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G.R.No.94071

TodayisWednesday,July27,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION

G.R.No.94071March31,1992
NEWLIFEENTERPRISESandJULIANSY,petitioners,
vs.
HON.COURTOFAPPEALS,EQUITABLEINSURANCECORPORATION,RELIANCESURETYAND
INSURANCECO.,INC.andWESTERNGUARANTYCORPORATION,respondents.

REGALADO,J.:
Thisappealbycertiorariseeksthenullificationofthedecision 1 of respondent Court of Appeals in CAG.R. CV No.
13866whichreversedthedecisionoftheRegionalTrialCourt,BranchLVIIatLucenaCity,jointlydecidingCivilCasesNos.
684,784and884thereofandconsequentlyorderedthedismissaloftheaforesaidactionsfiledbyhereinpetitioners.

The undisputed background of this case asfoundbythe court a quo and adopted by respondent court, being
sustainedbytheevidenceonrecord,weherebyreproducethesamewithapproval.2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business
partnershipintheCityofLucena.UnderthebusinessnameofNewLifeEnterprises,thepartnership
engagedinthesaleofconstructionmaterialsatitsplaceofbusiness,atwostoreybuildingsituatedat
Iyam,LucenaCity.ThefactsshowthatJulianSyinsuredthestocksintradeofNewLifeEnterprises
with Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable
InsuranceCorporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the
amountofP350,000.00.ThispolicywasrenewedonMay,13,1982.
OnJuly30,1981,RelianceSuretyandInsuranceCo.,Inc.issuedFireInsurancePolicyNo.69135in
theamountofP300,000.00(RenewedunderRenewalCertificateNo.41997)Anadditionalinsurance
wasissuedbythesamecompanyonNovember12,1981underFireInsurancePolicyNo.71547in
theamountofP700,000.00.
OnFebruary8,1982,EquitableInsuranceCorporationissuedFireInsurancePolicyNo.39328inthe
amountofP200,000.00.
ThuswhenthebuildingoccupiedbytheNewLifeEnterpriseswasguttedbyfireatabout2:00o'clock
inthemorningofOctober19,1982,thestocksinthetradeinsidesaidbuildingwereinsuredagainst
fireinthetotalamountofP1,550,000.00.Accordingtothecertificationissuedbythe Headquarters,
PhilippineConstabulary/IntegratedNationalPolice,CampCrame,thecauseoffirewaselectricalin
nature. According to the plaintiffs, the building and the stocks inside were burned. After the fire,
JulianSywenttotheagentofRelianceInsurancewhomheaskedtoaccompanyhimtotheofficeof
thecompanysothathecanfilehisclaim.Heaverredthatinsupportofhisclaim,hesubmitted the
fire clearance, the insurance policies and inventory of stocks. He further testified that the three
insurance companies are sister companies, and as a matter of fact when he was followingup his
claimwithEquitableInsurance,theClaimsManagertoldhimtogofirsttoRelianceInsuranceandif
saidcompanyagreestopay,theywouldalsopay.Thesametreatmentwasgiven him bythe other
insurancecompanies.Ultimately,thethreeinsurancecompaniesdeniedplaintiffs'claimforpayment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporation
throughClaimsManagerBernardS. Razon told the plaintiff that his claim "is denied for breach of
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policyconditions."RelianceInsurancepurveyedthesamemessageinitsletterdatedNovember23,
1982and signed by Executive VicePresident Mary Dee Co (Exhibit "C" No. 784) which said that
"plaintiff'sclaimisdeniedforbreachofpolicyconditions."Theletterofdenialreceivedbytheplaintiff
fromEquitable Insurance Corporation (Exhibit "C" No. 684) was of the same tenor, as said letter
datedFebruary22,1983,andsignedbyVicePresidentElmaR.Bondad,said"wefind that certain
policy conditions were violated, therefore, we regret, we have to deny your claim, as it is hereby
deniedinitsentirety."
Inrelation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin D.
Dator,actinginbehalfoftheplaintiff,sentaletterdatedFebruary13,1983(Exhibit"Gl"No784)to
ExecutiveVicePresidentMaryDeeCoaskingthathebeinformedastothespecificpolicyconditions
allegedlyviolatedbytheplaintiff.InherreplyletterdatedMarch30,1983,ExecutiveVicePresident
MaryDeeCoinformedAtty.DatorthatJulianSyviolatedPolicyConditionNo."3"whichrequiresthe
insuredtogivenoticeofanyinsuranceorinsurancesalreadyeffectedcoveringthestocksintrade.3
Becauseofthedenialoftheirclaimsforpaymentbythethree(3)insurancecompanies,petitionerfiledseparate
civilactionsagainsttheformerbeforetheRegionalTrialCourtofLucenaCity,whichcaseswereconsolidatedfor
