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[1910V231] E. M. BACHRACH, plaintiff-appellee, vs. BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant.1910 Dec 201st DivisionG.R. No. L-5715D E C I S I O N

JOHNSON, J.:

On the 13th of July, 1908, the plaintiff commenced an action against the defendant to recover the sum of P9,841.50, the amount due, deducting the salvage, upon the following fire insurance policy issued by the defendant to the plaintiff:

"[Fire policy No. 3007499.]

"This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila (hereinafter called the insured), having paid to the undersigned, as authorized agent of the British American Assurance Company (hereinafter called the company), the sum of two thousand pesos Philippine currency, for insuring against loss or damage by fire, as hereinafter mentioned, the property hereinafter described in the sum of several sums following, viz:

"Ten thousand pesos Philippine currency, on goods, belonging to a general furniture store, such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea-grass furniture (in accordance with warranty 'D' of the tariff attached hereto) the property of the assured, in trust, on commission or for which he is responsible, whilst stored in the ground floor and first story of house and dwelling No. 16 Calle Martinez, district 3, block 70, Manila, built, ground floor of stone and or brick, first story of hard wood and roofed with galvanized iron ---- bounded in the front by the said calle, on one side by Calle David and on the other two sides by buildings of similar construction and occupation.

"Co-insurances allowed, particulars of which to be declared in the event of loss or claim.

"The company hereby agrees with the insured (but subject to the conditions on the back hereof, which are to be taken as a part of this policy) that if the property above described, or any part thereof, shall be destroyed or damaged by fire, at any time between the 21st day of February, 1908, and 4 o'clock in the afternoon of the 21st day of February, 1909, or (in case of the renewal of this policy) at any time afterwards, so long as, and during the period in respect of which the insured shall have paid to the company, and they shall have accepted, the sum required for the renewal of this policy, the company will, out of their capital stock, and funds, pay or make good to the insured the value of the property so destroyed, or the amount of such damage thereto, to any amount not exceeding, in respect of each or any of the several matters above specified, the sum set opposite thereto, respectively, and not exceeding in the whole the sum of

ten thousand pesos, and also not exceeding, in any case, the amount of the insurable interest therein of the insured at the time of the happening of such fire. "In witness whereof, the British American Assurance Company has caused these presents to be signed this 21st day of February, in the year of our Lord 1908.

"For the company.

"W. F. STEVENSON & CO., LTD.,

"By________________,

"Manager Agents."

And indorsed on the back the following:

"The within policy covers and includes a 'Calalac' automobile to the extent of (1,250) twelve hundred and fifty pesos Philippine currency.

"Memo: Permission is hereby granted for the use of gasoline not to exceed 10 gallons for the above automobile, but only whilst contained in the reservoir of the car. It is further warranted that the car be neither filled nor emptied in the within-described building or this policy be null and void.

"Manila, 27th February, 1908.

"W. F. STEVENSON & CO., LTD.,

"By ______________,

"Manager Agents."

The defendant answered the complaint, admitting some of the facts alleged by the plaintiff and denying others. The defendant also alleged certain facts under which it claimed that it was released from all obligations whatever under said policy. These special facts are as follows:

First. That the plaintiff maintained a paint and varnish shop in the said building where the goods which were insured were stored.

Second. That the plaintiff transferred his interest in and to the property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the plaintiff had transferred his interest in certain of the goods covered by the said policy to one Macke, to secure certain obligations assumed by the said Macke for and on behalf of the insured. That the sanction of the said defendant had not been obtained by the plaintiff, as required by the said policy.

Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the outbreak of the alleged fire, willfully placed a gasoline can containing 10 gallons of gasoline in the upper story of said building in close proximity to a portion of said goods, wares, and merchandise, which can was so placed by the plaintiff as to permit the gasoline to run on the floor of said second story, and after so placing said gasoline, he, the plaintiff, placed in close proximity to said escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk of fire.

Fourth. That the plaintiff made no proof of the loss within the time required by condition five of said policy, nor did the insured file a statement with the municipal or any other judge or court of the goods alleged to have been in said building at the time of the alleged fire, nor of the goods saved, nor the loss suffered.

The plaintiff, after denying nearly all of the facts set out in the special answer of the defendant, alleged:

First. That he had been acquitted in a criminal action against him, after a trial duly and regularly had, upon a charge of arson, based upon the same alleged facts set out in the answer of the defendant.

Second. That he had made no proof of the loss set up in his complaint for the reason that immediately after the had, on the 20th of April, 1908, given the defendant due notice in writing of said loss, the defendant, on the 21st of April, 1908, and thereafter on other occasions, had waived all right to require proof of said loss by denying all liability under the policy and by declaring said policy to be null and void.

After hearing the evidence adduced during the trial of the cause, the lower court found that the defendant was liable to the plaintiff and rendered a judgment against the defendant for the sum of P9,841.50, with interest for a period of one year at 6 per cent, making a total of P10,431.99, with costs.

From that decision the defendant appealed and made the following assignments of error:

1. The court erred in failing to hold that the use of the building, No. 16 Calle Martinez, as a paint and varnish shop annulled the policy of insurance.

2. The court erred in failing to hold that the execution of the chattel mortgages without the knowledge and consent of the insurance company and without receiving the sanction of said company annulled the policy of insurance.

3. The court erred in holding that the keeping of gasoline and alcohol not in bottles in the building No. 16 Calle Martinez was not such a violation of the conditions of the policy as to render the same null and void.

4. The court erred in failing to find as a fact that E. M. Bachrach, the insured, willfully placed a gasoline can containing about 10 gallons of gasoline in the upper story of said building, No. 16 Calle Martinez, in close proximity to a portion of the goods, wares, and merchandise stored therein, and that said can was so placed by said Bachrach as to permit the gasoline to run on the floor of said second story.

5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said gasoline can in close proximity to the goods, wares, and merchandise covered by the policy of insurance, that he (Bachrach) placed in close proximity to said escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing the risk of fire.

6. The court erred in holding that the policy of insurance was in force at the time of said fire, and that the acts or omissions on the part of the insured which caused, or tended to cause, the forfeiture of the policy, were waived by the defendant.

7. The court erred in holding the defendant liable for the loss under the policy.

8. The court erred in refusing to deduct from the loss sustained by Bachrach the value of the automobile, which was saved without damage.

9. The court erred in refusing to grant the motion for a new trial.

10. The court erred in refusing to enter judgment in favor of the defendant and against the plaintiff.

With reference to the first above assignment of error, the lower court in its decision said:

"It is claimed that either gasoline or alcohol was kept in violation of the policy in the bodega containing the insured property. The testimony on this point is somewhat conflicting, but conceding all of the defendant's claims, the construction given to this claim by American courts would not justify the forfeiture of the policy on that ground. The property insured consisted mainly of household furniture kept for the purpose of sale. The preservation of the furniture in a salable condition by retouching or otherwise was incidental to the business. The evidence offered by the plaintiff is to the effect that alcohol was used in preparing varnish for the purpose of retouching, though he also says that the alcohol was kept in the store and not in the bodega where the furniture was. It is well settled that the keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if such keeping is incidental to the business. Thus, where a furniture factory keeps benzine for the purposes of operation (Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire Insurance Company, 91 Wis., 158), or where it is used for cleaning machinery (Mears vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the insurer can not on that ground avoid payment of a loss, though the keeping of the benzine on the premises is expressly prohibited. These authorities also appear sufficient to answer the objection that the insured automobile contained gasoline and that the plaintiff on one occasion was seen in the bodega with a lighted lamp. The first was incidental to the use of the insured article and the second being a single instance falls within the doctrine of the case last cited."

It may be added that there was no provision in the policy prohibiting the keeping of paints and varnishes upon the premises where the insured property was stored. If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy.

With reference to the second above assignment of error, the defendant and appellant contends that the lower court erred in failing to hold that the execution of the said chattel mortgage, without the knowledge and consent of the insurance company and without receiving the sanction of said company, annulled the said policy of insurance.

With reference to this assignment of error, upon reading the policy of insurance issued by the defendant to the plaintiff, it will be noted that there is no provision in said policy prohibiting the plaintiff from placing a mortgage upon the property insured, but, admitting that such a provision was intended, we think the lower court has completely answered this contention of the defendant. He said, in passing upon this question as it was presented:

"It is claimed that the execution of a chattel mortgage on the insured property violated what is known as the 'alienation clause,' which is now found in most policies, and which is expressed in the policies involved in cases 6496 and 6497 by a phrase imposing forfeiture if the interest in the property pass from the insured. (Cases 6496 and 6497, in which are involved other actions against other insurance companies for the same loss as in the present action.)

"This clause has been the subject of a vast number of judicial decisions (13 Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of authority

that the interest in property insured does not pass by the mere execution of a chattel mortgage and that while a chattel mortgage is a conditional sale, there is no alienation within the meaning of the insurance law until the mortgagee acquires a right to take possession by default under the terms of the mortgage. No such right is claimed to have accrued in the case at bar, and the alienation clause is therefore inapplicable."

