FT-[G.R. No. 113899.

October 13, 1999] Regional Trial Court of Misamis Oriental, Branch 18, against
Grepalife for Specific Performance with Damages.[5] During
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. the trial, Dr. Hernando Mejia, who issued the death certificate,
COURT OF APPEALS AND MEDARDA V. LEUTERIO, was called to testify. Dr. Mejias findings, based partly from
respondents. the information given by the respondent widow, stated that
Dr. Leuterio complained of headaches presumably due to high
DECISION blood pressure. The inference was not conclusive because Dr.
Leuterio was not autopsied, hence, other causes were not
QUISUMBING, J.: ruled out.

This petition for review, under Rule 45 of the Rules of Court, On February 22, 1988, the trial court rendered a decision in
assails the Decision[1] dated May 17, 1993, of the Court of favor of respondent widow and against Grepalife. On May 17,
Appeals and its Resolution[2] dated January 4, 1994 in CA- 1993, the Court of Appeals sustained the trial courts decision.
G.R. CV No. 18341. The appellate court affirmed in toto the Hence, the present petition. Petitioners interposed the
judgment of the Misamis Oriental Regional Trial Court, Branch following assigned errors:
18, in an insurance claim filed by private respondent against
Great Pacific Life Assurance Co. The dispositive portion of the "1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-
trial courts decision reads: APPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE
WHEREFORE, judgment is rendered adjudging the defendant FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS
under its Group policy No. G-1907, in relation to Certification HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
B-18558 liable and ordered to pay to the DEVELOPMENT BANK BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF
Leuterio, the amount of EIGHTY SIX THOUSAND TWO CAUSE OF ACTION.
HUNDRED PESOS (P86,200.00); dismissing the claims for
damages, attorneys fees and litigation expenses in the 2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE
complaint and counterclaim, with costs against the defendant FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE
and dismissing the complaint in respect to the plaintiffs, other OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
than the widow-beneficiary, for lack of cause of action.[3]
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-
The facts, as found by the Court of Appeals, are as follows: APPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN
THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS
A contract of group life insurance was executed between THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE
petitioner Great Pacific Life Assurance Corporation (hereinafter WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
Grepalife) and Development Bank of the Philippines APPELLANT.
(hereinafter DBP). Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP. 4. THE LOWER COURT ERRED IN - HOLDING THAT THERE
WAS NO CONCEALMENT OF MATERIAL INFORMATION ON THE
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR
a housing debtor of DBP applied for membership in the group MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
life insurance plan. In an application form, Dr. Leuterio BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM
answered questions concerning his health condition as follows: ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6]

7. Have you ever had, or consulted, a physician for a heart Synthesized below are the assigned errors for our resolution:
condition, high blood pressure, cancer, diabetes, lung, kidney
or stomach disorder or any other physical impairment? 1. Whether the Court of Appeals erred in holding petitioner
liable to DBP as beneficiary in a group life insurance contract
Answer: No. If so give details ___________. from a complaint filed by the widow of the
decedent/mortgagor?
8. Are you now, to the best of your knowledge, in good
health? 2. Whether the Court of Appeals erred in not finding that Dr.
Leuterio concealed that he had hypertension, which would
Answer: [ x ] Yes [ ] No.[4] vitiate the insurance contract?

On November 15, 1983, Grepalife issued Certificate No. B- 3. Whether the Court of Appeals erred in holding Grepalife
18558, as insurance coverage of Dr. Leuterio, to the extent of liable in the amount of eighty six thousand, two hundred
his DBP mortgage indebtedness amounting to eighty-six (P86,200.00) pesos without proof of the actual outstanding
thousand, two hundred (P86,200.00) pesos. mortgage payable by the mortgagor to DBP.

On August 6, 1984, Dr. Leuterio died due to massive cerebral Petitioner alleges that the complaint was instituted by the
hemorrhage. Consequently, DBP submitted a death claim to widow of Dr. Leuterio, not the real party in interest, hence the
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio trial court acquired no jurisdiction over the case. It argues
was not physically healthy when he applied for an insurance that when the Court of Appeals affirmed the trial courts
coverage on November 15, 1983. Grepalife insisted that Dr. judgment, Grepalife was held liable to pay the proceeds of
Leuterio did not disclose he had been suffering from insurance contract in favor of DBP, the indispensable party
hypertension, which caused his death. Allegedly, such non- who was not joined in the suit.
disclosure constituted concealment that justified the denial of
the claim. To resolve the issue, we must consider the insurable interest
in mortgaged properties and the parties to this type of
On October 20, 1986, the widow of the late Dr. Leuterio, contract. The rationale of a group insurance policy of
respondent Medarda V. Leuterio, filed a complaint with the mortgagors, otherwise known as the mortgage redemption
1
insurance, is a device for the protection of both the mortgagee an insurable interest or not, and such person may recover it
and the mortgagor. On the part of the mortgagee, it has to whatever the insured might have recovered,[14] the widow of
enter into such form of contract so that in the event of the the decedent Dr. Leuterio may file the suit against the insurer,
unexpected demise of the mortgagor during the subsistence of Grepalife.
the mortgage contract, the proceeds from such insurance will
be applied to the payment of the mortgage debt, thereby The second assigned error refers to an alleged concealment
relieving the heirs of the mortgagor from paying the that the petitioner interposed as its defense to annul the
obligation.[7] In a similar vein, ample protection is given to insurance contract. Petitioner contends that Dr. Leuterio failed
the mortgagor under such a concept so that in the event of to disclose that he had hypertension, which might have
death; the mortgage obligation will be extinguished by the caused his death. Concealment exists where the assured had
application of the insurance proceeds to the mortgage knowledge of a fact material to the risk, and honesty, good
indebtedness.[8] Consequently, where the mortgagor pays faith, and fair dealing requires that he should communicate it
the insurance premium under the group insurance policy, to the assured, but he designedly and intentionally withholds
making the loss payable to the mortgagee, the insurance is on the same.[15]
the mortgagors interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance, the Petitioner merely relied on the testimony of the attending
mortgagee is simply an appointee of the insurance fund, such physician, Dr. Hernando Mejia, as supported by the
loss-payable clause does not make the mortgagee a party to information given by the widow of the decedent. Grepalife
the contract.[9] asserts that Dr. Mejias technical diagnosis of the cause of
death of Dr. Leuterio was a duly documented hospital record,
Section 8 of the Insurance Code provides: and that the widows declaration that her husband had
possible hypertension several years ago should not be
Unless the policy provides, where a mortgagor of property considered as hearsay, but as part of res gestae.
effects insurance in his own name providing that the loss shall
be payable to the mortgagee, or assigns a policy of insurance On the contrary the medical findings were not conclusive
to a mortgagee, the insurance is deemed to be upon the because Dr. Mejia did not conduct an autopsy on the body of
interest of the mortgagor, who does not cease to be a party to the decedent. As the attending physician, Dr. Mejia stated
the original contract, and any act of his, prior to the loss, that he had no knowledge of Dr. Leuterios any previous
which would otherwise avoid the insurance, will have the hospital confinement.[16] Dr. Leuterios death certificate
same effect, although the property is in the hands of the stated that hypertension was only the possible cause of death.
mortgagee, but any act which, under the contract of The private respondents statement, as to the medical history
insurance, is to be performed by the mortgagor, may be of her husband, was due to her unreliable recollection of
performed by the mortgagee therein named, with the same events. Hence, the statement of the physician was properly
effect as if it had been performed by the mortgagor. considered by the trial court as hearsay.

The insured private respondent did not cede to the mortgagee The question of whether there was concealment was aptly
all his rights or interests in the insurance, the policy stating answered by the appellate court, thus:
that: In the event of the debtors death before his
indebtedness with the Creditor [DBP] shall have been fully The insured, Dr. Leuterio, had answered in his insurance
paid, an amount to pay the outstanding indebtedness shall application that he was in good health and that he had not
first be paid to the creditor and the balance of sum assured, if consulted a doctor or any of the enumerated ailments,
there is any, shall then be paid to the beneficiary/ies including hypertension; when he died the attending physician
designated by the debtor.[10] When DBP submitted the had certified in the death certificate that the former died of
insurance claim against petitioner, the latter denied payment cerebral hemorrhage, probably secondary to hypertension.
thereof, interposing the defense of concealment committed by From this report, the appellant insurance company refused to
the insured. Thereafter, DBP collected the debt from the pay the insurance claim. Appellant alleged that the insured
mortgagor and took the necessary action of foreclosure on the had concealed the fact that he had hypertension.
residential lot of private respondent.[11] In Gonzales La O vs.
Yek Tong Lin Fire & Marine Ins. Co.[12] we held: Contrary to appellants allegations, there was no sufficient
proof that the insured had suffered from hypertension. Aside
Insured, being the person with whom the contract was made, from the statement of the insureds widow who was not even
is primarily the proper person to bring suit thereon. * * * sure if the medicines taken by Dr. Leuterio were for
Subject to some exceptions, insured may thus sue, although hypertension, the appellant had not proven nor produced any
the policy is taken wholly or in part for the benefit of another witness who could attest to Dr. Leuterios medical history...
person named or unnamed, and although it is expressly made
payable to another as his interest may appear or otherwise. * xxx
* * Although a policy issued to a mortgagor is taken out for
the benefit of the mortgagee and is made payable to him, yet Appellant insurance company had failed to establish that there
the mortgagor may sue thereon in his own name, especially was concealment made by the insured, hence, it cannot refuse
where the mortgagees interest is less than the full amount payment of the claim.[17]
recoverable under the policy, * * *.
The fraudulent intent on the part of the insured must be
And in volume 33, page 82, of the same work, we read the established to entitle the insurer to rescind the contract.[18]
following: Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such
Insured may be regarded as the real party in interest, defense by satisfactory and convincing evidence rests upon
although he has assigned the policy for the purpose of the insurer.[19] In the case at bar, the petitioner failed to
collection, or has assigned as collateral security any judgment clearly and satisfactorily establish its defense, and is therefore
he may obtain.[13] liable to pay the proceeds of the insurance.

And since a policy of insurance upon life or health may pass And that brings us to the last point in the review of the case
by transfer, will or succession to any person, whether he has at bar. Petitioner claims that there was no evidence as to the
2
amount of Dr. Leuterios outstanding indebtedness to DBP at that Dr. Leuterio did not disclose he had been suffering from
the time of the mortgagors death. Hence, for private hypertension, which caused his death. Allegedly, such non-
respondents failure to establish the same, the action for disclosure constituted concealment that justified the denial of
specific performance should be dismissed. Petitioners claim is the claim.
without merit. A life insurance policy is a valued policy.[20] The widow, respondent Medarda V. Leuterio, filed against
Unless the interest of a person insured is susceptible of exact Grepalife.
The trial court rendered a decision in favor of respondent
pecuniary measurement, the measure of indemnity under a
widow and against Grepalife. The Court of Appeals sustained
policy of insurance upon life or health is the sum fixed in the
the trial courts decision.
policy.[21] The mortgagor paid the premium according to the
coverage of his insurance, which states that: Issues:
1. Whether the Court of Appeals erred in holding petitioner
The policy states that upon receipt of due proof of the Debtors liable to DBP as beneficiary in a group life insurance contract
death during the terms of this insurance, a death benefit in from a complaint filed by the widow of the
the amount of P86,200.00 shall be paid. decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr.
In the event of the debtors death before his indebtedness with Leuterio concealed that he had hypertension, which would
the creditor shall have been fully paid, an amount to pay the vitiate the insurance contract?
outstanding indebtedness shall first be paid to the Creditor 3. Whether the Court of Appeals erred in holding Grepalife
liable in the amount of eighty six thousand, two hundred
and the balance of the Sum Assured, if there is any shall then
(P86,200.00) pesos without proof of the actual outstanding
be paid to the beneficiary/ies designated by the debtor.[22]
mortgage payable by the mortgagor to DBP.
(Emphasis omitted)
Held: No to all three. Petition dismissed.
However, we noted that the Court of Appeals decision was
promulgated on May 17, 1993. In private respondents Ratio:
memorandum, she states that DBP foreclosed in 1995 their 1. Petitioner alleges that the complaint was instituted by the
residential lot, in satisfaction of mortgagors outstanding loan. widow of Dr. Leuterio, not the real party in interest, hence the
Considering this supervening event, the insurance proceeds trial court acquired no jurisdiction over the case. It argues
shall inure to the benefit of the heirs of the deceased person that when the Court of Appeals affirmed the trial courts
or his beneficiaries. Equity dictates that DBP should not judgment, Grepalife was held liable to pay the proceeds of
unjustly enrich itself at the expense of another (Nemo cum insurance contract in favor of DBP, the indispensable party
alterius detrimenio protest). Hence, it cannot collect the who was not joined in the suit.
The insured private respondent did not cede to the mortgagee
insurance proceeds, after it already foreclosed on the
all his rights or interests in the insurance, the policy stating
mortgage. The proceeds now rightly belong to Dr. Leuterios
that: In the event of the debtors death before his
heirs represented by his widow, herein private respondent indebtedness with the Creditor [DBP] shall have been fully
Medarda Leuterio. paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if
WHEREFORE, the petition is hereby DENIED. The Decision and there is any, shall then be paid to the beneficiary/ies
Resolution of the Court of Appeals in CA-G.R. CV 18341 is designated by the debtor. When DBPs claim was denied, it
AFFIRMED with MODIFICATION that the petitioner is collected the debt from the mortgagor and took the necessary
ORDERED to pay the insurance proceeds amounting to Eighty- action of foreclosure on the residential lot of private
six thousand, two hundred (P86,200.00) pesos to the heirs of respondent.
the insured, Dr. Wilfredo Leuterio (deceased), upon Gonzales vs. Yek Tong Lin- Insured, being the person with
presentation of proof of prior settlement of mortgagors whom the contract was made, is primarily the proper person
indebtedness to Development Bank of the Philippines. to bring suit thereon. Insured may thus sue, although the
policy is taken wholly or in part for the benefit of another
person named or unnamed, and although it is expressly made
payable to another as his interest may appear or
otherwise. Although a policy issued to a mortgagor is taken
out for the benefit of the mortgagee and is made payable to
him, yet the mortgagor may sue thereon in his own name,
especially where the mortgagees interest is less than the full
DIGEST amount recoverable under the policy. Insured may be
regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has
Great Pacific v CA G.R. No. 113899. October 13, 1999
assigned as collateral security any judgment he may obtain.
And since a policy of insurance upon life or health may pass
Facts: by transfer, will or succession to any person, whether he has
A contract of group life insurance was executed between an insurable interest or not, and such person may recover it
petitioner Great Pacific and Development Bank Grepalife whatever the insured might have recovered,[14] the widow of
agreed to insure the lives of eligible housing loan mortgagors the decedent Dr. Leuterio may file the suit against the insurer,
of DBP. Grepalife.
Wilfredo Leuterio, a physician and a housing debtor of DBP, 2. The medical findings were not conclusive because Dr. Mejia
applied for membership in the group life insurance plan. In an did not conduct an autopsy on the body of the decedent. The
application form, Dr. Leuterio answered questions concerning medical certificate stated that hypertension was the possible
his health condition as follows: cause of death. Hence, the statement of the physician was
7. Have you ever had, or consulted, a physician for a heart properly considered by the trial court as hearsay.
condition, high blood pressure, cancer, diabetes, lung, kidney Contrary to appellants allegations, there was no sufficient
or stomach disorder or any other physical impairment? proof that the insured had suffered from hypertension. Aside
8. Are you now, to the best of your knowledge, in good from the statement of the insureds widow who was not even
health? sure if the medicines taken by Dr. Leuterio were for
Grepalife issued a coverage to the value of P86,200.00 pesos. hypertension, the appellant had not proven nor produced any
Dr. Leuterio died due to massive cerebral hemorrhage. DBP witness who could attest to Dr. Leuterios medical history.
submitted a death claim to Grepalife. Grepalife denied the Appellant insurance company had failed to establish that there
claim alleging that Dr. Leuterio was not physically healthy was concealment made by the insured, hence, it cannot refuse
when he applied for an insurance coverage. Grepalife insisted payment of the claim.
3
The fraudulent intent on the part of the insured must be Eulogio paid the premiums due on 24 July 1997 and 24
established to entitle the insurer to rescind the contract. October 1997. However, he failed to pay the premium due on
Misrepresentation as a defense of the insurer to avoid liability 24 January 1998, even after the lapse of the grace period of
is an affirmative defense and the duty to establish such 31 days. Policy No. 9011992, therefore, lapsed and became
defense by satisfactory and convincing evidence rests upon void.
the insurer.
3. A life insurance policy is a valued policy. Unless the interest
Eulogio submitted to the Cabanatuan District Office of Insular
of a person insured is susceptible of exact pecuniary
Life, through Malaluan, on 26 May 1998, an Application for
measurement, the measure of indemnity under a policy of
Reinstatement9 of Policy No. 9011992, together with the
insurance upon life or health is the sum fixed in the policy.
amount of P8,062.00 to pay for the premium due on 24
The mortgagor paid the premium according to the coverage of
January 1998. In a letter10 dated 17 July 1998, Insular Life
his insurance.
notified Eulogio that his Application for Reinstatement could
In the event of the debtors death before his indebtedness
not be fully processed because, although he already deposited
with the creditor shall have been fully paid, an amount to pay
P8,062.00 as payment for the 24 January 1998 premium, he
the outstanding indebtedness shall first be paid to the
left unpaid the overdue interest thereon amounting to
creditor.
P322.48. Thus, Insular Life instructed Eulogio to pay the
DBP foreclosed one of the deceased persons lots to satisfy the
amount of interest and to file another application for
mortgage. Hence, the insurance proceeds shall inure to the
reinstatement. Eulogio was likewise advised by Malaluan to
benefit of the heirs of the deceased person or his
pay the premiums that subsequently became due on 24 April
beneficiaries.
1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluans house and

FT-G.R. No. 183526 August 25, 2009 submitted a second Application for Reinstatement11 of Policy
No. 9011992, including the amount of P17,500.00,
VIOLETA R. LALICAN, Petitioner, representing payments for the overdue interest on the
vs. premium for 24 January 1998, and the premiums which
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS became due on 24 April 1998 and 24 July 1998. As Malaluan
REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, was away on a business errand, her husband received
Respondent. Eulogios second Application for Reinstatement and issued a
receipt for the amount Eulogio deposited.
DECISION
A while later, on the same day, 17 September 1998, Eulogio
died of cardio-respiratory arrest secondary to electrocution.
CHICO-NAZARIO, J.:

