restraining order and preliminary injunction is hereby DENIED
for lack of merit.
SO ORDERED.
||| (Finman General Assurance Corp. v. Court of Appeals, G.R. No. 100970, [September 2,
1992], 288 PHIL 384-390)

As correctly pointed out by the respondent appellate court in its decision: cdrep

"In the case at bar, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering
the very nature of these crimes. In the first place, the insured and his
companion were on their way home from attending a festival. They were
confronted by unidentified persons. The record is barren of any
circumstance showing how the stab wound was inflicted. Nor can it be
pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt
the unknown perpetrator from criminal liability, the fact remains that the
happening was a pure accident on the part of the victim. The insured died
from an event that took place without his foresight or expectation, an event
that proceeded from an unusual effect of a known cause and, therefore, not
expected. Neither can it be said that there was a capricious desire on the
part of the accused to expose his life to danger considering that he was just
going home after attending a festival." 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated
only ten (10) circumstances wherein no liability attaches to petitioner insurance company for

26
27
 [G.R. No. 152505-06. September 13, 2007.]
PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner, vs. EQUIN
OX LAND CORPORATION, respondent.
DECISION
SANDOVAL-GUTIERREZ, J p:
Before us for resolution is the instant Petition for Review on Certiorari assailing the
Decision 1 of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R.
SP No. 56491 and CA-G.R. SP No. 57335.
The undisputed facts of the case, as established by the Construction Industry
Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are: EAcHCI
Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to
construct five (5) additional floors to its existing building, the Eastgate Centre, located at
169 EDSA, Mandaluyong City. It then sent invitations to bid to various building
contractors. Four (4) building contractors, including J'Marc Construction & Development
Corporation (J'Marc), responded.
Finding the bid of J'Marc to be the most advantageous, Equinox offered the
construction project to it. On February 22, 1997, J'Marc accepted the offer. Two days
later, Equinox formally awarded to J'Marc the contract to build the extension for a
consideration of P37,000,000.00. TDaAHS
On February 24, 1997, J'Marc submitted to Equinox two (2) bonds, namely: (1) a
surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein
petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the
advance payment payable to J'Marc; and (2) a performance bond likewise issued
by Prudential in the amount of P7,400,000.00 to guarantee J'Marc's faithful performance
of its obligations under the construction agreement.
On March 17, 1997, Equinox and J'Marc signed the contract and related
documents. Under the terms of the contract, J'Marc would supply all the labor, materials,
tools, equipment, and supervision required to complete the project. ETISAc
In accordance with the terms of the contract, Equinox paid J'Marc a downpayment
of P9,250,000.00 equivalent to 25% of the contract price.
J'Marc did not adhere to the terms of the contract. It failed to submit the required
monthly progress billings for the months of March and April 1997. Its workers neglected to
cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on
the project. cTIESa
On May 23, 1997, J'Marc requested an unscheduled cash advance of P300,000.00
from Equinox, explaining it had encountered cash problems. Equinox granted J'Marc's
request to prevent delay.
On May 31, 1997, J'Marc submitted its first progress billing showing that it had
accomplished only 7.3825% of the construction work estimated at P2,731,535.00. After
deducting the advanced payments, the net amount payable to J'Marc was only
P1,285,959.12. Of this amount, Equinox paid J'Marc only P697,005.12 because the former
paid EXAN P588,954.00 for concrete mix. cDSaEH
Shortly after Equinox paid J'Marc based on its first progress billing, the latter
again requested an advanced payment of P150,000.00. Again Equinox paid J'Marc this
amount. Eventually, Equinox found that the amount owing to J'Marc's laborers was only
P121,000.00, not P150,000.00.
In June 1997, EXAN refused to deliver concrete mix to the project site due to
J'Marc's recurring failure to pay on time. Faced with a looming delay in the project
schedule, Equinox acceded to EXAN's request that payments for the concrete mix should
be remitted to it directly. SIHCDA
On June 30, 1997, J'Marc submitted its second progress billing showing that it
accomplished only 16.0435% of the project after 4 months of construction work. Based on
the contract and its own schedule, J'Marc should have accomplished at least 37.70%.
Faced with the problem of delay, Equinox formally gave J'Marc one final chance to
take remedial steps in order to finish the project on time. However, J'Marc failed to
undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated
its contract with J'Marc and took over the project. On the same
date, Equinox sent Prudential a letter claiming relief from J'Marc's violations of the
contract. DTAESI
On July 11, 1997, the work on the project stopped. The personnel of
both Equinox and J'Marc jointly conducted an inventory of all materials, tools, equipment,
and supplies at the construction site. They also measured and recorded the amount of
work actually accomplished. As of July 11, 1997, J'Marc accomplished only 19.0573% of
the work or a shortage of 21.565% in violation of the contract.
The cost of J'Marc's accomplishment was only P7,051,201.00. In other
words, Equinox overpaid J'Marc in the sum of P3,974,300.25 inclusive of the 10%
retention on the first progress billing amounting to P273,152.50. In addition, Equinox also
paid the wages of J'Marc's laborers, the billings for unpaid supplies, and the amounts
owing to subcontractors of J'Marc in the total sum of P664,998.09. cAaTED
On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch
214, Mandaluyong City a complaint for sum of money and damages against J'Marc
and Prudential. Equinox prayed that J'Marc be ordered to reimburse the amounts
corresponding to its (Equinox) advanced payments and unliquidated portion of its
downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to pay
its liability under the bonds.
In its answer, J'Marc alleged that Equinox has no valid ground for terminating
their contract. For its part, Prudential denied Equinox's claims and instituted a cross-claim
against J'Marc for any judgment that might be rendered against its bonds. SEIaHT
During the hearing, Prudential filed a motion to dismiss the complaint on the
ground that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction
over it.
28
 On February 12, 1999, the trial court granted Prudential's motion and dismissed
the case. aCATSI
On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed
as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC
has no jurisdiction over it since it is not a privy to the construction contract
betweenEquinox and J'Marc; and that its surety and performance bonds are not
construction agreements, thus, any action thereon lies exclusively with the proper court.
On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and
against J'Marc and Prudential, thus: AIDcTE
AWARD
After considering the evidence and the arguments of the parties, we
find that:
1. J'Marc has been duly notified of the filing and pendency
of the arbitration proceeding commenced by Equinox against J'Marc
and that CIAC has acquired jurisdiction over J'Marc; cSIHCA
2. The construction Contract was validly terminated
by Equinox due to J'Marc's failure to provide a timely supply of
adequate labor, materials, tools, equipment, and technical services
and to remedy its inability to comply with the construction schedule;
3. Equinox is not entitled to claim liquidated damages,
although under the circumstances, in the absence of adequate proof
of actual and compensatory damages, we award to Equinox nominal
or temperate damages in the amount of P500,000.00; DAaIEc
4. The percentage of accomplishment of J'Marc at the time
of the termination of the Contract was 19.0573% of the work valued
at P7,051,201.00. This amount should be credited to J'Marc. On the
other hand, Equinox [i] had paid J'Marc 25% of the contract price
as down or advance payment, [ii] had paid J'Marc its first progress
billing, [iii] had made advances for payroll of the workers, and for
unpaid supplies and the works of J'Marc's subcontractors, all in the
total sum of P11,690,483.34. Deducting the value of J'Marc's