With reference to the third assignment of error above noted, upon a reading of the decision of the lower court it will be found that there is nothing in the decision of the lower court reacting to the facts stated in this assignment of error, neither is there any provision in the policy relating to the facts alleged in said assignment of error.

Assignments of error numbers 4 and 6 above noted may be considered together. The record discloses that some time prior to the commencement of this present action, a criminal action was commenced against the plaintiff herein in the Court of First Instance of the city of Manila, in which he was charged with willfully and maliciously burning the property covered by the policy in the present case. At the conclusion of the criminal action and after hearing the evidence adduced during the trial, the lower court, with the assistance of two assessors, found that the evidence was insufficient to show beyond peradventure of doubt that the defendant was guilty of the crime. The evidence adduced during the trial of the criminal cause was introduced as evidence in the present cause. While the evidence shows some very peculiar and suspicious circumstances concerning the burning of the goods covered by the said policy, yet, nevertheless, in view of the findings of the lower court and in view of the apparent conflict in the testimony, we can not find that there is a preponderance of evidence showing that the plaintiff did actually set fire or cause fire to be set to the goods in question. The lower court, in discussing this question, said:

"As to the claim that the loss occurred through the voluntary act of the insured, we consider it unnecessary to review the evidence in detail. That was done by another branch of this court in disposing of the criminal prosecution brought against the insured, on the same ground, based mainly on the same evidence. And regardless of whether or not the judgment in that proceeding is res adjudicata as to anything here, we are at least of the opinion that the evidence to establish this defense should not be materially less convincing than that required in order to convict the insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep., 644.) In order to find that the defense of incendiarism was established here, we would be obliged, therefore, in effect to set aside the findings of the judge and assessors in the criminal cause, and this we would be loath to do even though the evidence now produced were much stronger than it is."

With reference to the sixth assignment of error above noted, to wit: That the court erred in holding that the policy of insurance was in force at the time of said fire and that the acts or omissions on the part of the insured which caused or tended to cause a forfeiture of the policy were waived by the defendant, the lower court, in discussing this question, said:

"Regardless of the question whether the plaintiff's letter of April 20 (Exhibit B) was a sufficient compliance with the requirement that he furnish notice of loss, the fact

remains that on the following day the insurers replied by a letter (Exhibit C) declaring that the 'policies were null and void,' and in effect denying liability. It is well settled by a preponderance of authorities that such a denial is a waiver of notice of loss, because if the 'policies are null and void,' the furnishing of such notice would be vain and useless. (13 Am. & Eng. Encyc. of Law, 347, 348, 349.) Besides, 'immediate notice' is construed to mean only within a reasonable time.

"Much the same may be said as to the objection that the insured failed to furnish to the insurers his books and papers or to present a detailed statement to the 'juez municipal,' in accordance with article 404 of the Code of Commerce. The last-named provision is similar to one appearing in many American policies requiring a certificate from a magistrate nearest the loss regarding the circumstances thereof. A denial of liability on other grounds waives this requirement (O'Neil vs. Buffalo Fire Insurance Company, 3 N. Y., 122; Peoria Marine Ins. Co. vs. Whitehill, 25 Ill., 382), as well as that relating to the production of books and papers (Ga. Home Ins. Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured might have had difficulty in attempting to comply with this clause, for there is no longer an official here with the title of 'juez municipal.'"

Besides the foregoing reasons, it may be added that there was no requirement in the policy in question that such notice be given.

With reference to the assignments of error numbers 7, 9, and 10, they are too general in their character to merit consideration.

With reference to the eighth assignment of error above noted, the defendant and appellant contends that he was entitled to have the amount of his responsibility reduced by the full value (P1,250) of the said automobile.

It does not positively appear of record that the automobile in question was not included in the other policies. It does appear that the automobile was saved and was considered as a part of the salvage. It is alleged that the salvage amounted to P4,000, including the automobile. This amount (P4,000) was distributed among the different insurers and the amount of their responsibility was proportionately reduced. The defendant and appellant in the present case made no objection at any time in the lower court to that distribution of the salvage. The claim is now made for the first time. No reason is given why the objection was not made at the time of the distribution of the salvage, including the automobile, among all of the insurers. The lower court had no opportunity to pass upon the question now presented for the first time. The defendant stood by and allowed the other insurers to share in the salvage, which he claims now wholly belonged to him. We think it is now too late to raise the question.

For all of the foregoing reasons, we are of the opinion that the judgment of the lower court should be affirmed, and it is hereby ordered that judgment be entered against the defendant and in favor of the plaintiff for the sum of P9,841.50, with interest at the rate of 6 per cent from the 13th of July, 1908, with costs. So ordered.

Arellano, C.J., and Torres, J., concur.

Trent, J., concurs in the result.

Moreland, J., dissents.

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([1910V231] E. M. BACHRACH, plaintiff-appellee, vs. BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant., G.R. No. L-5715, 1910 Dec 20, 1st Division)

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[1996V341] PHILIPPINE HOME ASSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and EASTERN SHIPPING LINES, INC., respondents.1996 Jun 201st DivisionG.R. No. 106999KAPUNAN, J.:

Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the following shipment for carriage to Manila and Cebu, freight pre-paid and in good order and condition, viz: (a) two (2) boxes internal combustion engine parts, consigned to William Lines, Inc. under Bill of Lading No. 042283; (b) ten (l0) metric ton. (334 bags) ammonium chloride, consigned to Orca's Company under Bill of Lading No. KCE-I2; (c) two hundred (200) bags Glue 300, consigned to Pan Oriental Match Company under Bill of Lading No. KCE-8; and (d) garments, consigned to Ding Velayo under Bills of Lading Nos. KMA-73 and KMA-74.

While the vessel was off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the accommodation area near the engine room on the main deck level. As the crew was trying to extinguish the fire, the acetylene cylinder suddenly exploded sending a flash of flame throughout the accommodation area, thus causing death and severe injuries to the crew and instantly setting fire to the whole superstructure of the vessel. The incident forced the master and the crew to abandon the ship.

Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was declared abandoned.

Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the vessel and commenced to tow the vessel for the port of Naha, Japan.

Fire fighting operations were again conducted at the said port. After the fire was extinguished, the cargoes which were saved were loaded to another vessel for delivery to their original ports of destination. ESLI charged the consignees several amounts corresponding to additional freight and salvage charges, as follows: (a) for the goods covered by Bill of Lading No. 042283, ESLI charged the consignee the sum of P1,927.65, representing salvage charges assessed against the goods; (b) for the goods covered by Bill of Lading No. KCE-12, ESLI charged the consignee the sum of P2,980.64 for additional freight and P826.14 for salvage charges against the goods; (c) for the goods covered by Bill of Lading No. KCE-8, ESLI charged the consignee the sum of P3,292.26 for additional freight and P4,130.68 for salvage charges against the goods; and (d) for the goods under Bills of Lading Nos. KMA-73 and KMA-74, ESLI charged the consignee the sum of P8,337.06 for salvage charges against the goods.

The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and in behalf of the consignees.

PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum paid under protest on the ground that the same were actually damages directly brought about by the fault, negligence, illegal act and/or breach of contract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody and carriage of the shipment; that the fire was caused by an unforeseen event; that the additional freight charges are due and demandable pursuant to the Bill of Lading; 1 and that salvage charges are properly collectible under Act No. 2616, known as the Salvage Law.

The trial court dismissed PHAC's complaint and ruled in favor of ESLI ratiocinating thus:

The question to be resolved is whether or not the fire on the vessel which was caused by the explosion of an acetylene cylinder loaded on the same was the fault or negligence of the defendant.

Evidence has been presented that the SS "Eastern Explorer" was a seaworthy vessel (Deposition of Jumpei Maeda, October 23, 1980, p. 3) and before the ship loaded the Acetylene Cylinder No. NCW 875, the same has been tested, checked and examined and was certified to have complied with the required safety measures and standards (Deposition of Senjei Hayashi, October 23, 1980, pp. 2-3). When the fire was detected by the crew, fire fighting operations was immediately conducted but due to the explosion of the acetylene cylinder, the crew were unable to contain the fire and had to abandon the ship to save their lives and were saved from drowning by passing vessels in the vicinity. The burning of the vessel rendering it a constructive total loss and incapable of pursuing its voyage to the Philippines was, therefore, not the fault or negligence of defendant but a natural disaster or calamity which nobody would like to happen. The salvage operations conducted by Fukuda Salvage Company (Exhibits "4-A" and "6-A") was perfectly a legal operation and charges made on the goods recovered were legitimate charges.

Act No. 2616, otherwise known as the Salvage Law, is thus applicable to the case at bar. Section 1 of Act No. 2616 states:

Sec 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage.

Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be entitled to like reward.

In relation to the above provision, the Supreme Court has ruled in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that three elements are necessary to a valid salvage claim, namely (a)a marine peril (b) service voluntarily rendered when not required as an existing duty or from a special contract and (c) success in whole or in part, or that the service rendered contributed to such success.

