c


    

petitioner, (insured's) permission. Under t e second category, it is to be noted t at t e words "any person' is
vs. qualified by t e p rase

       respondents.

... on t e insured's order or wit is permission.' It is t erefore clear t at if t e
person driving is ot er t an t e insured, e must ave been duly aut orized by
t e insured, to drive t e ve icle to make t e insurance company liable for t e

 
 
„ e Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and
olds t at w ere t e insured's car is wrongfully taken wit out t e insured's consent from t e car
service and repair s op to w om it ad been entrusted for c eck-up and repairs (assuming t at
suc taking was for a joy ride, in t e course of w ic it was totally smas ed in an accident),
respondent insurer is liable and must pay insured for t e total loss of t e insured ve icle under t e
t eft clause of t e policy.
„ e undisputed facts of t e case as found in t e appealed decision of April 14, 1980 of respondent
insurance commission are as follows:
Complainant [petitioner] was t e owner of a Colt Lancer, Model 1976,
insured wit respondent company under Private Car Policy No. MBI/PC-0704
for P35,000.00 ² Own Damage; P30,000.00 ² „ eft; and P30,000.00 ²
„ ird Party Liability, effective May 16, 1977 to May 16, 1978. On May 9,
1978, t e ve icle was broug t to t e Sunday Mac ine Works, Inc., for general
c eck-up and repairs. On May 11, 1978, w ile it was in t e custody of t e
Sunday Mac ine Works, t e car was allegedly taken by six (6) persons and
driven out to Montalban, Rizal. W ile travelling along Mabini St., Sitio
Palyasan, Barrio Burgos, going Nort at Montalban, Rizal, t e car figured in
an accident, itting and bumping a gravel and sand truck parked at t e rig t
side of t e road going sout . As a consequence, t e gravel and sand truck
veered to t e rig t side of t e pavement going sout and t e car veered to t e
rig t side of t e pavement going nort . „ e driver, Benito Mabasa, and one of
t e passengers died and t e ot er four sustained p ysical injuries. „ e car, as
well, suffered extensive damage. Complainant, t ereafter, filed a claim for
total loss wit t e respondent company but claim was denied. Hence,
complainant, was compelled to institute t e present action.
„ e compre ensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify t e petitioner-insured against loss or
damage to t e car (a) by accidental collision or overturning, or collision or overturning consequent
upon mec anical breakdown or consequent upon wear and tear; (b) by fire, external explosion,
self-ignition or lig tning or burglary, ousebreaking or t eft; and (c) by malicious act.
Respondent insurance commission, owever, dismissed petitioner's complaint for recovery of t e
total loss of t e ve icle against private respondent, sustaining respondent insurer's contention t at
t e accident did not fall wit in t e provisions of t e policy eit er for t e Own Damage or „ eft
coverage, invoking t e policy provision on "Aut orized Driver" clause.!
Respondent commission up eld private respondent's contention on t e "Aut orized Driver" clause
in t is wise: "It must be observed t at under t e above-quoted provisions, t e policy limits t e use
of t e insured ve icle to two (2) persons only, namely: t e insured imself or any person on is
driver's negligence. Complainant admitted t at s e did not know t e person
w o drove er ve icle at t e time of t e accident, muc less consented to t e
use of t e same (par. 5 of t e complaint). Her usband likewise admitted t at
e neit er knew t is driver Benito Mabasa (Ex ibit '4'). Wit t ese
declarations of complainant and er usband, we old t at t e person w o
drove t e ve icle, in t e person of Benito Mabasa, is not an aut orized driver
of t e complainant. Apparently, t is is a violation of t e 'Aut orized Driver'
clause of t e policy.
Respondent commission likewise up eld private respondent's assertion t at t e car was not stolen
and t erefore not covered by t e „ eft clause, ruling t at "„ e element of 'taking' in Article 308 of
t e Revised Penal Code means t at t e act of depriving anot er of t e possession and dominion of
a movable t ing is coupled ... wit t e intention. at t e time of t e 'taking', of wit olding it wit
t e c aracter of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In ot er words, t ere must
ave been s own a felonious intent upon t e part of t e taker of t e car, and t e intent must be an
intent permanently to deprive t e insured of is car," and t at "Suc was not t e case in t is
instance. „ e fact t at t e car was taken by one of t e residents of t e Sunday Mac ine Works,
and t e wit olding of t e same, for a joy ride s ould not be construed to mean 'taking' under Art.
308 of t e Revised Penal Code. If at all t ere was a 'taking', t e same was merely temporary in
nature. A temporary taking is eld not a taking insured against (48 A LR 2d., page 15)."
„ e Court finds respondent commission's dismissal of t e complaint to be contrary to t e
evidence and t e law.
First, respondent commission's ruling t at t e person w o drove t e ve icle in t e person of
Benito Mabasa, w o, according to its finding, was one of t e residents of t e Sunday Mac ine
Works, Inc. to w om t e car ad been entrusted for general c eck-up and repairs was not an
"aut orized driver" of petitioner-complainant is too restrictive and contrary to t e establis ed
principle t at insurance contracts, being contracts of ad esion w ere t e only participation of t e
ot er party is t e signing of is signature or is "ad esion" t ereto, "obviously call for greater
strictness and vigilance on t e part of courts of justice wit a view of protecting t e weaker party
from abuse and imposition, and prevent t eir becoming traps for t e unwary."
„ e main purpose of t e "aut orized driver" clause, as may be seen from its text, ÷
, is t at a
person ot er t an t e insured owner, w o drives t e car on t e insured's order, suc as is regular
driver, or wit is permission, suc as a friend or member of t e family or t e employees of a car
service or repair s op must be duly licensed drivers and ave no disqualification to drive a motor
ve icle.
A car owner w o entrusts is car to an establis ed car service and repair s op necessarily entrusts
is car key to t e s op owner and employees w o are presumed to ave t e insured's permission
to drive t e car for legitimate purposes of c ecking or road-testing t e car. „ e mere appenstance
t at t e employee(s) of t e s op owner diverts t e use of t e car to is own illicit or unaut orized
purpose in violation of t e trust reposed in t e s op by t e insured car owner does not mean t at
t e "aut orized driver" clause as been violated suc as to bar recovery, provided t at suc
employee is duly qualified to drive under a valid driver's license.
„ e situation is no different from t e regular or family driver, w o instead of carrying out t e
owner's order to fetc t e c ildren from sc ool takes out is girl friend instead for a joy ride and
instead wrecks t e car. „ ere is no question of is being an "aut orized driver" w ic allows
recovery of t e loss alt oug is trip was for a personal or illicit purpose wit out t e owner's
aut orization.

