3. [G.R. No. 124520.

August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., Petitioners, v. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, Respondents.

DECISION

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

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

2. One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; x x x1chanroblesvirtuallawlibrary

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

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and
United) be paid directly to CKS, based on its lease contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision* ordering therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages,
P20,000.00 as attorneys fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision** dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorneys fees. A
motion for reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO
RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE
PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
 III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE
INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION
AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2chanroblesvirtuallawlibrary

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by
the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good customs, public order or public policy.3chanroblesvirtuallawlibrary

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance
takes effect and at the time the loss occurs.4 The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which
he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof."

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

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

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

SO ORDERED.

1 Rollo, p. 50.

* Penned by Judge Roberto M. Lagman.

** Penned by Justice Conchita Carpio-Morales, with Justices Fidel P. Purisima and Fermin A. Matin, Jr., concurring.

2 Rollo, p. 18.

3
Article 1409(i), Civil Code.

4
Section 19, Insurance Code.

4. G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner,

vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the decision of the
Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia against private respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-146222 for P100,000.00.
The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's
business."

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks amounting
to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already affected, 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 in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the private respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by fire insurance
policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was "Messrs. Discount Mart
(Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
 MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils.
First CEB/F 24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.

The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees and costs of
litigation. He attached as Annex "AM"6 thereof his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained the private respondent's fire insurance policy
he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies; this requirement was
not mentioned to him by the private respondent's agent; and had it been mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the
actual value of his stocks at the time of loss, which was P1,000,000.00.

In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu
Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on the petitioner's
testimony that he came to know of the PFIC policies only when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance
Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus
the amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a petition for review.
The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART
(MR. ARMANDO GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which is alleged to have taken out the other insurance without the knowledge of private respondent.
This is shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured but the party to which they were
issued were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property subject of the insurance with petitioner. Hence, in failing to disclose the existence of these
insurances private respondent violated Condition No. 3 of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said requirement at the time he was convincing me to insure with you. If he only die or
even inquired if I had other existing policies covering my establishment, I would have told him so. You will note that at the time he talked to me until I decided to insure with your
company the two policies aforementioned were already in effect. Therefore I would have no reason to withhold such information and I would have desisted to part with my hard earned
peso to pay the insurance premiums [if] I know I could not recover anything.

Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my stocks damaged by the fire was estimated by the Police Department to be
P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months before the fire, shows my merchandise inventory
was already some P595,455.75. . . . These will support my claim that the amount claimed under the three policies are much below the value of my stocks lost.

xxx xxx xxx

 The letter contradicts private respondent's pretension that he did not know that there were other insurances taken on the stock-in-trade and seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition. He contends therein that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of
jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE
CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy from the private
respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had, whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not offered in evidence and thus
should not have been considered in deciding the case. However, as correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and
made integral part of the complaint. 12 It has attained the status of a judicial admission and since its due execution and authenticity was not denied by the other party, the petitioner is bound by it even if it were not introduced as
an independent evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit admission by the petitioner in
his letter to the private respondent of 18 January 1991, which was quoted in the challenged decision of the Court of Appeals. These divergent findings of fact constitute an exception to the general rule that in petitions for review
under Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary
before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were
not new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy may
declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears in fire insurance policies
and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus
avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be one policy, or each may take out a separate policy covering his interest, either at the
same or at separate times. 18 The mortgagor's insurable interest covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the property.19 The mortgagee's insurable interest is
to the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only
to the amount of the debt, not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the policy with the
consent of the insurer; or the mere pledgee without such consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be attached; or a
"standard mortgage clause," containing a collateral independent contract between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the mortgagor, may have been procured by a
mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not made a
party to the contract himself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at the issuing of the policy.23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted, however,
that although the mortgagee is himself the insured, as where he applies for a policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in fact in the
form used to insure a mortgagor with loss payable clause. 25

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads:
 Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:

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 hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy
shall be forfeited.

or in the 1930 case of Santa Ana vs. Commercial Union Assurance

Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the
policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare void any
violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection which the
insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the
person claiming thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated differently, provisions, conditions or
exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to
operate. 30 The reason for this is that, except for riders which may later be inserted, the insured sees the contract already in its final form and has had no voice in the selection or arrangement of the words employed therein. On the
other hand, the language of the contract was carefully chosen and deliberated upon by experts and legal advisers who had acted exclusively in the interest of the insurers and the technical language employed therein is rarely
understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition
applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and
the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by
several insurers separately in respect of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC
do not cover the same interest as that covered by the policy of the private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private
respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's
liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and
thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for
the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured.32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.

Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED.

5. G.R. No. 128833 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO, petitioners,
vs.
COURT OF APPEALS and GOYU & SONS, INC., respondents.

