G.R. No.

L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after
payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros,
fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building
located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were burned. In due time
the respondent submitted to the petitioner its claim under the policy. The salvage goods were
sold at public auction and, after deducting their value, the total loss suffered by the respondent
was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the United States declared war
against Germany, the respondent Corporation (though organized under and by virtue of the
laws of the Philippines) being controlled by the German subjects and the petitioner being a
company under American jurisdiction when said policy was issued on October 1, 1941. The
petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine
Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on
April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory
of the petitioner is that the insured merchandise were burned up after the policy issued in 1941
in favor of the respondent corporation has ceased to be effective because of the outbreak of
the war between the United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the
action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment
of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on
appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation
became an enemy when the United States declared war against Germany, relying on English
and American cases which held that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized. It rejected the theory that nationality of
private corporation is determine by the character or citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The
English and American cases relied upon by the Court of Appeals have lost their force in view
of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a
paper presented to the Second International Conference of the Legal Profession held at the
Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion
in many countries, belligerent and neutral. A corporation was subject to enemy legislation
when it was controlled by enemies, namely managed under the influence of individuals or
corporations, themselves considered as enemies. It was the English courts which first the
Daimler case applied this new concept of "piercing the corporate veil," which was adopted by

the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War.
The United States of America did not adopt the control test during the First World War. Courts
refused to recognized the concept whereby American-registered corporations could be
considered as enemies and thus subject to domestic legislation and administrative measures
regarding enemy property.
World War II revived the problem again. It was known that German and other enemy interests
were cloaked by domestic corporation structure. It was not only by legal ownership of shares
that a material influence could be exercised on the management of the corporation but also by
long term loans and other factual situations. For that reason, legislation on enemy property
enacted in various countries during World War II adopted by statutory provisions to the control
test and determined, to various degrees, the incidents of control. Court decisions were
rendered on the basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the
last war, include as did other legislations the applications of the control test and again, as in
World War I, courts refused to apply this concept whereby the enemy character of an
American or neutral-registered corporation is determined by the enemy nationality of the
controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United States allowed
to large degree the determination of enemy interest in domestic corporations and thus the
application of the control test. Court decisions sanctioned such administrative practice enacted
under the First War Powers Act of 1941, and more recently, on December 8, 1947, the
Supreme Court of the United States definitely approved of the control theory. In Clark vs.
Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by
German interest, the Court: "The property of all foreign interest was placed within the reach of
the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets
but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of
seizure and vesting was extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the
appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45
Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the
meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries
not only because it was incorporated under the laws of an enemy country but because it was
controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to
be allowable as soon as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the
enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason
that the subjects of one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do anything
detrimental too their country's interest. The purpose of war is to cripple the power and exhaust
the resources of the enemy, and it is inconsistent that one country should destroy its enemy's
property and repay in insurance the value of what has been so destroyed, or that it should in
such manner increase the resources of the enemy, or render it aid, and the commencement of

war determines, for like reasons, all trading intercourse with the enemy, which prior thereto
may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as
to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is
broken and the contractual rights of the parties, so far as not vested. lost. (Vance, the Law on
Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December
10, 1941, and during the war, the respondent was not entitled to any indemnity under said
policy from the petitioner. However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the respondent for the period
covered by its policy from December 11, 1941, should be returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question
of whether the policy in question became null and void upon the declaration of war between
the United States and Germany on December 10, 1941, and its judgment in favor of the
respondent corporation was predicated on its conclusion that the policy did not cease to be in
force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to
the respondent was involuntary, its action is not tenable in view of the ruling on the validity of
the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by
the appellee was not unjust but the exercise of its lawful right to claim for and received the
payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect
that "the appellee was entitled to payment from the appellant was, well founded." Factually,
there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to
pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of
this office contained in its decision on Administrative Case dated February 9, 1943 copy of
which was sent to your office and the concurrence therein of the Financial Department of the
Japanese Military Administration, and following the instruction of said authority, you are hereby
ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said
claim, however, should be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance
with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is
ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the
amount of the premium, in Philippine currency, that should be returned by the
petitioner for the unexpired term of the policy in question, beginning December 11,
1941. Without costs. So ordered.

December 1990, the private respondent denied the claim because it found that at the time of
the loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies No.
GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the
Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
reading:

G.R. No. 114427 February 6, 1995

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

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED:
P100,000. Phils. First CEB/F 24758. 4
The basis of the private respondent's denial was the petitioner's alleged violation of Condition
3 of the policy.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in
CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando
Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which
awarded the claim of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San Francisco,
Agusan del Sur. On 22 December 1989, he obtained from the private respondent fire
insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22
December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting
principally of dry goods such as RTW's for men and women wear and other usual to assured's
business."
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the
petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc.

P55,698.00

F. Legaspi Gen. Merchandise

86,432.50

Cebu Tesing Textiles

250,000.00

(on credit)

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and
unless such notice be given and the particulars of such insurance or insurances be stated
therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this condition shall not apply when the
total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of
San Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely
destroyed prompting him to file with the private respondent a claim under the policy. On 28

The petitioner then filed a complaint 5 against the private respondent with the Insurance
Commission (Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No.
F-14622 and for attorney's fees and costs of litigation. He attached as Annex "AM" 6 thereof his
letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private respondent's fire insurance policy he knew
that the two policies issued by the PFIC were already in existence; however, he had no
knowledge of the provision in the private respondent's policy requiring him to inform it of the
prior policies; this requirement was not mentioned to him by the private respondent's agent;
and had it been mentioned, he would not have withheld such information. He further asserted
that the total of the amounts claimed under the three policies was below the actual value of his
stocks at the time of loss, which was P1,000,000.00.
In its answer, 7 the private respondent specifically denied the allegations in the complaint and
set up as its principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993, 8 the Insurance Commission found that the petitioner did not
violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies
obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies
without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor,
had insurable interest on the stocks. These findings were based on the petitioner's testimony
that he came to know of the PFIC policies only when he filed his claim with the private
respondent and that Cebu Tesing Textile obtained them and paid for their premiums without
informing him thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent company to pay
complainant the sum of P100,000.00 with legal interest from the time the complaint was filed
until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by the Insurance
Commission in its resolution of 20 August 1993, 10 the private respondent appealed to the
Court of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No.
31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the
Insurance Commission because it found that the petitioner knew of the existence of the two
other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance
was taken in the name of private respondent [petitioner herein]. The policy states that
"DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and that
"TESING TEXTILES" [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not by the
Tesing Textiles which is alleged to have taken out the other insurance without the knowledge
of private respondent. This is shown by Premium Invoices nos. 46632 and 46630. (Annexes M

and N). In both invoices, Tesing Textiles is indicated to be only the mortgagee of the goods
insured but the party to which they were issued were the "DISCOUNT MART (MR. ARMANDO
GEAGONIA)."

integral part of the complaint. 12 It has attained the status of a judicial admission and since its
due execution and authenticity was not denied by the other party, the petitioner is bound by it
even if it were not introduced as an independent evidence. 13

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

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

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is

belied by his letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me to inform your
office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention
about said requirement at the time he was convincing me to insure with you. If he only die or
even inquired if I had other existing policies covering my establishment, I would have told him
so. You will note that at the time he talked to me until I decided to insure with your company
the two policies aforementioned were already in effect. Therefore I would have no reason to
withhold such information and I would have desisted to part with my hard earned peso to pay
the insurance premiums [if] I know I could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The actual
value of my stocks damaged by the fire was estimated by the Police Department to be
P1,000,000.00 (Please see xerox copy of Police Report Annex "A"). My Income Statement as
of December 31, 1989 or five months before the fire, shows my merchandise inventory was
already some P595,455.75. . . . These will support my claim that the amount claimed under
the three policies are much below the value of my stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not know that there were
other insurances taken on the stock-in-trade and seriously puts in question his credibility.
His motion to reconsider the adverse decision having been denied, the petitioner filed the
instant petition. He contends therein that the Court of Appeals acted with grave abuse of
discretion amounting to lack or excess of jurisdiction:
A . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING
INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN
FINALITY BY THE COURTS;
B . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE
PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had
prior knowledge of the two insurance policies issued by the PFIC when he obtained the fire
insurance policy from the private respondent, thereby, for not disclosing such fact, violating
Condition 3 of the policy, and (b) if he had, whether he is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter
of reconsideration of 18 January 1991, is without merit. The petitioner claims that the said
letter was not offered in evidence and thus should not have been considered in deciding the
case. However, as correctly pointed out by the Court of Appeals, a copy of this letter was
attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and made

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the
PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which the
latter relied upon cannot prevail over a written admission made ante litem motam. It was,
indeed, incredible that he did not know about the prior policies since these policies were not
new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No.
GA-28146 had been renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance
Code 15 which provides that "[a] policy may declare that a violation of specified provisions
thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the
policy." Such a condition is a provision which invariably appears in fire insurance policies and
is intended to prevent an increase in the moral hazard. It is commonly known as the additional
or "other insurance" clause and has been upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same
subject matter, the same interest therein, and the same risk. 17
As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a
separate policy covering his interest, either at the same or at separate times. 18 The
mortgagor's insurable interest covers the full value of the mortgaged property, even though the
mortgage debt is equivalent to the full value of the property. 19 The mortgagee's insurable
interest is to the extent of the debt, since the property is relied upon as security thereof, and in
insuring he is not insuring the property but his interest or lien thereon. His insurable interest is
prima facie the value mortgaged and extends only to the amount of the debt, not exceeding
the value of the mortgaged property. 20 Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the
usual practice. The mortgagee may be made the beneficial payee in several ways. He may
become the assignee of the policy with the consent of the insurer; or the mere pledgee without
such consent; or the original policy may contain a mortgage clause; or a rider making the
policy payable to the mortgagee "as his interest may appear" may be attached; or a "standard
mortgage clause," containing a collateral independent contract between the mortgagee and
insurer, may be attached; or the policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the
proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as
his interest may appear, the mortgagee is only a beneficiary under the contract, and
recognized as such by the insurer but not made a party to the contract himself. Hence, any act
of the mortgagor which defeats his right will also defeat the right of the mortgagee. 22 This kind
of policy covers only such interest as the mortgagee has at the issuing of the policy. 23

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

insurers separately in respect of the same subject and interest. As earlier stated, the insurable
interests of a mortgagor and a mortgagee on the mortgaged property are distinct and
separate. Since the two policies of the PFIC do not cover the same interest as that covered by
the policy of the private respondent, no double insurance exists. The non-disclosure then of
the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain
a mortgage clause which reads:

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

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may
appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27
which read:
The insured shall give notice to the company of any insurance or insurances already effected,
or which may subsequently be effected covering any of the property hereby insured, and
unless such notice be given and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this Policy shall be forfeited.

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

or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. 28 which provided "that
any outstanding insurance upon the whole or a portion of the objects thereby assured must be
declared by the insured in writing and he must cause the company to add or insert it in the
policy, without which such policy shall be null and void, and the insured will not be entitled to
indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does not
absolutely declare void any violation thereof. It expressly provides that the condition "shall not
apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00."

SO ORDERED.

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally

in favor of the insured and strictly against the company, the reason being, undoubtedly, to
afford the greatest protection which the insured was endeavoring to secure when he applied
for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any
construction which would result in the forfeiture of the policy benefits for the person claiming
thereunder, will be avoided, if it is possible to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated differently,
provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are inserted,
and most favorably toward those against whom they are intended to operate. 30 The reason for
this is that, except for riders which may later be inserted, the insured sees the contract already
in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the interest of the insurers
and the technical language employed therein is rarely understood by ordinary laymen. 31
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not
totally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads
us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of
the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.
The first conclusion is supported by the portion of the condition referring to other insurance
"covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured," and the portion regarding the insured's declaration on
the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the
sum of P50,000.00. A double insurance exists where the same person is insured by several

Costs against private respondent Country Bankers Insurance Corporation.

G.R. No. 183526

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest
secondary to electrocution.

August 25, 2009

VIOLETA R. LALICAN, Petitioner,

vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE
PRESIDENT VICENTE R. AVILON, Respondent.
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari under Rule 45 of the Rules of Court are
the Decision2 dated 30 August 2007 and the Orders dated 10 April 20083 and 3 July 20084 of
the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its
assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R.
Lalican (Violeta) against respondent Insular Life Assurance Company Limited (Insular Life);
while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the RTC
declared the finality of the aforesaid Decision and denied petitioners Notice of Appeal.
1

The factual and procedural antecedents of the case, as culled from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997,
Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of
Eulogio Policy No. 9011992,5 which contained a 20-Year Endowment Variable Income
Package Flexi Plan worth P500,000.00,6 with two riders valued at P500,000.00 each.7 Thus,
the value of the policy amounted to P1,500,000.00. Violeta was named as the primary
beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis
in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24 January of
each year, until the end of the 20-year period of the policy. According to the Policy Contract,
there was a grace period of 31 days for the payment of each premium subsequent to the first.
If any premium was not paid on or before the due date, the policy would be in default, and if
the premium remained unpaid until the end of the grace period, the policy would automatically
lapse and become void.8
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to
pay the premium due on 24 January 1998, even after the lapse of the grace period of 31 days.
Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26
May 1998, an Application for Reinstatement9 of Policy No. 9011992, together with the amount
of P8,062.00 to pay for the premium due on 24 January 1998. In a letter10 dated 17 July 1998,
Insular Life notified Eulogio that his Application for Reinstatement could not be fully processed
because, although he already deposited P8,062.00 as payment for the 24 January 1998
premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus, Insular Life
instructed Eulogio to pay the amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that
subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house and submitted a second Application
for Reinstatement11 of Policy No. 9011992, including the amount of P17,500.00, representing
payments for the overdue interest on the premium for 24 January 1998, and the premiums
which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business
errand, her husband received Eulogios second Application for Reinstatement and issued a
receipt for the amount Eulogio deposited.

Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional Office in
the City of San Fernando, on 18 September 1998, Eulogios second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no longer
acted upon Eulogios second Application for Reinstatement, as the former was informed on 21
September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds
of Policy No. 9011992.
In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be
granted since, at the time of Eulogios death, Policy No. 9011992 had already lapsed, and
Eulogio failed to reinstate the same. According to the Application for Reinstatement, the policy
would only be considered reinstated upon approval of the application by Insular Life during the
applicants "lifetime and good health," and whatever amount the applicant paid in connection
thereto was considered to be a deposit only until approval of said application. Enclosed with
the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the
amount of P25,417.00, drawn in Violetas favor, representing the full refund of the payments
made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In
a letter13 dated 10 March 1999, Insular Life stated that it could not find any reason to
reconsider its decision rejecting Violetas claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the
Cabanatuan District Office of Insular Life. Violetas counsel subsequently sent a letter 14 dated 8
July 1999 to Insular Life, demanding payment of the full proceeds of Policy No. 9011992. On
11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a reevaluation of Violetas claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on
11 October 1999, a Complaint for Death Claim Benefit,15 which was docketed as Civil Case
No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice and
deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed
that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in the
amount of P1,500,000.00, plus interests, attorneys fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim,16 asserting that Violetas
Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992, on
which Violeta sought to recover, was rendered void by the non-payment of the 24 January
1998 premium and non-compliance with the requirements for the reinstatement of the same.
By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorneys fees and
expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the
reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the
same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and
July 24, 1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his
insurance policy necessarily lapsed. This is clear from the terms and conditions of the contract
between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of Policy No.

9011992 x x x.17
The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and
Insular Life and the Application for Reinstatement Eulogio subsequently signed and submitted
to Insular Life, held that Eulogio was not able to fully comply with the requirements for the
reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law between the parties. In the instant
case, the terms of the insurance contract between [Eulogio] and [Insular Life] were spelled out
in the policy provisions of Insurance Policy No. 9011992. There is likewise no dispute that said
insurance contract is by nature a contract of adhesion[,] which is defined as "one in which one
of the contracting parties imposes a ready-made form of contract which the other party may
accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296 SCRA 247).
xxxx
The New Lexicon Websters Dictionary defines ambiguity as the "quality of having more than
one meaning" and "an idea, statement or expression capable of being understood in more
than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court
stated that[:]
"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a
result thereby, must be read and construed against the party who drafted it on the assumption
that it could have been avoided by the exercise of a little care."
In the instant case, the dispute arises from the afore-quoted provisions written on the face of
the second application for reinstatement. Examining the said provisions, the court finds the
same clearly written in terms that are simple enough to admit of only one interpretation. They
are clearly not ambiguous, equivocal or uncertain that would need further construction. The
same are written on the very face of the application just above the space where [Eulogio]
signed his name. It is inconceivable that he signed it without reading and understanding its
import.
1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple
and clear laymans language, rendering it free from any ambiguity that would require a legal
interpretation or construction. Thus, the court believes that [Eulogio] was well aware that when
he filed the said application for reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain conditions. Nowhere in the policy or in
the application for reinstatement was it ever mentioned that the payment of premiums would
have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was
clearly stated in the application for reinstatement is that pending approval thereof, the
premiums paid would be treated as a "deposit only and shall not bind the company until this
application is finally approved during my/our" lifetime and good health[.]"
Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity
either in the words used or in the manner they were written. [Violeta] did not present any proof
that [Eulogio] was not conversant with the English language. Hence, his having personally
signed the application for reinstatement[,] which consisted only of one page, could only mean
that he has read its contents and that he understood them. x x x
Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in
the policy provisions of Policy No. 9011992 and in the application for reinstatement subject of
this case, the court finds no merit in [Violetas] contention that the policy provision stating that
[the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should
be construed in his favor. It is true that [Eulogio] submitted his application for reinstatement,
together with his premium and interest payments, to [Insular Life] through its agent Josephine
Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of that
same day. It was only on the following day, September 18, 1998 that Ms. Malaluan brought the
said document to [the regional office of Insular Life] in San Fernando, Pampanga for approval.
As correctly pointed out by [Insular Life] there was no more application to approve because the

applicant was already dead and no insurance company would issue an insurance policy to a
dead person.18 (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot
express the same by interpreting the insurance agreement in her favor where there is no need
for such interpretation. It is conceded that [Eulogios] payment of overdue premiums and
interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that [the]
application for reinstatement was filed by [Eulogio] a day before his death. However, there is
nothing that would justify a conclusion that such receipt amounted to an automatic
reinstatement of the policy that has already lapsed. The evidence suggests clearly that no
such automatic renewal was contemplated in the contract between [Eulogio] and [Insular Life].
Neither was it shown that Ms. Malaluan was the officer authorized to approve the application
for reinstatement and that her receipt of the documents submitted by [Eulogio] amounted to its
approval.19 (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to
establish by preponderance of evidence her cause of action against the defendant, let this
case be, as it is hereby DISMISSED.20
On 14 September 2007, Violeta filed a Motion for Reconsideration21 of the afore-mentioned
RTC Decision. Insular Life opposed22 the said motion, averring that the arguments raised
therein were merely a rehash of the issues already considered and addressed by the RTC. In
an Order23 dated 8 November 2007, the RTC denied Violetas Motion for Reconsideration,
finding no cogent and compelling reason to disturb its earlier findings. Per the Registry Return
Receipt on record, the 8 November 2007 Order of the RTC was received by Violeta on 3
December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply24 to the Motion for
Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the
setting aside of the Decision dated 30 August 2007. Despite already receiving on 3 December
2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for
Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended
Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August
2007 in Civil Case No. 2177 had already attained finality in view of Violetas failure to file the
appropriate notice of appeal within the reglementary period. Thus, any further discussions on
the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and
academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,26 praying that the
Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the Court
of Appeals.
In an Order27 dated 3 July 2008, the RTC denied Violetas Notice of Appeal with Motion given
that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari,
raising the following issues for consideration:
1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed
despite having allegedly attained finality and despite the fact that the mode of appeal that has
been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a
question of law not in accord with law and applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of
a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the computation of the
reglementary period for appealing the said judgment. Violeta claims that her former counsel
suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the
latters death just shortly after the filing of the instant Petition on 8 August 2008. In light of
these circumstances, Violeta entreats this Court to admit and give due course to her appeal
even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this case
involving the interpretation of the second sentence of Section 19 of the Insurance Code, which
provides:
Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life
when he reinstated Policy No. 9011992 just before he passed away on 17 September 1998.
The RTC should have construed the provisions of the Policy Contract and Application for
Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and
considered the special circumstances of the case, to rule that Eulogio had complied with the
requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant Petition for
Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court, 28 provides that no
appeal may be taken from an order disallowing or dismissing an appeal. In such a case, the
aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court. 29
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long
become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007. The records of the case reveal that
Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta
had 15 days30 from said date of receipt, or until 18 December 2007, to file a Notice of Appeal.
Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after receipt of
the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.
Violetas claim that her former counsels failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latters deteriorating health, is
unpersuasive.
Violeta merely made a general averment of her former counsels poor health, lacking relevant
details and supporting evidence. By Violetas own admission, her former counsels health
rapidly deteriorated only by the first week of July 2008. The events pertinent to Violetas Notice
of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8
November 2007, denying Violetas Motion for Reconsideration of the Decision dated 30 August
2007, was received on 3 December 2007; and Violetas Notice of Appeal was filed on 20 May
2008. There is utter lack of proof to show that Violetas former counsel was already suffering
from ill health during these times; or that the illness of Violetas former counsel would have
affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary
period binds Violeta, which failure the latter cannot now disown on the basis of her bare
allegation and self-serving pronouncement that the former was ill. A client is bound by his
counsels mistakes and negligence.31
The Court, therefore, finds no reversible error on the part of the RTC in denying Violetas
Notice of Appeal for being filed beyond the reglementary period. Without an appeal having
been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already

became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when
the reglementary period to appeal lapses and no appeal is perfected within such period. As a
consequence, no court (not even this Court) can exercise appellate jurisdiction to review a
case or modify a decision that has become final.32 When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be modified in any respect either by the
court, which rendered it or even by this Court. The doctrine is founded on considerations of
public policy and sound practice that, at the risk of occasional errors, judgments must become
final at some definite point in time.33
The only recognized exceptions to the doctrine of immutability and unalterability are the
correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to
any party, and void judgments.34 The instant case does not fall under any of these exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the
substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly,
whether Eulogio had an existing insurable interest in his own life until the day of his death.
An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have in
the subject matter insured, where he has a relation or connection with or concern in it, such
that the person will derive pecuniary benefit or advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or damage from its destruction, termination, or
injury by the happening of the event insured against.35 The existence of an insurable interest
gives a person the legal right to insure the subject matter of the policy of insurance. 36 Section
10 of the Insurance Code indeed provides that every person has an insurable interest in his
own life.37 Section 19 of the same code also states that an interest in the life or health of a
person insured must exist when the insurance takes effect, but need not exist thereafter or
when the loss occurs.38
Upon more extensive study of the Petition, it becomes evident that the matter of insurable
interest is entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio
was still alive, he had an insurable interest in his own life, which he did insure under Policy No.
9011992. The real point of contention herein is whether Eulogio was able to reinstate the
lapsed insurance policy on his life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30
August 2007 Decision that Policy No. 9011992 lapsed because of Eulogios non-payment of
the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had
lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace
period for payment of the premium, which fell due on 24 January 1998, without any payment
having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogios filing of his first
Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes
an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogios
first Application for Reinstatement, since the amount Eulogio simultaneously deposited was
sufficient to cover only the P8,062.00 overdue premium for 24 January 1998, but not the
P322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a second
Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same
time P17,500.00, to cover payment for the overdue interest on the premium for 24 January
1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the
very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been

permitted to lapse.39 Both the Policy Contract and the Application for Reinstatement provide for
specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for
reinstatement should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the following
conditions are met: (1) the policy has not been surrendered for its cash value or the period of
extension as a term insurance has not expired; (2) evidence of insurability satisfactory to
[Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not
exceeding that which would have been applicable to said premium and indebtedness in the
policy years prior to reinstatement; and (4) indebtedness which existed at the time of lapsation
is paid or renewed.40
Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this application is approved
by the Company during my/our lifetime and good health and until all other Company
requirements for the reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection with this application
shall be considered as deposit only and shall not bind the Company until this application is
finally approved by the Company during my/our lifetime and good health. If this application is
disapproved, I/We also agree to accept the refund of all payments made in connection
herewith, without interest, and to surrender the receipts for such payment.41 (Emphases ours.)
In the instant case, Eulogios death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue premiums
and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogios lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company,42 citing McGuire v. The Manufacturer's Life Insurance Co.43:
"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the mere
filing of an application. The insurer has the right to deny the reinstatement if it is not satisfied
as to the insurability of the insured and if the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the insured the insurance Company
cannot be compelled to entertain an application for reinstatement of the policy because the
conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases
ours.)
It does not matter that when he died, Eulogios Application for Reinstatement and deposits for
the overdue premiums and interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for
payment of premiums, to waive any lapsation, forfeiture or any of our rights or requirements,
such powers being limited to our president, vice-president or persons authorized by the Board
of Trustees and only in writing.44 (Emphasis ours.)
Malaluan did not have the authority to approve Eulogios Application for Reinstatement.
Malaluan still had to turn over to Insular Life Eulogios Application for Reinstatement and
accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract
and Application for Reinstatement were written in clear and simple language, which could not
admit of any meaning or interpretation other than those that they so obviously embody. A
construction in favor of the insured is not called for, as there is no ambiguity in the said
provisions in the first place. The words thereof are clear, unequivocal, and simple enough so
as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance
law that a policy or contract of insurance is to be construed liberally in favor of the insured and
strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms, which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense.45
Eulogios death, just hours after filing his Application for Reinstatement and depositing his
payment for overdue premiums and interests with Malaluan, does not constitute a special
circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated.
Said circumstance cannot override the clear and express provisions of the Policy Contract and
Application for Reinstatement, and operate to remove the prerogative of Insular Life
thereunder to approve or disapprove the Application for Reinstatement. Even though the Court
commiserates with Violeta, as the tragic and fateful turn of events leaves her practically emptyhanded, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a
lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts
are not permitted to make contracts for the parties. The function and duty of the courts consist
simply in enforcing and carrying out the contracts actually made.46
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with
the Policy Contract and Application for Reinstatement before Eulogios death. Violeta,
therefore, cannot claim any death benefits from Insular Life on the basis of Policy No.
9011992; but she is entitled to receive the full refund of the payments made by Eulogio
thereon.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on
Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April
2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying
petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision dated 30
August 2007 subject thereof, was already final and executory. No costs.
SO ORDERED.

G.R. No. 23703

September 28, 1925

HILARIO GERCIO, plaintiff-appellee,

vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.
Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.Vicente Romualdez, Feria
and La O and P. J. Sevilla for appellee.
MALCOLM, J.:
The question of first impression in the law of life insurance to be here decided is whether the
insured the husband has the power to change the beneficiary the former wife and
to name instead his actual wife, where the insured and the beneficiary have been divorced and
where the policy of insurance does not expressly reserve to the insured the right to change the
beneficiary. Although the authorities have been exhausted, no legal situation exactly like the
one before us has been encountered.
Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the insurer,
and Andrea Zialcita, the beneficiary, are the defendants. The complaint is in the nature of
mandamus. Its purpose is to compel the defendant Sun Life Assurance Co. of Canada to
change the beneficiary in the policy issued by the defendant company on the life of the plaintiff
Hilario Gercio, with one Andrea Zialcita as beneficiary.
A default judgment was taken in the lower court against the defendant Andrea Zialcita. The
other defendant, the Sun Life Assurance Co. of Canada, first demurred to the complaint and
when the demurrer was overruled, filed an answer in the nature of a general denial. The case
was then submitted for decision on an agreed statement of facts. The judgment of the trial
court was in favor of the plaintiff without costs, and ordered the defendant company to
eliminate from the insurance policy the name of Andrea Zialcita as beneficiary and to
substitute therefor such name as the plaintiff might furnish to the defendant for that purpose.
The Sun Life Assurance Co. of Canada has appealed and has assigned three errors alleged to
have been committed by the lower court. The appellee has countered with a motion which
asks the court to dismiss the appeal of the defendant Sun Life Assurance Co. of Canada, with
costs.
As the motion presented by the appellee and the first two errors assigned by the appellant are
preliminary in nature, we will pass upon the first. Appellee argues that the "substantial
defendant" was Andrea Zialcita, and that since she was adjudged in default, the Sun Life
Assurance Co. of Canada has no interest in the appeal. It will be noticed, however, that the
complaint prays for affirmative relief against the insurance company. It will be noticed further
that it is stipulated that the insurance company has persistently refused to change the
beneficiary as desired by the plaintiff. As the rights of Andrea Zialcita in the policy are rights
which are enforceable by her only against the insurance company, the defendant insurance
company will only be fully protected if the question at issue is conclusively determined.
Accordingly, we have decided not to accede to the motion of the appellee and not to order the
dismissal of the appeal of the appellant.
This brings us to the main issue. Before, however, discussing its legal aspects, it is advisable
to have before us the essential facts. As they are stipulated, this part of the decision can easily
be accomplished.
On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No.
161481 on the life of Hilario Gercio. The policy was what is known as a twenty-year
endowment policy. By its terms, the insurance company agreed to insure the life of Hilario