accomplishment from these advances and payment, there is due
from J'Marc to Equinox the amount of P4,639,285.34. We hold
J'Marc liable to pay Equinox this amount of P4,639,285.34.
5. If J'Marc had billed Equinox for its accomplishment as of
July 11, 1997, 25% of the P7,051,201.00 would have been recouped
as partial payment of the advanced or down payment. This would
have resulted in reducing Prudential's liability on the Surety Bond
from P8,250,000.00 to P7,487,199.80. We, therefore, find
that Prudential is liable to Equinox on its Surety Bond the amount
of P7,487,199.80; AcSCaI
6. Prudential is furthermore liable on its Performance Bond
for the following amounts: the advances made by Equinox on behalf
of J'Marc to the workers, suppliers, and subcontractors amounting
to P664,985.09, the nominal damages of P500,000.00 and attorney's
fees of P100,000.00 or a total amount of P1,264,985.00;
7. All other claims and counterclaims are denied; cAaTED
8. J'Marc shall pay the cost of arbitration and shall
indemnify Equinox the total amount paid by Equinox as expenses of
arbitration;
9. The total liability of J'Marc to Equinox is determined to
be P5,139,285.34 plus attorney's fees of P100,000.00. The surety's
liability cannot exceed that of the principal debtor [Art. 2054, Civil
Code]. We hold that, notwithstanding our finding in Nos. 5 and 6 of
this Award, Prudential is liable to Equinox on the Surety Bond and
Performance Bond an amount not to exceed P5,239,285.34. The cost
of arbitration shall be paid by J'Marc alone. DHITcS
The amount of P5,239,285.34 shall be paid by respondent
J'Marc and respondent Prudential, jointly and severally, with
interest at six percent [6%] per annum from promulgation of this
award. This amount, including accrued interest, shall earn interest
at the rate of 12% per annum from the time this decision becomes
final and executory until the entire amount is fully paid or judgment
fully satisfied. The expenses of arbitration, which shall be paid by
J'Marc alone, shall likewise earn interest at 6% per annum from the
date of promulgation of the award, and 12% from the date the award
becomes final until this amount including accrued interest is fully
paid.
SO ORDERED. EHSITc
Thereupon, Prudential filed with the Court of Appeals a petition for review,
docketed as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it
is bound by the terms of the construction contract between Equinox and J'Marc and that
it is solidarily liable with J'Marc under its bonds.
Equinox filed a motion for reconsideration on the ground that there is an error in
the computation of its claim for unliquidated damages; and that it is entitled to an award
of liquidated damages. CHDAaS
On February 2, 2000, the CIAC amended its Award by reducing the total liability
of J'Marc to Equinox to P4,060,780.21, plus attorney's fees of P100,000 or P4,160,780.21,
and holding that Prudential's liability to Equinox on the surety and performance bonds
should not exceed the said amount of P4,160,780.21, payable by J'Marc
and Prudential jointly and severally.
Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed
as CA-G.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed
by Prudential. CcTHaD
On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP
No. 57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads:
WHEREFORE, the Amended Decision dated February 2, 2000 is
AFFIRMED with MODIFICATION in paragraph 4 in the Award by holding
29
 J'Marc liable for unliquidated damages to Equinox in the amount of
P5,358,167.09 and in paragraph 9 thereof by increasing the total liability of
J'Marc to Equinox to P5,958,167.09 (in view of the additional award of
P500,000.00 as nominal and temperate damages and P100,000.00 in
attorney's fees), and AFFIRMED in all other respects. CSAcTa
SO ORDERED.
Prudential seasonably filed a motion for reconsideration but it was denied by the
Court of Appeals. AEIHaS
The issue raised before us is whether the Court of Appeals erred in (1) upholding
the jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with
J'Marc for damages.
On the first issue, basic is the rule that administrative agencies are tribunals of
limited jurisdiction and as such, can only wield such powers as are specifically granted to
them by their enabling statutes. 2 SHADcT
Section 4 of Executive Order No. 1008, 3 provides:
SEC. 4. Jurisdiction. — The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with contracts entered
into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration. HSDaTC
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship, violation of the
terms of agreement, interpretation and/or application of contractual time
and delays, maintenance and defects, payment, default of employer or
contractor and changes in contract cost.
Excluded from the coverage of the law are disputes arising from
employer-employee relationships which continue to be covered by the Labor
Code of the Philippines. IDCcEa
In David v. Construction Industry and Arbitration Commission, 4 we ruled that
Section 4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from
or connected with construction contracts entered into by parties who have agreed to submit
their case for voluntary arbitration.
As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum
of money against J'Marc and Prudential, the latter filed a motion to dismiss on the ground
of lack of jurisdiction, contending that since the case involves a construction dispute,
jurisdiction lies with CIAC. Prudential's motion was granted. However, after the CIAC
assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that
it is not a party to the construction contract between Equinox and J'Marc; and that the
surety and performance bonds it issued are not construction agreements. IECAaD
After having voluntarily invoked before the RTC the jurisdiction of
CIAC, Prudential is estopped to question its jurisdiction. As we held in Lapanday
Agricultural & Development Corporation v. Estita, 5 the active participation of a party in a
case pending against him before a court or a quasi-judicial body is tantamount to a
recognition of that court's or quasi-judicial body's jurisdiction and a willingness to abide
by the resolution of the case and will bar said party from later on impugning the court's or
quasi-judicial body's jurisdiction.
Moreover, in its Reply to Equinox's Opposition to the Motion to Dismiss before the
RTC, Prudential, citing Philippine National Bank v. Pineda 6 and Finman
General Assurance Corporation v. Salik, 7 argued that as a surety, it is considered under
the law to be the same party as the obligor in relation to whatever is adjudged regarding
the latter's obligation. Therefore, it is the CIAC which has jurisdiction over the case
involving a construction contract between Equinox and J'Marc. Such an admission
by Prudential binds it and it cannot now claim otherwise. CSDcTA
Anent the second issue, it is not disputed that Prudential entered into a suretyship
contract with J'Marc. Section 175 of the Insurance Code defines a suretyship as "a contract
or agreement whereby a party, called the suretyship, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of a
third party, called the obligee. It includes official recognizances, stipulations, bonds, or
undertakings issued under Act 536, 8 as amended." Corollarily, Article 2047 of the Civil
Code provides that suretyship arises upon the solidary binding of a person deemed the
surety with the principal debtor for the purpose of fulfilling an obligation.
In Castellvi de Higgins and Higgins v. Seliner, 9 we held that while a surety and a
guarantor are alike in that each promises to answer for the debt or default of another, the
surety assumes liability as a regular party to the undertaking and hence its obligation
is primary. EaHDcS
In Security Pacific Assurance Corporation v. Tria-Infante, 10 we reiterated the rule
that while a contract of surety is secondary only to a valid principal obligation, the surety's
liability to the creditor is said to be direct, primary, and absolute. In other words, the surety
is directly and equally bound with the principal. Thus, Prudential is barred from
disclaiming that its liability with J'Marc is solidary.
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals
(Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No.
57355 is AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
||| (Prudential Guarantee and Assurance, Inc. v. Equinox Land Corp., G.R. Nos. 152505-06,
[September 13, 2007], 559 PHIL 672-682)
30
 [G.R. No. L-9674. April 29, 1957.]
MELECIO ARRANZ, plaintiff-appellant, vs. MANILA FIDELITY AND
SURETY CO., INC., defendant-appellee.
Jose F. Aguirre for appellant.
De Santos & Herrera for appellee.
SYLLABUS
1. SURETYSHIP; LIABILITY OF SURETY TO PAY PRINCIPAL'S DEBT; FAILURE