G.R. No. 128834 April 20, 1998

RIZAL COMMERCIAL BANKING CORPORATION, petitioners,
vs.
COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents.

G.R. No. 128866 April 20, 1998

MALAYAN INSURANCE INC., petitioners,

vs.
GOYU & SONS, INC. respondent.

MELO, J.:

The issue relevant to the herein three consolidated petitions revolve around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance Company, Inc. (MICO) in connection with the
mortgage contracts entered into by and between Rizal Commercial Banking Corporation (RCBC) and GOYU.

The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of P74,040,518.58, plus 37% interest per annum commending July 27, 1992. RCBC was ordered to pay actual and compensatory damages in the
amount of P5,000,000.00. MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary damages and P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed at P68,785,069.04 as of
April 1992, without any interest, surcharges, and penalties. RCBC and MICO appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated.

The undisputed facts may be summarized as follows:

GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU's
application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon GOYU's application and Uy's and Lao's recommendation, RCBC's executive committee
increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million.

As security for its credit facilities with RCBC, GOYU executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each
of these four mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance polices to RCBC.

GOYU obtained in its name a total of ten insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan insurance policies, issued nine endorsements
in favor of RCBC seemingly upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan").

On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the
insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better rights to the proceeds
than the insured. GOYU filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now
subject of the present G.R. No. 128833 and 128866.

RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied GOYU's claims.

In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust
Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the ten insurance policies be deposited with the said court minus the
aforementioned P14,938,080.23. Accordingly, on January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.

In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit "22-Malayan").

After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking Corporation, ordering the latter as follows:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with this Court;
 b. To pay the plaintiff damages by was of interest for the duration of the delay since July 27, 1992 (ninety days after defendant insurer's receipt of the required
proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the following amounts:

1) P50,000,000.00 — from July 27, 1992 up to the time said amount was deposited with this Court on January 7, 1994;

2) P24,040,518.58 — from July 27, 1992 up to the time when the writs of attachments were received by defendant Malayan;

2. For defendant Rizal Commercial Banking Corporation:

a. To pay the plaintiff actual and compensatory damages in the amount of P2,000,000.00;

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally, the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorney's fees;

3) Costs of suit.

and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its loan obligations with defendant RCBC in the amount of P68,785,069.04, as of April 27, 1992, with
interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B & 14-C.

FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to release immediately to the plaintiff the amount of P50,000,000.00 deposited with the Court by defendant Malayan,
together with all the interest earned thereon.

(Record, pp. 478-479.)

From this judgment, all parties interposed their respective appeals. GOYU was unsatisfied with the amount awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals
party granted GOYU's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities, thusly:

WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as follows:

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court
and damages by way of interest commencing July 27, 1992 until the time Goyu receives the said amount at the rate of thirty-seven (37%) percent per annum
which is twice the ceiling prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION;

a) To pay the plaintiff actual and compensatory damages in the amount of P5,000,000.00.

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D. LAO:

a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages;

 2. P1,500,000.00 as and for attorney's fees.

4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.

The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No. 3649285) deposited with it by
Malayan Insurance Co., Inc., together with all the interests thereon.

(Rollo, p. 200.)

RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking review and consequent reversal of the above dispositions of the Court of Appeals.

In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376, which case, by virtue of the Court of Appeals' resolution dated August 7, 1996, was consolidated with C.A. G.R. No. CV-46162 (subject
of herein G.R. No. 128833). At issue in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of
Sebastian.

After a careful reviews of the material facts as found by the two courts below in relation to the pertinent and applicable laws, we find merit in the submission of RCBC and MICO.

The several causes of action pursued below by GOYU gave rise to several related issues which are now submitted in the petitions before us. This Court, however, discerns one primary and central issue, and this is, whether or not
RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss.

As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU, the latter executed several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts that GOYU shall
insure the mortgaged property with any of the insurance companies acceptable to RCBC. GOYU indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC. Bases on their stipulations in the
mortgage contracts, GOYU was supposed to endorse these insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency, Inc., MICO's underwriter from whom GOYU obtained the subject insurance
policies, prepared the nine endorsements (see Exh. "1-Malayan" to "9-Malayan"; also Exh. "51-RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and MICO. However, because these endorsements do not
bear the signature of any officer of GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements are defective.

We do not quite agree.

It is settled that a mortgagor and a mortgagee have separated and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question
that GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties
as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity.

It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely took the insurance policies
from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily
disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verily,
Alchester would not have endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs. Court of Appeals
(94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public, policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so demand.

(p. 368.)

Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYU's nine insurance policies in favor
of RCBC. The original copies of each of these nine endorsement documents were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were detained for Alchester's file (tsn, February 23, pp. 7-8).
GOYU has not denied having received from Alchester the originals of these documents.
RCBC, in good faith, relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to be justified under the circumstances of the case. GOYU failed
to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After
the occurrence of the loss insure against, it was too late for GOYU to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an
implied ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their operative effects. To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of
public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of the
insurance polices if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of
the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as
the party for whose benefit the insurance policies were taken out. Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and GOYU in consideration of and for securing GOYU's credit facilities from RCBC. The mortgage
contracts contained common provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC.

3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement documents prepared by Alchester, GOYU, despite the absence of its written conformity thereto, obviously considered said endorsement to be
sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credits facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of
the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by GOYU. The intention of the parties will have to be given full force and effect particular case. The insurance proceeds may, therefore,
be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the polices were clearly intended.

Moreover, the law's evident intention to protect the interests of the mortgage upon the mortgaged property is expressed in Article 2127 of the Civil Code which states:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

Significantly, the Court notes that out of the 10 insurance policies subject of this case, only 8 of them appear to have been subject of the endorsements prepared and delivered by Alchester for and upon instructions of GOYU as
shown below:

INSURANCE POLICY PARTICULARS ENDORSEMENT

a. Policy Number F-114-07795 None

Issue Date March 18, 1992
Expiry Date April 5, 1993
Amount P9,646,224.92

b. Policy Number ACIA/F-174-07660 Exhibit "1-Malayan"

Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P4,307,217.54

c. Policy Number ACIA/F-114-07661 Exhibit "2-Malayan"

Issue Date January 18, 1992
Expiry Date February 15, 1993
Amount P6,603,586.43
 d. Policy Number ACIA/F-114-07662 Exhibit "3-Malayan"
Issue Date January 18, 1992
Expiry Date (not legible)
Amount P6,603,586.43

e. Policy Number ACIA/F-114-07663 Exhibit "4-Malayan"

Issue Date January 18, 1992
Expiry Date February 9, 1993
Amount P9,457,972.76

f. Policy Number ACIA/F-114-07623 Exhibit "7-Malayan"

Issue Date January 13, 1992
Expiry Date January 13, 1993
Amount P24,750,000.00

g. Policy Number ACIA/F-174-07223 Exhibit "6-Malayan"

Issue Date May 29, 1991
Expiry Date June 27, 1992
Amount P6,000,000.00

h. Policy Number CI/F-128-03341 None

Issue Date May 3, 1991
Expiry Date May 3, 1992
Amount P10,000,000.00

i. Policy Number F-114-07402 Exhibit "8-Malayan"

Issue Date September 16, 1991
Expiry Date October 19, 1992
Amount P32,252,125.20

j. Policy Number F-114-07525 Exhibit "9-Malayan"

Issue Date November 20, 1991
Expiry Date December 5, 1992
Amount P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.)

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record shows no endorsement for Policy Number CI/F-128-
03341 [(h) above]. Also, one of the endorsement documents, Exhibit "5-Malayan", refers to a certain insurance policy number ACIA-F-07066, which is not among the insurance policies involved in the complaint.

The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being excessively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and
effect of an endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other creditors up to the extent of the GOYU's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the
insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYU's obligation with RCBC, the interest of GOYU in the
subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
may nonetheless forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by
GOYU's other creditors. To the extent of GOYU's outstanding obligation with RCBC, all the rest of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be released from attachment,
garnishment, and levy by the other creditors of GOYU.

This brings us to the next issue to be resolved, which is, the extent of GOYU's outstanding obligation with RCBC which the proceeds of the 8 insurance policies will discharge and liquidate, or put differently, the actual amount of
GOYU's liability to RCBC.

The Court of Appeals simply echoed the declaration of the trial court finding that GOYU's total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning the trial court's exclusion of Promissory Note
No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground that their execution is highly questionable for not only are these dated after the fire,
but also because the signatures of either GOYU or any its representative are conspicuously absent. Accordingly, the Court of Appeals speculated thusly:
 . . . Hence, this Court is inclined to conclude that said promissory notes were pre-signed by plaintiff in bank terms, as averred by plaintiff, in contemplation of the speedy grant of future loans, for the same
practice of procedure has always been adopted in its previous dealings with the bank.

(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates posterior to the fire does not necessarily mean that the documents are spurious, for it is presumed that the ordinary course of business had been followed (Metropolitan Bank and Trust
Company vs. Quilts and All, Inc., 22 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument has the burden of proof of showing that he no longer owes the obligee any amount (Travel-On, Inc. vs. Court of
Appeals, 210 SCRA 351 [1992]).

Even casting aside the presumption of regularity of private transactions, receipt of the loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the testimony of Go Song Hiap when he
answered the queries of the trial court.

ATTY. NATIVIDAD

Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the amounts stated therein?

A: Yes, sir, I received the amount.

COURT

He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?

WITNESS:

Yes, Your Honor, I received all the amounts.

