G.R. No.

138941

October 8, 2001

AMERICAN HOME ASSURANCE COMPANY, petitioner,

vs.
TANTUCO ENTERPRISES, INC., respondent.
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in CA-G.R. CV
No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of the Regional Trial Court,
Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It owns two oil
mills. Both are located at factory compound at Iyam, Lucena City. It appears that respondent commenced its
business operations with only one oil mill. In 1988, it started operating its second oil mill. The latter came to be
commonly referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued by petitioner American Home
Assurance Co., Philippine Branch.1 The first oil mill was insured for three million pesos (P3,000,000.00) under
Policy No. 306-7432324-3 for the period March 1, 1991 to 1992.2 The new oil mill was insured for six million
pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the same term.3 Official receipts indicating payment
for the full amount of the premium were issued by the petitioner's agent.4
A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil mill.
Respondent immediately notified the petitioner of the incident. The latter then sent its appraisers who inspected
the burned premises and the properties destroyed. Thereafter, in a letter dated October 15, 1991, petitioner
rejected respondent's claim for the insurance proceeds on the ground that no policy was issued by it covering the
burned oil mill. It stated that the description of the insured establishment referred to another building thus: "Our
policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill
under Building No. 5, whilst the affected oil mill was under Building No. 14. "5
A complaint for specific performance and damages was consequently instituted by the respondent with the RTC,
Branch 53 of Lucena City. On October 16, 1995, after trial, the lower court rendered a Decision finding the
petitioner liable on the insurance policy thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the legal
rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."6
Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the same in a Decision
promulgated on January 14, 1999, the pertinent portion of which states:
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial court's Decision
dated October 16, 1995 is hereby AFFIRMED in toto.
SO ORDERED."7
Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a Resolution
promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court the following errors:

"(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium was
beyond its jurisdiction because it was raised for the first time on appeal."8
"(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of
the policy."9
"(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole evidence
rule and the principle of estoppel is erroneous."10
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the respondent is that the burned oil mill
is not covered by any insurance policy. According to it, the oil mill insured is specifically described in the
policy by its boundaries in the following manner:
"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance."
However, it argues that this specific boundary description clearly pertains, not to the burned oil mill, but to the
other mill. In other words, the oil mill gutted by fire was not the one described by the specific boundaries in the
contested policy.
What exacerbates respondent's predicament, petitioner posits, is that it did not have the supposed wrong
description or mistake corrected. Despite the fact that the policy in question was issued way back in 1988, or
about three years before the fire, and despite the "Important Notice" in the policy that "Please read and examine
the policy and if incorrect, return it immediately for alteration," respondent apparently did not call petitioner's
attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is "barred by the parole evidence rule from presenting
evidence (other than the policy in question) of its self-serving intention (sic) that it intended really to insure the
burned oil mill," just as it is "barred by estoppel from claiming that the description of the insured oil mill in the
policy was wrong, because it retained the policy without having the same corrected before the fire by an
endorsement in accordance with its Condition No. 28."
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in
giving effect to the insurance.11 In view of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the
courts are inclined to consider that the policy of insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be.12
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the
parties manifestly intended to insure was the new oil mill. This is obvious from the categorical statement
embodied in the policy, extending its protection:
"On machineries and equipment with complete accessories usual to a coconut oil mill including stocks
of copra, copra cake and copra mills whilst contained in the new oil mill building, situate (sic) at UNNO.
ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.''13 (emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill for different amounts and
leave uncovered its second one. As mentioned earlier, the first oil mill is already covered under Policy No. 3067432324-4 issued by the petitioner. It is unthinkable for respondent to obtain the other policy from the very

same company. The latter ought to know that a second agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mill's boundaries can be attributed to a misunderstanding
between the petitioner's general agent, Mr. Alfredo Borja, and its policy issuing clerk, who made the error of
copying the boundaries of the first oil mill when typing the policy to be issued for the new one. As testified to
by Mr. Borja:
"Atty. G. Camaligan:
Q:

What did you do when you received the report?