Gercio for the sum of P/2,000, to be paid him on February 1, 1930, or if the insured should die
before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to
the executors, administrators, or assigns of the insured. The policy also contained a schedule
of reserves, amounts in cash, paid-up policies, and renewed insurance, guaranteed. The
policy did not include any provision reserving to the insured the right to change the beneficiary.
On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio.
Towards the end of the year 1919, she was convicted of the crime of adultery. On September
4, 1920, a decree of divorce was issued in civil case no. 17955, which had the effect of
completely dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea
Zialcita.
On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that
he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her
stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio
requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the
insurance company has refused and still refuses to do.
With all of these introductory matters disposed of and with the legal question to the forefront, it
becomes our first duty to determine what law should be applied to the facts. In this connection,
it should be remembered that the insurance policy was taken out in 1910, that the Insurance
Act. No. 2427, became effective in 1914, and that the effort to change the beneficiary was
made in 1922. Should the provisions of the Code of Commerce and the Civil Code in force in
1910, or the provisions of the Insurance Act now in force, or the general principles of law,
guide the court in its decision?
On the supposition, first, that the Code of Commerce is applicable, yet there can be found in it
no provision either permitting or prohibiting the insured to change the beneficiary.
On the supposition, next, that the Civil Code regulates insurance contracts, it would be most
difficult, if indeed it is practicable, to test a life insurance policy by its provisions. Should the
insurance contract, whereby the husband names the wife as the beneficiary, be denominated
a donation inter vivos, a donation causa mortis, a contract in favor of a third person, or an
aleatory contract? The subject is further complicated by the fact that if an insurance contract
should be considered a donation, a husband may then never insure his life in favor of his wife
and vice versa, inasmuch as article 1334 prohibits all donations between spouses during
marriage. It would seem, therefore, that this court was right when in the case of Del Val vs. Del
Val ([1915]), 29 Phil., 534), it declined to consider the proceeds of the insurance policy as a
donation or gift, saying "the contract of life insurance is a special contract and the destination
of the proceeds thereof is determined by special laws which deal exclusively with that subject.
The Civil Code has no provisions which relate directly and specifically to life-insurance
contracts or to the destination of life-insurance proceeds. . . ." Some satisfaction is gathered
from the perplexities of the Louisiana Supreme Court, a civil law jurisdiction, where the jurists
have disagreed as to the classification of the insurance contract, but have agreed in their
conclusions as will hereafter see. (Re Succession of Leone Desforges [1914], 52 L.R.A. [N.S.],
689; Lambert vs Penn Mutual Life Insurance Company of Philadelphia and L'Hote & Co.
[1898], 50 La. Ann., 1027.)
On the further supposition that the Insurance Act applies, it will be found that in this Law, there
is likewise no provision either permitting or prohibiting the insured to change the beneficiary.
We must perforce conclude that whether the case be considered as of 1910, or 1914, or 1922,
and whether the case be considered in the light of the Code of Commerce, the Civil Code, or
the Insurance Act, the deficiencies in the law will have to be supplemented by the general
principles prevailing on the subject. To that end, we have gathered the rules which follow from
the best considered American authorities. In adopting these rules, we do so with the purpose
of having the Philippine Law of Insurance conform as nearly as possible to the modern Law of
Insurance as found in the United States proper.

The wife has an insurable interest in the life of her husband. The beneficiary has an absolute
vested interest in the policy from the date of its issuance and delivery. So when a policy of life
insurance is taken out by the husband in which the wife is named as beneficiary, she has a
subsisting interest in the policy. And this applies to a policy to which there are attached the
incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and
to an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes
to retain to himself the control and ownership of the policy he may so provide in the policy. But
if the policy contains no provision authorizing a change of beneficiary without the beneficiary's
consent, the insured cannot make such change. Accordingly, it is held that a life insurance
policy of a husband made payable to the wife as beneficiary, is the separate property of the
beneficiary and beyond the control of the husband.
As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely
provides in section 9 that the decree of divorce shall dissolve the community property as soon
as such decree becomes final. Unlike the statutes of a few jurisdictions, there is no provision in
the Philippine Law permitting the beneficiary in a policy for the benefit of the wife of the
husband to be changed after a divorce. It must follow, therefore, in the absence of a statute to
the contrary, that if a policy is taken out upon a husband's life the wife is named as beneficiary
therein, a subsequent divorce does not destroy her rights under the policy.
These are some of the pertinent principles of the Law of Insurance. To reinforce them, we
would, even at the expense of clogging the decision with unnecessary citation of authority,
bring to notice certain decisions which seem to us to have controlling influence.
To begin with, it is said that our Insurance Act is mostly taken from the statute of California. It
should prove of interest, therefore, to know the stand taken by the Supreme Court of that
State. A California decision oft cited in the Cyclopedias is Yore vs. Booth ([1895]), 110 Cal.,
238; 52 Am. St. Rep., 81), in which we find the following:
. . . It seems to be the settled doctrine, with but slight dissent in the courts of this country, that
a person who procures a policy upon his own life, payable to a designated beneficiary,
although he pays the premiums himself, and keeps the policy in his exclusive possession, has
no power to change the beneficiary, unless the policy itself, or the charter of the insurance
company, so provides. In policy, although he has parted with nothing, and is simply the object
of another's bounty, has acquired a vested and irrevocable interest in the policy, which he may
keep alive for his own benefit by paying the premiums or assessments if the person who
effected the insurance fails or refuses to do so.
As carrying great weight, there should also be taken into account two decisions coming from
the Supreme Court of the United States. The first of these decisions, in point of time, is
Connecticut Mutual Life Insurance Company vs Schaefer ([1877]), 94 U.S., 457). There, Mr.
Justice Bradley, delivering the opinion of the court, in part said:
This was an action on a policy of the court, in part said: July 25, 1868, on the joint lives of
George F. and Francisca Schaefer, then husband and wife, payable to the survivor on the
death of either. In January, 1870, they were divorced, and alimony was decreed and paid to
the wife, and there was never any issue of the marriage. They both subsequently married
again, after which, in February, 1871, George F. Schaefer died. This action was brought by
Francisca, the survivor.
xxx

xxx

xxx

The other point, relating to the alleged cessation of insurable interest by reason of the divorce
of the parties, is entitled to more serious consideration, although we have very little difficulty in
disposing of it.
It will be proper, in the first place, to ascertain what is an insurable interest. It is generally
agreed that mere wager policies, that is, policies in which the insured party has no interest in
its loss or destruction, are void, as against public policy. . . . But precisely what interest is
necessary, in order to take a policy out of the category of mere wager, has been the subject of

much discussion. In marine and fire insurance the difficulty is not so great, because there
insurance is considered as strictly an indemnity. But in life insurance the loss can seldom be
measured by pecuniary values. Still, an interest of some sort in the insured life must exist. A
man cannot take out insurance on the life of a total stranger, nor on that of one who is not so
connected with him as to make the continuance of the life a matter of some real interest to
him.
It is well settled that a man has an insurable interest in his own life and in that of his wife and
children; a woman in the life of her husband; and the creditor in the life of his debtor. Indeed it
may be said generally that any reasonable expectation of pecuniary benefit or advantage from
the continued life of another creates an insurable interest in such life. And there is no doubt
that a man may effect an insurance on his own life for the benefit of a relative or fried; or two
or more persons, on their joint lives, for the benefit of the survivor or survivors. The old
tontines were based substantially on this principle, and their validity has never been called in
question.
xxx

xxx

xxx

The policy in question might, in our opinion, be sustained as a joint insurance, without
reference to any other interest, or to the question whether the cessation of interest avoids a
policy good at its inception. We do not hesitate to say, however, that a policy taken out in good
faith and valid at its inception, is not avoided by the cessation of the insurable interest, unless
such be the necessary effect of the provisions of the policy itself. . . .
. . . .In our judgment of life policy, originally valid, does not cease to be so by the cessation of
the assured party's interest in the life insured.
Another controlling decision of the United States Supreme Court is that of the Central National
Bank of Washington City vs. Hume ([1888], 128 U.S., 134). Therein, Mr. Chief Justice Fuller,
as the organ of the court, announced the following doctrines:
We think it cannot be doubted that in the instance of contracts of insurance with a wife or
children, or both, upon their insurable interest in the life of the husband or father, the latter,
while they are living, can exercise no power of disposition over the same without their consent,
nor has he any interest therein of which he can avail himself; nor upon his death have his
personal representatives or his creditors any interest in the proceeds of such contracts, which
belong to the beneficiaries to whom they are payable.
It is indeed the general rule that a policy, and the money to become due under it, belong, the
moment it is issued, to the person or persons named in it as the beneficiary or beneficiaries,
and that there is no power in the person procuring the insurance, by any act of his, by deed or
by will, to transfer to any other person the interest of the person named.
A jurisdiction which found itself in somewhat the same situation as the Philippines, because of
having to reconcile the civil law with the more modern principles of insurance, is Louisiana. In
a case coming before the Federal Courts, In re Dreuil & Co. ([1915]), 221 Fed., 796), the facts
were that an endowment insurance policy provided for payment of the amount thereof at the
expiration of twenty years to the insured, or his executors, administrators, or assigns, with the
proviso that, if the insured die within such period, payment was to be made to his wife if she
survive him. It was held that the wife has a vested interest in the policy, of which she cannot be
deprived without her consent. Foster, District Judge, announced:
In so far as the law of Louisiana is concerned, it may also be considered settled that where a
policy is of the semitontine variety, as in this case, the beneficiary has a vested right in the
policy, of which she cannot be deprived without her consent. (Lambert vs Penn Mutual Life Ins.
Co., 50 La. Ann., 1027; 24 South., 16.) (See in same connection a leading decision of the
Louisiana Supreme Court, Re Succession of Leonce Desforges, [1914], 52 L.R.A. [N.S.], 689.)
Some question has arisen as to the power of the insured to destroy the vested interest of the
beneficiary in the policy. That point is well covered in the case of Entwistle vs. Travelers

Insurance Company ([1902], 202 Pa. St., 141). To quote:

. . . The interest of the wife was wholly contingent upon her surviving her husband, and she
could convey no greater interest in the policy than she herself had. The interest of the children
of the insured, which was created for them by the contract when the policy was issued; vested
in them at the same time that the interest of the wife became vested in her. Both interests were
contingent. If the wife die before the insured, she will take nothing under the policy. If the
insured should die before the wife, then the children take nothing under the policy. We see no
reason to discriminate between the wife and the children. They are all payees, under the
policy, and together constitute the assured.
The contingency which will determine whether the wife, or the children as a class will take the
proceeds, has not as yet happened; all the beneficiaries are living, and nothing has occurred
by which the rights of the parties are in any way changed. The provision that the policy may be
converted into cash at the option of the holder does not change the relative rights of the
parties. We agree entirely with the suggestion that "holder" or "holders", as used in this
connection, means those who in law are the owners of the policy, and are entitled to the rights
and benefits which may accrue under it; in other words, all the beneficiaries; in the present
case, not only the wife, by the children of the insured. If for any reason, prudence required the
conversion of the policy into cash, a guardian would have no special difficulty in reasonable
protecting the interest of his wards. But however that may be, it is manifest that the option can
only be exercised by those having the full legal interest in the policy, or by their assignee.
Neither the husband, nor the wife, nor both together had power to destroy the vested interest
of the children in the policy.
The case most nearly on all fours with the one at bar is that of Wallace vs Mutual Benefit Life
Insurance Co. ([1906], 97 Minn., 27; 3 L.R.A. [N.S.], 478). The opinion there delivered also
invokes added interest when it is noted that it was written by Mr. Justice Elliott, the author of a
text on insurance, later a member of this court. In the Minnesota case cited, one Wallace
effected a "twenty-year endowment" policy of insurance on his life, payable in the event of his
death within twenty years to Emma G. Wallace, his wife, but, if he lived, to himself at the end
of twenty years. If Wallace died before the death of his wife, within the twenty years, the policy
was payable to the personal representatives of the insured. During the pendency of divorce
proceedings, the parties signed a contract by which Wallace agreed that, if a divorce was
granted to Mrs. Wallace, the court might award her certain specified property as alimony, and
Mrs. Wallace agreed to relinquish all claim to any property arising out of the relation of
husband and wife. The divorce was granted. An action was brought by Wallace to compel Mrs.
Wallace to relinquish her interest in the insurance policy. Mr. Justice Elliott said:
As soon as the policy was issued Mrs. Wallace acquired a vested interest therein, of which she
could not be deprived without her consent, except under the terms of the contract with the
insurance company. No right to change the beneficiary was reserved. Her interest in the policy
was her individual property, subject to be divested only by her death, the lapse of time, or by
the failure of the insured to pay the premiums. She could keep the policy alive by paying the
premiums, if the insured did not do so. It was contingent upon these events, but it was free
from the control of her husband. He had no interest in her property in this policy, contingent or
otherwise. Her interest was free from any claim on the part of the insured or his creditors. He
could deprive her of her interest absolutely in but one way, by living more than twenty years.
We are unable to see how the plaintiff's interest in the policy was primary or superior to that of
the husband. Both interests were contingent, but they were entirely separate and distinct, the
one from the other. The wife's interest was not affected by the decree of court which dissolved
the marriage contract between the parties. It remains her separate property, after the divorce
as before. . .
. . . . The fact that she was his wife at the time the policy was issued may have been, and
undoubtedly was, the reason why she was named as beneficiary in the event of his death. But
her property interest in the policy after it was issued did not in any reasonable sense arise out
of the marriage relation.