COURT

Indicated in the Promissory Notes?

WITNESS

A. The promissory Notes they did not give to me but the amount I asked which is correct, Your Honor.

COURT

Q Your mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?

A Yes, Your Honor.

(tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial admission of having received all the proceeds of the 29 promissory notes as hereinabove quotes, GOYU also offered and admitted to RCBC that is obligation be fixed at P116,301,992.60 as
shown in its letter date March 9, 1993, which pertinently reads:

We wish to inform you, therefore that we are ready and willing to pay the current past due account of this company in the amount of P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, and
18, p. 13 of your affidavits of Third Party Claims in the Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city, respectively, less the total of P8,851,519.71 paid from the
Seaboard and Equitable insurance companies and other legitimate deductions. We accept and confirm this amount of P116,301,992.60 as stated as true and correct.
 (Exhibit BB.)

The Court of Appeals erred in placing much significance on the fact that the excluded promissory notes are dated after the fire. It failed to consider that said notes had for their origin transactions consummated prior to the fire.
Thus, careful attention must be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU.

The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones. The proceeds of the loan represented
by these promissory notes were admittedly received by GOYU. There is ample factual and legal basis for giving GOYU's judicial admission of liability in the amount of P116,301,992.60 full force and effect.

It should, however, be quickly added that whatever amount RCBC may have recovered from the other insurers of the mortgage property will, nonetheless, have to be applied as payment against GOYU's obligation. But, contrary
to the lower courts' findings, payments effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had obviously been duly considered by GOYU, in its aforequoted letter date March 9, 1993,
wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993.

The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of January 21, 1993, to wit:

Total Obligation as admitted by GOYU

as of January 21, 1993: P116,301,992.60

Broken down as follows:

Principal 1 Interest

Regular 80,535,946.32
FDU 27,548,025.17
____________
Total 108,083,971.49 8,218,021.11 2

LESS:

1) Proceeds from
Seaboard Eastern
Insurance Company 6,095,145.81

2) Proceeds from
Equitable Insurance
Company 2,756,373.00

3) Payment from
foreign department
negotiation: 203,584.89
___________

9,055,104.70 3
================
NET AMOUNT as of January 21, 1993 P107,246,887.90

The need for the payment of interest due the principal amount of the obligation, which is the cost of money to RCBC, the primary end and the ultimate reason for RCBC's existence and being, was duly recognized by the trial court
when it ruled favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC in the amount of P68,785,069.04, as of April 27, 1992, with interest thereon at the rate stipulated in the respective
promissory notes (without surcharges and penalties) per computation, pp. 14-A, 14-B 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without even laying down the factual or legal justification for its ruling, modified
the trial court's ruling and ordered GOYU "to pay the principal amount of P68,785,069.04 without any interest, surcharges and penalties" (Rollo, p. 200).

It is to be noted in this regard that even the trial court hedgingly and with much uncertainty deleted the payment of additional interest, penalties, and charges, in this manner:
 Regarding defendant RCBC's commitment not to charge additional interest, penalties and surcharges, the same does not require that it be embodied in a document or some form of writing to be binding and
enforceable. The principle is well known that generally a verbal agreement or contract is no less binding and effective than a written one. And the existence of such a verbal agreement has been amply
established by the evidence in this case. In any event, regardless of the existence of such verbal agreement, it would still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges
and penalties considering the latter's pitiful situation. (Emphasis supplied).

(Record, p. 476)

The essence or rationale for the payment of interest or cost of money is separate and distinct from that of surcharges and penalties. What may justify a court in not allowing the creditor to charge surcharges and penalties despite
express stipulation therefor in a valid agreement, may not equally justify non-payment of interest. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be
considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all. We fail to find justification for the Court of Appeal's outright deletion of the
payment of interest as agreed upon in the respective promissory notes. This constitutes gross error.

For the computation of the interest due to be paid to RCBC, the following rules of thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]), shall apply, to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the actual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

(pp. 95-97).

There being written stipulations as to the rate of interest owing on each specific promissory note as summarized and tabulated by the trial court in its decision (pp. 470 and 471, Record) such agreed interest rates must be followed.
This is very clear from paragraph II, sub-paragraph 1 quoted above.

On the issue of payment of surcharges and penalties, we partly agree that GOYU's pitiful situation must be taken into account. We do not agree, however, that payment of any amount as surcharges and penalties should altogether
be deleted. Even assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot
accept the lower courts' finding that RCBC had thereby ipso facto effectively waived collection of any additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one thing, but waiver of additional
interests, surcharges, and penalties is another.

Surcharges and penalties agreed to be paid by the debtor in case of default partake of the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof provides:

Art. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be equitably reduced if they are iniquitous and unconscionable.