A:
I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to cover
the new oil mill that is why when I presented the existing policy of the old policy, the policy issuing
clerk just merely (sic) copied the wording from the old policy and what she typed is that the description
of the boundaries from the old policy was copied but she inserted covering the new oil mill and to
me at that time the important thing is that it covered the new oil mill because it is just within one
compound and there are only two oil mill[s] and so just enough, I had the policy prepared. In fact, two
policies were prepared having the same date one for the old one and the other for the new oil mill and
exactly the same policy period, sir."14 (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the written contract.
These facts lead us to hold that the present case falls within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading, among others, its failure to express the true intent and
agreement of the parties thereto.15 Here, the contractual intention of the parties cannot be understood from a
mere reading of the instrument. Thus, while the contract explicitly stipulated that it was for the insurance of the
new oil mill, the boundary description written on the policy concededly pertains to the first oil mill. This
irreconcilable difference can only be clarified by admitting evidence aliunde, which will explain the
imperfection and clarify the intent of the parties.
Anent petitioner's argument that the respondent is barred by estoppel from claiming that the description of the
insured oil mill in the policy was wrong, we find that the same proceeds from a wrong assumption. Evidence on
record reveals that respondent's operating manager, Mr. Edison Tantuco, notified Mr. Borja (the petitioner's
agent with whom respondent negotiated for the contract) about the inaccurate description in the policy.
However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will distinguish the insured property.
The assurance convinced respondent, despite the impreciseness in the specification of the boundaries, the
insurance will cover the new oil mill. This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q:
You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the policy
contents. (sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the boundaries
of the property insured by the insurance policy Exhibit A, will you tell us as the manager of the company
whether the boundaries stated in Exhibit A-2 are the boundaries of the old (sic) mill that was burned or
not.
A:
It was not, I called up Mr. Borja regarding this matter and he told me that what is important is
the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured (sic) one property with
two (2) policies, you will only do that if you will make to increase the amount and it is by indorsement
not by another policy, sir.,16
We again stress that the object of the court in construing a contract is to ascertain the intent of the parties to the
contract and to enforce the agreement which the parties have entered into. In determining what the parties
intended, the courts will read and construe the policy as a whole and if possible, give effect to all the parts of the
contract, keeping in mind always, however, the prime rule that in the event of doubt, this doubt is to be resolved

against the insurer. In determining the intent of the parties to the contract, the courts will consider the purpose
and object of the contract.17
In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal policy for its failure
to pay the full amount of the premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the admission of
respondent's own witness, Mr. Borja, which the petitioner cited, the former only paid it P75,147.00, leaving a
difference of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the policy, in accordance with
Section 77 of the Insurance Code.18
The Court of Appeals refused to consider this contention of the petitioner. It held that this issue was raised for
the first time on appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of
Court.19
Petitioner, however, contests this finding of the appellate court. It insists that the issue was raised in paragraph
24 of its Answer, viz.:
"24. Plaintiff has not complied with the condition of the policy and renewal certificate that the renewal
premium should be paid on or before renewal date."
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who acknowledged that the
paid amount was lacking by P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361 of the
Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24 of its Answer
ostensibly spoke of the policy's condition for payment of the renewal premium on time and respondent's noncompliance with it. Yet, it did not contain any specific and definite allegation that respondent did not pay the
premium, or that it did not pay the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial proceedings, the
question of the supposed inadequate payment was never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the trial, any witness to testify that respondent indeed failed to
pay the full amount of the premium. The thrust of the cross-examination of Mr. Borja, on the other hand, was
not for the purpose of proving this fact. Though it briefly touched on the alleged deficiency, such was made in
the course of discussing a discount or rebate, which the agent apparently gave the respondent. Certainly, the
whole tenor of Mr. Borja's testimony, both during direct and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that he was called to the stand basically to demonstrate that
an existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing Appliances
Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as mentioned below
shall be maintained in efficient working order on the premises to which insurance applies:
-

PORTABLE EXTINGUISHERS

INTERNAL HYDRANTS

EXTERNAL HYDRANTS

FIRE PUMP

24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall no longer be liable for
any loss which may occur."20