OF SURETY TO PAY OBLIGATION, EFFECT ON LIABILITY OF PRINCIPAL TO PAY
PREMIUM ON THE BOND. — Although in the contract of suretyship the creditor was
given the right to sue the principal, or the latter and the surety at the same time, this
does not imply, however, that the surety covenanted or agreed with the principal that it
will pay the loan for the benefit of the principal. Such a promise is not implied by law
either. The principal, therefore, cannot claim that there has been a breach of any
obligation under the suretyship contract when the surety failed or refused to pay the debt
for the principal's account. And such failure or refusal of the surety to pay the obligation
did not have the effect of relieving the principal of his obligation to pay the premium on
the bond furnished, as long as the liability of the surety to the obligee subsists.
DECISION
LABRADOR, J p:
Appeal from an order of dismissal of the complaint rendered by the judge of the
Court of First Instance, Honorable Rafael Amparo, presiding.
The complaint alleges the following facts: On November 25, 1949, the defendant-
appellee Manila Fidelity & Surety Co., executed and delivered to the Manila Ylang Ylang
Distillery a surety bond, by virtue of which defendant-appellee, as surety, understood to
pay jointly and severally with plaintiff as principal, the sum of P90,000. The surety bond
executed by Arranz and the defendant-appellee contains the following stipulation:
"The surety hereunder waives notice of default and expressly
agrees that it shall not be necessary for the Manila Ylang Ylang Distillery,
Ltd. to proceed against the Principal upon his default or to exhaust the
property of said Principal, before proceeding against the surety, the
Surety's liability under this bond being a primary one and shall be exigible
and demandable immediately upon occurrence of such default." (p. 16,
R.O.A.)
To secure the surety against loss arising from the surety bond, plaintiff executed a
second mortgaged over the properties which were transferred by the Manila Ylang Ylang
Distillery to plaintiff. When the first installment of P50,000 became due on June 30,
1950, the surety, defendant-appellee, did not have funds to pay the same, and neither
did it have funds to pay the second installment of P40,000 which became due on June
30, 1951. So the complaint was filed by the Manila Ylang Ylang Distillery on November
16, 1950, and a supplemental complaint was later filed on January 2, 1952, to include
the second installment of P40,000 then already due. The defendant had no funds with
which to pay either the P50,000 or the P40,000 due under the agreement and the only
amount it was able to raise was P20,000. And that was paid to Manila Ylang Ylang
Distillery on account.
As defendant surety had no money with which to respond for the obligation,
plaintiff made an arrangement with the Philippine National Bank, whereby he would
mortgage the same properties to the latter in order to raise the amount needed to pay the
amount of the loan. The Philippine National Bank wanted that defendant surety cancel
the second mortgage executed in its favor by Arranz, but the defendant refused to do so
unless Arranz pay to it the following sums:
(a) P20,000, the partial payment made to the Manila Ylang Ylang
Distillery on account of the latter's judgment credit;
(b) P3,045.12, premium from December 31, 1950 to December 31,
1954;
(c) P7,691.09, including renewal premium on Bond No. 8674, from
November 25, 1950 to November 25, 1954, and incidental expenses and
interests;
(d) P10,000, for attorney's fees and
(e) P25,000, to be held by defendant in trust to answer for an
alleged contingent liability of the Manila Ylang Ylang Distillery to it.
As the plaintiff feared that the credit accommodation he sought from the Philippine
National Bank could not be secured without release by the surety of its second
mortgage, Arranz paid the above amounts except the P25,000, and thereupon the second
mortgage executed in favor of surety, defendant-appellee, was cancelled.
The complaint seeks to recover (a) P7,200, the premiums corresponding to the
period from November 25, 1950 to November 25, 1954; and (b) P7,000 representing
attorney's fees. Arranz claims that these two amounts were never due and owing to the
defendant surety and that he paid it against his will in order to be able to save the
properties from loss and obtain the credit accommodation from the Philippine National
Bank.
The defendant presented a motion to dismiss the complaint on the ground that
there was no cause of action and inasmuch as the sums sought to be recovered were paid
by virtue of the compromise, and no allegation is made in the complaint that said
compromise is vitiated by mistake, violence, intimidation, undue influence and fraud. In
answer to the motion to dismiss, plaintiff alleged that he was compelled to pay the
amounts. The court ruled that the payment of the sum of P14,200 demanded in plaintiff's
complaint was paid as a price for the release of the properties held on second mortgage
by the defendant, or that the same was the consideration for said release in order to save
his properties, and therefore dismissed the complaint.
31
 We are unable to agree with the judgment of the trial court that the sum of
P14,200 was paid as a consideration for the release of the mortgage. There is no
allegation in the complaint to that effect. From the allegations of the complaint, we gather
the following facts: (1) that the surety did not have the money with which to pay the
obligation, the payment of which was guaranteed in the contract of suretyship; (2) that
the premium of P7,200 sought to be collected by the defendant from the plaintiff and the
P7,000 also collected as attorney's fees, were never due from the plaintiff, because the
surety was not able to put up the amount that it undertook to pay if the principal did not
pay the same; (3) that plaintiff was compelled against his will by the circumstances to pay
the sums now sought to be recovered. The question which the motion for dismissal poses
therefore is, Is plaintiff under obligation to pay the premium on the bond because of
failure of his surety to pay the indebtedness secured by it (surety)?
There is no allegation in the complaint or in any other paper in the case that the
surety promised the principal that it will pay the loan or obligation contracted by the
principal (plaintiff herein) for the latter's account. In the contract of suretyship the
creditor was given the right to sue the principal, or the latter and the surety at the same
time. This does not imply, however, that the surety covenanted or agreed with the
principal that it will pay the loan for the benefit of the principal. Such a promise is not
implied by law either. Plaintiff, therefore, cannot claim that there has been a breach on
the part of the surety of any obligation it has made or undertaken under the suretyship
contract. And the failure or refusal of the surety to pay the debt for the principal's
account did not have the effect of relieving the principal of his obligation to pay the
premium on the bond furnished.
The premium is the consideration for furnishing the bond or the guaranty. While
the liability of the surety to the obligee subsists the premium is collectible from the
principal. Under the terms of the contract of suretyship the surety's obligation is that the
principal pay the loan and the interest thereon, and that the surety shall be relieved of
his obligation when the loan or obligation secured is paid.
"NOW, THEREFORE, if the above abounden Principal shall pay
promptly said installments and interest thereon and shall in all respects do
and fully observe all and singular the covenants, agreements and
conditions as provided for in the aforesaid agreement of November 21,
1949, Annexes 'A' and 'B' respectively, to the true intent and meaning
thereof, this obligation shall be null and void, otherwise, it shall remain in
full force and effect." (p. 16, R.O.A.)
As the loan and interest remained unpaid the surety continued to be bound to the
creditor-obligee, and as a corollary its right to collect the premium on the bond also
continued.
Plaintiff-appellant, therefore, cannot excuse himself from the payment of the
premium on the bond upon the failure or refusal of the surety to pay the loan and the
interest. Even if, therefore, the payment of the premium were against his will, still
plaintiff- appellant has no cause of action for the return thereof, because the surety was
entitled thereto.
For the foregoing considerations, the order of dismissal is affirmed on other
grounds. So ordered.
||| (Arranz v. Manila Fidelity & Surety Co., Inc., G.R. No. L-9674, [April 29, 1957], 101 PHIL
272-277)