Secondly, and independently of t e foregoing (since w en a car is unlawfully taken, it is t e t eft

clause, not t e "aut orized driver" clause, t at applies), w ere a car is admittedly as in t is case
unlawfully and wrongfully taken by some people, be t ey employees of t e car s op or not to
w om it ad been entrusted, and taken on a long trip to Montalban wit out t e owner's consent or
knowledge, suc taking constitutes or partakes of t e nature of t eft as defined in Article 308 of
t e Revised Penal Code, viz. "W o are liable for t eft. ² „ eft is committed by any person w o,
wit intent to gain but wit out violence against or intimidation of persons nor force upon t ings,
s all take personal property of anot er wit out t e latter's consent," for purposes of recovering t e
loss under t e policy in question.

„ e Court rejects respondent commission's premise t at t ere must be an intent on t e part of t e

taker of t e car "permanently to deprive t e insured of is car" and t at since t e taking ere was
for a "joy ride" and "merely temporary in nature," a "temporary taking is eld not a taking insured
against."

„ e evidence does not warrant respondent commission's findings t at it was a mere "joy ride".
From t e very investigator's report cited in its comment, ·t e police found from t e waist of t e
car driver Benito Mabasa Bartolome w o smas ed t e car and was found dead rig t after t e
incident "one cal. 45 Colt. and one apple type grenade," ardly t e materials one would bring
along on a "joy ride". „ en, again, it is equally evident t at t e taking proved to be quite
permanent rat er t an temporary, for t e car was totally smas ed in t e fatal accident and was
never returned in serviceable and useful condition to petitioner-owner.

Assuming, despite t e totally inadequate evidence, t at t e taking was "temporary" and for a "joy
ride", t e Court sustains as t e better view t at w ic olds t at w en a person, eit er wit t e
object of going to a certain place, or learning ow to drive, or enjoying a free ride, takes
possession of a ve icle belonging to anot er, wit out t e consent of its owner, e is guilty of t eft
because by taking possession of t e personal property belonging to anot er and using it, is intent
to gain is evident since e derives t erefrom utility, satisfaction, enjoyment and pleasure. Justice
Ramon C. Aquino cites in is work Groizard w o olds t at t e use of a t ing constitutes gain and
Cuello Calon w o calls it " urt de uso. " #

„ e insurer must t erefore indemnify t e petitioner-owner for t e total loss of t e insured car in
t e sum of P35,000.00 under t e t eft clause of t e policy, subject to t e filing of suc claim for
reimbursement or payment as it may ave as subrogee against t e Sunday Mac ine Works, Inc.

ACCORDINGLY, t e appealed decision is set aside and judgment is ereby rendered sentencing
private respondent to pay petitioner t e sum of P35,000.00 wit legal interest from t e filing of
t e complaint until full payment is made and to pay t e costs of suit.

SO ORDERED.
$ $%$&##'()*%"+!),, 009929 w ole life plan, dated September 1, 1968 for t e sum of P5,882.00
wit t e rider for accidental deat benefit as evidenced by Ex ibits A for
 plaintiffs and Ex ibit 1 for t e defendant Pascuala and Ex ibit 7 for Carponia
Ebrado; 3) 
  "  "   
 ÷ 
÷ #" 
 
÷ 
$
 

  -   

.$plaintiff-appellee,   ÷
 ÷

"÷ " ; 4) t at
vs. Buenaventura in accident on October 21, 1969 as evidenced by t e deat
 
$ / ..$.  / .defendants-appellants.

$0
„ is is a novel question in insurance law: Can a common-law wife named as beneficiary in t e
life insurance policy of a legally married man claim t e proceeds t ereof in case of deat of t e
latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by „ e Life Assurance Co., Ltd.,
Policy No. 009929 on a w ole-life for P5,882.00 wit a, rider for Accidental Deat for t e same
amount Buenaventura C. Ebrado designated „. Ebrado as t e revocable beneficiary in is policy.
He to er as is wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t w en e was it by a failing
branc of a tree. As t e policy was in force, „ e Insular Life Assurance Co., Ltd. liable to pay t e
coverage in t e total amount of P11,745.73, representing t e face value of t e policy in t e
amount of P5,882.00 plus t e additional benefits for accidental deat also in t e amount of
P5,882.00 and t e refund of P18.00 paid for t e premium due November, 1969, minus t e unpaid
premiums and interest t ereon due for January and February, 1969, in t e sum of P36.27.
Carponia „. Ebrado filed wit t e insurer a claim for t e proceeds of t e Policy as t e designated
beneficiary t erein, alt oug s e admits t at s e and t e insured Buenaventura C. Ebrado were
merely living as usband and wife wit out t e benefit of marriage.
Pascuala Vda. de Ebrado also filed er claim as t e widow of t e deceased insured. S e asserts
t at s e is t e one entitled to t e insurance proceeds, not t e common-law wife, Carponia „.
Ebrado.
In doubt as to w om t e insurance proceeds s all be paid, t e insurer, „ e Insular Life Assurance
Co., Ltd. commenced an action for Interpleader before t e Court of First Instance of Rizal on
April 29, 1970.
After t e issues ave been joined, a pre-trial conference was eld on July 8, 1972, after w ic , a
pre-trial order was entered reading as follows: â