In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. It should be stressed that the Court will not make any sweeping ruling that surcharges
and penalties imposed by banks for non-payment of the loans extended by them are generally iniquitous and unconscionable. What may be iniquitous and unconscionable in one case, may be totally just and equitable in another.
This provision of law will have to be applied to the established facts of any given case. Given the circumstance under which GOYU found itself after the occurrence of the fire, the Court rules the surcharges rates ranging
anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous and unconscionable. The Court tempers these rates to 2% and 3%, respectively. Furthermore, in the light of GOYU's offer to pay the amount
of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we find it more in keeping with justice and equity for RCBC not to charge additional interest, surcharges, and penalties from that time
onward.
Given the factual milieu hereover, we rule that it was error to hold MICO liable in damages for denying or withholding the proceeds of the insurance claim to GOYU.

Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance policies, RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights,
GOYU lost its standing as the beneficiary of the said insurance policies.

Secondly, for an insurance company to be held liable for unreasonably delaying and withholding payment of insurance proceeds, the delay must be wanton, oppressive, or malevolent (Zenith Insurance Corporation vs. CA. 185
SCRA 403 [1990]). It is generally agreed, however, that an insurer may in good faith and honesty entertain a difference of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an insurer to pay a
claim should not be inflicted unless the evidence and circumstances show that such refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th]
42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not show that MICO wantonly
and in bad faith delayed the release of the proceeds. The problem in the determination of who is the actual beneficiary of the insurance policies, aggravated by the claim of various creditors who wanted to partake of the insurance
proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in withholding payment to GOYU.

In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid creditor, one for specific performance and the other for
foreclosure. In doing so, said the appellate court, the second action is deemed barred, RCBC having split a single cause of action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in giving due consideration to
this argument of GOYU, for the foreclosure suit is still pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case having been elevated by RCBC.

In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of Appeals pre-empted the resolution of said foreclosure case which is not before it. This is plain reversible error if not grave abuse of
discretion.

As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]):

It should have been enough, nonetheless, for the appellate court to merely set aside the questioned ordered of the trial court for having been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner "from entering in and interfering with the use or occupation and enjoyment of petitioner's (now private respondent) residential house and compound," the appellate
court in effect, precipitately resolved with finality the case for injunction that was yet to be heard on the merits by the lower court. Elevated to the appellate court, it might be stressed, were mere incidents of
the principal case still pending with the trial court. In Municipality of Biñan, Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would have "no jurisdiction in a certiorari
proceeding involving an incident in a case to rule on the merits of the main case itself which was not on appeal before it.

(pp. 701-702.)

Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga Regional Trial Court, since it has been determined that RCBC has the right to the insurance proceeds, the subject matter of intervention is
rendered moot and academic. Respondent Sebastian must, however, yield to the preferential right of RCBC over the MICO insurance policies. It is basic and fundamental that the first mortgagee has superior rights over junior
mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928]).

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and SET ASIDE, and a new one entered:

1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before Branch 3 of the Manila Trial Court for lack of merit;

2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report of adjuster Toplis &
Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of P50,505,594.60 (per O.R. No. 3649285);

3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests earned to Rizal Commercial Banking Corporation;

4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking Corporation in the principal amount of P107,246,887.90, with interest at the respective rates stipulated in each
promissory note from January 21, 1993 until finality of this judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus payments made by Malayan Insurance
Company, Inc. and the proceeds of the amount deposited with the trial court and its earned interest. The total amount due RCBC at the time of the finality of this judgment shall earn interest at the legal rate
of 12% in lieu of all other stipulated interests and charges until fully paid.

The petition of Rizal Commercial Banking Corporation against the respondent Court in CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein arrived at. Respondent Sebastian's right as
attaching creditor must yield to the preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance policies as first mortgagee.

SO ORDERED.
6. G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial
Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution
dated April 11, 2001 which denied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately
obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines." 2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months
from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from
their customers and dealers. x x x4

xxxx

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as
of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and
LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that
respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying the claim of the insured. 6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been
established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales
invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that
it was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over
credit, there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC
and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of
the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer
direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 1265 16 of the Civil Code; that the fire was
caused through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short circuit unless there are defects in their installation or when
there is lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence
presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive
on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. 22 In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-
made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of
the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase
price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid." 26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether
actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)

xxxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer. 27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. 29 Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. 30 Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in
other words, so long as he would suffer by its destruction, as where he has a vendor's lien. 31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the
payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. 33
The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is
no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object
thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and
before he has incurred in delay will not have the effect of extinguishing the obligation. 35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit. 36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor. 37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher
evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have
against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

7. G.R. No. 181132 June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY,
LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

DECISION

NACHURA, J.:

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution 2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal
for lack of jurisdiction.

