1. MALAYAN INS. CORP. v.

CA

*FACTS: Pan Malayan Insurance Company (PANMALAY) filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it
insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang
Automotive Resources Corporation [CANLUBANG]; that due to the "carelessness, recklessness, and
imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered
damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and,
therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer,
Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of
PANMALAY. PANMALAY clarified that the damage caused to the insured car was settled under the "own
damage", coverage of the insurance policy. PANMALAY also submitted a copy of the insurance policy and
the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.

Private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them.
They argued that payment under the "own damage" clause of the insurance policy precluded subrogation
under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that
there was no wrongdoer or no third party at fault.

RTC issued an order dismissing PANMALAY's complaint for no cause of action. It ruled that payment under
the“own damage”clause was an admission by the insurer that the damage was caused by the assured
and/or itsrepresentatives. The order was upheld by CA applying the ejusdem generis rule, it held that
Section III-I of the policy, which was the basis for the settlement of the claim against insurance, did not cover
damage arising from collision or overturning due to the negligence of third parties as one of the insurable
risks.

*ISSUE: Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its
assured in settlement of an insurance claim against private respondents as the parties allegedly responsible
for the damage caused to the insured vehicle.

*HELD: Yes. PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly
caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended,
therefore, that its cause of action against private respondents was anchored upon Article 2207 of the Civil
Code, which reads:

If the plaintiffs property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the person who has violated the
contract. . . .

PANMALAY is correct.

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property
is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer,
upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer
to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as
an equitable assignment to the former of all remedies which the latter may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does
it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of
the insurance claim by the insurer.

Relating to lower courts’ decision- When PANMALAY utilized the phrase "own damage" — a phrase which,
incidentally, is not found in the insurance policy — to define the basis for its settlement of CANLUBANG's
claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage
to the insured vehicle. It is in this sense that the so-called "own damage" coverage under Section III of the
insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability" coverage
(liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which
refer to "Property Damage" coverage (liabilities arising from damage caused by the insured vehicle to the
properties of third parties).

Lower Courts’ ruling stem from an erroneous interpretation of the provisions of the section, it also violates a
fundamental rule on the interpretation of property insurance contracts.

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according
to the sense and meaning of the terms which the parties thereto have used. In the case of property
insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured,
determine the import of the various terms and provisions embodied in the policy. It is only when the terms of
the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed
by the courts liberally in favor of the assured and strictly against the insurer.

Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning
and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court
to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the
clear intention and understanding of these parties.
2. Simeon del Rosario vs. The Equitable Insurance and Casualty Co., Inc.

Facts:
- the respondent issued Personal Accident Policy No. 7136 on the life of Francisco del Rosario, son of the
petitioner, binding itself to pay the sum of P1,000 to P3,000 as indemnity for the death of the insured.
- The insurance contains a provision which exempts drowning (except as a consequence of the wrecking or
disablement in the PH waters of a passenger stream or motor vessel in which the insured is travelling as
farepaying passenger) as the cause of disappearance, death, disability of the insured which was later on
waived by the company and was made a part of the provision covered by the policy.
- The insured Francisco, while on board the motor launch “Islama” together with 33 others, including his
beneficiary in the policy (Remedios Jayme) were forced to jump off on account of fire which broke out on
said vessel, resulting in the death of the insured and beneficiary in the waters of Jolo.
- Petitioner, as the sole heir, filed a claim for payment with the defendant company
- The defendant company paid him the sum of P1,000 pursuant to Section 1 of Part I of the policy.
- Atty. Francisco wrote the respondent acknowledging receipt by his client (petitioner) of the P1,000 but
informing the respondent that the amount was not the correct one. He claimed that the amount payable
under the policy should be P1,5000 under the provision of Section 2, part 1 of the policy, based on the rule
of pari material as the death of the insured occurred under the circumstances similar to that provided under
the aforecited section.
- Respondent referred the matter to the Insurance Commissioner who rendered an opinion that the liability of
the company was only P1,000 pursuant to Section 1, part 1. Respondent refused to pay more that P1,000.
- Atty. Francisco, in a subsequent letter to the respondent, asked for P3,000 which the company refused to
pay.
- A complaint for the recovery of the balance of P2,000 was instituted with the CFI of Rizal
- Respondent presented a Motion to Dismiss alleging that the demand has already been released, petitioner
having received the full amount due as appearing in the policy and as per opinion of the Insurance
Commissioner.
- Trial court ruled that petitioner is entitled to recover P3,000 as indemnity. That there still remains a balance
of P2,000. It held:
"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily injury which
is effected solely thru violence, external, visible and accidental means" but, Part I of the Policy is not
applicable in case of death by drowning because death by drowning is not one resulting from "bodily injury
which is affected solely thru violent, external, visible and accidental means" as "Bodily Injury" means a cut, a
bruise, or a wound and drowning is death due to suffocation and not to any cut, bruise or wound."
xxx xxx xxx
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death
for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although
the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound
itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not
positively state any definite amount that may be recovered in case of death by drowning, there is an
ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly
against the insurer so as to allow greater indemnity.
Issue: How much should the indemnity be

Held:
- under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken, for
they are supported by the generally accepted principles or rulings on insurance, which enunciate that where
there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against
the one responsible thereof.
- that generally, the insured, has little, if any, participation in the preparation of the policy, together with the
drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not favor
the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company.
- reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and deliberation by expert and
legal advisers employed by, and acting exclusively in the interest of, the insurance company
- Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which
allows the greater indemnity will prevail.
- At any event, the policy under consideration, covers death or disability by accidental means, and the
appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.
- The judgment appealed from is hereby affirmed.