Somewhat the same question came before the Supreme Court of Kansas in the leading case
of Filley vs. Illinois Life Insurance Company ([1914]), 91 Kansas, 220; L.R.A. [1915 D], 130). It
was held, following consideration extending to two motions for rehearing, as follows:
The benefit accruing from a policy of life insurance upon the life of a married man, payable
upon his death to his wife, naming her, is payable to the surviving beneficiary named, although
she may have years thereafter secured a divorce from her husband, and he was thereafter
again married to one who sustained the relation of wife to him at the time of his death.
The rights of a beneficiary in an ordinary life insurance policy become vested upon the
issuance of the policy, and can thereafter, during the life of the beneficiary, be defeated only as
provided by the terms of the policy.
If space permitted, the following corroborative authority could also be taken into account:
Joyce, The Law of Insurance, second edition, vol. 2, pp. 1649 et seq.; 37 Corpus Juris, pp.
394 et seq.; 14 R.C.L., pp. 1376 et seq.; Green vs. Green ([1912], 147 Ky., 608; 39 L.R.A.
[N.S.], 370); Washington Life Insurance Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs.
Miller ([1907]), 137 Ill., App., 278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8
L.R.A. [N.S.], 923; Union Central Life Ins. Co. vs. Buxer ([1900], 62 Ohio St., 385; 49 L.R.A.,
737); Griffith vs. New York Life Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep., 96); Preston
vs. Conn. Mut. L. Ins. Co. of Hartford ([1902]); 95 Md., 101); Snyder vs. Supreme Ruler of
Fraternal Mystic Circle ([1909], 122 Tenn. 248; 45 L.R.A. [N.S.], 209); Lloyd vs. Royal Union
Mut. L. Ins. Co. ([1917], 245 Fed., 162); Phoenix Mut. L. Ins. Co. vs. Dunham ([1878], 46
Conn., 79; 33 Am. Rep., 14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep.,
129); Supreme Council American Legion of Honor vs. Smith and Smith ([1889], 45 N.J. Eq.,
466); Overhiser vs. Overhiser ([1900], 63 Ohio St., 77; 81 Am. St. Rep., 612; 50 L.R.A., 552);
Condon vs. New York Life Insurance Co. ([1918], 183 Iowa, 658); with which compare Foster
vs. Gile ([1880], 50 Wis., 603) and Hatch vs. Hatch ([1904], 35 Tex. Civ. App., 373).
On the admitted facts and the authorities supporting the nearly universally accepted principles
of insurance, we are irresistibly led to the conclusion that the question at issue must be
answered in the negative.
The judgment appealed from will be reversed and the complaint ordered dismissed as to the
appellant, without special pronouncement as to the costs in either instance. So
ordered.

G.R. No. L-54216 July 19, 1989

THE PHILIPPINE AMERICAN INSURANCE COMPANY, petitioner,
vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the Court of First
Instance of Rizal, and RODOLFO C. DIMAYUGA, respondents.

PARAS, J.:
Challenged before Us in this petition for review on certiorari are the Orders of the respondent
Judge dated March 19, 1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc.
No. 9210 and denying petitioner's Motion for Reconsideration, respectively.
The undisputed facts are as follows:
On January 15, 1968, private respondent procured an ordinary life insurance policy from the
petitioner company and designated his wife and children as irrevocable beneficiaries of said
policy.
Under date February 22, 1980 private respondent filed a petition which was docketed as Civil
Case No. 9210 of the then Court of First Instance of Rizal to amend the designation of the
beneficiaries in his life policy from irrevocable to revocable.
Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date,
petitioner filed its Comment and/or Opposition to Petition.
When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio
G. Pineda, presiding Judge of the then Court of First Instance of Rizal, Pasig Branch XXI,
denied petitioner's Urgent Motion, thus allowing the private respondent to adduce evidence,
the consequence of which was the issuance of the questioned Order granting the petition.
Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order
June 10, 1980. Hence, this petition raising the following issues for resolution:
I
WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES COULD
BE CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE IRREVOCABLE
BENEFICIARIES.
II
WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS
ALREADY DECEASED WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY GIVE
CONSENT TO THE CHANGE OR AMENDMENT IN THE DESIGNATION OF THE
IRREVOCABLE BENEFICIARIES.
We are of the opinion that his Honor, the respondent Judge, was in error in issuing the
questioned Orders.
Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known
as Act No. 2427 as amended, the policy having been procured in 1968. Under the said law, the
beneficiary designated in a life insurance contract cannot be changed without the consent of
the beneficiary because he has a vested interest in the policy (Gercio v. Sun Life Ins. Co. of
Canada, 48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil. 71).
In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy
which forms part of Policy Number 0794461 in the name of Rodolfo Cailles Dimayuga states

that the designation of the beneficiaries is irrevocable (Annex "A" of Petition in Sp. Proc. No.
9210, Annex "C" of the Petition for Review on Certiorari), to wit:
It is hereby understood and agreed that, notwithstanding the provisions of this policy to the
contrary, inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in
this Policy has been made without reserving the right to change said beneficiary/ beneficiaries,
such designation may not be surrendered to the Company, released or assigned; and no right
or privilege under the Policy may be exercised, or agreement made with the Company to any
change in or amendment to the Policy, without the consent of the said
beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)
Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.
Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law
then applicable, it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may be legally and validly
effected. Both the law and the policy do not provide for any other exception, thus, abrogating
the contention of the private respondent that said designation can be amended if the Court
finds a just, reasonable ground to do so.
Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the
beneficiary-wife predeceased the insured) cannot be considered an effective ratification to the
change of the beneficiaries from irrevocable to revocable. Indubitable is the fact that all the six
(6) children named as beneficiaries were minors at the time,** for which reason, they could not
validly give their consent. Neither could they act through their father insured since their
interests are quite divergent from one another. In point is an excerpt from the Notes and Cases
on Insurance Law by Campos and Campos, 1960, readingThe insured ... can do nothing to divest the beneficiary of his rights without his consent. He
cannot assign his policy, nor even take its cash surrender value without the consent of the
beneficiary. Neither can the insured's creditors seize the policy or any right thereunder. The
insured may not even add another beneficiary because by doing so, he diminishes the amount
which the beneficiary may recover and this he cannot do without the beneficiary's consent.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the
insurance contract, for otherwise, the vested rights of the irrevocable beneficiaries would be
rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is the law
binding on both of them and for so many times, this court has consistently issued
pronouncements upholding the validity and effectivity of contracts. Where there is nothing in
the contract which is contrary to law, good morals, good customs, public policy or public order
the validity of the contract must be sustained. Likewise, contracts which are the private laws of
the contracting parties should be fulfilled according to the literal sense of their stipulations, if
their terms are clear and leave no room for doubt as to the intention of the contracting parties,
for contracts are obligatory, no matter in what form they may be, whenever the essential
requisites for their validity are present (Phoenix Assurance Co., Ltd. vs. United States Lines,
22 SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)
In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court
ruled that:
... it is settled that the parties may establish such stipulations, clauses, terms, and conditions
as they may want to include; and as long as such agreements are not contrary to law, good
morals, good customs, public policy or public order, they shall have the force of law between
them.
Undeniably, the contract in the case at bar, contains the indispensable elements for its validity
and does not in any way violate the law, morals, customs, orders, etc. leaving no reason for Us
to deny sanction thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change
in the designation of beneficiaries could be validly effected means that it was never within the
contemplation of the parties. The lower court, in gratuitously providing for such contingency,
made a new contract for them, a proceeding which we cannot tolerate. Ergo, We cannot help
but conclude that the lower court acted in excess of its authority when it issued the Order
dated March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to
"revocable" over the disapprobation of the petitioner insurance company.
WHEREFORE, premises considered, the questioned Orders of the respondent Judge are
hereby nullified and set aside.
SO ORDERED.

G.R. No. 181132

June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA

PANGILINAN MARAMAG, Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN
DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE
ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION,
Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules, seeking to reverse and
set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV
No. 85948, dismissing petitioners appeal for lack of jurisdiction.
1

The case stems from a petition3 filed against respondents with the Regional Trial Court,
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman
Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is
disqualified to receive any proceeds from his insurance policies from Insular Life Assurance
Company, Ltd. (Insular)4 and Great Pacific Life Assurance Corporation (Grepalife);5 (3) the
illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angeliewere entitled only to
one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and
those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced;
and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.

Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and, thus,
not more than 65 years old when he signed it in September 2001; that the case was
premature, there being no claim filed by the legitimate family of Loreto; and that the law on
succession does not apply where the designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto
failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in
default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised
in their respective answers be resolved first. The trial court ordered petitioners to comment
within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely
legal whether the complaint itself was proper or not and that the designation of a
beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of
Articles 7528 and 7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively
to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured.
Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that
Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which
reads
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life
and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag.
The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular
Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among
others, that part of the insurance proceeds had already been released in favor of Odessa,
while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both
minors, upon the appointment of their legal guardian. Petitioners also prayed for the total
amount of P320,000.00 as actual litigation expenses and attorneys fees.

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

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

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

In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and

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

Supreme Court made the following pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of
the person whose life was insured, and that such proceeds are the separate and individual
property of the beneficiary and not of the heirs of the person whose life was insured, is the
doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of
Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag
for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic)
in the insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine
Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article
739 cannot be named beneficiary of a life insurance policy of the person who cannot make any
donation to him, according to said article (Art. 2012, Civil Code). If a concubine is made the
beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity
must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art.
2012 is the naming of the improper beneficiary. In such case, the action for the declaration of
nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and
donee may be proved by preponderance of evidence in the same action (Comment of
Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant
Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by
the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance indemnity
that should be paid to her must go to the legal heirs of the deceased which this court may
properly take cognizance as the action for the declaration for the nullity of a void donation falls
within the general jurisdiction of this Court.11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main,
that the petition failed to state a cause of action. Insular further averred that the proceeds were
divided among the three children as the remaining named beneficiaries. Grepalife, for its part,
also alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the
complaint may be dismissed for failure to state a cause of action must be determined solely on
the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife
would be better threshed out during trial.
1avvphi1

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case
against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE,
and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court considered
the allegations of Insular that Loreto revoked the designation of Eva in one policy and that
Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would
be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance
Code. It ruled that it is only in cases where there are no beneficiaries designated, or when the
only designated beneficiary is disqualified, that the proceeds should be paid to the estate of
the insured. As to the claim that the proceeds to be paid to Loretos illegitimate children should
be reduced based on the rules on legitime, the trial court held that the distribution of the

insurance proceeds is governed primarily by the Insurance Code, and the provisions of the
Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court
noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha
Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held
that the matter of Loretos misrepresentation was premature; the appropriate action may be
filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by
Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for
lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for
failure to state a cause of action involved a pure question of law. The appellate court also
noted that petitioners did not file within the reglementary period a motion for reconsideration of
the trial courts Resolution, dated September 21, 2004, dismissing the complaint as against
Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of action, may
the Court consider matters which were not alleged in the Complaint, particularly the defenses
put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of
action, did not the Regional Trial Court engage in the examination and determination of what
were the facts and their probative value, or the truth thereof, when it premised the dismissal on
allegations of the defendants in their answer which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for
the concubine?15
In essence, petitioners posit that their petition before the trial court should not have been
dismissed for failure to state a cause of action because the finding that Eva was either
disqualified as a beneficiary by the insurance companies or that her designation was revoked
by Loreto, hypothetically admitted as true, was raised only in the answers and motions for
reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to
prosper on that ground, only the allegations in the complaint should be considered. They
further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should
not have been distributed to her children with Loreto but, instead, awarded to them, being the
legitimate heirs of the insured deceased, in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial courts finding that the petition failed
to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which
reads
SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another.16 A
complaint states a cause of action when it contains the three (3) elements of a cause of action
(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the
act or omission of the defendant in violation of the legal right. If any of these elements is
absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to
state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon should be based only
on the facts alleged in the complaint. The court must resolve the issue on the strength of such

allegations, assuming them to be true. The test of sufficiency of a cause of action rests on
whether, hypothetically admitting the facts alleged in the complaint to be true, the court can
render a valid judgment upon the same, in accordance with the prayer in the complaint. This is
the general rule.

same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the
appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state
a cause of action is a question of law and not of fact, there being no findings of fact in the first
place.25

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

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

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

2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or in
the course of the hearings related to the case.18
In this case, it is clear from the petition filed before the trial court that, although petitioners are
the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies
issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a concubine
of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of
the insurance policies, and that Evas children with Loreto, being illegitimate children, are
entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to
Section 12 of the Insurance Code,19 Evas share in the proceeds should be forfeited in their
favor, the former having brought about the death of Loreto. Thus, they prayed that the share of
Eva and portions of the shares of Loretos illegitimate children should be awarded to them,
being the legitimate heirs of Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds
are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon
the maturation of the policy.20 The exception to this rule is a situation where the insurance
contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim
from the insurer.21
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are
not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no
legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a
beneficiary in one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries in Loretos
insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the
insurance proceeds, whether forfeited by the court in view of the prohibition on donations
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary,23 or when the designated beneficiary is disqualified by law to
receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the

SO ORDERED.

G.R. No. 147839

June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of
the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92322 and upheld the causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11,
2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines."2 The policies defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy."3 The policies also provide for the following
conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of
the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991,
the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed
by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.

not prevent or foresee; that IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on
the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held
that the fire was purely accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC
and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose
of securing the payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership
of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision
setting aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE
and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the
Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by
the owner of the thing at the time the loss under the principle of res perit domino; that
petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of
its unpaid account and as such the obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the
vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:

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

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

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be
held liable because the property covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch
as there was no breach of contract committed by it since the loss was due to fire which it could

Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of the

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over
credit, there was no loss as the accounts were not yet due since no prior demands were made
by IMC and LSPI against petitioner for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC
and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.
For its part, respondent counters that while ownership over the ready- made clothing materials
was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said
goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short circuit unless there are
defects in their installation or when there is lack of proper maintenance and supervision of the
property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's
valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses
and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them.18 The Supreme Court
is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19
Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the CA went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion. 21 Exceptions (4), (5), (7), and
(11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction.22 In this case, the questioned insurance policies provide coverage for

"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ; and
defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided in
the questioned insurance policies that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of
the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose
of securing the payment of the purchase price the above described merchandise remains the
property of the vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods are
at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk
of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but whether insured
has substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its destruction.30
Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would suffer by its destruction, as where he
has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of the loss covered by the

policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability.33 The
rationale for this is that the rule that an obligor should be held exempt from liability when the
loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on
the principle that the genus of a thing can never perish. Genus nunquan perit. 36 An obligation
to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property
of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C22"38 show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is
the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance
proceeds. All these documents have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

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

vessel and the arrastre contractor. 2

G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

The court below, after trial on the merits, rendered judgment in favor of private respondent, the
decretal portion whereof reads:

COURT OF APPEALS and CHOA TIEK SENG, respondents.

WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and
against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay
the plaintiff the following amount:

Balgos & Perez Law Offices for petitioner.

The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;

Lapuz Law office for private respondent.

On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs
Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff
jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal
interest from the date of such payment until the date of such reimbursement.

vs.

REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the
dispositive part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino
Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal
rate from the date of filing of the complaint, and is modified with respect to the third party
complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third party
plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date of
reimbursement, and (2) the third-party complaint against third party defendant Compagnie
Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976
and seeks to recover from the defendant insurance company the amount of P51,568.62
representing damages to said shipment which has been insured by the defendant insurance
company under Policy No. M-2678. The defendant brought a third party complaint against third
party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking
judgment against the third (sic) defendants in case Judgment is rendered against the third
party plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured
said shipment with defendant insurance company under said cargo Policy No. M-2678 for the
sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags
of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to
warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42
a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on
December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's
surveyor ascertained and certified that in such discharge 105 bags were in bad order condition
as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad
order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to
120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to
the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad
Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order
condition. Defendant's surveyor has conducted a final and detailed survey of the cargo in the
warehouse for which he prepared a survey report Exhibit F with the findings on the extent of
shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F1. Based on said computation the plaintiff made a formal claim against the defendant Filipino
Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is
contained therein. A formal claim statement was also presented by the plaintiff against the
vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance
Company refused to pay the claim. Consequently, the plaintiff brought an action against said
defendant as adverted to above and defendant presented a third party complaint against the

Without pronouncement as to costs. 3

On appeal, the respondent court affirmed the decision of the lower court insofar as the award
on the complaint is concerned and modified the same with regard to the adjudication of the
third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence
this petition with the following assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the
marine insurance policy when it held the petitioner liable to the private respondent for the
partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event,
casualty, or accidental cause to which the loss is attributable, thereby contradicting the very
precedents cited by it in its decision as well as a prior decision of the same Division of the said
court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private respondent had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by private
respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in
not disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable
interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a
technical meaning in insurance in that before a claim can be compensable it is essential that
there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is
attributable and the failure of herein private respondent, upon whom lay the burden, to adduce
evidence showing that the alleged loss to the cargo in question was due to a fortuitous event
precludes his right to recover from the insurance policy. We find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall
in no case be deemed to extend to cover loss, damage, or expense proximately caused by
delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder
shall be payable irrespective of percentage. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in
insurance contracts, have not acquired any technical meaning. They are construed by the
courts in their ordinary and common acceptance. Thus, the terms have been taken to mean
that which happens by chance or fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An accident is an event that takes place without one's
foresight or expectation; an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as

covering any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to the
very purpose of an "all risks" insurance to give protection to the insured in those cases where
difficulties of logical explanation or some mystery surround the loss or damage to property. 8
An "all asks" policy has been evolved to grant greater protection than that afforded by the
"perils clause," in order to assure that no loss can happen through the incidence of a cause
neither insured against nor creating liability in the ship; it is written against all losses, that is,
attributable to external causes. 9
The term "all risks" cannot be given a strained technical meaning, the language of the clause
under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to
all damages/losses suffered by the insured cargo except (a) loss or damage or expense
proximately caused by delay, and (b) loss or damage or expense proximately caused by the
inherent vice or nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause
of loss or damage for which it seeks compensation. The insured under an "all risks insurance
policy" has the initial burden of proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the vessel; thereafter, the
burden then shifts to the insurer to show the exception to the coverage. 10 As we held in ParisManila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is that the insurance
company has the burden of proving that the loss is caused by the risk excepted and for want
of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon
the insured the burden of establishing that the loss was due to the peril falling within the
policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision
expressly excludes the loss from coverage. 12 A marine insurance policy providing that the
insurance was to be "against all risks" must be construed as creating a special insurance and
extending to other risks than are usually contemplated, and covers all losses except such as
arise from the fraud of the insured. 13 The burden of the insured, therefore, is to prove merely
that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the
burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on
the insured the burden of proving the precise cause of the loss or damage would be
inconsistent with the broad protective purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted
perils, the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals,
upon due consideration of the authorities and jurisprudence it discussed
... it is believed that in the absence of any showing that the losses/damages were caused by
an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and
there is no such showing, the lower court did not err in holding that the loss was covered by
the policy.
There is no evidence presented to show that the condition of the gunny bags in which the
fishmeal was packed was such that they could not hold their contents in the course of the
necessary transit, much less any evidence that the bags of cargo had burst as the result of the
weakness of the bags themselves. Had there been such a showing that spillage would have
been a certainty, there may have been good reason to plead that there was no risk covered by
the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an
'all risks' policy, it was sufficient to show that there was damage occasioned by some
accidental cause of any kind, and there is no necessity to point to any particular cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in
the policy. The agreement has the force of law between the parties. The terms of the policy
constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under
"C & F Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured. In principle, anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from
its destruction whether he has or has not any title in, or lien upon or possession of the property
y. 16 Insurable interest in property may consist in (a) an existing interest; (b) an inchoate
interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest
in that out of which the expectancy arises. 17
Herein private respondent, as vendee/consignee of the goods in transit has such existing
interest therein as may be the subject of a valid contract of insurance. His interest over the
goods is based on the perfected contract of sale. 18 The perfected contract of sale between him
and the shipper of the goods operates to vest in him an equitable title even before delivery or
before be performed the conditions of the sale. 19 The contract of shipment, whether under
F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the
vendee has an insurable interest or not in the goods in transit. The perfected contract of sale
even without delivery vests in the vendee an equitable title, an existing interest over the goods
sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale,
the seller is authorized or required to send the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is
deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in
the present case. The Court has heretofore ruled that the delivery of the goods on board the
carrying vessels partake of the nature of actual delivery since, from that time, the foreign
buyers assumed the risks of loss of the goods and paid the insurance premium covering them.
20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump
sum the cost of the goods and freight to the named destination. 21 It simply means that the
seller must pay the costs and freight necessary to bring the goods to the named destination
but the risk of loss or damage to the goods is transferred from the seller to the buyer when the
goods pass the ship's rail in the port of shipment. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in
petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial
conference nor was it raised during the trial in the court below. It is a settled rule that an issue
which has not been raised in the court a quo cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process. 23 This is but a
permuted restatement of the long settled rule that when a party deliberately adopts a certain
theory, and the case is tried and decided upon that theory in the court below, he will not be
permitted to change his theory on appeal because, to permit him to do so, would be unfair to
the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a
disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all doubts
on the matter under the facts in this case and also to dispose of petitioner's third assignment
of error which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent
Court of Appeals is AFFIRMED in toto.
SO ORDERED.

G.R. No. 168115

June 8, 2007

VICENTE ONG LIM SING, JR., petitioner,

vs.
FEB LEASING & FINANCE CORPORATION, respondent.
DECISION

In an adhesion contract which is drafted and printed in advance and parties are not given a
real arms length opportunity to transact, the Courts treat this kind of contract strictly against
their architects for the reason that the party entering into this kind of contract has no choice but
to accept the terms and conditions found therein even if he is not in accord therewith and for
that matter may not have understood all the terms and stipulations prescribed thereat.
Contracts of this character are prepared unilaterally by the stronger party with the best legal
talents at its disposal. It is upon that thought that the Courts are called upon to analyze closely
said contracts so that the weaker party could be fully protected.

NACHURA, J.:

Another instance is when the alleged lessee was required to insure the thing against loss,
damage or destruction.

This is a petition for review on certiorari assailing the Decision 1 dated March 15, 2005 and the
Resolution2 dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.

In property insurance against loss or other accidental causes, the assured must have an
insurable interest, 32 Corpus Juris 1059.

The facts are as follows:

xxxx

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease 3 of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong
Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement4 with FEB to guarantee the
prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates5 over the
equipment and motor vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand
Four Hundred Ninety-Four Pesos (P170,494.00).

It has also been held that the test of insurable interest in property is whether the assured has a
right, title or interest therein that he will be benefited by its preservation and continued
existence or suffer a direct pecuniary loss from its destruction or injury by the peril insured
against. If the defendants were to be regarded as only a lessee, logically the lessor who
asserts ownership will be the one directly benefited or injured and therefore the lessee is not
supposed to be the assured as he has no insurable interest.

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in
arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75).
On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount.
However, JVL failed to pay.6
On December 6, 2000, FEB filed a Complaint7 with the Regional Trial Court of Manila,
docketed as Civil Case No. 00-99451, for sum of money, damages, and replevin against JVL,
Lim, and John Doe.
In the Amended Answer,8 JVL and Lim admitted the existence of the lease agreement but
asserted that it is in reality a sale of equipment on installment basis, with FEB acting as the
financier. JVL and Lim claimed that this intention was apparent from the fact that they were
made to believe that when full payment was effected, a Deed of Sale will be executed by FEB
as vendor in favor of JVL and Lim as vendees.9 FEB purportedly assured them that
documenting the transaction as a lease agreement is just an industry practice and that the
proper documentation would be effected as soon as full payment for every item was made.
They also contended that the lease agreement is a contract of adhesion and should, therefore,
be construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court stressed the contradictory terms it found in
the lease agreement. The pertinent portions of the Decision dated November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a contract of adhesion at once
exposed the use of several contradictory terms. To name a few, in Section 9 of the said
contract disclaiming warranty, it is stated that the lessor is not the manufacturer nor the
latters agent and therefore does not guarantee any feature or aspect of the object of the
contract as to its merchantability. Merchantability is a term applied in a contract of sale of
goods where conditions and warranties are made to apply. Article 1547 of the Civil Code
provides that unless a contrary intention appears an implied warranty on the part of the seller
that he has the right to sell and to pass ownership of the object is furnished by law together
with an implied warranty that the thing shall be free from hidden faults or defects or any charge
or encumbrance not known to the buyer.

There is also an observation from the records that the actual value of each object of the
contract would be the result after computing the monthly rentals by multiplying the said rentals
by the number of months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of Absolute Sale by and
between the same parties, plaintiff and defendants which was an exhibit of the defendant
where the plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC
PICK UP and in said Deed, The Court noticed that the same terms as in the alleged lease
were used in respect to warranty, as well as liability in case of loss and other conditions. This
action of the plaintiff unequivocally exhibited their real intention to execute the corresponding
Deed after the defendants have paid in full and as heretofore discussed and for the sake of
emphasis the obscurity in the written contract cannot favor the party who caused the obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the evident intention of the parties, their contemporaneous and
subsequent acts shall be principally considered. If the doubts are cast upon the principal
object of the contract in such a way that it cannot be known what may have been the intention
or will of the parties, the contract shall be null and void.10
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no chattel mortgage
on the thing sold, but it appears amongst the Complaints prayer, that the plaintiff elected to
exact fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance of the price
because of the previous payments made by the defendants for the reasonable use of the
units, specially so, as it appears, these returned vehicles were sold at auction and that the
plaintiff can apply the proceeds to the balance. However, with respect to the unreturned units
and machineries still in the possession of the defendants, it is this Courts view and so hold
that the defendants are liable therefore and accordingly are ordered jointly and severally to
pay the price thereof to the plaintiff together with attorneys fee and the costs of suit in the sum
of Php25,000.00.
SO ORDERED.11

On December 27, 2002, FEB filed its Notice of Appeal.12 Accordingly, on January 17, 2003, the
court issued an Order13 elevating the entire records of the case to the CA. FEB averred that
the trial court erred:

VI
The Honorable Court of Appeals erred in ruling that the previous contract of sale involving the
pick-up vehicle is of no consequence.

A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal
properties on installment and not of lease;

VII

B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not
R.A. No. 8556;

The Honorable Court of Appeals failed to take into consideration that the contract of lease, a
contract of adhesion, concealed the true intention of the parties, which is a contract of sale.

C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the
price because of the previous payments made by the defendants for the reasonable use of the
units;

VIII

D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente
Ong Lim, Jr. to the Plaintiff-Appellant.14

IX

On March 15, 2005, the CA issued its Decision15 declaring the transaction between the parties
as a financial lease agreement under Republic Act (R.A.) No. 8556.16 The fallo of the assailed
Decision reads:
WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22
November 2002 rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No.
00-99451 is REVERSED and SET ASIDE, and a new judgment is hereby ENTERED ordering
appellees JVL Food Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing
and Finance Corporation the amount of Three Million Four Hundred Fourteen Thousand
Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with interest at the rate of
twelve percent (12%) per annum starting from the date of judicial demand on 06 December
2000, until full payment thereof. Costs against appellees.
SO ORDERED.17
Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:
I
The Honorable Court of Appeals erred when it failed to consider that the undated complaint
was filed by Saturnino J. Galang, Jr., without any authority from respondents Board of
Directors and/or Secretarys Certificate.

The Honorable Court of Appeals erred in ruling that the petitioner is a lessee with insurable
interest over the subject personal properties.

The Honorable Court of Appeals erred in construing the intentions of the Court a quo in its
usage of the term merchantability.18
We affirm the ruling of the appellate court.
First, Lim can no longer question Galangs authority as FEBs authorized representative in
filing the suit against Lim. Galang was the representative of FEB in the proceedings before the
trial court up to the appellate court. Petitioner never placed in issue the validity of Galangs
representation before the trial and appellate courts. Issues raised for the first time on appeal
are barred by estoppel. Arguments not raised in the original proceedings cannot be considered
on review; otherwise, it would violate basic principles of fair play.19
Second, there is no legal basis for Lim to question the authority of the CA to go beyond the
matters agreed upon during the pre-trial conference, or in not dismissing the appeal for failure
of FEB to file its brief on time, or in not ruling separately on the petitioners motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the
parties right to due process. In numerous cases, this Court has allowed liberal construction of
the rules when to do so would serve the demands of substantial justice and equity.20 In Aguam
v. Court of Appeals , the Court explained:

The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power
conferred on the court, not a duty. The "discretion must be a sound one, to be exercised in
accordance with the tenets of justice and fair play, having in mind the circumstances obtaining
in each case." Technicalities, however, must be avoided. The law abhors technicalities that
impede the cause of justice. The court's primary duty is to render or dispense justice. "A
litigation is not a game of technicalities." "Lawsuits unlike duels are not to be won by a rapier's
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts." Litigations must be
decided on their merits and not on technicality. Every party litigant must be afforded the
amplest opportunity for the proper and just determination of his cause, free from the
unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is
frowned upon where the policy of the court is to encourage hearings of appeals on their merits
and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of
procedure are used only to help secure, not override substantial justice. It is a far better and
more prudent course of action for the court to excuse a technical lapse and afford the parties a
review of the case on appeal to attain the ends of justice rather than dispose of the case on
technicality and cause a grave injustice to the parties, giving a false impression of speedy
disposal of cases while actually resulting in more delay, if not a miscarriage of justice.21

The Honorable Court of Appeals ERRED IN ruling that the payments paid by the petitioner to
the respondent are "rentals" and not installments paid for the purchase price of the subject
motor vehicles, heavy machines and equipment.