The above elements are all present in the instant case. Salvage charges may thus be assessed on the cargoes saved from the vessel. As provided for in Section 13 of the Salvage Law, "The expenses of salvage, as well as the reward for salvage or assistance, shall be a charge on the things salvaged or their value." In Manila Railroad Co. v. Macondray Co., 37 Phil. 583, it was also held that "when a ship and its cargo are saved together, the salvage allowance should be charged against the ship and cargo in the proportion of their respective values, the same as in a case of general average . . ." Thus, the "compensation to be paid by the owner of the cargo is in proportion to the value of the vessel and the value of the cargo saved." (Atlantic Gulf and Pacific Co. v. Uchida Kisen Kaisha, 42 Phil. 321). (Memorandum for Defendant, Records, pp. 212213).

With respect to the additional freight charged by defendant from the consignees of the goods, the same are also validly demandable.

As provided by the Civil Code:

Art. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation require the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

Art 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor."

The burning of "EASTERN EXPLORER" while off Okinawa rendered it physically impossible for defendant to comply with its obligation of delivering the goods to their port of destination pursuant to the contract of carriage. Under Article 1266 of the Civil Code, the physical impossibility of the prestation extinguished defendant's obligation..

It is but legal and equitable for the defendant therefore, to demand additional freight from the consignees for forwarding the goods from Naha, Japan to Manila and Cebu City on board another vessel, the "EASTERN MARS." This finds support under Article 844 of the Code of Commerce which provides as follows:

Art. 844. A captain who may have taken on board the goods saved from the wreck shall continue his course to the port of destination; and on arrival should deposit the same, with judicial intervention at the disposal of their legitimate owners. . . .

The owners of the cargo shall defray all the expenses of this arrival as well as the payment of the freight which, after taking into consideration the circumstances of the case, may be fixed by agreement or by a judicial decision.

Furthermore, the terms and conditions of the Bill of Lading authorize the imposition of additional freight charges in case of forced interruption or abandonment of the voyage. At the dorsal portion of the Bills of Lading issued to the consignees is this stipulation:

12. All storage, transshipment, forwarding or other disposition of cargo at or from a port of distress or other place where there has been a forced interruption or abandonment of the voyage shall be at the expense of the owner, shipper, consignee of the goods or the holder of this bill of lading who shall be jointly and severally liable for all freight charges and expenses of every kind whatsoever, whether payable in advance or not that may be incurred by the cargo in addition to the ordinary freight, whether the service be performed by the named carrying vessel or by carrier's other vessels or by strangers. All such expenses and charges shall be due and payable day by day immediately when they are incurred.

The bill of lading is a contract and the parties are bound by its terms (Gov't of the Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The provision quoted is binding upon the consignee.

Defendant therefore, can validly require payment of additional freight from the consignee. Plaintiff can not thus recover the additional freight paid by the consignee to defendant. (Memorandum for Defendant, Record, pp. 215-216).2

On appeal to the Court of Appeals, respondent court affirmed the trial court's findings and conclusions, 3 hence, the present petition for review before this Court on the following errors:

I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE TRIAL COURT'S FINDINGS THAT THE BURNING OF THE SS "EASTERN EXPLORER", RENDERING ET A CONSTRUCTIVE TOTAL LOSS, IS A NATURAL DISASTER OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN, DESPITE EXISTING JURISPRUDENCE TO THE CONTRARY.

II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE BURNING OF THE SS "EASTERN EXPLORER" WAS NOT THE FAULT AND NEGLIGENCE OF RESPONDENT EASTERN SHIPPING LINES.

III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN RULING THAT DEFENDANT HAD EXERCISED THE EXTRAORDINARY DILIGENCE IN THE VIGILANCE OVER THE GOODS AS REQUIRED BY LAW.

IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE MARINE NOTE OF PROTEST AND STATEMENT OF FACTS ISSUED BY THE VESSEL'S MASTER ARE NOT HEARSAY DESPITE THE FACT THAT THE VESSEL'S MASTER, CAPT. LICAYLICAY WAS NOT PRESENTED COURT, WITHOUT EXPLANATION WHATSOEVER FOR HIS NON-PRESENTATION, THUS, PETITIONER WAS DEPRIVED OF ITS RIGHT TO CROSS- EXAMINE THE AUTHOR THEREOF.

V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE TRIAL COURT'S CONCLUSION THAT THE EXPENSES OR AVERAGES INCURRED IN SAVING THE CARGO CONSTITUTE GENERAL AVERAGE.

VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'S RULING THAT PETITIONER WAS LIABLE TO RESPONDENT CARRIER FOR ADDITIONAL FREIGHT AND SALVAGE CHARGES. 4

It is quite evident that the foregoing assignment of errors challenges the findings of fact and the appreciation of evidence made by the trial court and later affirmed by respondent court. While it is a well-settled rule that only questions of law may be raised in a petition for review under Rule 45 of the Rules of Court, it is equally well-settled that the same admits of the following exceptions, namely: (a) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of fact are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (g) when the findings of the Court of Appeals are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and (j) when the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by the evidence on record. 5 Thus, if there is a showing, as in the instant case, that the findings complained of are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute grave abuse of discretion, the same may be properly reviewed and evaluated by this Court.

It is worthy to note at the outset that the goods subject of the present controversy were neither lost nor damaged in transit by the fire that razed the carrier. In fact, the said goods were all delivered to the consignees, even if the transshipment took longer than

necessary. What is at issue therefore is not whether or not the carrier is liable for the loss, damage, or deterioration of the goods transported by them but who, among the carrier, consignee or insurer of the goods, is liable for the additional charges or expenses incurred by the owner of the ship in the salvage operations and in the transshipment of the goods via a different carrier.

In absolving respondent carrier of any liability, respondent Court of Appeals sustained the trial court's finding that the fire that gutted the ship was a natural disaster or calamity. Petitioner takes exception to this conclusion and we agree.

In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means.

It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. 6

In the case at bar, it is not disputed that a small flame was detected on the acetylene cylinder and that by reason thereof, the same exploded despite efforts to extinguish the fire. Neither is there any doubt that the acetylene cylinder, obviously fully loaded, was stored in the accommodation area near the engine room and not in a storage area considerably far, and in a safe distance, from the engine room. Moreover, there was no showing, and none was alleged by the parties, that the fire was caused by a natural disaster or calamity not attributable to human agency. On the contrary, there is strong evidence indicating that the acetylene cylinder caught fire because of the fault and negligence of respondent ESLI, its captain and its crew.

First, the acetylene cylinder which was fully loaded should not have been stored in the accommodation area near the engine room where the heat generated therefrom could cause the acetylene cylinder to explode by reason of spontaneous combustion. Respondent ESLI should have easily foreseen that the acetylene cylinder, containing highly inflammable material was in real danger of exploding because it was stored in close proximity to the engine room.

Second, respondent ESLI should have known that by storing the acetylene cylinder in the accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers to grave danger and injury. Curious passengers, ignorant of the danger the tank might have on humans and property, could have handled the same or could have lighted and smoked cigarettes while repairing in the accommodation area.

Third, the fact that the acetylene cylinder was checked, tested and examined and subsequently certified as having complied with the safety measures and standards by qualified experts 7 before it was loaded in the vessel only shows to a great extent that negligence was present in the handling of the acetylene cylinder after it was loaded and while it was on board the ship. Indeed, had the respondent and its agents not been

negligent in storing the acetylene cylinder near the engine room, then the same would not have leaked and exploded during the voyage.

Verily, there is no merit in the finding of the trial court to which respondent court erroneously agreed that the fire was not the fault or negligence of respondent but a natural disaster or calamity. The records are simply wanting in this regard.

Anent petitioner's objection to the admissibility of Exhibits "4'' and ''5", the Statement of Facts and the Marine Note of Protest issued by Captain Tiburcio A. Licaylicay, we find the same impressed with merit because said documents are hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern Explorer who issued the said documents, was not presented in court to testify to the truth of the facts he stated therein; instead, respondent ESLI presented Junpei Maeda, its Branch Manager in Tokyo and Yokohama, Japan, who evidently had no personal knowledge of the facts stated in the documents at issue. It is clear from Section 36, Rule 130 of the Rules of Court that any evidence, whether oral or documentary, is hearsay if its probative value is not based on the personal knowledge of the witness but on the knowledge of some other person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule. 8 It is excluded because the party against whom it is presented is deprived of his right and opportunity to cross-examine the persons to whom the statements or writings are attributed.

On the issue of whether or not respondent court committed an error in concluding that the expenses incurred in saving the cargo are considered general average, we rule in the affirmative. As a rule, general or gross averages include all damages and expenses which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real and known risk 9 While the instant case may technically fall within the purview of the said provision, the formalities prescribed under Articles 813 10 and 814 11 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to gross average were not complied with. Consequently, respondent ESLI's claim for contribution from the consignees of the cargo at the time of the occurrence of the average turns to naught. Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be made liable to respondent carrier for additional freight and salvage charges. Consequently, respondent carrier must refund to herein petitioner the amount it paid under protest for additional freight and salvage charges in behalf of the consignees. WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. Respondent Eastern Shipping Lines, Inc. is ORDERED to return to petitioner Philippine Home Assurance Corporation the amount it paid under protest in behalf of the consignees herein.

SO ORDERED.

Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.