The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining
order (TRO) and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and
a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great Pacific Life Assurance Corporation (Grepalife);5 (3)
the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian
and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be
released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as actual litigation expenses and attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance proceeds of the insurance
policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries;
and that it released Odessa’s share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition
failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No.
A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was
ineligible for insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there
being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court,
upon motion of petitioners, declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal – whether the complaint itself was proper or not – and that the designation of a beneficiary is an act of liberality or a donation
and, therefore, subject to the provisions of Articles 7528 and 7729 of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the
other defendants Eva Verna de Guzman, Insular Life and Grepalife.

SO ORDERED.10

In so ruling, the trial court ratiocinated thus –

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The principal law on insurance is the
Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C.
Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity,
unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is
not the donee spoken in the law of donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be considered as an
advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following
pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to
the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is the doctrine
in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of
inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is
forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine
is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the
improper beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same action
(Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C.
Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the declaration for
the nullity of a void donation falls within the general jurisdiction of this Court. 11

Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular further averred that the proceeds were divided among the three children as
the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of action must be determined solely on the basis of the allegations in the
complaint, such that the defenses of Insular and Grepalife would be better threshed out during trial.1avvphi1

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21
September 2004 which ordered the prosecution of the case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.

SO ORDERED.14

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in
the other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated,
or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced based on the rules
on legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy,
the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a cause of action involved a
pure question of law. The appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial court’s Resolution, dated September 21, 2004, dismissing the complaint as
against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged in the Complaint, particularly the defenses put up by the defendants in
their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court engage in the examination and determination of what were the facts and their
probative value, or the truth thereof, when it premised the dismissal on allegations of the defendants in their answer – which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine? 15

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the finding that Eva was either disqualified as a beneficiary by the insurance
companies or that her designation was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to
prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children with
Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads –

SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:

xxxx

(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another. 16 A complaint states a cause of action when it contains the three (3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the
correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure
to state a cause of action.17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true.
The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer in the
complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case. 18

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The
basis of petitioners’ claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s children with Loreto, being illegitimate
children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought
about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e.,
the Insurance Code. Section 53 of the Insurance Code states—

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.20 The
exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue
and claim from the insurer.21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance
proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s
insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in
view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, 23 or when the designated beneficiary is disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall
redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take
cognizance of the appeal; the issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

8. G.R. No. 183526 August 25, 2009

VIOLETA R. LALICAN, Petitioner,

vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, Respondent.

DECISION

CHICO-NAZARIO, J.:

Challenged in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the Decision 2 dated 30 August 2007 and the Orders dated 10 April 2008 3 and 3 July 20084 of the Regional Trial Court (RTC) of Gapan
City, Branch 34, in Civil Case No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited
(Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and denied petitioner’s Notice of Appeal.

The factual and procedural antecedents of the case, as culled from the records, are as follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992,5
which contained a 20-Year Endowment Variable Income Package Flexi Plan worth ₱500,000.00, 6 with two riders valued at ₱500,000.00 each.7 Thus, the value of the policy amounted to ₱1,500,000.00. Violeta was named as the
primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of ₱8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year
period of the policy. According to the Policy Contract, there was a grace period of 31 days for the payment of each premium subsequent to the first. If any premium was not paid on or before the due date, the policy would be in
default, and if the premium remained unpaid until the end of the grace period, the policy would automatically lapse and become void. 8

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and
became void.

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application for Reinstatement9 of Policy No. 9011992, together with the amount of ₱8,062.00 to pay for the premium
due on 24 January 1998. In a letter10 dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully processed because, although he already deposited ₱8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting to ₱322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another application for reinstatement. Eulogio was likewise
advised by Malaluan to pay the premiums that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for Reinstatement 11 of Policy No. 9011992, including the amount of ₱17,500.00, representing payments for the overdue interest on
the premium for 24 January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business errand, her husband received Eulogio’s second Application for Reinstatement and
issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando, on 18 September 1998, Eulogio’s second Application for Reinstatement of Policy No. 9011992 and
₱17,500.00 deposit. However, Insular Life no longer acted upon Eulogio’s second Application for Reinstatement, as the former was informed on 21 September 1998 that Eulogio had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.

In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio’s death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate the same.
According to the Application for Reinstatement, the policy would only be considered reinstated upon approval of the application by Insular Life during the applicant’s "lifetime and good health," and whatever amount the
applicant paid in connection thereto was considered to be a deposit only until approval of said application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the amount of
₱25,417.00, drawn in Violeta’s favor, representing the full refund of the payments made by Eulogio on Policy No. 9011992.