During t e pre-trial conference, t e parties manifested to t e court. t at t ere
is no possibility of amicable settlement. Hence, t e Court proceeded to ave
t e parties submit t eir evidence for t e purpose of t e pre-trial and make
admissions for t e purpose of pretrial. During t is conference, parties
Carponia „. Ebrado and Pascuala Ebrado agreed and stipulated: 1)  
 ÷
Ex ibit 3 and affidavit of t e police report of is deat Ex ibit 5; 5) t at
complainant Carponia Ebrado filed claim wit t e Insular Life Assurance Co.
w ic was contested by Pascuala Ebrado w o also filed claim for t e proceeds
of said policy 6) t at in view oft e adverse claims t e insurance company
filed t is action against t e two erein claimants Carponia and Pascuala
Ebrado; 7) t at t ere is now due from t e Insular Life Assurance Co. as
proceeds of t e policy P11,745.73; 8) t at t e beneficiary designated by t e
insured in t e policy is Carponia Ebrado and t e insured made reservation to
c ange t e beneficiary but alt oug t e insured made t e option to c ange t e
beneficiary, same was never c anged up to t e time of is deat and t e wife
did not ave any opportunity to write t e company t at t ere was reservation
to c ange t e designation of t e parties agreed t at a decision be rendered
based on and stipulation of facts as to w o among t e two claimants is entitled
to t e policy.
Upon motion of t e parties, t ey are given ten (10) days to file t eir
simultaneous memoranda from t e receipt of t is order.
SO ORDERED.
On September 25, 1972, t e trial court rendered judgment declaring among ot ers, Carponia „.
Ebrado disqualified from becoming beneficiary of t e insured Buenaventura Cristor Ebrado and
directing t e payment of t e insurance proceeds to t e estate of t e deceased insured. „ e trial
court eld: â


It is patent from t e last paragrap of Art. 739 of t e Civil Code t at a
criminal conviction for adultery or concubinage is not essential in order to
establis t e disqualification mentioned t erein. Neit er is it also necessary
t at a finding of suc guilt or commission of t ose acts be made in a separate
independent action broug t for t e purpose. „ e guilt of t e donee
(beneficiary) may be proved by preponderance of evidence in t e same
proceeding (t e action broug t to declare t e nullity of t e donation).
It is, owever, essential t at suc adultery or concubinage exists at t e time
defendant Carponia „. Ebrado was made beneficiary in t e policy in question
for t e disqualification and incapacity to exist and t at it is only necessary t at
suc fact be establis ed by preponderance of evidence in t e trial. Since it is
agreed in t eir stipulation above-quoted t at t e deceased insured and
defendant Carponia „. Ebrado were living toget er as usband and wife
wit out being legally married and t at t e marriage of t e insured wit t e
ot er defendant Pascuala Vda. de Ebrado was valid and still existing at t e


 
÷
÷ 
 time t e insurance in question was purc ased t ere is no question t at
÷ ÷÷  
  


 ÷
÷

 defendant Carponia „. Ebrado is disqualified from becoming t e beneficiary
!


 
÷ 


; 2) t at during t e lifetime of t e of t e policy in question and as suc s e is not entitled to t e proceeds of t e
deceased, e was insured wit Insular Life Assurance Co. Under Policy No. insurance upon t e deat of t e insured.
From t is judgment, Carponia „. Ebrado appealed to t e Court of Appeals, but on July 11, 1976, 3. Policy considerations and dictates of morality rig tly justify t e institution of a barrier between
t e Appellate Court certified t e case to Us as involving only questions of law. common law spouses in record to Property relations since suc ip ultimately encroac es upon t e
nuptial and filial rig ts of t e legitimate family „ ere is every reason to old t at t e bar in
We affirm t e judgment of t e lower court. donations between legitimate spouses and t ose between illegitimate ones s ould be enforced in
life insurance policies since t e same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Bot are recipients of pure
1. It is quite unfortunate t at t e Insurance Act (RA 2327, as amended) or even t e new Insurance beneficence. So long as manage remains t e t res old of family laws, reason and morality dictate
Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of t e t at t e impediments imposed upon married couple s ould likewise be imposed upon extra-
prime question at and. Section 50 of t e Insurance Act w ic provides t at "(t) e insurance s ag marital relations ip. If legitimate relations ip is circumscribed by t ese legal disabilities, wit
be applied exclusively to t e proper interest of t e person in w ose name it is made" ! cannot be more reason s ould an illicit relations ip be restricted by t ese disabilities. „ us, in r

validly seized upon to old t at t e mm includes t e beneficiary. „ e word "interest" ig ly  
 ÷, , t is Court, t roug Justice Fernando, said: â


suggests t at t e provision refers only to t e "insured" and not to t e beneficiary, since a contract
of insurance is personal in c aracter. " Ot erwise, t e pro ibitory laws against illicit relations ips
especially on property and descent will be rendered nugatory, as t e same could easily be If t e policy of t e law is, in t e language of t e opinion of t e t en Justice
circumvented by modes of insurance. Rat er, t e general rules of civil law s ould be applied to J.B.L. Reyes of t at court (Court of Appeals), 'to pro ibit donations in favor
resolve t is void in t e Insurance Law. Article 2011 of t e New Civil Code states: "„ e contract of t e ot er consort and is descendants because of and undue and improper
of insurance is governed by special laws. r ÷
 