trial,andthereafterthecourtbelowrendereditsdecisiononDecember19,l986withthefollowingdisposition:
WHEREFORE,judgmentintheaboveentitledcasesisrenderedinthefollowingmanner,viz:
1.InCivilCaseNo.684,judgmentisrenderedfortheplaintiffNewLifeEnterprisesandagainstthe
defendant Equitable Insurance Corporation ordering the latter to pay the former the sum of Two
HundredThousand(P200,000.00)Pesos and consideringthatpaymentof the claim of the insured
hasbeen unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is further
orderedtopaytheplaintiffattorney'sfeesintheamountofTwentyThousand(P20,000.00)Pesos.All
sumsofmoneytobepaidbyvirtuehereofshallbearinterestat12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 14, 1983, (91st day from November 16, 1982, when
SwornStatementofFireClaimwasreceivedfromtheinsured)untiltheyarefullypaid
2.InCivilCaseNo.784,judgmentisrenderedfortheplaintiffJulianSyandagainstthe defendant
Reliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum of
P1,000,000.00(P300,000.00underPolicyNo.69135andP700,000.00underPolicyNo.71547)and
consideringthatpaymentoftheclaimoftheinsuredhasbeenunreasonablydenied,pursuanttoSec.
244 of the Insurance Code, defendant is further ordered to pay the plaintiff the amount of
P100,000.00asattorney'sfees.
Allsumsofmoneytobepaidbyvirtuehereofshallbearinterestat12%perannum(pursuanttoSec.
244 of the Insurance Code) from February 14, 1983, (91st day from November 16, 1982 when
SwornStatementofFireClaimwasreceivedfromtheinsured)untiltheyarefullypaid
3.InCivilCaseNo.884,judgmentisrenderedfortheplaintiffNewLifeEnterprisesandagainstthe
defendantWesternGuarantyCorporation ordering thelattertopay the sum of P350,000.00 to the
ConsolidatedBankandTrustCorporation,LucenaBranch,LucenaCity,asstipulatedonthefaceof
Policy No. 37201, and considering that payment of the aforementioned sum of money has been
unreasonablydenied,pursuanttoSec.244oftheInsurance Code, defendant is further ordered to
paytheplaintiffattorney'sfeesintheamountofP35,000.00.
Allsumsofmoneytobepaidbyvirtuehereofshallbearinterestat12%perannum(pursuanttoSec.
244 of the Insurance Code) from February 5, 1982, (91st day from 1st week of November 1983
wheninsuredfiledformalclaimforfullindemnityaccordingtoadjusterVetremarDelaMerced) until
theyarefullypaid.4
Asaforestated,respondentCourtofAppealsreversedsaidjudgmentofthetrialcourt,hencethispetitionthecrux
wherein is whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners
therebyresultingintheirforfeitureofallthebenefitsthereunder.
Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformly
containedinalltheaforestatedinsurancecontractsofhereinpetitioners,asfollows:
3.TheinsuredshallgivenoticetotheCompanyofanyinsuranceorinsurancesalreadyeffected,or
whichmaysubsequentlybeeffected,coveringanyofthepropertyorpropertiesconsistingofstocks
intrade,goodsinprocessand/orinventoriesonlyherebyinsured,andunlesssuch notice be given
and the particulars of such insurance or insurances be stated therein or endorsed on this policy
pursuanttoSection50oftheInsuranceCode,byoronbehalfoftheCompanybeforetheoccurrence
ofanylossordamage, all benefits under this policy shall be deemed forfeited, provided however,
thatthisconditionshallnotapplywhenthetotalinsuranceorinsurancesinforceatthetimeoflossor
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damagenotmorethanP200,000.00.5
Petitionersadmitthatthe respective insurance policies issued by private respondents did not state or endorse
thereontheotherinsurancecoverageobtainedorsubsequentlyeffectedonthesamestocksintradefortheloss
of which compensation is claimed by petitioners. 6 The policy issued by respondent Western Guaranty Corporation
(Western) did not declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable
Insurance Corporation (Equitable) as coinsurers on the same stocks, while Reliance's Policies covering the same stocks
did not likewise declare Western and Equitable as such coinsurers. It is further admitted by petitioners that Equitable's
policy stated "nil" in the space thereon requiring indication of any coinsurance although there were three (3) policies
subsistingonthesamestocksintradeatthetime of the loss, namely, that of Western in the amount of P350,000.00 and
two(2)policiesofRelianceinthetotalamountofP1,000,000.00.7