On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter 13 dated 10 March 1999, Insular Life stated that it could not find any reason to reconsider its decision rejecting Violeta’s claim.
Insular Life again tendered to Violeta the above-mentioned check in the amount of ₱25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of Insular Life. Violeta’s counsel subsequently sent a letter14 dated 8 July 1999 to Insular Life, demanding payment
of the full proceeds of Policy No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a re-evaluation of Violeta’s claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a Complaint for Death Claim Benefit, 15 which was docketed as Civil Case No. 2177. Violeta alleged that Insular
Life engaged in unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992,
in the amount of ₱1,500,000.00, plus interests, attorney’s fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim, 16 asserting that Violeta’s Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered
void by the non-payment of the 24 January 1998 premium and non-compliance with the requirements for the reinstatement of the same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorney’s fees
and expenses of litigation incurred by the former.

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No. 9011992 had been complied with and the defenses put up by Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24, 1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his insurance policy necessarily lapsed. This is
clear from the terms and conditions of the contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x.17

The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently signed and submitted to Insular Life, held that Eulogio was
not able to fully comply with the requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties. In the instant case, the terms of the insurance contract between [Eulogio] and [Insular Life] were spelled out in the policy provisions of Insurance
Policy No. 9011992. There is likewise no dispute that said insurance contract is by nature a contract of adhesion[,] which is defined as "one in which one of the contracting parties imposes a ready-made form of contract which the
other party may accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296 SCRA 247).

xxxx

The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than one meaning" and "an idea, statement or expression capable of being understood in more than one sense." In Nacu vs. Court of
Appeals, 231 SCRA 237 (1994), the Supreme Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result thereby, must be read and construed against the party who drafted it on the assumption that it could have been avoided by the
exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second application for reinstatement. Examining the said provisions, the court finds the same clearly written in terms that are simple
enough to admit of only one interpretation. They are clearly not ambiguous, equivocal or uncertain that would need further construction. The same are written on the very face of the application just above the space where
[Eulogio] signed his name. It is inconceivable that he signed it without reading and understanding its import.1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear layman’s language, rendering it free from any ambiguity that would require a legal interpretation or construction. Thus, the
court believes that [Eulogio] was well aware that when he filed the said application for reinstatement, his lapsed policy was not automatically reinstated and that its approval was subject to certain conditions. Nowhere in the policy
or in the application for reinstatement was it ever mentioned that the payment of premiums would have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was clearly stated in the application for
reinstatement is that pending approval thereof, the premiums paid would be treated as a "deposit only and shall not bind the company until this application is finally approved during my/our" lifetime and good health[.]"

Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the words used or in the manner they were written. [Violeta] did not present any proof that [Eulogio] was not conversant
with the English language. Hence, his having personally signed the application for reinstatement[,] which consisted only of one page, could only mean that he has read its contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy provisions of Policy No. 9011992 and in the application for reinstatement subject of this case, the court finds no merit in
[Violeta’s] contention that the policy provision stating that [the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should be construed in his favor. It is true that [Eulogio] submitted his application
for reinstatement, together with his premium and interest payments, to [Insular Life] through its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of that same day. It was
only on the following day, September 18, 1998 that Ms. Malaluan brought the said document to [the regional office of Insular Life] in San Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no
more application to approve because the applicant was already dead and no insurance company would issue an insurance policy to a dead person. 18 (Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the same by interpreting the insurance agreement in her favor where there is no need for such interpretation. It is conceded that
[Eulogio’s] payment of overdue premiums and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that [the] application for reinstatement was filed by [Eulogio] a day before his death. However,
there is nothing that would justify a conclusion that such receipt amounted to an automatic reinstatement of the policy that has already lapsed. The evidence suggests clearly that no such automatic renewal was contemplated in the
contract between [Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan was the officer authorized to approve the application for reinstatement and that her receipt of the documents submitted by [Eulogio] amounted
to its approval.19 (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance of evidence her cause of action against the defendant, let this case be, as it is hereby DISMISSED.20

On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-mentioned RTC Decision. Insular Life opposed22 the said motion, averring that the arguments raised therein were merely a rehash of the issues
already considered and addressed by the RTC. In an Order23 dated 8 November 2007, the RTC denied Violeta’s Motion for Reconsideration, finding no cogent and compelling reason to disturb its earlier findings. Per the Registry
Return Receipt on record, the 8 November 2007 Order of the RTC was received by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply24 to the Motion for Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the setting aside of the Decision dated 30
August 2007. Despite already receiving on 3 December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply
Extended Discussion elaborating on the arguments she had previously made in her Motion for Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had already attained finality in view of Violeta’s failure to file the appropriate notice of appeal within the
reglementary period. Thus, any further discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and academic.

Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying that the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the Court of Appeals.

In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion given that the Decision dated 30 August 2007 had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for consideration:

1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed despite having allegedly attained finality and despite the fact that the mode of appeal that has been availed of by Violeta is
erroneous?

2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a question of law not in accord with law and applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the computation of the reglementary period for appealing the
said judgment. Violeta claims that her former counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the latter’s death just shortly after the filing of the instant Petition on 8 August
2008. In light of these circumstances, Violeta entreats this Court to admit and give due course to her appeal even if the same was filed out of time.