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances specified therein.
The breach occurred when the respondent failed to install internal fire hydrants inside the burned building as
warranted. This fact was admitted by the oil mill's expeller operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate court's conclusion that the aforementioned
warranty did not require respondent to provide for all the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the appliances are restricted to those mentioned in the
warranty. In other words, what the warranty mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting equipments such as, but not limited to, those
identified in the list, which will serve as the oil mill's first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil mill can be
found the following devices: numerous portable fire extinguishers, two fire hoses,21 fire hydrant,22 and an
emergency fire engine.23 All of these equipments were in efficient working order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the insurer, but they should,
likewise, by themselves be reasonably interpreted.24 That reasonableness is to be ascertained in light of the
factual conditions prevailing in each case. Here, we find that there is no more need for an internal hydrant
considering that inside the burned building were: (1) numerous portable fire extinguishers, (2) an emergency
fire engine, and (3) a fire hose which has a connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is hereby
DISMISSED.
SO ORDERED.
Davide Jr., C. J., Pardo, and Ynares-Santiago, JJ., concur.
Kapunan, J., on official leave.
G.R. No. 78860 May 28, 1990
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents.
Yabut, Arandia & Associates for petitioner.
Dolorfino and Dominguez Law Offices for private respondent.

FERNAN, C.J.:
This is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming in toto the decision
of the Regional Trial Court of Cavite, Branch XVI, 2 the dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant Perla
Compania de Seguros, Inc. to pay plaintiff Milagros Cayas the sum of P50,000.00 under its
maximum liability as provided for in the insurance policy; and the sum of P5,000.00 as
reasonable attorney's fee with costs against said defendant.
SO ORDERED. 3
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No. TA3H4 P-000445
and plate No. PUB-4G-593. 4 Said passenger vehicle was insured with Perla Compania de Seguros, Inc. (PCSI)
under policy No. LTO/60CC04241 issued on February 3, 1978. 5
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers. One of
them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the Court of First Instance of Cavite,
Branch 6 docketed as Civil Case No. NC-794; while three others, namely: Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin, agreed to a settlement of P4,000.00 each with Milagros Cayas.

At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence, she was declared as in
default. After trial, the court rendered a decision 7 in favor of Perea with its dispositive portion reading thus:
WHEREFORE, under our present imperatives, judgment is hereby rendered in favor of the
plaintiffs and against the defendant Milagros Cayas who is hereby ordered to compensate the
plaintiff' Edgar Perea with damages in the sum of Ten Thousand (Pl0,000.00) Pesos for the
medical predicament he found himself as damaging consequences of defendant Milagros Cayas
complete lack of diligence of a good father of a family' when she secured the driving services of
one Oscar Figueroa on December, 17, 1978; the sum of Ten Thousand (P10,000.00) Pesos for
exemplary damages; the sum of Five Thousand (P5,000.00) Pesos for moral damages; the sum of
Seven Thousand (P7,000.00) Pesos for Attorney's fees, under the imperatives of the monetary
power of the peso today;
With costs against the defendant.
SO ORDERED.
When the decision in Civil Case No. NC-794 was about to be executed against her, Milagros Cayas filed a
complaint against PCSI in the Office of the Insurance Commissioner praying that PCSI be ordered to pay
P40,000.00 for all the claims against her arising from the vehicular accident plus legal and other
expenses. 8Realizing her procedural mistake, she later withdrew said complaint. 9
Consequently, on November 11, 1981, Milagros Cayas filed a complaint for a sum of money and damages
against PCSI in the Court of First Instance of Cavite (Civil Case No. N-4161). She alleged therein that to satisfy
the judgment in Civil Case No. NC-794, her house and lot were levied upon and sold at public auction for
P38,200; 10that to avoid numerous suits and the "detention" of the insured vehicle, she paid P4,000 to each of
the following injured passengers: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin; that she could
not have suffered said financial setback had the counsel for PCSI, who also represented her, appeared at the trial
of Civil Case No. NC-794 and attended to the claims of the three other victims; that she sought reimbursement
of said amounts from the defendant, which notwithstanding the fact that her claim was within its contractual
liability under the insurance policy, refused to make such re-imbursement; that she suffered moral damages as a
consequence of such refusal, and that she was constrained to secure the services of counsel to protect her rights.
She prayed that judgment be rendered directing PCSI to pay her P50,000 for compensation of the injured
victims, such sum as the court might approximate as damages, and P6,000 as attorney's fees.
In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal without
prejudice. 11 Alleging that she had not received a copy of the answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold PCSI in default, Milagros Cayas moved for the reconsideration
of the dismissal order. Said motion for reconsideration was acted upon favorably by the court in its order of
March 31, 1982.
About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an
answer. The motion was granted and plaintiff was allowed to adduce evidence ex-parte. On July 13, 1982, the
court rendered judgment by default ordering PCSI to pay Milagros Cayas P50,000 as compensation for the
injured passengers, P5,000 as moral damages and P5,000 as attorney's fees.
Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In due course, the
court promulgated a decision in Civil Case No. N-4161, the dispositive portion of which was quoted earlier,
finding that:
In disavowing its obligation to plaintiff under the insurance policy, defendant advanced the
proposition that before it can be made to pay, the liability must first be determined in an
appropriate court action. And so plaintiffs liability was determined in that case filed against her
by Perea in the Naic CFI. Still, despite this determination of liability, defendant sought escape
from its obligation by positing the theory that plaintiff Milagros Cayas lost the Naic case due to
her negligence because of which, efforts exerted by defendant's lawyers in protecting Cayas'
rights proved futile and rendered nugatory. Blame was laid entirely on plaintiff by defendant for
losing the Naic case. Defendant labored under the impression that had Cayas cooperated fully
with defendant's lawyers, the latter could have won the suit and thus relieved of any obligation to
Perea Defendant's posture is stretching the factual circumstances of the Naic case too far. But

