110652768 cases-sa-insurance

of 69
Homework Help
https://www.homeworkping.com/
Research Paper help
Online Tutoring
click here for freelancing tutoring sites
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

of 69
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
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
II
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
III
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
IV
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
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 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

of 69
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. 137172 April 4, 2001
UCPB GENERAL INSURANCE CO., INC.,
petitioner,
vs.
MASAGANA TELAMART, INC.,
respondent.
R E S O L U T I O N
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this
case, we reversed and set aside the
assailed decision 1
of the Court of Appeals,
which affirmed with modification the
judgment of the trial court (a) allowing
Respondent to consign the sum of
P225,753.95 as full payment of the
premiums for the renewal of the five
insurance policies on Respondent's
properties; (b) declaring the replacement-
renewal policies effective and binding from
22 May 1992 until 22 May 1993; and (c)
ordering Petitioner to pay Respondent
P18,645,000.00 as indemnity for the

of 69
burned properties covered by the renewal-
replacement policies. The modification
consisted in the (1) deletion of the trial
court's declaration that three of the
policies were in force from August 1991 to
August 1992; and (2) reduction of the
award of the attorney's fees from 25% to
10% of the total amount due the
Respondent.
The material operative facts upon which
the appealed judgment was based are
summarized by the Court of Appeals in its
assailed decision as follows:
Plaintiff [herein Respondent]
obtained from defendant [herein
Petitioner] five (5) insurance policies
(Exhibits "A" to "E", Record, pp.
158-175) on its properties [in Pasay
City and Manila] . . . .
All five (5) policies reflect on their
face the effectivity term: "from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of
22 May 1992." On June 13, 1992,
plaintiffs properties located at 2410-
2432 and 2442-2450 Taft Avenue,
Pasay City were razed by fire. On
July 13, 1992, plaintiff tendered,
and defendant accepted, five (5)
Equitable Bank Manager's Checks in
the total amount of P225,753.45 as
renewal premium payments for
which Official Receipt Direct
Premium No. 62926 (Exhibit "Q",
Record, p. 191) was issued by
defendant. On July 14, 1992,
Masagana made its formal demand
for indemnification for the burned
insured properties. On the same
day, defendant returned the five (5)
manager's checks stating in its letter
(Exhibit "R" / "8", Record, p. 192)
that it was rejecting Masagana's
claim on the following grounds:
"a) Said policies expired last
May 22, 1992 and were not
renewed for another term;
b) Defendant had put plaintiff
and its alleged broker on
notice of non-renewal earlier;
and
c) The properties covered by
the said policies were burned
in a fire that took place last
June 13, 1992, or before
tender of premium payment."
(Record, p. 5)
Hence Masagana filed this case.
The Court of Appeals disagreed with
Petitioner's stand that Respondent's
tender of payment of the premiums on 13
July 1992 did not result in the renewal of
the policies, having been made beyond
the effective date of renewal as provided
under Policy Condition No. 26, which
states:
26. Renewal Clause. — Unless the
company at least forty five days in
advance of the end of the policy
period mails or delivers to the
assured at the address shown in the
policy notice of its intention not to
renew the policy or to condition its
renewal upon reduction of limits or
elimination of coverages, the
assured shall be entitled to renew
the policy upon payment of the
premium due on the effective date
of renewal.
Both the Court of Appeals and the trial
court found that sufficient proof exists
that Respondent, which had procured
insurance coverage from Petitioner for a
number of years, had been granted a 60
to 90-day credit term for the renewal of

of 69
the policies. Such a practice had existed
up to the time the claims were filed. Thus:
Fire Insurance Policy No. 34658
covering May 22, 1990 to May 22,
1991 was issued on May 7, 1990 but
premium was paid more than 90
days later on August 31, 1990 under
O.R. No. 4771 (Exhs. "T" and "T-
1"). Fire Insurance Policy No. 34660
for Insurance Risk Coverage from
May 22, 1990 to May 22, 1991 was
issued by UCPB on May 4, 1990 but
premium was collected by UCPB
only on July 13, 1990 or more than
60 days later under O.R. No. 46487
(Exhs. "V" and "V-1"). And so were
as other policies: Fire Insurance
Policy No. 34657 covering risks from
May 22, 1990 to May 22, 1991 was
issued on May 7, 1990 but premium
therefor was paid only on July 19,
1990 under O.R. No. 46583 (Exhs.
"W" and "W-1"). Fire Insurance
Policy No. 34661 covering risks from
May 22, 1990 to May 22, 1991 was
was paid only on July 19, 1990
under O.R. No. 46582 (Exhs. "X"
and "X-1"). Fire Insurance Policy No.
34688 for insurance coverage from
May 22, 1990 to May 22, 1991 was
was paid only on July 19, 1990
under O.R. No. 46585 (Exhs. "Y"
and "Y-1"). Fire Insurance Policy No.
29126 to cover insurance risks from
May 22, 1989 to May 22, 1990 was
issued on May 22, 1989 but
premium therefor was collected only
on July 25, 1990[sic] under O.R. No.
40799 (Exhs. "AA" and "AA-1"). Fire
Insurance Policy No. HO/F-26408
covering risks from January 12,
1989 to January 12, 1990 was
issued to Intratrade Phils.
(Masagana's sister company) dated
December 10, 1988 but premium
therefor was paid only on February
15, 1989 under O.R. No. 38075
(Exhs. "BB" and "BB-1"). Fire
Insurance Policy No. 29128 was
issued on May 22, 1989 but
premium was paid only on July 25,
1989 under O.R. No. 40800 for
insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "CC"
and "CC-1"). Fire Insurance Policy
No. 29127 was issued on May 22,
1989 but premium was paid only on
July 17, 1989 under O.R. No. 40682
for insurance risk coverage from
May 22, 1989 to May 22, 1990
(Exhs. "DD" and "DD-1"). Fire
Insurance Policy No. HO/F-29362
was issued on June 15, 1989 but
premium was paid only on February
13, 1990 under O.R. No. 39233 for
insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "EE"
and "EE-1"). Fire Insurance Policy
No. 26303 was issued on November
22, 1988 but premium therefor was
collected only on March 15, 1989
under O.R. NO. 38573 for insurance
risks coverage from December 15,
1988 to December 15, 1989 (Exhs.
"FF" and "FF-1").
Moreover, according to the Court of
Appeals the following circumstances
constitute preponderant proof that no
timely notice of non-renewal was made by
Petitioner:
(1) Defendant-appellant received
the confirmation (Exhibit "11",
Record, p. 350) from Ultramar
Reinsurance Brokers that plaintiff's
reinsurance facility had been
confirmed up to 67.5% only on April
15, 1992 as indicated on Exhibit
"11". Apparently, the notice of non-
renewal (Exhibit "7," Record, p.
320) was sent not earlier than said
date, or within 45 days from the

of 69
expiry dates of the policies as
provided under Policy Condition No.
26; (2) Defendant insurer
unconditionally accepted, and issued
an official receipt for, the premium
payment on July 1[3], 1992 which
indicates defendant's willingness to
assume the risk despite only a
67.5% reinsurance cover[age]; and
(3) Defendant insurer appointed
Esteban Adjusters and Valuers to
investigate plaintiff's claim as shown
by the letter dated July 17, 1992
(Exhibit "11", Record, p. 254).
In our decision of 15 June 1999, we
defined the main issue to be "whether the
fire insurance policies issued by petitioner
to the respondent covering the period
from May 22, 1991 to May 22, 1992 . . .
had been extended or renewed by an
implied credit arrangement though actual
payment of premium was tendered on a
later date and after the occurrence of the
(fire) risk insured against." We resolved
this issue in the negative in view of
Section 77 of the Insurance Code and our
decisions in Valenzuela v. Court of
Appeals; 2
South Sea Surety and
Insurance Co., Inc. v. Court of Appeals; 3
and Tibay v. Court of Appeals. 4
Accordingly, we reversed and set aside
the decision of the Court of Appeals.
Respondent seasonably filed a motion for
the reconsideration of the adverse verdict.
It alleges in the motion that we had made
in the decision our own findings of facts,
which are not in accord with those of the
trial court and the Court of Appeals. The
courts below correctly found that no
notice of non-renewal was made within 45
days before 22 May 1992, or before the
expiration date of the fire insurance
policies. Thus, the policies in question
were renewed by operation of law and
were effective and valid on 30 June 1992
when the fire occurred, since the
premiums were paid within the 60- to 90-
day credit term.
Respondent likewise disagrees with our
ruling that parties may neither agree
expressly or impliedly on the extension of
credit or time to pay the premium nor
consider a policy binding before actual
payment. It urges the Court to take
judicial notice of the fact that despite the
express provision of Section 77 of the
Insurance Code, extension of credit terms
in premium payment has been the
prevalent practice in the insurance
industry. Most insurance companies,
including Petitioner, extend credit terms
because Section 77 of the Insurance Code
is not a prohibitive injunction but is
merely designed for the protection of the
parties to an insurance contract. The Code
itself, in Section 78, authorizes the validity
of a policy notwithstanding non-payment
of premiums.
Respondent also asserts that the principle
of estoppel applies to Petitioner. Despite
its awareness of Section 77 Petitioner
persuaded and induced Respondent to
believe that payment of premium on the
60- to 90-day credit term was perfectly
alright; in fact it accepted payments
within 60 to 90 days after the due dates.
By extending credit and habitually
accepting payments 60 to 90 days from
the effective dates of the policies, it has
implicitly agreed to modify the tenor of
the insurance policy and in effect waived
the provision therein that it would pay
only for the loss or damage in case the
same occurred after payment of the
premium.
Petitioner filed an opposition to the
Respondent's motion for reconsideration.
It argues that both the trial court and the
Court of Appeals overlooked the fact that
on 6 April 1992 Petitioner sent by ordinary
mail to Respondent a notice of non-

