INSURANCE DIGEST Week 2 Day 1 Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar

8. FELMAN filed a MTD based on the affirmative defense that no right of

subrogation in favor of PHILAMGEN was transmitted by the shipper, and
SUBROGATION that, in any event, FELMAN had abandoned all its rights, interests and
(Articles 2207 of the Civil Code; De Leon pp. 8-13) ownership over "MV Asilda" together with her freight and appurtenances
for the purpose of limiting and extinguishing its liability under Art. 587 of
the Code of Commerce
9. RTC: in favor of FELMAN → "MV Asilda" was seaworthy when it left the
1. THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
port of Zamboanga as confirmed by certificates issued by the Philippine
INC., petitioner, vs. COURT OF APPEALS and FELMAN SHIPPING
Coast Guard and the shipowner's surveyor attesting to its seaworthiness
LINES, respondents. G.R. No. 116940 June 11, 1997
a. the loss of the vessel and its entire shipment could only be attributed
to either a fortuitous event, in which case, no liability should attach
TOPIC: Subrogation; Art. 2077 NCC
unless there was a stipulation to the contrary, or to the negligence of
SUBJECT MATTER: Coca Cola bottles in MV Asilda ship sank
the captain and his crew, in which case, Art. 587 of the Code of
Commerce should apply.
DOCTRINE: Subrogation is designed to promote and to accomplish justice and is
b. assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not
the mode which equity adopts to compel the ultimate payment of a debt by one who
recover from FELMAN since Coca-Cola Bottlers Philippines, Inc. had
in justice, equity and good conscience ought to pay. Art. 2207. If the plaintiff's
breached its implied warranty on the vessel's seaworthiness
property has been insured, and he has received indemnity from the insurance
c. the payment made by PHILAMGEN to the assured was an undue,
company for the injury or loss arising out of the wrong or breach of contract
wrong and mistaken payment
complained of, the insurance company shall be subrogated to the rights of the
d. Since it was not legally owing, it did not give PHILAMGEN the right
insured against the wrongdoer or the person who has violated the contract. If the
of subrogation so as to permit it to bring an action in court as a
amount paid by the insurance company does not fully cover the injury or loss, the
subrogee.
aggrieved party shall be entitled to recover the deficiency from the person causing
10. CA: found "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of
the loss or injury.
Coca-Cola softdrink bottles were improperly stowed on deck
a. While the vessel possessed the necessary Coast Guard certification
FACTS:
indicating its seaworthiness with respect to the structure of the ship
1. On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV
itself, it was not seaworthy with respect to the cargo
Asilda," a vessel owned and operated by respondent Felman Shipping Lines
b. PHILAMGEN was not properly subrogated to the rights and interests
7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from
of the shipper
Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines,
c. that the filing of notice of abandonment had absolved the
Inc., Cebu
shipowner/agent from liability under the limited liability rule.
2. The shipment was insured with petitioner Philippine American General
Insurance Co., Inc. under a Marine Open Policy
ISSUE: WON PHILAMGEN was properly subrogated to the rights and legal
3. "MV Asilda" left the port of Zamboanga in fine weather but on the next day,
actions which the shipper had against FELMAN, the shipowner
it sank bringing down her entire cargo with her including the subject 7,500
cases of 1-liter Coca-Cola softdrink bottles
FALLO: WHEREFORE, the petition is GRANTED. Respondent FELMAN
4. consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim
SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN
with respondent FELMAN for recovery of damages but FELMAN denied
GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two
5. Coca Cola filed an insurance claim against PHILAMGEN which paid its
Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from
claim of P755,250.00
29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213
6. Claiming its right of subrogation PHILAMGEN sought recourse against
of the Civil Code. SO ORDERED.
respondent FELMAN which disclaimed any liability for the loss
7. PHILAMGEN sued the shipowner for sum of money and damages alleging
RATIO:
that the sinking and total loss of "MV Asilda" and its cargo were due to the
SHIP WAS UNSEAWORTHY
vessel's unseaworthiness as she was put to sea in an unstable condition and
● "MV Asilda" was unseaworthy when it left the port of Zamboanga
that it was was improperly manned and that its officers were grossly
● the captain as well as the chief mate of the vessel confirmed that the
negligent in failing to take appropriate measures to proceed to a nearby
weather was fine when they left the port of Zamboanga
port or beach after the vessel started to list
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INSURANCE DIGEST Week 2 Day 1
● The ship captain stated that he was awakened by the officer on duty to
inform him that the vessel had hit a floating log and at that time he
noticed that the weather had deteriorated with strong southeast winds
inducing big wave
● the vessel suddenly listed to portside and before the captain could decide
on his next move, some of the cargo on deck were thrown overboard and
seawater entered the engine room and cargo holds of the vessel so the
master of the vessel ordered his crew to abandon ship
● the vessel was top-heavy which is to say that while the vessel may not
have been overloaded, yet the distribution or stowage of the cargo on
board was done in such a manner that the vessel was in top-heavy
condition at the time of her departure and which condition rendered her
unstable and unseaworthy for that particular voyage
● the vessel was designed as a fishing vessel . . . and it was not designed to
carry a substantial amount or quantity of cargo on deck
● had her cargo been confined to those that could have been accommodated
under deck, her stability would not have been affected and the vessel
would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking
● But from the moment that the vessel was utilized to load heavy cargo on
its deck, the vessel was rendered unseaworthy for the purpose of carrying
the type of cargo because the weight of the deck cargo so decreased the
vessel's metacentric height as to cause it to become unstable.
● ships are precisely designed to be able to navigate safely even during
heavy weather and frequently we hear of ships safely and successfully
weathering encounters with typhoons and although they may sustain
some amount of damage, the sinking of ship during heavy weather is not
a frequent occurrence and is not likely to occur unless they are inherently
unstable and unseaworthy
PROXIMATE CAUSE OF THE SINKING
● the proximate cause of the sinking of the M/V "Asilda" was her condition
of unseaworthiness arising from her having been top-heavy when she
departed from the Port of Zamboanga
● evidence shows that approximately 2,500 cases of softdrink bottles were
stowed on deck
● Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the sinking and
considering that the ship's hatches were properly secured, the empty
Coca-Cola cases recovered could have come only from the vessel's deck
cargo
● carrying a deck cargo raises the presumption of unseaworthiness unless
it can be shown that the deck cargo will not interfere with the proper
management of the ship
● BUT "MV Asilda" was not designed to carry substantial amount of cargo
on deck.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
● The inordinate loading of cargo deck resulted in the decrease of the
vessel's metacentric height thus making it unstable
● The strong winds and waves encountered by the vessel are but the
ordinary vicissitudes of a sea voyage and as such merely contributed to
its already unstable and unseaworthy condition.
NEGLIGENCE OF THE CAPTAIN AND HIS CREW
● Art. 587 of the Code of Commerce is not applicable to the case at bar
● the ship agent is liable for the negligent acts of the captain in the care of
goods loaded on the vessel and this liability however can be limited
through abandonment of the vessel, its equipment and freightage as
provided in Art. 587.
● there are exceptional circumstances wherein the ship agent could still be
held answerable despite the abandonment, as where the loss or injury
was due to the fault of the shipowner and the captain
● the right of abandonment of vessels, as a legal limitation of a shipowner's
liability, does not apply to cases where the injury or average was
occasioned by the shipowner's own fault
● Art. 587 speaks only of situations where the fault or negligence is
committed solely by the captain
● Where the shipowner is likewise to be blamed, Art. 587 will not apply,
and such situation will be covered by the provisions of the Civil Code on
common carrier
● The ship sank because of overloading of cargo in the deck and closer
supervision on the part of the shipowner could have prevented this fatal
miscalculation → FELMAN was equally negligent.
● FELMAN cannot escape liability through the expedient of filing a notice
of abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.
EXTRAORDINARY DILIGENCE
● Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of
their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety
of the passengers transported by them, according to all the circumstances
of each case . . ."
● In the event of loss of goods, common carriers are presumed to have acted
negligently → FELMAN, the shipowner, was not able to rebut this
presumption
PHILAMGEN VOLUNTARILY ACCEPTED THE RISK
● when PHILAMGEN paid the claim of the bottling firm there was in effect
a "voluntary payment" and no right of subrogation accrued in its favor →
when PHILAMGEN paid it did so at its own risk
● in every marine insurance policy, the assured impliedly warrants to the
assurer that the vessel is seaworthy and such warranty is as much a
term of the contract as if expressly written on the face of the policy
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INSURANCE DIGEST Week 2 Day 1
Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon
a ship or freight, or freightage, or upon anything which is the subject of marine
insurance, a warranty is implied that the ship is seaworthy."
Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and
to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy."
● it becomes the obligation of the cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition
● The cargo owner may have no control over the vessel but he has full
control in the selection of the common carrier that will transport his
goods and he also has full discretion in the choice of assurer that will
underwrite a particular venture.
● In policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the policy in
the clearest language
● where the policy stipulates that the seaworthiness of the vessel as
between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing
concealment or misrepresentation by the assured
● Paragraph 15 of the Marine Open Policy reads "(t)he liberties as per
Contract of Affreightment the presence of the Negligence Clause and/or
Latent Defect Clause in the Bill of Lading and/or Charter Party and/or
Contract of Affreightment as between the Assured and the Company
shall not prejudice the insurance. The seaworthiness of the vessel as
between the Assured and the Assurers is hereby admitted."
● The result of the admission of seaworthiness by the assurer
PHILAMGEN may mean one or two things:
o that the warranty of the seaworthiness is to be taken as fulfilled;
or,
o that the risk of unseaworthiness is assumed by the insurance
company
SUBROGATION
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. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
● payment by the assurer to the assured operates as an equitable
assignment to the assurer of all the remedies which the assured may
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
have against the third party whose negligence or wrongful act caused the
loss.
● The right of subrogation is not dependent upon, nor does it grow out of
any privity of contract or upon payment by the insurance company of the
insurance claim.
● The right of Subrogtaion accrues simply upon payment by the insurance
company of the insurance claim.
● The doctrine of subrogation has its roots in equity
● It is designed to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by one who in
justice, equity and good conscience ought to pay
● the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines,
Inc., gave the former the right to bring an action as subrogee against
FELMAN
● Having failed to rebut the presumption of fault, the liability of FELMAN
for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is
inevitable.
2. DELSAN TRANSPORT LINES v. CA
G.R. No. 127897 November 15, 2001
PETITIONERS: DELSAN TRANSPORT LINES, INC
RESPONDENTS: THE HON. COURT OF APPEALS and AMERICAN
HOME ASSURANCE CORPORATION
FACTS:
 Caltex Philippines entered into a contract of affreightment with
the petitioner, Delsan Transport Lines, Inc.
o for a period of one year whereby the said common carrier agreed
to transport Caltex’s industrial fuel oil from the Batangas-
Bataan Refinery to different parts of the country.
o Under the contract, petitioner took on board its vessel, MT
Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be
delivered to the Caltex Oil Terminal in Zamboanga City.
o The shipment was insured with the private respondent,
American Home Assurance Corporation.
 On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga
City. Unfortunately, the vessel sank in the early morning of August 16,
1986 near Panay Gulf in the Visayas taking with it the entire cargo of
fuel oil.
 Subsequently, American Home Assurance paid Caltex of P5,096,635.67
representing the insured value of the lost cargo.
 Exercising its right of subrogation under Article 2207 of the New Civil
Code, the private respondent demanded of the petitioner the same
amount it paid to Caltex.
 Due to its failure to collect from the petitioner despite prior demand,
private respondent filed a complaint for collection of a sum of money.
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INSURANCE DIGEST Week 2 Day 1
the trial court rendered a decision dismissing the complaint against
herein petitioner without pronouncement as to cost.
 found that the vessel, MT Maysum, was seaworthy to undertake the
voyage as determined by the Philippine Coast Guard per Survey
Certificate Report No. M5-016-MH upon inspection during its annual
dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier
(herein petitioner) from liability for the loss of its cargo.
The decision of the trial court, however, was reversed, on appeal, by the
Court of Appeals.
o The appellate court gave credence to the weather report issued by
PAGASA for brevity which showed that from 2:00 o’clock to 8:oo o’clock in
the morning on August 16, 1986, the wind speed remained at 10 to 20
knots per hour while the waves measured from .7 to two (2) meters in
height only in the vicinity of the Panay Gulf where the subject vessel
sank, in contrast to herein petitioner’s allegation that the waves were
twenty (20) feet high.
o In the absence of any explanation as to what may have caused the
sinking of the vessel coupled with the finding that the same was
improperly manned, the appellate court ruled that the petitioner is liable
on its obligation as common carrier4 to herein private respondent
insurance company as subrogee of Caltex.
o The subsequent motion for reconsideration of herein petitioner was
denied by the appellate court.
ISSUE: WON DELSAN LINES IS LIABLE FOR THE PAYMENT MADE BY
AMERICAN HOME ASSURANCE CORP TO CALTEX FOR THE LOSS OF
OIL CARGO. (YES)
WON The presentation in evidence of the marine insurance policy is AN
indispensable requirement before the insurer may recover from the
common carrier the insured value of the lost cargo in the exercise of its
subrogatory right. (NO)
HELD: WHEREFORE, the instant petition is DENIED. The Decision dated June
17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs
against the petitioner.
ARGUMENTS:
o Delsan Transport Lines, Inc. invokes the provision of Section 113
of the Insurance Code of the Philippines, which states that in
every marine insurance upon a ship or freight, or freightage, or
upon any thin which is the subject of marine insurance there is
an implied warranty by the shipper that the ship is seaworthy.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
o Consequently, the insurer will not be liable to the assured for any
loss under the policy in case the vessel would later on be found
as not seaworthy at the inception of the insurance.
o It theorized that when private respondent paid Caltex the value of its
lost cargo, the act of the private respondent is equivalent to a tacit
recognition that the ill-fated vessel was seaworthy; otherwise, private
respondent was not legally liable to Caltex due to the latter’s breach of
implied warranty under the marine insurance policy that the vessel was
seaworthy.
o alleges that the Court of Appeals erred in ruling that MT Maysun was
not seaworthy on the ground that the marine officer who served as the
chief mate of the vessel, Francisco Berina, was allegedly not qualified.
o Under Section 116 of the Insurance Code of the Philippines, the implied
warranty of seaworthiness of the vessel, which the private respondent
admitted as having been fulfilled by its payment of the insurance
proceeds to Caltex of its lost cargo, extends to the vessel’s complement.
Besides, petitioner avers that although Berina had merely a 2nd officer’s
license, he was qualified to act as the vessel’s chief officer under Chapter
IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine
Rules and Regulations. In fact, all the crew and officers of MT Maysun
were exonerated in the administrative investigation conducted by the
Board of Marine Inquiry after the subject accident.6
o further avers that private respondent failed, for unknown reason,
to present in evidence during the trial of the instant case the
subject marine cargo insurance policy it entered into with Caltex.
By virtue of the doctrine laid down in the case of Home Insurance
Corporation vs. CA,7 the failure of the private respondent to present the
insurance policy in evidence is allegedly fatal to its claim inasmuch as
there is no way to determine the rights of the parties thereto.