even accepting defendant's postulate, it cannot be said, nor was it shown positively and
convincingly, that if the Naic case had proceeded on trial on the merits, a decision favorable to
Milagros Cayas could have been obtained. Nor was it definitely established that if the pre-trial
was undertaken in that case, defendant's lawyers could have mitigated the claim for damages by
Perea against Cayas. 12
The court, however, held that inasmuch as Milagros Cayas failed to establish that she underwant moral suffering
and mental anguish to justify her prayer for damages, there should be no such award. But, there being proof that
she was compelled to engage the services of counsel to protect her rights under the insurance policy, the court
allowed attorney's fees in the amount of P5,000.
PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in toto the lower court's
decision. Its motion for reconsideration having been denied by said appellate court, PCSI filed the instant
petition charging the Court of Appeals with having erred in affirming in toto the decision of the lower court.
At the outset, we hold as factual and therefore undeserving of this Court's attention, petitioner's assertions that
private respondent lost Civil Case No. NC-794 because of her negligence and that there is no proof that the
decision in said case has been executed. Said contentions, having been raised and threshed out in the Court of
Appeals and rejected by it, may no longer be addressed to this Court.
Petitioner's other contentions are primarily concerned with the extent of its liability to private respondent under
the insurance policy. This, we consider to be the only issue in this case.
Petitioner seeks to limit its liability only to the payment made by private respondent to Perea and only up to the
amount of P12,000.00. It altogether denies liability for the payments made by private respondents to the other
three (3) injured passengers Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in the amount of
P4,000.00 each or a total of P12,000.00.
There is merit in petitioner's assertions.
The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00
per accident. 13 Pertinent provisions of the policy also state:
SECTION I-Liability to the Public
xxx xxx xxx
3. The Limit of Liability stated in Schedule A as applicable (a) to THIRD PARTY
is the limit of the Company's liability for all damages arising out of death, bodily
injury and damage to property combined so sustained as the result of any one
accident; (b) "per person" for PASSENGER liability is the limit of the Company's
liability for all damages arising out of death or bodily injury sustained by one
person as the result of any one accident: (c) "per accident" for PASSENGER
liability is, subject to the above provisions respecting per person, the total limit of
the Company's liability for all such damages arising out of death or bodily injury
sustained by two or more persons as the result of any one accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by or on behalf of the
insured without the written consent of the Company which shall be entitled, if it
so desires, to take over and conduct in his (sic) name the defense or settlement of
any claim, or to prosecute in his (sic) name for its own benefit any claim for
indemnity or damages or otherwise, and shall have full discretion in the conduct
of any proceedings in the settlement of any claim, and the insured shall give all
such information and assistance as the Company may require. If the Company
shall make any payment in settlement of any claim, and such payment includes