 ÷÷


"
÷ ÷
÷ pressure and influence upon t e donor, a prejudice deeply rooted in our
÷   
÷
." W en not ot erwise specifically provided for by t e Insurance ancient law;" por-que no se enganen desponjandose el uno al otro por amor
Law, t e contract of life insurance is governed by t e general rules of t e civil law regulating que an de consuno' (According to) t e Partidas (Part IV, „it. XI, LAW IV),
contracts. · And under Article 2012 of t e same Code, "any person w o is forbidden from reiterating t e rationale 'No Mutuato amore invicem spoliarentur' t e Pandects
receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy (Bk, 24, „itl. 1, De donat, inter virum et uxorem); t en t ere is very reason to
by t e person w o cannot make a donation to im. # Common-law spouses are, definitely, barred apply t e same pro ibitive policy to persons living toget er as usband and
from receiving donations from eac ot er. Article 739 of t e new Civil Code wife wit out t e benefit of nuptials. For it is not to be doubted t at assent to
provides: â

 suc irregular connection for t irty years bespeaks greater influence of one
party over t e ot er, so t at t e danger t at t e law seeks to avoid is
correspondingly increased. Moreover, as already pointed out by Ulpian (in is
„ e following donations s all be void: lib. 32 ad Sabinum, fr. 1), 'it would not be just t at suc donations s ould
subsist, lest t e condition 6f t ose w o incurred guilt s ould turn out to be
1. %÷ 
 

÷
÷   "
 
 
  better.' So long as marriage remains t e cornerstone of our family law, reason
  "


 and morality alike demand t at t e disabilities attac ed to marriage s ould
likewise attac to concubinage.
„ ose made between persons found guilty of t e same criminal offense, in
consideration t ereof; It is ardly necessary to add t at even in t e absence of t e above
pronouncement, any ot er conclusion cannot stand t e test of scrutiny. It
3. „ ose made to a public officer or is wife, descendants or ascendants by would be to indict t e frame of t e Civil Code for a failure to apply a laudable
reason of is office. rule to a situation w ic in its essentials cannot be distinguis ed. Moreover, if
it is at all to be differentiated t e policy of t e law w ic embodies a deeply
rooted notion of w at is just and w at is rig t would be nullified if suc
In t e case referred to in No. 1, t e action for declaration of nullity may be irregular relations ip instead of being visited wit disabilities would be
broug t by t e spouse of t e donor or donee; 

  " 

  attended wit benefits. Certainly a legal norm s ould not be susceptible to







 " 

 
 ÷ 
 suc a reproac . If t ere is every any occasion w ere t e principle of statutory
construction t at w at is wit in t e spirit of t e law is as muc a part of it as
2. In essence, a life insurance policy is no different from a civil donation insofar as t e beneficiary w at is written, t is is it. Ot erwise t e basic purpose discernible in suc
is concerned. Bot are founded upon t e same consideration: liberality. A beneficiary is like a codal provision would not be attained. W atever omission may be apparent in
donee, because from t e premiums of t e policy w ic t e insured pays out of liberality, t e an interpretation purely literal of t e language used must be remedied by an
beneficiary will receive t e proceeds or profits of said insurance. As a consequence, t e ad erence to its avowed objective.
proscription in Article 739 of t e new Civil Code s ould equally operate in life insurance
contracts. „ e mandate of Article 2012 cannot be laid aside: any person w o cannot receive a 4. We do not t ink t at a conviction for adultery or concubinage is exacted before t e disabilities
donation cannot be named as beneficiary in t e life insurance policy of t e person w o cannot mentioned in Article 739 may effectuate. More specifically, wit record to t e disability on
make t e donation.( Under American law, a policy of life insurance is considered as a testament "persons w o were guilty of adultery or concubinage at t e time of t e donation," Article 739
and in construing it, t e courts will, so far as possible treat it as a will and determine t e effect of a itself provides: â


clause designating t e beneficiary by rules under w ic wins are interpreted. 1
 In t e case referred to in No. 1, t e action for declaration of nullity may be 
broug t by t e spouse of t e donor or donee; 

  " 


 






 " 

 
 ÷ 
 

„ e underscored clause neatly conveys t at no criminal conviction for t e offense is a condition 

precedent. In fact, it cannot even be from t e aforequoted provision t at a prosecution is needed.
On t e contrary, t e law plainly states t at t e guilt of t e party may be proved "in t e same acting
for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon 
t e guilt of t e consort for t e offense indicated. „ e quantum of proof in criminal cases is not
demanded. 

In t e caw before Us, t e requisite proof of common-law relations ip between t e insured and t e 
beneficiary as been conveniently supplied by t e stipulations between t e parties in t e pre-trial
conference of t e case. It case agreed upon and stipulated t erein t at t e deceased insured 
Buenaventura C. Ebrado was married to Pascuala Ebrado wit w om s e as six legitimate
c ildren; t at during is lifetime, t e deceased insured was living wit is common-law wife,
Carponia Ebrado, wit w om e as two c ildren. „ ese stipulations are not ing less t an
 

÷÷ ÷w ic , as a consequence, no longer require proof and cannot be
contradicted. + A ", on t e basis of t ese admissions, a judgment may be validly rendered 
wit out going t roug t e rigors of a trial for t e sole purpose of proving t e illicit liaison
between t e insured and t e beneficiary. In fact, in t at pretrial, t e parties even agreed "t at a

decision be rendered based on t is agreement and stipulation of facts as to w o among t e two
claimants is entitled to t e policy."