32
 [G.R. No. L-36488. July 25, 1983.]
CAPITAL INSURANCE SURETY CO., INC., herein represented by its General
Agent, the PAN AMERICAN INSURANCE AGENCIES, INC., plaintiff-
appellant, vs. RONQUILLO TRADING and JOSE L. BAUTISTA, defendants-
appellees.
Aristorenas, Relova & Enriquez Law Office for plaintiff-appellant.
Josefino Corpuz for defendants-appellees.
SYLLABUS
1. SURETYSHIP; SURETY; RIGHTS AND LIABILITY DEPENDENT UPON THE STIPULATION IN
THE SURETY BOND; CASE AT BAR. — It must be noted that in the surety bond it is
stipulated that the "Liability of surety on this bond will expire on May 5, 1963 and said bond
will be cancelled 15 days after its expiration, unless surety is notified of any existing
obligations thereunder." Under this stipulation the bond expired on the stated date and the
phrase "unless surety is notified of any existing obligations thereunder" refers to obligations
incurred during the term of the bond.
2. ID.; ID.; TERMINATION OF CONTRACT UNDER ITS TERMS; PAYMENT OF PREMIUM BY
PRINCIPAL CEASES DESPITE PENDENCY OF SUIT TO ENFORCE LIABILITY
OF SURETY BOND THAT ACCRUED BEFORE ITS EXPIRATION. — Obviously, the duration of
the bond is for twelve (12) months or fraction thereof, while this bond or any renewal or
substitution is in effect." Since the appellees opted not to renew the contract they cannot be
obliged to pay the premiums. More specifically, where contract of surety is terminated under
its terms, the liability of the principal for premiums after such termination ceases
notwithstanding the pendency of a lawsuit to enforce a liability that accrued during its
stipulated lifetime.
DECISION
GUTIERREZ, JR., J p:
Before us for review is a decision of the Court of First Instance of Manila affirming a judgment
of the City Court of Manila dismissing the plaintiff-appellant's complaint for sum of money.
The case was originally appealed to the Court of Appeals but was certified to us on a finding
that only questions of law are raised.
Capital Surety and Insurance Co., Inc., thru its general agent, executed and issued
a surety bond in the amount of $14,800.00 or its peso equivalent in behalf
of Ronquillo Trading and in favor of S.S. Eurygenes, its master, and/or its agents, Delgado
Shipping Agencies. The bond was a guarantee for any additional freight which may be
determined to be due on a cargo of 258 surplus army vehicles consigned from Pusan, Korea
to the Ronquillo Trading on board the S.S. Eurygenes and booked on said vessel by the
Philippine Merchants Steamship Company, Inc. LLphil
In consideration for the issuance by the appellant of the aforesaid surety bond the appellees
executed an indemnity agreement whereby among other things, they jointly and severally
promised to pay the appellant the sum of P1,827.00 in advance as premium and
documentary stamps for each period of twelve months while the surety bond was in effect.
On April 30, 1963 or about five (5) days before the expiration of the liability on the bond, P.D.
Marchessini and Co., Ltd. and Delgado Shipping Agencies, Inc., filed Civil Case No. 53853 in
the Court of First Instance of Manila against the Philippine Merchants Steamship Co., Inc.,
Jose L. Bautista, doing business under the name and style of "Ronquillo Trading", and the
herein appellant Capital Insurance & Surety Co., Inc. for the sum of $14,800.00 or its
equivalent in Philippine currency, the loss they allegedly suffered as a direct consequence of
the failure of the defendants to load the stipulated quantity of 406 U.S. surplus army
vehicles. The appellant was made party defendant because of the bond it posted in behalf of
the appellees.
Upon the expiration of the 12 months life of the bond, the appellant made a formal demand
for the payment of the renewal premiums and cost of documentary stamps for another year in
the amount of P1,827.00.
The appellees refused to pay, contending that the liability of the appellant under
the surety bond accrued during the period of twelve months the said bond was originally in
force and before its expiration and that the defendants-appellees were under no obligation to
renew the surety bond.
The appellant, therefore, filed a complaint to recover the sum of P1,827.00 against the
appellees in the City Court of Manila. A earlier stated, the city court rendered judgment
absolving the appellees from the complaint.
The appellant appealed the judgment to the Court of First Instance of Manila where the
decision of the city court was affirmed and the complaint dismissed.
Its motion for reconsideration having been denied, appellant filed the instant appeal with the
following lone assignment of error: LLjur
"THE TRIAL COURT ERRED IN HOLDING THAT ONCE SURETY'S
LIABILITY UNDER THE BOND HAS ACCRUED, DEFENDANTS-APPELLEES
ARE UNDER NO OBLIGATION TO PAY THE PREMIUMS AND COSTS OF
DOCUMENTARY STAMPS FOR THE SUCCEEDING PERIOD THAT IT IS IN
EFFECT."
The appellant contends that the conclusion of the trial court that "once surety's liability
under the bond has accrued, defendants are under no obligation to pay the premiums and
cost of documentary stamps for the succeeding period that it is in effect by reason of existing
obligation of surety under the bond" is erroneous because it contradicts the provision of the
indemnity agreement which provides:
"PREMIUMS. — As consideration for the Surety, the undersigned, jointly
and severally, agree to pay the COMPANY the sum of ONE THOUSAND
EIGHT HUNDRED ONLY (P1800.00) PESOS, Philippine Currency, in
33
 advance or premium thereof for every . . . twelve (12) months or fraction
thereof, while this bond or any renewal or substitution thereof is in effect."