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[1909V231] TAN CHUCO, plaintiff, appellant-appellee, vs. YORKSHIRE FIRE AND LIFE INSURANCE COMPANY, defendant, appellant-appellee.1909 Oct 251st DivisionG.R. No. 5069D E C I S I O N

CARSON, J.: Judgment in this action was rendered in the Court of First Instance of Manila against the plaintiff upon his claim under an "open" fire insurance policy for compensation to the full extent of the policy, for the alleged loss by fire of a certain stock of goods insured by the defendant company; and against the defendant company on its counterclaim for losses resulting from the plaintiff's alleged intentional and fraudulent setting on fire of the building wherein the insured goods were kept, thereby as it is alleged causing the destruction by fire of several stocks of goods belonging to third parties, and insured by the defendant company.

The trial court found that the evidence did not sustain defendant's allegation that plaintiff or his agents had intentionally and fraudulently set the building on fire, but was of opinion that not only had the plaintiff failed to establish the value of the goods which he alleges were destroyed by fire but that he had failed in several particulars to live up to the terms of his contract as set out in the policy, thereby voiding the policy and defeating his claim to indemnification thereunder. Plaintiff and defendant each appealed from so much of the judgment as is against their respective claims.

It is not denied that all of plaintiff's property which was within the building wherein, under the terms of policy, the insured goods were to be kept, was destroyed by fire as alleged in the complaint; and there is no question as to the defendant company's liability to indemnify the plaintiff, under his policy, for the amount of these losses, when duly established, unless it appears that plaintiff's right of recovery was defeated by some failure on his part to live up to the terms of his contract, as set out in the recover from the plaintiff upon its counterclaim, if it appears from the evidence that the plaintiff, as alleged by the defendant, intentionally and fraudulently set on fire, or caused to be set on fire the building wherein it is alleged the insured goods were kept.

The evidence of record strongly tends to sustain defendant's allegations that the plaintiff, although himself absent in China, caused the building in question to be set on fire, but the trial judge, in whose presence the witnesses testified, appears to have had some doubt as to the credibility of some of the witnesses called by the defendant, and was of opinion that these allegations were not satisfactorily established by the weight of the evidence. Upon a careful review of the whole record, and keeping in mind the fact that the trial judge saw and heard the witnesses testify, we are unable to say that there is such a preponderance of the evidence in support of these allegations as would sustain an affirmative finding in favor of the defendant, and justify us in reversing the finding by the trial court upon this issue. The judgment against the defendant company upon its counterclaim should therefore be affirmed.

The trial court was of opinion, however, that the building wherein the insured goods were stored having been destroyed by fire the origin of which is unknown, the plaintiff failed to prove the value of the insured goods and that for the fraudulent purpose of recovering the full amount of the policy, he submitted fabricated written evidence and false testimony in support of his claim that the insured goods actually destroyed by fire were worth more than the total amount of the insurance thereon. Plaintiff introduced an inventory of the insured goods alleged to have been taken a short time before the fire, which would leave little room for doubt as to the truth of his allegation as to the amount of his loss if it could be accepted as genuine. But the trial judge was of opinion that this inventory was not genuine and that it had been fraudulently prepared with a view to its use as evidence in support of plaintiff's claim. He was led to reject this alleged inventory as unworthy of belief, partly because of the inherent improbability of the story told by the witnesses for the plaintiff who testified as to the conditions under which it was made and as to the manner in which it had been preserved from destruction, notwithstanding the fact that all other useful documentary evidence, books, and papers were lost in the fire; partly because of the unconvincing and unsatisfactory manner in which these witnesses testified; partly because the evidence of record tends to prove, though not conclusively, that the stock of insured goods at the time of the fire was considerably lass than the total amount of the insurance thereon; and partly because the evidence conclusively establishes that defendant's manager and representative, who claims to have made this inventory, was in the building together with his employees when the fire took place, and not only made no effort to extinguish the fire or to save the insured goods from destruction, although such efforts might have been availing, but that he failed to save from destruction any of the books or papers connected with the business of which he was in charge which would have served in any wise to corroborate the data contained in the alleged inventory, or to give any accurate information upon which a finding could be based as to the true value of the insured goods destroyed by the fire.

The inventory was dated as of the 1st of January, although it appears that it was not custom of the plaintiff or his manager, who are Chinese persons, to make an inventory on the first day of the New Year under the Gregorian calendar, and no reason was given or suggested which would satisfactorily explain the making of the inventory upon that date on this particular occasion; while the fact that the plaintiff and owner of the store left for China in the month of November immediately prior thereto, and that the Chines New Year occurs in the months of February, and that in the ordinary course of business, inventories, if taken at all, would naturally be taken upon those occasions, renders it, to say the least, highly improbable that a third inventory would, in the ordinary course of business, be taken within less than two months after the former, and two months before the latter date. Plaintiff's manager testified that after the taking of the inventory it was turned over to a friend who was about to leave for China to be taken to plaintiff, and he thus attempted to account for the fact that it was not destroyed together with the other books and documents relating to the business; but it appears that the friend to whom it had been intrusted had not yet departed for China in the month of February when the fire took place, so that the manager immediately after the fire was able to secure the return of the inventory for the purpose of making his report to the insurance company. No explanation was offered which would account for the remarkable conduct of plaintiff's manager in preparing an inventory less than two months after his employer had left for China and then instead of forwarding it at once by mail to his principal, intrusting it for transmission to a friend who had not left for China when the fire took place several weeks later.

Evidence was introduced at the trial which showed that as a result of adverse conditions in the sugar market the business of the plaintiff for some time prior to the fire was at a low ebb, and this evidence strongly tended to prove that because of these adverse business conditions the stocks of goods of the plaintiff, as well as those of all the Chinese merchants in the town wherein the fire took place, were far below the average at the time the fire occurred; and it was proven that not long before the fire the plaintiff had sought and secured a reduction in his rent, because of the admittedly adverse business conditions then existing. Plaintiff at the trial sought to corroborate the contents of the inventory by introducing copies of various alleged invoices of goods made to him during the course of several months preceding the fire, but these invoices, as the trial judge points out, not only failed to establish the fact that the goods were actually delivered to the building wherein the insured goods were kept, but amounting as they do to but a small fraction of the loss claimed by the plaintiff, tended rather to raise a doubt as to the probability of the existence in the store of such a stock of goods as is set out in the inventory, than to corroborate the truth of plaintiff's claims, since the plaintiff, who well knew the persons with whom he dealt, should not have found any serious difficulty in proving the purchase and delivery of any goods which may have been received by him prior to the fire and during the existence of the insurance contract. We think that the action of the trial court in rejecting the proof offered by plaintiff as to the amount of the loss must be sustained, and the contract of fire insurance being a contract of indemnity, and the plaintiff only entitled therefore to recover the amount of the actual loss sustained by him, there being no express valuation in the policy, judgment was properly entered against him for lack of satisfactory proof of the amount of his loss. (Franklin F. Ins. Co. vs. Hamill, 6 Gill (Md.), 87; Marchesseau vs. Merchants Ins., Co. 1 Rob. (La.), 438; Eagle Ins. Co. vs. Lafayetted Ins. Co., 9 Ind., 443.) It is not necessary for us to examined the assignments of error by counsel for plaintiff appellant which are directed to the findings and conclusions of the trial court as to the failure of the plaintiff to live up to various provisions of the contract set out in the policy (which in the opinion of the trial court defeated plaintiff's right of recovery even had he established the amount of his loss with satisfactory evidence), because even if all these assignments of error were sustained, it would be our duty nevertheless to affirm the decision of the court below upon the grounds already set out. The judgment appealed from should be, and is, therefore, affirmed, without costs to either party. Arellano, C.J., Torres, Johnson and Moreland, JJ., concur. --------------Footnotes 1. Cause No. 5070, Tan Chuco vs. Mercantile Fire Insurance Company, involving the same subject matter, was considered and decided at the same time with the same result.