3 Fortune Ins. and Surety Co. v CA

G.R. No. 115278 May 23, 1995 FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT
OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
This case began with the filing with the RTC, by private respondent Producers Bank of the Philippines
(hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a
complaint for recovery of the sum of P725k under the policy issued by Fortune. The sum was allegedly lost
during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay
City Branch to its head office in Makati.
FACTS: Producers was insured by the Fortune and an insurance policy was issued.
An armored car of Producers, while in the process of transferring cash (P725k) under the custody of its
teller, Maribeth, was robbed of the said cash. The robbery took place while the armored car was traveling
along Taft Avenue in Pasay City.The said armored car was driven by Benjamin Magalong, escorted by
Security Guard Saturnino Atiga. Driver Magalong was assigned by PRC Management Systems with
Producers by virtue of an Agreement.The Security Guard Atiga was assigned by Unicorn Security Services,
Inc. with the plaintiff by virtue of a contract of Security Service..
After an investigation, the driver Magalong and guard Atiga were charged, together with 3 others, with
violation of P.D. 532 (Anti-Highway Robbery Law) ..
Demands were made by Producers upon Fortune to pay the amount of the loss of P725k, but the latter
refused to pay as the loss is excluded from the coverage of the insurance policy, xx which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction
with others. . . .
The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its
"officer, employee, trustee or authorized representative . . . at the time of the robbery. 1
x the trial court rendered its decision in favor of Producers.
The trial court ruled that Magalong and Atiga were not ees or representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their
services as armored car driver and as security guard having been merely offered by PRC Management and
by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both
Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss
them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services
and property protection as such — in a context which does not impress the Court as translating into
plaintiff's power to control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly compelled that neither
Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the money transfer from Producers’ Pasay Branch to its Makati Head Office. Quite
plainly — it was teller Maribeth who had "custody" of the cash being transferred along a specified money
route, and hence plaintiff's then designated "messenger" adverted to in the policy.
Fortune appealed this decision to the CA. In its decision, it affirmed in toto the appealed decision.
CA agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor
authorized representatives of Producers.
The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No
other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and
therefore its definition as to er-ee relationships insofar as the application of said Code is concerned must
necessarily be inapplicable to an insurance contract which defendant-appellant itself had formulated. Had it
intended to apply the Labor Code in defining what the word "ee" refers to, it must/should have so stated
expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has
no power to hire or to dismiss said driver and security guard under the contracts.
Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred
in holding it liable under the insurance policy because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were Producers' authorized representatives or
employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in
Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one
branch to another, they effectively and necessarily became its authorized representatives in the care and
custody of the money. Assuming that they could not be considered authorized representatives, they were,
nevertheless, ees of Producers. It asserts that the existence of an er-ee relationship "is determined by law
and being such, it cannot be the subject of agreement."
Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of
selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the presence and absence of a power to control the putative
employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in
International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the project and
the employees of the "labor-only" contractor.
ISSUE: WON Fortune is liable under the Money, Security, and Payroll Robbery policy it issued to Producers
or whether recovery thereunder is precluded under the general exceptions clause thereof.
HELD: Fortune not liable. Recovery thereunder is precluded under the general exceptions clause
It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy
which is a form of casualty insurance. Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the scope
of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public
liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance companies, and other substantially
similar kinds of insurance. (emphases supplied)
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the
insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies with
countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all
losses due to the hazards insured against." Persons frequently excluded under such provisions are those in
the insured's service and employment. The purpose of the exception is to guard against liability should the
theft be committed by one having unrestricted access to the property. In such cases, the terms specifying
the excluded classes are to be given their meaning as understood in common speech. The terms "service"
and "employment" are generally associated with the idea of selection, control, and compensation.
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the
insurer, or it should be construed liberally in favor of the insured and strictly against the insurer.
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "ee," it must have
had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the er-ee relationship,or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the ees
under a "labor-only" contract as ees of the party employing them and not of the party who supplied them to
the er.
XX even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied
that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to
its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the
armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil
Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.

4. Verendia vs. CA

FACTS: The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety
Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance Policy covering Rafael (Rex)
Verendia's residential building. Designated as beneficiary was the Monte de Piedad & Savings Bank.
Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance
and The Development Insurance.
While the three fire insurance policies were in force, the insured property was completely destroyed by fire.
Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint. Answering the complaint, Fidelity, among other things, averred that
the policy was avoided by reason of over-insurance; that Verendia maliciously represented that the building
at the time of the fire was leased under a contract executed on June 25, 1980 to a certain Roberto Garcia,
when actually it was a Marcelo Garcia who was the lessee.
The CFI ruled in favor of Fidelity. It ruled that Paragraph 3 of the policy was also violated by Verendia in that
the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and
Development Insurance. The CA reversed the decision of the CFI on the ground that (a) there was no
misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of
Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of
other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim
of Verendia.
ISSUE: (a) whether or not the contract of lease submitted by Verendia to support his claim on the fire
insurance policy constitutes a false declaration which would forfeit his benefits under Section 13 of the policy
(b) whether or not, in submitting the subrogation receipt in evidence, Fidelity had in effect agreed to settle
Verendia's claim in the amount stated in said receipt.

HELD: (A)Yes. The contract of lease upon which Verendia relies to support his claim for insurance benefits,
was entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980, a
couple of days after the effectivity of the insurance policy. When the rented residential building was razed to
the ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the
premises. However, according to the investigation report the building appeared to have "no occupant" and
that Mr. Roberto Garcia was "renting on the otherside portion of said compound". These pieces of evidence
belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he considered as the real lessee, was
occupying the building when it was burned. Robert Garcia then executed an affidavit before the National
Intelligence and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and
that his signature on the contract of lease was a complete forgery. During the trial, Verendia admitted that it
was not Robert Garcia who signed the lease contract. According to Verendia, it was signed by Marcelo
Garcia, cousin of Robert, who had been paying the rentals all the while.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent
to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an insurance contract
should be liberally construed in favor of the insured and strictly against the insurer company which usually
prepares it. Considering, however, the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should
be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section
13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy
shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf
to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim
for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13
of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking Corporation vs.
Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good
faith.

(B) No. There is also no reason to conclude that by submitting the subrogation receipt as evidence in court,
Fidelity bound itself to a "mutual agreement" to settle Verendia's claims. While the said receipt appears to
have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as the
blank spaces for a witness and his address are not filled up. More significantly, the same receipt states that
Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated
therein, is proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00
stated in the policy. It might be that there had been efforts to settle Verendia's claims, but surely, the
subrogation receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to
interpret Fidelity's presentation of the subrogation receipt in evidence as indicative of its accession to its
"terms" is not only wanting in rational basis but would be substituting the will of the Court for that of the
parties.

5) NEW LIFE ENTERPRISES and JULIAN SY, petitioners, vs.HON. COURT OF APPEALS, EQUITABLE
INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN
GUARANTY CORPORATION, respondents.

Julian Sy insured the stock in trade ( Fire Insurance Policy) of New Life Enterprises with Western Guaranty
Corporation, Reliance Surety and Insurance Co. Inc., and Equitable Insurance Corporation. Fire broke out
and Julian Sy went to the agent of Reliance Insurance whom he asked to accompany to the office of the
company so that he can file his claim. He averred that in support of his claim, he submitted the fire
clearance, the insurance policies and inventory of stocks. He further testified that the three insurance
companies are sister companies, and as a matter of fact, when he was following up his claim with Equitable
Insurance, the Claims Manager told him to go first to Reliance Insurance and if said company agrees to pay,
the would also pay. The same treatment was give to him by the other insurance companies. Ultimately, the
three insurance companies denied plaintiff’s claim for payment. RTC ruled in favor of the plaintiffs. CA
reversed.