Inotherwords,thecoveragebyotherinsuranceorcoinsuranceeffectedorsubsequentlyarrangedbypetitioners
wereneitherstatednorendorsedinthepoliciesofthethree(3)privaterespondents,warrantingforfeitureof all
benefitsthereunderifwearetofollowtheexpressstipulationintheaforequotedPolicyConditionNo.3.
Petitionerscontendthattheyarenottobeblamedfortheomissions,allegingthatinsuranceagentLeonAlvarez
(for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that such other or additional
insurance should be stated in the policy, as they have not even read policies. 8 These contentions cannot pass
judicialmuster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the
insurer any other insurance and its particulars which he may have effected on the same subject matter. The
knowledgeofsuchinsurancebytheinsurer'sagents,evenassumingtheacquisitionthereofbytheformer,isnot
the "notice" that would estop the insurers from denying the claim. Besides, the socalled theory of imputed
knowledge,thatis,knowledgeoftheagentisknowledgeoftheprincipal,asidefrombeingofdubiousapplicability
herehaslikewisebeenroundlyrefutedbyrespondentcourtwhosefactualfindingswefindacceptable.
Thus,itpointsoutthatwhilepetitionerJulianSyclaimedthathehadinformedinsuranceagentAlvarezregarding
thecoinsuranceontheproperty,hecontradictedhimselfbyinexplicablyclaimingthathehadnotreadtheterms
ofthepoliciesthatYapDamChuancouldnotlikewisehaveobtainedsuchknowledgeforthesamereason,aside
fromthefactthattheinsurancewithWesternwasobtainedbeforethoseofRelianceandEquitableandthatthe
conclusionofthetrialcourtthatRelianceandEquitableare"sistercompanies"isanunfoundedconjecturedrawn
fromthemerefactthatYapKamChuanwasanagentforbothcompanieswhich also had the same insurance
claimsadjuster.Availmentoftheservicesofthesameagentsandadjustersbydifferentcompaniesisacommon
practiceintheinsurancebusinessandsuchfactsdonotwarrantthespeculativeconclusionofthetrialcourt.
Furthermore,whenthewordsandlanguageofdocuments are clear and plain or readily understandable by an
ordinary reader thereof, there is absolutely no room for interpretationor construction anymore. 9 Courts are not
allowed to make contracts for the parties rather, they will intervene only when the terms of the policy are ambiguous,
equivocal,oruncertain.10Thepartiesmustabidebythetermsofthecontract because such terms constitute the measure
oftheinsurer'sliabilityandcompliancetherewithisaconditionprecedenttothe insured's right of recovery from the insurer.
11

Whileitisacardinalprincipleofinsurancelawthatapolicyorcontractofinsuranceistobeconstruedliberallyin
favoroftheinsuredandstrictlyagainsttheinsurercompany,yetcontractsofinsurance,likeothercontracts,are
to be construed according to thesenseand meaning of the terms which the parties themselves have used. If
suchtermsareclearandunambiguous,theymustbetakenandunderstoodintheirplain,ordinary and popular
sense.12Moreover,obligationsarisingfromcontractshavetheforceoflaw between the contracting parties and should be
compliedwithingoodfaith.13

Petitionersshouldbeawareofthefactthatapartyis not relieved of the duty to exercise the ordinary care and
prudencethatwouldbeexactedinrelationtoothercontracts.The conformity of the insured to the terms of the
policyisimpliedfromhisfailuretoexpressanydisagreementwithwhatisprovidedfor.14 It may be true that the
majorityrule,ascitedbypetitioners, is that injured persons may accept policies without reading them, and that this is not
negligenceperse.15But,thisisnotwithoutanyexception.ItisandwasincumbentuponpetitionerSytoreadtheinsurancecontracts,andthiscan
16 and the contract concerns indemnity in case of
bereasonablyexpectedofhimconsideringthat he has been a businessman since 1965
lossinhis moneymaking trade of which important consideration he could not have been unaware as it was prein case of
loss in his moneymaking trade of which important consideration he could not have been unaware as it was precisely the
reasonforhisprocuringthesame.