ACCORDINGLY, t e appealed judgment of t e lower court is ereby affirmed. Carponia „.
Ebrado is ereby declared disqualified to be t e beneficiary of t e late Buenaventura C. Ebrado in 
is life insurance policy. As a consequence, t e proceeds of t e policy are ereby eld payable to
t e estate of t e deceased insured. Costs against Carponia „. Ebrado. 

 

 

 

 

 

 

 

 

 

 
$ $%$&")'1"*)!)+, 

  -plaintiff-appellee, 

vs.
$    *2* % 3 4defendant-appellant. 


÷
&! '(
!)*"" "
 ""#

  

RESOLU„ION 

  

„ is is an appeal from t e decision of t e Court of First Instance of Manila in Civil Case No. 
72498, ! entitled "P ilippine Refining Company v. Hon. Enrico Palomar," finding t at plaintiff-
appellee's promotion sc emes ("Breeze Easy Money" and "CAMIA Lucky-Key Hunt") were not
in t e nature of a lottery and enjoining appellant from issuing a "fraud order" on t e 
aforementioned sc emes of appellee.

It appears t at t e P ilippine Refining Company, erein appellee, resorted to two sc emes to
promote t e sale of its products: Breeze Easy Money and CAMIA Lucky-Key Hunt, bot of 
w ic envisioned t e giving away for free of certain prizes (wit out additional consideration) for
t e purc ase of Breeze soap and CAMIA cooking oil. In ot er words, t e participants would get 
t e exact value of t e price for t e goods plus t e c ance of winning in t e sc eme. No one would
be required to pay more t an t e usual price of t e products.

„ is Court as consistently ruled t at a plan w ereby prizes can be obtained wit out any
additional consideration (w en a product is purc ased) is  a lottery (Uy v. Palomar L-23248, 
February 28, 1969; U.S. v. Baguio, 39 P il. 862; Caltex (P il.) Inc. v. Postmaster-General, 18
SCRA 247). It is t us clear t at t e sc emes in t e case at bar are not lotteries. 

„ e allegation t at t e pro ibition by t e Postmaster General s ould ave first been appealed to 
t e Department Secretary concerned in view of t e doctrine denominated as "t e ex austion of
administrative remedies" as no application ere because one recognized exception to t e doctrine

is w en t e issue raised is purely a legal one.


In view of t e foregoing, t e Court RESOLVED to DISMISS t is appeal and to AFFIRM t e
assailed decision of t e Court of First Instance.

  +   !,

 
 ÷,,  

(
,÷   



SO ORDERED.

$ $%$&",#",24,!),1 However, due to inadvertence, t e lower court did not state in its order of September 3, 1966 w y
it set aside its prior order dismissing t e complaint  ÷
,
- 5-.  - 
 
 . // 
-
   plaintiffs-appellants, W at is now to be recounted s ows t e lack of due care on t e part of t e lower court and t e
vs. opposing lawyers in t eir management of t e case. Suc lack of due care as given t e case a
c6$- 
7 8
  $ farcical ambiance and mig t partially explain t e long delay in its adjudication.
$defendants-appellees.
Jamila, upon noticing t at t e order of September 3, 1966 ad obliterated its victory wit out any


-( "

""÷#

 ÷ reason t erefor, filed a motion for reconsideration. It ad originally moved for t e dismissal of t e
complaint on t e ground of lack of cause of action. Its contention was based on two grounds, to


. "
"


#

  ÷/ !
0
÷ 
 0
 wit: (1) t at t e complaint did not allege t at Firestone, pursuant to t e contractual stipulation
quoted in t e complaint, ad investigated t e loss and t at Jamila was represented in t e
investigation and (2) t at Jamila did not consent to t e subrogation of Fireman's Fund to



1"
"


#

 ,'

0
 Firestone's rig t to get reimbursement from Jamila and its surety. „ e lower court in its order of
dismissal ad sustained t e ÷ 





Jamila in its motion for t e reconsideration of t e order of September 3, 1966 invoked t e "÷
7 

w ic ad never been passed upon by t e lower court. Firestone and Fireman's Fund in
t eir opposition joined battle, in a manner of speaking, on t at "÷


Fireman's Fund and Insurance Company (Fireman's Fund for s ort) and Firestone „ire and Rubber
Company of t e P ilippines appealed from t e order dated October 18, 1966 of t e Court of First But t e lower court in its order of October 18, 1966, granting Jamila's motion for reconsideration,
Instance of Manila, dismissing t eir complaint against Jamila & Co., Inc. ( ereinafter called completely ignored t at first ground. It reverted to t e ÷ 