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters into an
adhesion contract is free to reject the stipulations entirely.22 If the terms thereof are accepted

II
The Honorable Court of Appeals erred when it failed to strictly apply Section 7, Rule 18 of the
1997 Rules of Civil Procedure and now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).
III
The Honorable Court of Appeals erred in not dismissing the appeal for failure of the
respondent to file on time its appellants brief and to separately rule on the petitioners motion
to dismiss.
IV
The Honorable Court of Appeals erred in finding that the contract between the parties is one of
a financial lease and not of a contract of sale.

without objection, then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement
between them, and that no representations have been made other than as set forth herein.
This Agreement shall not be amended or altered in any manner, unless such amendment be
made in writing and signed by the parties hereto.
Petitioners claim that the real intention of the parties was a contract of sale of personal
property on installment basis is more likely a mere afterthought in order to defeat the rights of
the respondent.
The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section
3(d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of money sufficient to
amortize at least seventy (70%) of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased property with the right
to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance,
insurance and preservation thereof, but with no obligation or option on his part to purchase the
leased property from the owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly
periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to amortize
at least 70% of the purchase price or acquisition cost of the said movables in accordance with
the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of a
financial leasing transaction is to enable the prospective buyer of equipment, who is unable to
pay for such equipment in cash in one lump sum, to lease such equipment in the meantime for
his use, at a fixed rental sufficient to amortize at least 70% of the acquisition cost (including
the expenses and a margin of profit for the financial lessor) with the expectation that at the end
of the lease period the buyer/financial lessee will be able to pay any remaining balance of the
purchase price."23
The allegation of petitioner that the rent for the use of each movable constitutes the value of
the vehicle or equipment leased is of no moment. The law on financial lease does not prohibit
such a circumstance and this alone does not make the transaction between the parties a sale
of personal property on installment. In fact, the value of the lease, usually constituting the
value or amount of the property involved, is a benefit allowed by law to the lessor for the use of
the property by the lessee for the duration of the lease. It is recognized that the value of these
movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC
Finance Corporation,24 we stated that:
Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading
company. Neither is it an ordinary leasing company; it does not make its profit by buying
equipment and repeatedly leasing out such equipment to different users thereof. But a
financial lease must be preceded by a purchase and sale contract covering the equipment
which becomes the subject matter of the financial lease. The financial lessor takes the role of
the buyer of the equipment leased. And so the formal or documentary tie between the seller
and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In
economic reality, however, that relationship remains. The sale of the equipment by the supplier
thereof to the financial lessor and the latter's legal ownership thereof are intended to secure
the repayment over time of the purchase price of the equipment, plus financing charges,

through the payment of lease rentals; that legal title is the upfront security held by the financial
lessor, a security probably superior in some instances to a chattel mortgagee's lien.25
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL
entered into the lease contract with full knowledge of its terms and conditions. The contract
was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim never
questioned its provisions. They only attacked the validity of the contract after they were
judicially made to answer for their default in the payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and
conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the force
of law between the parties.26 Contracting parties may stipulate on terms and conditions as they
may see fit and these have the force of law between them.27
The stipulation in Section 1428 of the lease contract, that the equipment shall be insured at the
cost and expense of the lessee against loss, damage, or destruction from fire, theft, accident,
or other insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner,
as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section 17
of the Insurance Code provides that the measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or injury thereof. It cannot be denied
that JVL will be directly damnified in case of loss, damage, or destruction of any of the
properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant
the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease contract is
stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE
MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE
MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES
THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF AND THAT
THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON
BEHALF OF THE LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR
ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL MEET THE
REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH
PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS. 29
In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, in case of defect
of any kind that will be found by the lessee in any of the equipment, recourse should be made
to the manufacturer. "The financial lessor, being a financing company, i.e., an extender of
credit rather than an ordinary equipment rental company, does not extend a warranty of the
fitness of the equipment for any particular use. Thus, the financial lessee was precisely in a
position to enforce such warranty directly against the supplier of the equipment and not
against the financial lessor. We find nothing contra legem or contrary to public policy in such a
contractual arrangement."30
Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a
contract of sale on installment in the same manner that a previous transaction between the
parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement
denominated as a lease and eventually became the subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow the transaction involving the pick-up to
be read into the terms of the lease agreement would expand the coverage of the agreement,
in violation of Article 1372 of the New Civil Code. 31 The lease contract subject of the complaint
speaks only of a lease. Any agreement between the parties after the lease contract has ended

is a different transaction altogether and should not be included as part of the lease.
Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of a contract
are clear and leave no doubt as to the intention of the contracting parties, the literal meaning
of its stipulations shall control. No amount of extrinsic aid is necessary in order to determine
the parties' intent.32
WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA
in CA-G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are
AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. L-14300

January 19, 1920

SAN MIGUEL BREWERY, ETC., plaintiff-appellee,

vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-appellees.
HENRY HARDING, defendant-appellant.
Crossfield and O'Brien for appellant Harding.Lawrence and Ross for appellee Law Union etc.
Ins. Co.Sanz and Luzuriaga for appellee "Filipinas, Compaia de Seguros."No appearance for
the other appellee.
STREET, J.:
This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila
by the plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of
insurance underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and
the "Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring certain property
which has been destroyed by fire. The plaintiff, the San Miguel Brewery, is named as the party
assured in the two policies referred to, but it is alleged in the complaint that said company was
in reality interested in the property which was the subject of insurance in the character of a
mortgage creditor only, and that the owner of said property upon the date the policies were
issued was one D. P. Dunn who was later succeeded as owner by one Henry Harding.
Accordingly said Harding was made a defendant, as a person interested in the subject of the
litigation.
The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two
companies named for the sum of P15,000, with interest and costs, and further that upon
satisfaction of the balance of P4,505.30 due to the plaintiff upon the mortgage debt, and upon
the cancellation of the mortgage, the plaintiff be absolved from liability to the defendants or
any of them. The peculiar form of the latter part of the prayer is evidently due to the design of
the plaintiff to lay a foundation for Harding to recover the difference between the plaintiff's
credit and the amount for which the property was insured. Accordingly, as was to be expected,
Harding answered, admitting the material allegations of the complaint and claiming for himself
the right to recover the difference between the plaintiff's mortgage credit and the face value of
the policies. The two insurance companies also answered, admitting in effect their liability to
the San Miguel Brewery to the extent of its mortgage credit, but denying liability to Harding on
the ground that under the contracts of insurance the liability of the insurance companies was
limited to the insurable interest of the plaintiff therein. Soon after the action was begun the
insurance companies effected a settlement with the San Miguel Brewery by paying the full
amount of the credit claimed by it, with the result that the litigation as between the original
plaintiff and the two insurance companies came to an end, leaving the action to be prosecuted
to final judgement by the defendant Harding with respect to the balance claimed to be due to
him upon the policies.
Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of
action whatever against the companies and absolved them from liability without special finding
as to costs. From this decision the said Henry Harding has appealed.
The two insurance companies who are named as defendants do not dispute their liability to the
San Miguel Brewery, to the extent already stated, and the only question here under discussion
is that of the liability of the insurance companies to Harding. It is therefore necessary to take
account of such facts only as bear upon this aspect of the case.
In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the
property to which the insurance relates, mortgaged the same to the San Miguel Brewery to
secure a debt of P10,000. In the contract of mortgage Dunn agreed to keep the property

insured at his expense to the full amount of its value in companies to be selected by the
Brewery Company and authorized the latter in case of loss to receive the proceeds of the
insurance and to retain such part as might be necessary to cover the mortgage debt. At the
same time, in order more conveniently to accomplish the end in view, Dunn authorized and
requested the Brewery Company to effect said insurance itself. Accordingly on the same date
Antonio Brias, general manager of the Brewery, made a verbal application to the Law Union
and Rock Insurance Company for insurance to the extent of P15,000 upon said property. In
reply to a question of the company's agent as to whether the Brewery was the owner of the
property, he stated that the company was interested only as a mortgagee. No information was
asked as to who was the owner of the property, and no information upon this point was given.
It seems that the insurance company to whom this application was directed did not want to
carry more than one-half the risk. It therefore issued its own policy for P7,500 and procured a
policy in a like amount to be issued by the "Filipinas" Compania de Seguros. Both policies
were issued in the name of the San Miguel Brewery as the assured, and contained no
reference to any other interest in the property. Both policies contain the usual clause requiring
assignments to be approved and noted on the policy. The premiums were paid by the Brewery
and charged to Dunn. A year later the policies were renewed, without change, the renewal
premiums being paid by the Brewery, supposedly for the account of the owner. In the month of
March of the year 1917 Dunn sold the insured property to the defendant Henry Harding, but
not assignment of the insurance, or of the insurance policies, was at any time made to him.
We agree with the trial court that no cause of action in Henry Harding against the insurance
companies is show. He is not a party to the contracts of insurance and cannot directly maintain
an action thereon. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is merely of
an equitable and subsidiary nature and must be made effective, if at all, through the San
Miguel Brewery in whose name the contracts are written. Now the Brewery, as mortgagee of
the insured property, undoubtedly had an insurable interest therein; but it could not, in any
event, recover upon these policies an amount in excess of its mortgage credit. In this
connection it will be remembered that Antonio Brias, upon making application for the
insurance, informed the company with which the insurance was placed that the Brewery was
interested only as a mortgagee. It would, therefore, be impossible for the Brewery mortgage
on the insured property.
This conclusion is not only deducible from the principles governing the operation and effect of
insurance contracts in general but the point is clearly covered by the express provisions of
sections 16 and 50 of the Insurance Act (Act No. 2427). In the first of the sections cited, it is
declared that "the measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof" (sec. 16); while in the other it is stated
that "the insurance shall be applied exclusively to the proper interest of the person in whose
name it is made unless otherwise specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the
ownership of the property had continued in him up to the time of the loss; and as regards
Harding, an additional insuperable obstacle is found in the fact that the ownership of the
property had been charged, prior to the loss, without any corresponding change having been
effected in the policy of insurance. In section 19 of the Insurance Act we find it stated that "a
change of interest in any part of a thing insured unaccompanied by a corresponding change of
interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person." Again in section 55
it is declared that "the mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy and the thing
insured."
Undoubtedly these policies of insurance might have been so framed as to have been "payable
to the Sane Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever,
during the continuance of the risk, may become the owner of the interest insured." (Sec 54,
Act No. 2427.) Such a clause would have proved an intention to insure the entire interest in

the property, not merely the insurable interest of the San Miguel Brewery, and would have
shown exactly to whom the money, in case of loss, should be paid. But the policies are not so
written.

and mistake upon the part of both Kearney and the company.

It is easy to collect from the facts stated in the decision of the trial judge, no less than from the
testimony of Brias, the manager of the San Miguel Brewery, that, as the insurance was written
up, the obligation of the insurance companies was different from that contemplated by Dunn,
at whose request the insurance was written, and Brias. In the contract of mortgage Dunn had
agreed, at his own expense, to insure the mortgaged property for its full value and to indorse
the policies in such manner as to authorize the Brewery Company to receive the proceeds in
case of loss and to retain such part thereof as might be necessary to satisfy the remainder
then due upon the mortgage debt. Instead, however, of effecting the insurance himself Dunn
authorized and requested the Brewery Company to procure insurance on the property in the
amount of P15,000 at Dunn's expense. The Brewery Company undertook to carry this
mandate into effect, and it of course became its duty to procure insurance of the character
contemplated, that is, to have the policies so written as to protect not only the insurable
interest of the Brewery, but also the owner. Brias seems to have supposed that the policies as
written had this effect, but in this he was mistaken. It was certainly a hardship on the owner to
be required to pay the premiums upon P15,000 of insurance when he was receiving no benefit
whatever except in protection to the extent of his indebtedness to the Brewery. The blame for
the situation thus created rests, however, with the Brewery rather than with the insurance
companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make
themselves liable to that extent.

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the plaintiff is entitled to have it reformed.

If during the negotiations which resulted in the writing of this insurance, it had been agreed
between the contracting parties that the insurance should be so written as to protect not only
the interest of the mortgagee but also the residuary interest of the owner, and the policies had
been, by inadvertence, ignorance, or mistake written in the form in which they were issued, a
court would have the power to reform the contracts and give effect to them in the sense in
which the parties intended to be bound. But in order to justify this, it must be made clearly to
appear that the minds of the contracting parties did actually meet in agreement and that they
labored under some mutual error or mistake in respect to the expression of their purpose.
Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it appeared that a
mortgage desiring to insure his own insurable interest only, correctly stated his interest, and
asked that the same be insured. The insurance company agreed to accept the risk, but the
policy was issued in the name of the owner, because of the mistaken belief of the company's
agent that the law required it to be so drawn. It was held that a court of equity had the power,
at the suit of the mortgage, to reform the instrument and give judgment in his favor for the loss
thereunder, although it had been exactly as it was. Said the court: "If the applicant correctly
states his interest and distinctly asks for an insurance thereon, and the agent of the insurer
agrees to comply with his request, and assumes to decide upon the form of the policy to be
written for that purpose, and by mistake of law adopts the wrong form, a court of equity will
reform the instrument so as to make it insurance upon the interest named." (See also Fink vs.
Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa, 334; 16 Am. St.
Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31 Conn., 517; Balen
vs. Hanover Fire Insurance Co., 67 Mich., 179.)

In the case now before us the proof is entirely insufficient to authorize the application of the
doctrine state in the foregoing cases, for it is by means clear from the testimony of Brias
and none other was offered that the parties intended for the policy to cover the risk of the
owner in addition to that of the mortgagee. It results that the defendant Harding is not entitled
to relief in any aspect of the case.

Similarly, in cases where the mortgage is by mistake described as owner, the court may grant
reformation and permit a recovery by the mortgage in his character as such. (Dalton vs.
Milwaukee etc. Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance Co., 17 Fed.,
568.) In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408), it appeared that
one Kearney made application to an insurance company for insurance on certain property in
his hands as receiver and it was understood between him and the company's agent that, in
case of loss, the proceeds of the policy should accrue to him and his successors as receiver
and to others whom it might concern. However, the policy, as issued, was so worded as to be
payable only to him as receiver. In an action brought on the policy by a successor of Kearney,
it was alleged that the making of the contract in this form was due to inadvertence, accident,

Said the court:

In another case the same court said:

We have before us a contract from which by mistake, material stipulations have been omitted,
whereby the true intent and meaning of the parties are not fully or accurately expressed. There
was a definite concluded agreement as to insurance, which, in point of time, preceded the
preparation and delivery of the policy, and this is demonstrated by legal and exact evidence,
which removes all doubt as to the sense and undertaking of the parties. In the agreement
there has been a mutual mistake, caused chiefly by that contracting party who now seeks to
limit the insurance to an interest in the property less than that agreed to be insured. The
written agreement did not effect that which the parties intended. That a court of equity can
afford relief in such a case, is, we think, well settled by the authorities. (Smell vs. Atlantic, etc.,
Ins. Co., 98 U.S., 85, 89; 25 L. ed., 52.)
But to justify the reformation of a contract, the proof must be of the most satisfactory character,
and it must clearly appear that the contract failed to express the real agreement between the
parties. (Philippine Sugar Estates Development Company vs. Government of the Philippine
Islands, 62 L. ed., 1177, reversing Government of Philippine Island vs. Philippine Sugar
Estates Development Co., 30 Phil. Rep., 27.)