Issue: May petitioners recover from the insurance companies?

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

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

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

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

Facts:

Petitioner in the previous case now the Private respondents, sought to recover actual and other damages for
the loss of lives and the destruction to property caused by the inundation of the town of Norzagaray,
Bulacan. The flooding was purportedly caused by the negligent release by the defendants of water through
the spillways of the Angat Dam (Hydroelectric Plant). The defendants, now petitioners, alleged that: 1) the
NPC exercised due care, diligence and prudence in the operation and maintenance of the hydroelectric
plant; 2) the NPC exercised the diligence of a good father in the selection of its employees; 3) written notices
were sent to the different municipalities of Bulacan warning the residents therein about the impending
release of a large volume of water with the onset of typhoon "Kading" and advise them to take the necessary
precautions; 4) the water released during the typhoon was needed to prevent the collapse of the dam and
avoid greater damage to people and property; 5) in spite of the precautions undertaken and the diligence
exercised, they could still not contain or control the flood that resulted and; 6) the damages incurred by the
private respondents were caused by a fortuitous event or force majeure and are in the nature and character
of damnum absque injuria. By way of special affirmative defense, the defendants averred that the NPC
cannot be sued because it performs a purely governmental function.

Being closely interrelated, the cases were consolidated and trial thereafter ensued. The lower court rendered
its decision on 30 April 1990 dismissing the complaints. The Court of Appeals reversed the appealed
decision and awarded damages in favor of the private respondents.

ISSUE:

I. THE COURT OF APPEALS ERRED IN APPLYING THE RULING OF NAKPIL & SONS V. COURT OF
APPEALS AND HOLDING THAT PETITIONERS WERE GUILTY OF NEGLIGENCE.

II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE DAMAGE SUFFERED BY PRIVATE
RESPONDENTS WAS NOT DAMNUM ABSQUE INJURIA.

HELD:
no,
These same errors were raised by herein petitioners in G.R. No. 96410, entitled National Power
Corporation, et al., vs. Court of Appeals, et al., 17 which this Court decided on 3 July 1992. The said case
involved the very same incident subject of the instant petition. In no uncertain terms, We declared therein
that the proximate cause of the loss and damage sustained by the plaintiffs therein — who were similarly
situated as the private respondents herein — was the negligence of the petitioners, and that the 24 October
1978 "early warning notice" supposedly sent to the affected municipalities, the same notice involved in the
case at bar, was insufficient. We thus cannot now rule otherwise not only because such a decision binds this
Court with respect to the cause of the inundation of the town of Norzagaray, Bulacan on 26-27 October 1978
which resulted in the loss of lives and the destruction to property in both cases, but also because of the fact
that on the basis of its meticulous analysis and evaluation of the evidence adduced by the parties in the
cases subject of CA-G.R. CV Nos. 27290-93, public respondent found as conclusively established that
indeed, the petitioners were guilty of "patent gross and evident lack of foresight, imprudence and negligence
in the management and operation of Angat Dam," and that "the extent of the opening of the spillways, and
the magnitude of the water released, are all but products of defendants-appellees' headlessness,
slovenliness, and carelessness." 18 Its findings and conclusions are biding upon Us, there being no showing
of the existence of any of the exceptions to the general rule that findings of fact of the Court of Appeals are
conclusive upon this Court. 19 Elsewise stated, the challenged decision can stand on its own merits
independently of Our decision in G.R. No. 96410. In any event, We reiterate here in Our pronouncement in
the latter case that Juan F. Nakpil & Sons vs. Court of Appeals 20 is still good law as far as the concurrent
liability of an obligor in the case of force majeure is concerned. In the Nakpil case, We held:

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to
an "act of God," the following must concur: (a) the cause of the breach of the obligation must be independent
of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in a moral manner; and (d) the debtor
must be free from any participation in, or aggravation of the injury to the creditor. (Vasquez v. Court of
Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527;
Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.

Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that the immediate cause of the damage was the act of
God. To be exempt from liability for loss because of an act of God, he must be free from any previous
negligence or misconduct by which that loss or damage may have been occasioned. (Fish & Elective Co. v.
Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34
Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). 21

Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to escape liability for the
loss or damage sustained by private respondents since they, the petitioners, were guilty of negligence. The
event then was not occasioned exclusively by an act of God or force majeure; a human factor — negligence
or imprudence — had intervened. The effect then of the force majeure in question may be deemed to have,
even if only partly, resulted from the participation of man. Thus, the whole occurrence was thereby
humanized, as it were, and removed from the laws applicable to acts of God.
7. GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS
LAPULAPU D. MONDRAGON vs. HON. COURT OF APPEALS and NGO HING

Facts:
• Private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endowment policy in the amount of P50,000.00 on
the life of his one-year old daughter Helen Go.
• Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of
the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting. Mondragon finally type-
wrote the data on the application form which was signed by private respondent Ngo Hing.
• Ngo Hing paid the annual premium the sum of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
• Upon the payment of the insurance premium, the binding deposit receipt was issued to private respondent
Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form
his strong recommendation for the approval of the insurance application.
• Then, Mondragon received a letter from Pacific Life disapproving the insurance application. The letter
stated that the said life insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised
that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.
• The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such coverage.
• It was when things were in such state, Helen Go died of influenza with complication of bronchopneumonia.
Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
Issue: Whether private respondent Ngo Hing concealed the state of health and physical condition of Helen
Go, which rendered void
Ruling: No.
• The binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only
upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and (3) that if the company disapproves the application,
the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the
applicant.
• Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
• Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure
outright. As held by this Court, where an agreement is made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun Life
Assurance Company of Canada, 41 Phil. 264).
• It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question on the ground that it is not offering the twenty-year
endowment insurance policy to children less than seven years of age. What it offered instead is another plan
known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a meeting
of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endowment
life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have
been no insurance contract duly perfected between thenl Accordingly, the deposit paid by private respondent
shall have to be refunded by Pacific Life.
• As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents ... The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing to be
done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement."
• WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private respondent.

8. MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT,

petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the
CHARTER INSURANCE CORPORATION, respondents.

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings.

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents
South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes
and fittings with a total amount of US$212,772.09 were insured with respondent South Sea, while those
covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with
respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications
in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before
they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a
substantial portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the
balance of HK$299,345.30 representing the cost of repair of the damaged pipes.
Private respondents refused to pay because the insurance surveyor's report allegedly showed that the
damage is a factory defect.
petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their
defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners
because the damage to the goods is due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are
"all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are
those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the
insured.

Private respondents elevated the case to respondent Court of Appeals.

Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it
was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer.
However, it set aside the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it
was filed only more than two years from the time the goods were unloaded from the vessel.

Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods
or the date when the goods should have been delivered."

Respondent court ruled that this provision applies not only to the carrier but also to the insurer.

Hence this petition.

ISSUE: won the Court of Appeals erred in holding that petitioners' cause of action had already prescribed on
the mistaken application of the Carriage of Goods by Sea Act

HELD:
Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea Act.

Under this provision, only the carrier's liability is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurer's liability is based not on the contract of
carriage but on the contract of insurance.

The Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the
contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The
latter case is governed by the Insurance Code.

The basis of the shipper's claim is the "all risks" insurance policies issued by private respondents to
petitioner Mayer.

When the court said that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant
that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer
because the basis of the insurer's liability is the insurance contract.

An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to
indemnify another for loss or damage which he may suffer from a specified peril.
An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the
insured.Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation
prescribes in ten years, in accordance with Article 1144 of the New Civil Code.

petition is GRANTED.

9. Paramount vs. Japzon

Facts:

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

After the said accident, Natividad filed a notice of claim with Paramount and the latter lost no time in
dispatching and/or contracting an independent adjuster handling casualty and marine claims, the EM
Salvatierra Adjustment Office.

On or about June 5, 1978, Lara and Paed filed a criminal case against Manuel for Reckless Imprudence
resulting in Damage to Property docketed as Criminal Case No. 2227 before the Municipal Trial Court of
Gerona, Tarlac.

During the pendency of said criminal case, Lara filed a manifestation reserving the right to file a separate
civil action against the operators of the two (2) vehicles, namely: Natividad and Garcia as well as the two (2)
drivers, Manuel and Macasieb.

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

A certain Atty. Segundo Gloria filed a notice of appearance dated November 16, 1978 where he informed the
court that he was appearing for and in behalf of the defendants Natividad, Manuel and Paramount. 8
Subsequently, on December 14, 1978, he filed an answer with crossclaim and counterclaim.

During the trial of Criminal Case No. 2227 for Reckless Imprudence resulting in Damage to Property,
accused Manuel pleaded guilty to the crime charged on September 18, 1979, and was accordingly,
sentenced to imprisonment of six months of arresto mayor maximum under Article 365 of the Revised Penal
Code.

After protracted proceedings which lasted for almost five years, the Regional Trial Court of Manila, rendered
a decision dated August 30, 1983, the decretal portion of which states:
WHEREFORE, finding the evidence presented by plaintiff sufficient to prove the allegations of the complaint,
judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the latter to pay
jointly and severally plaintiff Jose Lara, the amount of P15,000.00 for medical and hospitalization expenses;
the sum of P80,000.00 as moral and exemplary damages; the sum of P50,000.00 as compensatory
damages; to pay jointly and severally plaintiff Arsenio Paed the sum of P20,000.00 as moral and actual
damages and to pay the sum of P10,000.00 by way of attorney's fees and the costs of suit.

It was only on March 3, 1984 that Paramount, now petitioner, filed a motion to set aside the Decision raising
the issue that the court has not validly acquired jurisdiction over its person.

Petitioner now claims that the Decision of the trial court dated August 30, 1983, should be set aside since
the court has not validly acquired jurisdiction over its person, not having been validly served with summons
and a copy of the complaint nor did it actively participate in the said proceedings. It alleged that Atty.
Segundo Gloria was not its retained counsel at that time nor was he authorized by petitioner to act for and in
its behalf; and that private respondents' claims for moral, exemplary and compensatory damages as well as
attorney's fees are not recoverable from petitioner.

Issue:
Did the court acquired jurisdiction over the petition Paramount Surety and Insurance Company? Yes.-
Pivotal Issue

Are the claims for moral, exemplary and compensatory damages as well as attorney's fees recoverable
against petitioner Paramount? No.- Issue in connection with Insurance

Ruling:

Consequently, petitioner's contentions that it was not properly served with summons and that Atty. Segundo
Gloria was not authorized to appear for and in its behalf are untenable.

In the case at bar, although petitioner questioned the propriety of the service of summons, it however failed
to substantiate its allegation that it was not properly served with summons. Hence, the disputable
presumption that official duty has been regularly performed prevails.

The records of the case, however, showed that all the pleadings, including the answer with crossclaim and
counterclaim filed by Atty. Segundo Gloria stated that he represented the defendants Natividad, Manuel and
Paramount. In fact, he even filed a notice of appearance informing the court that he is representing the said
defendants.

To the mind of the Court, the instant petition is filed merely to derail its execution. It took Paramount almost
six years to question the jurisdiction of the lower court. Moreover, as earlier adverted to, the controverted
Decision of August 30, 1983, became final and executory on October 20, 1983. In any event, it is axiomatic
that there is no justification in law and in fact for the reopening of a case which has long become final and
which in fact was already executed on July 18, 1984. Time and again, this Court has said that the doctrine of
finality of judgment is grounded on fundamental considerations of public policy and sound practice and at
the risk of occasional error, the judgments of courts must become final at some definite date fixed by law.

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

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

10. THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF
APPEALS and FELMAN SHIPPING LINES, respondents

FACTS:

• Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN) 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City. The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN

• MV Asilda sank in the waters of Zamboanga del Norte bringing down her entire cargo with her including the
subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.

• Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery of
damages. Respondent denied the claim thus prompting the former to file an insurance claim with
PHILAMGEN which paid its claim.

• Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, PHILAMGEN sued the shipowner for sum of money and
damages.

• PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the vessels
unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was
improperly manned and that its officers were grossly negligent in failing to take appropriate measures to
proceed to a nearby port or beach after the vessel started to list.

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

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

• PHILAMGEN appealed the decision to the Court of Appeals. The CA rendered judgment finding MV Asilda
unseaworthy for being top- heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on
deck. In other words, it was not seaworthy with respect to the cargo. The CA denied the claim of
PHILAMGEN on the ground that the assureds implied warranty of seaworthiness was not complied with.
Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper.
Furthermore, the CA held that the filing of notice of abandonment had absolved the shipowner/agent from
liability under the limited liability rule.

ISSUE: Whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper
had against FELMAN, the shipowner.

RULING: YES

• It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that
the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the
face of the policy. Thus it becomes the obligation of the cargo owner to look for a reliable common carrier
which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full
control in the selection of the common carrier that will transport his goods. He also has full discretion in the
choice of assurer that will underwrite a particular venture.

• The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. The result of the admission of seaworthiness by the
assurer PHILAMGEN may mean one or two things: (a) that the warranty of the seaworthiness is to be taken
as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance company. The insertion of
such waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners cannot control
the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the
risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.