w ic was relied upon in its
Jamila) for t e recovery of t e sum of P11,925.00 plus interest, damages and attorney's fees (Civil order of September 3, 1966. „ e lower court reiterated its order of July 22, 1966 t at Fireman's
Case No. 65658). Fund ad no cause of action against Jamila because Jamila did not consent to t e subrogation. „ e
court did not mention Firestone, t e co-plaintiff of Fireman's Fund.
„ e gist of t e complaint is t at Jamila or t e Veterans P ilippine Scouts Security Agency
contracted to supply security guards to Firestone; t at Jamila assumed responsibility for t e acts of At t is juncture, it may be noted t at motions for reconsideration become interminable w en t e
its security guards; t at First Quezon City Insurance Co., Inc. executed a bond in t e sum of court's orders follow a seesaw pattern. „ at p enomenon took place in t is case.
P20,000.00 to guarantee Jamila's obligations under t at contract; t at on May 18, 1963 properties
of Firestone valued at P11,925.00 were lost allegedly due to t e acts of its employees w o Firestone and Fireman's Fund filed a motion for t e reconsideration of t e lower court's order of
connived wit Jamila's security guard; t at Fireman's Fund, as insurer, paid to Firestone t e October 18, 1966 on t e ground t at Fireman's Fund Insurance Company was suing on t e basis
amount of t e loss; t at Fireman's Fund was subrogated to Firestone's rig t to get reimbursement of   subrogation w ereas t e lower court erroneously predicated its dismissal order on t e
from Jamila, and t at Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay t e t eory t at t ere was no 


 subrogation because t e debtor's consent was lacking.
amount of t e loss in spite of repeated demands.
„ e plaintiffs cited article 2207 of t e Civil Code w ic provides t at "if t e plaintiff's property
Upon defendants' motions, t e lower court in its order of July 22, 1966 dismissed t e complaint as as been insured, and e as received indemnity from t e insurance company for t e injury or loss
to Jamila on t e ground t at t ere was no allegation t at it ad consented to t e subrogation and, arising out of t e wrong or breac of contract complained of, t e insurance company s all be
t erefore, Fireman's Fund ad no cause of action against it. subrogated to t e rig ts of t e insured against t e wrongdoer or  
÷
÷
 

2
In t e same order t e lower court dismissed t e complaint as to First Quezon City Insurance Co.,
Inc. on t e ground of ÷
 It appears t at t e same action was previously filed in Civil „ e lower court denied plaintiffs' motion. „ ey filed a second motion for reconsideration. In t at
Case No. 56311 w ic was dismiss because of t e failure of t e same plaintiffs and t eir counsel motion t ey sensibly called t e lower court's attention to t e fact t at t e issue of subrogation was
to appear at t e pre trial. of no moment because Firestone, t e subrogor, is a party-plaintiff and could sue directly Jamila in
its own rig t. Wit out resolving t at contention, t e lower court denied plaintiffs' second motion
Firestone and Fireman's Fund moved for t e reconsideration of t e order of dismissal. „ e lower for reconsideration.
court on September 3, 1966 set aside its order of dismissal. It sustained plaintiffs' contention t at
t ere was no ÷
as to First Quezon City Insurance Co., Inc. because Civil Case No. 56311 In t is appeal Firestone and Fireman's Fund contend t at t e trial court's dismissal of t eir
was dismissed wit out prejudice. Later, First Quezon City Insurance Co., Inc. filed its answer to complaint is contrary to t e aforementioned article 2207 w ic provides for ÷ 

t e complaint.
Jamila, in reply, stubbornly argues t at legal subrogation under article 2207 requires t e debtor's
consent; t at legal subrogation takes place in t e cases mentioned in article 1302 of t e Civil Code
and t e instant case is not among t e t ree cases enumerated in t at article, and t at t ere could be
no subrogation in t is case because according to t e plaintiffs t e contract between. Jamila and
Firestone was entered into on June 1, 345 but t e loss complained of occurred on May 18,346
Wit respect to t e factual point raised by Jamila, it s ould be stated t at plaintiffs' counsel
gratuitously alleged in t eir brief t at Firestone and Jamila entered into a "contract of guard
services" on June 1, 345 „ at allegation, w ic was uncalled for because it is not found in t e
complaint, created confusion w ic eretofore did not exist. No copy of t e contract was annexed
to t e complaint.
„ at confusing statement was an obvious error since it was expressly alleged in t e complaint t at
t e loss occurred on May 18, 346. „ e fact t at suc an error was committed is anot er instance
substantiating our previous observation t at plaintiffs' counsel ad not exercised due care in t e
presentation of is case.
„ e issue is w et er t e complaint of Firestone and Fireman's Fund states a cause of action
against Jamila.
We old t at Firestone is really a nominal, party in t is case. It ad already been indemnified for
t e loss w ic it ad sustained. Obviously, it joined as a party-plaintiff in order to elp Fireman's
Fund to recover t e amount of t e loss from Jamila and First Quezon City Insurance Co., Inc.
Firestone ad tacitly assigned to Fireman's Fund its cause of action against Jamila for breac of
contract. Sufficient ultimate facts are alleged in t e complaint to sustain t at cause of action.
any rig t of action w ic t e insured may ave against t e t ird person w ose. negligence or
wrongful act caused t e loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottis
Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed. 1037).
„ e rig t of subrogation is of t e ig est equity. „ e loss in t e first instance is t at of t e insured
but after reimbursement or compensation, it becomes t e loss of t e insurer (44 Am. Jur. 2d 746,
note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 O io St. 382).
"Alt oug many policies including policies in t e standard form, now provide for subrogation,
and t us determine t e rig ts of t e insurer in t is respect, t e equitable rig t of subrogation as t e
legal effect of payment inures to t e insurer wit out any formal assignment or any express
stipulation to t at effect in t e policy" (44 Am. Jur. 2nd 746). Stated ot erwise, w en t e
insurance company pays for t e loss, suc payment operates as an equitable assignment to t e
insurer of t e property and all remedies w ic t e insured may ave for t e recovery t ereof. „ at
rig t is not dependent upon, nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to t e insured makes t e insurer an assignee in equity
(S ambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456,142 SE 2d 18).
W et er t e plaintiffs would be able to prove t eir cause of action against Jamila is anot er
question.
Finding t e trial court's order of dismissal to be legally untenable, t e same is set aside wit costs
against defendant-appellee Jamila & Co., Inc.
SO ORDERED.