According to the appellant, it can be deduced that the payment of renewal premiums should
depend upon the life and effectivity of the bond and not on the accrual of its liability. It states
that as long as the bond is in full force and effect, the principal should pay the corresponding
renewal premium and should continue to do so even if the liability on the bond has accrued,
otherwise, surety companies will be at the mercy of their principals because while their
liability continues to subsist as long as their accrued liability is not determined, or as long as
the court has not determined their liability, which may take years, the principals pay no
consideration for the use of their bond. And if the case is decided against appellant thereby
holding its bond liable, it must pay the face value of its bond, and yet it is barred from
collecting any consideration for the use of its bond during the pendency of the case.

The appellees countered that the only purpose of Civil Case No. 53853 was to enforce a
liability which existed even before the bond was executed. The bond was given to secure
payment by appellees of such additional freight as would already be due on the cargo when it
actually arrived in Manila. The bond was not executed to secure an obligation or liability
which was still to arise after its twelve month life. While it is true that the lower court held
that the bond was still in effect after its expiry date, the effectivity was not due to a renewal
made by the appellees but because the surety bond provided that "the liability of
the surety will not expire if, as in this case, it is notified of an existing obligation thereunder".
The meaning of the bond's still being in effect is that, the suit on the bond instituted by the
obligees prior to the expiration of the "liability" thereunder was only for the purpose of
enforcing that liability and amounted to notice to appellant of an already existing or accrued
liability so as not to let that liability lapse or expire and thereby bar enforcement.