of 69
renewal and sent by personal delivery a
copy thereof to Respondent's broker,
Zuellig. Both courts likewise ignored the
fact that Respondent was fully aware of
the notice of non-renewal. A reading of
Section 66 of the Insurance Code readily
shows that in order for an insured to be
entitled to a renewal of a non-life policy,
payment of the premium due on the
effective date of renewal should first be
made. Respondent's argument that
Section 77 is not a prohibitive provision
finds no authoritative support.
Upon a meticulous review of the records
and reevaluation of the issues raised in
the motion for reconsideration and the
pleadings filed thereafter by the parties,
we resolved to grant the motion for
reconsideration. The following facts, as
found by the trial court and the Court of
Appeals, are indeed duly established:
1. For years, Petitioner had been
issuing fire policies to the
Respondent, and these policies were
annually renewed.
2. Petitioner had been granting
Respondent a 60- to 90-day credit
term within which to pay the
premiums on the renewed policies.
3. There was no valid notice of non-
renewal of the policies in question,
as there is no proof at all that the
notice sent by ordinary mail was
received by Respondent, and the
copy thereof allegedly sent to
Zuellig was ever transmitted to
Respondent.
4. The premiums for the policies in
question in the aggregate amount of
P225,753.95 were paid by
Respondent within the 60- to 90-day
credit term and were duly accepted
and received by Petitioner's cashier.
The instant case has to rise or fall on the
core issue of whether Section 77 of the
Insurance Code of 1978 (P.D. No. 1460)
must be strictly applied to Petitioner's
advantage despite its practice of granting
a 60- to 90-day credit term for the
payment of premiums.
Section 77 of the Insurance Code of 1978
provides:
SECTION 77. An insurer is entitled
to payment of the premium as soon
as the thing insured is exposed to
the peril insured against.
Notwithstanding any agreement to
the contrary, no policy or contract of
insurance issued by an insurance
company is valid and binding unless
and until the premium thereof has
been paid, except in the case of a
life or an industrial life policy
whenever the grace period provision
applies.
This Section is a reproduction of Section
77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In
turn, this Section has its source in Section
72 of Act No. 2427 otherwise known as
the Insurance Act as amended by R.A. No.
3540, approved on 21 June 1963, which
read:
SECTION 72. An insurer is entitled
to payment of premium as soon as
the thing insured is exposed to the
peril insured against, unless there is
clear agreement to grant the
insured credit extension of the
premium due. No policy issued by
an insurance company is valid and
binding unless and until the
premium thereof has been paid.
(Italic supplied)
It can be seen at once that Section 77
does not restate the portion of Section 72
expressly permitting an agreement to

of 69
extend the period to pay the premium.
But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section
77 itself, and that is, in case of a life or
industrial life policy whenever the grace
period provision applies.
The second is that covered by Section 78
of the Insurance Code, which provides:
SECTION 78. Any acknowledgment
in a policy or contract of insurance
of the receipt of premium is
conclusive evidence of its payment,
so far as to make the policy binding,
notwithstanding any stipulation
therein that it shall not be binding
until premium is actually paid.
A third exception was laid down in Makati
Tuscany Condominium Corporation vs.
Court of Appeals, 5
wherein we ruled that
Section 77 may not apply if the parties
have agreed to the payment in
installments of the premium and partial
payment has been made at the time of
loss. We said therein, thus:
We hold that the subject policies are
valid even if the premiums were
paid on installments. The records
clearly show that the petitioners and
private respondent intended subject
insurance policies to be binding and
effective notwithstanding the
staggered payment of the
premiums. The initial insurance
contract entered into in 1982 was
renewed in 1983, then in 1984. In
those three years, the insurer
accepted all the installment
payments. Such acceptance of
payments speaks loudly of the
insurer's intention to honor the
policies it issued to petitioner.
Certainly, basic principles of equity
and fairness would not allow the
insurer to continue collecting and
accepting the premiums, although
paid on installments, and later deny
liability on the lame excuse that the
premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted
with approval the following
pronouncement of the Court of Appeals in
its Resolution denying the motion for
reconsideration of its decision:
While the import of Section 77 is
that prepayment of premiums is
strictly required as a condition to
the validity of the contract, We are
not prepared to rule that the
request to make installment
payments duly approved by the
insurer would prevent the entire
contract of insurance from going
into effect despite payment and
acceptance of the initial premium or
first installment. Section 78 of the
Insurance Code in effect allows
waiver by the insurer of the
condition of prepayment by making
an acknowledgment in the insurance
policy of receipt of premium as
conclusive evidence of payment so
far as to make the policy binding
despite the fact that premium is
actually unpaid. Section 77 merely
precludes the parties from
stipulating that the policy is valid
even if premiums are not paid, but
does not expressly prohibit an
agreement granting credit
extension, and such an agreement is
not contrary to morals, good
customs, public order or public
policy (De Leon, The Insurance
Code, p. 175). So is an
understanding to allow insured to
pay premiums in installments not so
prescribed. At the very least, both
parties should be deemed in

of 69
estoppel to question the
arrangement they have voluntarily
accepted.
By the approval of the aforequoted
findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth
exception to Section 77, namely, that the
insurer may grant credit extension for the
payment of the premium. This simply
means that if the insurer has granted the
insured a credit term for the payment of
the premium and loss occurs before the
expiration of the term, recovery on the
policy should be allowed even though the
premium is paid after the loss but within
the credit term.
Moreover, there is nothing in Section 77
which prohibits the parties in an insurance
contract to provide a credit term within
which to pay the premiums. That
agreement is not against the law, morals,
good customs, public order or public
policy. The agreement binds the parties.
Article 1306 of the Civil Code provides:
ARTICLE 1306. The contracting
parties may establish such
stipulations clauses, terms and
conditions as they may deem
convenient, provided they are not
contrary to law, morals, good
customs, public order, or public
policy.
Finally in the instant case, it would be
unjust and inequitable if recovery on the
policy would not be permitted against
Petitioner, which had consistently granted
a 60- to 90-day credit term for the
payment of premiums despite its full
awareness of Section 77. Estoppel bars it
from taking refuge under said Section,
since Respondent relied in good faith on
such practice. Estoppel then is the fifth
exception to Section 77.
WHEREFORE, the Decision in this
case of 15 June 1999 is
RECONSIDERED and SET ASIDE,
and a new one is hereby entered
DENYING the instant petition for
failure of Petitioner to sufficiently
show that a reversible error was
committed by the Court of Appeals
in its challenged decision, which is
hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE
COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS,
respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO
HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and
Sycip, Salazar, Luna & Manalo for
petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent
Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were
ordered consolidated by the Resolution of
this Court dated April 29, 1970, (Rollo,
No. L-31878, p. 58), because the
petitioners in both cases seek similar
relief, through these petitions for certiorari

of 69
by way of appeal, from the amended
decision of respondent Court of Appeals
which affirmed in toto the decision of the
Court of First Instance of Cebu, ordering
"the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and
Mondragon) jointly and severally to pay
plaintiff (herein private respondent Ngo
Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing
of the complaint, and the sum of
P1,077.75, without interest.
It appears that on March 14, 1957, private
respondent Ngo Hing filed an application
with the Great Pacific Life Assurance
Company (hereinafter referred to as
Pacific Life) for a twenty-year
endownment policy in the amount of
P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent
supplied the essential data which
petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City
wrote on the corresponding form in his
own handwriting (Exhibit I-M). Mondragon
finally type-wrote the data on the
application form which was signed by
private respondent Ngo Hing. The latter
paid the annual premuim the sum of
P1,077.75 going over to the Company, but
he reatined the amount of P1,317.00 as
his commission for being a duly
authorized agebt of Pacific Life. Upon the
payment of the insurance premuim, the
binding deposit receipt (Exhibit E) was
issued to private respondent Ngo Hing.
Likewise, petitioner Mondragon handwrote
at the bottom of the back page of the
application form his strong
recommendation for the approval of the
insurance application. Then on April 30,
1957, Mondragon received a letter from
Pacific Life disapproving the insurance
application (Exhibit 3-M). The letter stated
that the said life insurance application for
20-year endowment plan is not available
for minors below seven years old, but
Pacific Life can consider the same under
the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the
Juvenile Non-Medical Declaration be sent
to the company.
The non-acceptance of the insurance plan
by Pacific Life was allegedly not
communicated by petitioner Mondragon to
private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back
Pacific Life again strongly recommending
the approval of the 20-year endowment
insurance plan to children, pointing out
that since 1954 the customers, especially
the Chinese, were asking for such
coverage (Exhibit 4-M).
It was when things were in such state that
on May 28, 1957 Helen Go died of
influenza with complication of
bronchopneumonia. Thereupon, private
respondent sought the payment of the
proceeds of the insurance, but having
failed in his effort, he filed the action for
the recovery of the same before the Court
of First Instance of Cebu, which rendered
the adverse decision as earlier refered to
against both petitioners.
The decisive issues in these cases are: (1)
whether the binding deposit receipt
(Exhibit E) constituted a temporary
contract of the life insurance in question;
and (2) whether private respondent Ngo
Hing concealed the state of health and
physical condition of Helen Go, which
rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition
precedents required before a deposit is
considered a BINDING RECEIPT. These
conditions state that:
A. If the Company or its
agent, shan have received the
premium deposit ... and the
insurance application, ON or
PRIOR to the date of medical