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[1918V111E] MRS. HENRY E. HARDING and her husband, plaintiffs-appellees, vs. COMMERCIAL UNION ASSURANCE COMPANY, defendant-appellant.1918 Aug 10En BancG.R. No. 12707D E C I S I O N FISHER, J .: This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest, alleged to be due under the terms of a policy of insurance. The trial court gave plaintiffs judgment for the amount demanded, with interest and costs, and from that decision the defendant appeals. The court below stated the issues made by the pleadings in this case, and its findings of fact, as follows: "It is alleged by plaintiffs and admitted by defendant that plaintiffs are husband and wife and residents of the city of Manila; that the defendant is a foreign corporation organized and existing under and by virtue of the laws of Great Britain and duly registered in the Philippine Islands, and Smith, Bell & Co. (limited), a corporation organized and existing under the laws of the Philippine Islands, with its principal domicile in the city of Manila, is the agent in the Philippine Islands of said defendant. "The plaintiffs alleged that on February 16, 1916, the plaintiff Mrs. Henry E. Harding was the owner of a Stude-baker automobile, registered number 2063, in the city of Manila; that on said date, in consideration of the payment to the defendant of the premium of P150, by said plaintiff. Mrs. Henry E. Harding, with the consent of her husband, the defendant by its duly authorized agent, Smith, Bell & Company (limited), made its policy of insurance in writing upon said automobile in the sum of P3,000 and that the value of said automobile was set forth in said policy (Exhibit A) to be P3,000; that on March 24, 1916, said automobile was totally destroyed by fire; that the loss thereby to plaintiffs was the sum of P3,000; that thereafter, within the period mentioned in the said policy of insurance, the plaintiff, Mrs. Henry E. Harding, furnished the defendant the proofs of her said loss and interest, and otherwise performed all the conditions of said policy on her part, and that the defendant has not paid said loss nor any part thereof, although due demand was made upon defendant therefor. "The defendant, by its answer, admitted the allegations of the residence and status of the parties and denied all the other allegation of the said complaint, and for a separate and affirmative defense alleged (1) that on February 17, 1916, at the city of Manila, P. I., the defendant upon request of plaintiff, Mrs. Henry E. Harding, issued to the said plaintiff the policy of insurance on an automobile alleged by the said plaintiff to be her property; that the said request for the issuance of said policy of insurance was made by means of a proposal in writing signed and delivered by said plaintiff to the defendant, guaranteeing the truth of the statements contained therein which said proposal is referred to in the said policy of insurance and made a part thereof; (2) that certain of the statements and representations contained in said proposal and warranted by said plaintiff to be true, to wit: (a) the price paid by the proposer for the said automobile; (b) the value of said automobile at the time of the execution and delivery of the said proposal and (c) the ownership of said auto-mobile, were false and known to be false by the said plaintiff at the time of signing and delivering the said proposal and were made for the purpose of misleading and deceiving the defendant, and inducing the defendant to issue the said policy of insurance; (3) that the defendant, relying upon the warranties, statements, and representations contained in the said proposal and believing the same to be true, issued the said policy of insurance.

"The defendant prays that judgment be entered declaring the said policy of insurance to be null and void, and that plaintiffs take nothing by this action; and for such further relief as to the court may seem just and equitable. "The evidence in this case shows that some time in the year 1913 Levy Hermanos, the Manila agents for the Stude-baker automobile, sold the automobile No. 2063 to John Canson for P3,200 (testimony of Mr. Diehl): that under date of October 14, 1914, John Canson sold the said auto-mobile to Henry Harding for the sum of P1,500 (Exhibit 2); that under date of November 19, 1914, the said Henry Harding sold the said automobile No. 2063 to J. Brannigan, of Los Barios, Province of Laguna, P. I., for the sum of P2,000 (Exhibit 3) 7 that under date of December 20, 1915, J. C. Graham of Los Barios, Province of Laguna, P. I., sold the said automobile No. 2063 to Henry Harding of the city of Manila for the sum of P2,800 (Exhibit 4 and testimony of J. C. Graham); that on or about January 1, 1916, the said Henry Harding gave the said automobile to his wife, Mrs. Henry E. Harding, one of the plaintiffs, as a present; that said automobile was repaired and repainted at the Luneta Garage at a cost of some P900 (testimony of Mr. Server); that while the said automobile was at the Luneta Garage, the said Luneta Garage, acting as agent for Smith, Bell & Company (limited), solicited of the plaintiff Mrs. Harding the insurance of said automobile by the defendant Company (testimony of Mrs. :Harding and Mr. Server); that a proposal was filled out by the said agent and signed by the plaintiff Mrs. Henry E. Harding, and in said proposal under the heading 'Price paid by proposer' is the amount of '3,500' and under another heading "Present value" is the amount of '3,000' (Exhibit 1). "The evidence tends to show that after the said proposal was made a representative of the Manila agent of defendant went to the Luneta Garage and examined said automobile No. 2063 and Mr. Server, the General Manager of the Luneta Garage, an experienced automobile mechanic, testified that at the time this automobile was insured it was worth about P3,000, and the defendant, by and through its said agent Smith, Bell & Company (limited), thereafter issued a policy of insurance upon said proposal, in which policy the said automobile was described as of the 'present value' of P3,000, and the said defendant charged the said plaintiff Mrs. Henry E. Harding as premium on said policy the sum of P150, or 5 per cent of the then estimated value of P3,000 (Exhibit A). "The 'Schedule' in said policy of insurance describes the automobile here in question, and provides in part as follows: "'Now it is hereby agreed as follows: " 'That during the period above set forth and during any period for which the company may agree to renew this policy the company will subject to the exception and conditions contained herein or endorsed hereon indemnify the insured against loss of or damage to any motor car described in the schedule hereto (including accessories) by whatever cause such loss or damage may be occasioned and will further indemnify the insured up to the value of the car or P3,000 whichever is the greater against any claim at common law made by any person (not being a person in the said motor car nor in the insured's service) for loss of life or for accidental bodily injury or damage to property caused by the said motor car including law costs payable in connection with such claim when incurred with the consent of the company.' "The evidence further shows that on March 24, 1916, the said automobile was totally destroyed by fire, and that the iron and steel portions of said automobile which did not burn were taken into the possession of the defendant by and through its agent Smith, Bell & Company (limited), and sold by it for a small sum, which had never been

tendered to the plaintiff prior to the trial of this case, but in open court during the trial the sum of P10 as the proceeds of such sale was tendered to plaintiff and refused." Upon the facts so found, which we hold are supported by the evidence, the trial judge decided that there was no proof of fraud on the part of plaintiff in her statement of the value of the automobile, or with respect to its ownership; that she had an insurable interest therein; and that defendant, having agreed to the estimated value, P3,000, and having insured the automobile for that amount, upon the basis of which the premium was paid, is bound by it and must pay the loss in accordance with the stipulated insured value. The assignments of error made on behalf of appellant put in issue the correctness of those conclusions of law, and some others of minor importance relating to the exclusion of evidence. Disposing of the minor objections first, as we have reached the conclusion that the trial court was right in holding that the defendant is bound by the estimated value of the automobile upon which the policy was issued, and that the plaintiff was not guilty of fraud in regard thereto, the exclusion of the testimony of the witness Diehl is without importance. It merely tended to show the alleged actual value of the automobile, and in the view we take of the case such evidence was irrelevant. Appellant contends that Mrs. Harding was not the owner of the automobile at the time of the issuance of the policy, and, therefore, had no insurable interest in it. The court below found that the automobile was given to plaintiff by her husband shortly before the issuance of the policy here in question. Appellant does not dispute the correctness of this finding, but contends that the gift was void, citing article 1334 of the Civil Code which provides that "All gifts between spouses during the marriage shall be void. Moderate gifts which the spouses bestow on each other on festive days of the family are not included in this rule." We are of the opinion that this contention is without merit. In the case of Cook vs. McMicking (27 Phil. Rep., l0), this court said: "It is claimed by the appellants that the so-called transfer from plaintiff's husband to her was completely void under article 1458 of the Civil Code and that, therefore, the property still remains the property of Edward Cook and subject to levy under execution against him. "In our opinion the position taken by appellants is untenable. They are not in a position to challenge the validity of the transfer, if it may be called such. They bore absolutely no relation to the parties to the transfer at the time it occurred and had no rights or interests inchoate, present, remote, or otherwise, in the property in question at the time the transfer occurred. Although certain transfers from husband to wife or from wife to husband are prohibited in the article referred to, such prohibition can be taken advantage of only by persons who bear such a relation to the parties making the transfer or to the property itself that such transfer interferes with their rights or interests. Unless such a relationship appears the transfer cannot be attacked." Even assuming that defendant might have invoked article 1334 as a defense, the burden would be upon it to show that the gift in question does not fall within the exception therein established. We cannot say, as a matter of law, that the gift of an automobile by a husband to his wife is not a moderate one. Whether it is or is not would depend upon the circumstances of the parties, as to which nothing is disclosed by the record. Defendant contends that the statement regarding the cost of the automobile was a warranty, that the statement was false, and that, therefore, the policy never attached to the risk. We are of the opinion that it has not been shown by the evidence that the statement was false - on the contrary we believe that it shows that the automobile had