The payment made by the private respondent for the insured value of
the lost cargo operates as waiver of its right to enforce the term of the
implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic
admission of the vessel’s seaworthiness by the private respondent as to
foreclose recourse against the petitioner for any liability under its
contractual obligation as a common carrier.
o The fact of payment grants the private respondent subrogatory right
which enables it to exercise legal remedies that would otherwise be
available to Caltex as owner of the lost cargo against the petitioner
common carrier.
o 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. If the
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INSURANCE DIGEST Week 2 Day 1
amount paid by the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
RIGHT TO SUBOROGATION
o The right of subrogation has its roots in equity. It is designed to promote
and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice and good conscience
ought to pay.
o It is not dependent upon, nor does it grow out of, any privity of contract
or upon written assignment of claim. It accrues simply upon payment by
the insurance company of the insurance claim.
o Consequently, the payment made by the private respondent (insurer) to
Caltex (assured) operates as an equitable assignment to the former of all
the remedies which the latter may have against the petitioner.
The diligence required of common carriers is EXTRAORDINARY
DILIGENCE.
o From the nature of their business and for reasons of public policy,
common carriers are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of passengers transported by
them, according to all the circumstance of each case.11
o In the event of loss, destruction or deterioration of the insured goods,
common carriers shall be responsible unless the same is brought about,
among others, by flood, storm, earthquake, lightning or other natural
disaster or calamity.12
o In all other cases, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary
diligence.13
NO FORCE MAJEURE or FORTUTIOUS EVENT APPLIES IN THIS CASE
o From the testimonies of Jaime Jarabe and Francisco Berina, captain and
chief mate, respectively of the ill-fated vessel, it appears that a sudden
and unexpected change of weather condition occurred in the early
morning of August 16, 1986; that at around 3:15 o’clock in the morning a
squall ("unos") carrying strong winds with an approximate velocity of 30
knots per hour and big waves averaging eighteen (18) to twenty (20) feet
high, repeatedly buffeted MT Maysun causing it to tilt, take in water and
eventually sink with its cargo.
o This tale of strong winds and big waves by the said officers of the
petitioner however, was effectively rebutted and belied by the
weather report15 from PAGASA showing that from 2:00 o’clock to 8:00
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
o’clock in the morning on August 16, 1986, the wind speed remained at
ten (10) to twenty (20) knots per hour while the height of the waves
ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and
Panay Gulf where the subject vessel sank.
o Thus, as the appellate court correctly ruled, petitioner’s vessel,
MT Maysun, sank with its entire cargo for the reason that it was
not seaworthy. There was no squall or bad weather or extremely poor
sea condition in the vicinity when the said vessel sank.
o In the case at bar, petitioner is liable for the insured value of the
lost cargo of industrial fuel oil belonging to Caltex for its failure
to rebut the presumption of fault or negligence as common
carrier19 occasioned by the unexplained sinking of its vessel, MT
Maysun, while in transit.
The presentation in evidence of the marine insurance policy is not
indispensable in this case before the insurer may recover from the
common carrier the insured value of the lost cargo in the exercise of its
subrogatory right.
o The subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein private respondent as insurer and Caltex, as the
assured shipper of the lost cargo of industrial fuel oil, but also the
amount paid to settle the insurance claim.
o The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.20
o The presentation of the insurance policy was necessary in the case
of Home Insurance Corporation v. CA21 passed through several stages
with different parties involved in each stage. First, from the shipper to
the port of departure; second, from the port of departure to the M/S
Oriental Statesman; third, from the M/S Oriental Statesman to the M/S
Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or
arrival; fifth, from the port of arrival to the arrastre operator; sixth, from
the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private
respondent therein); and lastly, from the hauler to the consignee.
o We emphasized in that case that in the absence of proof of stipulations to
the contrary, the hauler can be liable only for any damage that occurred
from the time it received the cargo until it finally delivered it to the
consignee. Ordinarily, it cannot be held responsible for the handling of
the cargo before it actually received it.
o The insurance contract, which was not presented in evidence in that case
would have indicated the scope of the insurer’s liability, if any, since no
evidence was adduced indicating at what stage in the handling process
the damage to the cargo was sustained.
o Hence, our ruling on the presentation of the insurance policy in the said
case of Home Insurance Corporation is not applicable to the case at bar.
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INSURANCE DIGEST Week 2 Day 1
o In contrast, there is no doubt that the cargo of industrial fuel oil
belonging to Caltex, in the case at bar, was lost while on board
petitioner’s vessel, MT Maysun, which sank while in transit in the
vicinity of Panay Gulf and Cuyo East Pass in the early morning of
August 16, 1986.
3. FIREMAN’S FUND vs. JAMILLA
G.R. No. L-27427 April 7, 1976
Plaintiff: FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE
AND RUBBER COMPANY OF THE PHILIPPINES,
Defendant-Appellees: JAMILA & COMPANY, INC. and FIRST QUEZON CITY
INSURANCE CO., INC., defendants-appellees.
DOCTRINE: Loss or injury of risk must be covered by the policy - Article 2207 of
the Civil Code which provides that "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"
FACTS:
1. The gist of the complaint is that Jamila or the Veterans Philippine
Scouts Security Agency contracted to supply security guards to Firestone;
that Jamila assumed responsibility for the acts of its security guards;
that First Quezon City Insurance Co., Inc. executed a bond in the sum of
P20,000.00 to guarantee Jamila's obligations under that contract;
2. On May 18, 1963 properties of Firestone valued at P11,925.00 were lost
allegedly due to the acts of its employees who connived with Jamila's
security guard; that Fireman's Fund, as insurer, paid to Firestone the
amount of the loss; that Fireman's Fund was subrogated to Firestone's
right to get reimbursement from Jamila, and that Jamila and its surety,
First Quezon City Insurance Co., Inc., failed to pay the amount of the
loss in spite of repeated demands.
3. Lower Court: dismissed the complaint as to Jamila on the ground that
there was no allegation that it had consented to the subrogation and,
therefore, Fireman's Fund had no cause of action against it.
4. In the same order the lower court dismissed the complaint as to First
Quezon City Insurance Co., Inc. on the ground of res judicata. It appears
that the same action was previously filed in Civil Case No. 56311 which
was dismiss because of the failure of the same plaintiffs and their
counsel to appear at the pre trial.
5. Firestone and Fireman's Fund moved for the reconsideration of the order
of dismissal.
6. The lower court set aside its order of dismissal. It sustained plaintiffs'
contention that there was no res judicata as to First Quezon City
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
Insurance Co., Inc. because Civil Case No. 56311 was dismissed without
prejudice.
7. However, due to inadvertence, the lower court did not state in its order of
September 3, 1966 why it set aside its prior order dismissing the
complaint with respect to Jamila.
8. What is now to be recounted shows the lack of due care on the part of the
lower court and the opposing lawyers in their management of the case.
Such lack of due care has given the case a farcical ambiance and might
partially explain the long delay in its adjudication.
9. Jamila, upon noticing that the order of September 3, 1966 had
obliterated its victory without any reason therefor, filed a motion for
reconsideration. It had originally moved for the dismissal of the
complaint on the ground of lack of cause of action.
10. Its contention was based on two grounds, to wit: (1) that the complaint
did not allege that Firestone, pursuant to the contractual stipulation
quoted in the complaint, had investigated the loss and that Jamila was
represented in the investigation and (2) that Jamila did not consent to
the subrogation of Fireman's Fund to Firestone's right to get
reimbursement from Jamila and its surety. The lower court in its order of
dismissal had sustained the second ground.
11. Jamila in its motion for the reconsideration of the order of September 3,
1966 invoked the first ground which had never been passed upon by the
lower court. Firestone and Fireman's Fund in their opposition joined
battle, in a manner of speaking, on that first ground.
12. But the lower court in its order of October 18, 1966, granting Jamila's
motion for reconsideration, completely ignored that first ground. It
reverted to the second ground which was relied upon in its order of
September 3, 1966. The lower court reiterated its order of July 22, 1966
that Fireman's Fund had no cause of action against Jamila because
Jamila did not consent to the subrogation. The court did not mention
Firestone, the co-plaintiff of Fireman's Fund.
13. Firestone and Fireman's Fund filed a motion for the reconsideration of
the lower court's order of October 18, 1966 on the ground that Fireman's
Fund Insurance Company was suing on the basis of legal subrogation
whereas the lower court erroneously predicated its dismissal order on the
theory that there was no conventional subrogation because the debtor's
consent was lacking.
14. The plaintiffs cited article 2207 of the Civil Code which provides that "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".
15. The lower court denied plaintiffs' motion. They filed a second motion for
reconsideration. In that motion they sensibly called the lower court's
attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor, is a party-plaintiff and could sue
6
INSURANCE DIGEST Week 2 Day 1
directly Jamila in its own right. Without resolving that contention, the
lower court denied plaintiffs' second motion for reconsideration.
16. In this appeal Firestone and Fireman's Fund contend that the trial
court's dismissal of their complaint is contrary to the aforementioned
article 2207 which provides for legal subrogation.
17. Jamila, in reply, stubbornly argues that legal subrogation under article
2207 requires the debtor's consent; that legal subrogation takes place in
the cases mentioned in article 1302 of the Civil Code and the instant case
is not among the three cases enumerated in that article, and that there
could be no subrogation in this case because according to the plaintiffs
the contract between. Jamila and Firestone was entered into on June 1,
1965 but the loss complained of occurred on May 18, 1963.
18. With respect to the factual point raised by Jamila, it should be stated
that plaintiffs' counsel gratuitously alleged in their brief that Firestone
and Jamila entered into a "contract of guard services" on June 1, 1965.
That allegation, which was uncalled for because it is not found in the
complaint, created confusion which heretofore did not exist. No copy of
the contract was annexed to the complaint.
19. That confusing statement was an obvious error since it was expressly
alleged in the complaint that the loss occurred on May 18, 1963. The fact
that such an error was committed is another instance substantiating our
previous observation that plaintiffs' counsel had not exercised due care in
the presentation of his case.
ISSUE: W/N the complaint of Firestone and Fireman's Fund states a cause of
action against Jamila
HELD: YES. Fireman's Fund's action against Jamila is squarely sanctioned by
article 2207. As the insurer, Fireman's Fund is entitled to go after the person or
entity that violated its contractual commitment to answer for the loss insured
against.
RULING:
 We hold that Firestone is really a nominal, party in this case. It had
already been indemnified for the loss which it had sustained. Obviously,
it joined as a party-plaintiff in order to help Fireman's Fund to recover
the amount of the loss from Jamila and First Quezon City Insurance Co.,
Inc. Firestone had tacitly assigned to Fireman's Fund its cause of action
against Jamila for breach of contract. Sufficient ultimate facts are
alleged in the complaint to sustain that cause of action.
 The trial court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman's Fund "became a
party in interest in this case by virtue of a subrogation right given in its
favor by" Firestone, were not relying on the novation by change of
creditors as contemplated in articles 1291 and 1300 to 1303 of the Civil
Code but rather on article 2207.
 Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
substitution. It "is an arm of equity that may guide or even force one to
pay a debt for which an obligation was incurred but which was in whole
or in part paid by another
 "Subrogation is founded on principles of justice and equity, and its
operation is governed by principles of equity. It rests on the principle
that substantial justice should be attained regardless of form, that is, its
basis is the doing of complete, essential, and perfect justice between all
the parties without regard to form.”
 Subrogation is a normal incident of indemnity insurance. Upon payment
of the loss, the insurer is entitled to be subrogated pro tanto to any right
of action which the insured may have against the third person whose.
negligence or wrongful act caused the loss
 The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or compensation,
it becomes the loss of the insurer.
 "Although many policies including policies in the standard form, now
provide for subrogation, and thus determine the rights of the insurer in
this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy".
 Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery
thereof. That right is not dependent upon, nor does it grow out of, any
privity of contract, or upon written assignment of claim, and payment to
the insured makes the insurer an assignee in equity.
Finding the trial court's order of dismissal to be legally untenable, the
same is set aside with costs against defendant-appellee Jamila & Co., Inc.
4. PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT
OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER,
respondents
G.R. No. 81026 April 03, 1990
DOCTRINE: Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies, which the latter may have against the
third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract
or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.
FACTS:
1. On December 10, 1985, PANMALAY filed a complaint for damages with
the RTC against private respondents Erlinda Fabie and her driver.
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INSURANCE DIGEST Week 2 Day 1
2. It insured a Mitsubishi Colt Lancer car and registered it in the name of
Canlubang Automotive Resources Corporation.
3. On May 26, 1985, due to the "carelessness, recklessness, and
imprudence" of the unknown driver of a pick-up with plate no. PCR-
220, the insured car was hit and suffered damages in the amount of
P42,052.00;
4. PANMALAY defrayed the cost of repair of the insured car and, therefore,
was subrogated to the rights of CANLUBANG against the driver of the
pick- up and his employer, Erlinda Fabie; and that, despite repeated
demands, defendants, failed and refused to pay the claim of PANMALAY.
5. In response to the motion of bill of particulars filed by the respondent
PANMALAY clarified, among others, that the damage caused to the
insured car was settled under the "own damage", coverage of the
insurance policy.
6. On February 12, 1986, private respondents filed a Motion to Dismiss
alleging that PANMALAY had no cause of action against them.
7. They argued that payment under the "own damage" clause of the
insurance policy precluded subrogation under Article 2207 of the Civil
Code, since indemnification thereunder was made on the assumption
that there was no wrongdoer or no third party at fault.
ISSUE: WON PANMALAY WAS SUBROGATED TO THE RIGHTS OF
CANLUBANG
HELD: YES, it can institute an action to recover the amount it had paid.
RATIO:
 Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the
assured, then the insurer, upon payment to the assured, will be
subrogated to the rights of the assured to recover from the wrongdoer to
the extent that the insurer has been obligated to pay.
 Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer.
 EXCEPTIONS TO THE RULE:
- (1) If the assured by his own act releases the wrongdoer or third party
liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated
- (2) Similarly, where the insurer pays the assured the value of the lost
goods without notifying the carrier who has in good faith settled the
assured's claim for loss, the settlement is binding on both the assured
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
and the insurer, and the latter cannot bring an action against the carrier
on his right of subrogation
(3)And where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the former
has no right of subrogation against the third party liable for the loss
 It must be emphasized that the lower court's ruling that the "own
damage" coverage under the policy implies damage to the insured car
caused by the assured itself, instead of third parties, proceeds from an
incorrect comprehension of the phrase "own damage" as used by the
insurer.
 When PANMALAY utilized the phrase "own damage" — a phrase which,
incidentally, is not found in the insurance policy — to define the basis for
its settlement of CANLUBANG's claim under the policy, it simply
meant that it had assumed to reimburse the costs for repairing
the damage to the insured vehicle
 It is in this sense that the so-called "own damage" coverage under
Section III of the insurance policy is differentiated from Sections
I and IV-1 which refer to "Third Party Liability" coverage
(liabilities arising from the death of, or bodily injuries suffered by, third
parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to
the properties of third parties).
 Even assuming for the sake of argument that Section III-1(a) of
the insurance policy does not cover damage to the insured
vehicle caused by negligent acts of third parties, dismissal of
PANMALAY's complaint against private respondents for no cause of
action would still be a grave error of law.
 For even if under the above circumstances PANMALAY could not
be deemed subrogated to the rights of its assured under Article
2207 of the Civil Code, the insurer who may have no rights of
subrogation due to "voluntary" payment may nevertheless recover
from the third party responsible for the damage to the insured
property under Article 1236 of the Civil Code.
 The Court holds that there is no legal obstacle to the filing by
PANMALAY of a complaint for damages against private respondents as
the third parties allegedly responsible for the damage.
WHEREFORE, in view of the foregoing, the present petition is GRANTED.
Petitioner's complaint for damages against private respondents is hereby
REINSTATED. Let the case be remanded to the lower court for trial on the
merits.