The judgment is therefore affirmed, with costs against the appellant. So ordered.

G.R. No. L-30685 May 30, 1983

NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.
Alberto Q. Ubay for plaintiff-appellee.
Santiago F. A lidio for defendant-appellant.

ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of Manila, ordering the
appellant Asian-Crusader Life Assurance Corporation to pay the face value of an insurance
policy issued on the life of Kwong Nam the deceased husband of appellee Ng Gan Zee.
Misrepresentation and concealment of material facts in obtaining the policy were pleaded to
avoid the policy. The lower court rejected the appellant's theory and ordered the latter to pay
appellee "the amount of P 20,000.00, with interest at the legal rate from July 24, 1964, the
date of the filing of the complaint, until paid, and the costs. "
The Court of Appeals certified this appeal to Us, as the same involves solely a question of law.
On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the
sum of P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date,
appellant, upon receipt of the required premium from the insured, approved the application
and issued the corresponding policy. On December 6, 1963, Kwong Nam died of cancer of the
liver with metastasis. All premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for
payment of the face value of the policy. On the same date, she submitted the required proof of
death of the insured. Appellant denied the claim on the ground that the answers given by the
insured to the questions appealing in his application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance Commissioner, the Hon.
Francisco Y. Mandamus, and the latter, after conducting an investigation, wrote the appellant
that he had found no material concealment on the part of the insured and that, therefore,
appellee should be paid the full face value of the policy. This opinion of the Insurance
Commissioner notwithstanding, appellant refused to settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to
the following question appearing in the application for life insuranceHas any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so,
name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the essential facts in this case, the insured had
in January, 1962, applied for reinstatement of his lapsed life insurance policy with the Insular
Life Insurance Co., Ltd, but this was declined by the insurance company, although later on
approved for reinstatement with a very high premium as a result of his medical examination.
Thus notwithstanding the said insured answered 'No' to the [above] question propounded to
him. ... 1
The lower court found the argument bereft of factual basis; and We quote with approval its
disquisition on the matter-

On the first question there is no evidence that the Insular Life Assurance Co., Ltd. ever refused
any application of Kwong Nam for insurance. Neither is there any evidence that any other
insurance company has refused any application of Kwong Nam for insurance.
... The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's
request for reinstatement and amendment of his lapsed insurance policy on April 24, 1962
[Exh. L-2 Stipulation of Facts, Sept. 22, 1965). The Court notes from said application for
reinstatement and amendment, Exh. 'L', that the amount applied for was P20,000.00 only and
not for P50,000.00 as it was in the lapsed policy. The amount of the reinstated and amended
policy was also for P20,000.00. It results, therefore, that when on May 12, 1962 Kwong Nam
answered 'No' to the question whether any life insurance company ever refused his application
for reinstatement of a lapsed policy he did not misrepresent any fact.
... the evidence shows that the application of Kwong Nam with the Insular Life Assurance Co.,
Ltd. was for the reinstatement and amendment of his lapsed insurance policy-Policy No.
369531 -not an application for a 'new insurance policy. The Insular Life Assurance Co., Ltd.
approved the said application on April 24, 1962. Policy No. 369531 was reinstated for the
amount of P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy
was issued by the Insular Life Assurance Co., Ltd. to Kwong Nam in connection with said
application for reinstatement and amendment. Such being the case, the Court finds that there
is no misrepresentation on this matter. 2
Appellant further maintains that when the insured was examined in connection with his
application for life insurance, he gave the appellant's medical examiner false and misleading
information as to his ailment and previous operation. The alleged false statements given by
Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been associated
with ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was two
[2] years ago in Chinese General Hospital by Dr. Yap. Now, claims he is completely recovered.
To demonstrate the insured's misrepresentation, appellant directs Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese
General Hospital on May 22, 1960, i.e., about 2 years before he applied for an insurance
policy on May 12, 1962. According to said report, Dr. Fu Sun Yuan had diagnosed the patient's
ailment as 'peptic ulcer' for which, an operation, known as a 'sub-total gastric resection was
performed on the patient by Dr. Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed
from the patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm. along the
lesser curvature with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that the insured was operated on
for peptic ulcer", involving the excision of a portion of the stomach, appellant argues that the
insured's statement in his application that a tumor, "hard and of a hen's egg size," was
removed during said operation, constituted material concealment.
The question to be resolved may be propounded thus: Was appellant, because of insured's
aforesaid representation, misled or deceived into entering the contract or in accepting the risk
at the rate of premium agreed upon?
The lower court answered this question in the negative, and We agree.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract, and which the other has not the
means of ascertaining, and as to which he makes no warranty. 3
Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and

honesty, good faith, and fair dealing requires that he should communicate it to the assurer, but
he designedly and intentionally withholds the same." 4
It has also been held "that the concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld." 5
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant.
Sec. 27 of the Insurance Law, above-quoted, nevertheless requires that fraudulent intent on
the part of the insured be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish such a defense by satisfactory and
convincing evidence rests upon the defendant. The evidence before the Court does not clearly
and satisfactorily establish that defense."
It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the
tumor for which he was operated on was "associated with ulcer of the stomach." In the
absence of evidence that the insured had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his statement that said tumor was
"associated with ulcer of the stomach, " should be construed as an expression made in good
faith of his belief as to the nature of his ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge of its incorrectness and without any
deliberate intent on his part to mislead the appellant.
While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced appellant
to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived either by the terms of
insurance or by neglect to make inquiries as to such facts where they are distinctly implied in
other facts of which information is communicated.
It has been held that where, upon the face of the application, a question appears to be not
answered at all or to be imperfectly answered, and the insurers issue a policy without any
further inquiry, they waive the imperfection of the answer and render the omission to answer
more fully immaterial. 6
As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an
important bearing on the question of whether the defendant would undertake the insurance or
not, the court cannot understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or require copies of the
hospital records from the appellant before acting on the application for insurance. The fact of
the matter is that the defendant was too eager to accept the application and receive the
insured's premium. It would be inequitable now to allow the defendant to avoid liability under
the circumstances."
Finding no reversible error committed by the trial court, the judgment appealed from is hereby
affirmed, with costs against appellant Asian-Crusader life Assurance Corporation.
SO ORDERED.

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION,
respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as
suffering from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a
tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on
3 August 1982 and this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary. 1 Jaime Canilang was issued ordinary life insurance Policy No.
345163, with the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." 2 Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific
which the insurer denied on 5 December 1983 upon the ground that the insured had
concealed material information from it.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of the word "intentionally" by the
Insurance Commissioner in defining and resolving the issue agreed upon by the parties at pretrial before the Insurance Commissioner was not supported by the evidence; that the issue
agreed upon by the parties had been whether the deceased insured, Jaime Canilang, made a
material concealment as the state of his health at the time of the filing of insurance application,
justifying respondent's denial of the claim. The Court of Appeals also found that the failure of
Jaime Canilang to disclose previous medical consultation and treatment constituted material
information which should have been communicated to Great Pacific to enable the latter to
make proper inquiries. The Court of Appeals finally held that the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of the case at bar which involves
concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari
alleging that:
1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the
issue in the case agreed upon between the parties before the Insurance Commission is
whether or not Jaime Canilang "intentionally" made material concealment in stating his state
of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does
not amount to fraud and private respondent is deemed to have waived inquiry thereto. 11
The medical declaration which was set out in the application for insurance executed by Jaime
Canilang read as follows:

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds. During the hearing called by the Insurance
Commissioner, petitioner testified that she was not aware of any serious illness suffered by
her late husband 3 and that, as far as she knew, her husband had died because of a kidney
disorder. 4 A deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr.
Claudio stated that he was the family physician of the deceased Jaime Canilang 5 and that he
had previously treated him for "sinus tachycardia" and "acute bronchitis." 6 Great Pacific for its
part presented Dr. Esperanza Quismorio, a physician

MEDICAL DECLARATION

and a medical underwriter working for Great Pacific. 7 She testified that the deceased's
insurance application had been approved on the basis of his medical declaration. 8 She
explained that as a rule, medical examinations are required only in cases where the applicant
has indicated in his application for insurance coverage that he has previously undergone
medical consultation and hospitalization. 9

(3) I am, to the best of my knowledge, in good health.

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered

Great Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding
that:

GENERAL DECLARATION

1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the applicant by the
issuance of the policy despite the lack of answers to "some of the pertinent questions" in the
insurance application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as he had
thought that he was merely suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment
was intentionally made, was not applicable to Canilang's case as that law became effective
only on 1 June 1985.

I hereby declare that:

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical or
surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.

EXCEPTIONS:
___________________________________________________________________________
_____

I hereby declare that all the foregoing answers and statements are complete, true and correct.
I hereby agree that if there be any fraud or misrepresentation in the above statements material
to the risk, the INSURANCE COMPANY upon discovery within two (2) years from the effective
date of insurance shall have the right to declare such insurance null and void. That the
liabilities of the Company under the said Policy/TA/Certificate shall accrue and begin only from
the date of commencement of risk stated in the Policy/TA/Certificate, provided that the first
premium is paid and the Policy/TA/Certificate is delivered to, and accepted by me in person,
when I am in actual good health.
Signed at Manila his 4th day of August, 1992.
Illegible

Signature of Applicant. 12

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and
2 of the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be
suffering from "sinus tachycardia" and "acute bronchitis."

determined objectively, by the judge ultimately.

The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as
the Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read
as follows:

. . . if anything, the waiver of medical examination [in a non-medical insurance contract]

renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the
policy or not . . . . 17 (Emphasis supplied)

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining. (Emphasis supplied)

The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16 this Court held that:

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the
Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range
material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

Under the foregoing provisions, the information concealed must be information which the
concealing party knew and "ought to [have] communicate[d]," that is to say, information which
was "material to the contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.
(Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes
faintness and weakness of the person affected. The following elaboration was offered by
Great Pacific and set out by the Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute.
(Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a
common reaction to heart disease, including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The medication
prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18, 1982, indicates the
condition that said physician was trying to manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety,
anti-convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations and
nervous heart. Such treatment could have been a very material information to the insurer in
determining the action to be take on Canilang's application for life insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to
disclose was material to the ability of Great Pacific to estimate the probable risk he presented
as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis
made and medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage. 15 The materiality of the information withheld by Great
Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind or
subjective belief is not capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his subjective belief may be
reasonably drawn. Neither does materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon
the party to whom the communication should have been made, in assessing the risk involved
in making or omitting to make further inquiries and in accepting the application for insurance;
that "probable and reasonable influence of the facts" concealed must, of course, be

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)

B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so
as to read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting
the phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment
by B.P. Blg. 874) intended to limit the kinds of concealment which generate a right to rescind
on the part of the injured party to "intentional concealments." This argument is not persuasive.
As a simple matter of grammar, it may be noted that "intentional" and "unintentional" cancel
each other out. The net result therefore of the phrase "whether intentional or unitentional" is
precisely to leave unqualified the term "concealment." Thus, Section 27 of the Insurance Code
of 1978 is properly read as referring to "any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase "whether intentional or unintentional"
was in fact superfluous. The deletion of the phrase "whether intentional or unintentional" could
not have had the effect of imposing an affirmative requirement that a concealment must be
intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration
in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof
that concealment must be "intentional" in order to authorize rescission by the injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such
that the failure to communicate must have been intentional rather than merely inadvertent. For
Jaime Canilang could not have been unaware that his heart beat would at times rise to high
and alarming levels and that he had consulted a doctor twice in the two (2) months before
applying for non-medical insurance. Indeed, the last medical consultation took place just the
day before the insurance application was filed. In all probability, Jaime Canilang went to visit
his doctor precisely because of the discomfort and concern brought about by his experiencing
"sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely
constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would

obviously erase Section 27 from the Insurance Code of 1978.

It remains only to note that the Court of Appeals finding that the parties had not agreed in the
pretrial before the Insurance Commission that the relevant issue was whether or not Jaime
Canilang had intentionally concealed material information from the insurer, was supported by
the evidence of record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of
the Pre-trial Conference dated 15 October 1984, which "readily shows that the word
"intentional" does not appear in the statement or definition of the issue in the said Order and
Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the
Court of Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.
SO ORDERED.

negative (Rollo, p. 53).

G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.

Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis, ultrasonography and hematology tests.

The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI,
respondents.

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial Court,
Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim and a list
of exhibits consisting of medical records furnished by the Lung Center of the Philippines.

QUIASON, J.:

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in CAG.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated beneficiary was his mother, respondent
Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose
material facts relevant to the issuance of the policy, thus rendering the contract of insurance
voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he answered
the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the

Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission of
the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of private
respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred Thousand
Pesos (P100,000.00) the face value of insured's Insurance Policy No. 3903766, and the
Accidental Death Benefit in the amount of One Hundred Thousand Pesos (P100,000.00) and
further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed. Moreover,
it held that the health history of the insured was immaterial since the insurance policy was
"non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The
appellate court ruled that petitioner cannot avoid its obligation by claiming concealment
because the cause of death was unrelated to the facts concealed by the insured. It also
sustained the finding of the trial court that matters relating to the health history of the insured
were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that
the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this
Court is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and the
facts concealed or misrepresented were irrelevant since the policy was "non-medical". We
disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to

communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called
concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his estimate of
the disadvantages of the proposed contract or in making his inquiries (The Insurance Code,
Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
The information which the insured failed to disclose were material and relevant to the approval
and issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment
for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a
medical examination of the insured by petitioner in order for it to reasonably assess the risk
involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the
information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the insured,
it is well settled that the insured need not die of the disease he had failed to disclose to the
insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the
risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine
American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized that
rescission was exercised within the two-year contestability period as recognized in Section 48
of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.
SO ORDERED.

b)
G.R. No. 200784

August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER,

vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the
October 27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the
September 17, 2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its
February 24, 2012 Resolution3 denying the motion for reconsideration filed by petitioner
Malayan Insurance Company., Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as follows:

To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (PhP500,000.00) as and by
way of attorneys fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire
insurance policy because, although there was a change in the condition of the thing insured as
a result of the transfer of the subject machineries to another location, said insurance company
failed to show proof that such transfer resulted in the increase of the risk insured against. In
the absence of proof that the alteration of the thing insured increased the risk, the contract of
fire insurance is not affected per Article 169 of the Insurance Code.
The RTC further stated that PAPs notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy considering that it was RCBC
which procured the insurance. PAP acted in good faith in notifying RCBC about the transfer
and the latter even conducted an inspection of the machinery in its new location.