WereiterateourpronouncementinPioneerInsuranceandSuretyCorporationvs.Yap:17
...Andconsideringthetermsofthepolicywhichrequiredtheinsuredtodeclareotherinsurances,
thestatementinquestionmustbedeemedtobeastatement(warranty)bindingonbothinsurerand
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insured,thattherewerenootherinsuranceontheproperty....
Theannotationthen,must be deemed to be a warranty that the property was not insured by any
other policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance Act). Such
misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance
Company,Ltd.,55Phil.329.Thematerialityofnondisclosureofotherinsurancepoliciesisnotopen
todoubt.
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Theobviouspurposeoftheaforesaidrequirementinthepolicyistopreventoverinsuranceandthus
avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the
situationinwhichafirewouldbe profitable to theinsured.Accordingto Justice Story: "The insured
hasnorighttocomplain, for he assents to comply with all the stipulations on his side, in order to
entitlehimselftothebenefitofthecontract,which,uponreasonorprinciple,hehasnoright to ask
thecourtto dispense with the performance of his own part of the agreement, and yet to bind the
otherpartytoobligations,which,butforthosestipulations,wouldnothavebeenenteredinto."
Subsequently,inthecaseofPacificBankingCorporationvs.CourtofAppeals,etal.,18weheld:
Itisnotdisputedthattheinsuredfailedtorevealbeforethelossthreeotherinsurances.Asfoundby
theCourtofAppeals,byreasonofsaidunrevealedinsurances,theinsuredhadbeenguiltyofafalse
declarationaclearmisrepresentationandavitalonebecausewheretheinsuredhadbeenaskedto
revealbutdidnot,thatwasdeception.Otherwisestated,hadtheinsurerknownthatthereweremany
coinsurances,itcouldhavehesitatedorplainlydesistedfromenteringintosuchcontract.Hence,the
insuredwasguiltyofclearfraud(Rollo,p.25).
Petitioner'scontentionthattheallegationoffraudisbutamereinferenceorsuspicionisuntenable.
Infact,concreteevidenceoffraudorfalsedeclarationbytheinsuredwasfurnishedbythepetitioner
itself when the facts alleged in the policy under clauses "CoInsurances Declared" and "Other
InsuranceClause"aremateriallydifferent from the actual number of coinsurances taken over the
subjectproperty.Consequently,"thewhole foundation of the contract fails, the riskdoes not attach
and the policy never becomes a contract between the parties." Representations of facts are the
foundation of the contract and if the foundation does not exist, the superstructure does not arise.
Falsehood in such representations is not shown to vary or add to the contract, or to terminate a
contract which has once been made, but to show that no contract has ever existed (Tolentino,
CommercialLawsofthePhilippines,p.991,Vol.II,8thEd.,)Avoidorinexistentcontractisonewhich
has no force and effect from the very beginning, as if it had never been entered into, and which
cannotbevalidatedeitherbytimeor by ratification (Tongoyvs.C.A.,123SCRA99 (1983) Avila v.
C.A.,145SCRA,1986).
Astheinsurancepolicyagainstfireexpresslyrequiredthatnoticeshouldbegivenbytheinsuredof
otherinsuranceuponthesameproperty,thetotalabsenceofsuchnoticenullifiesthepolicy.
Tofurtherwarrantandjustifytheforfeitureofthebenefitsundertheinsurancecontractsinvolved,weneedmerely
toturntoPolicyConditionNo.15thereof,whichreadsinpart:
15....ifanyfalsedeclarationbemadeorusedinsupportthereof,...allbenefitsunderthisPolicy
shallbeforfeited....19
Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for
recoverywasfiledincourtbypetitionersonlyonJanuary31,1984,oraftermorethanone(1)yearhadelapsed
frompetitioners'receiptoftheinsurers'letterofdenialonNovember 29, 1982. Policy Condition No. 27 of their
insurancecontractwithRelianceprovides:
27.Actionorsuitclause.Ifaclaimbemadeandrejectedandanactionorsuitbenotcommenced
eitherintheInsuranceCommissionoranycourtofcompetentjurisdictionofnoticeofsuchrejection,
orincaseofarbitrationtakingplaceasprovidedherein,withintwelve(12)monthsafterduenoticeof
theawardmadebythearbitrator or arbitrators or umpire, then the claim shall for all purposes be
deemedtohavebeenabandonedandshallnotthereafterberecoverablehereunder.20
Onthispoint,thetrialcourtruled:
. . . However, because of the peculiar circumstances of this case, we hesitate in concluding that
plaintiff's right to ventilate his claim in court has been barred by reason of the time constraint
providedintheinsurancecontract.Itisevidentthataftertheplaintiffhadreceivedtheletterofdenial,
hestillfounditnecessarytobeinformedofthespecificcausesorreasonsforthedenialofhisclaim,
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reasonforwhichhis lawyer, Atty. Dator deemeditwisetosenda letter of inquiry to the defendant