Without knowing of Eulogios death, Malaluan forwarded to the

Challenged in this Petition for Review on Certiorari1 under Rule
Insular Life Regional Office in the City of San Fernando, on 18
45 of the Rules of Court are the Decision2 dated 30 August
September 1998, Eulogios second Application for
2007 and the Orders dated 10 April 20083 and 3 July 20084 of
Reinstatement of Policy No. 9011992 and P17,500.00 deposit.
the Regional Trial Court (RTC) of Gapan City, Branch 34, in
However, Insular Life no longer acted upon Eulogios second
Civil Case No. 2177. In its assailed Decision, the RTC
Application for Reinstatement, as the former was informed on
dismissed the claim for death benefits filed by petitioner
21 September 1998 that Eulogio had already passed away.
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, On 28 September 1998, Violeta filed with Insular Life a claim
respectively, the RTC declared the finality of the aforesaid for payment of the full proceeds of Policy No. 9011992.
Decision and denied petitioners Notice of Appeal.
In a letter12 dated 14 January 1999, Insular Life informed
The factual and procedural antecedents of the case, as culled Violeta that her claim could not be granted since, at the time
from the records, are as follows: of Eulogios 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
Violeta is the widow of the deceased Eulogio C. Lalican
considered reinstated upon approval of the application by
(Eulogio).
Insular Life during the applicants "lifetime and good health,"
and whatever amount the applicant paid in connection thereto
During his lifetime, Eulogio applied for an insurance policy was considered to be a deposit only until approval of said
with Insular Life. On 24 April 1997, Insular Life, through application. Enclosed with the 14 January 1999 letter of
Josephine Malaluan (Malaluan), its agent in Gapan City, issued Insular Life to Violeta was DBP Check No. 0000309734, for
in favor of Eulogio Policy No. 9011992,5 which contained a 20- the amount of P25,417.00, drawn in Violetas favor,
Year Endowment Variable Income Package Flexi Plan worth representing the full refund of the payments made by Eulogio
P500,000.00,6 with two riders valued at P500,000.00 each.7 on Policy No. 9011992.
Thus, the value of the policy amounted to P1,500,000.00.
Violeta was named as the primary beneficiary.
On 12 February 1998, Violeta requested a reconsideration of
the disallowance of her claim. In a letter13 dated 10 March
Under the terms of Policy No. 9011992, Eulogio was to pay 1999, Insular Life stated that it could not find any reason to
the premiums on a quarterly basis in the amount of reconsider its decision rejecting Violetas claim. Insular Life
P8,062.00, payable every 24 April, 24 July, 24 October and 24 again tendered to Violeta the above-mentioned check in the
January of each year, until the end of the 20-year period of amount of P25,417.00.
the policy. According to the Policy Contract, there was a grace
period of 31 days for the payment of each premium
Violeta returned the letter dated 10 March 1999 and the check
subsequent to the first. If any premium was not paid on or
enclosed therein to the Cabanatuan District Office of Insular
before the due date, the policy would be in default, and if the
Life. Violetas counsel subsequently sent a letter14 dated 8 July
premium remained unpaid until the end of the grace period,
1999 to Insular Life, demanding payment of the full proceeds
the policy would automatically lapse and become void.8
of Policy No. 9011992. On 11 August 1999, Insular Life
responded to the said demand letter by agreeing to conduct a
re-evaluation of Violetas claim.
4
Without waiting for the result of the re-evaluation by Insular In the instant case, the dispute arises from the afore-quoted
Life, Violeta filed with the RTC, on 11 October 1999, a provisions written on the face of the second application for
Complaint for Death Claim Benefit,15 which was docketed as reinstatement. Examining the said provisions, the court finds
Civil Case No. 2177. Violeta alleged that Insular Life engaged the same clearly written in terms that are simple enough to
in unfair claim settlement practice and deliberately failed to admit of only one interpretation. They are clearly not
act with reasonable promptness on her insurance claim. ambiguous, equivocal or uncertain that would need further
Violeta prayed that Insular Life be ordered to pay her death construction. The same are written on the very face of the
claim benefits on Policy No. 9011992, in the amount of application just above the space where [Eulogio] signed his
P1,500,000.00, plus interests, attorneys fees, and cost of name. It is inconceivable that he signed it without reading and
suit. understanding its import.1avvphi1

Insular Life filed with the RTC an Answer with Counterclaim,16 Similarly, the provisions of the policy provisions (sic) earlier
asserting that Violetas Complaint had no legal or factual mentioned are written in simple and clear laymans language,
bases. Insular Life maintained that Policy No. 9011992, on rendering it free from any ambiguity that would require a legal
which Violeta sought to recover, was rendered void by the interpretation or construction. Thus, the court believes that
non-payment of the 24 January 1998 premium and non- [Eulogio] was well aware that when he filed the said
compliance with the requirements for the reinstatement of the application for reinstatement, his lapsed policy was not
same. By way of counterclaim, Insular Life prayed that Violeta automatically reinstated and that its approval was subject to
be ordered to pay attorneys fees and expenses of litigation certain conditions. Nowhere in the policy or in the application
incurred by the former. 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
Violeta, in her Reply and Answer to Counterclaim, asserted
clearly stated in the application for reinstatement is that
that the requirements for the reinstatement of Policy No.
pending approval thereof, the premiums paid would be treated
9011992 had been complied with and the defenses put up by
as a "deposit only and shall not bind the company until this
Insular Life were purely invented and illusory.
application is finally approved during my/our" lifetime and
good health[.]"
After trial, the RTC rendered, on 30 August 2007, a Decision
in favor of Insular Life.
Again, the court finds nothing in the aforesaid provisions that
would even suggest an ambiguity either in the words used or
The RTC found that Policy No. 9011992 had indeed lapsed and in the manner they were written. [Violeta] did not present any
Eulogio needed to have the same reinstated: proof that [Eulogio] was not conversant with the English
language. Hence, his having personally signed the application
[The] arguments [of Insular Life] are not without basis. When for reinstatement[,] which consisted only of one page, could
the premiums for April 24 and July 24, 1998 were not paid by only mean that he has read its contents and that he
[Eulogio] even after the lapse of the 31-day grace period, his understood them. x x x
insurance policy necessarily lapsed. This is clear from the
terms and conditions of the contract between [Insular Life] Therefore, consistent with the above Supreme Court ruling
and [Eulogio] which are written in [the] Policy provisions of and finding no ambiguity both in the policy provisions of Policy
Policy No. 9011992 x x x.17 No. 9011992 and in the application for reinstatement subject
of this case, the court finds no merit in [Violetas] contention
The RTC, taking into account the clear provisions of the Policy that the policy provision stating that [the lapsed policy of
Contract between Eulogio and Insular Life and the Application Eulogio] should be reinstated during his lifetime is ambiguous
for Reinstatement Eulogio subsequently signed and submitted and should be construed in his favor. It is true that [Eulogio]
to Insular Life, held that Eulogio was not able to fully comply submitted his application for reinstatement, together with his
with the requirements for the reinstatement of Policy No. premium and interest payments, to [Insular Life] through its
9011992: 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
The well-settled rule is that a contract has the force of law that Ms. Malaluan brought the said document to [the regional
between the parties. In the instant case, the terms of the office of Insular Life] in San Fernando, Pampanga for
insurance contract between [Eulogio] and [Insular Life] were approval. As correctly pointed out by [Insular Life] there was
spelled out in the policy provisions of Insurance Policy No. no more application to approve because the applicant was
9011992. There is likewise no dispute that said insurance already dead and no insurance company would issue an
contract is by nature a contract of adhesion[,] which is defined insurance policy to a dead person.18 (Emphases ours.)
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 The RTC, in the end, explained that:
SCRA 247).
While the court truly empathizes with the [Violeta] for the loss
xxxx 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 [Eulogios]
The New Lexicon Websters Dictionary defines ambiguity as payment of overdue premiums and interest was received by
the "quality of having more than one meaning" and "an idea, [Insular Life] through its agent Ms. Malaluan. It is also true
statement or expression capable of being understood in more that [the] application for reinstatement was filed by [Eulogio]
than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 a day before his death. However, there is nothing that would
(1994), the Supreme Court stated that[:] justify a conclusion that such receipt amounted to an
automatic reinstatement of the policy that has already lapsed.
"Any ambiguity in a contract, whose terms are susceptible of The evidence suggests clearly that no such automatic renewal
different interpretations as a result thereby, must be read and was contemplated in the contract between [Eulogio] and
construed against the party who drafted it on the assumption [Insular Life]. Neither was it shown that Ms. Malaluan was the
that it could have been avoided by the exercise of a little officer authorized to approve the application for reinstatement
care." and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.19 (Emphasis ours.)

5
The fallo of the RTC Decision thus reads: 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,
WHEREFORE, all the foregoing premises considered and
which provides:
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 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 14 September 2007, Violeta filed a Motion for
Reconsideration21 of the afore-mentioned RTC Decision.
Insular Life opposed22 the said motion, averring that the On the basis thereof, Violeta argues that Eulogio still had
arguments raised therein were merely a rehash of the issues insurable interest in his own life when he reinstated Policy No.
already considered and addressed by the RTC. In an Order23 9011992 just before he passed away on 17 September 1998.
dated 8 November 2007, the RTC denied Violetas Motion for The RTC should have construed the provisions of the Policy
Reconsideration, finding no cogent and compelling reason to Contract and Application for Reinstatement in favor of the
disturb its earlier findings. Per the Registry Return Receipt on insured Eulogio and against the insurer Insular Life, and
record, the 8 November 2007 Order of the RTC was received considered the special circumstances of the case, to rule that
by Violeta on 3 December 2007. 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
In the interim, on 22 November 2007, Violeta filed with the
beneficiary thereof.
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 The Petition lacks merit.
already receiving on 3 December 2007, a copy of the RTC
Order dated 8 November 2007, which denied her Motion for
At the outset, the Court notes that the elevation of the case to
Reconsideration, Violeta still filed with the RTC, on 26
us via the instant Petition for Review on Certiorari is not
February 2008, a Reply Extended Discussion elaborating on
justified. Rule 41, Section 1 of the Rules of Court,28 provides
the arguments she had previously made in her Motion for
that no appeal may be taken from an order disallowing or
Reconsideration and Reply.
dismissing an appeal. In such a case, the aggrieved party may
file a Petition for Certiorari under Rule 65 of the Rules of
On 10 April 2008, the RTC issued an Order,25 declaring that Court.29
the Decision dated 30 August 2007 in Civil Case No. 2177 had
already attained finality in view of Violetas failure to file the
Furthermore, the RTC Decision dated 30 August 2007,
appropriate notice of appeal within the reglementary period.
assailed in this Petition, had long become final and executory.
Thus, any further discussions on the issues raised by Violeta
Violeta filed a Motion for Reconsideration thereof, but the RTC
in her Reply and Reply Extended Discussion would be moot
denied the same in an Order dated 8 November 2007. The
and academic.
records of the case reveal that Violeta received a copy of the 8
November 2007 Order on 3 December 2007. Thus, Violeta had
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal 15 days30 from said date of receipt, or until 18 December
with Motion,26 praying that the Order dated 10 April 2008 be 2007, to file a Notice of Appeal. Violeta filed a Notice of
set aside and that she be allowed to file an appeal with the Appeal only on 20 May 2008, more than five months after
Court of Appeals. receipt of the RTC Order dated 8 November 2007 denying her
Motion for Reconsideration.
In an Order27 dated 3 July 2008, the RTC denied Violetas
Notice of Appeal with Motion given that the Decision dated 30 Violetas claim that her former counsels failure to file the
August 2007 had long since attained finality. proper remedy within the reglementary period was an honest
mistake, attributable to the latters deteriorating health, is
unpersuasive.
Violeta directly elevated her case to this Court via the instant
Petition for Review on Certiorari, raising the following issues
for consideration: Violeta merely made a general averment of her former
counsels poor health, lacking relevant details and supporting
evidence. By Violetas own admission, her former counsels
1. Whether or not the Decision of the court a quo
health rapidly deteriorated only by the first week of July 2008.
dated August 30, 2007, can still be reviewed despite
The events pertinent to Violetas Notice of Appeal took place
having allegedly attained finality and despite the fact
months before July 2008, i.e., a copy of the RTC Order dated
that the mode of appeal that has been availed of by
8 November 2007, denying Violetas Motion for
Violeta is erroneous?
Reconsideration of the Decision dated 30 August 2007, was
received on 3 December 2007; and Violetas Notice of Appeal
2. Whether or not the Regional Trial Court in its was filed on 20 May 2008. There is utter lack of proof to show
original jurisdiction has decided the case on a that Violetas former counsel was already suffering from ill
question of law not in accord with law and applicable health during these times; or that the illness of Violetas
decisions of the Supreme Court? former counsel would have affected his judgment and
competence as a lawyer.
Violeta insists that her former counsel committed an honest
mistake in filing a Reply, instead of a Notice of Appeal of the Moreover, the failure of her former counsel to file a Notice of
RTC Decision dated 30 August 2007; and in the computation Appeal within the reglementary period binds Violeta, which
of the reglementary period for appealing the said judgment. failure the latter cannot now disown on the basis of her bare
Violeta claims that her former counsel suffered from poor allegation and self-serving pronouncement that the former
health, which rapidly deteriorated from the first week of July was ill. A client is bound by his counsels mistakes and
2008 until the latters death just shortly after the filing of the negligence.31
instant Petition on 8 August 2008. In light of these
circumstances, Violeta entreats this Court to admit and give
The Court, therefore, finds no reversible error on the part of
due course to her appeal even if the same was filed out of
the RTC in denying Violetas Notice of Appeal for being filed
time.
beyond the reglementary period. Without an appeal having