Violeta further posits that the Court should address the question of law arising in this case involving the interpretation of the second sentence of Section 19 of the Insurance Code, which provides:

Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just before he passed away on 17 September 1998. The RTC should have construed the provisions
of the Policy Contract and Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and considered the special circumstances of the case, to rule that Eulogio had complied with the
requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,28 provides that no appeal may be taken from an order
disallowing or dismissing an appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court.29

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC denied the same in an Order dated 8
November 2007. The records of the case reveal that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta had 15 days30 from said date of receipt, or until 18 December 2007, to file a Notice
of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.

Violeta’s claim that her former counsel’s failure to file the proper remedy within the reglementary period was an honest mistake, attributable to the latter’s deteriorating health, is unpersuasive.

Violeta merely made a general averment of her former counsel’s poor health, lacking relevant details and supporting evidence. By Violeta’s own admission, her former counsel’s health rapidly deteriorated only by the first week
of July 2008. The events pertinent to Violeta’s Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violeta’s Motion for Reconsideration of the Decision dated 30
August 2007, was received on 3 December 2007; and Violeta’s Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that Violeta’s former counsel was already suffering from ill health during these
times; or that the illness of Violeta’s former counsel would have affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta, which failure the latter cannot now disown on the basis of her bare allegation and self-serving pronouncement
that the former was ill. A client is bound by his counsel’s mistakes and negligence.31

The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s Notice of Appeal for being filed beyond the reglementary period. Without an appeal having been timely filed, the RTC Decision dated 30
August 2007 in Civil Case No. 2177 already became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period to appeal lapses and no appeal is perfected within such period. As a consequence, no court (not even this
Court) can exercise appellate jurisdiction to review a case or modify a decision that has become final. 32 When a final judgment is executory, it becomes immutable and unalterable. It may no longer be modified in any respect
either by the court, which rendered it or even by this Court. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in
time.33

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to any party, and void judgments. 34 The instant
case does not fall under any of these exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the Petition must still fail.

Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing insurable interest in his own life until the day of his death.

An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a
relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against. 35 The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance.36 Section 10 of the Insurance Code
indeed provides that every person has an insurable interest in his own life. 37 Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.38
Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he had an insurable interest
in his own life, which he did insure under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life before his death on 17 September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio’s non-payment of the premiums which became due on 24 April
1998 and 24 July 1998. Policy No. 9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the premium, which fell due on 24 January 1998, without any
payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that Policy No.
9011992 had lapsed by then. Insular Life did not act on Eulogio’s first Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover only the ₱8,062.00 overdue premium for 24
January 1998, but not the ₱322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same time ₱17,500.00, to
cover payment for the overdue interest on the premium for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed away.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse.39 Both the Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement
of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the following conditions are met: (1) the policy has not been surrendered for its cash value or the period of extension as a term insurance has not
expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not exceeding that which would have been applicable to said premium and
indebtedness in the policy years prior to reinstatement; and (4) indebtedness which existed at the time of lapsation is paid or renewed. 40

Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application is approved by the Company during my/our lifetime and good health and until all other Company requirements for the reinstatement of said Policy
are fully satisfied.

I/We further agree that any payment made or to be made in connection with this application shall be considered as deposit only and shall not bind the Company until this application is finally approved by the Company during
my/our lifetime and good health. If this application is disapproved, I/We also agree to accept the refund of all payments made in connection herewith, without interest, and to surrender the receipts for such payment.41 (Emphases
ours.)

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company, 42 citing McGuire v. The Manufacturer's Life Insurance Co.43:

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the insured absolute right to such reinstatement by the mere filing of an application. The insurer has
the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of the insured the insurance
Company cannot be compelled to entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases ours.)

It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for the overdue premiums and interests were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power
or authority of its insurance agents, thus:

Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to waive any lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president,
vice-president or persons authorized by the Board of Trustees and only in writing. 44 (Emphasis ours.)

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still had to turn over to Insular Life Eulogio’s Application for Reinstatement and accompanying deposits, for processing and
approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation
other than those that they so obviously embody. A construction in favor of the insured is not called for, as there is no ambiguity in the said provisions in the first place. The words thereof are clear, unequivocal, and simple enough
so as to preclude any mistake in the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed.
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 as 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.45

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests with Malaluan, does not constitute a special circumstance that can persuade this Court to
already consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement, and operate to remove the prerogative of Insular Life
thereunder to approve or disapprove the Application for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-handed, the Court cannot arbitrarily
burden Insular Life with the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out the contracts actually made.46

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any death benefits from
Insular Life on the basis of Policy No. 9011992; but she is entitled to receive the full refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of
Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and executory. No costs.

SO ORDERED.