Legal basis for subrogation:

• PHILAMGENs action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which
provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

• In Pan Malayan Insurance Corporation v. Court of Appeals, payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured may have against
the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the
insurance claim. It accrues simply upon payment by the insurance company of the insurance claim.
• The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and
is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers
Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
softdrink bottles is inevitable.

11. FIREMAN'S FUND INSURANCE COMPANY v. JAMILA

*FACTS: Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security guards to
Firestone. Jamila assumed responsibility for the acts of its security guards. First Quezon City Insurance Co.,
Inc. executed a bond in the sum of P20,000.00 to guarantee Jamila's obligations under that contract.
Properties of Firestone valued at P11,925.00 were lost allegedly due to the acts of its employees who
connived with Jamila's security guard. Fireman's Fund, as insurer, paid to Firestone the amount of the loss
so Fireman's Fund was subrogated to Firestone's right to get reimbursement from Jamila. Jamila and its
surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in spite of repeated
demands.

The lower court dismissed the complaint as to Jamila on the ground that there was no allegation that it had
consented to the subrogation and, therefore, Fireman's Fund had no cause of action against it. In the same
order the lower court dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground of
res judicata.

Firestone and Fireman's Fund moved for the reconsideration of the order of dismissal. The lower court set
aside its order of dismissal. It sustained plaintiffs' contention that there was no res judicata as to First
Quezon City Insurance Co., Inc.

Jamilia filed a motion for reconsideration. It had originally moved for the dismissal of the complaint on the
ground of lack of cause of action. Its contention was based on two grounds, to wit: (1) that the complaint did
not allege that Firestone, pursuant to the contractual stipulation quoted in the complaint, had investigated
the loss and that Jamila was represented in the investigation and (2) that Jamila did not consent to the
subrogation of Fireman's Fund to Firestone's right to get reimbursement from Jamila and its surety. The
lower court in its order of dismissal had sustained the second ground.

Jamila in its motion for the reconsideration invoked the first ground which had never been passed upon by
the lower court.

Lower court granting Jamila's motion for reconsideration, completely ignored that first ground.The lower
court reiterated its order that Fireman's Fund had no cause of action against Jamila because Jamila did not
consent to the subrogation.

Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's order on the ground
that Fireman's Fund Insurance Company was suing on the basis of legal subrogation whereas the lower
court erroneously predicated its dismissal order on the theory that there was no conventional subrogation
because the debtor's consent was lacking.

The plaintiffs cited article 2207 of the Civil Code which provides that "if the plaintiff's property has been
insured, and he has received indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract"

Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the debtor's consent;
that legal subrogation takes place in the cases mentioned in article 1302 of the Civil Code and the instant
case is not among the three cases enumerated in that article, and that there could be no subrogation in this
case because according to the plaintiffs the contract between. Jamila and Firestone was entered into on
June 1, 1965 but the loss complained of occurred on May 18, 1963.

*ISSUE: Whether the complaint of Firestone and Fireman's Fund states a cause of action against Jamila.

*HELD: Yes. Firestone is really a nominal, party in this case. It had already been indemnified for the loss
which it had sustained. Obviously, it joined as a party-plaintiff in order to help Fireman's Fund to recover the
amount of the loss from Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly assigned to
Fireman's Fund its cause of action against Jamila for breach of contract.

On the other hand, Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the
insurer, Fireman's Fund is entitled to go after the person or entity that violated its contractual commitment to
answer for the loss insured against.

Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has been referred
to as the doctrine of substitution. It "is an arm of equity that may guide or even force one to pay a debt for
which an obligation was incurred but which was in whole or in part paid by another".

"Subrogation is founded on principles of justice and equity, and its operation is governed by principles of
equity. It rests on the principle that substantial justice should be attained regardless of form, that is, its basis
is the doing of complete, essential, and perfect justice between all the parties without regard to form"

Subrogation is a normal incident of indemnity insurance. Upon payment of the loss, the insurer is entitled to
be subrogated pro tanto to any right of action which the insured may have against the third person whose.
negligence or wrongful act caused the loss.

"Although many policies including policies in the standard form, now provide for subrogation, and thus
determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any express stipulation to that effect in the
policy" Stated otherwise, when the insurance company pays for the loss, such payment operates as an
equitable assignment to the insurer of the property and all remedies which the insured may have for the
recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon
written assignment of claim, and payment to the insured makes the insurer an assignee in equity.

12. Filipinas Compañia de seguros vs. Christern, Huenefeld and Co., Inc.
Facts:
- oct. 1, 1941 the respondent, after payment of premium, obtained from petitioner fire policy no. 29333 in the
sum of P1M covering merchandise contained in a building located at No. 711 Roman Street, Binondo
Manila.
- On Feb. 27, 1942, or during a Japanese military occupation, the building and the insured merchandise
were burned.
- Respondent submitted to the petitioner its claim under the policy.
- Salvage goods were sold at public auction and after deducting their value, the total loss suffered by the
respondent was fixed at P92,650
- Petitioner refused to pay the claim on the ground that the policy had ceased to be in force on the date the
US declared was against Germany, the respondent (though organized under and by virtue of laws of the PH)
being controlled by the German subjects and the petitioner being a company under American jurisdiction
when said policy was issued on Oct. 1, 1941
- The petitioner in pursuance to the order of the Director of Bureau of Financing, PH executive Commission,
dated april 9, 1943, paid to the respondent the sum of P92,650 on april 19.
- Present action was filed before the CFI manila for the purpose of recovering from respondent
- Theory of the petitioner is that the insured merchandise were burned after the policy issued in 1941 in favor
of the respondent corporation had ceased to be effective because of the outbreak of the war between the
US and Germany on Dec. 10, 1941 and that the payment made by the petitioner to the respondent during
the Japanese military occupation was under pressure.
- CFI dismissed the action. CA affirmed
- The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an
enemy when the United States declared war against Germany, relying on English and American cases which
held that a corporation is a citizen of the country or state by and under the laws of which it was created or
organized. It rejected the theory that nationality of private corporation is determine by the character or
citizenship of its controlling stockholders (control test).
Issue: whether or not the respondent became an enemy corporation upon the outbreak of the war between
the US and Germany
Held:
- majority of the stockholders of the respondent corporation were German subjects
- The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a
public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon
as an insured becomes a public enemy.
- Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent with
a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or
trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of
voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or
by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce
or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The
purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that
one country should destroy its enemy's property and repay in insurance the value of what has been so
destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior
thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to
each other, in a state of utter exclusion, and are public enemies.
- In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified
term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual
rights of the parties, so far as not vested. lost.
- The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued
in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and
enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the
respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary
rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by
the respondent for the period covered by its policy from December 11, 1941, should be returned by the
petitioner.
- appealed decision is hereby reversed

13 P v Yip Wai Ming

[G.R. No. 120959. November 14, 1996] PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. YIP WAI
MING, accused-appellant.