in fact cost more than the amount mentioned. The court below found, and the evidence shows, that the automobile was bought by plaintiff's husband a few weeks before the issuance of the policy in question for the sum of P2,800, and that between that time and the issuance of the policy some P900 was spent upon it in repairs and repainting. The witness Server, an expert automobile mechanic, testified that the automobile was practically as good as new at the time the insurance was effected. The form of proposal upon which the policy was issued does not call for a statement regarding the value of the automobile at the time of its acquisition by the applicant for the insurance, but merely a statement of its cost. The amount stated was less than the actual outlay which the automobile represented to Mr. Harding, including repairs, when the insurance policy was issued. It is true that the printed form calls for a statement of the "price paid by the proposer," but we are of the opinion that it would be unfair to hold the policy void simply because the outlay represented by the automobile was made by the plaintiff's husband and not by his wife, to whom he had given the automobile. It cannot be assumed that defendant should not have issued the policy unless it were strictly true that the price representing the cost of the machine had been paid by the insured and by no other person - that it would in no event insure an automobile acquired by gift, inheritance, exchange, or any other title not requiring the owner to make a specific cash outlay for its acquisition' Furthermore, the court below found and the evidence shows, without dispute, that the proposal upon which the policy in question was issued was made out by defendant's agent, by whom the insurance was solicited, and that appellee simply signed the same. It also appears that an examiner employed by the defendant made an inspection of the auto-mobile before the acceptance of the risk, and that the sum of P3,000 was fixed as the "present value" of the automobile after this examination. The trial court found that Mrs. Harding, in fixing the value of the automobile at P3,000, acted upon information given her by her husband and by Mr. Server, the manager of the Luneta Garage. The Luneta Garage, it will be remembered, was the agent of the defendant corporation in the solicitation of the insurance. Mrs. Harding did not state of her own knowledge that the auto-mobile originally cost P3,000, or that its value at the time of the insurance was P3,000. She merely repeated the information which had been given her by her husband, and at the same time disclosed to defendant's agent the source of her information. There is no evidence to sustain the contention that this communication was made in bad faith. It appears that the statements in the proposal as to the price paid for the automobile and as to its value were written by Mr. Quimby who solicited the insurance on behalf of defendant, in his capacity as an employee of the Luneta Garage, and wrote out the proposal for Mrs. Harding to sign. Under these circumstances, we do not think that the facts stated in the proposal can be held as a warranty of the insured, even if it should have been shown that they were incorrect in the absence of proof of willful misstatement. Under such circumstance, the proposal is to be regarded as the act of the insurer and not of the insured. This question was considered in the case of the Union Insurance Company vs. Wilkinson (13 Wall., 222; 20 L. ed., 617), in which the Supreme Court of the United States said: "This question has been decided differently by courts of the highest respectability in cases precisely analogous to the present. It is not to be denied that the application, logically considered, is the work of the assured, and if left to himself or to such assistance as he might select, the person so selected would be his agent, and he alone would be responsible. On the other hand, it is well known, so well that no court would be justified in shutting its eyes to it, that insurance companies organized under the laws of one State, and having in that State their principal business office, send these agents all over the land, with directions to solicit and procure applications for policies furnishing them with printed arguments in favor of the value and necessity of life insurance, and of the special advantages of the corporation which the agent represents. They pay these

agents large commissions on the premiums thus obtained, and the policies are delivered at their hands to the assured. The agents are stimulated by letters and instructions to activity in procuring contracts, and the party who is in this manner induced to take out a policy, rarely sees or knows anything about the company or its officers by whom it is issued, but looks to and relies upon the agent who has persuaded him to effect insurance as the full and complete representative of the company, in all that is said or done in making the contract. Has he not a right to so regard him? It is quite true that the reports of judicial decisions are filled with the efforts of these companies, by their counsel, to establish the doctrine that they can do all this and yet limit their responsibility for the acts of these agents to the simple receipt of the premium and delivery of the policy, the argument being that, as to all other acts of the agent, he is the agent of the assured. This proposition is not without support in some of the earlier decision on the subject; and, at a time when insurance companies waited for parties to come to them to seek assurance, or to forward applications on their own motion, the doctrine had a reasonable foundation to rest upon. But to apply such a doctrine, in its full force, to the system of selling policies through agents, which we have described, would be a snare and a delusion, leading, as it has done in numerous instances, to the grossest frauds, of which the insurance corporations receive the benefits, and the parties supposing themselves insured are the victims. The tendency of the modern decisions in this country is steadily in the opposite direction. The powers of the agent are, prima facie, coextensive with the business intrusted to his care, and will not be narrowed by limitations not communicated to the person with whom he deals. (Bebee vs. Ins. Co., 25 Conn., 51; Lycoming Ins. Co. vs. Schoolenberger, 44 Pa., 259; Beal vs. Ins. Co., 16 Wis., 241; Davenport vs. Ins. Co., 17 Iowa, 276.) An insurance company, establishing a local agency, must be held responsible to the parties with whom they transact business, for the acts and declarations of the agent, within the scope of his employment, as if they proceeded from the principal. (Sav. Bk. vs. Ins. Co., 31 Conn., 517; Hortwitz vs. Ins. Co., 40 Mo., 557; Ayres vs. Ins. Co., 17 Iowa, 176; Howard Ins. Co. vs. Bruner, 23 Pa., 50.) "In the fifth edition of American Leading Cases, 917, after a full consideration of the authorities, it is said: " 'By the interested or officious zeal of the agents employed by the insurance companies in the wish to outbid each other and procure customers, they not unfrequently mislead the insured, by a false or erroneous statement of what the application should contain; or, taking the preparation of it into their own hands, procure his signature by an assurance that it is properly drawn, and will meet the requirements of the policy. The better opinion seems to be that, when this course is pursued, the description of the risk should, though nominally proceeding from the insured, be regarded as the act of the insurers.' (Rowley vs. Empire Ins. Co., 36 N. Y., 550.) "The modern decisions fully sustain this proposition, and they seem to us founded on reason and justice, and meet our entire approval. This principle does not admit oral testimony to vary or contradict that which is in writing, but it goes upon the idea that the writing offered in evidence was not the instrument of the party whose name is signed to it; that it was procured under such circumstances by the other side as estops that side from using it or relying on its contents; not that it may be contradicted by oral testimony, but that it may be shown by such testimony that it cannot be lawfully used against the party whose name is signed to it." (See also Am. Life Ins. Co. vs. Mahone, 21 Wallace, 152.) The defendant, upon the information given by plaintiff, and after an inspection of the automobile by its examiner, having agreed that it was worth P3,000, is bound by this valuation in the absence of fraud on the part of the insured. All statements of value are, of necessity, to a large extent matters of opinion, and it would be outrageous to hold

that the validity of all valued policies must depend upon the absolute correctness of such estimated value. As was said by the Supreme Court of the United States in the case of the First National Bank vs. Hartford Fire Insurance Co. (5 Otto, 673; 24 L. ed., 563), at p. 565 of the Lawyer's Edition: "The ordinary test of the value of property is the price it will commend in the market if offered for sale. But that test cannot, in the very nature of the case, be applied at the time application is made for insurance. Men may honestly differ about the value of property, or as to what it will bring in the market; and such differences are often very marked among those whose special business it is to buy and sell property of all kinds. The assured could do no more than estimate such value; and that, it seems, was all that he was required to do in this case. His duty was to deal fairly with the Company in making such estimate. The special finding shows that he discharged that duty and observed good faith. We shall not presume that the Company, after requiring the assured in his application to give the 'estimated value,' and then to covenant that he had stated all material facts in regard to such value, so far as known to him, and after carrying that covenant, by express words, into the written contract, intended to abandon the theory upon which it sought the contract, and make the absolute correctness of such estimated value a condition precedent to any insurance whatever. The application, with its covenant and stipulations, having been made a part of the policy, that presumption cannot be indulged without imputing to the Company a purpose, by studied intricacy or an ingenious framing of the policy, to entrap the assured into incurring obligations which, perhaps, he had no thought of assuming." Section 163 of the Insurance Law (Act No. 2427) provides that "the effect of a valuation in a policy of fire insurance is the same as in a policy of marine insurance." By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance is conclusive if the insured had an insurable interest and was not guilty of fraud. We are, therefore, of the opinion and hold that plaintiff was the owner of the automobile in question and had an insurable interest therein; that there was no fraud on her part in procuring the insurance; that the valuation of the automobile, for the purposes of the insurance, is binding upon the defendant corporation, and that the judgment of the court below is, therefore, correct and must be affirmed, with interest, the costs of this appeal to be paid by the appellant. So ordered. Arellano, C.J., Torres, Street, Malcolm and Avancea, JJ., concur.

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[1987V579] MALAYAN INSURANCE CO., INC. (MICO), petitioner, vs. GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.1987 October 121st DivisionG.R. No. L-67835D E CISION

CRUZ, J.:

When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps of smoke, only a gray desolation. The dying embers leave ashes in the heart.

For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By such insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a fee. If the house does burn, the insured, while losing his house, wins the wager. The prize is the recompense to be given by the insurer to make good the loss the insured has sustained.

It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss. Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely, the reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many times.

In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance contract at the time of the loss.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P100,000.00, effective July 22, 1981, until July 22, 1982. 2

On October 15, 1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to Pinca. 3

On December 24, 1981, payment of the premium for Pinca was received by Domingo Adora, agent of MICO. 4

On January 15, 1982, Adora remitted this payment to MICO, together with other payments. 5

On January 18, 1982, Pinca's property was completely burned. 6

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adora refused to accept it. 7

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission. It is because she was ultimately sustained by the public respondent that the petitioner has come to us for relief.

From the procedural viewpoint alone, the petition must be rejected. It is stillborn.

The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was received by MICO on June 13, 1982, as evidenced by Annex "1," duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July 2, 1982. 11

The position of the petitioner is that the petition is governed by Section 416 of the Insurance Code giving it thirty days within which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and private respondents insist that the applicable law is B.P. 129, which they say governs not only courts of Justice but also quasi-judicial bodies like the Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45.

The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.

MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It does not indicate from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for which no explanation has been given.

Against this document, the private respondent points in her Annex "1,"13 the authenticated copy of the same Order with a rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not have been written by the same person who signed at the bottom of the petitioner's Annex "B."

Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes but also because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at worst self-serving; at best, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it had been received earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal department need not detain us here.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days from such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days.

Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or also four days from July 2, when the petition was filed.

If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within which to appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982 nine days late.

Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.

On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled before the occurrence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also untenable.

The petitioner relies heavily on Section 77 of the Insurance Code providing that:

"SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies."

The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the amount of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO and the insured that such payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually made by Pinca to Adora, who remitted the same to MICO.

The payment was made on December 24, 1981, and the fire occurred on January 18, 1982. One wonders: suppose the payment had been made and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date of the payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the insured property had not been burned, would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and not on December 24, 1982?

It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted, and so would have been valid only from December 24, 1981, but only up to July 22, 1982, according to the original terms. In other words, the policy would have run for only eight months although the premium paid was for one whole year.

It is not disputed that the premium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO, to which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to receive it.

MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

"SEC. 396. . . .

"Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker

to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon."

And it is a well-known principle under the law of agency that:

"Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal." 15

There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months had elapsed since the issuance of the insurance policy and such acceptance was prohibited by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the payment to Adora at her own risk as she was bound to first check his authority to receive it. 16

MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it at the same time insists that the policy never came into force because the premium had not been paid. One surely cannot have his cake and eat it too.

We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy never became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article 77.

Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64 (except "non-payment of premium") provided the cancellation was made in accordance therewith and with Article 65. Section 64 reads as follows:

"SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

"(a) non-payment of premium;

"(b) conviction of a crime arising out of acts increasing the hazard insured against;

"(c ) discovery of fraud or material misrepresentation;

"(d) discovery of willful or reckless acts or commissions increasing the hazard insured against;

"(e) physical changes in the property insured which result in the property becoming uninsurable; or

"(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code."

As for the method of cancellation, Section 65 provides as follows:

"SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based."

A valid cancellation must, therefore, require concurrence of the following conditions: (1) There must be prior notice of cancellation to the insured; 17 (2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned. 18 (3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19 (4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured, the insurer will furnish the facts on which the cancellation is based. 20 MICO claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it presented one of its employees, who testified that "the original of the endorsement and credit memo" ---- presumably meaning the alleged cancellation ---- "were sent the assured by mail through our mailing section." 21 However, there is no proof that the notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was sent "by mail through our mailing section," without more. The petitioner then says that its "stand is enervated (sic) by the legal presumption of regularity and due performance of duty."22 (not realizing perhaps that "enervated" means "debilitated," not "strengthened"). On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did not have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO to make sure that the cancellation was actually sent to and received by the insured. The presumption cited is unavailing against the

positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent that she had received notice of the claimed cancellation. It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora was very accommodating and had earlier told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981, and not December 24, 1981. MICO suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24, 1981, her purpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the renewal thereof did not legally bind MICO, which had not ratified it. To support this argument, MICO cites the following exchange: "Q: Now, Madam Witness, on December 24, 1981, you made the alleged payment. Now, my question is that, did it not come toyour mind that after the lapse of six (6) months, your policy was cancelled? "A: I have thought of that but the agent told me to call him up at anytime. "Q: So if you thought that your policy was already intended to revive cancelled policy?. "Q: Misleading, Your Honor. "Hearing Officer: The testimony of witness is that, she thought of that. "Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled. Now, when you made the payment of December 24, 1981, your intention was to revive the policy if it was already cancelled? "A: Yes, to renew it." 23 A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not if it was still effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on the original transaction and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora, incidentally, had not been informed of the cancellation either and saw no reason not to accept the said payment. The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in case of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and without unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90 of the Insurance Code. The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered sufficient. Notably, MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer before the Insurance Commission. It is also worth observing that Pinca's property was

not the only building burned in the fire that razed the commercial district of Lao-ang, Samar, on January 18, 1982. 27 There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or indispensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters. We see in this case an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on bad faith if not plain duplicity. We note that the motion for reconsideration was filed on the fifteenth day from notice of the decision of the Insurance Commission and that there was a feeble attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to further hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18, 1982. We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had no knowledge, and the curious fact that although Pinca's payment was remitted to MICO by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bone fides. WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.

SO ORDERED.

Teehankee (C.J.), Narvasa and Paras, JJ., concur. Gancayco, J., is on leave.

/---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[1995V307] FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.1995 May 231st DivisionG.R. No. 115278D E C I S I O N

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the issued to the private respondent or whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong y de Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto attached as Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as follows:

"GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx

xxx

xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . . "

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and

(c ) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services and property protection as such - in a context which does not impress the Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard, beyond perhaps entitling plaintiff to request a replacement for such driver or guard. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy, particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized representatives" of plaintiff. They were merely an assigned armored car driver and security guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly - it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along a specified money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CAG.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No other interpretation is necessary. The word "employee" should be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with and specifically designed to protect labor and therefore its definition as to employer-employee relationships insofar as the application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors. 5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. - There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employed of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man.

Producer further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to

Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer - the moral hazard - is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such provisions are those in the insured's service and employment. 11 The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property." 12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. 13 The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room construction and such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx

xxx

xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . .

There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employeremployee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "laboronly" contract as employees of the party employing them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only" contracts. Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly limited to the insurance policy,

the contracts with PRC Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and the PRC Management Systems and Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur. Padilla, J., took no part. Quiason, J., is on leave.

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[1991V911] PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO BORBON, SR., OFFICE OF THE PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.

Hector L. Fernandez for petitioner. Domingo Quibranza and Vicente A. Quibranza for private respondents.1991 Nov 131st DivisionG.R. No. L-60887D E C I S I O N

FELICIANO, J.:

The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 1979 1 which ordered the Provincial Sheriff to garnish the third-party liability insurance policy issued by petitioner Perla Compania de Seguros, Inc. ("Perla") in favor of Nelia Enriquez, judgment debtor in Civil Case No. R-15391; (b) the Order dated 24 October 1979 2 which denied the motion for reconsideration of the 6 August 1979 Order; and (c) the Order dated 8 April 1980 3 which ordered the issuance of an alias writ of garnishment against petitioner.

In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia Enriquez, and driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing through Liloan, Cebu, the Cimarron PUJ collided with a private jeep owned by the late Calixto Palmes (husband of private respondent Primitiva Palmes) who was then driving the private jeep.

The impact of the collision was such that the private jeep was flung away to a distance of about thirty (30) feet and then fell on its right side pinning down Calixto Palmes. He died as a result of cardio-respiratory arrest due to a crushed chest. 4 The accident also caused physical injuries on the part of Adeudatus Borbon who was then only two (2) years old. On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato Borbon, Sr. (father of minor Adeudatus Borbon) filed a complaint 5 against Cosme Casas and Nelia Enriquez (assisted by her husband Leonardo Enriquez) before the then Court of First Instance of Cebu, Branch 3, claiming actual, moral, nominal and exemplary damages as a result of the accident. The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of co-plaintiff Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of the inferior court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint, without prejudice to its being filed with the proper inferior court.

On 4 April 1977, the Court of First Instance rendered a Decision 6 in favor of private respondent Primitiva Palmes, ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as compensatory damages for the death of Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as actual damages, and P1,000.00 as attorney's fees. The judgment of the trial court became final and executory and a writ of execution was thereafter issued. The writ of execution was, however, returned unsatisfied. Consequently, the judgment debtor Nelia Enriquez was summoned before the trial court for examination on 23 July 1979. She declared under oath that the Cimarron PUJ registered in her name was covered by a third-party liability insurance policy issued by petitioner Perla. Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment 7 praying that an order of garnishment be issued against the insurance policy issued by petitioner in favor of the judgment debtor. On 6 August 1979, respondent Judge issued an Order 8 directing the Provincial Sheriff or his deputy to garnish the third-party liability insurance policy. Petitioner then appeared before the trial court and moved for reconsideration of the 6 August 1979 Order and for quashal of the writ of garnishment, 9 alleging that the writ was void on the ground that it (Perla) was not a party to the case and that jurisdiction over its person had never been acquired by the trial court by service of summons or by any process. The trial court denied petitioner's motion. 10 An Order for issuance of an alias writ of garnishment was subsequently issued on 8 April 1980. 11