On t e ot er and, Fireman's Fund's action against Jamila is squarely sanctioned by article 2207.
As t e insurer, Fireman's Fund is entitled to go after t e person or entity t at violated its
contractual commitment to answer for t e loss insured against (Cf. P ilippine Air Lines, Inc. vs.
Heald Lumber Co., 101 P il. 1032; Rizal Surety & Insurance Co. vs. Manila Railroad Company,
L-24043, April 25, 1968, 23 SCRA 205).

„ e trial court erred in applying to t is case t e rules on novation. „ e plaintiffs in alleging in

t eir complaint t at Fireman's Fund "became a party in interest in t is case by virtue of a
subrogation rig t given in its favor by" Firestone, were not relying on t e novation by c ange of
creditors as contemplated in articles 1291 and 1300 to 1303 of t e Civil Code but rat er on article
2207.

Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation as

been referred to as t e doctrine of substitution. It "is an arm of equity t at may guide or even force
one to pay a debt for w ic an obligation was incurred but w ic was in w ole or in part paid by
anot er" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund Indemnity Co. vs. State
Compensation Insurance Fund, 209 Pac. 2d 55).

"Subrogation is founded on principles of justice and equity, and its operation is governed by
principles of equity. It rests on t e principle t at substantial justice s ould be attained regardless
of form, t at is, its basis is t e doing of complete, essential, and perfect justice between all t e
parties wit out regard to form"(83 C.J.S. 579- 80)

Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses, 287 U.S.
530, 77 L. ed. 477). Upon payment of t e loss, t e insurer is entitled to be subrogated
  to
$ $%$+!'"124·!))' After private respondents filed its comment to t e petition, and petitioner filed its reply, t e Court
considered t e issues joined and t e case submitted for decision.
    
petitioner,
vs. Deliberating on t e various arguments adduced in t e pleadings, t e Court finds merit in t e

-  .-/ .  
.  respondents. petition.

-   ÷ '(÷÷ ÷"

 PANMALAY alleged in its complaint t at, pursuant to a motor ve icle insurance policy, it ad
indemnified CANLUBANG for t e damage to t e insured car resulting from a traffic accident

  "
  ÷

÷ allegedly caused by t e negligence of t e driver of private respondent, Erlinda Fabie.

 
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks t e reversal of a decision of t e
Court of Appeals w ic up eld an order of t e trial court dismissing for no cause of action
PANMALAY's complaint for damages against private respondents Erlinda Fabie and er driver.
„ e principal issue presented for resolution before t is Court is w et er or not t e insurer
PANMALAY may institute an action to recover t e amount it ad paid its assured in settlement of
an insurance claim against private respondents as t e parties allegedly responsible for t e damage
caused to t e insured ve icle.
On December 10, 1985, PANMALAY filed a complaint for damages wit t e R„C of Makati
against private respondents Erlinda Fabie and er driver. PANMALAY averred t e following: t at
it insured a Mitsubis i Colt Lancer car wit plate No. DDZ-431 and registered in t e name of
Canlubang Automotive Resources Corporation [CANLUBANG]; t at on May 26, 1985, due to
t e "carelessness, recklessness, and imprudence" of t e unknown driver of a pick-up wit plate no.
PCR-220, t e insured car was it and suffered damages in t e amount of P42,052.00; t at
PANMALAY defrayed t e cost of repair of t e insured car and, t erefore, was subrogated to t e
rig ts of CANLUBANG against t e driver of t e pick-up and is employer, Erlinda Fabie; and
t at, despite repeated demands, defendants, failed and refused to pay t e claim of PANMALAY.
Private respondents, t ereafter, filed a Motion for Bill of Particulars and a supplemental motion
t ereto. In compliance t erewit , PANMALAY clarified, among ot ers, t at t e damage caused to
t e insured car was settled under t e "own damage", coverage of t e insurance policy, and t at t e
driver of t e insured car was, at t e time of t e accident, an aut orized driver duly licensed to
drive t e ve icle. PANMALAY also submitted a copy of t e insurance policy and t e Release of
Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging t at PANMALAY
ad no cause of action against t em. „ ey argued t at payment under t e "own damage" clause of
t e insurance policy precluded subrogation under Article 2207 of t e Civil Code, since
indemnification t ereunder was made on t e assumption t at t ere was no wrongdoer or no t ird
party at fault.
After earings conducted on t e motion, opposition t ereto, reply and rejoinder, t e R„C issued
an order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On
August 19, 1986, t e R„C denied PANMALAY's motion for reconsideration.
On appeal taken by PANMALAY, t ese orders were up eld by t e Court of Appeals on
November 27, 1987. Consequently, PANMALAY filed t e present petition for review.
PANMALAY contended, t erefore, t at its cause of action against private respondents was
anc ored upon Article 2207 of t e Civil Code, w ic reads:
If t e plaintiffs property as been insured, and e as received indemnity from
t e insurance company for t e injury or loss arising out of t e wrong or breac
of contract complained of, t e insurance company s all be subrogated to t e
rig ts of t e insured against t e wrongdoer or t e person w o as violated t e
contract. . . .
PANMALAY is correct.
Article 2207 of t e Civil Code is founded on t e well-settled principle of subrogation. If t e
insured property is destroyed or damaged t roug t e fault or negligence of a party ot er t an t e
assured, t en t e insurer, upon payment to t e assured, will be subrogated to t e rig ts of t e
assured to recover from t e wrongdoer to t e extent t at t e insurer as been obligated to pay.
Payment by t e insurer to t e assured operates as an equitable assignment to t e former of all
remedies w ic t e latter may ave against t e t ird party w ose negligence or wrongful act
caused t e loss. „ e rig t of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of t e
insurance claim by t e insurer [Compania Maritima v. Insurance Company of Nort America,
G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v.
Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
„ ere are a few recognized exceptions to t is rule. For instance, if t e assured by is own act
releases t e wrongdoer or t ird party liable for t e loss or damage, from liability, t e insurer's
rig t of subrogation is defeated [P oenix Ins. Co. of Brooklyn v. Erie & Western „ransport, Co.,
117 US 312, 29 L. Ed. 873 (1886); Insurance Company of Nort America v. Elgin, Joliet &
Eastern Railway Co., 229 F 2d 705 (1956)]. Similarly, w ere t e insurer pays t e assured t e
value of t e lost goods wit out notifying t e carrier w o as in good fait settled t e assured's
claim for loss, t e settlement is binding on bot t e assured and t e insurer, and t e latter cannot
bring an action against t e carrier on is rig t of subrogation [McCart y v. Barber Steams ip
Lines, Inc., 45 P il. 488 (1923)]. And w ere t e insurer pays t e assured for a loss w ic is not a
risk covered by t e policy, t ereby effecting "voluntary payment", t e former as no rig t of
subrogation against t e t ird party liable for t e loss [Sveriges Angfartygs Assurans Forening v.
Qua C ee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of t e exceptions are availing in t e present case.
„ e lower court and Court of Appeals, owever, were of t e opinion t at PANMALAY was not
legally subrogated under Article 2207 of t e Civil Code to t e rig ts of CANLUBANG, and
t erefore did not ave any cause of action against private respondents. On t e one and, t e trial
court eld t at payment by PANMALAY of CANLUBANG's claim under t e "own damage"
clause of t e insurance policy was an admission by t e insurer t at t e damage was caused by t e 1. „ e Company will, subject to t e Limits of Liability, indemnify t e Insured
assured and/or its representatives. On t e ot er and, t e Court of Appeals in applying t e  ÷
 against loss of or damage to t e Sc eduled Ve icle and its accessories and