6
been timely filed, the RTC Decision dated 30 August 2007 in P8,062.00 overdue premium for 24 January 1998, but not the
Civil Case No. 2177 already became final and executory. P322.48 overdue interests thereon. On 17 September 1998,
Eulogio submitted a second Application for Reinstatement to
Insular Life, again through Malaluan, depositing at the same
A judgment becomes "final and executory" by operation of
time P17,500.00, to cover payment for the overdue interest
law. Finality becomes a fact when the reglementary period to
on the premium for 24 January 1998, and the premiums that
appeal lapses and no appeal is perfected within such period.
had also become due on 24 April 1998 and 24 July 1998. On
As a consequence, no court (not even this Court) can exercise
the very same day, Eulogio passed away.
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 To reinstate a policy means to restore the same to premium-
modified in any respect either by the court, which rendered it paying status after it has been permitted to lapse.39 Both the
or even by this Court. The doctrine is founded on Policy Contract and the Application for Reinstatement provide
considerations of public policy and sound practice that, at the for specific conditions for the reinstatement of a lapsed policy.
risk of occasional errors, judgments must become final at
some definite point in time.33
The Policy Contract between Eulogio and Insular Life identified
the following conditions for reinstatement should the policy
The only recognized exceptions to the doctrine of immutability lapse:
and unalterability are the correction of clerical errors, the so-
called nunc pro tunc entries, which cause no prejudice to any
10. REINSTATEMENT
party, and void judgments.34 The instant case does not fall
under any of these exceptions.
You may reinstate this policy at any time within three years
after it lapsed if the following conditions are met: (1) the
Even if the Court ignores the procedural lapses committed
policy has not been surrendered for its cash value or the
herein, and proceeds to resolve the substantive issues raised,
period of extension as a term insurance has not expired; (2)
the Petition must still fail.
evidence of insurability satisfactory to [Insular Life] is
furnished; (3) overdue premiums are paid with compound
Violeta makes it appear that her present Petition involves a interest at a rate not exceeding that which would have been
question of law, particularly, whether Eulogio had an existing applicable to said premium and indebtedness in the policy
insurable interest in his own life until the day of his death. years prior to reinstatement; and (4) indebtedness which
existed at the time of lapsation is paid or renewed.40
An insurable interest is one of the most basic and essential
requirements in an insurance contract. In general, an Additional conditions for reinstatement of a lapsed policy were
insurable interest is that interest which a person is deemed to stated in the Application for Reinstatement which Eulogio
have in the subject matter insured, where he has a relation or signed and submitted, to wit:
connection with or concern in it, such that the person will
derive pecuniary benefit or advantage from the preservation
I/We agree that said Policy shall not be considered reinstated
of the subject matter insured and will suffer pecuniary loss or
until this application is approved by the Company during
damage from its destruction, termination, or injury by the
my/our lifetime and good health and until all other Company
happening of the event insured against.35 The existence of an
requirements for the reinstatement of said Policy are fully
insurable interest gives a person the legal right to insure the
satisfied.
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 I/We further agree that any payment made or to be made in
code also states that an interest in the life or health of a connection with this application shall be considered as deposit
person insured must exist when the insurance takes effect, only and shall not bind the Company until this application is
but need not exist thereafter or when the loss occurs.38 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
Upon more extensive study of the Petition, it becomes evident
herewith, without interest, and to surrender the receipts for
that the matter of insurable interest is entirely irrelevant in
such payment.41 (Emphases ours.)
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 In the instant case, Eulogios death rendered impossible full
point of contention herein is whether Eulogio was able to compliance with the conditions for reinstatement of Policy No.
reinstate the lapsed insurance policy on his life before his 9011992. True, Eulogio, before his death, managed to file his
death on 17 September 1998. 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
The Court rules in the negative.
reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogios
Before proceeding, the Court must correct the erroneous lifetime and good health.
declaration of the RTC in its 30 August 2007 Decision that
Policy No. 9011992 lapsed because of Eulogios non-payment
Relevant herein is the following pronouncement of the Court
of the premiums which became due on 24 April 1998 and 24
in Andres v. The Crown Life Insurance Company,42 citing
July 1998. Policy No. 9011992 had lapsed and become void
McGuire v. The Manufacturer's Life Insurance Co.43:
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. "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
That Policy No. 9011992 had already lapsed is a fact beyond
mere filing of an application. The insurer has the right to deny
dispute. Eulogios filing of his first Application for
the reinstatement if it is not satisfied as to the insurability of
Reinstatement with Insular Life, through Malaluan, on 26 May
the insured and if the latter does not pay all overdue premium
1998, constitutes an admission that Policy No. 9011992 had
and all other indebtedness to the insurer. After the death of
lapsed by then. Insular Life did not act on Eulogios first
the insured the insurance Company cannot be compelled to
Application for Reinstatement, since the amount Eulogio
entertain an application for reinstatement of the policy
simultaneously deposited was sufficient to cover only the
7
because the conditions precedent to reinstatement can no 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in
longer be determined and satisfied." (Emphases ours.) Civil Case No. 2177, denying petitioner Violeta R. Lalicans
Notice of Appeal, on the ground that the Decision dated 30
August 2007 subject thereof, was already final and executory.
It does not matter that when he died, Eulogios Application for
No costs.
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 SO ORDERED.
insurance agents, thus:
DIGEST G.R. No. 183526 Case Digest
Our agents have no authority to make or modify this contract, G.R. No. 183526, August 25, 2009
to extend the time limit for payment of premiums, to waive Violeta Lalican
any lapsation, forfeiture or any of our rights or requirements, vs The Insular Life Insurance Company
such powers being limited to our president, vice-president or Ponente: Chico-Nazario
persons authorized by the Board of Trustees and only in
writing.44 (Emphasis ours.) Facts:
Violeta is the widow of the Eulogio Lalican. During his lifetime,
Malaluan did not have the authority to approve Eulogios Eulogio applied for an insurance policy with Insular Life on April
Application for Reinstatement. Malaluan still had to turn over 24, 1997 which contained a 20-year endowment variable
to Insular Life Eulogios Application for Reinstatement and income package flexi plan worth P500k with two riders worth
accompanying deposits, for processing and approval by the P500k each. Violeta was named the primary beneficiary.
latter.
Under the terms, Eulogio was to pay premiums on a quarterly
basin in the amount of P8,062 with a grace period of 31 days
The Court agrees with the RTC that the conditions for for the payment of each premium subsequent to the first. If any
reinstatement under the Policy Contract and Application for premium was not paid on or before the due date, the policy
Reinstatement were written in clear and simple language, would be in default, and if the premium remained unpaid until
which could not admit of any meaning or interpretation other the end of the grace period, the policy would automatically
than those that they so obviously embody. A construction in lapse and become void.
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 Eulogio paid the premiums, however he failed to pay the
clear, unequivocal, and simple enough so as to preclude any premium due on January 24, 1998, even after the lapse of the
mistake in the appreciation of the same. grace period of 31 days. Therefore, lapsed and become void.
Eulogio submitted to the Cabanatuan District Office of Insular
Violeta did not adduce any evidence that Eulogio might have Life an application for reinstatement together with the payment
failed to fully understand the import and meaning of the of the premium due on January 24. Insular Life notified Eulogio
provisions of his Policy Contract and/or Application for that his application for reinstatement could not be fully
Reinstatement, both of which he voluntarily signed. While it is processed because of the unpaid interest thereon. Eulogio was
a cardinal principle of insurance law that a policy or contract likewise advised by Malaluan (insurance agent) to pay the
of insurance is to be construed liberally in favor of the insured premiums that subsequently became due April 1998 and July
and strictly as against the insurer company, yet, contracts of 1998, plus interest.
insurance, like other contracts, are to be construed according
to the sense and meaning of the terms, which the parties September 17, 1998. Eulogio went to Malaluan's house and
themselves have used. If such terms are clear and paid for the interest which was received by Malaluan's husband.
unambiguous, they must be taken and understood in their Later that day, Eulogio died. Without the knowledge of Eulogio's
plain, ordinary and popular sense.45 death, Malaluan forwarded to the Insular Life the application for
reinstatement and the payment made by Eulogio. However,
Insular Life did not act upon such reinstatement for they knew
Eulogios death, just hours after filing his Application for already of Eulogio's death.
Reinstatement and depositing his payment for overdue
premiums and interests with Malaluan, does not constitute a September 28, 1998, Violeta filed for the insurance claim.
special circumstance that can persuade this Court to already Insular Life then informed Violeta in a letter that her claim could
consider Policy No. 9011992 reinstated. Said circumstance not be processed because the insurance policy had lapsed
cannot override the clear and express provisions of the Policy already and that Eulogio failed to reinstate the same and the
Contract and Application for Reinstatement, and operate to payment made done thru Malaluan's husband was, under the
remove the prerogative of Insular Life thereunder to approve insurance policy, was considered a deposit only until approval
or disapprove the Application for Reinstatement. Even though of the said application. Enclosed to this letter was a check
the Court commiserates with Violeta, as the tragic and fateful representing the full refund of the past payments made by
turn of events leaves her practically empty-handed, the Court Eulogio, amounting to P25,417.
cannot arbitrarily burden Insular Life with the payment of
proceeds on a lapsed insurance policy. Justice and fairness Violeta requested for a reconsideration of her claim and
must equally apply to all parties to a case. Courts are not returned the check to Insular Life. Insular Life agreed to
permitted to make contracts for the parties. The function and conduct a re-evaluation of Violeta's claim. Without waiting for
duty of the courts consist simply in enforcing and carrying out the result of the re-evaluation, Violeta filed with the RTC a
the contracts actually made.46 complaint for death claim benefit alleging the Insular Life was
engaged in unfair claim settlement practice and deliberately
Policy No. 9011992 remained lapsed and void, not having failed to act with reasonable promptness on her insurance
been reinstated in accordance with the Policy Contract and claim. Violeta claims for the P1.5M insurance, plus interest,
Application for Reinstatement before Eulogios death. Violeta, attorney's fees and cost of suit.
therefore, cannot claim any death benefits from Insular Life
on the basis of Policy No. 9011992; but she is entitled to Insular Life filed with the RTC an answer with counterclaim
receive the full refund of the payments made by Eulogio saying that the insurance claim was rendered void due to non-
thereon. payment of the premium and countered that Violeta should be
ordered to pay attorney's fees and expenses of litigation
incurred by Insular Life.
WHEREFORE, premises considered, the Court DENIES the
instant Petition for Review on Certiorari under Rule 45 of the
RTC declared that Violeta failed to establish by preponderance
Rules of Court. The Court AFFIRMS the Orders dated 10 April
of evidence her cause of action against the defendant. Violeta
8
failed to establish that the receipt of payment by Malaluan Pascuala Vda. de Ebrado also filed her claim as the widow of
amounted to the reinstatement of the insurance policy. Violeta the deceased insured. She asserts that she is the one entitled
filed for motion for reconsideration but was denied as well; to the insurance proceeds, not the common-law wife,
hence she elevated her case for review on Certiorari. Carponia T. Ebrado.

Issues: (a) Whether the decision of the court can still be

In doubt as to whom the insurance proceeds shall be paid, the
reviewed despite having allegedly attained finality and despite
insurer, The Insular Life Assurance Co., Ltd. commenced an
the mode of appeal of Violeta erroneous. (b) Whether the RTC
action for Interpleader before the Court of First Instance of
has decided the case on a question of law not in accord with
Rizal on April 29, 1970.
law and applicable decisions of the Supreme Court.

Ruling: After the issues have been joined, a pre-trial conference was
Petition lacks merit. held on July 8, 1972, after which, a pre-trial order was
entered reading as follows: +.wph!1
RTC's decision has long acquired finality for Violeta failed to file
a notice of appeal more than five months after the decision was During the pre-trial conference, the parties manifested
rendered. to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the
As to the substantial claim of whether there is insurable parties submit their evidence for the purpose of the pre-
interest, the Court says that the matter of insurable interest is trial and make admissions for the purpose of pretrial.
entirely irrelevant and the real point of contention herein is During this conference, parties Carponia T. Ebrado and
whether Eulogio was able to reinstate the lapsed insurance Pascuala Ebrado agreed and stipulated: 1) that the
policy on his life before his death. deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six (legitimate) namely;
Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
The Court rules in the negative, for the insurance policy is clear all surnamed Ebrado; 2) that during the lifetime of the
on the procedure of the reinstatement of the insurance deceased, he was insured with Insular Life Assurance
contract, of which Eulogio has failed to accomplish before his Co. Under Policy No. 009929 whole life plan, dated
death. As provided by the policy, insurance shall be deemed September 1, 1968 for the sum of P5,882.00 with the
reinstated upon the approval of the insurance policy of the rider for accidental death benefit as evidenced by
application for reinstatement. The approval should be made Exhibits A for plaintiffs and Exhibit 1 for the defendant
during the lifetime of the insured, in the case at bar, it wasnt. Pascuala and Exhibit 7 for Carponia Ebrado; 3) that
during the lifetime of Buenaventura Ebrado, he was
living with his common-wife, Carponia Ebrado, with
FT-G.R. No. L-44059 October 28, 1977 whom she had 2 children although he was not legally
separated from his legal wife; 4) that Buenaventura in
accident on October 21, 1969 as evidenced by the death
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Exhibit 3 and affidavit of the police report of his death
plaintiff-appellee, Exhibit 5; 5) that complainant Carponia Ebrado filed
vs. claim with the Insular Life Assurance Co. which was
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, contested by Pascuala Ebrado who also filed claim for
defendants-appellants. the proceeds of said policy 6) that in view ofthe adverse
claims the insurance company filed this action against
the two herein claimants Carponia and Pascuala Ebrado;
7) that there is now due from the Insular Life Assurance
Co. as proceeds of the policy P11,745.73; 8) that the
MARTIN, J.:
beneficiary designated by the insured in the policy is
Carponia Ebrado and the insured made reservation to
This is a novel question in insurance law: Can a common-law change the beneficiary but although the insured made
wife named as beneficiary in the life insurance policy of a the option to change the beneficiary, same was never
legally married man claim the proceeds thereof in case of changed up to the time of his death and the wife did not
death of the latter? have any opportunity to write the company that there
was reservation to change the designation of the parties
On September 1, 1968, Buenaventura Cristor Ebrado was agreed that a decision be rendered based on and
issued by The Life Assurance Co., Ltd., Policy No. 009929 on a stipulation of facts as to who among the two claimants is
whole-life for P5,882.00 with a, rider for Accidental Death for entitled to the policy.
the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as Upon motion of the parties, they are given ten (10) days
his wife. to file their simultaneous memoranda from the receipt of
this order.
On October 21, 1969, Buenaventura C. Ebrado died as a
result of an t when he was hit by a failing branch of a tree. As SO ORDERED.
the policy was in force, The Insular Life Assurance Co., Ltd.
liable to pay the coverage in the total amount of P11,745.73,
On September 25, 1972, the trial court rendered judgment
representing the face value of the policy in the amount of
declaring among others, Carponia T. Ebrado disqualified from
P5,882.00 plus the additional benefits for accidental death
becoming beneficiary of the insured Buenaventura Cristor
also in the amount of P5,882.00 and the refund of P18.00 paid
Ebrado and directing the payment of the insurance proceeds
for the premium due November, 1969, minus the unpaid
to the estate of the deceased insured. The trial court held:
premiums and interest thereon due for January and February,
+.wph!1
1969, in the sum of P36.27.

It is patent from the last paragraph of Art. 739 of the

Carponia T. Ebrado filed with the insurer a claim for the
Civil Code that a criminal conviction for adultery or
proceeds of the Policy as the designated beneficiary therein,
concubinage is not essential in order to establish the
although she admits that she and the insured Buenaventura
disqualification mentioned therein. Neither is it also
C. Ebrado were merely living as husband and wife without the
necessary that a finding of such guilt or commission of
benefit of marriage.
those acts be made in a separate independent action
9
 brought for the purpose. The guilt of the donee may be proved by preponderance of evidence in the
(beneficiary) may be proved by preponderance of same action.
evidence in the same proceeding (the action brought to
declare the nullity of the donation).
2. In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are
It is, however, essential that such adultery or founded upon the same consideration: liberality. A beneficiary
concubinage exists at the time defendant Carponia T. is like a donee, because from the premiums of the policy
Ebrado was made beneficiary in the policy in question which the insured pays out of liberality, the beneficiary will
for the disqualification and incapacity to exist and receive the proceeds or profits of said insurance. As a
that it is only necessary that such fact be established consequence, the proscription in Article 739 of the new Civil
by preponderance of evidence in the trial. Since it is Code should equally operate in life insurance contracts. The
agreed in their stipulation above-quoted that the mandate of Article 2012 cannot be laid aside: any person who
deceased insured and defendant Carponia T. Ebrado cannot receive a donation cannot be named as beneficiary in
were living together as husband and wife without the life insurance policy of the person who cannot make the
being legally married and that the marriage of the donation. 5 Under American law, a policy of life insurance is
insured with the other defendant Pascuala Vda. de considered as a testament and in construing it, the courts will,
Ebrado was valid and still existing at the time the so far as possible treat it as a will and determine the effect of
insurance in question was purchased there is no a clause designating the beneficiary by rules under which wins
question that defendant Carponia T. Ebrado is are interpreted. 6
disqualified from becoming the beneficiary of the
policy in question and as such she is not entitled to
3. Policy considerations and dictates of morality rightly justify
the proceeds of the insurance upon the death of the
the institution of a barrier between common law spouses in
insured.
record to Property relations since such hip ultimately
encroaches upon the nuptial and filial rights of the legitimate
From this judgment, Carponia T. Ebrado appealed to the Court family There is every reason to hold that the bar in donations
of Appeals, but on July 11, 1976, the Appellate Court certified between legitimate spouses and those between illegitimate
the case to Us as involving only questions of law. ones should be enforced in life insurance policies since the
same are based on similar consideration As above pointed
out, a beneficiary in a fife insurance policy is no different from
We affirm the judgment of the lower court.
a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and
1. It is quite unfortunate that the Insurance Act (RA 2327, as morality dictate that the impediments imposed upon married
amended) or even the new Insurance Code (PD No. 612, as couple should likewise be imposed upon extra-marital
amended) does not contain any specific provision grossly relationship. If legitimate relationship is circumscribed by
resolutory of the prime question at hand. Section 50 of the these legal disabilities, with more reason should an illicit
Insurance Act which provides that "(t)he insurance shag be relationship be restricted by these disabilities. Thus, in
applied exclusively to the proper interest of the person in Matabuena v. Cervantes, 7 this Court, through Justice
whose name it is made" 1 cannot be validly seized upon to Fernando, said: +.wph!1
hold that the mm includes the beneficiary. The word "interest"
highly suggests that the provision refers only to the "insured"
If the policy of the law is, in the language of the
and not to the beneficiary, since a contract of insurance is
opinion of the then Justice J.B.L. Reyes of that court
personal in character. 2 Otherwise, the prohibitory laws
(Court of Appeals), 'to prohibit donations in favor of
against illicit relationships especially on property and descent
the other consort and his descendants because of
will be rendered nugatory, as the same could easily be
and undue and improper pressure and influence upon
circumvented by modes of insurance. Rather, the general
the donor, a prejudice deeply rooted in our ancient
rules of civil law should be applied to resolve this void in the
law;" por-que no se enganen desponjandose el uno al
Insurance Law. Article 2011 of the New Civil Code states:
otro por amor que han de consuno' (According to)
"The contract of insurance is governed by special laws.
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the
Matters not expressly provided for in such special laws shall
rationale 'No Mutuato amore invicem spoliarentur'
be regulated by this Code." When not otherwise specifically
the Pandects (Bk, 24, Titl. 1, De donat, inter virum et
provided for by the Insurance Law, the contract of life
uxorem); then there is very reason to apply the
insurance is governed by the general rules of the civil law
same prohibitive policy to persons living together as
regulating contracts. 3 And under Article 2012 of the same
husband and wife without the benefit of nuptials. For
Code, "any person who is forbidden from receiving any
it is not to be doubted that assent to such irregular
donation under Article 739 cannot be named beneficiary of a
connection for thirty years bespeaks greater
fife insurance policy by the person who cannot make a
influence of one party over the other, so that the
donation to him. 4 Common-law spouses are, definitely,
danger that the law seeks to avoid is correspondingly
barred from receiving donations from each other. Article 739
increased. Moreover, as already pointed out by
of the new Civil Code provides: +.wph!1
Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not
be just that such donations should subsist, lest the
The following donations shall be void: condition 6f those who incurred guilt should turn out
to be better.' So long as marriage remains the
1. Those made between persons who were guilty of cornerstone of our family law, reason and morality
adultery or concubinage at the time of donation; alike demand that the disabilities attached to
marriage should likewise attach to concubinage.

Those made between persons found guilty of the

same criminal offense, in consideration thereof; It is hardly necessary to add that even in the absence
of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to
3. Those made to a public officer or his wife, indict the frame of the Civil Code for a failure to
descendants or ascendants by reason of his office. apply a laudable rule to a situation which in its
essentials cannot be distinguished. Moreover, if it is
In the case referred to in No. 1, the action for at all to be differentiated the policy of the law which
declaration of nullity may be brought by the spouse embodies a deeply rooted notion of what is just and
of the donor or donee; and the guilt of the donee what is right would be nullified if such irregular
relationship instead of being visited with disabilities
10
 would be attended with benefits. Certainly a legal > Insurer by virtue of the contract was liable for 11,745.73,
norm should not be susceptible to such a reproach. If and Carponia filed her claim, although she admitted that she
there is every any occasion where the principle of and the insured were merely living as husband and wife
statutory construction that what is within the spirit of without the benefit of marriage.
the law is as much a part of it as what is written, this > Pascuala Ebrado also filed her claim as the widow of the
is it. Otherwise the basic purpose discernible in such deceased insured.
codal provision would not be attained. Whatever > Insular life filed an interpleader case and the lower court
omission may be apparent in an interpretation purely found in favor of Pascuala.
literal of the language used must be remedied by an
adherence to its avowed objective. Issue:
Between Carponia and Pascuala, who is entitled to the
proceeds?
4. We do not think that a conviction for adultery or
concubinage is exacted before the disabilities mentioned in
Held:
Article 739 may effectuate. More specifically, with record to
Pascuala.
the disability on "persons who were guilty of adultery or
It is quite unfortunate that the Insurance Act or our own
concubinage at the time of the donation," Article 739 itself
Insurance Code does not contain a specific provision grossly
provides: +.wph!1
resolutory of the prime question at hand. Rather, the general
rules of civil law should be applied to resolve this void in the
In the case referred to in No. 1, the action for insurance law. Art. 2011 of the NCC states: The contract of
declaration of nullity may be brought by the spouse insurance is governed by special laws. Matters not expressly
of the donor or donee; and the guilty of the donee provided for in such special laws shall be regulated by this
may be proved by preponderance of evidence in the Code. When not otherwise specifically provided for in the
same action. insurance law, the contract of life insurance is governed by
the general rules of civil law regulating contracts.
The underscored clause neatly conveys that no criminal
conviction for the offense is a condition precedent. In fact, it Under Art. 2012, NCC: Any person who is forbidden from
cannot even be from the aforequoted provision that a receiving any donation under Art. 739 cannot be named
prosecution is needed. On the contrary, the law plainly states beneficiary of a life insurance policy by a person who cannot
that the guilt of the party may be proved "in the same acting make any donation to him, according to said article. Under
for declaration of nullity of donation. And, it would be Art. 739, donations between persons who were guilty of
sufficient if evidence preponderates upon the guilt of the adultery or concubinage at the time of the donation shall be
consort for the offense indicated. The quantum of proof in void.
criminal cases is not demanded.
In essence, a life insurance policy is no different from civil
donations insofar as the beneficiary is concerned. Both are
In the caw before Us, the requisite proof of common-law founded on the same consideration of liberality. A beneficiary
relationship between the insured and the beneficiary has been is like a donee because from the premiums of the policy which
conveniently supplied by the stipulations between the parties the insured pays, the beneficiary will receive the proceeds or
in the pre-trial conference of the case. It case agreed upon profits of said insurance. As a consequence, the proscription
and stipulated therein that the deceased insured in Art. 739 should equally operate in life insurance contracts.
Buenaventura C. Ebrado was married to Pascuala Ebrado with
whom she has six legitimate children; that during his lifetime, Therefore, since common-law spouses are barred from
the deceased insured was living with his common-law wife, receiving donations, they are likewise barred from receiving
Carponia Ebrado, with whom he has two children. These proceeds of a life insurance contract.
stipulations are nothing less than judicial admissions which, as
a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the
rigors of a trial for the sole purpose of proving the illicit liaison FT-G.R. No. L-54216 July 19, 1989
between the insured and the beneficiary. In fact, in that
pretrial, the parties even agreed "that a decision be rendered THE PHILIPPINE AMERICAN INSURANCE COMPANY,
based on this agreement and stipulation of facts as to who petitioner,
among the two claimants is entitled to the policy." vs.
HONORABLE GREGORIO G. PINEDA in his capacity as
ACCORDINGLY, the appealed judgment of the lower court is Judge of the Court of First Instance of Rizal, and
hereby affirmed. Carponia T. Ebrado is hereby declared RODOLFO C. DIMAYUGA, respondents.
disqualified to be the beneficiary of the late Buenaventura C.
Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of
the deceased insured. Costs against Carponia T. Ebrado.
PARAS, J.:

SO ORDERED.
Challenged before Us in this petition for review on certiorari
are the Orders of the respondent Judge dated March 19, 1980
DIGEST - Insular Life v. Ebrado - Insurance Proceeds and June 10, 1980 granting the prayer in the petition in Sp.
80 SCRA 181 Proc. No. 9210 and denying petitioner's Motion for
Reconsideration, respectively.
Facts:
The undisputed facts are as follows:
> Buenaventura Ebrado was issued by Insular Life Assurance
Co. a whole life plan for P5,882.00 with a rider for Accidental On January 15, 1968, private respondent procured an
Death Benefits for the same amount. ordinary life insurance policy from the petitioner company and
> Ebrado designated Carponia Ebrado as the revocable designated his wife and children as irrevocable beneficiaries of
beneficiary in his policy, referring to her as his wife. said policy.
> Ebrado died when he was accidentally hit by a falling
branch of tree.
11
Under date February 22, 1980 private respondent filed a Inevitably therefore, based on the aforequoted provision of
petition which was docketed as Civil Case No. 9210 of the the contract, not to mention the law then applicable, it is only
then Court of First Instance of Rizal to amend the designation with the consent of all the beneficiaries that any change or
of the beneficiaries in his life policy from irrevocable to amendment in the policy concerning the irrevocable
revocable. beneficiaries may be legally and validly effected. Both the law
and the policy do not provide for any other exception, thus,
abrogating the contention of the private respondent that said
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset
designation can be amended if the Court finds a just,
Hearing. Also on the same date, petitioner filed its Comment
reasonable ground to do so.
and/or Opposition to Petition.

Similarly, the alleged acquiescence of the six (6) children

When the petition was called for hearing on March 19, 1980,
beneficiaries of the policy (the beneficiary-wife predeceased
the respondent Judge Gregorio G. Pineda, presiding Judge of
the insured) cannot be considered an effective ratification to
the then Court of First Instance of Rizal, Pasig Branch XXI,
the change of the beneficiaries from irrevocable to revocable.
denied petitioner's Urgent Motion, thus allowing the private
Indubitable is the fact that all the six (6) children named as
respondent to adduce evidence, the consequence of which
beneficiaries were minors at the time,** for which reason,
was the issuance of the questioned Order granting the
they could not validly give their consent. Neither could they
petition.
act through their father insured since their interests are quite
divergent from one another. In point is an excerpt from the
Petitioner promptly filed a Motion for Reconsideration but the Notes and Cases on Insurance Law by Campos and Campos,
same was denied in an Order June 10, 1980. Hence, this 1960, reading-
petition raising the following issues for resolution:
The insured ... can do nothing to divest the
I of his rights without his consent. He
beneficiary
cannot assign his policy, nor even take its cash
WHETHER OR NOT THE DESIGNATION OF THE surrender value without the consent of the
IRREVOCABLE BENEFICIARIES COULD BE CHANGED beneficiary. Neither can the insured's creditors seize
OR AMENDED WITHOUT THE CONSENT OF ALL THE the policy or any right thereunder. The insured may
IRREVOCABLE BENEFICIARIES. not even add another beneficiary because by doing
so, he diminishes the amount which the beneficiary
may recover and this he cannot do without the
II beneficiary's consent.

WHETHER OR NOT THE IRREVOCABLE Therefore, the parent-insured cannot exercise rights and/or
BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY privileges pertaining to the insurance contract, for otherwise,
DECEASED WHILE THE OTHERS ARE ALL MINORS, the vested rights of the irrevocable beneficiaries would be
COULD VALIDLY GIVE CONSENT TO THE CHANGE OR rendered inconsequential.
AMENDMENT IN THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES.
Of equal importance is the well-settled rule that the contract
between the parties is the law binding on both of them and for
We are of the opinion that his Honor, the respondent Judge, so many times, this court has consistently issued
was in error in issuing the questioned Orders. pronouncements upholding the validity and effectivity of
contracts. Where there is nothing in the contract which is
Needless to say, the applicable law in the instant case is the contrary to law, good morals, good customs, public policy or
Insurance Act, otherwise known as Act No. 2427 as amended, public order the validity of the contract must be sustained.
the policy having been procured in 1968. Under the said law, Likewise, contracts which are the private laws of the
the beneficiary designated in a life insurance contract cannot contracting parties should be fulfilled according to the literal
be changed without the consent of the beneficiary because he sense of their stipulations, if their terms are clear and leave
has a vested interest in the policy (Gercio v. Sun Life Ins. Co. no room for doubt as to the intention of the contracting
of Canada, 48 Phil. 53; Go v. Redfern and the International parties, for contracts are obligatory, no matter in what form
Assurance Co., Ltd., 72 Phil. 71). they may be, whenever the essential requisites for their
validity are present (Phoenix Assurance Co., Ltd. vs. United
States Lines, 22 SCRA 675, Phil. American General Insurance
In this regard, it is worth noting that the Beneficiary Co., Inc. vs. Mutuc, 61 SCRA 22.)
Designation Indorsement in the policy which forms part of
Policy Number 0794461 in the name of Rodolfo Cailles
Dimayuga states that the designation of the beneficiaries is In the recent case of Francisco Herrera vs. Petrophil
irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Corporation, 146 SCRA 385, this Court ruled that:
Annex "C" of the Petition for Review on Certiorari), to wit:
... it is settled that the parties may establish such
It is hereby understood and agreed that, stipulations, clauses, terms, and conditions as they
notwithstanding the provisions of this policy to the may want to include; and as long as such
contrary, inasmuch as the designation of the agreements are not contrary to law, good morals,
primary/contingent beneficiary/beneficiaries in this good customs, public policy or public order, they shall
Policy has been made without reserving the right to have the force of law between them.
change said beneficiary/ beneficiaries, such
designation may not be surrendered to the Company, Undeniably, the contract in the case at bar, contains the
released or assigned; and no right or privilege under indispensable elements for its validity and does not in any way
the Policy may be exercised, or agreement made with violate the law, morals, customs, orders, etc. leaving no
the Company to any change in or amendment to the reason for Us to deny sanction thereto.
Policy, without the consent of the said
beneficiary/beneficiaries. (Petitioner's Memorandum,
p. 72, Rollo) Finally, the fact that the contract of insurance does not
contain a contingency when the change in the designation of
beneficiaries could be validly effected means that it was never
Be it noted that the foregoing is a fact which the private within the contemplation of the parties. The lower court, in
respondent did not bother to disprove.
12
gratuitously providing for such contingency, made a new GAISANO CAGAYAN, INC. Petitioner,
contract for them, a proceeding which we cannot tolerate. vs.
Ergo, We cannot help but conclude that the lower court acted INSURANCE COMPANY OF NORTH AMERICA, Respondent.
in excess of its authority when it issued the Order dated March
19, 1980 amending the designation of the beneficiaries from
DECISION
"irrevocable" to "revocable" over the disapprobation of the
petitioner insurance company.
AUSTRIA-MARTINEZ, J.:
WHEREFORE, premises considered, the questioned Orders of
the respondent Judge are hereby nullified and set aside. Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals (CA)
in CA-G.R. CV No. 61848 which set aside the Decision dated
SO ORDERED.
August 31, 1998 of the Regional Trial Court, Branch 138,
Makati (RTC) in Civil Case No. 92-322 and upheld the causes
DIGEST-Philam v Pineda G.R. No. L-54216 July 19, 1989 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
J. Paras
petitioner's motion for reconsideration.
Facts:
Pineda procured an ordinary life insurance policy from the The factual background of the case is as follows:
petitioner company and designated his wife and children as
irrevocable beneficiaries.
Intercapitol Marketing Corporation (IMC) is the maker of
He then filed a petition to amend the designation of the
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
beneficiaries in his life policy from irrevocable to revocable.
local distributor of products bearing trademarks owned by Levi
The judge granted the request.
Strauss & Co.. IMC and LSPI separately obtained from
Petitioner promptly filed a motion but was denied. Hence, this
respondent fire insurance policies with book debt
petition.
endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials
Issues:
which have been sold or delivered to various customers and
1. WON the designation of the irrevocable beneficiaries could
dealers of the Insured anywhere in the Philippines."2 The
be changed or amended without the consent of all the
policies defined book debts as the "unpaid account still
irrevocable beneficiaries.
appearing in the Book of Account of the Insured 45 days after
2. WON the irrevocable minor beneficiaries could give consent
the time of the loss covered under this Policy."3 The policies
to the change in designation
also provide for the following conditions:
Held: No to both. Petition dismissed.
1. Warranted that the Company shall not be liable for
Ratio: any unpaid account in respect of the merchandise
Under the Insurance Act, the beneficiary designated in a life sold and delivered by the Insured which are
insurance contract cannot be changed without the consent of outstanding at the date of loss for a period in excess
the beneficiary because he has a vested interest in the policy. of six (6) months from the date of the covering
There was an express stipulation to this effect: It is hereby invoice or actual delivery of the merchandise
understood and agreed that, notwithstanding the provisions of whichever shall first occur.
this policy to the contrary, inasmuch as the designation of the
primary/contingent beneficiary/beneficiaries in this Policy has 2. Warranted that the Insured shall submit to the
been made without reserving the right to change said Company within twelve (12) days after the close of
beneficiary/ beneficiaries, such designation may not be every calendar month all amount shown in their
surrendered to the Company, released or assigned; and no books of accounts as unpaid and thus become
right or privilege under the Policy may be exercised, or receivable item from their customers and dealers. x x
agreement made with the Company to any change in or xx x x x
amendment to the Policy, without the consent of the said
beneficiary/beneficiaries.
The alleged acquiescence of the six (6) children beneficiaries of Petitioner is a customer and dealer of the products of IMC and
the policy cannot be considered an effective ratification due to LSPI. On February 25, 1991, the Gaisano Superstore Complex
the fact that they were minors. Neither could they act through in Cagayan de Oro City, owned by petitioner, was consumed
their father insured since their interests are quite divergent by fire. Included in the items lost or destroyed in the fire were
from one another. stocks of ready-made clothing materials sold and delivered by
Therefore, the parent-insured cannot exercise rights and/or IMC and LSPI.
privileges pertaining to the insurance contract, for otherwise,
the vested rights of the irrevocable beneficiaries would be On February 4, 1992, respondent filed a complaint for
rendered inconsequential. damages against petitioner. It alleges that IMC and LSPI filed
Of equal importance is the well-settled rule that the contract with respondent their claims under their respective fire
between the parties is the law binding on both of them and for insurance policies with book debt endorsements; that as of
so many times, this court has consistently issued February 25, 1991, the unpaid accounts of petitioner on the
pronouncements upholding the validity and effectivity of sale and delivery of ready-made clothing materials with IMC
contracts. Likewise, contracts which are the private laws of the was P2,119,205.00 while with LSPI it was P535,613.00; that
contracting parties should be fulfilled according to the literal respondent paid the claims of IMC and LSPI and, by virtue
sense of their stipulations, for contracts are obligatory, no thereof, respondent was subrogated to their rights against
matter in what form they may be, whenever the essential petitioner; that respondent made several demands for
requisites for their validity are present payment upon petitioner but these went unheeded.5
The change in the designation of was not within the
contemplation of the parties. The lower court instead made a
new contract for them. It acted in excess of its authority when In its Answer with Counter Claim dated July 4, 1995,
it did so. 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
FT-G.R. No. 147839 June 8, 2006
13
contract committed by it since the loss was due to fire which it THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
could not prevent or foresee; that IMC and LSPI never WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE
communicated to it that they insured their properties; that it CIVIL CODE IN FAVOR OF RESPONDENT.14
never consented to paying the claim of the insured.6
Anent the first error, petitioner contends that the insurance in
At the pre-trial conference the parties failed to arrive at an the present case cannot be deemed to be over credit since an
amicable settlement.7 Thus, trial on the merits ensued. 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
On August 31, 1998, the RTC rendered its decision dismissing
occasion of the loss of the insured goods to fire and not
respondent's complaint.8 It held that the fire was purely
because of the non-payment by petitioner of any obligation;
accidental; that the cause of the fire was not attributable to
that, even if the insurance is deemed as one over credit, there
the negligence of the petitioner; that it has not been
was no loss as the accounts were not yet due since no prior
established that petitioner is the debtor of IMC and LSPI; that
demands were made by IMC and LSPI against petitioner for
since the sales invoices state that "it is further agreed that
payment of the debt and such demands came from
merely for purpose of securing the payment of purchase price,
respondent only after it had already paid IMC and LSPI under
the above-described merchandise remains the property of the
the fire insurance policies.15
vendor until the purchase price is fully paid", IMC and LSPI
retained ownership of the delivered goods and must bear the
loss. 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
Dissatisfied, petitioner appealed to the CA.9 On October 11,
goods.
2000, the CA rendered its decision setting aside the decision
of the RTC. The dispositive portion of the decision reads:
Concerning the third ground, petitioner submits that there is
no subrogation in favor of respondent as no valid insurance
WHEREFORE, in view of the foregoing, the appealed decision
could be maintained thereon by IMC and LSPI since all risk
is REVERSED and SET ASIDE and a new one is entered
had transferred to petitioner upon delivery of the goods; that
ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
petitioner was not privy to the insurance contract or the
payment between respondent and its insured nor was its
1. the amount of P2,119,205.60 representing the consent or approval ever secured; that this lack of privity
amount paid by the plaintiff-appellant to the insured forecloses any real interest on the part of respondent in the
Inter Capitol Marketing Corporation, plus legal obligation to pay, limiting its interest to keeping the insured
interest from the time of demand until fully paid; goods safe from fire.

2. the amount of P535,613.00 representing the For its part, respondent counters that while ownership over
amount paid by the plaintiff-appellant to the insured the ready- made clothing materials was transferred upon
Levi Strauss Phil., Inc., plus legal interest from the delivery to petitioner, IMC and LSPI have insurable interest
time of demand until fully paid. over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is
With costs against the defendant-appellee. liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused through
SO ORDERED.10 petitioner's negligence in failing to provide stringent measures
of caution, care and maintenance on its property because
The CA held that the sales invoices are proofs of sale, being electric wires do not usually short circuit unless there are
detailed statements of the nature, quantity and cost of the defects in their installation or when there is lack of proper
thing sold; that loss of the goods in the fire must be borne by maintenance and supervision of the property; that petitioner
petitioner since the proviso contained in the sales invoices is is guilty of gross and evident bad faith in refusing to pay
an exception under Article 1504 (1) of the Civil Code, to the respondent's valid claim and should be liable to respondent for
general rule that if the thing is lost by a fortuitous event, the contracted lawyer's fees, litigation expenses and cost of suit.17
risk is borne by the owner of the thing at the time the loss
under the principle of res perit domino; that petitioner's As a general rule, in petitions for review, the jurisdiction of
obligation to IMC and LSPI is not the delivery of the lost goods this Court in cases brought before it from the CA is limited to
but the payment of its unpaid account and as such the reviewing questions of law which involves no examination of
obligation to pay is not extinguished, even if the fire is the probative value of the evidence presented by the litigants
considered a fortuitous event; that by subrogation, the insurer or any of them.18 The Supreme Court is not a trier of facts; it
has the right to go against petitioner; that, being a fire is not its function to analyze or weigh evidence all over
insurance with book debt endorsements, what was insured again.19 Accordingly, findings of fact of the appellate court are
was the vendor's interest as a creditor.11 generally conclusive on the Supreme Court.20