of 69
examination ... said insurance
shan be in force and in effect
from the date of such medical
examination, for such period
as is covered by the
deposit ..., PROVIDED the
company shall be satisfied
that on said date the applicant
was insurable on standard
rates under its rule for the
amount of insurance and the
kind of policy requested in the
application.
D. If the Company does not
accept the application on
standard rate for the amount
of insurance and/or the kind of
policy requested in the
application but issue, or offers
to issue a policy for a different
plan and/or amount ..., the
insurance shall not be in force
and in effect until the
applicant shall have accepted
the policy as issued or offered
by the Company and shall
have paid the full premium
thereof. If the applicant does
not accept the policy, the
deposit shall be refunded.
E. If the applicant shall not
have been insurable under
Condition A above, and the
Company declines to approve
the application the insurance
applied for shall not have
been in force at any time and
the sum paid be returned to
the applicant upon the
surrender of this receipt.
(Emphasis Ours).
The aforequoted provisions printed on
Exhibit E show that the binding deposit
receipt is intended to be merely a
provisional or temporary insurance
contract and only upon compliance of the
following conditions: (1) that the company
shall be satisfied that the applicant was
insurable on standard rates; (2) that if the
company does not accept the application
and offers to issue a policy for a different
plan, the insurance contract shall not be
binding until the applicant accepts the
policy offered; otherwise, the deposit shall
be reftmded; and (3) that if the applicant
is not ble according to the standard rates,
and the company disapproves the
application, the insurance applied for shall
not be in force at any time, and the
premium paid shall be returned to the
applicant.
Clearly implied from the aforesaid
conditions is that the binding deposit
receipt in question is merely an
acknowledgment, on behalf of the
company, that the latter's branch office
had received from the applicant the
insurance premium and had accepted the
application subject for processing by the
insurance company; and that the latter
will either approve or reject the same on
the basis of whether or not the applicant
is "insurable on standard rates." Since
petitioner Pacific Life disapproved the
insurance application of respondent Ngo
Hing, the binding deposit receipt in
question had never become in force at any
time.
Upon this premise, the binding deposit
receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright.
As held by this Court, where an
agreement is made between the applicant
and the agent, no liability shall attach
until the principal approves the risk and a
receipt is given by the agent. The
acceptance is merely conditional and is
subordinated to the act of the company in
approving or rejecting the application.
Thus, in life insurance, a "binding slip" or
"binding receipt" does not insure by itself

of 69
(De Lim vs. Sun Life Assurance Company
of Canada, 41 Phil. 264).
It bears repeating that through the intra-
company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the
insurance application in question on the
ground that it is not offering the twenty-
year endowment insurance policy to
children less than seven years of age.
What it offered instead is another plan
known as the Juvenile Triple Action, which
private respondent failed to accept. In the
absence of a meeting of the minds
between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year
endowment life insurance in the amount
of P50,000.00 in favor of the latter's one-
year old daughter, and with the non-
compliance of the abovequoted conditions
stated in the disputed binding deposit
receipt, there could have been no
insurance contract duly perfected between
thenl Accordingly, the deposit paid by
private respondent shall have to be
refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance
Company of Canada, supra, "a contract of
insurance, like other contracts, must be
assented to by both parties either in
person or by their agents ... The contract,
to be binding from the date of the
application, must have been a completed
contract, one that leaves nothing to be
dione, nothing to be completed, nothing to
be passed upon, or determined, before it
shall take effect. There can be no contract
of insurance unless the minds of the
parties have met in agreement."
We are not impressed with private
respondent's contention that failure of
petitioner Mondragon to communicate to
him the rejection of the insurance
application would not have any adverse
effect on the allegedly perfected
temporary contract (Respondent's Brief,
pp. 13-14). In this first place, there was
no contract perfected between the parties
who had no meeting of their minds.
Private respondet, being an authorized
insurance agent of Pacific Life at Cebu
branch office, is indubitably aware that
said company does not offer the life
insurance applied for. When he filed the
insurance application in dispute, private
respondent was, therefore, only taking the
chance that Pacific Life will approve the
recommendation of Mondragon for the
acceptance and approval of the application
in question along with his proposal that
the insurance company starts to offer the
20-year endowment insurance plan for
children less than seven years.
Nonetheless, the record discloses that
Pacific Life had rejected the proposal and
recommendation. Secondly, having an
insurable interest on the life of his one-
year old daughter, aside from being an
insurance agent and an offense associate
of petitioner Mondragon, private
respondent Ngo Hing must have known
and followed the progress on the
processing of such application and could
not pretend ignorance of the Company's
rejection of the 20-year endowment life
insurance application.
At this juncture, We find it fit to quote
with approval, the very apt observation of
then Appellate Associate Justice Ruperto
G. Martin who later came up to this Court,
from his dissenting opinion to the
amended decision of the respondent court
which completely reversed the original
decision, the following:
Of course, there is the
insinuation that neither the
memorandum of rejection
(Exhibit 3-M) nor the reply
thereto of appellant
Mondragon reiterating the
desire for applicant's father to
have the application

of 69
considered as one for a 20-
year endowment plan was
ever duly communicated to
Ngo; Hing, father of the minor
applicant. I am not quite
conninced that this was so.
Ngo Hing, as father of the
applicant herself, was
precisely the "underwriter who
wrote this case" (Exhibit H-1).
The unchallenged statement of
appellant Mondragon in his
letter of May 6, 1957) (Exhibit
4-M), specifically admits that
said Ngo Hing was "our
associate" and that it was the
latter who "insisted that the
plan be placed on the 20-year
endowment plan." Under
these circumstances, it is
inconceivable that the
progress in the processing of
the application was not
brought home to his
knowledge. He must have
been duly apprised of the
rejection of the application for
a 20-year endowment plan
otherwise Mondragon would
not have asserted that it was
Ngo Hing himself who insisted
on the application as originally
filed, thereby implictly
declining the offer to consider
the application under the
Juvenile Triple Action Plan.
Besides, the associate of
Mondragon that he was, Ngo
Hing should only be presumed
to know what kind of policies
are available in the company
for minors below 7 years old.
What he and Mondragon were
apparently trying to do in the
premises was merely to prod
the company into going into
the business of issuing
endowment policies for minors
just as other insurance
companies allegedly do. Until
such a definite policy is
however, adopted by the
company, it can hardly be said
that it could have been bound
at all under the binding slip for
a plan of insurance that it
could not have, by then issued
at all. (Amended Decision,
Rollo, pp- 52-53).
2. Relative to the second issue of alleged
concealment. this Court is of the firm
belief that private respondent had
deliberately concealed the state of health
and piysical condition of his daughter
Helen Go. Wher private regpondeit
supplied the required essential data for
the insurance application form, he was
fully aware that his one-year old daughter
is typically a mongoloid child. Such a
congenital physical defect could never be
ensconced nor disguished. Nonetheless,
private respondent, in apparent bad faith,
withheld the fact materal to the risk to be
assumed by the insurance compary. As an
insurance agent of Pacific Life, he ought to
know, as he surely must have known. his
duty and responsibility to such a material
fact. Had he diamond said significant fact
in the insurance application fom Pacific
Life would have verified the same and
would have had no choice but to
disapprove the application outright.
The contract of insurance is one of perfect
good faith uberrima fides meaning good
faith, absolute and perfect candor or
openness and honesty; the absence of
any concealment or demotion, however
slight [Black's Law Dictionary, 2nd
Edition], not for the alone but equally so
for the insurer (Field man's Insurance Co.,
Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate
that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427).

of 69
Whether intentional or unintentional the
concealment entitles the insurer to rescind
the contract of insurance (Section 26, Id.:
Yu Pang Cheng vs. Court of Appeals, et al,
105 Phil 930; Satumino vs. Philippine
American Life Insurance Company, 7
SCRA 316). Private respondent appears
guilty thereof.
We are thus constrained to hold that no
insurance contract was perfected between
the parties with the noncompliance of the
conditions provided in the binding receipt,
and concealment, as legally defined,
having been comraitted by herein private
respondent.
WHEREFORE, the decision appealed from
is hereby set aside, and in lieu thereof,
one is hereby entered absolving
petitioners Lapulapu D. Mondragon and
Great Pacific Life Assurance Company
from their civil liabilities as found by
respondent Court and ordering the
aforesaid insurance company to reimburse
the amount of P1,077.75, without
interest, to private respondent, Ngo Hing.
Costs against private respondent.
SO ORDERED.
G.R. No. 150751 September
20, 2004
CENTRAL SHIPPING COMPANY, INC.,
petitioner,
vs.
INSURANCE COMPANY OF NORTH
AMERICA, respondent.
D E C I S I O N
PANGANIBAN, J.:
A common carrier is presumed to be at
fault or negligent. It shall be liable for the
loss, destruction or deterioration of its
cargo, unless it can prove that the sole
and proximate cause of such event is one
of the causes enumerated in Article 1734
of the Civil Code, or that it exercised
extraordinary diligence to prevent or
minimize the loss. In the present case, the
weather condition encountered by
petitioner’s vessel was not a "storm" or a
natural disaster comprehended in the law.
Given the known weather condition
prevailing during the voyage, the manner
of stowage employed by the carrier was
insufficient to secure the cargo from the
rolling action of the sea. The carrier took a
calculated risk in improperly securing the
cargo. Having lost that risk, it cannot now
disclaim any liability for the loss.
The Case
Before the Court is a Petition for Review1
under Rule 45 of the Rules of Court,
seeking to reverse and set aside the
March 23, 2001 Decision2
of the Court of
Appeals (CA) in CA-GR CV No. 48915. The
assailed Decision disposed as follows:
"WHEREFORE, the decision of the
Regional Trial Court of Makati City,
Branch 148 dated August 4, 1994 is
hereby MODIFIED in so far as the
award of attorney’s fees is
DELETED. The decision is AFFIRMED
in all other respects."3
The CA denied petitioner’s Motion for
Reconsideration in its November 7, 2001
Resolution.4
The Facts
The factual antecedents, summarized by
the trial court and adopted by the
appellate court, are as follows:
"On July 25, 1990 at Puerto
Princesa, Palawan, the [petitioner]
received on board its vessel, the
M/V ‘Central Bohol’, 376 pieces [of]
Philippine Apitong Round Logs and