FACTS: Accused-appellant Yip Wai Ming and victim Lam Po Chun, both Hongkong nationals, came to
Manila on vacation. The two were engaged to be married. Hardly a day had passed when Lam Po Chun was
brutally beaten up and strangled to death in their hotel room. On the day of the killing, July 11, 1993, Yip Wai
Ming, was touring Metro Manila with Filipino welcomers while Lam Po Chun was left in the hotel room
allegedly because she had a headache and was not feeling well.

For the slaying, an Information was lodged against Yip Wai Ming 8 days later. RTC of NCR rendered a
decision in essence finding that Yip Wai Ming killed his fiancee before he left for the Metro Manila tour.
There was no eyewitness to the actual killing of Lam Po Chun. All the evidence about the killing is
circumstantial. The key issue in the instant appeal is, therefore, WON the circumstantial evidence linking
accused-appellant to the killing is sufficient to sustain a judgment of conviction beyond reasonable doubt.
Prior to the death of the victim, her brother, Lam Chi Keung, learned that her life was insured with the
Insurance Company of New Zealand in Causeway Bay, Hongkong, with appellant as the beneficiary. The
premium paid for the insurance was more than the monthly salary of the deceased as an insurance
underwriter in Hongkong.

ISSUE: XXXX II THE TRIAL COURT ERRED IN FINDING THAT THE ACCUSED-APPELLANT HAD THE
VICTIM APPLE (LAM) INSURED AND LATER KILLED HER FOR THE INSURANCE PROCEEDS.

HELD: Trial Court erred.

A key element in the web of circumstantial evidence is motive which the prosecution tried to establish.
Accused-appellant and Lam Po Chun were engaged to be married. Marriage date was set for August 29,
1993. This date was only a month and a half away from the date of death of Lam Po Chun. In the absence of
direct evidence indubitably showing that accused-appellant was the perpetrator of the killing, motive
becomes important.
The trial court would have been justified in finding that there was evident premeditation of murder if the story
is proved that Lam Po Chun insured herself for the amounts of US $498,750.00 and US $249,375.00
naming accused-appellant as the beneficiary.
There is, however, no evidence that the victim secured an insurance policy for a big amount in US dollars
and indicated accused-appellant as the beneficiary. The prosecution presented Exhibit X, a mere xerox copy
of a document captioned Proposal for Life Insurance as proof of the alleged insurance. It is not a certified
copy, nor was the original first identified.
The authenticity of the document has thus not been duly established. Exhibit X was secured in Hongkong
when Lam Chi Keung, the brother of the victim, learned that his sister was murdered in Manila. It is not
shown how and from whom the information about any alleged insurance having been secured came. There
is no signature indicating that the victim herself applied for the insurance. There is no marking in Exhibit X of
any entry which purports to be the victims signature. There is a signature of Apple Lam which is most
unusual for an insurance application because the victims name is Lam Po Chun. To be sure nobody insures
himself or herself under a nickname.
It needs not much emphasis to say that an application form does not prove that insurance was secured.
Anybody can get an application form for insurance, fill it up at home before filing it with the insurance
company. In fact, the very first sentence of the form states that it merely forms the basis of a contract
between you and NZI Life. There was no contract yet.
There is evidence in the record that the family of Lam Po Chun did not like her relationship with accused-
appellant. After all the trouble that her brother went through to gather evidence to pin down accused-
appellant, the fact that all he could come up with is an unsigned insurance application form shows there was
no insurance money forthcoming for accused-appellant if Lam Po Chun died. There is no proof that the
insurance company approved the proposal, no proof that any premium payments were made, and no proof
from the record of exhibits as to the date it was accomplished. It appearing that no insurance was issued to
Lam Po Chun with accused-appellant as the beneficiary, the motive capitalized upon by the trial court
vanishes. Thus, the picture changes to one of the alleged perpetrator killing his fiancee under cold-blooded
circumstances for nothing.
There are other suspicious circumstances about the insurance angle. Lam Po Chun was working for the
National Insurance Company. Why then should she insure her life with the New Zealand Insurance
Company? Lams monthly salary was only HK $5K. The premiums for the insurance were HK $5,400.00 or
US $702.00 per month. Why should Lam insure herself with the monthly premiums exceeding her monthly
salary? And why should any insurance company approve insurance, the premiums of which the supposed
insured obviously can not afford to pay, in the absence of any showing that somebody else is paying for said
premiums. It is not even indicated whether or not there are rules in Hongkong allowing a big amount of
insurance to be secured where the beneficiary is not a spouse, a parent, a sibling, a child, or other close
relative.
Accused-appellant points out an apparent lapse of the trial court related to the matter of insurance.
Another key factor which we believe was not satisfactorily established is the time of death. This element is
material because from 10 A.M. of July 11, 1993 up to the time the body was discovered late that evening,
accused-appellant was in the company of Gwen delos Santos, her sister Monique, and their mother, touring
Metro Manila. This much is established.
The prosecution alleges that at 10 A.M., Lam Po Chun was already dead. However, Gwen delos Santos who
never saw the couple before was categorical in declaring that she met both of them at the lobby before the
group left for the tour, but Lam Po Chun asked to be excused because of a headache. In fact, delos Santos
was able to identify Lam Po Chun from pictures shown during the trial. She could not have done this unless
she really saw and met the victim at the hotel lobby at around 10 A.M. of July 11,1993.
The trial court stated that there was no sign of any forcible entry into the room, no broken locks, windows,
etc. The answer is simple. Somebody could have knocked on the door and Lam Po Chun could have
opened it thinking they were hotel staff. Unfortunately, Detective Yanquiling was so sure of himself that after
pinpointing accused-appellant as the culprit, he did not follow any other leads.
Officer Yanquiling testified on cross-examination that he did not apply any mode of scientific investigation. If
a medico-legal expert of the same police department who conducted an autopsy had no basis for giving the
probable time of death, the police officer who merely looked at the body and saw the blood oozing out of the
victims nose and mouth must have simply guessed such time, plucking it out of thin air. The trial court
accepted the erroneous timing, conveniently placing it where a finding of guilt would follow as a
consequence.
Before a conviction can be had upon circumstantial evidence, the circumstances should constitute an
unbroken chain which leads to but one fair and reasonable conclusion, which points to the accused, to the
exclusion of all others, as the guilty person. Every hypothesis consistent with innocence must be excluded if
guilt beyond reasonable doubt is based on circumstantial evidence. All the evidence must be consistent with
the hypothesis that the accused is guilty, and at the same time inconsistent with the hypothesis that he is
innocent, and with every other rational hypothesis except that of guilt.
The tests as to the sufficiency of the circumstantial evidence to prove guilt beyond reasonable doubt have
not been met in the case at bar.
The chain of circumstances is not unbroken. The most vital circumstantial evidence in this case is that which
proves that accused-appellant killed the victim so he could gain from the insurance proceeds on the life of
the victim. Another vital circumstance is the time of death precisely between 9:15 and 10 A.M. Both were not
satisfactorily established by the prosecution. Where the weakest link in the chain of evidence is at the same
time the most vital circumstance, there can be no other alternative but to acquit the accused.
Most of the circumstantial evidence in this case came from the investigation conducted by Officer Alejandro
Yanquiling or from the prodding by him of various witnesses. The desire of a police officer to solve a high
profile crime which could mean a promotion or additional medals and commendations is admirable.
However, an investigator must pursue various leads and hypotheses instead of singlemindedly pursuing one
suspect and limiting his investigation to that one possibility, excluding various other probabilities. The killing
of a tourist is a blot on the peace and order situation in the Philippines and must be solved. Still,
concentrating on pinning down an alien companion of the victim and not pursuing the possibilities that other
persons could have killed the victim for her money and valuables does not speak well of our crime detection
system. It is not enough to solve a crime. The truth is more important and justice must be rendered.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Accused-appellant Yip
Wai Ming is acquitted of the charge of murder on grounds of reasonable doubt and his immediate release
from custody is ordered unless he is being held on other legal grounds. SO ORDERED.