Petitioner filed a motion for reconsideration12 but it was denied Nevertheless, jurisprudence has recognized several exceptions
by the CA in its Resolution dated April 11, 2001.13 in which factual issues may be resolved by this Court, such
as: (1) when the findings are grounded entirely on
Hence, the present petition for review on certiorari anchored speculation, surmises or conjectures; (2) when the inference
on the following Assignment of Errors: 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
THE COURT OF APPEALS ERRED IN HOLDING THAT THE facts are conflicting; (6) when in making its findings the CA
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT. went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK appellee; (7) when the findings are contrary to the trial court;
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD (8) when the findings are conclusions without citation of
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF. 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
14
the findings of fact are premised on the supposed absence of domino, where ownership is the basis for consideration of who
evidence and contradicted by the evidence on record; and bears the risk of loss, in property insurance, one's interest is
(11) when the CA manifestly overlooked certain relevant facts not determined by concept of title, but whether insured has
not disputed by the parties, which, if properly considered, substantial economic interest in the property.28
would justify a different conclusion.21 Exceptions (4), (5), (7),
and (11) apply to the present petition.
Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
At issue is the proper interpretation of the questioned relation thereto, or liability in respect thereof, of such nature
insurance policy. Petitioner claims that the CA erred in that a contemplated peril might directly damnify the insured."
construing a fire insurance policy on book debts as one Parenthetically, under Section 14 of the same Code, an
covering the unpaid accounts of IMC and LSPI since such insurable interest in property may consist in: (a) an existing
insurance applies to loss of the ready-made clothing materials interest; (b) an inchoate interest founded on existing interest;
sold and delivered to petitioner. or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
The Court disagrees with petitioner's stand.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon, or
It is well-settled that when the words of a contract are plain
possession of, the subject matter of the insurance, and
and readily understood, there is no room for construction.22 In
neither the title nor a beneficial interest is requisite to the
this case, the questioned insurance policies provide coverage
existence of such an interest, it is sufficient that the insured is
for "book debts in connection with ready-made clothing
so situated with reference to the property that he would be
materials which have been sold or delivered to various
liable to loss should it be injured or destroyed by the peril
customers and dealers of the Insured anywhere in the
against which it is insured.29 Anyone has an insurable interest
Philippines."23 ; and defined book debts as the "unpaid
in property who derives a benefit from its existence or would
account still appearing in the Book of Account of the Insured
suffer loss from its destruction.30 Indeed, a vendor or seller
45 days after the time of the loss covered under this Policy." 24
retains an insurable interest in the property sold so long as he
Nowhere is it provided in the questioned insurance policies
has any interest therein, in other words, so long as he would
that the subject of the insurance is the goods sold and
suffer by its destruction, as where he has a vendor's lien.31 In
delivered to the customers and dealers of the insured.
this case, the insurable interest of IMC and LSPI pertain to the
unpaid accounts appearing in their Books of Account 45 days
Indeed, when the terms of the agreement are clear and after the time of the loss covered by the policies.
explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be
The next question is: Is petitioner liable for the unpaid
understood literally just as they appear on the face of the
accounts?
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 Petitioner's argument that it is not liable because the fire is a
destruction of the goods delivered. fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.
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 Moreover, it must be stressed that the insurance in this case
purpose of securing the payment of the purchase price the is not for loss of goods by fire but for petitioner's accounts
above described merchandise remains the property of the with IMC and LSPI that remained unpaid 45 days after the
vendor until the purchase price thereof is fully paid."26 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
The Court is not persuaded.
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 present case clearly falls under paragraph (1), Article the rule that an obligor should be held exempt from liability
1504 of the Civil Code: when the loss occurs thru a fortuitous event only holds true
when the obligation consists in the delivery of a determinate
ART. 1504. Unless otherwise agreed, the goods remain at the thing and there is no stipulation holding him liable even in
seller's risk until the ownership therein is transferred to the case of fortuitous event. It does not apply when the obligation
buyer, but when the ownership therein is transferred to the is pecuniary in nature.34
buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that: Under Article 1263 of the Civil Code, "[i]n an obligation to
deliver a generic thing, the loss or destruction of anything of
(1) Where delivery of the goods has been made to the buyer the same kind does not extinguish the obligation." If the
or to a bailee for the buyer, in pursuance of the contract and obligation is generic in the sense that the object thereof is
the ownership in the goods has been retained by the seller designated merely by its class or genus without any particular
merely to secure performance by the buyer of his obligations designation or physical segregation from all others of the
under the contract, the goods are at the buyer's risk from the same class, the loss or destruction of anything of the same
time of such delivery; (Emphasis supplied) 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
xxxx of a thing can never perish. Genus nunquan perit.36 An
obligation to pay money is generic; therefore, it is not
Thus, when the seller retains ownership only to insure that the excused by fortuitous loss of any specific property of the
buyer will pay its debt, the risk of loss is borne by the buyer.27 debtor.37
Accordingly, petitioner bears the risk of loss of the goods
delivered. Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is relevant
IMC and LSPI did not lose complete interest over the goods. here is whether it has been established that petitioner has
They have an insurable interest until full payment of the value outstanding accounts with IMC and LSPI.
of the delivered goods. Unlike the civil law concept of res perit
15
With respect to IMC, the respondent has adequately Gaisano is a customer and dealer of the products of IMC and
established its claim. Exhibits "C" to "C-22"38 show that LSPI. On February 25, 1991, the Gaisano Superstore Complex
petitioner has an outstanding account with IMC in the amount in Cagayan de Oro City, owned by petitioner, was consumed
of P2,119,205.00. Exhibit "E"39 is the check voucher by fire. Included in the items lost or destroyed in the fire were
evidencing payment to IMC. Exhibit "F"40 is the subrogation stocks of ready-made clothing materials sold and delivered by
receipt executed by IMC in favor of respondent upon receipt of IMC and LSPI.
the insurance proceeds. All these documents have been Insurance of America filed a complaint for damages against
properly identified, presented and marked as exhibits in court. Gaisano. It alleges that IMC and LSPI were paid for their
The subrogation receipt, by itself, is sufficient to establish not claims and that the unpaid accounts of petitioner on the sale
only the relationship of respondent as insurer and IMC as the and delivery of ready-made clothing materials with IMC was
insured, but also the amount paid to settle the insurance P2,119,205.00 while with LSPI it was P535,613.00.
claim. The right of subrogation accrues simply upon payment The RTC rendered its decision dismissing Insurance's
by the insurance company of the insurance claim.41 complaint. It held that the fire was purely accidental; that the
Respondent's action against petitioner is squarely sanctioned cause of the fire was not attributable to the negligence of the
by Article 2207 of the Civil Code which provides: petitioner. Also, it said that IMC and LSPI retained ownership
of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the
Art. 2207. If the plaintiff's property has been insured, and he
RTC. It ordered Gaisano to pay Insurance the P 2 million and
has received indemnity from the insurance company for the
the P 500,000 the latter paid to IMC and Levi Strauss.
injury or loss arising out of the wrong or breach of contract
Hence this petition.
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
Issues:
who has violated the contract. x x x
1. WON the CA erred in construing a fire insurance policy on
book debts as one covering the unpaid accounts of IMC and
Petitioner failed to refute respondent's evidence. LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner
As to LSPI, respondent failed to present sufficient evidence to 2. WON IMC bears the risk of loss because it expressly
prove its cause of action. No evidentiary weight can be given reserved ownership of the goods by stipulating in the sales
to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from invoices that "[i]t is further agreed that merely for purpose of
petitioner's General Manager, Stephen S. Gaisano, Jr., since it securing the payment of the purchase price the above
is not an admission of petitioner's unpaid account with LSPI. It described merchandise remains the property of the vendor
only confirms the loss of Levi's products in the amount of until the purchase price thereof is fully paid."
P535,613.00 in the fire that razed petitioner's building on 3. WON petitioner is liable for the unpaid accounts
February 25, 1991. 4. WON it has been established that petitioner has
outstanding accounts with IMC and LSPI.

Moreover, there is no proof of full settlement of the insurance Held: No. Yes. Yes. Yes but account with LSPI
claim of LSPI; no subrogation receipt was offered in evidence. unsubstantiated. Petition partly granted.
Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against Ratio:
petitioner. Failure to substantiate the claim of subrogation is 1. Nowhere is it provided in the questioned insurance policies
fatal to petitioner's case for recovery of the amount of that the subject of the insurance is the goods sold and
P535,613.00. delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC
WHEREFORE, the petition is partly GRANTED. The assailed and LSPI with petitioner which remained unpaid 45 days after
Decision dated October 11, 2000 and Resolution dated April the loss through fire, and not the loss or destruction of the
11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are goods delivered.
AFFIRMED with the MODIFICATION that the order to pay 2. The present case clearly falls under paragraph (1), Article
the amount of P535,613.00 to respondent is DELETED for 1504 of the Civil Code:
lack of factual basis. 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
DIGEST-Gaisano v Insurance G.R. No. 147839 June 8, buyer the goods are at the buyer's risk whether actual
2006 delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer
Facts: or to a bailee for the buyer, in pursuance of the contract and
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained the ownership in the goods has been retained by the seller
from respondent fire insurance policies with book debt merely to secure performance by the buyer of his obligations
endorsements. The insurance policies provide for coverage on under the contract, the goods are at the buyer's risk from the
"book debts in connection with ready-made clothing materials time of such delivery
which have been sold or delivered to various customers and Thus, when the seller retains ownership only to insure that the
dealers of the Insured anywhere in the Philippines." buyer will pay its debt, the risk of loss is borne by the buyer.
The policies defined book debts as the "unpaid account still Petitioner bears the risk of loss of the goods delivered.
appearing in the Book of Account of the Insured 45 days after IMC and LSPI had an insurable interest until full payment of
the time of the loss covered under this Policy." The policies the value of the delivered goods. Unlike the civil law concept
also provide for the following conditions: of res perit domino, where ownership is the basis for
1. Warranted that the Company shall not be liable for any consideration of who bears the risk of loss, in property
unpaid account in respect of the merchandise sold and insurance, one's interest is not determined by concept of title,
delivered by the Insured which are outstanding at the date of but whether insured has substantial economic interest in the
loss for a period in excess of six (6) months from the date of property.
the covering invoice or actual delivery of the merchandise Section 13 of our Insurance Code defines insurable interest as
whichever shall first occur. "every interest in property, whether real or personal, or any
2. Warranted that the Insured shall submit to the Company relation thereto, or liability in respect thereof, of such nature
within twelve (12) days after the close of every calendar that a contemplated peril might directly damnify the insured."
month all amount shown in their books of accounts as unpaid Parenthetically, under Section 14 of the same Code, an
and thus become receivable item from their customers and insurable interest in property may consist in: (a) an existing
dealers. interest; (b) an inchoate interest founded on existing interest;

16
or (c) an expectancy, coupled with an existing interest in that stipulations that respondent company has an interest therein.
out of which the expectancy arises. The shipments, which were undertaken in accordance with the
Anyone has an insurable interest in property who derives a instructions of the insurers surveyor, sustained damage in
benefit from its existence or would suffer loss from its transit prompting private respondent to file the corresponding
destruction. Indeed, a vendor or seller retains an insurable insurance claims which were rejected. Consequently,
interest in the property sold so long as he has any interest respondent company filed with the Court of First Instance a
therein, in other words, so long as he would suffer by its complaint for recovery of damages which was dismissed for
destruction, as where he has a vendor's lien. In this case, the lack of cause of action. On appeal, the Court of Appeals
insurable interest of IMC and LSPI pertain to the unpaid reversed the Commercial Union Assurance Company Limited,
accounts appearing in their Books of Account 45 days after Et. Al. v. Lepanto Consolidated Mining Company, Et. Al. trial
the time of the loss covered by the policies. courts order of dismissal. Hence, this petition for certiorari
3. Petitioner's argument that it is not liable because the fire is (herein treated as an appeal) wherein petitioners contend,
a fortuitous event under Article 117432 of the Civil Code is among others, that respondent company is not the real party
misplaced. As held earlier, petitioner bears the loss under in interest and has no personality to sue and that
Article 1504 (1) of the Civil Code. respondents complaint has no cause of action against the
Moreover, it must be stressed that the insurance in this case insurers.
is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the On review, the Supreme Court, without prejudging the merits
fire. Accordingly, petitioner's obligation is for the payment of of respondents case and petitioners affirmative defenses,
money. As correctly stated by the CA, where the obligation held that there is prima facie showing in respondents
consists in the payment of money, the failure of the debtor to complaint and pleadings that it is a real party in interest under
make the payment even by reason of a fortuitous event shall the policies and that it has a cause of action against
not relieve him of his liability. The rationale for this is that the petitioners as insurers.
rule that an obligor should be held exempt from liability when
the loss occurs thru a fortuitous event only holds true when Judgment of the Court of Appeals, affirmed.
the obligation consists in the delivery of a determinate thing
and there is no stipulation holding him liable even in case of SYLLABUS
fortuitous event. It does not apply when the obligation is
pecuniary in nature. REMEDIAL LAW; ACTIONS; PARTIES; RESPONDENT IN CASE
Under Article 1263 of the Civil Code, "[i]n an obligation to AT BAR PRIMA FACIE SHOWN A REAL PARTY IN INTEREST.
deliver a generic thing, the loss or destruction of anything of Where, based (1) on express stipulation in the two subject
the same kind does not extinguish the obligation." This rule is marine insurance policies that respondent company has an
based on the principle that the genus of a thing can never interest therein and (2) on the facts that it was the shipper
perish. An obligation to pay money is generic; therefore, it is (and presumably the owner) of the insured cargoes, that the
not excused by fortuitous loss of any specific property of the shipments were undertaken in accordance with the
debtor. instructions of the insurers marine surveyor and that it was
4. With respect to IMC, the respondent has adequately respondent company that filed the corresponding claim with
established its claim. The P 3 m claim has been proven. The the adjuster when the cargoes were damaged, the Supreme
subrogation receipt, by itself, is sufficient to establish not only Court, without prejudging the merits of respondent companys
the relationship of respondent as insurer and IMC as the case and petitioners affirmative defenses, ruled that there is
insured, but also the amount paid to settle the insurance prima facie showing in respondents complaint and pleadings
claim. The right of subrogation accrues simply upon payment that it is a real party in interest under the policies and that it
by the insurance company of the insurance claim has a cause of action against the petitioners as insurers.
Respondent's action against petitioner is squarely sanctioned
by Article 2207 of the Civil Code which provides: DECISION
Art. 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the This is a marine insurance case. Lepanto Consolidated Mining
injury or loss arising out of the wrong or breach of contract Company alleged in its complaint of February 7, 1974 that on
complained of, the insurance company shall be subrogated to November 8 and 23, 1971 it shipped (for smelting) copper ore
the rights of the insured against the wrongdoer or the person concentrates on board the vessels M/S Hermosa and M/S
who has violated the contract. General Aguinaldo from Poro Point, San Fernando, La Union to
As to LSPI, respondent failed to present sufficient evidence to Tacoma, Washington, U.S.A.chanroblesvirtual|awlibrary
prove its cause of action. There was no evidence that
respondent has been subrogated to any right which LSPI may The first shipment is known as No. 167 and the other
have against petitioner. Failure to substantiate the claim of shipment as Nos. 168 and 168-A. The copper ore concentrates
subrogation is fatal to petitioner's case for recovery of were stored on board the carrying vessels under the
P535,613.00. supervision and approval of a marine surveying firm
designated by the insurer (pp. 8-9, Record on Appeal).
FT-[G.R. No. L-52027. April 27, 1982.] American Smelting and Refining Co., Ltd. (Asarco) was the
consignee. The ore was to be discharged at the wharf of
COMMERCIAL UNION ASSURANCE COMPANY LIMITED Asarcos smelter at Tacoma (pp. 75-76, 98-9, Record on
and NORTH BRITISH & MERCANTILE INSURANCE CO., Appeal).
LTD., Petitioners, v. LEPANTO CONSOLIDATED MINING
COMPANY and COURT OF APPEALS, Respondents. The shipments were covered by two "all risks" marine
insurance policies issued to Asarco by North British &
Mercantile Insurance Company Limited, a subsidiary of
Quasha, Asperilla, Ancheta, Valmonte, Pea & Marcos,
Commercial Union Assurance Company Limited. The first
for Petitioners. policy was for US$4,509,014 or 80% of the agreed total value
of US$5,636,268 while the second policy was for
Sycip, Salazar, Feliciano, Hernandez & Castillo for US$6,230,591.03 or 80% of the agreed total value of
Private Respondent. US$7,788,233.79. The 20% balance was covered by insurance
policies issued by Malayan Insurance Co., Inc.
SYNOPSIS
Both policies contain this stipulation: "It is hereby noted and
Respondent company shipped to a consignee in the United agreed that Lepanto Consolidated Mining Co. have (has) an
States certain cargoes covered by two "all risks" marine interest on this Policy" (pp. 22 and 58, Record on Appeal).
insurance policies issued by petitioners containing express From the opening clause of the policies (couched in
Chaucerian English), it may be inferred that Asarco and all
17
persons having an interest in the shipments were covered by claim with the adjuster when the cargoes were damaged (pp.
the insurance (pp. 20-21, 45-46, Record on Appeal). 34-37, Record on Appeal).

Because the two shipments were damaged in transit, Lepanto It is noteworthy that when Commercial Union Assurance
filed claims under the policies. Commercial Union Assurance Company Limited rejected Lepantos claims it did not question
and North British denied the claims.chanrobles law library : Lepantos right and personality to file the claims nor did it
red state that Lepanto had no interest in the marine policies and
that it was not an insured party. Commercial Union rejected
On February 8, 1974, Lepanto filed a complaint in the Court of the claims, not on those grounds, but because "both cargoes
First Instance of Rizal, Pasig Branch 22, against Commercial were inherently vicious" (pp. 37-45, Record on Appeal).
Union Assurance and North British wherein it prayed that they
be ordered to pay Lepanto the sums of US$523,139.20 and To say that Lepanto has no interest under the policies would
US$553,564.80, representing 80% of the damages suffered render meaningless the said stipulation in its favor. To say
by Lepanto plus interest, litigation expenses and attorneys that Lepanto as shipper of the insured property had no
fees. proprietary interest therein before its delivery at Asarcos
wharf in Tacoma is to imply that the insured property was res
On motion to dismiss filed by the defendants, the lower court nullius. These conclusions are
dismissed the complaint for lack of cause of action. Lepanto preposterous.chanrobles.com:cralaw:red
appealed to the Court of Appeals which in its decision dated
September 27, 1979 reversed the order of dismissal (CA-G.R. Hence, the trial court erred in dismissing the complaint.
No. 55948-R). Whether after hearing the parties it would appear that
Lepantos claims for damages are justified or not is an issue
In a resolution dated November 12, 1979, it denied the on which we make no anticipatory and premature finding.
motion for reconsideration filed by Commercial Union
Assurance and North British. A copy of that resolution was WHEREFORE, the decision of the Court of Appeals is affirmed.
received by their lawyers on November 19. Twelve days later, Costs against the petitioners.
or on December 1, they filed a special civil action of certiorari
in this Court wherein they alleged that the Court of Appeals FT-G.R. No. 168115 June 8, 2007
acted without jurisdiction in entertaining Lepantos appeal. VICENTE ONG LIM SING, JR., petitioner,
The certiorari petition was treated as an appeal. As directed, vs.
the parties filed their briefs. FEB LEASING & FINANCE CORPORATION, respondent.

The petitioners contend in their first assignment of error that

DECISION
the Court of Appeals had no jurisdiction over Lepantos appeal
because it raised only a pure question of
law.chanroblesvirtuallawlibrary This is a petition for review on certiorari assailing the
Decision1 dated March 15, 2005 and the Resolution2 dated
That contention is devoid of merit because Lepanto in its May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No.
notice of appeal expressly stated that it was appealing on 77498.
questions of fact and law and because in its assignment of
errors it contended that the trial court erred in finding that the The facts are as follows:
marine policies were issued solely in favor of Asarco, in not
finding that Lepanto was insured under the said policies and in
not finding that the insurers were estopped to deny that On March 9, 1995, FEB Leasing and Finance Corporation (FEB)
Lepanto was an insured party. entered into a lease3 of equipment and motor vehicles with
JVL Food Products (JVL). On the same date, Vicente Ong Lim
The ventilation of those factual issues would explain why the Sing, Jr. (Lim) executed an Individual Guaranty Agreement4
Court of Appeals did not certify the case to this Court as a with FEB to guarantee the prompt and faithful performance of
case involving a pure question of law. the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance
The petitioners in their other assignments of error argue that Certificates5 over the equipment and motor vehicles formed
the Court of Appeals gravely abused its discretion in taking part of the agreement. Under the contract, JVL was obliged to
into account Lepantos manifestation which is not a part of its pay FEB an aggregate gross monthly rental of One Hundred
complaint; in finding that Lepanto claimed ownership of the Seventy Thousand Four Hundred Ninety-Four Pesos
cargo covered by the marine insurance policies; in not finding (P170,494.00).
that Lepanto is not the real party in interest and has no
personality to sue and in not finding that under the ultimate JVL defaulted in the payment of the monthly rentals. As of
facts alleged in Lepantos complaint Lepanto has no cause of July 31, 2000, the amount in arrears, including penalty
action against the insurers.chanrobles.com : virtual law library charges and insurance premiums, amounted to Three Million
Four Hundred Fourteen Thousand Four Hundred Sixty-Eight
The issue is the correctness of the trial courts conclusion that and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB
Lepanto has no right to sue the insurers since it has no cause sent a letter to JVL demanding payment of the said amount.
of action against them (p. 119, Record on Appeal), or, as However, JVL failed to pay.6
stated by the Appellate Court, whether Lepanto can legally
sue on the marine insurance policies.
On December 6, 2000, FEB filed a Complaint7 with the
We hold, without prejudging the merits of Lepantos case and Regional Trial Court of Manila, docketed as Civil Case No. 00-
petitioners affirmative defenses, that there is a prima facie 99451, for sum of money, damages, and replevin against JVL,
showing in Lepantos complaint and pleadings that it is a real Lim, and John Doe.
party in interest under the policies and that it has a cause of
action against the petitioners as insurers. In the Amended Answer,8 JVL and Lim admitted the existence
of the lease agreement but asserted that it is in reality a sale
This holding is based (1) on the stipulation (already quoted) in of equipment on installment basis, with FEB acting as the
the two policies that it has an interest therein and (2) on the financier. JVL and Lim claimed that this intention was
facts that it was the shipper (and presumably the owner) of apparent from the fact that they were made to believe that
the insured cargoes, that the shipments were undertaken in when full payment was effected, a Deed of Sale will be
accordance with the instructions of the insurers marine executed by FEB as vendor in favor of JVL and Lim as
surveyor and that it was Lepanto that filed the corresponding vendees.9 FEB purportedly assured them that documenting
18
the transaction as a lease agreement is just an industry loss and other conditions. This action of the plaintiff
practice and that the proper documentation would be effected unequivocally exhibited their real intention to execute the
as soon as full payment for every item was made. They also corresponding Deed after the defendants have paid in full and
contended that the lease agreement is a contract of adhesion as heretofore discussed and for the sake of emphasis the
and should, therefore, be construed against the party who obscurity in the written contract cannot favor the party who
prepared it, i.e., FEB. caused the obscurity.

In upholding JVL and Lims stance, the trial court stressed the Based on substantive Rules on Interpretation, if the terms are
contradictory terms it found in the lease agreement. The clear and leave no doubt upon the intention of the contracting
pertinent portions of the Decision dated November 22, 2002 parties, the literal meaning of its stipulations shall control. If
read: the words appear to be contrary to the evident intention of
the parties, their contemporaneous and subsequent acts shall
be principally considered. If the doubts are cast upon the
A profound scrutiny of the provisions of the contract which is a
principal object of the contract in such a way that it cannot be
contract of adhesion at once exposed the use of several
known what may have been the intention or will of the
contradictory terms. To name a few, in Section 9 of the said
parties, the contract shall be null and void.10
contract disclaiming warranty, it is stated that the lessor is
not the manufacturer nor the latters agent and therefore does
not guarantee any feature or aspect of the object of the Thus, the court concluded with the following disposition:
contract as to its merchantability. Merchantability is a term
applied in a contract of sale of goods where conditions and
In this case, which is held by this Court as a sale on
warranties are made to apply. Article 1547 of the Civil Code
installment there is no chattel mortgage on the thing sold, but
provides that unless a contrary intention appears an implied
it appears amongst the Complaints prayer, that the plaintiff
warranty on the part of the seller that he has the right to sell
elected to exact fulfillment of the obligation.
and to pass ownership of the object is furnished by law
together with an implied warranty that the thing shall be free
from hidden faults or defects or any charge or encumbrance For the vehicles returned, the plaintiff can only recover the
not known to the buyer. unpaid balance of the price because of the previous payments
made by the defendants for the reasonable use of the units,
specially so, as it appears, these returned vehicles were sold
In an adhesion contract which is drafted and printed in
at auction and that the plaintiff can apply the proceeds to the
advance and parties are not given a real arms length
balance. However, with respect to the unreturned units and
opportunity to transact, the Courts treat this kind of contract
machineries still in the possession of the defendants, it is this
strictly against their architects for the reason that the party
Courts view and so hold that the defendants are liable
entering into this kind of contract has no choice but to accept
therefore and accordingly are ordered jointly and severally to
the terms and conditions found therein even if he is not in
pay the price thereof to the plaintiff together with attorneys
accord therewith and for that matter may not have
fee and the costs of suit in the sum of Php25,000.00.
understood all the terms and stipulations prescribed thereat.
Contracts of this character are prepared unilaterally by the
stronger party with the best legal talents at its disposal. It is SO ORDERED.11
upon that thought that the Courts are called upon to analyze
closely said contracts so that the weaker party could be fully On December 27, 2002, FEB filed its Notice of Appeal.12
protected. Accordingly, on January 17, 2003, the court issued an Order 13
elevating the entire records of the case to the CA. FEB averred
Another instance is when the alleged lessee was required to that the trial court erred:
insure the thing against loss, damage or destruction.
A. When it ruled that the agreement between the Parties-
In property insurance against loss or other accidental causes, Litigants is one of sale of personal properties on installment
the assured must have an insurable interest, 32 Corpus Juris and not of lease;
1059.
B. When it ruled that the applicable law on the case is Article
xxxx 1484 (of the Civil Code) and not R.A. No. 8556;

It has also been held that the test of insurable interest in C. When it ruled that the Plaintiff-Appellant can no longer
property is whether the assured has a right, title or interest recover the unpaid balance of the price because of the
therein that he will be benefited by its preservation and previous payments made by the defendants for the
continued existence or suffer a direct pecuniary loss from its reasonable use of the units;
destruction or injury by the peril insured against. If the
defendants were to be regarded as only a lessee, logically the D. When it failed to make a ruling or judgment on the Joint
lessor who asserts ownership will be the one directly benefited and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-
or injured and therefore the lessee is not supposed to be the Appellant.14
assured as he has no insurable interest.

On March 15, 2005, the CA issued its Decision15 declaring the

There is also an observation from the records that the actual transaction between the parties as a financial lease agreement
value of each object of the contract would be the result after under Republic Act (R.A.) No. 8556.16 The fallo of the assailed
computing the monthly rentals by multiplying the said rentals Decision reads:
by the number of months specified when the rentals ought to
be paid.
WHEREFORE, the instant appeal is GRANTED and the
assailed Decision dated 22 November 2002 rendered by the
Still another observation is the existence in the records of a Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-
Deed of Absolute Sale by and between the same parties, 99451 is REVERSED and SET ASIDE, and a new judgment is
plaintiff and defendants which was an exhibit of the defendant hereby ENTERED ordering appellees JVL Food Products and
where the plaintiff sold to the same defendants one unit 1995 Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing
Mitsubishi L-200 STRADA DC PICK UP and in said Deed, The and Finance Corporation the amount of Three Million Four
Court noticed that the same terms as in the alleged lease Hundred Fourteen Thousand Four Hundred Sixty Eight
were used in respect to warranty, as well as liability in case of Pesos and 75/100 (Php3,414,468.75), with interest at the
19
rate of twelve percent (12%) per annum starting from the We affirm the ruling of the appellate court.
date of judicial demand on 06 December 2000, until full
payment thereof. Costs against appellees.
First, Lim can no longer question Galangs authority as FEBs
authorized representative in filing the suit against Lim. Galang
SO ORDERED.17 was the representative of FEB in the proceedings before the
trial court up to the appellate court. Petitioner never placed in
issue the validity of Galangs representation before the trial
Lim filed the instant Petition for Review on Certiorari under
and appellate courts. Issues raised for the first time on appeal
Rule 45
are barred by estoppel. Arguments not raised in the original
proceedings cannot be considered on review; otherwise, it
contending that: would violate basic principles of fair play.19

I Second, there is no legal basis for Lim to question the

authority of the CA to go beyond the matters agreed upon
The Honorable Court of Appeals erred when it failed to during the pre-trial conference, or in not dismissing the appeal
consider that the undated complaint was filed by Saturnino J. for failure of FEB to file its brief on time, or in not ruling
Galang, Jr., without any authority from respondents Board of separately on the petitioners motion to dismiss.
Directors and/or Secretarys Certificate.
Courts have the prerogative to relax procedural rules of even
II the most mandatory character, mindful of the duty to
reconcile both the need to speedily put an end to litigation and
the parties right to due process. In numerous cases, this
The Honorable Court of Appeals erred when it failed to strictly Court has allowed liberal construction of the rules when to do
apply Section 7, Rule 18 of the 1997 Rules of Civil Procedure so would serve the demands of substantial justice and
and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004). equity.20 In Aguam v. Court of Appeals , the Court explained:

III The court has the discretion to dismiss or not to dismiss an

appellant's appeal. It is a power conferred on the court, not a
The Honorable Court of Appeals erred in not dismissing the duty. The "discretion must be a sound one, to be exercised in
appeal for failure of the respondent to file on time its accordance with the tenets of justice and fair play, having in
appellants brief and to separately rule on the petitioners mind the circumstances obtaining in each case."
motion to dismiss. Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's
primary duty is to render or dispense justice. "A litigation is
IV not a game of technicalities." "Lawsuits unlike duels are not to
be won by a rapier's thrust. Technicality, when it deserts its
The Honorable Court of Appeals erred in finding that the proper office as an aid to justice and becomes its great
contract between the parties is one of a financial lease and hindrance and chief enemy, deserves scant consideration from
not of a contract of sale. courts." Litigations must be decided on their merits and not on
technicality. Every party litigant must be afforded the amplest
opportunity for the proper and just determination of his cause,
V
free from the unacceptable plea of technicalities. Thus,
dismissal of appeals purely on technical grounds is frowned
The Honorable Court of Appeals ERRED IN ruling that the upon where the policy of the court is to encourage hearings of
payments paid by the petitioner to the respondent are appeals on their merits and the rules of procedure ought not
"rentals" and not installments paid for the purchase price of to be applied in a very rigid, technical sense; rules of
the subject motor vehicles, heavy machines and equipment. procedure are used only to help secure, not override
substantial justice. It is a far better and more prudent course
VI of action for the court to excuse a technical lapse and afford
the parties a review of the case on appeal to attain the ends
of justice rather than dispose of the case on technicality and
The Honorable Court of Appeals erred in ruling that the cause a grave injustice to the parties, giving a false
previous contract of sale involving the pick-up vehicle is of no impression of speedy disposal of cases while actually resulting
consequence. in more delay, if not a miscarriage of justice.21

VII Third, while we affirm that the subject lease agreement is a

contract of adhesion, such a contract is not void per se. It is
The Honorable Court of Appeals failed to take into as binding as any ordinary contract. A party who enters into
consideration that the contract of lease, a contract of an adhesion contract is free to reject the stipulations
adhesion, concealed the true intention of the parties, which is entirely.22 If the terms thereof are accepted without objection,
a contract of sale. then the contract serves as the law between the parties.

VIII In Section 23 of the lease contract, it was expressly stated

that:

The Honorable Court of Appeals erred in ruling that the

petitioner is a lessee with insurable interest over the subject SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
personal properties.
23.1. The LESSOR and the LESSEE agree this instrument
IX constitute the entire agreement between them, and that no
representations have been made other than as set forth
herein. This Agreement shall not be amended or altered in any
The Honorable Court of Appeals erred in construing the manner, unless such amendment be made in writing and
intentions of the Court a quo in its usage of the term signed by the parties hereto.
merchantability.18

20
Petitioners claim that the real intention of the parties was a Fourth, the validity of Lease No. 27:95:20 between FEB and
contract of sale of personal property on installment basis is JVL should be upheld. JVL entered into the lease contract with
more likely a mere afterthought in order to defeat the rights full knowledge of its terms and conditions. The contract was in
of the respondent. force for more than four years. Since its inception on March 9,
1995, JVL and Lim never questioned its provisions. They only
attacked the validity of the contract after they were judicially
The Lease Contract with corresponding Lease Schedules with
made to answer for their default in the payment of the agreed
Delivery and Acceptance Certificates is, in point of fact, a
rentals.
financial lease within the purview of R.A. No. 8556. Section
3(d) thereof defines "financial leasing" as:
It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may want
[A] mode of extending credit through a non-cancelable lease
to include in a contract. As long as such agreements are not
contract under which the lessor purchases or acquires, at the
contrary to law, morals, good customs, public policy, or public
instance of the lessee, machinery, equipment, motor vehicles,
order, they shall have the force of law between the parties.26
appliances, business and office machines, and other movable
Contracting parties may stipulate on terms and conditions as
or immovable property in consideration of the periodic
they may see fit and these have the force of law between
payment by the lessee of a fixed amount of money sufficient
them.27
to amortize at least seventy (70%) of the purchase price or
acquisition cost, including any incidental expenses and a
margin of profit over an obligatory period of not less than two The stipulation in Section 1428 of the lease contract, that the
(2) years during which the lessee has the right to hold and equipment shall be insured at the cost and expense of the
use the leased property with the right to expense the lease lessee against loss, damage, or destruction from fire, theft,
rentals paid to the lessor and bears the cost of repairs, accident, or other insurable risk for the full term of the lease,
maintenance, insurance and preservation thereof, but with no is a binding and valid stipulation. Petitioner, as a lessee, has
obligation or option on his part to purchase the leased an insurable interest in the equipment and motor vehicles
property from the owner-lessor at the end of the lease leased. Section 17 of the Insurance Code provides that the
contract. measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury
thereof. It cannot be denied that JVL will be directly damnified
FEB leased the subject equipment and motor vehicles to JVL in
in case of loss, damage, or destruction of any of the
consideration of a monthly periodic payment of P170,494.00.
properties leased.
The periodic payment by petitioner is sufficient to amortize at
least 70% of the purchase price or acquisition cost of the said
movables in accordance with the Lease Schedules with Likewise, the stipulation in Section 9.1 of the lease contract
Delivery and Acceptance Certificates. "The basic purpose of a that the lessor does not warrant the merchantability of the
financial leasing transaction is to enable the prospective buyer equipment is a valid stipulation. Section 9.1 of the lease
of equipment, who is unable to pay for such equipment in contract is stated as:
cash in one lump sum, to lease such equipment in the
meantime for his use, at a fixed rental sufficient to amortize
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE
at least 70% of the acquisition cost (including the expenses
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE
and a margin of profit for the financial lessor) with the
EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR
expectation that at the end of the lease period the
SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
buyer/financial lessee will be able to pay any remaining
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER
balance of the purchase price."23
THEREOF AND THAT THERE ARE NO WARRANTIES,
CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS,
The allegation of petitioner that the rent for the use of each EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY
movable constitutes the value of the vehicle or equipment OR ON BEHALF OF THE LESSOR AS TO ANY FEATURE OR
leased is of no moment. The law on financial lease does not ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS
prohibit such a circumstance and this alone does not make the TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
transaction between the parties a sale of personal property on MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT
installment. In fact, the value of the lease, usually constituting WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
the value or amount of the property involved, is a benefit SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR
allowed by law to the lessor for the use of the property by the SPECIFIC MACHINERY OR APPARATUS OR SPECIAL
lessee for the duration of the lease. It is recognized that the METHODS.29
value of these movables depreciates through wear and tear
upon use by the lessee. In Beltran v. PAIC Finance
In the financial lease agreement, FEB did not assume
Corporation,24 we stated that:
responsibility as to the quality, merchantability, or capacity of
the equipment. This stipulation provides that, in case of defect
Generally speaking, a financing company is not a buyer or of any kind that will be found by the lessee in any of the
seller of goods; it is not a trading company. Neither is it an equipment, recourse should be made to the manufacturer.
ordinary leasing company; it does not make its profit by "The financial lessor, being a financing company, i.e., an
buying equipment and repeatedly leasing out such equipment extender of credit rather than an ordinary equipment rental
to different users thereof. But a financial lease must be company, does not extend a warranty of the fitness of the
preceded by a purchase and sale contract covering the equipment for any particular use. Thus, the financial lessee
equipment which becomes the subject matter of the financial was precisely in a position to enforce such warranty directly
lease. The financial lessor takes the role of the buyer of the against the supplier of the equipment and not against the
equipment leased. And so the formal or documentary tie financial lessor. We find nothing contra legem or contrary to
between the seller and the real buyer of the equipment, i.e., public policy in such a contractual arrangement."30
the financial lessee, is apparently severed. In economic
reality, however, that relationship remains. The sale of the
Fifth, petitioner further proffers the view that the real
equipment by the supplier thereof to the financial lessor and
intention of the parties was to enter into a contract of sale on
the latter's legal ownership thereof are intended to secure the
installment in the same manner that a previous transaction
repayment over time of the purchase price of the equipment,
between the parties over a 1995 Mitsubishi L-200 Strada DC-
plus financing charges, through the payment of lease rentals;
Pick-Up was initially covered by an agreement denominated as
that legal title is the upfront security held by the financial
a lease and eventually became the subject of a Deed of
lessor, a security probably superior in some instances to a
Absolute Sale.
chattel mortgagee's lien.25

21
We join the CA in rejecting this view because to allow the JVL entered into the lease contract with full
transaction involving the pick-up to be read into the terms of knowledge of its terms and conditions.
the lease agreement would expand the coverage of the Lim, as a lessee, has an insurable interest in the
agreement, in violation of Article 1372 of the New Civil Code.
equipment and motor vehicles leased.
31
The lease contract subject of the complaint speaks only of a
lease. Any agreement between the parties after the lease In the financial lease agreement, FEB did not assume
contract has ended is a different transaction altogether and responsibility as to the quality, merchantability, or
should not be included as part of the lease. Furthermore, it is capacity of the equipment. This stipulation provides
a cardinal rule in the interpretation of contracts that if the that, in case of defect of any kind that will be found
terms of a contract are clear and leave no doubt as to the by the lessee in any of the equipment, recourse
intention of the contracting parties, the literal meaning of its should be made to the manufacturer. The financial
stipulations shall control. No amount of extrinsic aid is lessor, being a financing company, i.e., an extender
necessary in order to determine the parties' intent.32 of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness
of the equipment for any particular use. Thus, the
WHEREFORE, in the light of all the foregoing, the petition is financial lessee was precisely in a position to enforce
DENIED. The Decision of the CA in CA-G.R. CV No. 77498 such warranty directly against the supplier of the
dated March 15, 2005 and Resolution dated May 23, 2005 are equipment and not against the financial lessor. We
AFFIRMED. Costs against petitioner. find nothing contra legem or contrary to public policy
in such a contractual arrangement
DIGEST-G.R. No. 168115 June 8, 2007
FT-G.R. No. 125678 March 18, 2002
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable:
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
FACTS:
COURT OF APPEALS and JULITA TRINOS, respondents.

FEB Leasing and Finance Corporation (FEB) leased Ernani Trinos, deceased husband of respondent Julita Trinos,
equipment and motor vehicles to JVL Food Products applied for a health care coverage with petitioner Philamcare
with a monthly rental of P170,494 Health Systems, Inc. In the standard application form, he
At the same date, Vicente Ong Lim Sing, Jr. (Lim) answered no to the following question:
an executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful
Have you or any of your family members ever
performance of the terms and conditions of the lease
consulted or been treated for high blood pressure,
agreement
heart trouble, diabetes, cancer, liver disease, asthma
JVL defaulted in the payment of the monthly rentals or peptic ulcer? (If Yes, give details).1
resulting to arrears of P3,414,468.75 and refused to
pay despite demands
The application was approved for a period of one year from
FEB filed a complaint for damages and replevin
March 1, 1988 to March 1, 1989. Accordingly, he was issued
against JVL, Lim and John Doe
Health Care Agreement No. P010194. Under the agreement,
o JVL and Lim admitted the existence of the respondents husband was entitled to avail of hospitalization
lease agreement but asserted that it is in
benefits, whether ordinary or emergency, listed therein. He
reality a sale of equipment on installment
was also entitled to avail of "out-patient benefits" such as
basis, with FEB acting as the financier
annual physical examinations, preventive health care and
RTC: Sale on installment and the FEB elected full other out-patient services.
payment of the obligation so for the unreturned units
and machineries the JVL and Lim are jointly and
severally liable to pay Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March 1,
CA: granted FEB appeal that it is a financial lease
1990, then from March 1, 1990 to June 1, 1990. The amount
agreement under Republic Act (R.A.) No. 8556 and
of coverage was increased to a maximum sum of P75,000.00
ordered JVL and Lim jointly and severally to
per disability.2
pay P3,414,468.75

During the period of his coverage, Ernani suffered a heart

ISSUE: W/N JVL and Lim should jointly and severally be liable
attack and was confined at the Manila Medical Center (MMC)
for the insured financial lease
for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits
HELD: YES. CA affirmed. under the health care agreement. However, petitioner denied
her claim saying that the Health Care Agreement was void.
contract of adhesion is as binding as any ordinary According to petitioner, there was a concealment regarding
contract Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was
The Lease Contract with corresponding Lease
hypertensive, diabetic and asthmatic, contrary to his answer
Schedules with Delivery and Acceptance Certificates
in the application form. Thus, respondent paid the
is, in point of fact, a financial lease within the
hospitalization expenses herself, amounting to about
purview of R.A. No. 8556
P76,000.00.
o FEB leased the subject equipment and motor
vehicles to JVL in consideration of a monthly
periodic payment of P170,494.00. The After her husband was discharged from the MMC, he was
periodic payment by petitioner is sufficient attended by a physical therapist at home. Later, he was
to amortize at least 70% of the purchase admitted at the Chinese General Hospital. Due to financial
price or acquisition cost of the said difficulties, however, respondent brought her husband home
movables in accordance with the Lease again. In the morning of April 13, 1990, Ernani had fever and
Schedules with was feeling very weak. Respondent was constrained to bring
Delivery and Acceptance Certificates. him back to the Chinese General Hospital where he died on
the same day.

22
On July 24, 1990, respondent instituted with the Regional 5. In consideration of the insurers promise, the
Trial Court of Manila, Branch 44, an action for damages insured pays a premium.8
against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She asked
Section 3 of the Insurance Code states that any contingent or
for reimbursement of her expenses plus moral damages and
unknown event, whether past or future, which may damnify a
attorneys fees. After trial, the lower court ruled against
person having an insurable interest against him, may be
petitioners, viz:
insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides:
WHEREFORE, in view of the forgoing, the Court
renders judgment in favor of the plaintiff Julita
Every person has an insurable interest in the life and
Trinos, ordering:
health:

1. Defendants to pay and reimburse the medical and

(1) of himself, of his spouse and of his children;
hospital coverage of the late Ernani Trinos in the
amount of P76,000.00 plus interest, until the amount
is fully paid to plaintiff who paid the same; (2) of any person on whom he depends wholly or in
part for education or support, or in whom he has a
pecuniary interest;
2. Defendants to pay the reduced amount of moral
damages of P10,000.00 to plaintiff;
(3) of any person under a legal obligation to him for
the payment of money, respecting property or
3. Defendants to pay the reduced amount of
service, of which death or illness might delay or
P10,000.00 as exemplary damages to plaintiff;
prevent the performance; and

4. Defendants to pay attorneys fees of P20,000.00,

(4) of any person upon whose life any estate or
plus costs of suit.
interest vested in him depends.

SO ORDERED.3
In the case at bar, the insurable interest of respondents
husband in obtaining the health care agreement was his own
On appeal, the Court of Appeals affirmed the decision of the health. The health care agreement was in the nature of non-
trial court but deleted all awards for damages and absolved life insurance, which is primarily a contract of indemnity.9
petitioner Reverente.4 Petitioners motion for reconsideration Once the member incurs hospital, medical or any other
was denied.5 Hence, petitioner brought the instant petition for expense arising from sickness, injury or other stipulated
review, raising the primary argument that a health care contingent, the health care provider must pay for the same to
agreement is not an insurance contract; hence the the extent agreed upon under the contract.
"incontestability clause" under the Insurance Code6 does not
apply.1wphi1.nt
Petitioner argues that respondents husband concealed a
material fact in his application. It appears that in the
Petitioner argues that the agreement grants "living benefits," application for health coverage, petitioners required
such as medical check-ups and hospitalization which a respondents husband to sign an express authorization for any
member may immediately enjoy so long as he is alive upon person, organization or entity that has any record or
effectivity of the agreement until its expiration one-year knowledge of his health to furnish any and all information
thereafter. Petitioner also points out that only medical and relative to any hospitalization, consultation, treatment or any
hospitalization benefits are given under the agreement other medical advice or examination.10 Specifically, the Health
without any indemnification, unlike in an insurance contract Care Agreement signed by respondents husband states:
where the insured is indemnified for his loss. Moreover, since
Health Care Agreements are only for a period of one year, as
We hereby declare and agree that all statement and
compared to insurance contracts which last longer,7 petitioner
answers contained herein and in any addendum
argues that the incontestability clause does not apply, as the
annexed to this application are full, complete and
same requires an effectivity period of at least two years.
true and bind all parties in interest under the
Petitioner further argues that it is not an insurance company,
Agreement herein applied for, that there shall be no
which is governed by the Insurance Commission, but a Health
contract of health care coverage unless and until an
Maintenance Organization under the authority of the
Agreement is issued on this application and the full
Department of Health.
Membership Fee according to the mode of payment
applied for is actually paid during the lifetime and
Section 2 (1) of the Insurance Code defines a contract of good health of proposed Members; that no
insurance as an agreement whereby one undertakes for a information acquired by any Representative of
consideration to indemnify another against loss, damage or PhilamCare shall be binding upon PhilamCare unless
liability arising from an unknown or contingent event. An set out in writing in the application; that any
insurance contract exists where the following elements physician is, by these presents, expressly authorized
concur: to disclose or give testimony at anytime relative to
any information acquired by him in his professional
capacity upon any question affecting the eligibility for
1. The insured has an insurable interest;
health care coverage of the Proposed Members and
that the acceptance of any Agreement issued on this
2. The insured is subject to a risk of loss by the application shall be a ratification of any correction in
happening of the designated peril; or addition to this application as stated in the space
for Home Office Endorsement.11 (Underscoring ours)
3. The insurer assumes the risk;
In addition to the above condition, petitioner additionally
4. Such assumption of risk is part of a general required the applicant for authorization to inquire about the
scheme to distribute actual losses among a large applicants medical history, thus:
group of persons bearing a similar risk; and

23
 I hereby authorize any person, organization, or entity agreements as in insurance policies require the concurrence of
that has any record or knowledge of my health the following conditions:
and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative
1. Prior notice of cancellation to insured;
to any hospitalization, consultation, treatment or any
other medical advice or examination. This
authorization is in connection with the application for 2. Notice must be based on the occurrence after effective date
health care coverage only. A photographic copy of of the policy of one or more of the grounds mentioned;
this authorization shall be as valid as the original.12
(Underscoring ours) 3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
Petitioner cannot rely on the stipulation regarding
"Invalidation of agreement" which reads: 4. Must state the grounds relied upon provided in Section 64
of the Insurance Code and upon request of insured, to furnish
Failure to disclose or misrepresentation of any facts on which cancellation is based.18
material information by the member in the
application or medical examination, whether None of the above pre-conditions was fulfilled in this case.
intentional or unintentional, shall automatically When the terms of insurance contract contain limitations on
invalidate the Agreement from the very beginning liability, courts should construe them in such a way as to
and liability of Philamcare shall be limited to return of preclude the insurer from non-compliance with his
all Membership Fees paid. An undisclosed or obligation.19 Being a contract of adhesion, the terms of an
misrepresented information is deemed material if its insurance contract are to be construed strictly against the
revelation would have resulted in the declination of party which prepared the contract the insurer.20 By reason
the applicant by Philamcare or the assessment of a of the exclusive control of the insurance company over the
higher Membership Fee for the benefit or benefits terms and phraseology of the insurance contract, ambiguity
applied for.13 must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture.21 This is
The answer assailed by petitioner was in response to the equally applicable to Health Care Agreements. The
question relating to the medical history of the applicant. This phraseology used in medical or hospital service contracts,
largely depends on opinion rather than fact, especially coming such as the one at bar, must be liberally construed in favor of
from respondents husband who was not a medical doctor. the subscriber, and if doubtful or reasonably susceptible of
Where matters of opinion or judgment are called for, answers two interpretations the construction conferring coverage is to
made in good faith and without intent to deceive will not avoid be adopted, and exclusionary clauses of doubtful import
a policy even though they are untrue.14 Thus, should be strictly construed against the provider.22

(A)lthough false, a representation of the expectation, Anent the incontestability of the membership of respondents
intention, belief, opinion, or judgment of the insured husband, we quote with approval the following findings of the
will not avoid the policy if there is no actual fraud in trial court:
inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the (U)nder the title Claim procedures of expenses, the
rule although the statement is material to the risk, if defendant Philamcare Health Systems Inc. had
the statement is obviously of the foregoing character, twelve months from the date of issuance of the
since in such case the insurer is not justified in Agreement within which to contest the membership
relying upon such statement, but is obligated to of the patient if he had previous ailment of asthma,
make further inquiry. There is a clear distinction and six months from the issuance of the agreement if
between such a case and one in which the insured is the patient was sick of diabetes or hypertension. The
fraudulently and intentionally states to be true, as a periods having expired, the defense of concealment
matter of expectation or belief, that which he then or misrepresentation no longer lie.23
knows, to be actually untrue, or the impossibility of
which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is Finally, petitioner alleges that respondent was not the legal
obvious and amounts to actual fraud.15 (Underscoring wife of the deceased member considering that at the time of
ours) their marriage, the deceased was previously married to
another woman who was still alive. The health care agreement
is in the nature of a contract of indemnity. Hence, payment
The fraudulent intent on the part of the insured must be should be made to the party who incurred the expenses. It is
established to warrant rescission of the insurance contract.16 not controverted that respondent paid all the hospital and
Concealment as a defense for the health care provider or medical expenses. She is therefore entitled to reimbursement.
insurer to avoid liability is an affirmative defense and the duty The records adequately prove the expenses incurred by
to establish such defense by satisfactory and convincing respondent for the deceaseds hospitalization, medication and
evidence rests upon the provider or insurer. In any case, with the professional fees of the attending physicians.24
or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to WHEREFORE, in view of the foregoing, the petition is
answer the same to the extent agreed upon. In the end, the DENIED. The assailed decision of the Court of Appeals dated
liability of the health care provider attaches once the member December 14, 1995 is AFFIRMED.
is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits DIGEST- Philamcare v CA G.R. No. 125678. March 18,
which he has prepaid. 2002

Under Section 27 of the Insurance Code, "a concealment Facts:

entitles the injured party to rescind a contract of insurance." Ernani Trinos applied for a health care coverage with Philam.
The right to rescind should be exercised previous to the He answered no to a question asking if he or his family
commencement of an action on the contract.17 In this case, no members were treated to heart trouble, asthma, diabetes,
rescission was made. Besides, the cancellation of health care etc.

24
The application was approved for 1 year. He was also given 3. Must be in writing, mailed or delivered to the insured at
hospitalization benefits and out-patient benefits. After the the address shown in the policy;
period expired, he was given an expanded coverage for Php 4. Must state the grounds relied upon provided in Section
75,000. During the period, he suffered from heart attack and 64 of the Insurance Code and upon request of insured, to
was confined at MMC. The wife tried to claim the benefits but furnish facts on which cancellation is based
the petitioner denied it saying that he concealed his medical None were fulfilled by the provider.
history by answering no to the aforementioned question. She As to incontestability- The trial court said that under the title
had to pay for the hospital bills amounting to 76,000. Her Claim procedures of expenses, the defendant Philamcare
husband subsequently passed away. She filed a case in the Health Systems Inc. had twelve months from the date of
trial court for the collection of the amount plus damages. She issuance of the Agreement within which to contest the
was awarded 76,000 for the bills and 40,000 for damages. membership of the patient if he had previous ailment of
The CA affirmed but deleted awards for damages. Hence, this asthma, and six months from the issuance of the agreement if
appeal. the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or
Issue: WON a health care agreement is not an insurance misrepresentation no longer lie.
contract; hence the incontestability clause under the
Insurance Code does not apply.
FT-G.R. No. 124520 August 18, 1997
Held: No. Petition dismissed.

Ratio: Spouses NILO CHA and STELLA UY CHA, and UNITED

Petitioner claimed that it granted benefits only when the INSURANCE CO., INC., petitioners,
insured is alive during the one-year duration. It contended vs.
that there was no indemnification unlike in insurance COURT OF APPEALS and CKS DEVELOPMENT
contracts. It supported this claim by saying that it is a health CORPORATION, respondents.
maintenance organization covered by the DOH and not the
Insurance Commission. Lastly, it claimed that the This petition for review on certiorari under Rule 45 of the
Incontestability clause didnt apply because two-year and not Rules of Court seeks to set aside a decision of respondent
one-year effectivity periods were required. Court of Appeals.
Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or The undisputed facts of the case are as follows:
liability arising from an unknown or contingent event.
Section 3 states: every person has an insurable interest in the 1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees,
life and health: entered into a lease contract with private respondent CKS
(1) of himself, of his spouse and of his children. Development Corporation (hereinafter CKS), as lessor, on 5
In this case, the husbands health was the insurable interest. October 1988.
The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity. The
provider must pay for the medical expenses resulting from 2. One of the stipulations of the one (1) year lease contract
sickness or injury. states:
While petitioner contended that the husband concealed
materialfact of his sickness, the contract stated that: 18. . . . The LESSEE shall not insure against fire the
that any physician is, by these presents, expressly authorized chattels, merchandise, textiles, goods and effects
to disclose or give testimony at anytime relative to any placed at any stall or store or space in the leased
information acquired by him in his professional capacity upon premises without first obtaining the written consent
any question affecting the eligibility for health care coverage and approval of the LESSOR. If the LESSEE obtain(s)
of the Proposed Members. the insurance thereof without the consent of the
This meant that the petitioners required him to sign LESSOR then the policy is deemed assigned and
authorization to furnish reports about his medical condition. transferred to the LESSOR for its own benefit; . . . 1
The contract also authorized Philam to inquire directly to his
medical history.
3. Notwithstanding the above stipulation in the lease contract,
Hence, the contention of concealment isnt valid.
the Cha spouses insured against loss by fire the merchandise
They cant also invoke the Invalidation of agreement clause
inside the leased premises for Five Hundred Thousand
where failure of the insured to disclose information was a
(P500,000.00) with the United Insurance Co., Inc.
grounds for revocation simply because the answer assailed by
(hereinafter United) without the written consent of private
the company was the heart condition question based on the
respondent CKS.
insureds opinion. He wasnt a medical doctor, so he cant
accurately gauge his condition.
Henrick v Fire- in such case the insurer is not justified in 4. On the day that the lease contract was to expire, fire broke
relying upon such statement, but is obligated to make further out inside the leased premises.
inquiry.
Fraudulent intent must be proven to rescind the contract. This 5. When CKS learned of the insurance earlier procured by the
was incumbent upon the provider. Cha spouses (without its consent), it wrote the insurer
Having assumed a responsibility under the agreement, (United) a demand letter asking that the proceeds of the
petitioner is bound to answer the same to the extent agreed insurance contract (between the Cha spouses and United) be
upon. In the end, the liability of the health care provider paid directly to CKS, based on its lease contract with the Cha
attaches once the member is hospitalized for the disease or spouses.
injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Section 27 of the Insurance Code- a concealment entitles the 6. United refused to pay CKS. Hence, the latter filed a
injured party to rescind a contract of insurance. complaint against the Cha spouses and United.
As to cancellation procedure- Cancellation requires certain
conditions: 7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila,
1. Prior notice of cancellation to insured; rendered a decision * ordering therein defendant United to
2. Notice must be based on the occurrence after effective pay CKS the amount of P335,063.11 and defendant Cha
date of the policy of one or more of the grounds mentioned; spouses to pay P50,000.00 as exemplary damages,
P20,000.00 as attorney's fees and costs of suit.
25
8. On appeal, respondent Court of Appeals in CA GR CV No. insurance policy on property upon which he has no insurable
39328 rendered a decision ** dated 11 January 1996, interest and collecting the proceeds of said policy in case of
affirming the trial court decision, deleting however the awards loss of the property. In such a case, the contract of insurance
for exemplary damages and attorney's fees. A motion for is a mere wager which is void under Section 25 of the
reconsideration by United was denied on 29 March 1996. Insurance Code, which provides:

In the present petition, the following errors are assigned by Sec. 25. Every stipulation in a policy of Insurance for
petitioners to the Court of Appeals: 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
I
interest, and every policy executed by way of gaming
or wagering, is void.
THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO DECLARE THAT THE STIPULATION IN
In the present case, it cannot be denied that CKS has no
THE CONTRACT OF LEASE TRANSFERRING THE
insurable interest in the goods and merchandise inside the
PROCEEDS OF THE INSURANCE TO RESPONDENT IS
leased premises under the provisions of Section 17 of the
NULL AND VOID FOR BEING CONTRARY TO LAW,
Insurance Code which provide:
MORALS AND PUBLIC POLICY

Sec. 17. The measure of an insurable interest in

II
property is the extent to which the insured might be
damnified by loss of injury thereof.
THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO DECLARE THE CONTRACT OF LEASE
Therefore, respondent CKS cannot, under the Insurance Code
ENTERED INTO AS A CONTRACT OF ADHESION AND
a special law be validly a beneficiary of the fire insurance
THEREFORE THE QUESTIONABLE PROVISION
policy taken by the petitioner-spouses over their merchandise.
THEREIN TRANSFERRING THE PROCEEDS OF THE
This insurable interest over said merchandise remains with the
INSURANCE TO RESPONDENT MUST BE RULED OUT
insured, the Cha spouses. The automatic assignment of the
IN FAVOR OF PETITIONER
policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or
III public policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy-Cha
THE HONORABLE COURT OF APPEALS ERRED IN (herein co-petitioners). The insurer (United) cannot be
AWARDING PROCEEDS OF AN INSURANCE POLICY compelled to pay the proceeds of the fire insurance policy to a
TO APPELLEE WHICH IS NOT PRIVY TO THE SAID person (CKS) who has no insurable interest in the property
POLICY IN CONTRAVENTION OF THE INSURANCE insured.
LAW
The liability of the Cha spouses to CKS for violating their lease
IV contract in that the Cha spouses obtained a fire insurance
policy over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not resolve
THE HONORABLE COURT OF APPEALS ERRED IN in this case.
AWARDING PROCEEDS OF AN INSURANCE POLICY
ON THE BASIS OF A STIPULATION WHICH IS VOID
FOR BEING WITHOUT CONSIDERATION AND FOR WHEREFORE, the decision of the Court of Appeals in CA-G.R.
BEING TOTALLY DEPENDENT ON THE WILL OF THE CV No. 39328 is SET ASIDE and a new decision is hereby
RESPONDENT CORPORATION. 2 entered, awarding the proceeds of the fire insurance policy to
petitioners Nilo Cha and Stella Uy-Cha.

The core issue to be resolved in this case is whether or not

the aforequoted paragraph 18 of the lease contract entered DIGEST-G.R. No. 124520 August 18, 1997
into between CKS and the Cha spouses is valid insofar as it
Lessons Applicable: Effect of Lack of Insurable Interest
provides that any fire insurance policy obtained by the lessee
(Insurance)
(Cha spouses) over their merchandise inside the leased
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance
premises is deemed assigned or transferred to the lessor
Code
(CKS) if said policy is obtained without the prior written
consent of the latter.
FACTS:
It is, of course, basic in the law on contracts that the
stipulations contained in a contract cannot be contrary to law, Spouses Nilo Cha and Stella Uy-Cha and CKS
morals, good customs, public order or public policy. 3 Development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire
Sec. 18 of the Insurance Code provides: 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
Sec. 18. No contract or policy of insurance on and approval of the lessor. But it insured against
property shall be enforceable except for the benefit loss by fire their merchandise inside the leased
of some person having an insurable interest in the premises for P500,000 with the United Insurance Co.,
property insured. Inc. without the written consent of CKS
On the day the lease contract was to expire, fire
A non-life insurance policy such as the fire insurance policy broke out inside the leased premises and CKS
taken by petitioner-spouses over their merchandise is learning that the spouses procured an insurance
primarily a contract of indemnity. Insurable interest in the wrote to United to have the proceeds be paid directly
property insured must exist at the time the insurance takes to them. But United refused so CKS filed against
effect and at the time the loss occurs. 4 The basis of such Spouses Cha and United.
requirement of insurable interest in property insured is based RTC: United to pay CKS the amount of P335,063.11
on sound public policy: to prevent a person from taking out an and Spouses Cha to pay P50,000 as exemplary
26
 damages, P20,000 as attorneys fees and costs of On April 19, 1975, Azucena Palomo obtained a loan
suit from Tai Tong Chuache Inc. in the amount of
CA: deleted exemplary damages and attorneys fees P100,000.00. To secure the payment of the loan, a
mortgage was executed over the land and the
building in favor of Tai Tong Chuache & Co. (Exhibit
ISSUE: W/N the CKS has insurable interest because the "1" and "1-A"). On April 25, 1975, Arsenio Chua,
spouses Cha violated the stipulation representative of Thai Tong Chuache & Co. insured
the latter's interest with Travellers Multi-Indemnity
HELD: NO. CA set aside. Awarding the proceeds to spouses Corporation for P100,000.00 (P70,000.00 for the
Cha. building and P30,000.00 for the contents thereof)
(Exhibit "A-a," contents thereof) (Exhibit "A-a").
Sec. 18. No contract or policy of insurance on
property shall be enforceable except for the benefit On June 11, 1975, Pedro Palomo secured a Fire
of some person having an insurable interest in the Insurance Policy No. F- 02500 (Exhibit "A"), covering
property insured the building for P50,000.00 with respondent Zenith
A non-life insurance policy such as the fire insurance Insurance Corporation. On July 16, 1975, another
policy taken by petitioner-spouses over their Fire Insurance Policy No. 8459 (Exhibit "B") was
merchandise is primarily a contract of procured from respondent Philippine British
indemnity. Insurable interest in the property insured Assurance Company, covering the same building for
must exist a t the time the insurance takes effect and P50,000.00 and the contents thereof for P70,000.00.
at the time the loss occurs. The basis of such
requirement of insurable interest in property insured On July 31, 1975, the building and the contents were
is based on sound public policy: to prevent a person totally razed by fire.
from taking out an insurance policy on property upon
which he has no insurable interest and collecting the
Adjustment Standard Corporation submitted a report
proceeds of said policy in case of loss of the
as follow
property. In such a case, the contract of insurance is
a mere wager which is void under Section 25 of the
Insurance Code. xxx xxx xxx
SECTION 25. Every stipulation in a policy of
Insurance for the payment of loss, whether the ... Thus the apportioned share of each company is as
person insured has or has not any interest in the follows:
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 We are showing hereunder another apportionment of
the loss which includes the Travellers Multi-Indemnity
Section 17. The measure of an insurable interest in
policy for reference purposes.
property is the extent to which the insured might be
damnified by loss of injury thereof
The automatic assignment of the policy to CKS under Based on the computation of the loss, including the
the provision of the lease contract previously quoted Travellers Multi- Indemnity, respondents, Zenith
is void for being contrary to law and/or public Insurance, Phil. British Assurance and S.S.S.
policy. The proceeds of the fire insurance policy thus Accredited Group of Insurers, paid their
rightfully belong to the spouses. The liability of the corresponding shares of the loss. Complainants were
Cha spouses to CKS for violating their lease contract paid the following: P41,546.79 by Philippine British
in that Cha spouses obtained a fire insurance policy Assurance Co., P11,877.14 by Zenith Insurance
over their own merchandise, without the consent of Corporation, and P5,936.57 by S.S.S. Group of
CKS, is a separate and distinct issue which we do not Accredited Insurers (Par. 6. Amended Complaint).
resolve in this case. Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was
refused. Hence, complainants demanded from the
FT-G.R. No. L-55397 February 29, 1988 other three (3) respondents the balance of each
share in the loss based on the computation of the
TAI TONG CHUACHE & CO., petitioner, Adjustment Standards Report excluding Travellers
vs. Multi-Indemnity in the amount of P30,894.31
THE INSURANCE COMMISSION and TRAVELLERS MULTI- (P5,732.79-Zenith Insurance: P22,294.62, Phil.
INDEMNITY CORPORATION, respondents. British: and P2,866.90, SSS Accredited) but the
same was refused, hence, this action.
This petition for review on certiorari seeks the reversal of the
decision of the Insurance Commission in IC Case #367 1 In their answers, Philippine British Assurance and
dismissing the complaint 2 for recovery of the alleged unpaid Zenith Insurance Corporation admitted the material
balance of the proceeds of the Fire Insurance Policies issued allegations in the complaint, but denied liability on
by herein respondent insurance company in favor of the ground that the claim of the complainants had
petitioner-intervenor. already been waived, extinguished or paid. Both
companies set up counterclaim in the total amount of
P 91,546.79.
The facts of the case as found by respondent Insurance
Commission are as follows:
Instead of filing an answer, SSS Accredited Group of
Insurers informed the Commission in its letter of July
Complainants acquired from a certain Rolando 22, 1977 that the herein claim of complainants for
Gonzales a parcel of land and a building located at the balance had been paid in the amount of P
San Rafael Village, Davao City. Complainants 5,938.57 in full, based on the Adjustment Standards
assumed the mortgage of the building in favor of Corporation Report of September 22, 1975.
S.S.S., which building was insured with respondent
S.S.S. Accredited Group of Insurers for P25,000.00.
Travellers Insurance, on its part, admitted the
issuance of the Policy No. 599 DV and alleged as its

27
 special and affirmative defenses the following, to wit: Palomos, Antonio Lopez Chua stands as the complainant and
that Fire Policy No. 599 DV, covering the furniture not petitioner Tai Tong Chuache & Company.
and building of complainants was secured by a
certain Arsenio Chua, mortgage creditor, for the
We find the petition to be impressed with merit. It is a well
purpose of protecting his mortgage credit against the
known postulate that the case of a party is constituted by his
complainants; that the said policy was issued in the
own affirmative allegations. Under Section 1, Rule 131 6 each
name of Azucena Palomo, only to indicate that she
party must prove his own affirmative allegations by the
owns the insured premises; that the policy contains
amount of evidence required by law which in civil cases as in
an endorsement in favor of Arsenio Chua as his
the present case is preponderance of evidence. The party,
mortgage interest may appear to indicate that
whether plaintiff or defendant, who asserts the affirmative of
insured was Arsenio Chua and the complainants; that
the issue has the burden of presenting at the trial such
the premium due on said fire policy was paid by
amount of evidence as required by law to obtain favorable
Arsenio Chua; that respondent Travellers is not liable
judgment. 7 Thus, petitioner who is claiming a right over the
to pay complainants.
insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an
On May 31, 1977, Tai Tong Chuache & Co. filed a affirmative defense of lack of insurable interest on the part of
complaint in intervention claiming the proceeds of the petitioner must prove its own affirmative allegations.
the fire Insurance Policy No. F-559 DV, issued by
respondent Travellers Multi-Indemnity.
It will be recalled that respondent insurance company did not
assail the validity of the insurance policy taken out by
Travellers Insurance, in answer to the complaint in petitioner over the mortgaged property. Neither did it deny
intervention, alleged that the Intervenor is not that the said property was totally razed by fire within the
entitled to indemnity under its Fire Insurance Policy period covered by the insurance. Respondent, as mentioned
for lack of insurable interest before the loss of the earlier advanced an affirmative defense of lack of insurable
insured premises and that the complainants, spouses interest on the part of the petitioner that before the
Pedro and Azucena Palomo, had already paid in full occurrence of the peril insured against the Palomos had
their mortgage indebtedness to the intervenor. 3 already paid their credit due the petitioner. Respondent
having admitted the material allegations in the complaint, has
the burden of proof to show that petitioner has no insurable
As adverted to above respondent Insurance Commission
interest over the insured property at the time the contingency
dismissed spouses Palomos' complaint on the ground that the
took place. Upon that point, there is a failure of proof.
insurance policy subject of the complaint was taken out by Tai
Respondent, it will be noted, exerted no effort to present any
Tong Chuache & Company, petitioner herein, for its own
evidence to substantiate its claim, while petitioner did. For
interest only as mortgagee of the insured property and thus
said respondent's failure, the decision must be adverse to it.
complainant as mortgagors of the insured property have no
right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words: However, as adverted to earlier, respondent Insurance
Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then
We move on the issue of liability of respondent
Court of First Instance of Davao, Branch II, that in a certain
Travellers Multi-Indemnity to the Intervenor-
civil action against the Palomos, Arsenio Lopez Chua stands as
mortgagee. The complainant testified that she was
the complainant and not Tai Tong Chuache. From said
still indebted to Intervenor in the amount of
evidence respondent commission inferred that the credit
P100,000.00. Such allegation has not however, been
extended by herein petitioner to the Palomos secured by the
sufficiently proven by documentary evidence. The
insured property must have been paid. Such is a glaring error
certification (Exhibit 'E-e') issued by the Court of First
which this Court cannot sanction. Respondent Commission's
Instance of Davao, Branch 11, indicate that the
findings are based upon a mere inference.
complainant was Antonio Lopez Chua and not Tai
Tong Chuache & Company. 4
The record of the case shows that the petitioner to support its
claim for the insurance proceeds offered as evidence the
From the above decision, only intervenor Tai Tong Chuache
contract of mortgage (Exh. 1) which has not been cancelled
filed a motion for reconsideration but it was likewise denied
nor released. It has been held in a long line of cases that
hence, the present petition.
when the creditor is in possession of the document of credit,
he need not prove non-payment for it is presumed. 8 The
It is the contention of the petitioner that respondent validity of the insurance policy taken b petitioner was not
Insurance Commission decided an issue not raised in the assailed by private respondent. Moreover, petitioner's claim
pleadings of the parties in that it ruled that a certain Arsenio that the loan extended to the Palomos has not yet been paid
Lopez Chua is the one entitled to the insurance proceeds and was corroborated by Azucena Palomo who testified that they
not Tai Tong Chuache & Company. are still indebted to herein petitioner. 9

This Court cannot fault petitioner for the above erroneous Public respondent argues however, that if the civil case really
interpretation of the decision appealed from considering the stemmed from the loan granted to Azucena Palomo by
manner it was written. 5 As correctly pointed out by petitioner the same should have been brought by Tai Tong
respondent insurance commission in their comment, the Chuache or by its representative in its own behalf. From the
decision did not pronounce that it was Arsenio Lopez Chua above premise respondent concluded that the obligation
who has insurable interest over the insured property. Perusal secured by the insured property must have been paid.
of the decision reveals however that it readily absolved
respondent insurance company from liability on the basis of
The premise is correct but the conclusion is wrong. Citing Rule
the commissioner's conclusion that at the time of the
3, Sec. 2 10 respondent pointed out that the action must be
occurrence of the peril insured against petitioner as
brought in the name of the real party in interest. We agree.
mortgagee had no more insurable interest over the insured
However, it should be borne in mind that petitioner being a
property. It was based on the inference that the credit
partnership may sue and be sued in its name or by its duly
secured by the mortgaged property was already paid by the
authorized representative. The fact that Arsenio Lopez Chua is
Palomos before the said property was gutted down by fire.
the representative of petitioner is not questioned. Petitioner's
The foregoing conclusion was arrived at on the basis of the
declaration that Arsenio Lopez Chua acts as the managing
certification issued by the then Court of First Instance of
partner of the partnership was corroborated by respondent
Davao, Branch II that in a certain civil action against the
28
insurance company. 11 Thus Chua as the managing partner of
the partnership may execute all acts of administration 12 HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai
including the right to sue debtors of the partnership in case of Tong Chuache & Co.
their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the when the creditor is in possession of the document of
partnership. Being an agent, it is understood that he acted for credit, he need not prove non-payment for it is
and in behalf of the firm. 13 Public respondent's allegation that presumed
the civil case flied by Arsenio Chua was in his capacity as o The validity of the insurance policy taken b
personal creditor of spouses Palomo has no basis. petitioner was not assailed by private
respondent. Moreover, petitioner's claim
that the loan extended to the Palomos has
The respondent insurance company having issued a policy in not yet been paid was corroborated by
favor of herein petitioner which policy was of legal force and Azucena Palomo who testified that they are
effect at the time of the fire, it is bound by its terms and still indebted to herein petitioner
conditions. Upon its failure to prove the allegation of lack of
Chua being a partner of petitioner Tai Tong Chuache
insurable interest on the part of the petitioner, respondent
& Company is an agent of the partnership. Being an
insurance company is and must be held liable.
agent, it is understood that he acted for and in behalf
of the firm
IN VIEW OF THE FOREGOING, the decision appealed from is Upon its failure to prove the allegation of lack of
hereby SET ASIDE and ANOTHER judgment is rendered order insurable interest on the part of the petitioner,
private respondent Travellers Multi-Indemnity Corporation to Travellers must be held liable
pay petitioner the face value of Insurance Policy No. 599-DV
in the amount of P100,000.00. Costs against said private
respondent.

DIGEST-G.R. No. L-55397 February 29, 1988

Lessons Applicable: When Insurable Interest Must Exist

(Insurance)

FACTS:

Azucena Palomo bought a parcel of land and building

from Rolando Gonzales and assumed a mortgage of
the building in favor of S.S.S. which was insured with
S.S.S. Accredited Group of Insurers
April 19, 1975: Azucena Palomo obtained a loan from
Tai Tong Chuache Inc. in the amount of P100,000
and to secure it, the land and building was
mortgaged
June 11, 1975: Pedro Palomo secured a Fire
Insurance Policy covering the building for P50,000
with Zenith Insurance Corporation
July 16, 1975: another Fire Insurance policy was
procured from Philippine British Assurance Company,
covering the same building for P50,000 and the
contents thereof for P70,000
Before the occurrence of the peril insured against the
Palomos had already paid their credit due the
July 31, 1975: building and the contents were totally
razed by fire
Palomo was able to claim P41,546.79 from Philippine
British Assurance Co., P11,877.14 from Zenith
Insurance Corporation and P5,936.57 from S.S.S.
Group of Accredited Insurers but Travellers Multi-
Indemnity refused so it demanded the balance from
the other three but they refused so they filed against
them
Insurance Commission, CFI: absolved Travellers on
the basis that Arsenio Cua was claiming and NOT Tai
Tong Chuache
Palomo Appealed
o Travellers reasoned that the policy is
endorsed to Arsenio Chua, mortgage
creditor
o Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the
fire Insurance Policy issued by travellers
o affirmative defense of lack of insurable
interest that before the occurrence of the
peril insured against the Palomos had
already paid their credit due the petitioner

ISSUE: W/N Tai Tong Chuache & Co. has insurable interest
29