8
INSURANCE DIGEST Week 2 Day 1
5. SVERIGES ANFARTYGS ASSURANCE VS. QUA CHEE GAN
(GERVACIO)
GR L-221416 September 5, 1967
Topic: Subrogration
Petitioner: SVERIGES ANFARTYGS Assurance
Respondent: Qua Chee Gan
Doctrine: The rule is that an insurer who pays the insured for loss or liability
not covered by the policy is not subrogated to the latter. Art. 1236 of the Civil
Code allows a third person who pays on behalf of another to recover from the
latter, although there is no subrogation.
FACTS
1. August 1947 – Qua Chee Gan shipped on board the SS Nagara 2,032,000
kilos of bulk copra at Siain, Quezon, consigned to DAL International
Trading in Gdynia, Poland.
a. The vessel unloaded 969,419 kilos of bulk copra at the port of
Karlshamn, Sweden.
b. It then proceeded to Gdynia where it unloaded the remaining
copra shipment.
c. It turned out that only 1,569,429 kilos of copra was discharged
in total.
2. Because of the alleged cargo shortage, the Polish cargo insurers had to
indemnify the consignee for the value thereof. The Polish cargo insurers
then sued the ship owner, the Swedish East Asia Company in
Gothenburg Sweden.
a. The latter, in turn, sued Defendant Qua Chee Gan and had it
summoned to Gothenburg. Defendant refused to submit to the
Swedish court's jurisdiction and its objection was sustained.
3. March 1951 – a settlement was effected between the Polish cargo
insurers and the shipowner.
4. Plaintiff Sveriges, as the indemnity insurer for the latter, paid
approximately $60,733.53 to the Polish insurers.
5. August 16, 1954 – claiming to have been subrogated to the rights of the
carrier, plaintiff Sveriges sued defendant before the CFI Manila to
recover the amount it paid to the Polish insurer plus 17% exchange tax,
with legal interest, and P10,000 as attorney's fees. Defendant filed a
counterclaim for P15,000.
6. August 1, 1955 – Qua Chee Gan filed a Motion to Dismiss on the ground
of prescription under the COGSA.
7. CFI granted the MTD, SVERIGES ANFARTYGS appealed to the SC.
8. SC reversed the order of dismissal and remanded the case for further
proceedings.
9. After trial, the CFI rendered its decision dismissing the complaint and
awarding P10,000 as attorney's fees to the Qua Chee Gan
a. that there was no short shipment on defendant's part;
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
b. that plaintiff's insurance policy did not cover the short shipment,
and
c. Qua Chee Gan was merely acting as an agent of Louis Dreyfus
& Co., who was the real shipper.
ISSUE: WON Sveriges Anfartygs assurance is subrogated to the rights of the
carrier (NO)
RULING
1. The rule is that an insurer who pays the insured for loss or liability not
covered by the policy is not subrogated to the latter.
2. However, even assuming that there was unwarranted— or “volunteer”
payment, plaintiff could still recover what it paid—in effect—to the
carrier from defendant shipper under Art. 1236 of the Civil Code which
allows a third person who pays on behalf of another to recover from the
latter, although there is no subrogation. But since the payment here was
without the knowledge and consent of defendant, plaintiff's right of
recovery is defeasible by the former's defenses since the Code is clear
that the recovery is only up to the amount by which the defendant was
benefited.
3. Plaintiff’s action against defendant cannot, however, be considered as
clearly unfounded as to warrant an award of attorney’s fees as damages
to defendant under par. 4, Art. 2208 of the Civil Code. The facts do not
show that
4. Sveriges Anfartygs’ cause of action was so frivolous or untenable as to
amount to gross and evident bad faith.
5. CFI decision was affirmed except for the award of attorney’s fees.

6. RIZAL SURETY vs. MANILA RAILROAD COMPANY (Frain)
G.R. No. L-24043 April 25, 1968
Topic: Subrogation
Keywords: Dropped/damaged press machine; Clause 15 is “an important notice”
Plaintiff-Appellant: RIZAL SURETY & INSURANCE COMPANY
Defendants-Appellees: MANILA RAILROAD COMPANY and MANILA PORT
SERVICE
Consignee: SUTER, INC.
Doctrine: The insurance company, having been subrogated merely to the rights of
the consignee, its recovery necessarily should be limited to what was recoverable
by the insured.
FACTS
1. This is a suit for the recovery of the amount paid by Rizal Surety and
Insurance Company, to the consignee based on Article 2207, which speak to
9
INSURANCE DIGEST Week 2 Day 1
the effect that the Insurance Company "shall be subrogated to the rights of
the insured," hence, it is its contention that it is entitled to the amount paid
by it in full, by virtue of the insurance contract.
2. November 29, 1960: The vessel, SS FLYING TRADER, loaded on board at
GENOA, ITALY for shipment to Manila, Philippines, among other cargoes, 6
cases OMH, Special Single Colour Offset PRESS MACHINE, for which Bill
of Lading No. 1 was issued, consigned to SUTER INC.
3. January 16, 1961: SS Flying Trader arrived at the Port of Manila and
subsequently discharged complete and in good order the shipment into the
custody of Manila Port Service as arrastre operator.
4. In the course of the handling, one of the six cases containing the Press
Machine, while the same was being lifted and loaded by the crane of the
Manila Port Service into the consignee's truck, it was dropped by the crane
and the machine was heavily damaged.
5. Rizal Surety paid P16,680.70 representing its liability under the insurance
contract:
a. Suter Inc. the amount of P16,500, representing damages by way of
costs of replacement parts and repairs to put the machine in working
condition;
b. International Adjustment Bureau as adjuster's fee for the survey
conducted on the damaged cargo the sum of P180.70;
c. The arrastre charges in this particular shipment was paid on the
weight or measurement basis whichever is higher, and not on the
value thereof.
6. Clause 15 of the management contract which as admitted by Rizal Surety,
appeared "at the dorsal part of the Delivery Permit" and was "used in taking
delivery of the subject shipment from Manila Port Service and Manila
Railroad Co.’s custody and control, issued in the name of consignee's broker,"
contained what was referred to as "AN IMPORTANT NOTICE."
a. LIMITED LIABILITY CLAUSE: Such permit "is presented subject
to all the terms and conditions of the Management Contract between
the Bureau of Customs and Manila Port Service and amendments
thereto or alterations thereof, particularly but not limited to
paragraph 15 thereof limiting the Company liability to P500.00
per package, unless the value of the goods is otherwise,
specified, declared or manifested and the corresponding
arrastre charges have been paid. . . ."
7. Based on the limited liability clause, lower court rendered the judgment
ordering Manila Railroad and Manila Port, jointly and severally, to pay Rizal
Surety P500.00, with legal interest and costs.
ISSUE: Whether or not Rizal Surety could recover in full as subrogee of the
insured.
RULING: NO. Rizal Surety having been subrogated merely to the rights of the
consignee, its recovery necessarily should be limited to what was recoverable by
the insured.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
RATIO
The literal language of Article 2207, does not warrant such an interpretation.
 It is made clear that in the event that the property has been insured and
the Insurance Company has paid the indemnity for the injury or loss
sustained, it "shall be subrogated to the rights of the insured against the
wrong-doer or the person who has violated the contract."
 Insurance Company, therefore, cannot recover from defendants an
amount greater than that to which the consignee could lawfully lay
claim.
 The management contract is clear. The amount is limited to P500.00.
In Atlantic Mutual Insurance Company v. Manila Port Service, this Court,
through then Chief Justice, Concepcion, restated the doctrine thus:
 "Plaintiff maintains that, not being a party to the management contract,
the consignee — into whose shoes plaintiff had stepped in consequence of
said payment — is not subject to the provisions of said stipulation, and
that the same is furthermore invalid.
 The lower court correctly rejected this pretense because, having taken
delivery of the shipment aforementioned by virtue of a delivery permit,
incorporating thereto, by reference, the provisions of said management
contract, particularly paragraph 15 thereof, the gist of which was set
forth in the permit, the consignee became bound by said provisions, and
because it could have avoided the application of said maximum limit of
P500.00 per package by stating the true value thereof in its claim for
delivery of the goods in question, which, admittedly, the consignee failed
to do. . . ."
FALLO: WHEREFORE, the decision appealed from is affirmed. With costs
against Rizal Surety and Insurance Company.
7. ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant, vs.
MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC.,
WILHELM WILHELMSEN MANILA PORT SERVICE and/or MANILA
RAILROAD COMPANY, defendants-appellees.
G.R. No. L-27796 March 25, 1976
TOPIC: Subrogtion; Art. 2207 NCC
SUBJECT MATTER: damaged drums and cartons of medicine
DOCTRINE: The plaintiff-appellant, as insurer, after paying the claim of the
insured for damages under the insurance, is subrogated merely to the rights of the
assured. As subrogee, it can recover only the amount that is recoverable by the
latter. Since the right of the assured, in case of loss or damage to the goods, is
limited or restricted by the provisions in the bill of lading, a suit by the insurer as
subrogee necessarily is subject to like limitations and restrictions. The insurer after
paying the claim of the insured for damages under the insurance is subrogated
10
INSURANCE DIGEST Week 2 Day 1
merely to the rights of the insured and therefore can necessarily recover only that
to what was recoverable by the insured.
FACTS:
1. Winthrop Products, Inc., of New York, New York, U.S.A., shipped aboard
the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen 218
cartons and drums of drugs and medicine, with the freight prepaid,
which were consigned to Winthrop-Stearns Inc., Manila, Philippines
2. Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued a Bill
of Lading in the name of Winthrop Products, Inc. as shipper, with arrival
notice in Manila to consignee Winthrop-Stearns, Inc., Manila,
Philippines
3. The shipment was insured by the shipper against loss and/or damage
with the St. Paul Fire & Marine Insurance Company under its insurance
Special Policy
4. SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid
shipment into the custody of Manila Port Service, the arrastre contractor
for the Port of Manila
5. The shipment was discharged complete and in good order with the
exception of 1 drum and several cartons which were in bad order
condition.
6. Because the consignee failed to receive the whole shipment and as
several cartons of medicine were received in bad order condition, the
consignee filed the corresponding claim in the amount of Pl,109.67
representing the C.I.F. value of the damaged drum and cartons of
medicine against Macondray, Barbara Steamship and Wilhelm and the
Manila Port Service
7. Consequently, the consignee filed its claim with the insurer, St. Paul Fire
& Marine insurance Co.
8. The insurance company, on the basis of such claim, paid to the consignee
the insured value of the lost and damaged goods, including other
expenses in connection therewith, in the total amount of $1,134.46 U.S.
currency
9. as subrogee of the rights of the shipper and/or consignee, the insurer, St.
Paul Fire & Marine Insurance Co., instituted the present action against
the defendants for the recovery of said amount of $1,134.46, plus costs.
10. the defendants Manila Port Service and Manila Railroad Company
resisted the action, contending, among others, that the whole cargo was
delivered to the consignee in the same condition in which it was received
from the carrying vessel and their liability is limited to the invoice value
of the goods, but in no case more than P500.00 per package, pursuant to
paragraph 15 of the said Management Contract
11. Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm
Wilhelmsen also contested the claim:
a. that the carrier's liability for the shipment ceased upon
discharge thereof from the ship's tackle;
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
b. that they and their co-defendant Manila Port Service are not the
agents of the vessel;
c. that the said 218 packages were discharged from the vessel SS
"Tai Ping" into the custody of defendant Manila Port Service as
operator of the arrastre service for the Port of Manila;
d. that if any damage was sustained by the shipment while it was
under the control of the vessel, such damage was caused by
insufficiency of packing, force majeure and/or perils of the sea
e. that they, in good faith and for the purpose only of avoiding
litigation without admitting liability to the consignee, offered to
settle the latter's claim in full by paying the C.I.F. value of 27
lbs. caramel 4.13 kilos methyl salicylate and 12 pieces
pharmaceutical vials of the shipment, but their offer was
declined by the consignee and/or the plaintiff.
12. CFI: ordered defendants Macondray & Co., Inc., Barber Steamship Lines,
Inc. and Wilhelm Wilhelmsen to pay to the plaintiff, jointly and
severally, the sum of P300.00 and Manila Railroad Company and Manila
Port Service to pay to plaintiff, jointly and severally, the sum of P809.67,
with legal interest thereon
ISSUE: WON St. Paul Fire & Marine Insurance Co., as the subrogee of the
consignee may recover from the respondents the amount it actually paid to the
consignee (YES)
FALLO: WHEREFORE, the appealed decision is hereby affirmed, with costs
against the plaintiff-appellant. SO ORDERED.
PETITIONERS’ ARGUMENT: as subrogee of the consignee, it should be
entitled to recover from the defendants-appellees the amount of $1,134.46 which
it actually paid to the consignee
RESPONDENTS’ ARGUMENT: their liability is limited to the C.I.F. value of
the goods, pursuant to contract of sea carriage embodied in the bill of lading that
the consignee's (Winthrop-Stearns Inc.) claim against the carrier (Macondray &
Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen and the arrastre
operators (Manila Port Service and Manila Railroad Company) was only for the
sum of Pl,109.67, representing the C.I.F. value of the loss and damage sustained
by the shipment which was the amount awarded by the lower court to the
plaintiff-appellant
RATIO:
STIPULATIONS IN THE BILL OF LADING
 The purpose of the bill of lading is to provide for the rights and liabilities
of the parties in reference to the contract to carry
 The stipulation in the bill of lading limiting the common carrier's liability
to the value of the goods appearing in the bill, unless the shipper or
owner declares a greater value, is valid and binding
11
INSURANCE DIGEST Week 2 Day 1
 The limitation of the carrier's liability is sanctioned by the freedom of the
contracting parties to establish such stipulations, clauses, terms, or
conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs and public policy
 A stipulation fixing or limiting the sum that may be recovered from the
carrier on the loss or deterioration of the goods is valid, provided it is:
o reasonable and just under the circumstances, and
o has been fairly and freely agreed upon
 the liabilities of the defendants-appellees with respect to the lost or
damaged shipments are expressly limited to the C.I.F. value of the goods
as per contract of sea carriage embodied in the bill of lading:
o Whenever the value of the goods is less than $500 per package or
other freight unit, their value in the calculation and adjustment
of claims for which the Carrier may be liable shall for the
purpose of avoiding uncertainties and difficulties in fixing value
be deemed to be the invoice value, plus frieght and insurance if
paid, irrespective of whether any other value is greater or less.
o The limitation of liability and other provisions herein shall inure
not only to the benefit of the carrier, its agents, servants and
employees, but also to the benefit of any independent contractor
performing services including stevedoring in connection with the
goods covered hereunder.
 The shipper and consignee are, therefore, bound by such stipulations
since it is expressly stated in the bill of lading that in "accepting this Bill
of Lading, the shipper, owner and consignee of the goods, and the holder
of the Bill of Lading agree to be bound by all its stipulations, exceptions
and conditions, whether written, stamped or printed, as fully as if they
were all signed by such shipper, owner, consignee or holder
SUBROGATION
 The plaintiff-appellant, as insurer, after paying the claim of the insured
for damages under the insurance, is subrogated merely to the rights of
the assured
 As subrogee, it can recover only the amount that is recoverable by the
latter
 Since the right of the assured, in case of loss or damage to the goods, is
limited or restricted by the provisions in the bill of lading, a suit by the
insurer as subrogee necessarily is subject to like limitations and
restrictions.
 The insurer after paying the claim of the insured for damages under the
insurance is subrogated merely to the rights of the insured and therefore
can necessarily recover only that to what was recoverable by the insured
 Upon payment for a total loss of goods insured, the insurance is only
subrogated to such rights of action as the assured has against 3rd
persons who caused or are responsible for the loss
 The obligation of the carrier to pay for the damage commenced on the
date it failed to deliver the shipment in good condition to the consignee.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
VALUE OF THE LOSS OR DAMAGES
 The C.I.F. Manila value of the goods which were lost or damaged,
according to the claim of the consignee dated September 26, 1960 is
$226.37 and $324.33 or P456.14 and P653.53, respectively, in Philippine
Currency.
 The peso equivalent was based by the consignee on the exchange rate of
P2.015 to $1.00 which was the rate existing at that time
8. NATIONAL UNION FIRE INSURANCE v. STOLT-NIELSEN
G.R. No. 87958 April 26, 1990
PETITIONERS: NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURG, PA/AMERICAN INTERNATIONAL UNDERWRITER (PHIL.)
RESPONDENTS: STOLT-NIELSEN PHILIPPINES, INC. and COURT OF
APPEALS
So ya’ll won’t get confused:
United Coconut Chemical Inc – Shipper (also shipper assured)
Stolt Nielsen – Carrier
National Union Fire Insurance – Insurer
On 9 January 1985, United Coconut Chemicals, Inc shipped 404.774
metric tons of distilled C6-C18 fatty acid on board MT "Stolt Sceptre," a
tanker owned by Stolt-Nielsen Philippines Inc., from Bauan, Batangas,
Philippines, consigned to "Nieuwe Matex" at Rotterdam, Netherlands,
covered by Tanker Bill of Lading BL No. BAT-1.
 The shipment was insured under a marine cargo policy with Petitioner
National Union Fire Insurance Company of a non-life American
insurance corporation, through its settling agent in the Philippines, the
American International Underwriters (Philippines), Inc., the other
petitioner herein.
 The Bill of Lading issued by the Stolt Nielsen contained a general
statement of incorporation of the terms of a Charter Party between
United Coconut and Parcel Tankers, Inc., entered into in Greenwich,
Connecticut, U.S.A.
Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it was
found to be discolored and totally contaminated.
 The claim filed by the SHIPPER-ASSURED with the CARRIER having
been denied,
 the INSURER indemnified the SHIPPER pursuant to the stipulation in
the marine cargo policy covering said shipment.
12
INSURANCE DIGEST Week 2 Day 1
On 21 April 1986, as subrogee of the SHIPPER-ASSURED, the INSURER
filed suit against the CARRIER, before the Regional Trial Court of
Makati, Branch 58 (RTC), for recovery of the sum of P1,619,469.21, with
interest, representing the amount the INSURER had paid the SHIPPER-
ASSURED.
 The CARRIER moved to dismiss/suspend the proceedings on the ground
that the RTC had no jurisdiction over the claim the same being an
arbitrable one;
 that as subrogee of the SHIPPER-ASSURED, the INSURER is subject to
the provisions of the Bill of Lading, which includes a provision that the
shipment is carried under and pursuant to the terms of the Charter
Party, dated 21 December 1984, between the SHIPPER-ASSURED and
Parcel Tankers, Inc. providing for arbitration.
 The INSURER opposed the dismissal/suspension of the proceedings on
the ground that it was not legally bound to submit the claim for
arbitration inasmuch as the arbitration clause provided in the Charter
Party was not incorporated into the Bill of Lading, and that the
arbitration clause is void for being unreasonable and unjust.
 On 28 July 1987, the RTC 1 denied the Motion, but subsequently
reconsidered its action on 19 November 1987, and deferred resolution on
the Motion to Dismiss/Suspend Proceedings until trial on the merits
"since the ground alleged in said motion does not appear to be
indubitable."
ISSUE: WON THE INSURER, AS THE SUBROGEE OF THE SHIPPER
ASSURED IS BOUND TO THE TERMS OF THE CHARTER PARTY
PARTICULARLY THE PROVISION ON ARBITRATION. (YES)
The pertinent portion of the Bill of Lading in issue provides in part:
This shipment is carried under and pursuant to the terms of the Charter
dated December 21st 1984 at Greenwich, Connecticut, U.S.A. between
Parcel Tankers. Inc. and United Coconut Chemicals, Ind. as Charterer
and all the terms whatsoever of the said Charter except the rate and
payment of freight specified therein apply to and govern the rights of the
parties concerned in this shipment. Copy of the Charter may be obtained
from the Shipper or Charterer.
While the provision on arbitration in the Charter Party reads:
Arbitration. Any dispute arising from the making, performance or
termination of this Charter Party shall be settled in New York, Owner
and Charterer each appointing an arbitrator, who shall be a merchant,
broker or individual experienced in the shipping business; the two thus
chosen, if they cannot agree, shall nominate a third arbitrator who shall
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
be an admiralty lawyer. Such arbitration shall be conducted in
conformity with the provisions and procedure of the United States
arbitration act, and a judgment of the court shall be entered upon any
award made by said arbitrator. Nothing in this clause shall be deemed to
waive Owner's right to lien on the cargo for freight, deed of freight, or
demurrage.
It is settled law that the charter may be made part of the contract under
which the goods are carried by an appropriate reference in the Bill of
Lading (Wharton Poor, Charter Parties and Ocean Bills of Lading (5th
ed., p. 71).
 This should include the provision on arbitration even without a
specific stipulation to that effect.
 The entire contract must be read together and its clauses interpreted in
relation to one another and not by parts. Moreover, in cases where a Bill
of Lading has been issued by a carrier covering goods shipped aboard a
vessel under a charter party, and the charterer is also the holder of the
bill of lading, "the bill of lading operates as the receipt for the goods, and
as document of title passing the property of the goods, but not as varying
the contract between the charterer and the shipowner
 As the respondent Appellate Court found, the INSURER "cannot feign
ignorance of the arbitration clause since it was already charged with
notice of the existence of the charter party due to an appropriate
reference thereof in the bill of lading and, by the exercise of ordinary
diligence, it could have easily obtained a copy thereof either from the
shipper or the charterer.
 INSURER cannot avoid the binding effect of the arbitration clause. By
subrogation, it became privy to the Charter Party as fully as the
SHIPPER before the latter was indemnified, because as subrogee it
stepped into the shoes of the SHIPPER-ASSURED and is subrogated
merely to the latter's rights. It can recover only the amount that is
recoverable by the assured. And since the right of action of the
SHIPPER-ASSURED is governed by the provisions of the Bill of Lading,
which includes by reference the terms of the Charter Party, necessarily,
a suit by the INSURER is subject to the same agreements
 Stated otherwise, as the subrogee of the SHIPPER, the INSURER is
contractually bound by the terms of the Charter party.1âwphi1 Any
claim of inconvenience or additional expense on its part should not
render the arbitration clause unenforceable.
9. CEBU SHIPYARD vs. WILLIAM LINES
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INSURANCE DIGEST Week 2 Day 1
G.R. No. 132607. May 5, 1999
Petitioner: CEBU SHIPYARD AND ENGINEERING WORKS, INC., Respondent:
WILLIAM LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE
COMPANY, INC.,
DOCTRINE: Intention of parties to make each other co-assured is to be gleaned
from the insurance policy itself and not from any other contract because the policy
denominates the assured and the beneficiaries.
FACTS:
1. Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic
corporation engaged in the business of dry-docking and repairing of
marine vessels while the private respondent, Prudential Guarantee and
Assurance, Inc. (Prudential), also a domestic corporation is in the non-life
insurance business.
2. William Lines, Inc. (plaintiff below) is in the shipping business. It was
the owner of M/V Manila City, a luxury passenger-cargo vessel, which
caught fire and sank on February 16, 1991.
3. At the time of the unfortunate occurrence sued upon, subject vessel was
insured with Prudential for P45,000,000.00 pesos for hull and machinery.
The Hull Policy included an Additional Perils (INCHMAREE) Clause
covering loss of or damage to the vessel through the negligence of, among
others, ship repairmen.
4. Petitioner CSEW was also insured by Prudential for third party liability
under a Shiprepairers Legal Liability Insurance Policy. The policy was
for P10 million only, under the limited liability clause.
5. On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila
City, to the Cebu Shipyard in Lapulapu City for annual dry-docking and
repair.
6. On February 6, 1991, an arrival conference was held between
representatives of William Lines, Inc. and CSEW to discuss the work to
be undertaken on the M/V Manila City.
7. While the M/V Manila City was undergoing dry-docking and repairs
within the premises of CSEW, the master, officers and crew of M/V
Manila City stayed in the vessel, using their cabins as living quarters.
Other employees hired by William Lines to do repairs and maintenance
work on the vessel were also present during the dry-docking.
8. On February 16, 1991, after subject vessel was transferred to the docking
quay, it caught fire and sank, resulting to its eventual total loss.
9. On February 21, 1991, William Lines, Inc. filed a complaint for damages
against CSEW, alleging that the fire which broke out in M/V Manila City
was caused by CSEWs negligence and lack of care.
10. On July 15, 1991 an Amended Complaint was filed impleading
Prudential as co-plaintiff, after the latter had paid William Lines, Inc.
the value of the hull and machinery insurance on the M/V Manila City.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
As a result of such payment Prudential was subrogated to the claim of
P45 million, representing the value of the said insurance it paid.
11. TRIAL COURT: a quo came out with a judgment against CSEW. It
orders CSEW to pay 45 million for the ship indemnity, 65 million for loss
of income, and more than 13 million in other damages.
12. CSEW (defendant below) appealed the aforesaid decision to the Court of
Appeals. During the pendency of the appeal, CSEW and William Lines
presented a Joint Motion for Partial Dismissal with prejudice, on the
basis of the amicable settlement inked between Cebu Shipyard and
William Lines only.
13. COURT OF APPEALS: ordered the partial dismissal of the case insofar
as CSEW and William Lines were concerned. It then affirmed the
appealed decision of the trial court.
14. Prudential, on the other hand, blamed the negligence of the CSEW
workers in the instance when they didn’t mind rubber insulation wire
coming out of the air-conditioning unit that was already burning. Hence
this MFR.
ISSUES:
1. WON CSEW is co-assured, thus losses caused by it are not covered by the
policy- NO
2. WON CSEW had “management and supervisory control“ of the ship at
the time the fire broke out- YES
3. WON the doctrine of res ipsa loquitur applies against the crew- YES
4. WON the provisions limiting CSEW’s liability for negligence to a
maximum of Php 1 million are valid- NO
HELD: Thus, when Prudential, after due verification of the merit and validity of
the insurance claim of William Lines, Inc., paid the latter the total amount
covered by its insurance policy, it was subrogated to the right of the latter to
recover the insured loss from the liable party, CSEW.
RULING:
1. NO
 The fact that clause 20 benefited petitioner, does not
automatically make it a co-assured of William Lines.
 Intention of parties to make each other co-assured is to be
gleaned from the insurance policy itself and not from any other
contract because the policy denominates the assured and the
beneficiaries.
 Prudential named only William Lines, Inc. as the assured. There
was no manifestation of any intention of William Lines Inc to
make CSEW a co-assured. When the terms of a contract are
clear, its stipulations control.
 If CSEW were deemed co-assured, it would nullify any claim of
William Lines Inc. No shipowner would agree to make
shiprepairer a co-assured because any claim it has under the
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INSURANCE DIGEST Week 2 Day 1
policy would be invalidated. Such result could not have been
intended by William Lines Inc.
2. YES
 The factual findings by the CA are conclusive on the parties and
are not reviewable by this Court.
3. YES
 For the doctrine of res ipsa loquitur to apply to a given situation,
the following conditions must concur: (1) the accident was of a
kind which does not ordinarily occur unless someone is
negligent; and (2) that the instrumentality or agency which
caused the injury was under the exclusive control of the person
charged with negligence.
 The facts and evidence reveal the presence of these conditions.
First, the fire would not have happened in the ordinary course of
things if reasonable care and diligence had been exercised.
Second, the agency charged with negligence, as found by the
trial court and the Court of Appeals and as shown by the
records, is the herein petitioner, Cebu Shipyard and Engineering
Works, Inc., which had control over subject vessel when it was
docked for annual repairs. So also, as found by the regional trial
court, other responsible causes, including the conduct of the
plaintiff, and third persons, are sufficiently eliminated by the
evidence.
 What is more, in the present case the trial court found direct
evidence to prove that the workers and/or employees of CSEW
were remiss in their duty of exercising due diligence in the care
of subject vessel.
 The direct evidence substantiates the conclusion that CSEW was
really negligent. Thus, even without applying the doctrine of res
ipsa loquitur, in light of the direct evidence on record, the
ineluctable conclusion is that the petitioner, Cebu Shipyard and
Engineering Works, Inc., was negligent and consequently liable
for damages to the respondent, William Lines, Inc.
4. NO
 Although contracts of adhesion have been consistently upheld as
valid, reliance on such contracts cannot be favored especially
where the facts and circumstances warrant that subject
stipulations be disregarded. The facts and circumstances vis-a-
vis the nature of the provision sought to be enforced should be
considered, bearing in mind the principles of equity and fair
play.
WHEREFORE, for want of merit, the petition is hereby DENIED and the
decision, dated September 3, 1997, and Resolution, dated February 13,
1998, of the Court of Appeals AFFIRMED. No pronouncement as to costs.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
10. MANILA MAHOGANY MANUFACTURING CORPORATION,
petitioner, vs.COURT OF APPEALS AND ZENITH INSURANCE
CORPORATION, respondents.
G.R. No. L-52756 October 12, 1987
Doctrine: The right of subrogation can only exist after the insurer has paid the
insured, otherwise the insured will be deprived of his right to full indemnity. If
the insurance proceeds are not sufficient to cover the damages suffered by the
insured, then he may sue the party responsible for the damage for the the
remainder, To the extent of the amount he has already received from the insurer,
the insurer enjoy's the right of subrogation. Since the insurer can be subrogated
to only such rights as the insured may have, should the insured, after receiving
payment from the insurer release the wrongdoer who caused the loss, the insurer
loses his rights against the latter. But in such a case, the insurer will be entitled
to recover from the insured whatever it has paid to the latter, unless the release
was made with the consent of the insurer.
Facts:
1. From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes
Benz 4-door sedan with respondent insurance company.
2. On 4 May 1970 the insured vehicle was bumped and damaged by a truck
owned by San Miguel Corporation.
3. For the damage caused, ZENITH INSURANCE CORPORATION
company paid MANILA MAHOGANY MANUFACTURING
CORPORATION five thousand pesos (P5,000.00) in amicable settlement.
4. Petitioner's general manager executed a Release of Claim, subrogating
ZENITH INSURANCE CORPORATION to all its right to action against
San Miguel Corporation.
5. On 11 December 1972, ZENITH INSURANCE CORPORATION wrote
Insurance Adjusters, Inc. to demand reimbursement from San Miguel
Corporation of the amount it had paid petitioner.
6. Insurance Adjusters, Inc. refused reimbursement, alleging that San
Miguel Corporation had already paid MANILA MAHOGANY P4,500.00
for the damages to petitioner's motor vehicle which effectively discharged
San Miguel Corporation from "all actions, claims, demands the rights of
action that now exist or hereafter [sic] develop arising out of or as a
consequence of the accident."
7. ZENITH INSURANCE CORPORATION thus demanded from
petitioner reimbursement of the sum of P4,500.00 paid by San
Miguel Corporation. Petitioner refused; hence, respondent company
filed suit in the City Court of Manila for the recovery of
P4,500.00.
Contentions:
1. MANILA MAHOGANY contends it is not bound to pay P4,500.00,
and much more, P5,000.00 to respondent company as the
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INSURANCE DIGEST Week 2 Day 1
subrogation in the Release of Claim it executed in favor of
respondent was conditioned on recovery of the total amount of
damages petitioner had sustained.
 Since total damages were valued by petitioner at P9,486.43 and only
P5,000.00 was received by petitioner from respondent, MANILA
MAHOGANY argues that it was entitled to go after San
Miguel Corporation to claim the additional P4,500.00
eventually paid to it by the latter, without having to turn over
said amount to respondent.
2. To support its alleged right not to return the P4,500.00 paid by San
Miguel Corporation, petitioner cites Art. 2207 of the Civil Code:
3. 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. If the amount paid by the
insurance company does not fully cover the injury or loss the
aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
4. Petitioner also invokes Art. 1304 of the Civil Code:
5. A creditor, to whom partial payment has been made, may exercise his
right for the remainder, and he shall be preferred to the person who
has been subrogated in his place in virtue of the partial payment of the
same credit.
6. Respondent simply disputes thisallegation and states that there is no
qualification to its right of subrogation under the Release of Claim
executed by petitioner, the contents of said deed having expressed all the
intents and purposes of the parties.
ISSUE: WON ZENITH INSURANCE CORPORATION can ask for the P5,000
from MANILA MAHOGANY? YES
HELD: We find petitioners arguments to be untenable and without merit. In the
absence of any other evidence to support its allegation that a gentlemen's
agreement existed between it and respondent, not embodied in the Release of
Claim, such ease of Claim must be taken as the best evidence of the
intent and purpose of the parties.
RATIO:
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
 Although petitioners right to file a deficiency claim against San Miguel
Corporation is with legal basis, without prejudice to the insurer's right of
subrogation, nevertheless when Manila Mahogany executed
another release claim (Exhibit K) discharging San Miguel
Corporation from "all actions, claims, demands and rights of
action that now exist or hereafter arising out of or as a
consequence of the accident" after the insurer had paid the
proceeds of the policy- the compromise agreement of P5,000.00 being
based on the insurance policy- the insurer is entitled to recover from the
insured the amount of insurance money paid.
 Since petitioner by its own acts released San Miguel Corporation,
thereby defeating private respondents, the right of subrogation,
the right of action of petitioner against the insurer was also
nullified.
 The court further stated that petitioner is entitled to keep the sum of
P4,500.00 paid by San Miguel Corporation under its clear right to file a
deficiency claim for damages incurred, against the wrongdoer, should the
insurance company not fully pay for the injury caused (Article 2207, New
Civil Code). However, when petitioner released San Miguel
Corporation from any liability, petitioner's right to retain the sum
of P5,000.00 no longer existed, thereby entitling private
respondent to recover the same.
 Since the insurer can be subrogated to only such rights as the insured
may have, should the insured, after receiving payment from the insurer,
release the wrongdoer who caused the loss, the insurer loses his rights
against the latter. But in such a case, the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless
the release was made with the consent of the insurer.
 If the insurance proceeds are not sufficient to cover the damages
suffered by the insured, then he may sue the party responsible for
the damage for the remainder. To the extent of the amount he has
already received from the insurer enjoys [sic] the right of subrogation.
WHEREFORE, premises considered, the petition is DENIED. The
judgment appealed from is hereby AFFIRMED with costs against
petitioner.
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INSURANCE DIGEST Week 2 Day 1
11. DANZAS CORPORATION VS. ABROGAR (GERVACIO)
G.R. NO. 141462 December 15, 2005
Topic: Subrogation
Petitioner: DANZAS CORPORATION
Respondents: HON. ZEUS C. ABROGAR Presiding Judge), SEABOARD
EASTERN INSURANCE CO., INC. and PHILIPPINE SKYLANDERS, INC.,
Doctrine: whenever the wrongdoer settles with the insured without the consent
of the insurer and with knowledge of the insurers payment and right of
subrogation, such right of subrogation is not defeated by the settlement.
FACTS:
1. Februart 22, 1994 – Danzas took a shipment of nine packages of ICS
watches for transport to Manila.
a. The consignee, International Freeport Traders, Inc. (IFTI)
secured Marine Risk Note Seaboard.
2. March 2, 1994 – Korean Airlines (KAL) plane carrying the goods arrived
in Manila and discharged the goods to the custody of Philippine
Skylanders, Inc. for safekeeping.
3. On withdrawal of the shipment from Skylanders warehouse, IFTI noted
that one package containing 475 watches was shortlanded while the
remaining eight were found to have sustained tears on sides and the
retape of flaps.
a. On further examination and inventory of the cartons, it was
discovered that 176 Guess watches were missing.
b. Seaboard, as insurer, paid the losses to IFTI.
4. Seaboard, invoking its right of subrogation, filed a complaint
against Skylanders, Danzas and its authorized representative,
All Transport Network, Inc. (ATN), praying for actual damages.
Korean Airlines (KAL) was impleaded as third-party defendant.
5. IFTI accepted the proposal of KAL to settle consignee’s claim by
paying 522.20$
6. May 8, 1996 – IFTI’s (Felipe Acebedo) representative received a check
from KAL and correspondingly signed a release form.
7. A motion to dismiss the case was filed on the ground that Seaboard’s
demand had been paid or otherwise extinguished by KAL.
8. TC: issued an order denying the MTD.
9. CA: dismissed Danzas’ special civil action for certiorari
ISSUE: WON the tortfeasor (KAL), by settling with the insured (IFTI), defeats
the right to subrogation by the insurer (Seaboard)
HELD: NO. WHEREFORE, in view of the foregoing, the petition is hereby
DENIED. The decision and resolution of the Court of Appeals are AFFIRMED.
Costs against petitioners.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
RULING:
1. According to Manila Mahogany vs. Court of Appeals:
“Since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment
from the insurer, release the wrongdoer who caused the loss, the
insurer loses his rights against the latter. But in such a case, the
insurer will be entitled to recover from the insured whatever it
has paid to the latter, unless the release was made with the
consent of the insurer.”
2. This is buttressed by a later decision, Pan Malayan Insurance
Corporation v. Court of Appeals, which held that, if the assured by his
own act releases the wrongdoer or third party liable for the loss or
damage from liability, the insurers right of subrogation is defeated.
3. This doctrine is inapplicable. KAL was fully aware of the prior
payment made by the insurer to the consignee.
4. While Manila Mahogany is silent on whether the existence of good faith
or bad faith on the tortfeasors part affects the insurers right of
subrogation, there exists a wealth of U.S. jurisprudence holding that
whenever the wrongdoer settles with the insured without the consent of
the insurer and with knowledge of the insurers payment and right of
subrogation, such right of subrogation is not defeated by the settlement.
5. Trial Court correctly refused to dismiss the case.
12. F.F. CRUZ vs. CA (Frain)
G.R. No. L-52732 August 29, 1988
Topic: Subrogation
Keywords: Furniture shop got burned; No firewall
Petitioner: F.F. CRUZ and CO., INC.
Respondents: THE COURT OF APPEALS, GREGORIO MABLE as substituted by
his wife LUZ ALMONTE MABLE and children DOMING, LEONIDAS, LIGAYA,
ELENA, GREGORIO, JR., SALOME, ANTONIO, and BERNARDO all surnamed
MABLE
Doctrine: Upon payment of the loss incurred by the insured, the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may
have against the third person whose negligence or wrongful act caused the loss,
Under Article 2207, the real party in interest with regard to the indemnity
received by the insured is the insurer. Whether or not the insurer should exercise
the rights of the insured to which it had been subrogated lies solely within the
former's sound discretion.
FACTS
1. The furniture manufacturing shop of FF CRUZ in Caloocan City was situated
adjacent to the residence of the MABLES.
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INSURANCE DIGEST Week 2 Day 1
2. Sometime in August 1971, Gregorio Mable first approached Eric Cruz, plant
manager of FF CRUZ, to request that a firewall be constructed between the
shop and their residence. The request was repeated several times but they
fell on deaf ears.
3. In the early morning of September 6, 1974, fire broke out in the furniture
shop. The employees, who slept in the shop premises, tried to put out the fire,
but their efforts proved futile.
4. The fire spread to the MABLE’s house. Both the shop and the house were
razed to the ground.
5. The cause of the conflagration was never discovered. The NBI found
specimens from the burned structures negative for the presence of
inflammable substances.
6. The MABLES collected P35k on the insurance on their house and the
contents thereof.
7. The MABLES filed an action for damages against FF CRUZ, praying for
P150k as actual damages, P50k as moral damages, P25k as exemplary
damages, P20k as attorney's fees and costs
8. CFI ruled in favor of the MABLES.
9. CA affirmed the decision of the trial court but reduced the award of damages.
10. MR denied. Hence, the instant petition for review.
11. FF CRUZ: Court of Appeals erred:
a. In not deducting the sum of P35,000.00, which private
respondents recovered on the insurance on their house, from
the award of damages.
b. In awarding excessive and/or unproved damages.
c. In applying the doctrine of res ipsa loquitur to the facts of the
instant case.
ISSUE: Whether or not the sum recovered by the Mables on the insurance on
their house should be deducted from the award of damages.
RULING: YES. Having been indemnified by their insurer, the MABLES are only
entitled to recover the deficiency from FF CRUZ.
RATIO
Art. 2207. If the plaintiffs 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 is subrogated to
the rights of the insured against the wrongdoer or the person who violated the
contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury. (Emphasis supplied)
While this Court finds that FF CRUZ is liable for damages to the MABLES, the
fact that the latter have been indemnified by their insurer in the amount of P35k
for the damage caused to their house and its contents, in accordance with Article
2207 of the Civil Code, the amount of P35k should be deducted from the amount
awarded as damages.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
 The law is clear and needs no interpretation. Having been indemnified by
their insurer, the MABLES are only entitled to recover the deficiency
from FF CRUZ.
 On the other hand, the insurer, if it is so minded, may seek
reimbursement of the amount it indemnified the MABLES from FF
CRUZ. This is the essence of its right to be subrogated to the rights of the
insured, as expressly provided in Article 2207.
 Upon payment of the loss incurred by the insured, the insurer is
entitled to be subrogated pro tanto to any right of action which
the insured may have against the third person whose negligence
or wrongful act caused the loss [Fireman's Fund Insurance Co. v.
Jamila & Co., Inc.]
Under Article 2207, the real party in interest with regard to the indemnity
received by the insured is the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co.]
 Whether or not the insurer should exercise the rights of the insured to
which it had been subrogated lies solely within the former's sound
discretion.
 Since the insurer is not a party to the case, its identity is not of record
and no claim is made on its behalf, the private respondent's insurer has
to claim his right to reimbursement of the P35k paid to the insured.
** ON RES IPSA LOQUITOR **
Doctrine of res ipsa loquitur: Where the thing which caused the injury complained
of is shown to be under the management of the defendant or his servants and the
accident is such as in the ordinary course of things does not happen if those who
have its management or control use proper care, it affords reasonable evidence, in
the absence of explanation by the defendant, that the accident arose from want of
care. [Africa v. Caltex (Phil.), Inc.]
 In Africa, where fire broke out in a Caltex service station while gasoline
from a tank truck was being unloaded into an underground storage tank
through a hose and the fire spread to and burned neighboring houses,
this Court, applying the doctrine of res ipsa loquitur, adjudged Caltex
liable for the loss.
 The facts of the case likewise call for the application of the
doctrine, considering that in the normal course of operations of a
furniture manufacturing shop, combustible material such as
wood chips, sawdust, paint, varnish and fuel and lubricants for
machinery may be found thereon.
Negligence or want of care on the part of petitioner or its employees was not
merely presumed.
 CA found that FF CRUZ failed to construct a firewall between its shop
and the residence of the MABLES as required by a city ordinance.
 The fire could have been caused by a heated motor or a lit cigarette.
 Gasoline and alcohol were used and stored in the shop; and that workers
sometimes smoked inside the shop.
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INSURANCE DIGEST Week 2 Day 1
Even without applying the doctrine of res ipsa loquitur, petitioner's
failure to construct a firewall in accordance with city ordinances would
suffice to support a finding of negligence.
 In Africa, the fire possibly would not have spread to the neighboring
houses were it not for another negligent omission: Failure of Caltex to
provide a concrete wall high enough to prevent the flames from leaping
over it. Caltex’s negligence was not only with respect to the cause of the
fire but also with respect to the spread thereof to the neighboring houses.
 In the instant case, with more reason should FF CRUZ be found
guilty of negligence since it had failed to construct a firewall
between its property and MABLE’S residence which sufficiently
complies with the pertinent city ordinances.
 The failure to comply with an ordinance providing for safety regulations
had been ruled by the Court as an act of negligence [Teague v.
Fernandez].
FALLO: WHEREFORE, in view of the foregoing, the decision of the Court of
Appeals is hereby AFFIRMED with the following modifications as to the damages
awarded for the loss of private respondents' house, considering their receipt of
P35,000.00 from their insurer: (1) the damages awarded for the loss of the house
is reduced to P35,000.00; and (2) the right of the insurer to subrogation and thus
seek reimbursement from petitioner for the P35,000.00 it had paid private
respondents is recognized.
THE BUSINESS OF INSURANCE
(Section 2(2), Insurance Code; De Leon, pages 59-61)
13. WHITE GOLD MARINE SERVICES, INC., Petitioners, vs. PIONEER
INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD.,
Respondents.
G.R. No. 154514. July 28, 2005
TOPIC: The Business of Insurance; Section 2(2), Insurance Code
SUBJECT MATTER: Steamship Mutual’s license to engage in insurance
business
DOCTRINE: Since a contract of insurance involves public interest, regulation by
the State is necessary. Thus, no insurer or insurance company is allowed to engage
in the insurance business without a license or a certificate of authority from the
Insurance Commission.
FACTS:
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
1. White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation (Pioneer)
2. White Gold was issued a Certificate of Entry and Acceptance
3. Pioneer also issued receipts evidencing payments for the coverage.
4. When White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage.
5. Steamship Mutual thereafter filed a case against White Gold for
collection of sum of money to recover the latter’s unpaid balance
6. White Gold filed a complaint before the Insurance Commission claiming
that Steamship Mutual violated Sections 1864 and 1875 of the Insurance
Code, while Pioneer violated Sections 2996, 3007 and 3018 in relation to
Sections 302 and 303, thereof
7. Insurance Commission: dismissed the complaint stating that there was
no need for Steamship Mutual to secure a license because it was not
engaged in the insurance business and that Pioneer need not obtain
another license as insurance agent and/or a broker for Steamship Mutual
because Steamship Mutual was not engaged in the insurance business
8. CA: affirmed the decision of the Insurance Commissioner and held that
Pioneer merely acted as a collection agent of Steamship Mutual.
ISSUE: WON Steamship Mutual and A P & I Club is engaged in the Insurance
Business (YES)
FALLO: WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3,
2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The
Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer
Insurance and Surety Corporation are ORDERED to obtain licenses and to secure
proper authorizations to do business as insurer and insurance agent, respectively.
The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents. SO
ORDERED.
RATIO:
DOING AN INSURANCE BUSINESS or TRANSACTING AN INSURANCE
BUSINESS
Section 2(2) of the Insurance Code enumerates what constitutes "doing an
insurance business" or "transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
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INSURANCE DIGEST Week 2 Day 1
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
 The same provision also provides, the fact that no profit is derived from
the making of insurance contracts, agreements or transactions, or that
no separate or direct consideration is received therefor, shall not preclude
the existence of an insurance business
INSURANCE CONTRACT
 The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be performed,
and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called
 an insurance contract is a contract of indemnity. In it, one undertakes for
a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event
MUTUAL INSURANCE COMPANY
 a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured.
 the members all contribute, by a system of premiums or assessments, to
the creation of a fund from which all losses and liabilities are paid, and
where the profits are divided among themselves, in proportion to their
interest.
 mutual insurance associations, or clubs, provide three types of coverage,
namely:
o protection and indemnity,
o war risks, and
o defense costs
 A P & I Club is "a form of insurance against third party liability, where
the third party is anyone other than the P & I Club and the members."
 Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
STEAMSHIP MUTUAL IS DOING BUSINESS IN THE PHILIPPINES
 The records reveal Steamship Mutual is doing business in the country
albeit without the requisite certificate of authority mandated by Section
18720 of the Insurance Code
 Steamship maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf.
 Steamship Mutual even renewed its P & I Club cover until it was
cancelled due to non-payment of the calls so to continue doing business
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
here, Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission.
 Since a contract of insurance involves public interest, regulation by the
State is necessary. Thus, no insurer or insurance company is allowed to
engage in the insurance business without a license or a certificate of
authority from the Insurance Commission
PIONEER NEEDS A SPECIAL LICENSE
 Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration issued by the Insurance Commission
 Pioneer is licensed to do or transact insurance business by virtue of the
certificate of authority issued by the same agency
 BUT a Certification from the Commission states that Pioneer does not
have a separate license to be an agent/broker of Steamship Mutual.
 Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual
Section 299 of the Insurance Code
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services
in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must
be renewed annually on the first day of January, or within six months
thereafter. . .
14. PHILAM LIFE v. ANSALDO
G.R. No. 76452 July 26, 1994
PETITIONERS: PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
and RODRIGO DE LOS REYES
RESPONDENTS: HON. ARMANDO ANSALDO, in his capacity as
Insurance Commissioner, and RAMON MONTILLA PATERNO, JR
FACTS
A letter complaint was sent by Ramon Paterno to the Insurance
Commissioner alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philamlife as a result
of certain practices by said company.
 respondent Commissioner requested petitioner Rodrigo de los Reyes, in
his capacity as Philamlife's president, to comment on respondent
Paterno's letter
 In a letter dated April 29, 1986 to respondent Commissioner, petitioner
De los Reyes suggested that private respondent "submit some sort of a
'bill of particulars' listing and citing actual cases, facts, dates, figures,
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INSURANCE DIGEST Week 2 Day 1
provisions of law, rules and regulations, and all other pertinent data
which are necessary to enable him to prepare an intelligent reply
 A copy of this letter was sent by the Insurance Commissioner to private
respondent for his comments thereon.
 On May 16, 1986, respondent Commissioner received a letter from
private respondent maintaining that his letter-complaint of April 17,
1986 was sufficient in form and substance, and requested that a hearing
thereon be conducted.
 Petitioner De los Reyes, in his letter to respondent Commissioner dated
June 6, 1986, reiterated his claim that private respondent's letter of May
16, 1986 did not supply the information he needed to enable him to
answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent
Commissioner on the validity of the Contract of Agency complained of by
private respondent.
 In said hearing, private respondent was required by respondent
Commissioner to specify the provisions of the agency contract which
he claimed to be illegal.
 On August 4, private respondent submitted a letter of specification to
respondent Commissioner dated July 31, 1986, reiterating his letter of
April 17, 1986 and praying that the provisions on charges and fees
stated in the Contract of Agency executed between Philamlife
and its agents, as well as the implementing provisions as
published in the agents' handbook, agency bulletins and
circulars, be declared as null and void.
 He also asked that the amounts of such charges and fees already
deducted and collected by Philamlife in connection therewith be
reimbursed to the agents, with interest at the prevailing rate reckoned
from the date when they were deducted.
Petitioner De los Reyes submitted an Answer dated September 8, 1986,
stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does not
contain any of the particular information which Philamlife was
seeking from him and which he promised to submit.
(2) That since the Commission's quasi-judicial power was being
invoked with regard to the complaint, private respondent must
file a verified formal complaint before any further proceedings.
In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior
Assistant Vice-President and Executive Assistant to the President, asked
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
that respondent Commission first rule on the questions of the
jurisdiction of the Insurance Commissioner over the subject matter of
the letters-complaint and the legal standing of private respondent.
PETITIONER ARGUES THE FOLLOWING:
 The Subpoena/Notice has no legal basis and is premature because:
o (1) No complaint sufficient in form and contents has been filed;
o (2) No summons has been issued nor received by the respondent
De los Reyes, and hence, no jurisdiction has been acquired over
his person;
o (3) No answer has been filed, and hence, the hearing scheduled
on November 5, 1986 in the Subpoena/Notice, and wherein the
respondent is required to appear, is premature and lacks legal
basis.
 The Insurance Commission has no jurisdiction over;
o the subject matter or nature of the action; and
o over the parties involved (Rollo, p. 102).
ISSUE: Whether or not the resolution of the legality of the Contract of
Agency falls within the jurisdiction of the Insurance Commissioner. (NO)
 The general regulatory authority of the Insurance Commissioner is
described in Section 414 of the Insurance Code,
o The Insurance Commissioner shall have the duty to see that all
laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code
 On the other hand, Section 415 provides
o In addition to the administrative sanctions provided elsewhere
in this Code, the Insurance Commissioner is hereby authorized,
at his discretion, to impose upon insurance companies, their
directors and/or officers and/or agents, for any willful failure or
refusal to comply with, or violation of any provision of this Code,
or any order, instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities, and/or
conducting business in an unsafe and unsound manner as may
be determined by the the Insurance Commissioner, the
following:
 (a) fines not in excess of five hundred pesos a day; and
 (b) suspension, or after due hearing, removal of
directors and/or officers and/or agents.
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INSURANCE DIGEST Week 2 Day 1
A plain reading of the above-quoted provisions show that the Insurance
Commissioner has the authority to regulate the business of insurance,
which is defined as follows:
(2) The term "doing an insurance business" or "transacting an insurance
business," within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as
a vocation and not as merely incidental to any other legitimate business or
activity of the surety; (c) doing any kind of business, including a
reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code; (d) doing or
proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this
Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).
the contract of agency entered into between Philamlife and its agents is
not included within the meaning of an insurance business, Section 2 of
the Insurance Code cannot be invoked to give jurisdiction over the same
to the Insurance Commissioner. Expressio unius est exclusio alterius.
Section 416 of the Insurance Code does not apply in his case,
SEC. 416: The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such
insurer may be liable under a contract of suretyship, or for which a reinsurer may
be used utnder any contract or reinsurance it may have entered into, or for which
a mutual benefit association may be held liable under the membership certificates
it has issued to its members, where the amount of any such loss, damage or
liability, excluding interest, costs and attorney's fees, being claimed or sued upon
any kind of insurance, bond, reinsurance contract, or membership certificate does
not exceed in any single claim one hundred thousand pesos.
Provision shows that the quasi-judicial power of the Insurance
Commissioner is limited by law "to claims and complaints involving any
loss, damage or liability for which an insurer may be answerable under
any kind of policy or contract of insurance, Hence, this power does not
cover the relationship affecting the insurance company and its agents
but is limited to adjudicating claims and complaints filed by the insured
against the insurance company.
 While the subject of Insurance Agents and Brokers is discussed under
Chapter IV, Title I of the Insurance Code, the provisions of said Chapter
speak only of the licensing requirements and limitations imposed on
insurance agents and brokers.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
 The Insurance Code does not have provisions governing the relations
between insurance companies and their agents.
 It follows that the Insurance Commissioner cannot, in the exercise of its
quasi-judicial powers, assume jurisdiction over controversies between the
insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v.
Judico, 180 SCRA 445 (1989), and Investment Planning Corporation of the
Philippines v. Social Security Commission, 21 SCRA 904 (1962), that
 an insurance company may have two classes of agents who sell its
insurance policies:
o (1) salaried employees who keep definite hours and work under
the control and supervision of the company; and (
o 2) registered representatives, who work on commission basis.
Under the first category, the relationship between the insurance company and its
agents is governed by the Contract of Employment and the provisions of the
Labor Code,
while under the second category, the same is governed by the Contract of Agency
and the provisions of the Civil Code on the Agency. Disputes involving the latter
are cognizable by the regular courts.
15. PHILHEALTH vs. CIR
G.R. No. 167330
Petitioner: PHILIPPINE HEALTH CARE PROVIDERS, INC.
Respondent: COMMISSIONER OF INTERNAL REVENUE
DOCTRINE: For the purpose of determining what doing an insurance business
means, we have to scrutinize the operations of the business as a whole and not its
mere components. This is of course only prudent and appropriate, taking into
account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we are
also not unmindful that there are other American authorities who have found
particular HMOs to be actually engaged in insurance activities.
FACTS:
1. Petitioner is a domestic corporation whose primary purpose is to
establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the
organization.
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INSURANCE DIGEST Week 2 Day 1
2. On January 27, 2000, respondent CIR sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment
of deficiency taxes, including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount of P224,702,641.18. The
deficiency assessment was imposed on petitioner’s health care agreement
with the members of its health care program pursuant to Section 185 of
the 1997 Tax Code. Petitioner protested the assessment in a letter dated
February 23, 2000.
3. As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
4. On April 5, 2002, the CTA rendered a decision, ordering the petitioner to
PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25%
surcharge plus 20% interest from January 20, 1997 until fully paid for
the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge
plus 20% interest from January 20, 1998 until fully paid for the 1997
VAT deficiency.
5. Accordingly, VAT Ruling No. [231]-88 is declared void and without force
and effect. The 1996 and 1997 deficiency DST assessment against
petitioner was CANCELLED AND SET ASIDE. Respondent is
ORDERED to DESIST from collecting the said DST deficiency tax.
6. Respondent appealed the CTA decision to the (CA) insofar as it cancelled
the DST assessment. He claimed that petitioner’s health care agreement
was a contract of insurance subject to DST under Section 185 of the 1997
Tax Code.
7. On August 16, 2004, the CA rendered its decision which held that
petitioner’s health care agreement was in the nature of a non-life
insurance contract subject to DST.
8. Respondent is ordered to pay the deficiency Documentary Stamp Tax.
Petitioner moved for reconsideration but the CA denied it.
ISSUE: Whether Philippine Health Care Providers, Inc. engaged
in insurance business
HELD: NO. Health Maintenance Organizations are not engaged in the insurance
business. Overall, petitioner appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these are incidental
to the principal activity of providing them medical care. The “insurance-like”
aspect of petitioner’s business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather
than insurance services, it cannot be considered as being in the insurance
business.
RATIO
 The SC said in its June 12, 2008 decision that it is irrelevant that
petitioner is an HMO and not an insurer because its agreements are
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
treated as insurance contracts and the DST is not a tax on the business
but an excise on the privilege, opportunity or facility used in the
transaction of the business.
 Petitioner, however, submits that it is of critical importance to
characterize the business it is engaged in, that is, to determine whether
it is an HMO or an insurance company, as this distinction is
indispensable in turn to the issue of whether or not it is liable for DST on
its health care agreements. Petitioner is admittedly an HMO. Under RA
7878 an HMO is “an entity that provides, offers or arranges for coverage
of designated health services needed by plan members for a fixed
prepaidpremium. The payments do not vary with the extent, frequency
or type of services provided. Section 2 (2) of PD 1460 enumerates what
constitutes “doing an insurance business” or “transacting an insurance
business” which are making or proposing to make, as insurer, any
insurance contract; making or proposing to make, as surety, any contract
of suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety; doing any kind of business,
including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;
doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
WHEREFORE, the motion for reconsideration is GRANTED. The August
16, 2004 decision of the Court of Appeals in CA-G.R. SP No. 70479 is
REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET ASIDE.
Respondent is ordered to desist from collecting the said tax.
WHO MAY BE INSURED
(Section 7, Insurance Code; De Leon, pages 74-77)
18. FILIPINAS COMPAÑIA DE SEGUROS, petitioner, vs. CHRISTERN,
HUENEFELD and CO., INC., respondent.
G.R. No. L-2294 May 25, 1951
DOCTRINE: 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.
FACTS:
1. On October 1, 1941, the respondent corporation, Christern Huenefeld, &
Co., Inc., after payment of corresponding premium, obtained from the
23
INSURANCE DIGEST Week 2 Day 1
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.
2. 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. Total
loss amounted to P92,650.00.
3. 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.
4. 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.
5. After trial, the Court of First Instance of Manila dismissed the action
without pronouncement as to costs. 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.
ISSUE: Whether or not the petitioner insurance company can insure the
respondent.
HELD: NO. 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 enforceable, 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.
RATIO:
1. 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.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
2. 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.
3. 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.
4. 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."
5. 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.
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.
Extra Notes:
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.
19. CONSTANTINO VS. ASIA LIFE INSURANCE (GERVACIO)
GR L-1669 GR L-1670 August 31, 1950
Topic: Who may be insured
Parties
GR L-1669 Plaintiff: Paz Lopez de Constantino (beneficiary of Arcadio
Constantino)
GR L-1670 Plaintiff: Agustina Peralta (beneficiary of Tomas Ruiz)
Defendant: Asia Life Insurance (foreign corporation incorporated under
Delaware law)
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INSURANCE DIGEST Week 2 Day 1
Doctrine: Due to the express terms of the policy, non-payment of the premium
produces its avoidance.
FACTS
First Case: GR L-1669
1. Asia Life Insurance insured the life of Arcadio Constantino for P3K for a
term of 20 years in consideration of P176.04 as annual premium.
2. The first premium covered the period up to September 26, 1942.
3. After the first premium, no further premiums were paid. The insured
(Arcadio) died on September 22, 1944.
4. Asia Life Insurance Company, being an American Corp., had to close its
branch office in Manila by reason of the Japanese occupation, i.e. from
January 2, 1942, until the year 1945.
5. Policy stipulation: “all premium payments are due in advance and any
unpunctuality in making any such payment shall cause this policy to
lapse unless and except as kept in force by the Grace Period condition or
under Option 4 below.”
Second Case: GR L-1670
1. August 1, 1938 – Asia Life issued a Joint 20-year Endowment
Participating with Accident Indemnity covering the lives of Spouses
Tomas Ruiz and Agustina Peralta.
a. Their premium were initially annually but subsequently
changed to quarterly. The last quarterly premium was delivered
on November 18, 1941 and it covered the period until January
31, 1942.
2. Upon the Japanese occupation, the insurer and insured were not able to
deal with each other.
3. Because the insured had borrowed on the policy P234.00 in January,
1941, the cash surrender value of the policy was sufficient to maintain
the policy in force only up to September 7, 1942.
4. February 16, 1945 – Tomas Ruiz died with Agustina Peralta as
beneficiary.
a. Her demand for payment was refused on the ground of non-
payment of the premiums.
6. Policy stipulation: all premium payments are due in advance and any
unpunctuality in making any such payment shall cause this policy to
lapse unless and except as kept in force by the Grace Period condition or
under Option 4 below.”
Present petition:
1. Plaintiffs’ contention: As beneficiaries, they are entitled to receive the
proceeds of the policies minus all sums due for premiums in arrears. The
non-payment of the premiums was caused by the closing of Asia's offices
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
in Manila during the Japanese occupation and the impossible
circumstances created by war.
2. Asia Life: policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties.
3. LOWER COURT: Absolved Asia Life
ISSUE: WON the insurers still have a right to claim or WON a beneficiary in a
life insurance policy recover the amount thereof although the insured died after
repeatedly failing to pay the stipulated premiums, such failure being caused by
war?
HELD: NO. For all the foregoing, the lower court's decision absolving the
defendant from all liability on the policies in question, is hereby affirmed, without
costs.
RULING
1. Due to the express terms of the policy, non-payment of the
premium produces its avoidance.
2. In Young vs. Midland Textile Insurance: non-payment of premiums
produces its avoidance.
3. In Glaraga v. Sun Life, it was held that a life policy was avoided because
the premium had not been paid within the time fixed; since by its express
terms, non-payment of any premium when due or within the 31-day
grace period ipso fact caused the policy to lapse.
4. When the life insurance policy provides that non-payment of premiums
will cause its forfeiture, war does NOT excuse non-payment and does not
avoid forfeiture. Essentially, the reason why punctual payments are
important is that the insurer calculates on the basis of the prompt
payments. (Otherwise, malulugi sila.)
5. It should be noted that the parties contracted not only as to peace time
conditions but also as to war-time conditions since the policies contained
provisions applicable expressly to wartime days. The logical inference
therefore is that the parties contemplated the uninterrupted operation of
the contract even if armed conflict should ensue.
a. New York Rule - greatly followed by a number of cases
i. Payment of premiums is a condition precedent, the non-
performance would be illegal necessarily defeats the
right to renew the contract.
ii. War between states in which the parties reside merely
suspends the contracts of the life insurance, and that,
upon tender of all premiums due by the insured or his
representatives after the war has terminated, the
contract revives and becomes fully operative
b. United States Rule
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INSURANCE DIGEST Week 2 Day 1
i. contract is not merely suspended, but is abrogated by
reason of non-payments is peculiarly of the essence of
the contract
ii. it would be unjust to allow the insurer to retain the
reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the
years when the policy had been in force
6. Asia Life and other amicus curiae contend that the New York rule should
apply while Plaintiffs contend otherwise.
7. Plaintiffs: payment of premiums, at least after the firstm is not an
obligation insured, so much so that the it is not a debt enforceable by
action of the insurer.
8. It should be noted that the parties contracted not only for peacetime
conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.
9. COURT is firmly persuaded that the non-payment of premiums is such a
vital defense of insurance companies that since the very beginning, said
Act no. 2427 expressly preserved it, by providing that after the policy
shall have been in force for two years, it shall become incontestable (i.e.
the insurer shall have no defense) except for fraud, non-payment of
premiums, and military or naval service in time of war (sec. 184 [b],
Insurance Act).
a. And when Congress recently amended this section (Rep. Act No.
171), the defense of fraud was eliminated, while the defense of
nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high
importance of the defense of non-payment thereof, was
specifically recognized.
10. COURT: adopt the United States Rule: first policy had no reserve value,
and that the equitable values of the second had been practically returned
to the insured in the form of loan and advance for premium.
OTHER MATTERS DISCUSSED
 A contract of insurance is sui generis
 Whether the insured will continue it or not is optional with him. There being
no obligation to pay for the premium, they did not constitute a debt.
 The fundamental character of the undertaking to pay premiums and the high
importance of the defense of non-payment thereof, was specifically
recognized.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
20. GONZAGA vs. CROWN LIFE (Frain)
G.R. No. L-4197 March 20, 1952
Topic: Who May Be Insured
Keywords: Effects of war in a pre-war insurance contract; Japanese occupation
Plaintiff-Appellant: FIDELA SALES DE GONZAGA,
Defendant-Appellee: THE CROWN LIFE INSURANCE COMPANY,
Doctrine: Non-payment of premiums by reason of war puts an end to the contract.
FACTS
1. September 26, 1939: Crown Life Insurance Co., whose home office is in
Toronto, Canada, issued to Ramon Gonzaga through its branch office in
Manila a 20-year endowment policy for P15k.
2. The insured paid in due time the agreed yearly premium, which was P591.00,
for 3 consecutive years, the last payment having been effected on September
6, 1941.
3. On account of the outbreak of war, no premiums were paid after that date,
although the policy was continued in force up to June 12, 1943, under its
automatic premium loan clause.
4. June 27, 1945: Ramon Gonzaga died from an accident.
5. Unsuccessful in her attempt to collect the amount of the policy his widow and
the beneficiary named in the policy began this suit.
6. Crown Life: The policy had lapsed by non-payment of the stipulated
premiums of the stipulated dates.
7. Trial Court: Ruled in favor of Crown Life.
ISSUE: Whether or not the policy had lapsed by non-payment of the stipulated
premiums of the stipulated dates.
RULING: YES. Non-payment of premiums by reason of war puts an end to the
contract.
RATIO
The case is one in which time is material and of the essence of the contract.
 Non-payment at the day involves absolute forfeiture is such be the terms
of the contract.
 Courts cannot with safety vary the stipulation of the parties by
introducing equities for the relief of the insured against their own
negligence.
GONZAGA: It was Crown Life’s duty to notify her husbands of its postal address
during the war, and that its failure to do so excused deliquency in the payment of
the premiums.
 Crown Life alleged that "through its General Agents, Hanson, Orth and
Stevenson, Inc., it had its offices open in the city of Manila during the
Japanese occupation in the Philippines."
 Gonzaga took advantage of this allegation, and ignored her own in her
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INSURANCE DIGEST Week 2 Day 1
complaint — that "for the whole duration of the (war) and from thence to
sometime thereafter, that is, in October, 1945, . . . Crown Life closed its
business in the Islands, and had absolutely no agency or representative
here to represent it, with authority to collect premiums from the
Insured."
 Cites the provision of the contract which states that "all premiums
subsequent to the first year are payable to the Company's authorized
cashier at the place stated in the fourth page hereof, or at such other
place instead thereof as may be designated from time to time by noticed
to the Company mailed to the Insured at his last known post office
address."
SC: The evidence reveals that, Crown Life being an enemy corporation, its offices,
which were housed at the Chaco building when the hostilities broke out, were
ordered closed by the Japanese Military authorities in January 1942, and the
officers of Hanson, Orth and Stevenson, Inc., its general agents, being American
citizens, were entered.
 On August 25 the Japanese administration issued "Instruction No. 71"
by which enemy alien insurance companies were expressly prohibited
from doing business.
 Before that instruction was promulgated, Hanson, Orth and Stevenson
had opened in the house of one of their Filipino employees on Gonzales
Street in Ermita an office with skeleton force, all Filipinos, for the
purpose of receiving premiums from their policy holders; and
notwithstanding the prohibition that office was not closed.
 In the face of the Japanese Military decrees, which found sanctions in
international law, the failure of Crown Life or its Filipino employees to
advise the insured of the new address did not work as a forfeiture of the
right to have the premiums satisfied promptly.
 While clandestine transactions between the parties during the war might
be binding, it was not obligatory on the insurer, and it was well-nigh
risky for its employees, to send out notices to its widely scattered policy
holders, what with the postal service under the control and
administration of the ruthless occupants.
There is no duty when the law forbids; and there is no obligation without
corresponding right enjoyed by another.
 The insured had no right to demand that Crown Life maintain an office
during the war, and the latter was not obligated to do so.
 Had Crown Life not opened any office at all during the occupation and
stopped receiving premiums absolutely, Gonzaga’s position would not
have been any better or worse for the closing and suspension of the
business.
 Had Gonzaga’s husband actually tendered his premiums and Crown
Life’s employees rejected them, he could not have insisted on the
payment as a matter of right.
 Crown Life’s opening of an interim office partook of the nature of
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
the privilege to the policy holders to keep their policies
operative rather than a duty to them under the contract.
 Of this privilege, incidentally, Gonzaga could have taken advantage if he
was really intent on preserving his policy.
 Crown Life’s agent, through whom he had been insured, lived in
Malabon, Rizal, and was his close acquaintance; and so were some of the
Filipino employees who handled the insurance business of Hanson, Orth
and Stevenson during the occupation; and Gonzaga admittedly come to
Manila on a visit every now and then, and could have, without difficulty,
contacted any of those people.
The policy carried a clause providing for its reinstatement under certain
conditions within three years from the date of lapse on application of the insured.
 The present policy lapsed on June 12, 1943.
 The Company's Manila branch was reopened on May 1, 1945 and
resumed regular business through the same general agents at the Wilson
Building on Juan Luna Street, Manila.
 Ramon Gonzaga died on June 27, 1945.
 It is undoubted that Gonzaga knew all that. He was an employee in the
United States Navy, that the united States Navy had an office in the
same Wilson Building, and that he came at least twice a month to that
office for his salary.
FALLO: Both in law and in reason, the action was properly dismissed and the
appealed decision is hereby affirmed, with costs.
MORTGAGOR/MORTGAGEE
(Sections 8 & 9; 13 & 53, Insurance Code; De Leon, pages 80-88)
21. CHERIE PALILEO, plaintiff-appellee, vs. BEATRIZ COSIO,
defendant-appellant.
G.R. No. L-7667 November 28, 1955
TOPIC: Mortgagor/Mortgagee; Sec. 8, 9, 13, & 53 Insurance Code;
SUBJECT MATTER: Building which is the loan security was insured
DOCTRINE: Where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is entitled to the
insurance proceeds in case of loss, but in such case, he is not allowed to retain his
claim against the mortgagor, but is passed by subrogation to the insurer to the
extent of the money paid. The mortgagee may insure his interest in the property
independently of the mortgagor. In that event, upon the destruction of the property
the insurance money paid to the mortgagee will not inure to the benefit of the
mortgagor, and the amount due under the mortgage debt remains unchanged. The
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INSURANCE DIGEST Week 2 Day 1
mortgagee, however, is not allowed to retain his claim against the mortgagor, but
it passes by subrogation to the insurer, to the extent of the insurance money paid.
FACTS:
1. Palileo obtained from Cosio a loan in the sum of P12,000 subject to the
following conditions:
a. that plaintiff shall pay to defendant an interest in the amount of P250
a month;
b. that defendant shall deduct from the loan certain obligations of
plaintiff to third persons amounting to P4,550, plus the sum of P250 as
interest for the first month; and
c. that after making the above deductions, defendant shall deliver to
plaintiff only the balance of the loan of P12,000.
2. Pursuant to their agreement, plaintiff paid to defendant as interest on the
loan a total of P2,250.00 on the basis of P250.00 a month, which is more
than the maximum interest authorized by law
3. To secure the payment of the aforesaid loan, defendant required plaintiff to
sign a document known as "Conditional Sale of Residential Building",
purporting to convey to defendant, with right to repurchase, a two-story
building of strong materials belonging to plaintiff.
4. The said document did not express the true intention of the parties which
was merely to place said property as security for the payment of the loan.
5. After the execution of the aforesaid document, Cosio insured the building
against fire with the Associated Insurance & Surety Co., Inc. for the sum of
P15,000, the insurance policy having been issued in the name of defendant
6. The building was partly destroyed by fire and, after proper demand,
defendant collected from the insurance company an indemnity of
P13,107.00
7. Palileo demanded from defendant that she be credited with the necessary
amount to pay her obligation out of the insurance proceeds but defendant
refused to do so
8. Palileo filed a complaint against Cosio in the CFI praying that:
a. the transaction entered into between them on December 18, 1951 be
declared as one of loan, and the document executed covering the
transaction as one of equitable mortgage to secure the payment of said
loan;
b. the defendant be ordered to credit to the plaintiff with the necessary
amount from the sum received by the defendant from the Associated
Insurance & Surety Co., Inc. and to apply the same to the payment of
plaintiff's obligation thus considering it as fully paid; and
c. the defendant be ordered to pay to plaintiff the difference between the
alleged indebtedness of plaintiff and the sum received by defendant
from the aforementioned insurance company, plus the sum allegedly
paid to defendant as interest on the alleged indebtedness.
9. Cosio filed her answer setting up as special defense that the transaction
entered into between her and Palileo is one of sale with option to
repurchase but that the period for repurchase had expired without Palileo
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
having returned the price agreed upon as a result of which the ownership of
the property had become consolidated in the defendant
10. CFI: granted the relief prayed for in the complaint
ISSUE: WON Cosio, as the mortgagee, may claim insurance due to loss or
damage in the building against Palileo (NO. the transaction was merely an
equitable mortgage only to secure the loan that Palileo obtained from Cosio)
FALLO: Consistent with the foregoing pronouncement, we therefore modify the
judgment of the lower court as follows:(1) the transaction had between the
plaintiff and defendant as shown in Exhibit A is merely an equitable mortgage
intended to secure the payment of the loan of P12,000;(2) that the proceeds of the
insurance amounting to P13,107.00 was properly collected by defendant who is
not required to account for it to the plaintiff; (3) that the collection of said
insurance proceeds shall not be deemed to have compensated the obligation of the
plaintiff to the defendant, but bars the latter from claiming its payment from the
former; and (4) defendant shall pay to the plaintiff the sum of P810.00
representing the overpayment made by plaintiff by way of interest on the loan. No
pronouncement as to costs.
RATIO:
GENERAL RULES
 "where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is
entitled to the insurance proceeds in case of loss, but in such case, he is
not allowed to retain his claim against the mortgagor, but is passed by
subrogation to the insurer to the extent of the money paid."
 “the mortgagee may insure his interest in the property independently of
the mortgagor. In that event, upon the destruction of the property the
insurance money paid to the mortgagee will not inure to the benefit of
the mortgagor, and the amount due under the mortgage debt remains
unchanged. The mortgagee, however, is not allowed to retain his claim
against the mortgagor, but it passes by subrogation to the insurer, to the
extent of the insurance money paid."
 Minority view: "If a mortgagee procures insurance on his separate
interest at his own expense and for his own benefit, without any
agreement with the mortgagor with respect thereto, the mortgagor has
no interest in the policy, and is not entitled to have the insurance
proceeds applied in reduction of the mortgage debt" and the mortgagee
"has still a right to recover his whole debt of the mortgagor."
o "The general rule and the weight of authority is, that the insurer
is thereupon subrogated to the rights of the mortgagee under the
mortgage. This is put upon the analogy of the situation of the
insurer to that of a surety."
LOWER COURT ERRED
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INSURANCE DIGEST Week 2 Day 1
 that the lower court erred in declaring that the proceeds of the insurance
taken out by the defendant on the property mortgaged inured to the
benefit of the plaintiff
 the correct solution should be that the proceeds of the insurance should
be delivered to the defendant but that her claim against the plaintiff
should be considered assigned to the insurance company who is deemed
subrogated to the rights of the defendant to the extent of the money paid
as indemnity.
22. SAN MIGUEL BREWERY v. LAW UNION
G.R. No. L-14300 January 19, 1920
PETITIONER: SAN MIGUEL BREWERY, ETC
RESPONDENTS: LAW UNION AND ROCK INSURANCE CO., (LTD.) ET
AL., HENRY HARDING, STREET, J.:
FACTS:
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.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
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
A case was filed by the petitioner in the CFI 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.
 San Miguel Brewery, is named as the party assured in the two policies
referred to,
 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
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INSURANCE DIGEST Week 2 Day 1
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.
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.
ISSUE: WON THE INSURANCE COMPANIES are LIABLE TO HARDING.
(NO)
 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.
 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.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
 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.
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. T
 he 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.
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INSURANCE DIGEST Week 2 Day 1
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.
 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.
 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.)
 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.
23. ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and
COUNTRY BANKERS INSURANCE CORPORATION, respondents.
G.R. No. 114427 February 6, 1995
DOCTRINE: 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. 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. 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. Thus, the mortgagor and
the mortgagee may obtain separate insurances covering different insurable
interests.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
FACTS:
1. The petitioner is the owner of Norman's Mart located in the public
market of San Francisco, Agusan del Sur. On 22 December 1989,
obtained a fire insurance policy from Country Bankers.
2. A provision in the policy states that: 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, failure to give notice
shall render the policy forfeited.
3. Sometime after, a fire broke at the market nearby and destroyed the
stocks of Geagonia’s store. Upon filing a claim against the policy,
Country Bankers refused because such were also covered by two fire
policies of 100,000 each issued by PH Insurance Co. (Cebu branch)
violating condition 3 of the policy.
4. 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.
5. 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.
(NOT MENTIONED IN THE CASE AS MUCH, BUT THE REAL ISSUE IS
REGARDING THE KIND OF INSURANCE THE OTHER POLICIES SPOKE OF.
IT WILL BE DISCUSSED MORE AT THE RATIO)
ISSUE: Whether or not the failure by Petitioner to notify Country Bankers was a
violation of Condition 3 of the policy.
HELD: NO. 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.
RATIO:
 The Court held that the provision requiring the insured to notify the
insurer is commonly known as “other insurance” clause which has been
upheld as valid and as warranty that no insurance exists. Its violation
would thus avoid the policy.
 To constitute a violation of this clause, the other insurance must be upon
the same subject matter, the same interest and the same risk. In this
case, there are 2 distinct interest involved.
 As to a mortgaged property, the mortgagor and the mortgagee have each
an independent insurable interest therein and both interests may be one
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INSURANCE DIGEST Week 2 Day 1
policy, or each may take out a separate policy covering his interest, either
at thes ame or at separate times.
 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.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.
 Thus, the mortgagor and the mortgagee may obtain separate insurances
covering different insurable interests.
 First, the mortgagor’s insurable interest—covers the full value of the
mortgaged property and Second, the mortgagee’s insurable interest to
the extent of the debt since he is not insuring the property but the
interest of lien thereto.
 After review of record, the SC found that the mortgage clause in the
other two policies show that it is a loss payable clause, not a standard
payable clause. And since the two policies do not cover the same interest
as that of Country Banker’s Insurance, no double insurance exists. Thus,
the non-disclosure of Geagonia about the existence of the two policies is
not fatal to his right to recover from the policy.
 The court is 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.
2nd Issue (JUST IN CASE)
 As to the other 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.
 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
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
renewal of Policy No. F-24758, while Policy No. GA-28146 had been
renewed twice, the previous policy being F-24792.
24. SAURA IMPORT & EXPORT CO., INC., plaintiff-appellant, vs.
PHILIPPINE INTERNATIONAL SURETY CO., INC., and PHILIPPINE
NATIONAL BANK, defendants-appellees.
G.R. No. L-15184; May 31, 1963
DOCTRINE: If a mortgage or lien exists against the property insured, and the
policy contains a clause stating that loss, if any, shall be payable to such
mortgagee or the holder of such lien as interest may appear, notice of cancellation
to the mortgagee or lien holder alone is ineffective as a cancellation of the policy
to the owner of the property.
FACTS:
1. December 26, 1952: the Saura Import & Export Co Inc., mortgaged to the
Phil. National Bank, a parcel of land, to secure the payment of
promissory note of P27,000.00.
2. April 30, 1953: the mortgage was amended to guarantee an increased
amount, bringing the total mortgaged debt to P37,000.00.
3. The provisions of the mortgaged contact, pertinent to the resolution of
the present case, provide as follows:
 “he shall insure the mortgaged property at all times against fire and
earthquake for an amount and with such company satisfactory to the
Mortgagee, indorsing to the latter the corresponding policies; he
shall keep the mortgaged property in good condition, making repairs
and protecting walls that may be necessary.”
4. Erected on the land mortgaged, was a building of strong materials owned
by the mortgagor Saura Import & Export Co., Inc., which had always
been covered by insurance, many years prior to the mortgage contract.
5. Saura insured the building and its contents with the Philippine
International Surety, an insurance firm acceptable to mortgagee
Bank, for P29,000.00 against fire for the period of one year from
October 2, 1954
6. The insurance policy was endorsed to the mortgagee PNB, in a
Memowhich states —
 “Loss if any, payable to the Philippine National Bank as their
interest may appear, subject to the terms, conditions and warranties
of this policy.”
7. On October 15, 1954, barely thirteen (13) days after the issuance of the
fire insurance policy, the insurer cancelled the same, effective as of the
date of issue. Notice of the cancellation was given to appellee bank in
writing
8. On April 6, 1955, the building and its contents, worth P40,685.69 were
burned. Subsequently, Saura filed a claim with the Insurer and
mortgagee Bank.
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INSURANCE DIGEST Week 2 Day 1
9. Upon the presentation of notice of loss with the PNB, Saura learned for
the first time that the policy had previously been cancelled on October 2,
1954, by the insurer, when Saura's folder in the Bank's filed was opened
and the notice of cancellation (original and duplicate) sent by the Insurer
to the Bank, was found.
10. At the trial, it was established that neither the Insurer nor the
mortgagee Bank informed the plaintiff Saura of the cancellation of the
policy
ISSUE: Whether the notice of cancellation to the bank is notice to Saura as well?
HELD: NO. Actual notice of cancellation in a clear and unequivocal
manner, preferably in writing, in view of the importance of an insurance
contract, should be given by the insurer to the insured, so that the latter
might be given an opportunity to obtain other insurance for his own
protection.
RATIO:
 Fire insurance policies and other contracts of insurance upon property, in
addition to the common provision for cancellation of the policy upon
request of the insured, generally provide for cancellation by the insurer
by notice to the insured for a prescribed period, which is usually 5 days,
and the return of the unearned portion of the premium paid by the
insured.
 The purpose of provisions or stipulations for notice to the insured is to
prevent the cancellation of the policy, without allowing the insured
ample opportunity to negotiate for other insurance in its stead.
 Where the policy contains no provisions that a certain number of days
notice shall be given, a reasonable notice and opportunity to obtain other
insurance must be given.
 Actual personal notice to the insured is essential to a cancellation under
a provision for cancellation by notice.
 The actual receipt by the insured of a notice of cancellation is universally
recognized as a condition precedent to a cancellation of the policy by the
insurer, and consequently a letter containing notice of cancellation,
which is mailed by the insurer but not received by the insured, is
ineffective as cancellation.
 In the case at bar, the defendant insurance company, must have realized
the paramount importance of sending a notice of cancellation, when it
sent the notice of cancellation of the policy to the defendant bank (as
mortgagee), but not to the insured with which it (insurance company)
had direct dealing.
 The primary duty of the defendant-appellee insurance company to notify
the insured, but it did not.
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
 Under the facts, as found by the trial court, to which We are bound, it is
evident that both the insurance company and the appellee bank failed,
wittingly or unwittingly, to notify the insured appellant Saura of the
cancellation made.
 Of course, the defendant insurance company contends that it
gave notice to the defendant-appellee bank as mortgagee of the
property, and that was already a substantial compliance with its
duty to notify the insured of the cancellation of the policy. But
notice to the bank, as far appellant herein is concerned, is not
effective notice.
WHEREFORE, the decision appealed from is hereby reversed, and
another is entered, condemning the defendant-appellee Philippine
International Surety Co., Inc., to pay Saura Import & Export Co., Inc.,
appellant herein, the sum of P29,000.00, the amount involved in Policy
No. 429, subject-matter of the instant case. Without costs.
25 PNB VS. CA (GERVACIO)
GR L-57757 August 31, 1987
Topic: Mortgagor/Mortgagee
Doctrine: When the property is registered in the name of a spouse only and there
is no showing as to when the property was acquired by said spouse, this is an
indication that the property belongs exclusively to said spouse. And this
presumption under Article 160 of the Civil Code cannot prevail when the title is
in the name of only one spouse and the rights of innocent third parties are
involved.
FACTS
1. November 28, 1952 – Donata Montemayor (through her son, Salvador
Vitug) mortgaged to PNB several parcels of land covered by TCT 2289 to
guarantee the loan granted by PNB to Salvador Jaramilla and Pedro
Bacani worth P40,900.
2. December 1, 1963 – Donata also mortgaged to PNB properties covered by
TCT 2887-2888 to guarantee payment of Salvador’s loan worth P35,200.
3. All TCTs were in the name of Donata Montemayor (WIDOW) and at the
time they were mortgaged, were free from all liens and encumberances.
4. Salvador Vitug failed to pay so bank foreclosed properties mortgaged
under TCT 2887-2888. PNB highest bidder.
5. Salvador Jaramilla and Pedro Bacani also failed to pay. PNB foreclosed.
PNB highest bidder.
6. Septemer 2, 1969 – PNB sold properties under TCT 2887-2888 to Jesus
Vitug, Anunciacion de Guxman, Prudencia Fajardo, Salvador Vitug and
Aurora Gutierrez.
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INSURANCE DIGEST Week 2 Day 1
7. During the lifetime of Clodualdo Vitug he married two times – Gervacia
Flores (with three children: Victor, Lucina and Julio Vitug) and Donata
Montemayor (with eight children: Leonardo, Juan, Candida, Francisco
and Donaciano Vitug).
8. Clodualdo died intestate on May 20, 1929; Donata was the
Administratix.
9. May 12, 1958 – Donata executed a contract of lease of Lot 24 covered by
TCT 2887 in favor of her children Pragmacio and Maximo.
10. Pragmacio and Maximo filed an action for partition and reconveyance
with damages with CFI Pampanga against Marcelo Mendiola (special
administrator of intestate estate of Donata who died earlier).
a. Subject 30 parcels which they claimed to be conjugal property of
Sps Donata and Clodualdo of which they claim a 2/11 share of ½
thereof.
b. Assailed that mortgage to PNB was null and void.
c. Invoked the case of Vitug vs. Montemayor: all 30 parcels were
found to be conjugal properties.
11. LOWER COURT: dismissed the complaint with costs against the
plaintiffs and ordered them to pay P5K Attorney’s Fees.
12. CA: reversed and public auction of 22 parcels be considered valid.
ISSUE: WON the presumption of conjugality of properties acquired by the
spouses during coverture provided for in Article 160 of the Civil Code apply to
property covered by a Torrens certificate of title in the name of the widow?
HELD: YES. WHEREFORE, the subject decision of the respondent Court of
Appeals is hereby REVERSED and set aside and another decision is hereby
rendered DISMISSING the complaint and ordering private respondents to pay
attorney's fees and expenses of litigation to petitioner PNB in the amount of
P20,000.00 and the costs of the suit.
RULING
1. When the subject properties were mortgaged to the PNB they were
registered in the name of Donata Montemayor, widow.
2. Relying on the torrens certificate of title covering said properties the
mortgage loan applications of Donata were granted by the PNB and the
mortgages were duly constituted and registered in the office of the
Register of Deeds.
3. In processing the loan applications of Donata Montemayor, the PNB had
the right to rely on what appears in the certificates of title and no more.
On its face the properties are owned by Donata Montemayor, a widow.
4. The PNB had no reason to doubt nor question the status of said
registered owner and her ownership thereof. Indeed, there are no liens
and encumbrances covering the same.
5. The well-known rule in this jurisdiction is that a person dealing with a
registered land has a right to rely upon the face of the torrens certificate
of title and to dispense with the need of inquiring further, except when
Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
the party concerned has actual knowledge of facts and circumstances
that would impel a reasonably cautious man make such inquiry.
6. A torrens title concludes all controversy over ownership of the land
covered by a final degree of registration. Once the title is registered the
owner may rest assured without the necessity of stepping into the portals
of the court or sitting in the mirador de su casa to avoid the possibility of
losing his land.
a. Article 160 of the Civil Code provides as follows: All property of
the marriage is presumed to belong to the conjugal partnership,
unless it be proved that it pertains exclusively to the husband or
to the wife.
7. The presumption applies to property acquired during the lifetime of the
husband and wife.
8. In this case, it appears on the face of the title that the properties were
acquired by Donata Montemayor when she was already a widow.
9. When the property is registered in the name of a spouse only and there is
no showing as to when the property was acquired by said spouse, this is
an indication that the property belongs exclusively to said spouse. And
this presumption under Article 160 of the Civil Code cannot prevail when
the title is in the name of only one spouse and the rights of innocent third
parties are involved.
10. The PNB had a reason to rely on what appears on the certificates of title
of the properties mortgaged. For all legal purposes, the PNB is a
mortgagee in good faith for at the time the mortgages covering said
properties were constituted the PNB was not aware to any flaw of the
title of the mortgagor.
11. Pragmacio and Maximo Vitug are now estopped from questioning the
title of Donata Montemayor to the said properties. They never raised the
conjugal nature of the property nor took issue as to the ownership of
their mother, Donata Montemayor, over the same.
12. They were in possession of the property for a long time and they knew
that the same were mortgaged by their mother to the PNB and thereafter
were sold at public auction, but they did not do anything. 22 It is only
after 17 years that they remembered to assert their rights. Certainly,
they are guilty of laches.
____________________________________________________
NOTE: sure talaga ako maling case yan so feel ko itong case na to talaga:
DOCTRINE: The petitioner as the attorney-in-fact of the private respondents
and as the beneficiary of the insurance policy had the obligation to collect the
proceeds of the policy.
FACTS
1. the private respondents-spouses applied for a retailers' loan with the
petitioner. The loan which was subsequently approved was secured by a
chattel mortgage consisting of the verified inventory of stocks in the store
of the private respondents. In addition the goods and merchandise,
subject matter of the mortgage, were insured with the Cosmopolitan
34
INSURANCE DIGEST Week 2 Day 1 Dimla, Espiritu, Gervacio, Maravilla, Pobe, Reposar
Insurance Go. in the amount of P 4,000.00 with the petitioner as the duty bound to enforce the claim for the insurance proceeds, being, as
beneficiary pursuant to the requirements of the latter. earlier mentioned, the attorney-in-fact of the private respondents and the
2. On August 1, 1964, while the insurance and the chattel mortgage were beneficiary of the insurance policy.
still in force, and after the private respondents had paid the petitioner
the amount of P 1,089.60 as partial payment; the insured building and
merchandise of the private respondents were totally destroyed by fire.
3. The petitioner sent several letters to the insurance company for the
purpose of recovering the proceeds of the insurance but to no avail.
Sometime in 1966, the said insurance company became the subject of
liquidation. Seven years after the insured chattels mortgaged were
burned, the petitioner filed a complaint for collection against the private
respondents.
4. The petitioner filed the complaint to recover the aggregate sum of P
3,855.60 to the City Court of Zamboanga city. The court in its decision
held that the amount of unpaid sum of P1,089.60 by the defendants
Ignacio and Victoria Desiderio is irrevocable and the case is dismissed.
The decision is affirmed by both the CFI and CA

ISSUE: WON the petitioners as attorney in fact of private respondents is bound

to successfully collect the insurance proceeds of the mortgaged property of the
latter.
HELD: No.
1. The petitioner as the attorney-in-fact of the private respondents and as
the beneficiary of the insurance policy had the obligation to collect the
proceeds of the policy.
2. "under the chattel mortgage covering the goods offered as security for
payment of the loan, the private respondents as mortgagors constituted
and appointed the petitioner as mortgagee their attorney-in-fact with full
power and authority to collect and receive any interest, income or
benefits produced by the mortgaged property and apply such amount
collected and received in payment of the interest accruing and of the
principal obligation.
3. The petitioner could have collected the insurance proceeds if only it were
not negligent. It had ample time and enough legal remedies, not to
mention resources, to collect the insurance proceeds when the same
became due, yet, it merely sent demand letters to the insurance
company. And when the company did not act on the letters, the petitioner
did not pursue other remedies to press its claim. It did not even file a suit
for the recovery of the insurance proceeds against the insurance company
before and even during the liquidation of the company. It allowed seven
long years to pass before finally deciding to file a collection case.
Realizing that it could no longer collect from the insurance company
because the same had already folded up, the petitioner directed the
collection suit against the private respondents whose obligation with the
petitioner had long been extinguished.
4. The private respondents cannot have been expected to initiate moves for
the collection of the insurance proceeds. It was the petitioner which was

35