We agree with the contention of the appellees. It must be noted that in the surety bond it is
stipulated that the "Liability of surety on this bond will expire on May 5, 1963 and said bond
will be cancelled 15 days after its expiration, unless surety is notified of any existing
obligations thereunder." Under this stipulation the bond expired on the stated date and the
phrase "unless surety is notified of any existing obligations thereunder" refers to obligations
incurred during the term of the bond. LLpr

Furthermore, under the Indemnity Agreement, the appellees "agree to pay the COMPANY the
sum of ONE THOUSAND EIGHT HUNDRED ONLY (P1,800.00) Pesos, Philippine Currency, in
advance as premium thereof for every twelve (12) months or fraction thereof, while this bond
or any renewal or substitution thereof is in effect." Obviously, the duration of the bond is for
"every twelve (12) months or fraction thereof, while this bond or any renewal or substitution is
in effect." Since the appellees opted not to renew the contract they cannot be obliged to pay
the premiums. More specifically, where a contract of surety is terminated under its terms, the
liability of the principal for premiums after such termination ceases notwithstanding the
pendency of a lawsuit to enforce a liability that accrued during its stipulated lifetime.

WHEREFORE, the appeal is dismissed for lack of merit. The decision of the court a quo is
affirmed.

SO ORDERED.

||| (Capital Insurance Surety Co., Inc. v. Ronquillo Trading, G.R. No. L-36488, [July 25, 1983],
208 PHIL 451-451)