More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge Ramolete in ordering garnishment of the third-party liability insurance contract issued by petitioner Perla in favor of the judgment debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for having been filed way out of time but, for reasons which do not appear on the record, was nonetheless entertained. In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be subjected to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because petitioner was not a party to the case and the trial court did not acquire jurisdiction over petitioner's person. Perla further argues that the writ of garnishment had been issued solely on the basis of the testimony of the judgment debtor during the examination on 23 July 1979 to the effect that the Cimarron PUJ was covered by a third-party liability insurance issued by Perla, without granting it the opportunity to set up any defenses which it may have under the insurance contract; and that the proceedings taken against petitioner are contrary to the procedure laid down in Economic Insurance Company, Inc. v. Torres, et al., 12 which held that under Rule 39, Section 45, the Court "may only authorize" the judgment creditor to institute an action against a third person who holds property belonging to the judgment debtor. We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of respondent Judge Ramolete in ordering the garnishment of the judgment debtor's third-party liability insurance. Garnishment has been defined as a species of attachment for reaching any property or credits pertaining or payable to a judgment debtor. 13 In legal contemplation, it is a forced novation by the substitution of creditors: 14 the judgment debtor, who is the original creditor of the garnishee is, through service of the writ of garnishment,

substituted by the judgment creditor who thereby becomes creditor of the garnishee. Garnishment has also been described as a warning to a person having in his possession property or credits of the judgment debtor, not to pay the money or deliver the property to the latter, but rather to appear and answer the plaintiff's suit. 15 In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is not necessary that summons be served upon him. The garnishee need not be impleaded as a party to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any person who has in his possession credits belonging to the judgment debtor is service upon him of the writ of garnishment. The Rules of Court themselves do not require that the garnishee be served with summons or impleaded in the case in order to make him liable. Rule 39, Section 15 provides: "Sec. 15. Execution of money judgments. The officer must enforce an execution of a money judgment by levying on all the property, real or personal of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution . . . . Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied on in like manner and with like effect as under a writ of attachment." Rule 57, Section 7(e) in turn reads: "Sec. 7. Attachment of real and personal property; recording thereof . Properties shall be attached by the officer executing the order in the following manner: xxx xxx xxx

(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having his possession or under his control such credits or other personal property, or with his agent, a copy of the order, and notice that the debts owing by him to the party against whom attachment is issued, and the credits and other personal property in his possession, or under his control, belonging to said party, are attached in pursuance of such order; xxx xxx xxx

Emphasis supplied) Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a "forced intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with all orders and processes of the trial court with a view to the complete satisfaction of the judgment of the court. In Bautista v. Barredo, 16 the Court, through Mr. Justice Bautista Angelo, held: "While it is true that defendant Jose M. Barredo was not a party in Civil Case No. 1636 when it was instituted by appellant against the Philippine Ready Mix Concrete Company, Inc., however, jurisdiction was acquired over him by the court and he became a virtual party to the case when, after final judgment was rendered in said case against the company, the sheriff served upon him a writ of garnishment in behalf of appellant. Thus, as held by this Court in the case of Tayabas Land Company vs. Sharruf, 41 Phil. 382, the proceeding by garnishment is a species of attachment for reaching credits belonging to the judgment debtor and owing to him from a stranger to the litigation. By means of the citation, the stranger becomes a forced intervenor; and the court, having acquired jurisdiction over him by means of the citation, requires him to

pay his debt, not to his former creditor, but to the new creditor, who is creditor in the main litigation." In Rizal Commercial Banking Corporation v. De Castro, 17 the Court stressed that the asset or credit garnished is thereupon subjected to a specific lien: "The garnishment of property to satisfy a writ of execution operates as an attachment and fastens upon the property a lien by which the property is brought under the jurisdiction of the court issuing the writ. It is brought into custodia legis, under the sole control of such court." 18 mphasis supplied). In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction over petitioner Perla when it was served with the writ of garnishment of the third-party liability insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully evade liability thereon by such a contention. Every interest which the judgment debtor may have in property may be subjected to execution. 19 In the instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of the third-party liability insurance contract. In a third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is liable. 20 The insurer becomes liable as soon as the liability of the insured to the injured third person attaches. Prior payment by the insured to the injured third person is not necessary in order that the obligation of the insurer may arise. From the moment that the insured became liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit. 21 Petitioner also contends that in order that it may be held liable under the third-party liability insurance, a separate action should have been commenced by private respondents to establish petitioner's liability. Petitioner invokes Economic Insurance Company, Inc. vs. Torres, 22 which stated: "It is clear from Section 45, Rule 39 that if a persons alleged to have property of the judgment debtor or to be indebted to him claims an interest in the property ad verse to him or denies the debt, the court may only authorize the judgment creditor to institute an action against such person for the recovery of such interest or debt. Said section does not authorize the court to make a finding that the third person has in his possession property belonging to the judgment debtor or is indebted to him and to order said third person to pay the amount to the judgment creditor. It has been held that the only power of the court in proceedings supplemental to execution is to make an order authorizing the creditor to sue in the proper court to recover an indebtedness due to the judgment debtor. The court has no jurisdiction to try summarily the question whether the third party served with notice of execution and levy is indebted to defendant when such indebtedness is denied. To make an order in relation to property which the garnishee claimed to own in his own right, requiring its application in satisfaction of judgment of another, would be to deprive the garnishee of property upon summary proceeding and without due process of law." But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is misplaced. The Court there held that a separate action needs to be commenced when the garnishee "claims an interest in the property adverse to him (judgment debtor) or denies the debt." In the instant case, petitioner Perla did not deny before the trial court that it had indeed issued a third-party liability insurance policy in favor of the judgment debtor.

Petitioner moreover refrained from setting up any substantive defense which it might have against the insured-judgment debtor. The only ground asserted by petitioner in its "Motion for Reconsideration of the Order dated August 6, 1979 and to Quash Notice of Garnishment" was lack of jurisdiction of the trial court for failure to implead it in the case by serving it with summons. Accordingly, Rule 39, Section 45 of the Rules of Court is not applicable in the instant case, and we see no need to require a separate action against Perla: a writ of garnishment suffices to hold petitioner answerable to the judgment creditor. If Perla had any substantive defenses against the judgment debtor, it is properly deemed to have waived them by laches. WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed out of time and for lack of merit. The assailed Orders of the trial court are hereby AFFIRMED. Costs against petitioner. This Decision is immediately executory. SO ORDERED. Narvasa (Chairman), Cruz, Grio-Aquino and Medialdea, JJ., concur.

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[2006V1225] REPUBLIC OF THE PHILIPPINES, Represented by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner, Petitioner, versus DEL MONTE MOTORS, INC., Respondent.2006 Oct 91st DivisionG.R. No. 156956.DECISION

PANGANIBAN, CJ: The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy their claims. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares; it cannot be garnished or levied upon by a single claimant, to the detriment of the others.

The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order[2] of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution[3] of the lower court. The January 16, 2003 Order states in full: On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court which has become final and executory. During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. This Court finds no lawful justification or excuse for Commissioner Malinis refusal to implement the lawful orders of this Court. Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court.[4]

The Facts On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liners service contracts with respondent. The trial court further

ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO). On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable. On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code. On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The RTC resolved thus: Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of Garnishment served on August 16, 2002.[5] On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to obey the December 18, 2002 Resolution of the trial court.

Ruling of the Trial Court

The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCOs security deposit. Hence, this Petition.[6]

Issues Petitioner raises this sole issue for the Courts consideration: Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured.[7]

The Courts Ruling

The Petition is meritorious.

Preliminary Issue: Propriety of Review Before discussing the principal issue, the Court will first dispose of the question of mootness.

Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these circumstances render the case moot. Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases were made pursuant to the commissioners power of control over the fund, not to the lower courts Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with the Insurance Commission may be levied and garnished. The issue is not totally moot. To stress, only a portion of respondents claim was satisfied, and the Insurance Commission has required CISCO to replenish the latters security deposit. Respondent, therefore, may one day decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution of the issue will only postpone a task that is certain to crop up in the future.

Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect not only to the relations between the insurer and the insured, but also to the internal affairs of insurance companies.[8] As this case is undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules.[9] Principal Issue: Exemption of Security Deposit from Levy or Garnishment

Section 203 of the Insurance Code provides as follows: Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the Philippines:

Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninetytwo shall, so far as practicable, apply to the securities deposited under this section.

Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner. emphasis supplied) Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the depositing insurer under the latters various insurance contracts. Hence, respondent claims that the security deposit should be answerable for the counterbond issued by CISCO. The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant. To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries. Our Insurance Code is patterned after that of California.[10] Thus, the ruling of the states Supreme Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.[11] held that the money required to be deposited by a mutual assessment insurance company with the state treasurer was a trust fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable distribution of the fund, and appoint a receiver to carry that distribution into effect.[12] Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which it was enacted.[13] That is, the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. Respondents Inchoate Right The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, respondents interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist.[14] Hence, it would be premature to make the security deposit answerable for CISCOs present obligation to Del Monte Motors.

Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under subsisting policies issued by CISCO have been heard can respondents share be determined.

Powers of the Commissioner The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over insurance matters.[15] The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows: Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same. The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance. mphasis supplied) Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;[16] (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension;[17] (3) impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or with any of the commissioners orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.[18] Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191[19] and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states: Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the companys making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines. emphasis supplied) Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these investments are required to be deposited. An implied trust[20] is created by the law for

the benefit of all claimants under subsisting insurance contracts issued by the insurance company.[21] As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders protected. Commissioners Actions Entitled to Great Respect In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries great weight and consideration,[22] as he is the head of a specialized body tasked with the regulation of insurance matters and primarily charged with the implementation of the Insurance Code. The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. In addressing these needs, the administrative agencies charged with applying and implementing particular statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.[23] Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that without the issuance of a valid order, the insurance commissioner could not have been in contempt of court.[24] WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs. SO ORDERED. ARTEMIO V. PANGANIBAN Chief Justice, Chairperson, First Division