any amount not covered by this Policy, the Insured shall repay the Company the
amount not so covered.
We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute the measure
of the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery
from the insurer.
In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages
arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00. Said
amount complied with the minimum fixed by the law then prevailing, Section 377 of Presidential Decree No.
612 (which was retained by P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of
land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is P12,000 per
passenger. Petitioner's liability under the insurance contract not being less than P12,000.00, and therefore not
contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as
effective, valid and binding as between the parties. 15
In like manner, we rule as valid and binding upon private respondent the condition above-quoted requiring her
to secure the written permission of petitioner before effecting any payment in settlement of any claim against
her. There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant its
nullification. The same was obviously designed to safeguard the insurer's interest against collusion between the
insured and the claimants.
In her cross-examination before the trial court, Milagros Cayas admitted, thus:
Atty. Yabut:
q With respect to the other injured passengers of your bus wherein you made payments
you did not secure the consent of defendant (herein petitioner) Perla Compania de
Seguros when you made those payments?
a I informed them about that
q But they did not give you the written authority that you were supposed to pay those
claims?
a No, sir . l6
It being specifically required that petitioner's written consent be first secured before any payment in settlement
of any claim could be made, private respondent is precluded from seeking reimbursement of the payments made
to del Carmen, Magsarili and Antolin in view of her failure to comply with the condition contained in the
insurance policy.
Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds
application in the present case. 17 Thus, it was error on the part of the trial and appellate courts to have
disregarded the stipulations of the parties and to have substituted their own interpretation of the insurance
policy. In Phil. American General Insurance Co., Inc vs. Mutuc, 18 we ruled that contracts which are the private
laws of the contracting parties should be fulfilled according to the literal sense of their stipulations, if their
terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are
obligatory, no matter what form they may be, whenever the essential requisites for their validity are present.
Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank," 19 that the first and fundamental duty
of the courts is the application of the law according to its express terms, interpretation being called for only
when such literal application is impossible.
We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was made
liable for the amount of P50,000.00, the maximum liability per accident stipulated in the policy. This is patent
error. An insurance indemnity, being merely an assistance or restitution insofar as can be fairly ascertained,
cannot be availed of by any accident victim or claimant as an instrument of enrichment by reason of an
accident. 20

Finally, we find no reason to disturb the award of attorney's fees.

WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay Milagros
Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest from the promulgation of the
decision of the lower court until it is fully paid and attorney's fees in the amount of P5,000.00. No
pronouncement as to costs.
SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Cortes JJ., concur.
G.R. No. L-28866 March 17, 1972
FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor children, RAFAEL J.
LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-appellees,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. .
Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel Leopoldo M. Abellera and Trial
Attorney Arsenio J. Magpale defendant-appellant.