34
 [G.R. No. 107062. February 21, 1994.]
PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner, vs. THE
COURT OF APPEALS, (Fourteenth Division) and GEGROCO,
INC., respondents.
DECISION
NOCON, J p:
Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid to get a
favorable decision from the Regional Trial Court and then again in the Court of
Appeals. 1 These are non-appearance during the pre-trial despite due notice, and non-
payment of docket fees upon filing of its third-party complaint. Just how strict should these
rules be applied is a crucial issue in this present dispute.
Petitioner, Interworld Assurance Corporation (the company now carries the corporate name
Philippine Pryce Assurance Corporation), was the butt of the complaint for collection of sum
of money, filed on May 13, 1988 by respondent, Gegroco, Inc. before the Makati Regional Trial
Court, Branch 138. The complaint alleged that petitioner issued two surety bonds (No. 0029,
dated July 24, 1987 and No. 0037, dated October 7, 1987) in behalf of its principal Sagum
General Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONE
MILLION (1,000,000.00) PESOS, respectively.
On June 16, 1988, summons, together with the copy of the complaint, was served on
petitioner. Within the reglementary period, two successive motions were filed by petitioner
praying for a total of thirty (30) days extension within which to file a responsive
pleading. LexLib
In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner admitted
having executed the said bonds, but denied liability because allegedly 1) the checks which
were to pay for the premiums bounced and were dishonored hence there is no contract to
speak of between petitioner and its supposed principal; and 2) that the bonds were merely to
guarantee payment of its principal's obligation, thus, excussion is necessary. After the issues
had been joined, the case was set for pre-trial conference on September 29, 1988. The
petitioner received its notice on September 9, 1988, while the notice addressed to its counsel
was returned to the trial court with the notation "Return to Sender, Unclaimed." 2
On the scheduled date for pre-trial conference, only the counsel for petitioner appeared while
both the representative of respondent and its counsel were present. The counsel for petitioner
manifested that he was unable to contract the Vice-President for operations of petitioner,
although his client intended to file a third party complaint against its principal. Hence, the
pre-trial was re-set to October 14, 1988. 3
On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party Complaint"
with the Third-Party Complaint attached. On this same day, in the presence of the
representative for both petitioner and respondent and their respective counsel, the pre-trial
conference was re-set to December 1, 1988. Meanwhile on November 29, 1988, the court
admitted the Third Party Complaint and ordered service of summons on third party
defendants. 4
On scheduled conference in December, petitioner and its counsel did not appear
notwithstanding their notice in open court. 5 The pre-trial was nevertheless re-set to
February 1, 1989. However, when the case was called for pre-trial conference on February 1,
1989, petitioner was again not represented by its officer or its counsel, despite being duly
notified. Hence, upon motion of respondent, petitioner was considered as in default and
respondent was allowed to present evidence ex-parte, which was calendared on February 24,
1989. 6 Petitioner received a copy of the Order of Default and a copy of the Order setting the
reception of respondent's evidence ex-parte, both dated February 1, 1989, on February 15,
1989. 7
On March 6, 1989, a decision was rendered by the trial court; the dispositive portion reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Interworld Assurance Corporation to pay the amount
of P1,500,000.00 representing the principal of the amount due, plus legal
interest thereon from April 7, 1988, until date of payment; and P20,000.00
as and for attorney's fees." 8
Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989, having been
denied, it elevated its case to the Court of Appeals which however, affirmed the decision of the
trial court as well as the latter's order denying petitioner's motion for reconsideration. llcd
Before us, petitioner assigns as errors the following:
I. The respondent Court of Appeals gravely erred in declaring that the case
was already ripe for pre-trial conference when the trial court set it for the
holding thereof.
II. The respondent Court of Appeals gravely erred in affirming the decision
of the trial court by relying on the ruling laid down by this Honorable Court
in the case of Manchester Development Corporation v. Court of Appeals,
149 SCRA 562, and disregarding the doctrine laid down in the case of Sun
Insurance Office, Ltd. (SIOL) v. Asuncion, 170 SCRA 274. llcd
III. The respondent Court of Appeals gravely erred in declaring that it would
be useless and a waste of time to remand the case for further proceedings
as defendant-appellant has no meritorious defense.
We do not find any reversible error in the conclusion reached by the court a quo.
Relying on Section 1, Rule 20 of the Rules of Court, petitioner argues that since the last
pleading, which was supposed to be the third-party defendant's answer has not been filed,
the case is not yet ripe for pre-trial. This argument must fail on three points. First, the trial
court asserted, and we agree, that no answer to the third party complaint is forthcoming as
petitioner never initiated the service of summons on the third party defendant. The court
further said:
". . . Defendant's claim that it was not aware of the Order admitting the
third-party complaint is preposterous. Sec. 8, Rule 13 of the Rules,
provides:
35
 'Completeness of service — . . . Service by registered mail
is complete upon actual receipt by the addressee, but if he fails to
claim his mail from the post office within five (5) days from the date
of first notice of the postmaster, service shall take effect at the
expiration of such time." 9
Moreover, we observed that all copies of notices and orders issued by the court for petitioner's
counsel were returned with the notation "Return to Sender, Unclaimed." Yet when he chose
to, he would appear in court despite supposed lack of notice.
Second, in the regular course of events, the third-party defendant's answer would have been
regarded as the last pleading referred to in Sec. 1, Rule 20. However, petitioner cannot just
disregard the court's order to be present during the pre-trial and give a flimsy excuse, such as
that the answer has yet to be filed. cdphil
The pre-trial is mandatory in any action, the main objective being to simplify, abbreviate and
expedite trial, if not to fully dispense with it. Hence, consistent with its mandatory character
the Rules oblige not only the lawyers but the parties as well to appear for this purpose before
the Court 10 and when a party fails to appear at a pre-trial conference he may be non-suited
or considered as in default. 11
Records show that even at the very start, petitioner could have been declared as in default
since it was not properly represented during the first scheduled pre-trial on September 29,
1988. Nothing in the record is attached which would show that petitioner's counsel had a
special authority to act in behalf of his client other than as its lawyer. LLpr
We have said that in those instances where a party may not himself be present at the pre-
trial, and another person substitutes for him, or his lawyer undertakes to appear not only as
an attorney but in substitution of the client's person, it is imperative for that representative
or the lawyer to have "special authority" to enter into agreements which otherwise only the
client has the capacity to make. 12
Third, the Court of Appeals properly considered the third-party complaint as a mere scrap of
paper due to petitioner's failure to pay the requisite docket fees. Said the court a quo:
"A third-party complaint is one of the pleadings for which Clerks of Court of
Regional Trial Courts are mandated to collect docket fees pursuant to
Section 5, Rule 141 of the Rules of Court. The record is bereft of any
showing tha(t) the appellant paid the corresponding docket fees on its
third-party complaint. Unless and until the corresponding docket fees are
paid, the trial court would not acquire jurisdiction over the third-party
complaint (Manchester Development Corporation vs. Court of Appeals, 149
SCRA 562). The third-party complaint was thus reduced to a mere scrap of
paper not worthy of the trial court's attention. Hence, the trial court can
and correctly set the case for pre-trial on the basis of the complaint, the
answer and the answer to the counterclaim." 13
It is really irrelevant in the instant case whether the ruling in Sun Insurance Office, Ltd.
(SIOL) v. Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was applied. Sun
Insurance and Manchester are mere reiteration of old jurisprudential pronouncements on the
effect of non-payment of docket fees. 16 In previous cases, we have consistently ruled that
the court cannot acquire jurisdiction over the subject matter of a case, unless the docket fees
are paid. LLjur
Moreover, the principle laid down in Manchester could have very well been applied in Sun
Insurance. We then said:
"The principle in Manchester [Manchester Development Corp. v. C.A., 149
SCRA 562 (1987)] could very well be applied in the present case. The
pattern and the intent to defraud the government of the docket fee due it is
obvious not only in the filing of the original complaint but also in the filing
of the second amended complaint.
xxx xxx xxx
"In the present case, a more liberal interpretation of the rules is called for
considering that, unlike Manchester, private respondent demonstrated his
willingness to abide by the rules by paying the additional docket fees as
required. The promulgation of the decision in Manchester must have had
that sobering influence on private respondent who thus paid the additional
docket fee as ordered by the respondent court. It triggered his change of
stance by manifesting his willingness to pay such additional docket fees as
may be ordered. 17
Thus, we laid down the rules as follows:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed docket fee, that vests
a trial court with jurisdiction over the subject-matter or nature of the
action. Where the filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment of the fee within a
reasonable time, but in no case beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to permissive counterclaims, third-party
claims and similar pleadings, which shall not be considered filed until and
unless the filing fee prescribed therefor is paid. The court may also allow
payment of said fee within a prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the
filing of the appropriate pleading and payment of the prescribed filing fee,
but subsequently, the judgment awards a claim nor specified in the
pleading, or if specified the same has not been left for determination by the
court, the additional filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the clerk of court or his duly
authorized deputy to enforce said lien and assess and collect the additional
fee. 18
It should be remembered that both in Manchester and Sun Insurance, plaintiffs therein paid
docket fees upon filing of their respective pleadings, although the amount tendered were
found to be insufficient considering the amounts of the reliefs sought in their complaints. In
the present case, petitioner did not and never attempted to pay the requisite docket fee.
Neither is there any showing that petitioner even manifested to be given time to pay the
requisite docket fee, as in fact it was not present during the scheduled pre-trial on December
36
1, 1988 and then again on February 1, 1989. Perforce, it is as if the third-party complaint benefit from the wrong he himself committed. A representation made is rendered conclusive
was never filed. cdll upon the person making it and cannot be denied or disproved as against the person relying
thereon. 22
Finally, there is reason to believe that partitioner does not really have a good defense.
Petitioner hinges its defense on two arguments, namely: a) that the checks issued by its WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dismissing the
principal which were supposed to pay for the premiums, bounced, hence there is no contract petition before them and affirming the decision of the trial court and its order denying
of surety to speak of; and 2) that as early as 1986 and covering the time of the Surety Bond, petitioner's Motion for Reconsideration are hereby AFFIRMED. The present petition is
Interworld Assurance Company (now Phil. Pryce) was not yet authorized by the Insurance DISMISSED for lack of merit.
Commission to issue such bonds. LLjur
SO ORDERED.
The Insurance Code states that:
||| (Philippine Pryce Assurance Corp. v. Court of Appeals, G.R. No. 107062, [February 21,
"SECTION 177. The surety is entitled to payment of the premium as soon 1994], 300 PHIL 165-175)
as the contract of suretyship or bond is perfected and delivered to the
obligor. No contract of suretyship or bonding shall be valid and binding
unless and until the premium therefor has been paid, except where the
obligee has accepted the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has been paid by the
obligor to the surety. . . ." (emphasis added)