14. Phil. American Life Insurance vs. Pineda(capacity as judge) and Dimayuga.
FACTS: Private respondent procured an ordinary life insurance policy from the petitioner company and
designated his wife and children as irrevocable beneficiaries of said policy. Under date February 22, 1980
private respondent filed a petition which was docketed as Civil Case No. 9210 of the then Court of First
Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to
revocable. Petitioner filed an Urgent Motion to Reset Hearing. The respondent Judge denied petitioner's
Urgent Motion, thus allowing the private respondent to adduce evidence, the consequence of which was the
issuance of the questioned Order granting the petition.

ISSUE: WON the designation of the irrevocable beneficiaries could be changed or amended without the
consent of all the irrevocable beneficiaries; WON the irrevocable minor beneficiaries could give consent to
the change in designation.

HELD: No to both issues. We are of the opinion that his Honor, the respondent Judge, was in error in issuing
the questioned Orders. The applicable law in the instant case is the Insurance Act, otherwise known as Act
No. 2427 as amended, the policy having been procured in 1968. Under the said law, the beneficiary
designated in a life insurance contract cannot be changed without the consent of the beneficiary because he
has a vested interest in the policy. In this regard, it is worth noting that the Beneficiary Designation
Indorsement in the policy which forms part of Policy Number 0794461 in the name of Rodolfo Cailles
Dimayuga states that the designation of the beneficiaries is irrevocable. Inevitably therefore, based on the
aforequoted provision of the contract, not to mention the law then applicable, it is only with the consent of all
the beneficiaries that any change or amendment in the policy concerning the irrevocable beneficiaries may
be legally and validly effected. Both the law and the policy do not provide for any other exception, thus,
abrogating the contention of the private respondent that said designation can be amended if the Court finds
a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife
predeceased the insured) cannot be considered an effective ratification to the change of the beneficiaries
from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were
minors at the time,** for which reason, they could not validly give their consent. Finally, the fact that the
contract of insurance does not contain a contingency when the change in the designation of beneficiaries
could be validly effected means that it was never within the contemplation of the parties. The lower court, in
gratuitously providing for such contingency, made a new contract for them, a proceeding which we cannot
tolerate. Ergo, We cannot help but conclude that the lower court acted in excess of its authority when it
issued the Order dated March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to
"revocable" over the disapprobation of the petitioner insurance company.

15) THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO
and PASCUALA VDA. DE EBRADO, defendants-appellants.

Buenaventura Ebrado was issued a whole life-plan by petitioner, and Carponia Ebrado was named as the
revocable beneficiary in his policy. Buenaventura died as a result of an accident. As the insurance policy was
in force, petitioner was liable to pay the coverage of the face value of the policy. Carponia filed a claim for
the proceeds of the policy although she admits that she and the deceased were common-law spouses.
Pascuala also filed a claim, and the insurance proceeds was to be paid to the estate of the deceased.

Issue: May a common-law spouse named as a beneficiary claim the proceeds of an insurance policy?

Ruling: No. Article 739 of the New Civil Code states among others, that a donation made between persons
who are guilty of adultery or concubinage at the time of the donation is void. A life insurance policy is no
different from a civil donation insofar as the beneficiary is concerned. Both are founded on the same
consideration: liberality. As a consequence, the proscription in Article 739 of the new Civil Code should
equally operate in life insurance contracts. In such a case, there is no need that a conviction for adultery or
concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. Criminal conviction is
not a condition precedent.

So long as manage remains the threshold of family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities.

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

16. FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.

FACTS:

An action was brought by the consignee of the shipment of fishmeal loaded on SS Bougainville and
unloaded at the Port of Manila. It seeks to recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which has been insured by the defendant insurance
company under Policy No. M-2678.

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

Regional Trial court ordered Filipino Merchants to pay Choa and reimburse from Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. Likewise, CA affirmed but modified by
adjudicating the third party complaint. The contention of Filipino Merchants is that Chao has no insurable
interest and therefore the policy should be void and that it was fraud that it did not disclose of such fact

ISSUE: WON Choa Tiek Seng as consignee of the shipment has insurable interest

HELD: YES.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it
seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that
the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded
from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured.

As vendee/consignee of the goods in transit has such existing interest. His interest over the goods is based
on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before be performed the conditions of the
sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the
determination of whether the vendee has an insurable interest or not in the goods in transit.

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

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost
of the goods and freight to the named destination. It simply means that the seller must pay the costs and
freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is
transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. Moreover,
the issue of lack of insurable interest was not among the defenses averred in petitioners answer.

17. NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC. vs. COURT OF APPEALS
and CKS DEVELOPMENT CORPORATION
Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor.
One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects
placed at any stall or store or space in the leased premises without first obtaining the written consent and
approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR
then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . .
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS.
On the day that the lease contract was to expire, fire broke out inside the leased premises.
When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the
insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
The Regional Trial Court rendered a decision * ordering therein defendant United to pay CKS.
On appeal, respondent Court of Appeals rendered a decision affirming the trial court decision, deleting
however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was
denied.
Issue: Whether or not the paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses)
over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if
said policy is obtained without the prior written consent of the latter.
Ruling: Yes.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary
to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or
has not any interest in the property insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of
the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over
said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to
CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and
Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a
fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct
issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals is SET ASIDE and a new decision is hereby entered,
awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha

18. NG GAN ZEE, plaintiff-appellee, vs. ASIAN CRUSADER LIFE ASSURANCE CORPORATION,
defendant-appellant.

In 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00, with
his wife, appellee Ng Gan Zee as beneficiary. On the same date, appellant, upon receipt of the required
premium from the insured, approved the application and issued the corresponding policy.

In 1963, Kwong Nam died of cancer of the liver with metastasis. All premiums had been religiously paid at
the time of his death.

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

Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Mandamus, who
found no material concealment on the part of the insured and that, therefore, appellee should be paid the full
face value of the policy. However, appellant refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the following
question appearing in the application for life insurance-

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

The lower court found the argument bereft of factual basis.

Appellant further maintains that when the insured was examined in connection with his application for life
insurance, he gave the appellant's medical examiner false and misleading information as to his ailment and
previous operation. The alleged false statements given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Tumor taken out was hard and of a hen's egg size.
Operation was two [2] years ago in Chinese General Hospital by Dr. Yap.

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

[1] According to said report, Dr. Fu Sun Yuan had diagnosed the patient's ailment as 'peptic ulcer' for which,
an operation, known as a 'sub-total gastric resection was performed on the patient by Dr. Pacifico Yap;
[2] The Surgical Pathology Report showing that the specimen removed from the patient's body was 'a
portion of the stomach measuring 12 cm. and 19 cm. along the lesser curvature with a diameter of 15 cm.
along the greatest dimension.

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

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

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

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

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

the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld."

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

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

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

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

It has been held that where, upon the face of the application, a question appears to be not answered at all or
to be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully immaterial.
*Finding no reversible error committed by the trial court, the judgment appealed from is hereby affirmed, with
costs against appellant Asian-Crusader life Assurance Corporation.

19. Edillion vs. Manila Banker's Life

Facts:

Carmen O, Lapuz applied with respondent insurance corporation for insurance coverage against accident
and injuries. She filled up the blank application form given to her and filed the same with the respondent
insurance corporation. In the said application form which was dated April 15, 1969, she gave the date of her
birth as July 11, 1904.
On the same date, she paid the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent insurance corporation. Upon the
filing of said application and the payment of the premium on the policy applied for, the respondent insurance
corporation issued to Carmen O. Lapuz its Certificate of Insurance. The policy was to be effective for a
period of 90 days.

45 days after the issuance of the Certificate of Insurance, Carmen O. Lapuz died in a vehicular accident in
the North Diversion Road.

petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary in the policy, filed her
claim for the proceeds of the insurance, submitting all the necessary papers and other requisites with the
private respondent. Her claim having been denied for the reason that respondent insurance corporation
relies on a provision contained in the Certificate of Insurance, excluding its liability to pay claims under the
policy in behalf of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60)
years ..." It is pointed out that the insured being over sixty (60) years of age when she applied for the
insurance coverage, the policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom. Petitioner then instituted this action in the Court of First Instance of Rizal
on August 27, 1969.

Trial Court ruled in favor of The private respondent, reasoning that a policy of insurance being a contract of
adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into; the
insured in this case, upon learning from its terms that she could not have been qualified under the conditions
stated in said contract, what she should have done is simply to ask for a refund of the premium that she
paid. It was further argued by the trial court that the ruling calling for a liberal interpretation of an insurance
contract in favor of the insured and strictly against the insurer may not be applied in the present case in view
of the peculiar facts and circumstances obtaining therein.

Issue: Is the insurance policy null and void because Carmen Lapuz availed the insurance when she was
already over sixty years of age?

Ruling:

No.

The age of the insured Carmen Lapuz was not concealed to the insurance company. Her application for
insurance coverage which was on a printed form furnished by private respondent and which contained very
few items of information clearly indicated her age of the time of filing the same to be almost 65 years of age.
Despite such information which could hardly be overlooked in the application form, considering its
prominence thereon and its materiality to the coverage applied for, the respondent insurance corporation
received her payment of premium and issued the corresponding certificate of insurance without question.
The accident which resulted in the death of the insured, a risk covered by the policy, occurred on May 31,
1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient time for
the private respondent to process the application and to notice that the applicant was over 60 years of age
and thereby cancel the policy on that ground if it was minded to do so. If the private respondent failed to act,
it is either because it was willing to waive such disqualification; or, through the negligence or incompetence
of its employees for which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke the policy
despite a departure from the exclusionary condition contained in the said policy constituted a waiver of such
condition.

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE.

20. IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS
SATURNINO, minor vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

FACTS:
• A written application for a 20-year endowment non-medical insurance was submitted by Estefania A.
Saturnino. This kind of policy dispenses with the medical examination of the applicant usually required in
ordinary life policies. . The policy was issued on the same day, upon payment of the first year's premium.

• Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving husband and
minor child, respectively, demanded payment of the face value of the policy from the Philippine American
Life Insurance Company. The claim was rejected and this suit was subsequently instituted.

• Two months prior to the issuance of the policy, Estefania Saturnino was operated on for cancer, involving
complete removal of the right breast, including the pectoral muscles and the glands found in the right armpit.
She stayed in the hospital for a period of eight days, after which she was discharged, although according to
the surgeon who operated on her she could not be considered definitely cured, her ailment being of the
malignant type.

• Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in her
application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had,
among other ailments listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding five years; and that she had
never been treated for nor did she ever have any illness or disease peculiar to her sex, particularly of the
breast, ovaries, uterus, and menstrual disorders.

• The Insurance Law (Section 30) provides that "materiality is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the proposed contract, or in making his inquiries. The appellants contend that the
facts subject of the representation were not material in view of the "non-medical" nature of the insurance
applied for, which does away with the usual requirement of medical examination before the policy is issued.

ISSUE: Whether or not the insured made such false representations of material facts as to avoid the policy.

RULING: YES
• The waiver of medical examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily constitutes
an important factor which the insurer takes into consideration in deciding whether to issue the policy or not.
It is logical to assume that if appellee had been properly apprised of the insured's medical history she would
at least have been made to undergo medical examination in order to determine her insurability.

• In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as "negligence to communicate that which a party knows
and ought to communicate."

• In the case of Argente v. West Coast Life Insurance Co:

"The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the
belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled
into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist."