G.R. No.

166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent. DECISION VELASCO, JR., J.: The Case Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as approval of the application? The Facts On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis. The relevant provisions of the policy are: ELIGIBILITY. Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance under the Policy. EVIDENCE OF INSURABILITY. No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability satisfactory to the Company in respect of the following: 1. Any amount of insurance in excess of P50,000.00. 2. Any lot purchaser who is more than 55 years of age. LIFE INSURANCE BENEFIT. The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy. EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.3 Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982,4containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate. In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit the following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife on November 15, 1984. After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8 In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20, 1986,9 a portion of which reads: The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to his death on August 2, 1984. In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these pertinent provisions. With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorneys fees. SO ORDERED. The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before his death, as testified to by Eternals witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further ruled that due to Philamlifes inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuangs application. The RTC said that since the contract is a group life insurance, once proof of death is submitted, payment must follow. Philamlife appealed to the CA, which ruled, thus: WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs. SO ORDERED.11 The CA based its Decision on the factual finding that Chuangs application was not enclosed in Eternals letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlifes insurance. Hence, we have this petition with the following grounds: The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that: I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang; II. There was no valid insurance coverage; and III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996. The Courts Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.12 (Emphasis supplied.) In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them. Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance application of Chuang before his death. In Eternals letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before his death. On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing that Philamlife received a copy of Chuangs insurance application. The evidence on record supports Eternals position. The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuangs insurance application. To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter are correct and accounted for. Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted,14 that, if considered, might affect the result of the case.15 An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value. Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony of Edilberto Mendoza: Atty. Arevalo: Q Where is the original of the application form which is required in case of new coverage? [Mendoza:] A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of Eternal Gardens. Atty. Miranda: We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the number of copy. Atty. Arevalo:

Q Where is the original? [Mendoza:] A As far as I remember I do not know where the original but when I submitted with that payment together with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached therein.16 In other words, the witness admitted not knowing where the original insurance application was, but believed that the application was transmitted to Philamlife as an attachment to a transmittal letter. As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed.17 We reiterated the above ruling in Merencillo v. People: Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecutions evidence as a whole or reflect on the witnesses honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and substantially coincide with each other so as to make a consistent and coherent whole.18 In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternals witnesses. However, the question arises as to whether Philamlife assumed the risk of loss without approving the application. This question must be answered in the affirmative. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that: EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective. It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that: Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.19 (Emphasis supplied.) In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that: When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.20 Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract. On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of

Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous. As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.21 WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 isREVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED: (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang; (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extrajudicial demand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996; (3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of this award; and (4) To pay Eternal attorneys fees in the amount of PhP 10,000. No costs. SO ORDERED.

G.R. No. 125678

March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents. YNARES-SANTIAGO, J.: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1 The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2 During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the

morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled against petitioners, viz: WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering: 1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; 2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff; 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff; 4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit. SO ORDERED.3 On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.4 Petitioners motion for reconsideration was denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code6 does not apply.1wphi1.nt Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer, 7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurers promise, the insured pays a premium.8 Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides: Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.9 Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

Petitioner argues that respondents husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondents husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. 10 Specifically, the Health Care Agreement signed by respondents husband states: We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application;that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement.11 (Underscoring ours) In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicants medical history, thus: I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring ours) Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. 13 The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue.14 Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.15 (Underscoring ours) The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. 17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.18 None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.19 Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer.20 By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to

avoid forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.22 Anent the incontestability of the membership of respondents husband, we quote with approval the following findings of the trial court: (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 23 Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceaseds hospitalization, medication and the professional fees of the attending physicians.24 WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED. SO ORDERED.

G.R. No. 85141 November 28, 1989 FILIPINO MERCHANTS INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS and CHOA TIEK SENG, respondents. REGALADO, J.: This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which reads: WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate from the date of filing of the complaint, and is modified with respect to the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of payment until the date of reimbursement, and (2) the third-party complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1 The facts as found by the trial court and adopted by the Court of Appeals are as follows: This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from the defendant insurance company the amount of P51,568.62 representing damages to said shipment which has been insured by the defendant insurance company under Policy No. M-2678. The defendant brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in December 1976, plaintiff insured said shipment with defendant insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal claim statement was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to pay the claim. Consequently, the plaintiff brought an action against said defendant as adverted to above and defendant presented a third party complaint against the vessel and the arrastre contractor. 2

The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion whereof reads: WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the following amount: The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such payment until the date of such reimbursement. Without pronouncement as to costs. 3 On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors: 1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine insurance policy when it held the petitioner liable to the private respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its decision as well as a prior decision of the same Division of the said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove); 2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void; 3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in the subject cargo, which bars its recovery on the policy. 4 On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. We find said contention untenable. The "all risks clause" of the Institute Cargo Clauses read as follows: 5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage. 5 An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. 6 The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a willful and fraudulent act of the insured. 7 This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. 8 An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes. 9 The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of proving that the loss is caused by the risk excepted and for want of such proof, the company is liable. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly

excludes the loss from coverage. 12 A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and jurisprudence it discussed ... it is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the lower court did not err in holding that the loss was covered by the policy. There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause. 14 Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 15 Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property y. 16 Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 17 Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. 18 The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before be performed the conditions of the sale. 19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. 20 C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. 21 It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. 22 Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court below. It is a settled rule that an issue which has not been raised in the court a quo cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process. 23 This is but a permuted restatement of the long settled rule that when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. 24 If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also to dispose of petitioner's third assignment of error which consequently needs no further discussion. WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED in toto. SO ORDERED.

G.R. No. L-41014 November 28, 1988

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PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents. PARAS, J.: This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889. As gathered from the records, the undisputed facts of this case are as follows: On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964. The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured for the petitioner under thrust receipts (Record on Appeal, p. 4). Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation". On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying the goods contained in its ground and second floors (Record on Appeal, p.5) On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17). On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for PlaintiffAppellee, pp. 17-18). On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason, determination of the liability of private respondent could not be had (Supra, pp. 19-20). On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36). On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured over the loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of which defendant would determine its liability and the amount thereof, either to the private respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38). At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only coinsurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14). It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of coinsurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss. At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61). On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion for reconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insured has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69). On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129).

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On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said contract of insurance, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's fees, and the costs. SO ORDERED. (Record on Appeal, pp. 140-141) On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 2133). Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors; I. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION. (a) The respondent Court did not consider the legal presumption against the existence of fraud, which should be established with such quantum of proof as is required for any crime. (b) The record of the case is bereft of proof of such fraud. (c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismiss and, therefore, it should have been considered waived. (d) The total amount of insurance procured by the insured from the different companies amounted to hardly onehalf () of the value of the goods insured. II. RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED. III. THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING. IV. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. V. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 1-3) The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b) failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides: 3. The Insured shall give notice to the Company of any insurance already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this policy shall be forfeited. (Record on Appeal, p. 12) It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25). Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of coinsurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]).

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As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]). The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 which requires every notice and other communications to the insurer to be written or printed. Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularly referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 33-35). It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides: Mortgage Clause Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglectexcept fraud or misrepresentation, or arsonof the mortgagor or owner/trustee of the property insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand pay the same. (Rollo, p. 26) The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27). Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in the interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]). Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]). In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give to the company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20). The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent to serve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right to maintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formal claim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<re||an1w> Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co.,

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Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]). Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, and in order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]). It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra). Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]). PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs. SO ORDERED. Insular Life v. Ebrado - Insurance Proceeds 80 SCRA 181 Facts: > Buenaventura Ebrado was issued by Insular Life Assurance Co. a whole life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. > Ebrado designated Carponia Ebrado as the revocable beneficiary in his policy, referring to her as his wife. > Ebrado died when he was accidentally hit by a falling branch of tree. > Insurer by virtue of the contract was liable for 11,745.73, and Carponia filed her claim, although she admitted that she and the insured were merely living as husband and wife without the benefit of marriage. > Pascuala Ebrado also filed her claim as the widow of the deceased insured. > Insular life filed an interpleader case and the lower court found in favor of Pascuala. Issue: Between Carponia and Pascuala, who is entitled to the proceeds? Held: Pascuala. It is quite unfortunate that the Insurance Act or our own Insurance Code does not contain a specific provision grossly resolutory of the prime question at hand. Rather, the general rules of civil law should be applied to resolve this void in the insurance law. Art. 2011 of the NCC states: The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. When not otherwise specifically provided for in the insurance law, the contract of life insurance is governed by the general rules of civil law regulating contracts. Under Art. 2012, NCC: Any person who is forbidden from receiving any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Under Art. 739, donations between persons who were guilty of adultery or concubinage at the time of the donation shall be void. In essence, a life insurance policy is no different from civil donations insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. A beneficiary is like a donee because from the premiums of the policy which the insured pays, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Art. 739 should equally operate in life insurance contracts. Therefore, since common-law spouses are barred from receiving donations, they are likewise barred from receiving proceeds of a life insurance contract.

Vda. De Consuegra v. GSIS - Retirement Insurance Benefits 37 SCRA 315 Facts: > Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao Del Norte. > When he was still alive, he contracted two marriages: o First Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him o 2nd Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted) > Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to Berdin and her children who were the beneficiaries named in the policy. > Since he was in the govt service for 22.5028 years, he was entitled to retirement insurance benefits, for which no beneficiary was designated.

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> Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the remaining half, each to receive an equal share of 1/16. > Berdin went to CFI on appeal. CFI affirmed GSIS decision. Issue: To whom should the retirement insurance benefits be paid? Held: Both families are entitled to half of the retirement benefits. The beneficiary named in the life insurance does NOT automatically become the beneficiary in the retirement insurance. When Consuegra, during the early part of 1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18, 1951. Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement insurance benefits when he becomes a GSIS member and to state his beneficiary. The life insurance and the retirement insurance are two separate and distinct systems of benefits paid out from 2 separate and distinct funds. In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate of the insured. And when there exists two marriages, each family will be entitled to one-half of the estate.

G.R. No. L-22796

June 26, 1967

DELFIN NARIO, and ALEJANDRA SANTOS-NARIO, plaintiffs-appellants, vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee. REYES, J.B.L., J.: Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila, in its Civil Case No. 54942, dismissing plaintiffs' complaint as well as from a later order of the same court, denying a motion to set aside and/or reconsider said decision of dismissal. The facts of this case may be stated briefly as follows: Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine American Life Insurance Co., a life insurance policy (No. 503617) under a 20-year endowment plan, with a face value of P5,000.00. She designated thereon her husband, Delfin Nario, and their unemancipated minor son, Ernesto Nario, as her irrevocable beneficiaries. About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with the Insurance Company, which loan she, as policy-holder, has been entitled to avail of under one of the provisions of said policy after the same has been in force for three (3) years, for the purpose of using the proceeds thereof for the school expenses of her minor son, Ernesto Nario. Said application bore the written signature and consent of Delfin Nario in two capacities: first, as one of the irrevocable beneficiaries of the policy; and the other, as the father-guardian of said minor son and irrevocable beneficiary, Ernesto Nario, and as the legal administrator of the minor's properties, pursuant to Article 320 of the Civil Code of the Philippines. The Insurance Company denied said application, manifesting to the policy holder that the written consent for the minor son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship proceeding. After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her policy to the Insurance Company, which she was also entitled to avail of under one of the provisions of the same policy, and demanded its cash value which then amounted to P520.00. The Insurance Company also denied the surrender of the policy, on the same ground as that given in disapproving the policy loan application; hence, on September 10, 1963, Mrs. Alejandra Santos-Nario and her husband, Delfin Nario, brought suit against the Philippine American Life Insurance Co. in the above mentioned court of first instance, seeking to compel the latter (defendant) to grant their policy loan application and/or to accept the surrender of said policy in exchange for its cash value.1wph1.t Defendant Insurance Company answered the complaint, virtually admitting its material allegations, but it set up the affirmative defense that inasmuch as the policy loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, said acts are not within the powers of the legal administrator, under article 320 in relation to article 326 of the Civil Code; hence, mere written consent given by the father-guardian, for and in behalf of the minor son, without any court authority therefor, was not a sufficient compliance of the law, and it (defendant Insurance Company) was, therefore, justified in refusing to grant and in disapproving the proposed transactions in question. There having been no substantial disagreement or dispute as to any material fact, the parties, upon joint motion which the lower court granted, dispensed with the presentation of evidence and submitted their respective memoranda, after which the case was considered submitted for decision. The lower court found and opined that since the parties expressly stipulated in the endorsement attached to the policy and which formed part thereof that

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It is hereby understood and agreed that, notwithstanding the provisions of this Policy to the contrary, inasmuch as the designation of the beneficiaries have been made by the Insured without reserving the right to change said beneficiaries, the Insured may not designate a new beneficiary or assign, release or surrender this Policy to the Company and exercise any and all other rights and privileges hereunder or agree with the Company to any change in or amendment to this Policy, without the consent of the beneficiaries originally designated; that under the above quoted provision, the minor son, as one of the designated irrevocable beneficiaries, "acquired a vested right to all benefits accruing to the policy, including that of obtaining a policy loan to the extent stated in the schedule of values attached to the policy (Gercio vs. Sun Life Assurance of Canada, 48 Phil. 53, 58)"; that the proposed transactions in question (policy loan and surrender of policy) involved acts of disposition or alienation of the minor's properties for which the consent given by the father-guardian for and in behalf of the minor son, must be with the requisite court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs. Suguitan, G.R. No. L-8300, November 18, 1955; 99 Phil. 1004 [unrep] and in the case at bar, such consent was given by the father-guardian without any judicial authority; said court, agreeing with defendant's contention, sustained defendant's affirmative defense, and rendered, on January 28, 1964, its decision dismissing plaintiffs' complaint. Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court, contending that the minor's interest amounted to only one-half of the policy's cash surrender value of P520.00; that under Rule 96, Section 2 of the Revised Rules of Court, payment of the ward's debts is within the powers of the guardian, where no realty is involved; hence, there is no reason why the father may not validly agree to the proposed transaction on behalf of the minor without need of court authority. The appeal is unmeritorious. We agree with the lower court that the vested interest or right of the beneficiaries in the policy should be measured on its full face value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options, etc. and that said vested right under the policy cannot be divisible at any given time. We likewise agree with the conclusion of the lower court that the proposed transactions in question (policy loan and surrender of policy) constitute acts of disposition or alienation of property rights and not merely of management or administration because they involve the incurring or termination of contractual obligations. As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest therein, as one of the two (2) irrevocable beneficiaries, consists of one-half () of said amount or P2,500.00. Article 320 of the Civil Code of the Philippines provides The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under parental authority. If the property is worth more than two thousand pesos, the father or mother shall give a bond subject to the approval of the Court of First Instance. and article 326 of the same Code reads When the property of the child is worth more than two thousand pesos, the father or mother shall be considered a guardian of the child's property, subject to the duties and obligations of guardians under the Rules of Court. The above quoted provisions of the Civil Code have already been implemented and clarified in our Revised Rules of Court which provides SEC. 7. Parents as guardians. When the property of the child under parental authority is worth two thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian. When the property of the child is worth more than two thousand pesos, the father or the mother shall be considered guardian of the child's property, with the duties and obligations of guardians under these rules, and shall file the petition required by Section 2 hereof. For good reasons the court may, however, appoint another suitable person. (Rule 93). It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand pesos (P2,000.00); that plaintiffs did not file any guardianship bond to be approved by the court; and as later implemented in the abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs should have, but, had not, filed a formal application or petition for guardianship, plaintiffs-parents cannot possibly exercise the powers vested on them, as legal administrators of their child's property, under articles 320 and 326 of the Civil Code. As there was no such petition and bond, the consent given by the fatherguardian, for and in behalf of the minor son, without prior court authorization, to the policy loan application and the surrender of said policy, was insufficient and ineffective, and defendant-appellee was justified in disapproving the proposed transactions in question. The American cases cited by appellants are not applicable to the case at bar for lack of analogy. In those cases, there were pending guardianship proceedings and the guardians therein were covered by bonds to protect the wards' interests, which circumstances are wanting in this case. The result would be the same even if we regarded the interest of the ward to be worth less than P2,000.00. While the father or mother would in such event be exempt from the duty of filing a bond, and securing judicial appointment, still the parent's authority over the estate of the ward as a legal-guardian would not extend to acts of encumbrance or disposition, as distinguished from acts of management or administration. The distinction between one and the other kind of power is too basic in our law to be ignored. Thus, under Article 1877 of the Civil Code of the Philippines, an agency in general terms does not include power to encumber or dispose of the property of the principal; and the Code explicitly requires a special power or authority for the agent "to loan or borrow money, unless the latter act be urgent or indispensable for the preservation of the thing under administration" (Art. 1878 no. 7). Similarly, special powers are required to required to effect novations, to waive any obligation gratuitously or obligate the principal as a guarantor or surety (Do., nos. 2, 4 and 11). By analogy, since the law

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merely constitutes the parent as legal administrator of the child's property (which is a general power), the parent requires special authority for the acts above specified, and this authority can be given only by a court. This restricted interpretation of the parent's authority becomes all the more necessary where as in the case before us, there is no bond to guarantee the ward against eventual losses. Appellants seek to bolster their petition by invoking the parental power (patria potestas) under the Civil Code of 1889, which they claim to have been revived by the Civil Code of the Philippines (Rep. Act 386). The appeal profits them nothing. For the new Civil Code has not effected a restitutio in integrum of the Spanish patria potestas; the revival has been only in part. And, significantly, the Civil Code now in force did not reenact Article 164 of the Civil Code of 1889, that prohibited the alienation by the parents of the real property owned by the child without court authority and led the commentators and interpreters of said Code to infer that the parents could by themselves alienate the child's movable property. The omission of any equivalent precept in the Civil Code now in force proves the absence of any authority in the parents to carry out now acts of disposition or alienation of the child's goods without court approval, as contended by the appellee and the court below. Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered. Philamlife v. Pineda - Life Insurance 175 SCRA 416 Facts: > On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and designated his wife and children as irrevocable beneficiaries. > On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the beneficiaries in his policy from irrevocable to revocable. > Lower Court granted the petition. Issue: Whether or not the court erred in granting Dimayugas petition. Held: YES. Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy. The policy contract states that the designation of the beneficiaries is irrevocable. Therefore, based on the said provision of the contract, not to mention the law then applicable, it is only with the consent of all the beneficiaries that any change or amendment in the poicy may be legally and validly effected. The contract between the parties is the law binding on them. (This case rule is no longer controlling under the Insurance Code.)

SSS v. Davac - SSS Benefits 17 SCRA 863 Facts: > Davac was an SSS member, and designated Candelaria Davac, his alleged wife, as his beneficiary. > When he died, both his first wife, Lourdes and his second wife, Candelaria filed claims for the death benefits. > Due to the conflicting claims, the SSS filed a petition praying that both of them be required to interplead and litigate the conflicting claims. > The death benefits were awarded to Candelaria Davac. Issue: Who is entitled to the SSS benefits? Held: Candelaria. Under the SSS Act, the beneficiary as recorded by the employees employer is the one entitled to the death benefits, hence they should go to Candelaria. Lourdes contends that the designation made in the person of Candelaria who is party in a bigamous marriage is null and void for being against Art. 739 of the CC. SC held that the disqualification mentioned in Art. 739 is NOT applicable to Candelaria, because she was not guilty of concubinage , there bieing NO proof that she had actual knowledge of the previous marriage of her husband.

Nario v. Philamlife Insurance Company - Loan Application and Surrender of Policy 20 SCRA 434 Facts: > Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by PHILAMLIFE under a 20-yr endowment plant, with a face value of 5T. Her husband Delfin and their unemancipated son Ernesto were her revocable beneficiaries. > Mrs. Nario then applied for a loan on the above policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policy has been in force for 3 years. The purpose of such loan was for the school expenses of Ernesto. > The application bore the written signature and consent of Delfin in 2 capacities o As one of the irrevocable beneficiaries of the policy o As father-guardian of Ernesto and also the legal administrator of the minors properties pursuant to Art. 320 of the CC. > PHILAMLIFE denied the loan application contending that written consent of the minor son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent guardianship proceeding. > Mrs. Nario then signified her decision to surrender her policy and demand its cash value which then amounted to P 520. > PHILAMLIFE also denied the surrender of the policy on the same ground as that given in disapproving the loan application.

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> Mrs. Nario sued PHILAMLIFE praying that the latter grant their loan application and/or accept the surrender of said policy in exchange for its cash value. > PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of disposition and alienation of the property rights of the minor, said acts are not within the power of administrator granted under Art. 320 in relation to art. 326 CC, hence court authority is required. Issue: Whether or not PHILAMLIFE was justified in refusing to grant the loan application and the surrender of the policy. Held: YES. SC agreed with the trial court that the vested interest or right of the beneficiaries in the policy should be measured on its full face value and not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options and that said vested right under the policy cannot be divisible at any given time. SC also agreed with TC that the said acts (loan app and surrender) constitute acts of disposition or alienation of property rights and not merely management or administration because they involve the incurring or termination of contractual obligations. Under the laws (CC and rules of Court) The father is constituted as the minors legal administrator of the propty, and when the propty of the child is worth more than P2T (as in the case at bar, the minors propty was worth 2,500 his share as beneficiary), the father a must file a petition for guardianship and post a guardianship bond. In the case at bar, the father did not file any petition for guardianship nor post a guardianship bond, and as such cannot possibly exercise the powers vested on him as legal administrator of the minors property. The consent give for and in behalf of the son without prior court authorization to the loan application and the surrender was insufficient and ineffective and PHILAMLIFE was justified in disapproving the said applications. Assuming that the propty of the ward was less than 2T, the effect would be the same, since the parents would only be exempted from filing a bond and judicial authorization, but their acts as legal administrators are only limited to acts of management or administration and not to acts of encumbrance or disposition.

Southern Luzon Employees Association v. Golpeo - Insurance Beneficiaries 96 PHIL 83 Facts: > SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of its purposes is mutual aid of its members and their dependents in case of death. > Roman Concepcion was a member until his death in 1950. > In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his common law wife and/or children he had with her as his beneficiaries; and such person so named by the member will be the sole persons to be recognized by SLEA regarding claims for condolence contributions. > Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was able to collect voluntary contribution from its members amounting to P2,205. > Three sets of claimants to the amount presented themselves to the association namely: o Juanita Golpeo, legal wife, and her children o Aquilina Maloles, the common law wife, and her children o Elsie Hicban, another common law wife of Roman, and her child. > SLEA then filed an action for interpleader against the 3 conflicting claimants. > Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the amount citing Del Val v. Del Val. > Only Golpeo appealed. She argues that: > The insurance code does not apply since the association is not an insurance company but a mutual benefit association. > The stipulation between SLEA and Roman was void for being contrary to law, public morals and public policy, pursuant to Art. 739 of the CC ( donations between persons guilty of concubinage at the time of donation are void) Issue: Whether or not Golpeo, the legal wife is entitled to the amount. Held: NO. First of all, the lower court did not consider the association as a regular insurance company, but merely ruled that the death benefit in question is analogous to insurance. Besides, even the Administrative Code describes a mutual benefit company as one which provides any method of life insurance among its members out of dues or assessments collected from its membership. Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and actions had acquiesced in the illicit relations between her husband and Maloles, Golpeos argument would certainly NOT apply to the children of Maloles likewise named beneficiaries by the deceased. As a matter of fact, the NCC recognizes certain successional rights of illegitimate children.

El Oriente v. Posadas - Taxability of Insurance Proceeds 56 PHIL 147 (1931) Facts:

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> El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippines, procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000, United States currency designating itself as the beneficiary. > El Oriente paid for the premiums due thereon and charged as expenses of its business all the said premiums and deducted the same from its gross incomes as reported in its annual income tax returns, which deductions were allowed upon a showing that such premiums were legitimate expenses of its business. > Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life insurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88 > CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds received from the insurance. Issue: Whether or not the proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law Held: NOT TAXABLE. In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes shall be exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured . . ." Section 10, as amended, in Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation . . .a tax of three per centum upon such income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any other section is reference made to the provisions of section 4 in Chapter I. Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the proceeds of life insurance policies received by corporations constitute income which is taxable It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In reality, what the plaintiff received was

Filipino Merchants v. CA- Insurable Interest 179 SCRA 638 Facts: > The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages to said shipment which has been insured by Filipino. > Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against it. > It appears from the evidence presented that Chao insured said shipment with Filipino for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. > Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton. > The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. > Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A formal claim statement was also presented by the plaintiff against the vessel, but the Filipino refused to pay the claim. Issues & Resolutions: Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy. SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses

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except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy Filipino contends that Chao does not have insurable interest, being only a consignee of the goods. Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance

G.R. No. 147839

June 8, 2006

GAISANO CAGAYAN, INC. Petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, Respondent. AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for reconsideration. The factual background of the case is as follows: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also provide for the following conditions: 1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. x x x4 Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI. On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.5 In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the claim of the insured.6

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At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued. On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss. Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The dispositive portion of the decision reads: WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay: 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid; 2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid. With costs against the defendant-appellee. SO ORDERED.10 The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11 Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13 Hence, the present petition for review on certiorari anchored on the following Assignment of Errors: THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT. THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14 Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15 As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods. Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire. For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short circuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of suit.17 As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20

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Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition. At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner. The Court disagrees with petitioner's stand. It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. 22 In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered. Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid."26 The Court is not persuaded. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied) Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered. IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.28 Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies. The next question is: Is petitioner liable for the unpaid accounts? Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

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Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34 Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37 Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI. With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x Petitioner failed to refute respondent's evidence. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991. Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00. WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATIONthat the order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis. No pronouncement as to costs. SO ORDERED. San Miguel Brewery v. Law Union Rock Insurance Company - Insurance Proceeds 40 PHIL 674 Facts: > On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of 10T. > Mortgage contract stated that Dunn was to have the property insured at his own expense, authorizing SMB to choose the insurers and to receive the proceeds thereof and retain so much of the proceeds as would cover the mortgage debt. > Dunn likewise authorized SMB to take out the insurance policy for him. > Brias, SMBs general manager, approached Law Union for insurance to the extent of 15T upon the property. In the application, Brias stated that SMBs interest in the property was merely that of a mortgagee. > Law Union, not wanting to issue a policy for the entire amount, issued one for P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros. Both policies were issued in the name of SMB only and contained no reference to any other interests in the propty. Both policies required assignments to be approved and noted on the policy. > Premiums were paid by SMB and charged to Dunn. A year later, the policies were renewed. > In 1917, Dunn sold the property to Harding, but no assignment of the policies was made to the latter. > Property was destroyed by fire. SMB filed an action in court to recover on the policies. Harding was made a defendant because by virtue of the sale, he became the owner of the property, although the policies were issued in SMBs name. > SMB sought to recover the proceeds to the extent of its mortgage credit with the balance to go to Harding. > Insurance Companies contended that they were not liable to Harding because their liability under the policies was limited to the insurable interests of SMB only. > SMB eventually reached a settlement with the insurance companies and was paid the balance of its mortgage credit. Harding was left to fend for himself. Trial court ruled against Harding. Hence the appeal. Issue: Whether or not the insurance companies are liable to Harding for the balance of the proceeds of the 2 policies.

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Held: NOPE. Under the Insurance Act, the measure of insurable interest in the property is the extent to which the insured might be daminified by the loss or injury thereof. Also it is provided in the IA that the insurance shall be applied exclusively to the proper interest of the person in whose name it is made. Undoubtedly, SMB as the mortgagee of the property, had an insurable interest therein; but it could NOT, an any event, recover upon the two policies an amount in excess of its mortgage credit. By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from the two policies. With respect to Harding, when he acquired the property, no change or assignment of the policies had been undertaken. The policies might have been worded differently so as to protect the owner, but this was not done. If the wording had been: Payable to SMB, mortgagee, as its interests may appear, remainder to whomsoever, during the continuance of the risk, may become owner of the interest insured, it would have proved an intention to insure the entire interest in the property, NOT merely SMBs and would have shown to whom the money, in case of loss, should be paid. Unfortunately, this was not what was stated in the policies. If during the negotiation for the policies, the parties had agreed that even the owners interest would be covered by the policies, and the policies had inadvertently been written in the form in which they were eventually issued, the lower court would have been able to order that the contract be reformed to give effect to them in the sense that the parties intended to be bound. However, there is no clear and satisfactory proof that the policies failed to reflect the real agreement between the parties that would justify the reformation of these two contracts.

Palilieo v. Cosio - Insurance Proceeds 97 PHIL 919 Facts: > On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T. > To secure payment, Cosio required Palileo to sign a document known as conditional sale of residential building, purporting to convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story building of strong materials belonging to Palileo. > After execution of the document, Cosio insured the building against fire with Associated Insurance & Surety Co. (Associated) for 15T. > The insurance policy was issued in the name of Cosio. > The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the insurance company an indemnity of P13,107. > Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insurance proceeds, but Cosio refused to do so. > Trial Court found that the debt had an unpaid balance of P12T. It declared the obligation of Palileo to Cosio fully compensated by virtue of the proceeds collected by Cosio and further held that the excess of P1,107 (13,107 12,000) be refunded to Palileo Issue: Whether or not the trial court was justified in considering the obligation of Palileo fully compensated by the insurance amount that Cosio was able to collect from Associated, and whether or not the trial court was correct in requiring Cosio to refund the excess of P1,107 to Palileo. Held: NO and NO. The rule is that 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 lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property insured to the benefit of Palileo and in ordering the former to deliver to the latter, the difference between the indebtedness and the amount of insurance received by Cosio. In the light of this ruling, the correct solution would be that the proceeds of the Insurance be delivered to Cosio, but her claim against Palileo should be considered assigned to the insurance company who is deemed subrogated to the rights of Cosio to the extent of the money paid as indemnity.

Grepalife v. CA - Real Party In Interest 316 SCRA 677 Facts: > A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. > Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. > In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment. > Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. > Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. > Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

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> The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. > RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio. Issue: Whether or not the widow is the real party in interest, (not DBP) and has legal standing to file the suit. Held: YES. Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit. To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterios medical history. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance

Harding v. Commercial Union Assurance Company- Willful Misstatement 38 PHIL 464 Facts: > Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs. Harding. > While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was an agent of Smith Bell and Co., which in turn is Commercial Unions agent), the latter induced Mrs. Harding to insure the care with Commercial. > Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who together with the manager of LUneta, appraised the car and declared that its present value was P3T. This amt was written in the proposal form which Mrs. Harding signed. > Subsequently, the car was damaged by fire. Commercial refused to pay because the cars present value was only 2.8T and not 3T. Issue: Whether or not Commercial is liable. Held: Commercial is liable. Where it appears that the proposal form, while signed by the insured was made out by the person authorized to solicit the insurance (Luneta and Smith Bell) the facts stated in the proposal, even if incorrect, will not be regarded as warranted by the insured, in the absence of willful misstatement. Under such circumstances, the proposal is to be regarded as the act of the insurer.

Philamcare v. CA- Health Care Agreement

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379 SCRA 356 (2002) Facts: > Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he answered NO to the following question: Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) > The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. > Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. > During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. > While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. > According to Philamcare, there was concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. > Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00 > After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained to bring him back to the CGH where he died on the same day. > Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed. Issues and Resolutions: Philamcare brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply. SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent's husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads: Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for. The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, (A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

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4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

G.R. No. 124520 August 18, 1997 Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents. PADILLA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals. The undisputed facts of the case are as follows: 1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988. 2. One of the stipulations of the one (1) year lease contract states: 18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . . 1 3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS. 4. On the day that the lease contract was to expire, fire broke out inside the leased premises. 5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. 6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. 7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit. 8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996. In the present petition, the following errors are assigned by petitioners to the Court of Appeals: I. II. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2

III. IV.

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha

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spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter. It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good customs, public order or public policy. 3 Sec. 18 of the Insurance Code provides: Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. 4 The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides: Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof. Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO ORDERED.

G.R. No. L-44059 October 28, 1977 THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants. MARTIN, J.: This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds thereof in case of death of the latter? On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a wholelife for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his wife. On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of P36.27. Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado. In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

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After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading as follows: +.wph!1 During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pretrial and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was never changed up to the time of his death and the wife did not have any opportunity to write the company that there was reservation to change the designation of the parties agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to the policy. Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this order. SO ORDERED. On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court held: +.wph!1 It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a finding of such guilt or commission of those acts be made in a separate independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence in the same proceeding (the action brought to declare the nullity of the donation). It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado were living together as husband and wife without being legally married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the proceeds of the insurance upon the death of the insured. From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case to Us as involving only questions of law. We affirm the judgment of the lower court. 1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides: +.wph!1 The following donations shall be void: 1. Those made between persons who were guilty of adultery or concubinage at the time of donation; Those made between persons found guilty of the same criminal offense, in consideration thereof;

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3. Those made to a public officer or his wife, descendants or ascendants by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action. 2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation.5 Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6 3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1 If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage. It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective. 4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides: +.wph!1 In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action. The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded. In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less thanjudicial admissions which, as a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy." ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado. SO ORDERED.

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G.R. No. L-41014 November 28, 1988 PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and ORIENTAL ASSURANCE CORPORATION, respondents PARAS, J.: This is a petition for review on certiorari of the decision of respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled "Pacific Banking Corporation vs. Oriental Assurance Corporation", which set aside the decision of the Court of First Instance (CFI) of Manila, ** which had in turn granted the complaint for a sum of money in Civil Case No. 56889. As gathered from the records, the undisputed facts of this case are as follows: On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open policy, was issued to the Paramount Shirt Manufacturing Co. (hereinafter referred to as the insured, for brevity), by which private respondent Oriental Assurance Corporation bound itself to indemnify the insured for any loss or damage, not exceeding P61,000.00, caused by fire to its property consisting of stocks, materials and supplies usual to a shirt factory, including furniture, fixtures, machinery and equipment while contained in the ground, second and third floors of the building situated at number 256 Jaboneros St., San Nicolas, Manila, for a period of one year commencing from that date to October 21, 1964. The insured was at the time of the issuance of the policy and is up to this time, a debtor of petitioner in the amount of not less than Eight Hundred Thousand Pesos (P800,000.00) and the goods described in the policy were held in trust by the insured for the petitioner under thrust receipts (Record on Appeal, p. 4). Said policy was duly endorsed to petitioner as mortgagee/ trustor of the properties insured, with the knowledge and consent of private respondent to the effect that "loss if any under this policy is payable to the Pacific Banking Corporation". On January 4, 1964, while the aforesaid policy was in full force and effect, a fire broke out on the subject premises destroying the goods contained in its ground and second floors (Record on Appeal, p.5) On January 24, 1964, counsel for the petitioner sent a letter of demand to private respondent for indemnity due to the loss of property by fire under the endorsement of said policy (Brief for Plaintiff-Appellee, pp. 16-17). On January 28, 1964, private respondent informed counsel for the petitioner that it was not yet ready to accede to the latter's demand as the former is awaiting the final report of the insurance adjuster, H.H. Bayne Adjustment Company (Brief for PlaintiffAppellee, pp. 17-18). On March 25, 1964, the said insurance adjuster notified counsel for the petitioner that the insured under the policy had not filed any claim with it, nor submitted proof of loss which is a clear violation of Policy Condition No.11, and for which reason, determination of the liability of private respondent could not be had (Supra, pp. 19-20). On April 24, 1964, petitioner's counsel replied to aforesaid letter asking the insurance adjuster to verify from the records of the Bureau of Customs the entries of merchandise taken into the customs bonded warehouse razed by fire as a reliable proof of loss (Supra, pp. 21-22). For failure of the insurance company to pay the loss as demanded, petitioner (plaintiff therein) on April 28, 1 964, filed in the court a quo an action for a sum of money against the private respondent, Oriental Assurance Corporation, in the principal sum of P61,000.00 issued in favor of Paramount Shirt Manufacturing Co. (Record on Appeal, pp. 1-36). On May 25, 1964, private respondent raised the following defenses in its answer to wit: (a) lack of formal claim by insured over the loss and (b) premature filing of the suit as neither plaintiff nor insured had submitted any proof of loss on the basis of which defendant would determine its liability and the amount thereof, either to the private respondent or its ad . adjuster H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11 (Record on Appeal, pp. 37-38). At the trial, petitioner presented in evidence Exhibit "H", which is a communication dated December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances with the following: P30,000.00 with Wellington Insurance; P25,000. 00 with Empire Surety and P250,000.00 with Asian Surety; undertaken by insured Paramount on the same property covered by its policy with private respondent whereas the only coinsurances declared in the subject policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and P25.000.00 with Victory (Brief for the Defendant pp. 13-14). It will be noted that the defense of fraud and/or violation of Condition No. 3 in the Policy, in the form of non-declaration of coinsurances which was not pleaded in the answer was also not pleaded in the Motion to Dismiss. At any rate, on June 30, 1967, the trial court denied private respondent's motion on the ground that the defense of lack of proof of loss or defects therein was raised for the first time after the commencement of the suit and that it must be deemed to have waived the requirement of proof of loss (Sections 83 and 84, Insurance Act; Record on Appeal, p. 61). On September 9, 1967, the case was considered submitted for decision from which order private respondent filed a motion for reconsideration to set the case or further reception of private respondent's additional evidence, "in order to prove that 'insured has committed a violation of condition No. 3 of the policy in relation to the other Insurance Clause.' " (Record on Appeal, pp. 61-69).

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On September 30,1967, the case was set for the continuation of the hearing for the reception merely of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co., over the vehement opposition of the petitioner (Record on Appeal, p. 129). On April 18, 1 968, the trial court rendered a decision adjudging private respondent liable to the petitioner under the said contract of insurance, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff P61,000.00, with interest at the rate of 8% per annum from January 4, 1964, to April 28, 1964, and 12% from April 29, 1964, until the amount is fully paid, P6,100.00, as attorney's fees, and the costs. SO ORDERED. (Record on Appeal, pp. 140-141) On appeal, the Court of Appeals reversed the decision of the trial court (Decision promulgated on April 23, 1975, Rollo, pp. 2133). Petitioner filed a motion for reconsideration of the said decision of the respondent Court of Appeals, but this was denied on July 3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition with the following assigned errors; I. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE FACT THAT THE INSURED PARAMOUNT PROCURED ADDITIONAL INSURANCES OTHER THAN THOSE STATED IN THE POLICY IN SPITE OF THE EXISTENCE OF CONTRARY PRESUMPTIONS AND ADMITTED FACT AND CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF SAID CONCLUSION. (a) The respondent Court did not consider the legal presumption against the existence of fraud, which should be established with such quantum of proof as is required for any crime. (b) The record of the case is bereft of proof of such fraud. (c) The private respondent insurer did not even plead or in anywise raise fraud as a defense in its answer or motion to dismiss and, therefore, it should have been considered waived. (d) The total amount of insurance procured by the insured from the different companies amounted to hardly onehalf () of the value of the goods insured. II. RESPONDENT COURT ERRED IN NOT HOLDING THAT CONSIDERING THE VOTING ON THE PARTICULAR QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT THEREON SHOULD BE CONSIDERED AFFIRMED. III. THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM UNDER THE INSURANCE LAW HAS NOT BEEN FILED, NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF PETITIONER-APPELLANT'S LAWYER WHICH IS A SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED DEFECTS AND FOR ENDORSING THE CLAIM TO ITS ADJUSTER FOR PROCESSING. IV. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF THE POLICY LIBERALLY IN FAVOR OF THE HEREIN PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY INSURED. V. RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN DISMISSING THE CASE AND IN NOT AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT. (Brief for Petitioners, pp. 1-3) The crux of the controversy centers on two points: (a) unrevealed co-insurances which violated policy conditions No. 3 and (b) failure of the insured to file the required proof of loss prior to court action. Policy Condition No. 3 explicitly provides: 3. The Insured shall give notice to the Company of any insurance already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefit under this policy shall be forfeited. (Record on Appeal, p. 12) It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a false declaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25). Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other Insurance Clause" are materially different from the actual number of coinsurances taken over the subject property. Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations is not shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino,

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Commercial Laws of the Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila v. C.A. 145 SCRA [1986]). As the insurance policy against fire expressly required that notice should be given by the insured of other insurance upon the same property, the total absence of such notice nullifies the policy (Sta. Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA 276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432 [1974]). The argument that notice of co-insurances may be made orally is preposterous and negates policy condition No. 20 which requires every notice and other communications to the insurer to be written or printed. Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance clause" supposedly to have been violated, cannot certainly defeat the right of the petitioner to recover the insurance as mortgagee/assignee. Particularly referring to the mortgage clause of the policy, petitioner argues that considering the purpose for which the endorsement or assignment was made, that is, to protect the mortgagee/assignee against any untoward act or omission of the insured, it would be absurd to hold that petitioner is barred from recovering the insurance on account of the alleged violation committed by the insured (Rollo, Brief for the petitioner, pp, 33-35). It is obvious that petitioner has missed all together the import of subject mortgage clause which specifically provides: Mortgage Clause Loss, if any, under this policy, shall be payable to the PACIFIC BANKING CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby understood and agreed that this insurance as to the interest of the mortgagee/trustor only herein, shall not be invalidated by any act or neglectexcept fraud or misrepresentation, or arsonof the mortgagor or owner/trustee of the property insured; provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand pay the same. (Rollo, p. 26) The paragraph clearly states the exceptions to the general rule that insurance as to the interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or arson. As correctly found by the Court of Appeals, concealment of the aforecited co-insurances can easily be fraud, or in the very least, misrepresentation (Rollo, p. 27). Undoubtedly, it is but fair and just that where the insured who is primarily entitled to receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said right, with more reason petitioner which is merely claiming as indorsee of said insured, cannot be entitled to such proceeds. Petitioner further stressed that fraud which was not pleaded as a defense in private respondent's answer or motion to dismiss, should be deemed to have been waived. It will be noted that the fact of fraud was tried by express or at least implied consent of the parties. Petitioner did not only object to the introduction of evidence but on the contrary, presented the very evidence that proved its existence. Be that as it may, it is established that the Supreme Court has ample authority to give beyond the pleadings where in the interest of justice and the promotion of public policy, there is a need to make its own finding to support its conclusion. Otherwise stated, the Court can consider a fact which surfaced only after trial proper (Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]). Generally, the cause of action on the policy accrues when the loss occurs, But when the policy provides that no action shall be brought unless the claim is first presented extrajudicially in the manner provided in the policy, the cause of action will accrue from the time the insurer finally rejects the claim for payment (Eagle Star Insurance v. Chia Yu, 55 Phil 701 [1955]). In the case at bar, policy condition No. 11 specifically provides that the insured shall on the happening of any loss or damage give notice to the company and shall within fifteen (15) days after such loss or damage deliver to the private respondent (a) a claim in writing giving particular account as to the articles or goods destroyed and the amount of the loss or damage and (b) particulars of all other insurances, if any. Likewise, insured was required "at his own expense to produce, procure and give to the company all such further particulars, plans, specifications, books, vouchers, invoices, duplicates or copies thereof, documents, proofs and information with respect to the claim". (Record on Appeal, pp. 18-20). The evidence adduced shows that twenty-four (24) days after the fire, petitioner merely wrote letters to private respondent to serve as a notice of loss, thereafter, the former did not furnish the latter whatever pertinent documents were necessary to prove and estimate its loss. Instead, petitioner shifted upon private respondent the burden of fishing out the necessary information to ascertain the particular account of the articles destroyed by fire as well as the amount of loss. It is noteworthy that private respondent and its adjuster notified petitioner that insured had not yet filed a written claim nor submitted the supporting documents in compliance with the requirements set forth in the policy. Despite the notice, the latter remained unheedful. Since the required claim by insured, together with the preliminary submittal of relevant documents had not been complied with, it follows that private respondent could not be deemed to have finally rejected petitioner's claim and therefore the latter's cause of action had not yet arisen. Compliance with condition No. 11 is a requirement sine qua non to the right to maintain an action as prior thereto no violation of petitioner's right can be attributable to private respondent. This is so, as before such final rejection, there was no real necessity for bringing suit. Petitioner should have endeavored to file the formal claim and procure all the documents, papers, inventory needed by private respondent or its adjuster to ascertain the amount of loss and after compliance await the final rejection of its claim. Indeed, the law does not encourage unnecessary litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 701, supra).<re||an1w>

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Verily, petitioner prematurely filed Civil Case No. 56889 and dismissal thereof was warranted under the circumstances. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power Corp. v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA, 145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385 [1986]). Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability, and in order to recover, the insured must show himself within those terms. The compliance of the insured with the terms of the policy is a condition precedent to the light of recovery (Stokes v. Malayan Insurance Co., Inc., 127 SCRA 766 [1984]). It appearing that insured has violated or failed to perform the conditions under No. 3 and 11 of the contract, and such violation or want of performance has not been waived by the insurer, the insured cannot recover, much less the herein petitioner. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617 [1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p. 276 supra). Finally, the established rule in this jurisdiction that findings of fact of the Court of Appeals when supported by substantial evidence, are not reviewable on appeal by certiorari, deserves reiteration. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court except in certain cases Lereos v. CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982] Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117 SCRA 770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986]; Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238-239 [1987]). PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the decision appealed from is AFFIRMED. No costs. SO ORDERED.

Argente v. West Coast Life Insurance Co.- Misrepresentation 51 PHIL 725 Facts: > A joint life insurance policy was issued to Bernardo Argente and his wife Vicenta upon payment of premium, by West Coast. > On Nov. 18, 1925, during the effectivity of the policy, Vicenta died of cerebral apoplexy. Thereafter, Bernardo claimed payment but was refused. > It is admitted that in the Medical Examiners report, Vicenta, in response to the question asked by the medical examiner, her replies were as follows: o How frequently do you use beer, wine, spirits and other intoxicants? she answered beer only in small quantities. o What physician have you consulted or been treated by within the last 5 years and for what illness or ailment? she answered none > It is however, not disputed that in 1924, Vicenta was taken to a hospital for what was first diagnosed as alcoholism and later changed to manic-depressive psychosis and then again changed to pscyhonuerosis. Issue: Whether or not on the basis of the misrepresentations of Vicenta, Bernardo is barred from recovery. Held: YES. The court found that the representations made by Vicenta in his application for life insurance were false with respect to her state of health and that she knew and was aware that the representations so made by her were false. In an action on a life insurance policy where the evidence conclusively shows that the answers to questions concerning diseases were untrue, the truth or falsity of the answer becomes the determining factor. If the policy was procured by fraudulent misrepresentations, the contract of insurance apparently set forth therein was never legally existent. It can be fairly assumed that had the true facts been disclosed by the insured, the insurance would never have been granted.

Tang v. CA- Insurance Fraud or Mistake 90 SCRA 236 Facts: > On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese, applied for life insurance for 60T with Philamlife. The application was in two parts, both in English. > The second part dealt with her state of health. Her answers having shown that she was health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as beneficiary. > On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was only recent from the time she first applied, no further medical exam was made but she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2) > The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.

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> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured was guilty of concealment and misrepresentation. > Both trial court and CA ruled that Lee was guilty of concealment. > Tangs position, however, is that because Lee was illiterate and spoke only Chinese, she could not be held guilty of concealment of her health history because the application for insurance was English, and the insurer has not proven that the terms thereof had been fully explained to her as provided by Art. 1332 of CC. Issue: Whether or not Art. 1332 applies. Held: NO. Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is seeking to avoid its performance. It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged. Accordingly, Philamlife was under no obligation to prove that the terms of the insurance contract were fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it has to be noted as above stated that there has been NO imputation of mistake of fraud by the illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering the findings of both the trial court and the CA as to the Concealment of Lee, the SC affirms their decisions. Concurring: J., Antonio In a contract of insurance, each party must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has no means of ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk of which he is aware makes the contract voidable at the option of the insurer. The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei, which means most abundant good faith, absolute and perfect candor or openness and honesty, absence of any concealment or deception however slight. Here the CA found that the insured deliberately concealed material facts about her physical condition and history and/or concealed with whoever assisted her in relaying false information to the medical examiner. Certainly, the petitioner cannot assume inconsistent positions by attempting to enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at the same time nullify the contract by claiming that it was executed through fraud or mistake. NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to him.

Soliman v. US Life- Rescind Contract of Insurance 104 PHIL 1046 Facts: > US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being the beneficiary of the other. > In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period has already expired, and they were furnished at the same time long-form health certificates for the reinstatement of the policies. > In Apr 1949, they submitted the certificates and paid the premiums. > In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio filed a claim for the proceeds of the insurance. > US life denied the claim and filed for the rescission of the contract on the ground that the certificates failed to disclose that Rosario had been suffering from bronchial asthma for 3 years prior to their submission. Issue: Whether or not the contract can still be rescinded. Held: Yes. The insurer is once again given two years from the date of reinstatement to investigate into the veracity of the facts represented by the insured in the application for reinstatement. When US life sought to rescind the contract on the ground of concealment/misrepresentation, two years had not yet elapsed. Hence, the contract can still be rescinded.

Soliman v. US Life - Endowment Life Policy 104 PHIL 1046 Facts: > US Life issued a 20yr endowment life policy on the joint lives of Patricio Soliman and his wife Rosario, each of them being the beneficiary of the other. > In March 1949, the spouses were informed that the premium for Jan 1949 was still unpaid notwithstanding that the 31-day grace period had already expired, and they were furnished at the same time long-form health certificates for the reinstatement of the policies. > In Aprl 1949, they submitted the health certificates and paid the premium due up to said month.

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> In Jan. 1950, Rosario died of acute dilatation of the heart, and thereafter Patricio filed a claim for the proceeds of the insurance. > US Life denied the claim and it filed a case for rescission on the ground that the health certificates failed to disclose that Rosario had been suffering from bronchial asthma for three years prior to the submission. > Patricio claims that the answers to the questions in the health certificates were made by US Lifes agent. Issue: Whether or not the policy can be rescinded. Held: YES. The spouses in ing the agent to answer some of the blanks in the certificates and afterwards stamping their signature thereon are presumed to have at least acquiesced in and approved all that had bee stated therein in their behalf.

Ng Gan Zee v. Asian Crusader Life - Imperfection in the Application Form 122 SCRA 61 Facts: > In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his wife, Ng Gan Zee as the beneficiary. > He stated in his application that he was operated on for tumor of the stomach associated with ulcer. > In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay on the ground of alse information. > It was found that prior to his application, Kwong was diagnosed to have peptic ulcers, and that during the operation what was removed from Kwongs body was actually a portion of the stomach and not tumor. Issue: Whether or not the contract may be rescinded on the ground of the imperfection in the application form. Held: NO. Kwong did not have sufficient knowledge as to distinguish between a tumor and a peptic ulcer. His statement therefore was made in good faith. Asian should have made an inquiry as to the illness and operation of Kwong when it appeared on the face of the application that a question appeared to be imperfectly answered. Asians failure to inquire constituted a waiver of the imperfection in the answer

Insular Life v. Feliciano - Concealment 73 PHIL 201 Facts: > Evaristo Feliciano filed an application with Insular Life upon the solicitation of one of its agents. > It appears that during that time, Evaristo was already suffering from tuberculosis. Such fact appeared during the medical exam, but the examiner and the companys agent ignored it. > After that, Evaristo was made to sign an application form and thereafter the blank spaces were filled by the medical examiner and the agent making it appear that Evaristo was a fit subject of insurance. (Evaristo could not read and understand English) > When Evaristo died, Insular life refused to pay the proceeds because of concealment. Issue: Whether or not Insular Life was bound by their agents acts. Held: Yes. The insurance business has grown so vast and lucrative within the past century. Nowadays, even people of modest means enter into insurance contracts. Agents who solicit contracts are paid large commissions on the policies secured by them. They act as general representatives of insurance companies. IN the case at bar, the true state of health of the insured was concealed by the agents of the insurer. The insurers medical examiner approved the application knowing fully well that the applicant was sick. The situation is one in which of two innocent parties must bear a loss for his reliance upon a third person. In this case, it is the one who drafted and accepted the policy and consummated the contract. It seems reasonable that as between the two of them, the one who employed and gave character to the third person as its agent should be the one to bear the loss. Hence, Insular is liable to the beneficiaries.

Saturnino v. Philamlife - False Representation 7 SCRA 316 Facts: > 2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands, found in the right armpit. > Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for insurance. > She stated therein that she did not have, nor had she ever had, among others listed in the application, cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any injury within the preceding 5 years. > She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders. > The application also recited that the declarations of Saturnino constituted a further basis for the issuance of the policy. Issue:

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Whether or not the insured made such false representation of material facts as to avoid the policy. Held: YES. There can be no dispute that the information given by her in the application for insurance was false, namely, that she never had cancer or tumors or consulted any physician or undergone any operation within the preceding period of 5 years. The question to determine is: Are the facts then falsely represented material? The Insurance Law provides that materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the proposed contract, or making his inquiries. The contention of appellants is that the facts subject of the representation were not material in view of the non-medical nature of the insurance applied for, which does away with the usual requirement of medical examination before the policy is issued. The contention is without merit. If anything, the waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured herself did not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of insurance, concealment being defined as negligence to communicate that which a party knows and ought to communicate. The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.

Tan v. CA - Rescission of the contract of insurance 174 SCRA 403 Facts: > Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973. > On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for the proceeds of the insurance. > Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on the ground of misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the contract on the ground of misrepresentation as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of the action following the wording of Sec. 48, par. 2. Issue: Whether or not Philamlife can rescind the contract. Held: YES. The phrase during the lifetime found in Sec. 48 simply means that the policy is no longer in force after the insured has died. The key phrase in the second paragraph is for a period of two years. What is a simpler illustration of the ruling in Tan v. CA? The period to consider in a life insurance poiicy is two years from the date of issue or of the last reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise his right to rescind up to Jan. 1, 2003 or two years from the date of issue/reinstatement, REGARDLESS of whether the insured died before or after Jan. 1, 2003.

Pacific Timber v. CA 112 SCRA 199 Facts: > On March 13, 1963, Pacific secured temporary insurance from the Workemens Insurance Co. for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said cargo. > The regular marine policies were issued by the company in favor of Pacific on Apr 2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033. > After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the logs intended to be exported were lost due to a typhoon. > Pacific filed its claim with the company, but the latter refused, contending that said loss may not be considered as covered under the cover note because such became null and void by virtue of the issuance of the marine policies. Issue: Whether or not the cover not was without consideration, thus null and void.

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Held: It was with consideration. SC upheld Pacifics contention that said cover not was with consideration. The fact that no separate premium was paid on the cover note before the loss was insured against occurred does not militate against the validity of Pacifics contention, for no such premium could have been paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain, particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are required to be paid on a cover note. If the note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a mere application.

G.R. No. L-20853

May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs. ENRIQUE MORA, ET AL., defendants-appellees. CASTRO, J.: This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc. Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent provisions of which read: 1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear, 2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be the maximum amount payable by the Company in respect of any claim for loss or damage.1wph1.t 4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this Policy provided that: (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee; During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Hence, this appeal. The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such

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repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials and repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of the insurance company. This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person.1Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person. 2 Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same.3 The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulationpour autrui must be clearly expressed by the parties, which we cannot do. As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom. Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read: The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy. The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the intention of the parties. The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage. Loss in insurance, defined. The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608). Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial. Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost. G.R. No. 101439 June 21, 1999 GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents. QUISUMBING, J.

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In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Government Service Insurance System (GSIS) assails the January 15, 1991 Decision 1 of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985, stating in part: WHEREFORE, judgment is hereby rendered, as follows: In Civil Case No. 2256: a) Dismissing the complaint against defendant Victor Uy; b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo Corbeta, NFA and GSIS to pay jointly and severally the following sums of money: i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctor's fees, medicines, hospitalizations and medical expenses; P2,319.00 for transportation expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained; P12,000.00 loss of income for six months. ii. to plaintiff Victoria Kho, the sum P832.00 for hospitalization and medicines; P10,000.00 for the injuries she sustained; iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad] Vda. de Kho, the sum of P7,500.00 as funeral expenses less P5,000.00 advanced by defendant Victor Uy. iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of Maxima Ugmad Vda. de Kho; P30,000.00 each as compensatory damages. c) To pay plaintiff the sum of P10,000.00 as attorney's fees and expenses of litigation; d) Dismissing defendants counterclaim, and cross-claim; and e) To pay the costs. That this decision is without prejudice as to the right Mabuhay Insurance & Guaranty Co., Inc., and NFA to recover from Guillermo Corbeta and GSIS the amounts they may have paid by virtue hereof. 2 For purposes of this review, we deem as also assailed the disposition by the trial court in its Order issued on July 12, 1985, modifying its original decision, by awarding moral damages to the heirs of the deceased victims, as follows: Considering that the dispositive portion of the decision in this case, an award of P10,000.00 each made to plaintiffs Gloria Kho Vda. de Calabia . . ., for injuries they sustained, this award, through [sic] not clearly stated in the decision, is the moral damages the instant motion seeks to obtain. However, the prayer for moral damages for the death of the three (3) persons above-mentioned is proper. (citation omitted) In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and Victoria Kho for an award of moral damages in their favor is hereby denied. However, as for the death of Wellie [Willie] Calabia, Sr., Rolando Kho and Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and ordering and directing defendants Mabuhay Insurance and Guaranty Company Inc., Guillermo Corbeta, National Food Authority and Government Service Insurance System to pay jointly and severally the following sums to wit : P10,000.00 to the heirs of Wellie [Willie]Calabia, Sr. P10,000.00 to the heirs of Rolando Kho and P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho. IT IS SO ORDERED.
3

The relevant facts as found by the trial court are as follows: National Food Authority (NFA, formerly National Grains Authority) was the owner of a Chevrolet truck which was insured against liabilities for death of and injuries to third persons with the GSIS. On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name and style of "Victory Line." The Tamaraw was a total wreck. All the collision victims were passengers of the Toyota Tamaraw. Five (5) passengers died 4 while ten (10) others sustained bodily injuries. Among those injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda. de Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia, Sr. Three (3) cases were filed with the Court of First Instance of Agusan del Norte and Butuan City. The first, Civil Case No. 2196 for quasi-delict, damages and attorney's fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On August 27, 1979, the second, Civil Case No. 2225 for damages, was filed by an injured passenger, Librado Taer, against Uy, the operator of

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the public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed a cross-claim against MIGC and a third-party complaint against Corbeta and NFA. The third, Civil Case No. 2256, was instituted by herein private respondents on November 26, 1979 against the following: NFA and Corbeta for damages due to quasi-delict; GSIS as insurer of the truck; Uy for breach of contract of carriage; and MIGC as insurer of the Toyota Tamaraw. These cases were consolidated and partially tried by Judge Fortunate A. Vailoces, of the then Court of First Instance of Agusan del Norte and Butuan City. These cases were later on transferred to Branch II of the Regional Trial Court of Butuan City. Trial ensued and on April 30, 1985, the court rendered its decision 5 holding that Corbeta's negligence was the proximate cause of the collision. The findings of the trial court stated that the truck which crossed over to the other lane was speeding because after the collision, its left front wheel was detached and the truck traveled for about fifty (50) meters and fell into a ravine. 6 Likewise, the court concluded that if both vehicles had traveled in their respective lanes, the incident would not have occurred. 7 However, the Chevy cargo truck had crossed over to the other lane which, under traffic rules, was the lane of the Toyota Tamaraw. 8 In Civil Case No. 2196, the trial court awarded Uy the total amount of one hundred nine thousand one hundred (P109,100.00) pesos for damages. In Civil Case No. 2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and NFA to pay plaintiff Taer, jointly and severally, the total amount of forty thousand five hundred fifty-nine pesos and ninety four centavos (P40,559.94) for actual, compensatory, and moral damages plus attorney's fees. Damages were likewise awarded to the herein private respondents in Civil Case No. 2256, as earlier mentioned. Corbeta and NFA appealed the decision of the trial court in Civil Case Nos. 2196, 2225, and 2256 to the Court of Appeals. GSIS also elevated the decision in Civil Case No. 2256 to the same appellate court. The appeals were docketed as C.A.-G.R. Nos. 19847, 19848, and 19849. The Court of Appeals agreed with the conclusions of the trial court and ruled as follows: WHEREFORE, in view of the foregoing considerations, and finding no reversible error, the decisions of the Court a quo in Civil Cases Nos. 2196, 2225 and 2256 are hereby AFFIRMED in toto, with costs against the appellants. SO ORDERED.
9

On February 5 and 6, 1991, GSIS and NFA filed their motions for reconsideration respectively, which were denied by the respondent court in its Resolution 10 dated August 13, 1991. On October 4, 1991, only GSIS filed this petition for review on certiorari based on the following assigned errors: 1. The respondent court erred in holding GSIS solidarily liable with NFA. 2. The respondent court erred in holding GSIS liable beyond the terms and conditions of the contract of insurance and the limitations under Insurance Memorandum Circular (IMC) No. 5-78. 3. The respondent court erred in holding GSIS liable without proof that a notice of claim had been filed within six (6) months from the date of the accident. We find pertinent the following issues: 1) Whether the respondent court erred in holding GSIS solidarily liable with the negligent insured/owner-operator of the Chevrolet truck for damages awarded to private respondents which are beyond the limitations of the insurance policy and the Insurance Memorandum Circular No. 5-78. 2) Whether the respondent court failed to consider that the private respondents have no cause of action against the petitioner, allegedly for failure of the victims to file an insurance claim within six (6) months from the date of the accident. Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck because it claims that they are liable under different obligations. It asserts that the NFA's liability is based on quasi-delict, while petitioner's liability is based on the contract of insurance. Citing articles 1207 11 and 1208 12 of the Civil Code of the Philippines, petitioner states that when there are two or more debtors or two or more creditors, the obligation as a general rule is joint. It claims that the only exceptions are: (1) when there is a stipulation for solidary obligation; (2) when the nature of the obligation requires solidary liability; and (3) when the law declares the obligation to be solidary. However, since neither the provision of the contract nor the insurance law provides for solidary liability, petitioner asserts that the presumption is that its obligation arising from a contract of insurance is joint. Petitioner's position insofar as joint liability is concerned is not tenable. It is now established that the injured or the heirs of a deceased victim of a vehicular accident may sue directly the insurer of the vehicle. Note that common carriers are required to secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under Sec. 374 13 of the Insurance Code, precisely for the benefit of victims of vehicular accidents and to extend them immediate relief. 14 As this Court held in Shafter vs. Judge, RTC of Olongapo City, Br. 75:15 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their defendants [dependents] are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.

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The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which injures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp. 118-119) 16 However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those required by law. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such third persons can directly 17 sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. 18 For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort. 19 The liability of GSIS based on the insurance contract is direct, but not solidary with that of the NFA. The latter's liability is based separately on Article 2180 20 of the Civil Code. 21 Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, in accordance with CMVLI law. At the time of the incident, the schedule of indemnities for death and/or bodily injuries, professional fees, hospital and other charges payable under a CMVLI coverage was provided under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim. 22 The schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G). Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could proceed (1) against GSIS for the indemnity of P12,000 for each dead victim, and against NFA and Guillermo Corbeta for any other damages or expenses claimed; or (2) against NFA and Corbeta to pay them all their claims in full. It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim their medical expenses for eight thousand nine hundred thirty-five pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos, from any of the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA or Corbeta may be held liable therefor. Computation of hospital charges and fees for the services rendered to the injured victims was conclusively established by the trial court. The petitioner failed to object to the evidence thereon, when presented by the private respondents during the trial. Thus, these factual bases for the award of damages may no longer be attacked. For generally, findings of the judge who tried the case and heard the witnesses could not be disturbed on appeal, unless there are substantial facts and particular circumstances which have been overlooked but which, if properly considered, might affect the result of the case. 23 Thus, considering the evidence on record including the schedule of indemnities provided under IMC No. 5-78, we find no cogent reason to disturb the computation of medical charges and expenses that justify the award of damages by the trial court. As to the second issue, the petitioner contends that it cannot be held liable without proof nor allegation that the private respondents filed before its office a notice of claim within six (6) months from the date of the accident. This requirement, according to the petitioner, gives the insurer the opportunity to investigate the veracity of the claim, and non-compliance therewith constitutes waiver. Since the claim was not reported to the insurer, the petitioner avers that the presumption is that the victim opted to pursue his claim against the motor vehicle owner or against the tortfeasor. However, in this case the records reveal that on September 7, 1979, the private respondents sent a notice of loss to the petitioner informing the latter of the accident. Included as "Exihibit J'' 24 in the records, this notice constitutes evidence of the loss they suffered by reason of the vehicular collision. They stressed further that the petitioner did not deny receipt of notice of claim during the trial, and it would be too late now to state otherwise. Although merely factual, we need to emphasize that the alleged delay in reporting the loss by the insured and/or by the beneficiaries must be promptly raised by the insurer 25 in objecting to the claims. When the insured presented proof of loss before the trial court, the insurer failed to object to said presentation. The petitioner should have promptly interposed the defense of delay, or belated compliance, concerning the notice of claim. Moreover, the petitioner merely waited for the victims or beneficiaries to file their complaint. As matters stand now, the defense of laches or prescription is deemed waived because of petitioner's failure to raise it not only before but also during the hearing. 26 To recapitulate, petitioner seeks a definitive ruling only on the extent of its liability, as insurer of NFA, to those injured or killed in the May 9, 1979 vehicular collision. As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA), and MIGC, are solidarily liable for damages as computed below: SCHEDULE A I. For the Injured Victims. 1) Gloria Kho Vda. de Calabia. a) Medical expenses P8,935.06 b) Transportation and Telegraph Expenses 2,372.30 c) Other Compensatory/Moral Damages 10,000.00

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d) Loss of Income 12,000.00 Total P33,307.36 2) Victoria Kho. a) Medical expenses P832.00 b) Other Compensatory/Moral Damages 10,000.00 Total P10,832.00 II. For the Heirs of the Deceased Victims: Compensatory/ Funeral Death Moral Expenses Indemnity Damages Total 1) Heirs of Willie Calabia, Sr. P2,500.00 P30,000.00 P10,000.00 42,500.00 2) Heirs of Roland Kho 2,500.00 30,000.00 10,000.00 42,500.00 3) Heirs of Maxima Ugmad Vda.de Kho 2,500.00 30,000.00 10,000.00 42,500.00 Sub-Total P7,500.00 P90,000.00 P30,000.00 P127,500.00 Less: Advances by Victor Uy (5,000.00) NIL (5,000.00) Balance P2,500.00 P90,000.00 P30,000.00 122,500.00 III. Total Amount of Attorney's Fees P10,000.00 Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under the CMVLI law, the petitioner could only be held liable under its contract of insurance. And pursuant to the CMVLI law, its liability is primary, and not dependent on the recovery of judgment from the insured. Hence, GSIS is directly liable to the private respondents, in the following amounts. SCHEDULE B I. Injured Victims Medical Expenses 1) Victoria Jaime Vda. de Kho P832.00 2) Gloria Kho Vda. de Calabia P8,935.00 II. Heirs of Deceased Victims Death Indemnity 1) Heirs of Willie Calabia, Sr. P12,000.00 2) Heirs of Roland Kho P12,000.00 3) Heirs of Maxima Ugmad Vda. de Kho P12,000.00 The balance of the private respondents' claims as shown on Schedule A above, must be paid by Corbeta or NFA, or MIGC, the parties found solidarily liable. 27 WHEREFORE, the instant petition is hereby GRANTED, but the decision of the trial court as affirmed by the Court of Appeals is hereby. MODIFIED, as follows: 1. Petitioner Government Service Insurance System is ordered to pay (a) twelve thousand pesos (P12,000.00) as death indemnity to each group of heirs of the deceased, Willie Calabia Sr., Roland Kho and Maxima Ugmad Vda. de Kho; (b) eight hundred thirty-two (P832.00) pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c) eight thousand, nine hundred thirty-five pesos and six centavos (P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia.

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2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance & Guaranty Co., Inc., jointly and severally, are ordered to pay private respondents' claims 28 as adjudged by the Regional Trial Court of Butuan City, minus the amounts that GSIS must pay to the injured victims and the heirs of the deceased victims as above stated. This decision is immediately executory. No pronouncement as to cost. SO ORDERED.

July 29, 1968

G.R. No. L-24566 AGRICULTURAL CREDIT & COOPERATIVE FINANCING ADMINISTRATION (ACCFA), plaintiff-appellant, vs. ALPHA INSURANCE & SURETY CO., INC., defendant-appellee, RICARDO A. LADINES, ET AL., third partydefendants-appellees.

Appeal, on points of law, against a decision of the Court of First Instance of Manila, in its Case No. 43372, upholding a motion to dismiss. At issue is the question whether or not the provision of a fidelity bond that no action shall be had or maintained thereon unless commenced within one year from the making of a claim for the loss upon which the action is based, is valid or void, in view of Section 61-A of the Insurance Act invalidating stipulations limiting the time for commencing an action thereon to less than one year from the time the cause of action accrues. Material to this decision are the following facts: According to the allegations of the complaint, in order to guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against loss on account of "personal dishonesty, amounting to larceny or estafa of its Secretary-Treasurer, Ricardo A. Ladines, the appellee, Alpha Insurance & Surety Company had issued, on 14 February 1958, its bond, No. P-FID-1558, for the sum of Five Thousand Pesos (P5,000.00) with said Ricardo Ladines as principal and the appellee as solidary surety. On the same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative and Financing Administration (ACCFA for short), with approval of the principal and the surety. During the effectivity of the bond, Ricardo Ladines converted and misappropriated, to his personal benefit, some P11,513.22 of the FACOMA funds, of which P6,307.33 belonged to the ACCFA. Upon discovery of the loss, ACCFA immediately notified in writing the survey company on 10 October 1958, and presented the proof of loss within the period fixed in the bond; but despite repeated demands the surety company refused and failed to pay. Whereupon, ACCFA filed suit against appellee on 30 May 1960. Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the complaint for failure to state a cause of action, giving as reason that (1) the same was filed more than one year after plaintiff made claim for loss, contrary to the eighth condition of the bond, providing as follows: . EIGHT LIMITATION OF ACTION No action, suit or proceeding shall be had or maintained upon this Bond unless the same be commenced within one year from the time of making claim for the loss upon which such action, suit or proceeding, is based, in accordance with the fourth section hereof. (2) the complaint failed to show that plaintiff had filed civil or criminal action against Ladines, as required by conditions 4 and 11 of the bond; and (3) that Ladines was a necessary and indispensable party but had not been joined as such. At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its original stand, and dismissed the complaint on the ground that the action was filed beyond the contractual limitation period (Record on Appeal, pages 56-59). Hence, this appeal TJxbrhkl3G. We find the appeal meritorious. A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and is governed by the same principles of interpretation: Mechanics Savings Bank & Trust Co. vs. Guarantee Company, 68 Fed. 459; Pao Chan Wei vs. Nemorosa, 103 Phil. 57. Consequently, the condition of the bond in question, limiting the period for bringing action thereon, is subject to the provisions of Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-Commonwealth Philippine Legislature, prescribing that SEC. 61-A A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues is void.

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Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also "an act or omission of the defendant in violation of said legal right" (Maao Sugar Central vs. Barrios, 79 Phil. 666), the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the time of appellee's refusal to comply with its bond; it can not be counted from the creditor's filing of the claim of loss, for that does not import that the surety company will refuse to pay. In so far, therefore, as condition eight of the bond requires action to be filed within one year from the filing of the claim for loss, such stipulation contradicts the public policy expressed in Section 61-A of the Philippine Insurance Act. Condition eight of the bond, therefore, is null and void, and the appellant is not bound to comply with its provisions. In Eagle Star Insurance Co. vs. Chia Yu, 96 Phil. 696, 701, this Court ruled: . It may perhaps be suggested that the policy clause relied on by the insurer for defeating plaintiff's action should be given the construction that would harmonize it with section 61-A of the Insurance Act by taking it to mean that the time given the insured for bringing his suit is twelve months after the cause of action accrues. But the question then would be: When did the cause of action accrue? On that question we agree with the court below that plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit. As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right to wait for his claim to be finally decided before going to court. The law does not encourage unnecessary litigation. The discouraging of unnecessary litigation must be deemed a rule of public policy, considering the unrelieved congestion in the courts. As a consequence of the foregoing, condition eight of the Alpha bond is null and void, and action may be brought within the statutory period of limitation for written contracts (New Civil Code, Article 1144). The case of Ang vs. Fulton Fire Insurance Co., 2 S.C.R.A. 945 (31 July 1961), relied upon by the Court a quo, is no authority against the views herein expressed, since the effect of Section 61-A of the Insurance Law on the terms of the Policy or contract was not there considered. The condition of previous conviction (paragraph b, clause 4, of the contract) having been deleted by express agreement and the surety having assumed solidary liability, the other grounds of the motion to dismiss are equally untenable. A creditor may proceed against any one of the solidary debtors, or some or all of them simultaneously (Article 1216, New Civil Code). WHEREFORE, the appealed order granting the motion to dismiss is reversed and set aside, and the records are remanded to the Court of First Instance, with instructions to require defendant to answer and thereafter proceed in conformity with the law and the Rules of Court. Costs against appellee. So ordered.

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