The above provision outrightly negates petitioner's first defense. In a desperate attempt to
escape liability, petitioner further asserts that the above provision is not applicable
because the respondent allegedly had not accepted the surety bond, hence could not have
delivered the goods to Sagum Enterprises. This statement clearly intends to muddle the
facts as found by the trial court and which are on record.
In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter
of the original action. 19 Secondly, the testimony of Mr. Leonardo T. Guzman, witness for the
respondent, reveals the following:

"Q. What are the conditions and terms of sales you extended to Sagum
General Merchandise?

A. First, we required him to submit to us Surety Bond to guaranty payment

of the spare parts to be purchased. Then we sell to them on 90
days credit. Also, we required them to issue post-dated checks.

Q. Did Sagum General Merchandise comply with your surety bond

requirement?

A. Yes. They submitted to us and which we have accepted two surety

bonds.

Q Will you please present to us the aforesaid surety bonds?

A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated
July 24, 1987 and Interworld Assurance Corp. Surety Bond No.
0037 for P1,000.000 dated October 7, 1987." 20

Likewise attached to the record are exhibits C to C-18 21 consisting of delivery invoices
addressed to Sagum General Merchandise proving that parts were purchased, delivered
and received. cdll
On the other hand, petitioner's defense that it did not have authority to issue a Surety Bond
when it did is an admission of fraud committed against respondent. No person can claim

37