On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F00227-000073 to PAP Co., Ltd. (PAP Co.) for the latters machineries and equipment located
at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo
Building). The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective
for a period of one (1) year, was procured by PAP Co. for Rizal Commercial Banking
Corporation (RCBC), the mortgagee of the insured machineries and equipment.

Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial
court erred in ordering it to indemnify PAP for the loss of the subject machineries since the
latter, without notice and/or consent, transferred the same to a location different from that
indicated in the fire insurance policy.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP
Co. renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance
Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to
May 13, 1998.

On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision
but deleted the attorneys fees. The decretal portion of the CA decision reads:

On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance
claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the
time of the loss, the insured machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically, that the insured machineries
were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14,
Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co.
argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the
party duty-bound to relay such information. However, Malayan reiterated its denial of PAP
Co.s claim. Distraught, PAP Co. filed the complaint below against Malayan. 4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP
Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for
attorneys fees. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff.
Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (P15,000,000.00) as and for indemnity
for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum
from the time of loss on October 12, 1997 until fully paid;

Ruling of the CA

WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance

Company must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos
(PhP15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the
rate of 12% per annum from the time of loss on October 12, 1997 until fully paid. However, the
Five Hundred Thousand Pesos (PhP500,000.00) awarded to PAP Co., Ltd. as attorneys fees
is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of
the insured properties during the efficacy of the insurance policy. Malayan also failed to show
that its contractual consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed insurance policies
contained provisions on transfer limitations of the insured properties, Malayan never cited the
specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the
insured properties, still Malayan could not escape liability because the transfer was made
during the subsistence of the original policy, not the renewal policy. PAP transferred the
insured properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory)
sometime in September 1996. Therefore, Malayan was aware or should have been aware of
such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an
insurance policy was a contract of adhesion, any ambiguity must be resolved against the party
that prepared the contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties
increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying
the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still
sue Malayan to enforce its rights on the policy because it remained a party to the insurance

contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the
following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING
IN THE QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS
LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER
MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE
RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE
WARRANTY OR A REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF
THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN
THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED
PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT
LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF
UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES PETITIONER MALAYAN TO
CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF
CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE INSURANCE
CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY
WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE
CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS
WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE
FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT
SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY
THE INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN
INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED
PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY
RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST
AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS
UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A
LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF
TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD

NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER
ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD
THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE
WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND
BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO
RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED
DECISION THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO
RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION
THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE
ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract because
PAP committed concealment, misrepresentation and breach of an affirmative warranty under
the renewal policy when it transferred the location of the insured properties without informing
it. Such transfer affected the correct estimation of the risk which should have enabled Malayan
to decide whether it was willing to assume such risk and, if so, at what rate of premium. The
transfer also affected Malayans ability to control the risk by guarding against the increase of
the risk brought about by the change in conditions, specifically the change in the location of
the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance
Code8 when it did not inform Malayan of the actual and new location of the insured properties.
In fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that
there would be no changes in the renewal policy. Malayan also argues that PAP is guilty of
breach of warranty under the renewal policy in violation of Section 74 of the Insurance Code 9
when, contrary to its affirmation in the renewal policy that the insured properties were located
at the Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds that
PAP is guilty of misrepresentation upon a material fact in violation of Section 45 of the
Insurance Code10 when it informed Malayan that there would be no changes in the original
policy, and that the original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of
the insured properties under the insurance policy was with its knowledge and consent.
Granting that PAP informed RCBC of the transfer or change of location of the insured
properties, the same is irrelevant and does not bind Malayan considering that RCBC is a
corporation vested with separate and distinct juridical personality. Malayan did not consent to
be the principal of RCBC. RCBC did not also act as Malayans representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of an
increase in risk as a result of the unilateral transfer of the insured properties. According to
Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by the
assured and factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo
Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied as
factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAPs position

On the other hand, PAP counters that there is no evidence of any misrepresentation,
concealment or deception on its part and that its claim is not fraudulent. It insists that it can still
sue to protect its rights and interest on the policy notwithstanding the fact that the proceeds of
the same was payable to RCBC, and that it can collect interest at the rate of 12% per annum
on the proceeds of the policy because its claim for indemnity was unduly delayed without legal
justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the
insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a
?15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment
effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured
properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15,
EPZA, Rosario, Cavite"; that before its expiration, the policy was renewed 11 on an "as is" basis
for another year or until May 13, 1998; that the subject properties were later transferred to the
Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of the renewal
policy, a fire broke out at the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence of any loss or damage, obtains the
sanction of the company signified by endorsement upon the policy, by or on behalf of the
Company:
xxx

xxx

xxx

(c) If property insured be removed to any building or place other than in that which is herein
stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the
insured, without the insurers consent, would free the latter from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that Malayan was notified of
the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court
has combed the records and found nothing that would show that Malayan was duly notified of
the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of
transfer to RCBC, the entity which made the referral and the named beneficiary in the policy.
Malayan and RCBC might have been sister companies, but such fact did not make one an
agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority
to represent and bind the said insurance company. After the referral, PAP dealt directly with
Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel
stipulated in open court that it was Malayans authorized insurance agent, Rodolfo Talusan,
who procured the original policy from Malayan, not RCBC. This was the reason why Talusans
testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005,14 PAPs hostile witness,
Alexander Barrera, Administrative Assistant of Malayan, testified that he was the one who
procured Malayans renewal policy, not RCBC, and that RCBC merely referred fire insurance
clients to Malayan. He stressed, however, that no written referral agreement exists between

RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the
renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano),
informed him that the fire insurance would be renewed on an "as is basis."15
Granting that any notice to RCBC was binding on Malayan, PAPs claim that it notified RCBC
and Malayan was not indubitably established. At best, PAP could only come up with the
hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda),
who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank loan and because of
the insurance I told my secretary to notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?
A
Yes, sir.
xxxx
Q
After the RCBC was informed in the manner you stated, what did you do regarding the new
location of these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is
concerned?
A
After that transfer, we informed the RCBC about the transfer of the equipment and also
Malayan Insurance but we were not able to contact Malayan Insurance so I instructed again
my secretary to inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant in this
case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.
Q
Why do you know her?
A
Because she is my secretary.

After the renewal.

Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos about the
matter of informing the defendant Malayan Insurance Co of the new location of the insured
properties?
A
She informed me that the notification was already given to Malayan Insurance.
Q
Aside from what she told you how did you know that the information was properly relayed by
the said secretary, Dory Ramos, to Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.

COURT
Q
You understand my question?
A
Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAPs position that the subject properties were already transferred to the Pace
factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured
properties to the Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to
the Pace Factory increased the hazard to which the insured properties were exposed.
Malayan wrote:

Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan
Insurance Company about the transfer of the properties insured to the new location, do you
know what happened insofar this information was given to the defendant Malayan Insurance?
A
I heard that someone from Malayan Insurance came over to our company.

With regards to the exposure of the risk under the old location, this was occupied as factory of
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic
gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But
under Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant
to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in the
hazard as indicated by the increase in rate.18

Q
Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to
a hazardous environment and negatively affected the fire rating stated in the renewal policy.
The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of
loss. Such increase in risk would necessarily entail an increase in the premium payment on
the fire policy.

Q
How did you know that this person from Malayan Insurance came to your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal
knowledge of the notice to either Malayan or RCBC. PAP should have presented his
secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone
was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties
were transferred to a different location only after the renewal of the fire insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the renewal or after the
renewal of the insurance?
A

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the
importance of the issue, PAP failed to refute Malayans argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that the renewal
policy carried with it the same stipulations and limitations. The terms and conditions in the
renewal policy provided, among others, that the location of the risk insured against is at the
Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the
Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at
PAPs own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court
agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster
which investigated the fire incident at the Pace Factory, which opined that "[g]iven that the
location of risk covered under the policy is not the location affected, the policy will, therefore,
not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties, without notice
and without Malayans consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance."

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the control of
the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss.20
In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that
PAP removed the properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED
and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable
for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED.

he was aware or material facts that he knew or ought to know.18

G.R. No. 186983

February 22, 2012

Issues Presented

MA. LOURDES S. FLORENDO, Petitioner,

The issues presented in this case are:

vs.

1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept
blank and did not answer questions in his pension plan application regarding the ailments he
suffered from;

PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.

DECISION
ABAD, J.:
This case is about an insureds alleged concealment in his pension plan application of his true
state of health and its effect on the life insurance portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan
with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla
Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a
maturity value of P2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla
the task of supplying the information needed in the application. 2 Respondent Ma. Celeste
Abcede, Perlas daughter, signed the application as sales counselor.3
Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo.4 This was covered by a Group Master Policy that Philippine American
Life Insurance Company (Philam Life) issued to Philam Plans.5 Under the master policy,
Philam Life was to automatically provide life insurance coverage, including accidental death, to
all who signed up for Philam Plans comprehensive pension plan.6 If the plan holder died
before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life
insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any
unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value
of the pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel,
with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his
quarterly premiums.9

2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents
Perla and Ma. Celeste to declare the condition of Manuels health in the pension plan
application; and
3. Whether or not the CA erred in finding that Philam Plans approval of Manuels pension plan
application and acceptance of his premium payments precluded it from denying Lourdes
claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application
relating to his medical history, Philam Plans should have returned it to him for completion.
Since Philam Plans chose to approve the application just as it was, it cannot cry concealment
on Manuels part. Further, Lourdes adds that Philam Plans never queried Manuel directly
regarding the state of his health. Consequently, it could not blame him for not mentioning it. 19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application
the true state of Manuels health. She forgets that since Philam Plans waived medical
examination for Manuel, it had to rely largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone that he had been under treatment for
heart condition and diabetes for more than five years preceding his submission of that
application. But he kept those crucial facts from Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of
his representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:

Eleven months later or on September 15, 1998, Manuel died of blood poisoning.
Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under
her husbands plan.10 Because Manuel died before his pension plan matured and his wife was
to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11

xxxx

On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found
that Manuel was on maintenance medicine for his heart and had an implanted pacemaker.
Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her
demand for payment under the plan13 but Philam Plans rejected it,14 prompting her to file the
present action against the pension plan company before the Regional Trial Court (RTC) of
Quezon City.15

(d) I am in good health and physical condition.

On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma.
Celeste, solidarily, to pay Lourdes all the benefits from her husbands pension plan, namely:
P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum pension
benefit upon maturity of his plan; P100,000.00 as moral damages; and to pay the costs of the
suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his
pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that
insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith.
As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which

(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical impairment in the last five years.

If your answer to any of the statements above reveal otherwise, please give details in the
space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated

for the said illnesses in the last five years preceding his application. This is implicit from the
phrase "If your answer to any of the statements above (specifically, the statement: I have
never been treated for heart condition or diabetes) reveal otherwise, please give details in the
space provided for." But this is untrue since he had been on "Coumadin," a treatment for
venous thrombosis,21 and insulin, a drug used in the treatment of diabetes mellitus, at that
time.22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that
Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he
signed up for the pension plan.23 But by its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide the information that
Philam Plans needed. Manuel cannot sign the application and disown the responsibility for
having it filled up. If he furnished Perla the needed information and delegated to her the filling
up of the application, then she acted on his instruction, not on Philam Plans instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he
had a pacemaker implant in the early 70s since this did not fall within the five-year timeframe
that the disclosure contemplated.24 But a pacemaker is an electronic device implanted into the
body and connected to the wall of the heart, designed to provide regular, mild, electric shock
that stimulates the contraction of the heart muscles and restores normalcy to the heartbeat. 25
That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat within five years preceding
that application.

DECLARATIONS AND REPRESENTATIONS

xxxx
I agree that the insurance coverage of this application is based on the truth of the foregoing
representations and is subject to the provisions of the Group Life Insurance Policy issued by
THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC. 30 (Emphasis
supplied)
As the Court said in New Life Enterprises v. Court of Appeals:31
It may be true that x x x insured persons may accept policies without reading them, and that
this is not negligence per se. But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of
him considering that he has been a businessman since 1965 and the contract concerns
indemnity in case of loss in his money-making trade of which important consideration he could
not have been unaware as it was precisely the reason for his procuring the same.32
The same may be said of Manuel, a civil engineer and manager of a construction company.33
He could be expected to know that one must read every document, especially if it creates
rights and obligations affecting him, before signing the same. Manuel is not unschooled that
the Court must come to his succor. It could reasonably be expected that he would not trifle
with something that would provide additional financial security to him and to his wife in his
twilight years.

Besides, as already stated, Manuel had been taking medicine for his heart condition and
diabetes when he submitted his pension plan application. These clearly fell within the five-year
period. More, even if Perlas knowledge of Manuels pacemaker may be applied to Philam
Plans under the theory of imputed knowledge,26 it is not claimed that Perla was aware of his
two other afflictions that needed medical treatments. Pursuant to Section 2727 of the Insurance
Code, Manuels concealment entitles Philam Plans to rescind its contract of insurance with
him.

Three. In a final attempt to defend her claim for benefits under Manuels pension plan, Lourdes
points out that any defect or insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been approved, the policy has been
issued, and the premiums have been collected. 34

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let
Perla fill in the required details did not make her his agent and bind him to her concealment of
his true state of health. Since there is no evidence of collusion between them, Perlas fault
must be considered solely her own and cannot prejudice Manuel.28

VIII. INCONTESTABILITY

But Manuel forgot that in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. Thus:

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains
a one-year incontestability period. It states:

After this Agreement has remained in force for one (1) year, we can no longer contest for
health reasons any claim for insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not insurable at the time you bought
this pension program by reason of age. If this Agreement lapses but is reinstated afterwards,
the one (1) year contestability period shall start again on the date of approval of your request
for reinstatement.35
1wphi1

APPLICATION FOR PENSION PLAN

(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described
herein in accordance with the General Provisions set forth in this application and hereby certify
that the date and other information stated herein are written by me or under my direction. x x
x.29 (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action. Philam Plans had every right to act on
the faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of
his health would not hinder the approval of his application and that what is written on his
application made no difference to the insurance company. But, indubitably, Manuel was made
aware when he signed the pension plan application that, in granting the same, Philam Plans
and Philam Life were acting on the truth of the representations contained in that application.
Thus:

The above incontestability clause precludes the insurer from disowning liability under the
policy it issued on the ground of concealment or misrepresentation regarding the health of the
insured after a year of its issuance.
Since Manuel died on the eleventh month following the issuance of his plan,36 the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CAG.R. CV 87085 dated December 18, 2007.
SO ORDERED.