of 69
undertook to transport said
shipment to Manila for delivery to
Alaska Lumber Co., Inc.
"The cargo was insured for
P3,000,000.00 against total loss
under [respondent’s] Marine Cargo
Policy No. MCPB-00170.
"On July 25, 1990, upon completion
of loading of the cargo, the vessel
left Palawan and commenced the
voyage to Manila.
"At about 0125 hours on July 26,
1990, while enroute to Manila, the
vessel listed about 10 degrees
starboardside, due to the shifting of
logs in the hold.
"At about 0128 hours, after the
listing of the vessel had increased to
15 degrees, the ship captain ordered
his men to abandon ship and at
about 0130 hours of the same day
the vessel completely sank. Due to
the sinking of the vessel, the cargo
was totally lost.
"[Respondent] alleged that the total
loss of the shipment was caused by
the fault and negligence of the
[petitioner] and its captain and as
direct consequence thereof the
consignee suffered damage in the
sum of P3,000,000.00.
"The consignee, Alaska Lumber Co.
Inc., presented a claim for the value
of the shipment to the [petitioner]
but the latter failed and refused to
settle the claim, hence
[respondent], being the insurer,
paid said claim and now seeks to be
subrogated to all the rights and
actions of the consignee as against
the [petitioner].
"[Petitioner], while admitting the
sinking of the vessel, interposed the
defense that the vessel was fully
manned, fully equipped and in all
respects seaworthy; that all the logs
were properly loaded and secured;
that the vessel’s master exercised
due diligence to prevent or minimize
the loss before, during and after the
occurrence of the storm.
"It raised as its main defense that
the proximate and only cause of the
sinking of its vessel and the loss of
its cargo was a natural disaster, a
tropical storm which neither
[petitioner] nor the captain of its
vessel could have foreseen."5
The RTC was unconvinced that the sinking
of M/V Central Bohol had been caused by
the weather or any other caso fortuito. It
noted that monsoons, which were
common occurrences during the months
of July to December, could have been
foreseen and provided for by an ocean-
going vessel. Applying the rule of
presumptive fault or negligence against
the carrier, the trial court held petitioner
liable for the loss of the cargo. Thus, the
RTC deducted the salvage value of the
logs in the amount of P200,000 from the
principal claim of respondent and found
that the latter was entitled to be
subrogated to the rights of the insured.
The court a quo disposed as follows:
"WHEREFORE, premises considered,
judgment is hereby rendered in
favor of the [respondent] and
against the [petitioner] ordering the
latter to pay the following:
1) the amount of
P2,800,000.00 with legal
interest thereof from the filing
of this complaint up to and
until the same is fully paid;

of 69
2) P80,000.00 as and for
attorney’s fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial court’s finding
that the southwestern monsoon
encountered by the vessel was not
unforeseeable. Given the season of rains
and monsoons, the ship captain and his
crew should have anticipated the perils of
the sea. The appellate court further held
that the weather disturbance was not the
sole and proximate cause of the sinking of
the vessel, which was also due to the
concurrent shifting of the logs in the hold
that could have resulted only from
improper stowage. Thus, the carrier was
held responsible for the consequent loss of
or damage to the cargo, because its own
negligence had contributed thereto.
The CA found no merit in petitioner’s
assertion of the vessel’s seaworthiness. It
held that the Certificates of Inspection and
Drydocking were not conclusive proofs
thereof. In order to consider a vessel to
be seaworthy, it must be fit to meet the
perils of the sea.
Found untenable was petitioner’s
insistence that the trial court should have
given greater weight to the factual
findings of the Board of Marine Inquiry
(BMI) in the investigation of the Marine
Protest filed by the ship captain, Enriquito
Cahatol. The CA further observed that
what petitioner had presented to the court
a quo were mere excerpts of the
testimony of Captain Cahatol given during
the course of the proceedings before the
BMI, not the actual findings and
conclusions of the agency. Citing Arada v.
CA,7
it said that findings of the BMI were
limited to the administrative liability of the
owner/operator, officers and crew of the
vessel. However, the determination of
whether the carrier observed
extraordinary diligence in protecting the
cargo it was transporting was a function of
the courts, not of the BMI.
The CA concluded that the doctrine of
limited liability was not applicable, in view
of petitioner’s negligence -- particularly its
improper stowage of the logs.
Hence, this Petition.8
Issues
In its Memorandum, petitioner submits
the following issues for our consideration:
"(i) Whether or not the weather
disturbance which caused the
sinking of the vessel M/V Central
Bohol was a fortuitous event.
"(ii) Whether or not the
investigation report prepared by
Claimsmen Adjustment Corporation
is hearsay evidence under Section
36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of
the Court of Appeals that ‘the logs in
the hold shifted and such shifting
could only be due to improper
stowage’ has a valid and factual
basis.
"(iv) Whether or not M/V Central
Bohol is seaworthy.
"(v) Whether or not the Court of
Appeals erred in not giving credence
to the factual finding of the Board of
Marine Inquiry (BMI), an
independent government agency
tasked to conduct inquiries on
maritime accidents.
"(vi) Whether or not the Doctrine of
Limited Liability is applicable to the
case at bar."9

of 69
The issues boil down to two: (1) whether
the carrier is liable for the loss of the
cargo; and (2) whether the doctrine of
limited liability is applicable. These issues
involve a determination of factual
questions of whether the loss of the cargo
was due to the occurrence of a natural
disaster; and if so, whether its sole and
proximate cause was such natural disaster
or whether petitioner was partly to blame
for failing to exercise due diligence in the
prevention of that loss.
The Court’s Ruling
The Petition is devoid of merit.
First Issue:
Liability for Lost Cargo
From the nature of their business and for
reasons of public policy, common carriers
are bound to observe extraordinary
diligence over the goods they transport,
according to all the circumstances of each
case.10
In the event of loss, destruction or
deterioration of the insured goods,
common carriers are responsible; that is,
unless they can prove that such loss,
destruction or deterioration was brought
about -- among others -- by "flood, storm,
earthquake, lightning or other natural
disaster or calamity."11
In all other cases
not specified under Article 1734 of the
Civil Code, common carriers are presumed
to have been at fault or to have acted
negligently, unless they prove that they
observed extraordinary diligence.12
In the present case, petitioner disclaims
responsibility for the loss of the cargo by
claiming the occurrence of a "storm"
under Article 1734(1). It attributes the
sinking of its vessel solely to the weather
condition between 10:00 p.m. on July 25,
1990 and 1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that
only questions of law13
may be raised in a
petition for review on certiorari under Rule
45 of the Rules of Court. Questions of fact
are not proper subjects in this mode of
appeal,14
for "[t]he Supreme Court is not a
trier of facts."15
Factual findings of the CA
may be reviewed on appeal16
only under
exceptional circumstances such as, among
others, when the inference is manifestly
mistaken,17
the judgment is based on a
misapprehension of facts,18
or the CA
manifestly overlooked certain relevant and
undisputed facts that, if properly
considered, would justify a different
conclusion.19
In the present case, petitioner has not
given the Court sufficient cogent reasons
to disturb the conclusion of the CA that
the weather encountered by the vessel
was not a "storm" as contemplated by
Article 1734(1). Established is the fact
that between 10:00 p.m. on July 25, 1990
and 1:25 a.m. on July 26, 1990, M/V
Central Bohol encountered a southwestern
monsoon in the course of its voyage.
The Note of Marine Protest,20
which the
captain of the vessel issued under oath,
stated that he and his crew encountered a
southwestern monsoon about 2200 hours
on July 25, 1990, and another monsoon
about 2400 hours on July 26, 1990. Even
petitioner admitted in its Answer that the
sinking of M/V Central Bohol had been
caused by the strong southwest
monsoon.21
Having made such factual
representation, it cannot now be allowed
to retreat and claim that the southwestern
monsoon was a "storm."
The pieces of evidence with respect to the
weather conditions encountered by the
vessel showed that there was a
southwestern monsoon at the time.
Normally expected on sea voyages,
however, were such monsoons, during

of 69
which strong winds were not unusual.
Rosa S. Barba, weather specialist of the
Philippine Atmospheric Geophysical and
Astronomical Services Administration
(PAGASA), testified that a thunderstorm
might occur in the midst of a southwest
monsoon. According to her, one did occur
between 8:00 p.m. on July 25, 1990, and
2 a.m. on July 26, 1990, as recorded by
the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be
sufficient to categorize the weather
condition at the time as a "storm" within
the absolutory causes enumerated in the
law. Significantly, no typhoon was
observed within the Philippine area of
responsibility during that period.23
According to PAGASA, a storm has a wind
force of 48 to 55 knots,24
equivalent to 55
to 63 miles per hour or 10 to 11 in the
Beaufort Scale. The second mate of the
vessel stated that the wind was blowing
around force 7 to 8 on the Beaufort
Scale.25
Consequently, the strong winds
accompanying the southwestern monsoon
could not be classified as a "storm." Such
winds are the ordinary vicissitudes of a
sea voyage.26
Even if the weather encountered by the
ship is to be deemed a natural disaster
under Article 1739 of the Civil Code,
petitioner failed to show that such natural
disaster or calamity was the proximate
and only cause of the loss. Human agency
must be entirely excluded from the cause
of injury or loss. In other words, the
damaging effects blamed on the event or
phenomenon must not have been caused,
contributed to, or worsened by the
presence of human participation.27
The
defense of fortuitous event or natural
disaster cannot be successfully made
when the injury could have been avoided
by human precaution.28
Hence, if a common carrier fails to
exercise due diligence -- or that ordinary
care that the circumstances of the
particular case demand -- to prevent or
minimize the loss before, during and after
the occurrence of the natural disaster, the
carrier shall be deemed to have been
negligent. The loss or injury is not, in a
legal sense, due to a natural disaster
under Article 1734(1).29
We also find no reason to disturb the CA’s
finding that the loss of the vessel was
caused not only by the southwestern
monsoon, but also by the shifting of the
logs in the hold. Such shifting could been
due only to improper stowage. The
assailed Decision stated:
"Notably, in Master Cahatol’s
account, the vessel encountered the
first southwestern monsoon at about
1[0]:00 in the evening. The
monsoon was coupled with heavy
rains and rough seas yet the vessel
withstood the onslaught. The second
monsoon attack occurred at about
12:00 midnight. During this
occasion, the master ‘felt’ that the
logs in the hold shifted, prompting
him to order second mate Percival
Dayanan to look at the bodega.
Complying with the captain’s order,
2nd mate Percival Dayanan found
that there was seawater in the
bodega. 2nd mate Dayanan’s
account was:
‘14.T – Kung inyo pong
natatandaan ang mga
pangyayari, maari mo bang
isalaysay ang naganap na
paglubog sa barkong M/V
Central Bohol?
‘S – Opo, noong ika-26 ng
Julio 1990 humigit kumulang
alas 1:20 ng umaga (dst)

of 69
habang kami ay nagnanabegar
patungong Maynila sa tapat ng
Cadlao Island at Cauayan
Island sakop ng El Nido,
Palawan, inutusan ako ni
Captain Enriquito Cahatol na
tingnan ko ang bodega; nang
ako ay nasa bodega, nakita ko
ang loob nang bodega na
maraming tubig at naririnig ko
ang malakas na agos ng
tubig-dagat na pumapasok sa
loob ng bodega ng barko;
agad bumalik ako kay Captain
Enriquito Cahatol at sinabi ko
ang malakas na pagpasok ng
tubig-dagat sa loob nang
bodega ng barko na ito ay
naka-tagilid humigit kumulang
sa 020 degrees, nag-order si
Captain Cahatol na standby
engine at tinawag ang lahat
ng mga officials at mga crew
nang maipon kaming lahat
ang barko ay naka-tagilid at
ito ay tuloy-tuloy ang
pagtatagilid na ang ilan sa
mga officials ay naka-hawak
na sa barandilla ng barko at
di-nagtagal sumigaw nang
ABANDO[N] SHIP si Captain
Cahatol at kami ay nagkanya-
kanya nang talunan at
languyan sa dagat na malakas
ang alon at nang ako ay
lumingon sa barko ito ay di ko
na nakita.’
"Additionally, [petitioner’s] own
witnesses, boatswain Eduardo Viñas
Castro and oiler Frederick Perena,
are one in saying that the vessel
encountered two weather
disturbances, one at around 10
o’clock to 11 o’clock in the evening
and the other at around 12 o’clock
midnight. Both disturbances were
coupled with waves and heavy rains,
yet, the vessel endured the first and
not the second. Why? The reason is
plain. The vessel felt the strain
during the second onslaught
because the logs in the bodega
shifted and there were already
seawater that seeped inside."30
The above conclusion is supported by the
fact that the vessel proceeded through the
first southwestern monsoon without any
mishap, and that it began to list only
during the second monsoon immediately
after the logs had shifted and seawater
had entered the hold. In the hold, the
sloshing of tons of water back and forth
had created pressures that eventually
caused the ship to sink. Had the logs not
shifted, the ship could have survived and
reached at least the port of El Nido. In
fact, there was another motor launch that
had been buffeted by the same weather
condition within the same area, yet it was
able to arrive safely at El Nido.31
In its Answer, petitioner categorically
admitted the allegation of respondent in
paragraph 5 of the latter’s Complaint
"[t]hat at about 0125 hours on 26 July
1990, while enroute to Manila, the M/V
‘Central Bohol’ listed about 10 degrees
starboardside, due to the shifting of logs
in the hold." Further, petitioner averred
that "[t]he vessel, while navigating
through this second southwestern
monsoon, was under extreme stress. At
about 0125 hours, 26 July 1990, a thud
was heard in the cargo hold and the logs
therein were felt to have shifted. The
vessel thereafter immediately listed by ten
(10) degrees starboardside."32
Yet, petitioner now claims that the CA’s
conclusion was grounded on mere
speculations and conjectures. It alleges
that it was impossible for the logs to have
shifted, because they had fitted exactly in

of 69
the hold from the port to the starboard
side.
After carefully studying the records, we
are inclined to believe that the logs did
indeed shift, and that they had been
improperly loaded.
According to the boatswain’s testimony,
the logs were piled properly, and the
entire shipment was lashed to the vessel
by cable wire.33
The ship captain testified
that out of the 376 pieces of round logs,
around 360 had been loaded in the lower
hold of the vessel and 16 on deck. The
logs stored in the lower hold were not
secured by cable wire, because they fitted
exactly from floor to ceiling. However,
while they were placed side by side, there
were unavoidable clearances between
them owing to their round shape. Those
loaded on deck were lashed together
several times across by cable wire, which
had a diameter of 60 millimeters, and
were secured from starboard to port.34
It is obvious, as a matter of common
sense, that the manner of stowage in the
lower hold was not sufficient to secure the
logs in the event the ship should roll in
heavy weather. Notably, they were of
different lengths ranging from 3.7 to 12.7
meters.35
Being clearly prone to shifting,
the round logs should not have been
stowed with nothing to hold them securely
in place. Each pile of logs should have
been lashed together by cable wire, and
the wire fastened to the side of the hold.
Considering the strong force of the wind
and the roll of the waves, the loose
arrangement of the logs did not rule out
the possibility of their shifting. By force of
gravity, those on top of the pile would
naturally roll towards the bottom of the
ship.
The adjuster’s Report, which was heavily
relied upon by petitioner to strengthen its
claim that the logs had not shifted, stated
that "the logs were still properly lashed by
steel chains on deck." Parenthetically, this
statement referred only to those loaded
on deck and did not mention anything
about the condition of those placed in the
lower hold. Thus, the finding of the
surveyor that the logs were still intact
clearly pertained only to those lashed on
deck.
The evidence indicated that strong
southwest monsoons were common
occurrences during the month of July.
Thus, the officers and crew of M/V Central
Bohol should have reasonably anticipated
heavy rains, strong winds and rough seas.
They should then have taken extra
precaution in stowing the logs in the hold,
in consonance with their duty of observing
extraordinary diligence in safeguarding
the goods. But the carrier took a
calculated risk in improperly securing the
cargo. Having lost that risk, it cannot now
escape responsibility for the loss.
Second Issue:
Doctrine of Limited Liability
The doctrine of limited liability under
Article 587 of the Code of Commerce36
is
not applicable to the present case. This
rule does not apply to situations in which
the loss or the injury is due to the
concurrent negligence of the shipowner
and the captain.37
It has already been
established that the sinking of M/V Central
Bohol had been caused by the fault or
negligence of the ship captain and the
crew, as shown by the improper stowage
of the cargo of logs. "Closer supervision
on the part of the shipowner could have
prevented this fatal miscalculation."38
As
such, the shipowner was equally
negligent. It cannot escape liability by
virtue of the limited liability rule.

of 69
WHEREFORE, the Petition is DENIED,
and the assailed Decision and Resolution
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 181132 June 5, 2009
HEIRS OF LORETO C. MARAMAG,
represented by surviving spouse
VICENTA PANGILINAN MARAMAG,
Petitioners,
vs.
EVA VERNA DE GUZMAN MARAMAG,
ODESSA DE GUZMAN MARAMAG, KARL
BRIAN DE GUZMAN MARAMAG,
TRISHA ANGELIE MARAMAG, THE
INSULAR LIFE ASSURANCE COMPANY,
LTD., and GREAT PACIFIC LIFE
ASSURANCE CORPORATION,
Respondents.
D E C I S I O N
NACHURA, J.:
This is a petition1
for review on certiorari
under Rule 45 of the Rules, seeking to
reverse and set aside the Resolution2
dated January 8, 2008 of the Court of
Appeals (CA), in CA-G.R. CV No. 85948,
dismissing petitioners’ appeal for lack of
jurisdiction.
The case stems from a petition3
filed
against respondents with the Regional
Trial Court, Branch 29, for revocation
and/or reduction of insurance proceeds for
being void and/or inofficious, with prayer
for a temporary restraining order (TRO)
and a writ of preliminary injunction.
The petition alleged that: (1) petitioners
were the legitimate wife and children of
Loreto Maramag (Loreto), while
respondents were Loreto’s illegitimate
family; (2) Eva de Guzman Maramag
(Eva) was a concubine of Loreto and a
suspect in the killing of the latter, thus,
she is disqualified to receive any proceeds
from his insurance policies from Insular
Life Assurance Company, Ltd. (Insular)4
and Great Pacific Life Assurance
Corporation (Grepalife);5
(3) the
illegitimate children of Loreto—Odessa,
Karl Brian, and Trisha Angelie—were
entitled only to one-half of the legitime of
the legitimate children, thus, the proceeds
released to Odessa and those to be
released to Karl Brian and Trisha Angelie
were inofficious and should be reduced;
and (4) petitioners could not be deprived
of their legitimes, which should be
satisfied first.
In support of the prayer for TRO and writ
of preliminary injunction, petitioners
alleged, among others, that part of the
insurance proceeds had already been
released in favor of Odessa, while the rest
of the proceeds are to be released in favor
of Karl Brian and Trisha Angelie, both
minors, upon the appointment of their
legal guardian. Petitioners also prayed for
the total amount of P320,000.00 as actual
litigation expenses and attorney’s fees.
In answer,6
Insular admitted that Loreto
misrepresented Eva as his legitimate wife
and Odessa, Karl Brian, and Trisha Angelie
as his legitimate children, and that they
filed their claims for the insurance
proceeds of the insurance policies; that
when it ascertained that Eva was not the
legal wife of Loreto, it disqualified her as a
beneficiary and divided the proceeds
among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated
beneficiaries; and that it released
Odessa’s share as she was of age, but
withheld the release of the shares of
minors Karl Brian and Trisha Angelie
pending submission of letters of
guardianship. Insular alleged that the
complaint or petition failed to state a
cause of action insofar as it sought to

of 69
declare as void the designation of Eva as
beneficiary, because Loreto revoked her
designation as such in Policy No.
A001544070 and it disqualified her in
Policy No. A001693029; and insofar as it
sought to declare as inofficious the shares
of Odessa, Karl Brian, and Trisha Angelie,
considering that no settlement of Loreto’s
estate had been filed nor had the
respective shares of the heirs been
determined. Insular further claimed that it
was bound to honor the insurance policies
designating the children of Loreto with Eva
as beneficiaries pursuant to Section 53 of
the Insurance Code.
In its own answer7
with compulsory
counterclaim, Grepalife alleged that Eva
was not designated as an insurance policy
beneficiary; that the claims filed by
Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible
for insurance due to a misrepresentation
in his application form that he was born
on December 10, 1936 and, thus, not
more than 65 years old when he signed it
in September 2001; that the case was
premature, there being no claim filed by
the legitimate family of Loreto; and that
the law on succession does not apply
where the designation of insurance
beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl
Brian, and Trisha Angelie were not known
to petitioners, summons by publication
was resorted to. Still, the illegitimate
family of Loreto failed to file their answer.
Hence, the trial court, upon motion of
petitioners, declared them in default in its
Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both
Insular and Grepalife moved that the
issues raised in their respective answers
be resolved first. The trial court ordered
petitioners to comment within 15 days.
In their comment, petitioners alleged that
the issue raised by Insular and Grepalife
was purely legal – whether the complaint
itself was proper or not – and that the
designation of a beneficiary is an act of
liberality or a donation and, therefore,
subject to the provisions of Articles 7528
and 7729
of the Civil Code.
In reply, both Insular and Grepalife
countered that the insurance proceeds
belong exclusively to the designated
beneficiaries in the policies, not to the
estate or to the heirs of the insured.
Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it
ascertained that Loreto was legally
married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court
issued a Resolution, the dispositive
portion of which reads –
WHEREFORE, the motion to dismiss
incorporated in the answer of defendants
Insular Life and Grepalife is granted with
respect to defendants Odessa, Karl Brian
and Trisha Maramag. The action shall
proceed with respect to the other
defendants Eva Verna de Guzman, Insular
Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated
thus –
Art. 2011 of the Civil Code provides that
the contract of insurance is governed by
the (sic) special laws. Matters not
expressly provided for in such special laws
shall be regulated by this Code. The
principal law on insurance is the Insurance
Code, as amended. Only in case of
deficiency in the Insurance Code that the
Civil Code may be resorted to. (Enriquez
v. Sun Life Assurance Co., 41 Phil. 269.)

of 69
The Insurance Code, as amended,
contains a provision regarding to whom
the insurance proceeds shall be paid. It is
very clear under Sec. 53 thereof that the
insurance proceeds shall be applied
exclusively to the proper interest of the
person in whose name or for whose
benefit it is made, unless otherwise
specified in the policy. Since the
defendants are the ones named as the
primary beneficiary (sic) in the insurances
(sic) taken by the deceased Loreto C.
Maramag and there is no showing that
herein plaintiffs were also included as
beneficiary (sic) therein the insurance
proceeds shall exclusively be paid to
them. This is because the beneficiary has
a vested right to the indemnity, unless the
insured reserves the right to change the
beneficiary. (Grecio v. Sunlife Assurance
Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic)
the law on donations or the rules on
testamentary succession in order to defeat
the right of herein defendants to collect
the insurance indemnity. The beneficiary
in a contract of insurance is not the donee
spoken in the law of donation. The rules
on testamentary succession cannot apply
here, for the insurance indemnity does not
partake of a donation. As such, the
insurance indemnity cannot be considered
as an advance of the inheritance which
can be subject to collation (Del Val v. Del
Val, 29 Phil. 534). In the case of Southern
Luzon Employees’ Association v. Juanita
Golpeo, et al., the Honorable Supreme
Court made the following
pronouncements[:]
"With the finding of the trial court that the
proceeds to the Life Insurance Policy
belongs exclusively to the defendant as
his individual and separate property, we
agree that the proceeds of an insurance
policy belong exclusively to the beneficiary
and not to the estate of the person whose
life was insured, and that such proceeds
are the separate and individual property
of the beneficiary and not of the heirs of
the person whose life was insured, is the
doctrine in America. We believe that the
same doctrine obtains in these Islands by
virtue of Section 428 of the Code of
Commerce x x x."
In [the] light of the above
pronouncements, it is very clear that the
plaintiffs has (sic) no sufficient cause of
action against defendants Odessa, Karl
Brian and Trisha Angelie Maramag for the
reduction and/or declaration of
inofficiousness of donation as primary
beneficiary (sic) in the insurances (sic) of
the late Loreto C. Maramag.
However, herein plaintiffs are not totally
bereft of any cause of action. One of the
named beneficiary (sic) in the insurances
(sic) taken by the late Loreto C. Maramag
is his concubine Eva Verna De Guzman.
Any person who is forbidden from
receiving any donation under Article 739
cannot be named beneficiary of a life
insurance policy of the person who cannot
make any donation to him, according to
said article (Art. 2012, Civil Code). If a
concubine is made the beneficiary, it is
believed that the insurance contract will
still remain valid, but the indemnity must
go to the legal heirs and not to the
concubine, for evidently, what is
prohibited under Art. 2012 is the naming
of the improper beneficiary. In such case,
the action for the declaration of nullity
may be brought by the spouse of the
donor or donee, and the guilt of the donor
and donee may be proved by
preponderance of evidence in the same
action (Comment of Edgardo L. Paras,
Civil Code of the Philippines, page 897).
Since the designation of defendant Eva
Verna de Guzman as one of the primary
beneficiary (sic) in the insurances (sic)
taken by the late Loreto C. Maramag is

of 69
void under Art. 739 of the Civil Code, the
insurance indemnity that should be paid to
her must go to the legal heirs of the
deceased which this court may properly
take cognizance as the action for the
declaration for the nullity of a void
donation falls within the general
jurisdiction of this Court.11
Insular12
and Grepalife13
filed their
respective motions for reconsideration,
arguing, in the main, that the petition
failed to state a cause of action. Insular
further averred that the proceeds were
divided among the three children as the
remaining named beneficiaries. Grepalife,
for its part, also alleged that the
premiums paid had already been
refunded.
Petitioners, in their comment, reiterated
their earlier arguments and posited that
whether the complaint may be dismissed
for failure to state a cause of action must
be determined solely on the basis of the
allegations in the complaint, such that the
defenses of Insular and Grepalife would be
better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a
Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing
disquisitions, the Motions for
Reconsideration filed by defendants
Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21
September 2004 which ordered the
prosecution of the case against defendant
Eva Verna De Guzman, Grepalife and
Insular Life is hereby SET ASIDE, and the
case against them is hereby ordered
DISMISSED.
SO ORDERED.14
In granting the motions for
reconsideration of Insular and Grepalife,
the trial court considered the allegations
of Insular that Loreto revoked the
designation of Eva in one policy and that
Insular disqualified her as a beneficiary in
the other policy such that the entire
proceeds would be paid to the illegitimate
children of Loreto with Eva pursuant to
Section 53 of the Insurance Code. It ruled
that it is only in cases where there are no
beneficiaries designated, or when the only
designated beneficiary is disqualified, that
the proceeds should be paid to the estate
of the insured. As to the claim that the
proceeds to be paid to Loreto’s illegitimate
children should be reduced based on the
rules on legitime, the trial court held that
the distribution of the insurance proceeds
is governed primarily by the Insurance
Code, and the provisions of the Civil Code
are irrelevant and inapplicable. With
respect to the Grepalife policy, the trial
court noted that Eva was never
designated as a beneficiary, but only
Odessa, Karl Brian, and Trisha Angelie;
thus, it upheld the dismissal of the case as
to the illegitimate children. It further held
that the matter of Loreto’s
misrepresentation was premature; the
appropriate action may be filed only upon
denial of the claim of the named
beneficiaries for the insurance proceeds
by Grepalife.
Petitioners appealed the June 16, 2005
Resolution to the CA, but it dismissed the
appeal for lack of jurisdiction, holding that
the decision of the trial court dismissing
the complaint for failure to state a cause
of action involved a pure question of law.
The appellate court also noted that
petitioners did not file within the
reglementary period a motion for
reconsideration of the trial court’s
Resolution, dated September 21, 2004,
dismissing the complaint as against
Odessa, Karl Brian, and Trisha Angelie;
thus, the said Resolution had already
attained finality.

of 69
Hence, this petition raising the following
issues:
a. In determining the merits of a
motion to dismiss for failure to state
a cause of action, may the Court
consider matters which were not
alleged in the Complaint, particularly
the defenses put up by the
defendants in their Answer?
b. In granting a motion for
reconsideration of a motion to
dismiss for failure to state a cause
of action, did not the Regional Trial
Court engage in the examination
and determination of what were the
facts and their probative value, or
the truth thereof, when it premised
the dismissal on allegations of the
defendants in their answer – which
had not been proven?
c. x x x (A)re the members of the
legitimate family entitled to the
proceeds of the insurance for the
concubine?15
In essence, petitioners posit that their
petition before the trial court should not
have been dismissed for failure to state a
cause of action because the finding that
Eva was either disqualified as a
beneficiary by the insurance companies or
that her designation was revoked by
Loreto, hypothetically admitted as true,
was raised only in the answers and
motions for reconsideration of both
Insular and Grepalife. They argue that for
a motion to dismiss to prosper on that
ground, only the allegations in the
complaint should be considered. They
further contend that, even assuming
Insular disqualified Eva as a beneficiary,
her share should not have been
distributed to her children with Loreto but,
instead, awarded to them, being the
legitimate heirs of the insured deceased,
in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was
based on the trial court’s finding that the
petition failed to state a cause of action,
as provided in Rule 16, Section 1(g), of
the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time
for but before filing the answer to the
complaint or pleading asserting a claim, a
motion to dismiss may be made on any of
the following grounds:
x x x x
(g) That the pleading asserting the claim
states no cause of action.
A cause of action is the act or omission by
which a party violates a right of another.16
A complaint states a cause of action when
it contains the three (3) elements of a
cause of action—(1) the legal right of the
plaintiff; (2) the correlative obligation of
the defendant; and (3) the act or omission
of the defendant in violation of the legal
right. If any of these elements is absent,
the complaint becomes vulnerable to a
motion to dismiss on the ground of failure
to state a cause of action.17
When a motion to dismiss is premised on
this ground, the ruling thereon should be
based only on the facts alleged in the
complaint. The court must resolve the
issue on the strength of such allegations,
assuming them to be true. The test of
sufficiency of a cause of action rests on
whether, hypothetically admitting the
facts alleged in the complaint to be true,
the court can render a valid judgment
upon the same, in accordance with the
prayer in the complaint. This is the
general rule.

of 69
However, this rule is subject to well-
recognized exceptions, such that there is
no hypothetical admission of the veracity
of the allegations if:
1. the falsity of the allegations is
subject to judicial notice;
2. such allegations are legally
impossible;
3. the allegations refer to facts
which are inadmissible in evidence;
4. by the record or document in the
pleading, the allegations appear
unfounded; or
5. there is evidence which has been
presented to the court by stipulation
of the parties or in the course of the
hearings related to the case.18
In this case, it is clear from the petition
filed before the trial court that, although
petitioners are the legitimate heirs of
Loreto, they were not named as
beneficiaries in the insurance policies
issued by Insular and Grepalife. The basis
of petitioners’ claim is that Eva, being a
concubine of Loreto and a suspect in his
murder, is disqualified from being
designated as beneficiary of the insurance
policies, and that Eva’s children with
Loreto, being illegitimate children, are
entitled to a lesser share of the proceeds
of the policies. They also argued that
pursuant to Section 12 of the Insurance
Code,19
Eva’s share in the proceeds should
be forfeited in their favor, the former
having brought about the death of Loreto.
Thus, they prayed that the share of Eva
and portions of the shares of Loreto’s
illegitimate children should be awarded to
them, being the legitimate heirs of Loreto
entitled to their respective legitimes.
It is evident from the face of the
complaint that petitioners are not entitled
to a favorable judgment in light of Article
2011 of the Civil Code which expressly
provides that insurance contracts shall be
governed by special laws, i.e., the
Insurance Code. Section 53 of the
Insurance Code states—
SECTION 53. The insurance proceeds shall
be applied exclusively to the proper
interest of the person in whose name or
for whose benefit it is made unless
otherwise specified in the policy.
Pursuant thereto, it is obvious that the
only persons entitled to claim the
insurance proceeds are either the insured,
if still alive; or the beneficiary, if the
insured is already deceased, upon the
maturation of the policy.20
The exception
to this rule is a situation where the
insurance contract was intended to benefit
third persons who are not parties to the
same in the form of favorable stipulations
or indemnity. In such a case, third parties
may directly sue and claim from the
insurer.21
Petitioners are third parties to the
insurance contracts with Insular and
Grepalife and, thus, are not entitled to the
proceeds thereof. Accordingly,
respondents Insular and Grepalife have no
legal obligation to turn over the insurance
proceeds to petitioners. The revocation of
Eva as a beneficiary in one policy and her
disqualification as such in another are of
no moment considering that the
designation of the illegitimate children as
beneficiaries in Loreto’s insurance policies
remains valid. Because no legal
proscription exists in naming as
beneficiaries the children of illicit
relationships by the insured,22
the shares
of Eva in the insurance proceeds, whether
forfeited by the court in view of the
prohibition on donations under Article 739
of the Civil Code or by the insurers
themselves for reasons based on the

of 69
insurance contracts, must be awarded to
the said illegitimate children, the
designated beneficiaries, to the exclusion
of petitioners. It is only in cases where the
insured has not designated any
beneficiary,23
or when the designated
beneficiary is disqualified by law to receive
the proceeds,24
that the insurance policy
proceeds shall redound to the benefit of
the estate of the insured.
In this regard, the assailed June 16, 2005
Resolution of the trial court should be
upheld. In the same light, the Decision of
the CA dated January 8, 2008 should be
sustained. Indeed, the appellate court had
no jurisdiction to take cognizance of the
appeal; the issue of failure to state a
cause of action is a question of law and
not of fact, there being no findings of fact
in the first place.25
WHEREFORE, the petition is DENIED for
lack of merit. Costs against petitioners.
SO ORDERED.
G.R. No. 119655 May 24, 1996
SPS. ANTONIO A. TIBAY and VIOLETA
R. TIBAY and OFELIA M. RORALDO,
VICTORINA M. RORALDO, VIRGILIO
M. RORALDO, MYRNA M. RORALDO
and ROSABELLA M. RORALDO,
petitioners,
vs.
COURT OF APPEALS and FORTUNE
LIFE AND GENERAL INSURANCE CO.,
INC., respondents.
BELLOSILLO, J.:p
May a fire insurance policy be valid,
binding and enforceable upon mere partial
payment of premium?
On 22 January 1987 private respondent
Fortune Life and General Insurance Co.,
Inc. (FORTUNE) issued Fire Insurance
Policy No. 136171 in favor of Violeta R.
Tibay and/or Nicolas Roraldo on their two-
storey residential building located at 5855
Zobel Street, Makati City, together with all
their personal effects therein. The
insurance was for P600,000.00 covering
the period from 23 January 1987 to 23
January 1988. On 23 January 1987, of the
total premium of P2,983.50, petitioner
Violeta Tibay only paid P600.00 thus
leaving a considerable balance unpaid.
On 8 March 1987 the insured building was
completely destroyed by fire. Two days
later or on 10 March 1987 Violeta Tibay
paid the balance of the premium. On the
same day, she filed with FORTUNE a claim
on the fire insurance policy. Her claim was
accordingly referred to its adjuster,
Goodwill Adjustment Services, Inc.
(GASI), which immediately wrote Violeta
requesting her to furnish it with the
necessary documents for the investigation
and processing of her claim. Petitioner
forthwith complied. On 28 March 1987 she
signed a non-waiver agreement with GASI
to the effect that any action taken by the
companies or their representatives in
investigating the claim made by the
claimant for his loss which occurred at
5855 Zobel Roxas, Makati on March 8,
1987, or in the investigating or
ascertainment of the amount of actual
cash value and loss, shall not waive or
invalidate any condition of the policies of
such companies held by said claimant, nor
the rights of either or any of the parties to
this agreement, and such action shall not
be, or be claimed to be, an admission of
liability on the part of said companies or
any of them. 1
In a letter dated 11 June 1987 FORTUNE
denied the claim of Violeta for violation of
Policy Condition No. 2 and of Sec. 77 of

of 69
the Insurance Code. Efforts to settle the
case before the Insurance Commission
proved futile. On 3 March 1988 Violets
and the other petitioners sued FORTUNE
for damages in the amount of
P600,000.00 representing the total
coverage of the fire insurance policy plus
12% interest per annum, P100,000.00
moral damages, and attorney's fees
equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for
petitioners and adjudged FORTUNE liable
for the total value of the insured building
and personal properties in the amount of
P600,000.00 plus interest at the legal rate
of 6% per annum from the filing of the
complaint until full payment, and
attorney's fees equivalent to 20% of the
total amount claimed plus costs of suit. 2
On 24 March 1995 the Court of Appeals
reversed the court a quo by declaring
FORTUNE not to be liable to plaintiff-
appellees therein but ordering defendant-
appellant to return to the former the
premium of P2,983.50 plus 12% interest
from 10 March 1987 until full payment. 3
Hence this petition for review with
petitioners contending mainly that
contrary to the conclusion of the appellate
court, FORTUNE remains liable under the
subject fire insurance policy in spite of the
failure of petitioners to pay their premium
in full.
We find no merit in the petition; hence,
we affirm the Court of Appeals.
Insurance is a contract whereby one
undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or
contingent event. 4
The consideration is
the premium, which must be paid at the
time and in the way and manner specified
in the policy, and if not so paid, the policy
will lapse and be forfeited by its own
terms. 5
The pertinent provisions in the Policy on
premium read —
THIS POLICY OF INSURANCE
WITNISSETH THAT only after
payment to the Company in
accordance with Policy
Condition No. 2 of the total
premiums by the insured as
stipulated above for the period
aforementioned for insuring
against Loss or Damage by
Fire or Lightning as herein
appears, the Property herein
described . . .
2. This policy including any
renewal thereof and/or any
endorsement thereon is not in
force until the premium has
been fully paid to and duly
receipted by the Company in
the manner provided herein.
Any supplementary
agreement seeking to amend
this condition prepared by
agent, broker or Company
official, shall be deemed
invalid and of no effect.
xxx xxx xxx
Except only in those specific
cases where corresponding
rules and regulations which
are or may hereafter be in
force provide for the payment
of the stipulated premiums in
periodic installments at fixed
percentage, it is hereby
declared, agreed and
warranted that this policy
shall be deemed effective,
valid and binding upon the
Company only when the

of 69
premiums therefor have
actually been paid in full and
duly acknowledged in a receipt
signed by any authorized
official or representative/agent
of the Company in such
manner as provided herein.
(emphasis supplied). 6
Clearly the Policy provides for payment of
premium in full. Accordingly, where the
premium has only been partially paid and
the balance paid only after the peril
insured against has occurred, the
insurance contract did not take effect and
the insured cannot collect at all on the
policy. This is fully supported by Sec. 77
of the Insurance Code which provides —
Sec. 77. An insurer is entitled
to payment of the premium as
soon as the thing insured is
exposed to the peril insured
against. Notwithstanding any
agreement to the contrary, no
policy or contract of insurance
issued by an insurance
company is valid and binding
unless and until the premium
thereof has been paid, except
in the case of a life or an
industrial life policy whenever
the grace period provision
applies (emphasis supplied).
Apparently the crux of the controversy lies
in the phrase "unless and until the
premium thereof has been paid." This
leads us to the manner of payment
envisioned by the law to make the
insurance policy operative and binding.
For whatever judicial construction may be
accorded the disputed phrase must
ultimately yield to the clear mandate of
the law. The principle that where the law
does not distinguish the court should
neither distinguish assumes that the
legislature made no qualification on the
use of a general word or expression. In
Escosura v. San Miguel Brewery, Inc., 7
the Court through Mr. Justice Jesus G.
Barrera, interpreting the phrase "with
pay" used in connection with leaves of
absence with pay granted to employees,
ruled —
. . . the legislative practice
seems to be that when the
intention is to distinguish
between full and partial
payment, the modifying term
is used . . .
Citing C.A. No. 647 governing
maternity leaves of married women
in government, R. A. No. 679
regulating employment of women
and children, R.A. No. 843 granting
vacation and sick leaves to judges of
municipal courts and justices of the
peace, and finally, Art. 1695 of the
New Civil Code providing that every
househelp shall be allowed four (4)
days vacation each month, which
laws simply stated "with pay," the
Court concluded that it was
undisputed that in all these laws the
phrase "with pay" used without any
qualifying adjective meant that the
employee was entitled to full
compensation during his leave of
absence.
Petitioners maintain otherwise. Insisting
that FORTUNE is liable on the policy
despite partial payment of the premium
due and the express stipulation thereof to
the contrary, petitioners rely heavily on
the 1967 case of Philippine Phoenix and
Insurance Co., Inc. v. Woodworks, Inc. 8
where the Court through Mr. Justice
Arsenio P. Dizon sustained the ruling of
the trial court that partial payment of the
premium made the policy effective during
the whole period of the policy. In that
case, the insurance company commenced

of 69
action against the insured for the unpaid
balance on a fire insurance policy. In its
defense the insured claimed that
nonpayment of premium produced the
cancellation of the insurance contract.
Ruling otherwise the Court held —
It is clear . . . that on April 1,
1960, Fire Insurance Policy
No. 9652 was issued by
appellee and delivered to
appellant, and that on
September 22 of the same
year, the latter paid to the
former the sum of P3,000.00
on account of the total
premium of P6,051.95 due
thereon. There is,
consequently, no doubt at all
that, as between the insurer
and the insured, there was not
only a perfected contract of
insurance but a partially
performed one as far as the
payment of the agreed
premium was concerned.
Thereafter the obligation of
the insurer to pay the insured
the amount, for which the
policy was issued in case the
conditions therefor had been
complied with, arose and
became binding upon it, while
the obligation of the insured to
pay the remainder of the total
amount of the premium due
became demandable.
The 1967 Phoenix case is not persuasive;
neither is it decisive of the instant dispute.
For one, the factual scenario is different.
In Phoenix it was the insurance company
that sued for the balance of the premium,
i.e., it recognized and admitted the
existence of an insurance contract with
the insured. In the case before us, there
is, quite unlike in Phoenix, a specific
stipulation that (t)his policy . . . is not in
force until the premium has been fully
paid and duly receipted by the Company
. . . Resultantly, it is correct to say that in
Phoenix a contract was perfected upon
partial payment of the premium since the
parties had not otherwise stipulated that
prepayment of the premium in full was a
condition precedent to the existence of a
contract.
In Phoenix, by accepting the initial
payment of P3,000.00 and then later
demanding the remainder of the premium
without any other precondition to its
enforceability as in the instant case, the
insurer in effect had shown its intention to
continue with the existing contract of
insurance, as in fact it was enforcing its
right to collect premium, or exact specific
performance from the insured. This is not
so here. By express agreement of the
parties, no vinculum juris or bond of law
was to be established until full payment
was effected prior to the occurrence of the
risk insured against.
In Makati Tuscany Condominium Corp. v.
Court of Appeals 9
the parties mutually
agreed that the premiums could be paid in
installments, which in fact they did for
three (3) years, hence, this Court refused
to invalidate the insurance policy. In
giving effect to the policy, the Court
quoted with approval the Court of Appeals
—
The obligation to pay
premiums when due is
ordinarily an indivisible
obligation to pay the entire
premium. Here, the
parties . . . agreed to make
the premiums payable in
installments, and there is no
pretense that the parties
never envisioned to make the
insurance contract binding
between them. It was

of 69
renewed for two succeeding
years, the second and third
policies being a
renewal/replacement for the
previous one. And the insured
never informed the insurer
that it was terminating the
policy because the terms were
unacceptable.
While it may be true that
under Section 77 of the
Insurance Code, the parties
may not agree to make the
insurance contract valid and
binding without payment of
premiums, there is nothing in
said section which suggests
that the parties may not agree
to allow payment of the
premiums in installment, or to
consider the contract as valid
and binding upon
payment of the first premium.
Otherwise we would allow the
insurer to renege on its
liability under the contract,
had a loss incurred (sic)
before completion of payment
of the entire premium, despite
its voluntary acceptance of
partial payments, a result
eschewed by basic
considerations of fairness and
equity . . .
These two (2) cases, Phoenix and
Tuscany, adequately demonstrate the
waiver, either express or implied, of
prepayment in full by the insurer:
impliedly, by suing for the balance of the
premium as in Phoenix, and expressly, by
agreeing to make premiums payable in
installments as in Tuscany. But contrary
to the stance taken by petitioners, there is
no waiver express or implied in the case
at bench. Precisely, the insurer and the
insured expressly stipulated that (t)his
policy including any renewal thereof
and/or any indorsement thereon is not in
force until the premium has been fully
paid to and duly receipted by the
Company . . . and that this policy shall be
deemed effective, valid and binding upon
the Company only when the premiums
therefor have actually been paid in full
and duly acknowledged.
Conformably with the aforesaid
stipulations explicitly worded and taken in
conjunction with Sec. 77 of the Insurance
Code the payment of partial premium by
the assured in this particular instance
should not be considered the payment
required by the law and the stipulation of
the parties. Rather, it must be taken in
the concept of a deposit to be held in trust
by the insurer until such time that the full
amount has been tendered and duly
receipted for. In other words, as expressly
agreed upon in the contract, full payment
must be made before the risk occurs for
the policy to be considered effective and
in force.
Thus, no vinculum juris whereby the
insurer bound itself to indemnify the
assured according to law ever resulted
from the fractional payment of premium.
The insurance contract itself expressly
provided that the policy would be effective
only when the premium was paid in full. It
would have been altogether different were
it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not
to be insured by FORTUNE under the
terms of its policy and they freely opted to
adhere thereto.
Indeed, and far more importantly, the
cardinal polestar in the construction of an
insurance contract is the intention of the
parties as expressed in the
policy. 10
Courts have no other function
but to enforce the same. The rule that
contracts of insurance will be construed in

of 69
favor of the insured and most strongly
against the insurer should not be
permitted to have the effect of making a
plain agreement ambiguous and then
construe it in favor of the insured. 11
Verily, it is elemental law that the
payment of premium is requisite to keep
the policy of insurance in force. If the
premium is not paid in the manner
prescribed in the policy as intended by the
parties the policy is ineffective. Partial
payment even when accepted as a partial
payment will not keep the policy alive
even for such fractional part of the year as
the part payment bears to the whole
payment. 12
Applying further the rules of statutory
construction, the position maintained by
petitioners becomes even more untenable.
The case of South Sea Surety and
Insurance Company, Inc. v. Court Of
Appeals, 13
speaks only of two (2)
statutory exceptions to the requirement of
payment of the entire premium as a
prerequisite to the validity of the
insurance contract. These exceptions are:
(a) in case the insurance coverage relates
to life or industrial life (health) insurance
when a grace period applies, and (b) when
the insurer makes a written
acknowledgment of the receipt of
premium, this acknowledgment being
declared by law to be then conclusive
evidence of the premium payment. 14
A maxim of recognized practicality is the
rule that the expressed exception or
exemption excludes others. Exceptio
firmat regulim in casibus non exceptis.
The express mention of exceptions
operates to exclude other exceptions;
conversely, those which are not within the
enumerated exceptions are deemed
included in the general rule. Thus, under
Sec. 77, as well as Sec. 78, until the
premium is paid, and the law has not
expressly excepted partial payments,
there is no valid and binding contract.
Hence, in the absence of clear waiver of
prepayment in full by the insurer, the
insured cannot collect on the proceeds of
the policy.
In the desire to safeguard the interest of
the assured, it must not be ignored that
the contract of insurance is primarily a
risk distributing device, a mechanism by
which all members of a group exposed to
a particular risk contribute premiums to
an insurer. From these contributory funds
are paid whatever losses occur due to
exposure to the peril insured against.
Each party therefore takes a risk: the
insurer, that of being compelled upon the
happening of the contingency to pay the
entire sum agreed upon, and the insured,
that of parting with the amount required
as premium, without receiving anything
therefor in case the contingency does not
happen. To ensure payment for these
losses, the law mandates all insurance
companies to maintain a legal reserve
fund in favor of those claiming under their
policies. 15
It should be understood that
the integrity of this fund cannot be
secured and maintained if by judicial fiat
partial offerings of premiums were to be
construed as a legal nexus between the
applicant and the insurer despite an
express agreement to the contrary. For
what could prevent the insurance
applicant from deliberately or wilfully
holding back full premium payment and
wait for the risk insured against to
transpire and then conveniently pass on
the balance of the premium to be
deducted from the proceeds of the
insurance? Worse, what if the insured
makes an initial payment of only 10%, or
even 1%, of the required premium, and
when the risk occurs simply points to the
proceeds from where to source the
balance? Can an insurance company then
exist and survive upon the payment of
1%, or even 10%, of the premium

110652768 cases-sa-insurance

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (18)

Andere mochten auch

Andere mochten auch (15)

Ähnlich wie 110652768 cases-sa-insurance

Ähnlich wie 110652768 cases-sa-insurance (20)

Mehr von homeworkping7

Mehr von homeworkping7 (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

110652768 cases-sa-insurance