whichwasansweredbydefendant'sExecutiveVicePresidentinaletterdatedMarch30,1983,....
Assuming, gratuitously, that the letter of Executive VicePresident Mary Dee Co dated March 30,
1983,wasreceivedbyplaintiffonthesamedate,theperiodoflimitationshouldstarttorunonlyfrom
saiddateinthespiritoffairplayandequity....21
Wehaveperforcetorejectthistheoryofthecourtbelowforbeingcontrarytowhatwehaveheretoforedeclared:
It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire
InsuranceCo.(2SCRA945[1961])towit:
Theconditioncontainedinaninsurancepolicythatclaimsmustbepresentedwithinone
year after rejection is not merely a procedural requirement but an important matter
essentialtoapromptsettlementofclaims against insurance companies as it demands
thatinsurancesuitsbebroughtbytheinsured while the evidence as to the origin and
causeofdestructionhavenotyetdisappeared.
In enunciating the abovecited principle, this Court had definitely settled the rationale for the
necessityofbringingsuits against the Insurer within one year from the rejection of the claim. The
contention of the respondents that the oneyear prescriptive period does not start to run until the
petitionforreconsiderationhadbeenresolvedbytheinsurer,runscountertothedeclared purpose
forrequiringthatanactionorsuitbefiledinthe Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would contradict and
defeattheveryprinciplewhichthisCourthadlaiddown.Moreover,itcaneasilybeusedbyinsured
personsasaschemeordevicetowastetimeuntilanyevidencewhichmay be considered against
themisdestroyed.
xxxxxxxxx
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same
cannotbetakentomeantherejectionofa petition for reconsideration as insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The insurance policy in said case
providesthat the insured should file his claim first, with the carrier and then with the insurer. The
"finalrejection"beingreferredtoinsaidcaseistherejectionbytheinsurancecompany.22
Furthermore,assumingarguendothatpetitionersfeltthelegitimateneedtobeclarifiedastothepolicycondition
violated,therewasaconsiderablelapseoftimefromtheirreceiptoftheinsurer'sclarificatoryletterdatedMarch
30,1983,uptothetimethecomplaintwasfiledincourtonJanuary31,1984.Theoneyearprescriptive period
wasyettoexpireonNovember29,1983,orabouteight(8)monthsfromthereceiptoftheclarificatoryletter,but
petitioners let the period lapse without bringing their action in court. We accordingly find no "peculiar
circumstances"sufficienttorelaxtheenforcementoftheoneyearprescriptiveperiodandwe,therefore,holdthat
petitioners'claimwasdefinitelyfiledoutoftime.
WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of Appeals, the same is
herebyAFFIRMED.
SOORDERED.
MelencioHererraandNocon,JJ.,concur.
Paras,J.,tooknopart.
Padilla,J.,tooknopart.

Footnotes
1JusticeSerafinV.C.Guingona,ponente,withJusticesGloriaC.ParasandBonifacioA.Cacdac,Jr.,
concurringRollo,51.
2PerJudgeHooverS.Abling.
3Rollo,3436.
4Ibid.,3233.
5Exhibits"20c","18b","14b"FolderofExhibit,20,29,31.
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6MemorandumforPetitioners,13.
7Rollo,35.
8MemorandumforthePetitioners,13.
9MarinaPortServices,Inc.vs.Iniego,etal.,181SCRA304(1990).
10PanMalayanInsuranceCorporationvs.CourtofAppeals,etal.,184SCRA54(1990).
11PerlaCompaniadeSeguros,Inc.vs.CourtofAppeals,etal.,185SCRA741(1990).
12SunInsuranceOffice,Ltd.vs.CourtofAppeals,etal.,195SCRA193(1991).
13Article1159,CivilCode.
14AngGiokChip,etc.vs.SpringfieldFire&MarineInsuranceCompany,56SCRA375(1931).
15VanceonInsurance,1951ed.,257MemorandumforthePetitioners,22.
16TSN,February11,1986,28.
1761SCRA426(1974),citingGeneralInsurance&SuretyCorporationvs.NgHua,106Phil.1117,
11191120(1960).
18168SCRA1(1988).
19Exhibits"20d","18e,"14e"FolderofExhibits,21,30,33.
20Exhibit"14f"FolderofExhibits,33.
21Rollo,49.
22SunInsuranceOffice,Ltd.vs.CourtofAppeals,etal.,supra,Fn.12.
TheLawphilProjectArellanoLawFoundation

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