CONCEPCION, C.J.:p
Appeal of the Government Service Insurance System hereinafter referred to as GSIS, for the sake of brevity
from a decision of the Court of First Instance of Manila directing said defendant to pay to the plaintiffsappellees, Fe de Joya Landicho and her minor children, Rafael J. and Maria Lourdes Eugenia, both surnamed
Landicho, the sum of P15,800, with interest thereon, at the legal rate, from September 26, 1967, until fully paid,
in addition to the sum of P1,000, as and for attorney's fees, and the costs.
The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of
the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional additional life insurance
policy No. OG-136107 in the sum of P7,900. The policy states on its face:
This insurance is granted subject to the terms and conditions hereinafter set forth and in
consideration of the "Information" therefor and of the payment on the day this Policy takes effect
of the monthly premiums stated above, due from and payable by the Insured, and the like
payments on the last day of every month during the lifetime of the Insured until maturity of this
Policy or until prior death of the Insured.
On page 2 of said policy, condition No. 1 provides, in part: .
1. PAYMENT OF PREMIUMS: .
... . Premiums are due and payable at the Office of the System in Manila or at any of its branches.
When any premium or installment thereof remains unpaid after its due date, such due date is the
date of default in payment of premiums. The mere possession of this Policy does not imply that it
is in force unless the premiums due thereon are paid on time or the policy has sufficient cash
value to keep it in force.
Condition No. 18, on page 8 of the policy, is of the following tenor: .
18. ENTIRE CONTRACT IN THIS POLICY: .
This Policy together with the "Information" sheet signed by the Insured, a copy of which is
attached hereto, is issued under the provisions of Commonwealth Act No. 186, as amended, and
constitutes the entire contract.
All statements made by the Insured shall, in the absence of fraud, be deemed representations and
no warranties, and no statement shall void the Policy or be used as a defense to claim hereunder

unless it be contained in written information and a copy of such information be endorsed upon or
attached to the Policy when issued.
Before the issuance of said policy, the insured had filed an application, by filing and signing a printed form of
the GSIS on the basis of which the policy was issued. Paragraph 7 of said application States:
7. I hereby declare that all the above statements and answers as well as those I may make to the
System's Medical Examiner in continuation of this application, to be true and co direct to the best
of my knowledge and belief, and I hereby agree as follows: .
a. That this declaration, with the answers to be given by me to the Medical Officer, shall be made
the basis the policy and form part of the same; .
b. That acceptance of my policy issued on this application will constitute a ratification by me of
any correction or addition to this application made by the System; .
c. That this application serves as a letter of authority to the Collecting Officer of our Office thru
the GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the
month of May, 1964, and every month thereafter until notice of its discontinuance shall have
beenreceived from the System; .
d. That the failure to deduct from my salary the month premiums shall not make the policy lapse,
however, the premium account shall be considered as indebtedness which, I bind myself to pay
the System; .
e. That my policy shall be made effective on the first day of the month next following the month
the first premium is paid; provided, that it is not more ninety (90) days before or after the date of
the medical examination,was conducted if required." .
While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, on June 29, 1966,
in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own behalf and that of her co-plaintiffs and
minor children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double
indemnity due under policy No. OG-136107, because of the untimely death of the insured owing to said
accident. The GSIS denied the claim, upon the ground that the policy had never been in force because, pursuant
to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ... effective on the
first day of the month next following the month the first premium is paid," and no premium had ever been paid
on said policy. Upon refusal of the GSIS to reconsider its stand, this action was filed, September 22, 1967, in
the Court of First Instance of Manila, in which the GSIS reiterated its aforementioned defense. Thereafter
submitted by both parties for judgment on the pleadings, upon the ground thatthe case involve purely questions
of law, said court rendered, in due course, its abovementioned decision, from which the GSIS has taken the
present appeal.
The main issue therein is whether or not the insurance policy in question has ever been in force, not a single
premium having been paid thereon. In support of the affirmative, plaintiffs invoke the stipulation in the policy
to the effect that the information contained in the application filed by the insured shall form part of the contract
between him and the GSIS, and, especially, subdivisions (c) and (d) of paragraph 7 of said application stating
that the same shall serve "as a letter of authority to the Collecting Officer of our Office" the Bureau of Public
Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36 beginning the
month of May, 1964, and every month thereafter," and that "failure to deduct from my salary the monthly
premiums shall notmake the policy lapse, however, the premium account shall be considered
as indebtedness which, I" the insured "bind myself to pay the System." 1 The GSIS maintains, however,
the negative, relying upon subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be
made effective on the first day of the month next following the month the first premium is paid." Under this
theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless and until the first premium shall
have been actually paid, pursuant to subdivision (e) of the same paragraph.
Although it may not be entirely farfetched, this view is not likely to be in accord with the understanding of
many, if not most, government employees who obtain an optional additional life insurance policy. As a
consequence, the actual receipt by them of their full pay without any deduction for premiums on their
optional additional life insurance policies may not impart to them the warning which, otherwise, it would

necessarily convey that said policy is not, as yet, in force, for they are liable to believe "that failure to
deduct" from the salary of the insured "the monthly premiums shall not" in the language of subdivision
(d) "make the policy lapse" and that "the premiums account shall be considered as indebtedness," to be paid
or deducted later, because, after all, the so called "payment" of premiums is nothing but a "paper" or
"accounting" process, whereby funds are merely transferred, not physically, but constructively, from one office
of the government to another. In other words, the language, of subdivisions (c), (d) and (e) is such as to create
an ambiguity that should be resolved against the party responsible therefor defendant GSIS, as the party who
prepared and furnished the application form and in favor of the party misled thereby, the insured employee.
Indeed, our Civil Code provides:
The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. 2
This is particularly true as regards insurance policies, in respect of which it is settled that the " "terms in an
insurance policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule
is the "insured usually has no voice in the selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company." (44 C.J.S., p. 1174.) 3.
The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors,
namely:
(a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the
Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the
monthly premium in the amount of P33.36." No such deduction was made and, consequently, not even the
first premium "paid" because the collecting officer of the Bureau of Public Works was not advised by the
GSIS to make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to
its benefit. .
(b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having
been paid by the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that
the latter was not, as yet, effective for non-payment of the first premium, he would have, in all probability,
caused the same to be forthwith satisfied.
WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against the defendantappellant, Government Service Insurance System. It is so ordered. .
Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Villamor, Barredo and Makasiar, JJ., concur.

ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC., Plaintiff, v. FIELDMENS

INSURANCE CO., INC., Defendant-Appellant.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; COMPREHENSIVE POLICY; UNLAWFUL AND WRONGFUL
TAKING OF VEHICLE FOR A JOY RIDE CONSTITUTES THEFT WITHIN THE MEANING OF
INSURANCE POLICY; RECOVERY FOR DAMAGE NOT BARRED BY THE ILLEGAL USE OF THE
VEHICLE. The Comprehensive Policy issued by the insurance company includes loss of or damage to the
motor vehicle by "burglary . . . or theft." It is settled that the act of Catiben in taking the vehicle for a joy ride to
Toril, Davao City, constitutes theft within the meaning of the insurance policy and that recovery for damage to
the car is not barred by the illegal use of the car by one of the station boys.
2. ID.; ID.; ID.; ID.; ID.; LIABILITY OF INSURER UNDER THE THEFT CLAUSE OF AN INSURANCE
POLICY; PRIOR CONVICTION NOT REQUIRED IN AN ACTION FOR RECOVERY ON AN

AUTOMOBILE INSURANCE; CASE AT BAR. There need be no prior conviction for the crime of theft to
make an insurer liable under the theft clause of the policy. Upon the facts stipulated by the parties it is admitted
that Catiben had taken the vehicle for a joy ride and while the same was in his possession he bumped it against
an electric post resulting in damages. That act is theft within a policy of insurance. In a civil action for recovery
on an automobile insurance, the question whether a person using a certain automobile at the time of the accident
stole it or not is to be determined by a fair preponderance of evidence and not by the rule of criminal law
requiring proof of guilt beyond reasonable doubt (Villacorta v. Insurance Commission, 100 SCRA 467 [1980]).
Besides, there is no provision in the policy requiring prior criminal conviction for theft.
RE S O LUTI ON
MELENCIO-HERRERA, J.:
This case for "Indemnity for Damages and Attorneys Fees" was elevated to this Tribunal by the then Court of
Appeals on a question of law.
The Stipulation of Facts submitted by the parties before the Court of First Instance of Davao, Branch I, in Case
No. 3789, reads as follows:jgc:chanrobles.com.ph
"COMES the parties in the above entitled case, through their respective counsels and to this Honorable Court
respectfully submit the following stipulations of facts:chanrob1es virtual 1aw library
1. That plaintiff is a religious corporation duly organized and registered under the laws of the Philippines,
while defendant is also a domestic corporation duly organized and existing under the laws of the Philippines;
2. That plaintiff, having an insurable interest in a Chevrolet Carry-all, 1955 Model, with Motor No.
032433272555 and Plate No. E-73317 covered by Registration Certificate No. 288141 Rizal, issued by the
Davao Motor Vehicles Office Agency No. 20 and owned by Reverend Clinton Bonnel, insured said vehicle with
the defendant under Fieldmens Insurance Co., Inc. Private Car Comprehensive Policy No. 22 Jl 1107, attached
hereto as Annex A to A-2 against loss or damage up to the amount of P5,000.00;
3. That in the latter part of 1961, through plaintiffs representative, Dr. Antonio Lim, the aforementioned
Chevrolet Carry-all was placed at the Jones Monument Mobilgas Service Station at Davao City, under the care
of said stations operator, Rene Te so that said carry-all could be displayed as being for sale, with the
understanding that the latter or any of his station boys would receive a 2% commission should they sell said
vehicle.
4. That on the night of January 18, 1962, Romeo Catiben one of the boys at the aforementioned Jones
Monument Service Station and a nephew of the wife of Rene Te who is residing with them, took the
aforementioned chevrolet carry-all for a joy ride to Toril, Davao City, without the prior permission, authority or
consent of either the plaintiff or its representative Dr. Antonio Lim, or of Rene Te, and on its way back to Davao
City, said vehicle, due to some mechanical defect accidentally bumped an electric post causing actual damages
valued at P5,518.61.
5. That the issue before the Honorable Court is whether or not for the damage to the abovementioned Chevrolet
Carry-all to be compensable under the aforementioned Fieldmens Private Car Comprehensive Policy No. 22 JL
11107, there must be a prior criminal conviction of Romeo Catiben for theft.
WHEREFORE, it is respectfully prayed that this Honorable Court render judgment on the facts and issues
above stipulated after the parties shall have submitted their respective memoranda."cralaw virtua1aw library
The Trial Court rendered judgment based on the facts stipulated and ordered defendant insurance company to
pay plaintiff association the amount of P5,000.00 as indemnity for the damage sustained by the vehicle,
P2,000.00 for attorneys fees, and costs. Dissatisfied, the insurance company interposed an appeal to the
Appellate Court, docketed as CA-G.R. No. 33543-R, which as above stated, elevated it to this
instance.chanrobles.com:cralaw:red
We affirm. The Comprehensive Policy issued by the insurance company includes loss of or damage to the motor
vehicle by "burglary . . . or theft." It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril,
Davao City, constitutes theft within the meaning of the insurance policy and that recovery for damage to the car
is not barred by the illegal use of the car by one of the station boys.
". . . where a car is admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a long trip to Montalban without
the owners consent or knowledge, such taking constitutes or partakes of the nature of theft as defined in Article

308 of the Revised Penal Code, viz.(W)ho are liable for theft. Theft is committed by any person who, with
intent to gain but without violence against or intimidation of persons nor force upon things, shall take personal
property of another without the latters consent, for purposes of recovering the loss under the policy in
question."cralaw virtua1aw library
". . . the Court sustains as the better view that which holds that when a person, either with the object of going to
a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to
another, without the consent of its owner, he is guilty of theft because by taking possession of the personal
property belonging to another and using it, his intent to gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that the
use of a thing constitutes gain and Cuello Calon who calls it hurto de uso. 1
There need be no prior conviction for the crime of theft to make an insurer liable under the theft clause of the
policy. Upon the facts stipulated by the parties it is admitted that Catiben had taken the vehicle for a joy ride and
while the same was in his possession he bumped it against an electric post resulting in damages. That act is theft
within a policy of insurance. In a civil action for recovery on an automobile insurance, the question whether a
person using a certain automobile at the time of the accident stole it or not is to be determined by a fair
preponderance of evidence and not by the rule of criminal law requiring proof of guilt beyond reasonable doubt.
2 Besides, there is no provision in the policy requiring prior criminal conviction for
theft.chanroblesvirtualawlibrary
ACCORDINGLY, finding no error in the judgment appealed from, the same is hereby affirmed.
Costs against defendant Fieldmens Insurance Co., Inc.
SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ., concur.