÷rule eld t at Section III-1 of t e policy, w ic was t e basis for settlement of spare parts w ilst t ereon: ²
CANLUBANG's claim, did not cover damage arising from collision or overturning due to t e
negligence of t ird parties as one of t e insurable risks. Bot tribunals concluded t at (a) 

÷
  

÷

PANMALAY could not now invoke Article 2207 and claim reimbursement from private   


÷ /


 
 8


respondents as alleged wrongdoers or parties responsible for t e damage. 
÷ /


 

 ;

„ e above conclusion is wit out merit.
It must be emp asized t at t e lower court's ruling t at t e "own damage" coverage under t e
policy implies
  
÷ 
 ÷
 ÷÷ 
÷ "instead of t ird parties, (c)  ÷;
proceeds from an incorrect compre ension of t e p rase "own damage" as used by t e insurer.
W en PANMALAY utilized t e p rase "own damage" ² a p rase w ic , incidentally, is not
found in t e insurance policy ² to define t e basis for its settlement of CANLUBANG's claim
under t e policy, it simply meant t at it ad assumed to reimburse t e costs for repairing
t e
  
÷ 
  [7 PANMALAY's Compliance wit Supplementary Motion
for Bill of Particulars, p. 1; Record, p. 31]. It is in t is sense t at t e so-called "own damage"
coverage under Section III of t e insurance policy is differentiated from Sections I and IV-1
w ic refer to "„ ird Party Liability" coverage (liabilities arising from t e deat of, or bodily
injuries suffered by, t ird parties) and from Section IV-2 w ic refer to "Property Damage"
coverage (liabilities arising from damage caused by t e insured ve icle to t e properties of t ird
parties).
Neit er is t ere merit in t e Court of Appeals' ruling t at t e coverage of insured risks under
Section III-1 of t e policy does not include to t e insured ve icle arising from collision or
overturning due to t e negligent acts of t e t ird party. Not only does it stem from an erroneous
interpretation of t e provisions of t e section, but it also violates a fundamental rule on t e
interpretation of property insurance contracts.
It is a basic rule in t e interpretation of contracts t at t e terms of a contract are to be construed
according to t e sense and meaning of t e terms w ic t e
 ÷   ave used. In t e case
of property insurance policies, t e evident intention of t e contracting parties, . ., t e insurer and
t e assured, determine t e import of t e various terms and provisions embodied in t e policy. It is
only w en t e terms of t e policy are ambiguous, equivocal or uncertain, suc t at t e parties

÷ rule, and to
t emselves disagree about t e meaning of particular provisions, t at t e courts will intervene. In
suc an event, t e policy will be construed by t e courts liberally in favor of t e assured and
strictly against t e insurer [Union Manufacturing Co., Inc. v. P ilippine Guaranty Co., Inc., G.R.,
No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals,
G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of
Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1. (÷ Articles 1370-1378 of t e
Civil Code].
Section III-1 of t e insurance policy w ic refers to t e conditions under w ic t e insurer
PANMALAY is liable to indemnify t e assured CANLUBANG against damage to or loss of t e
insured ve icle, reads as follows:
SEC„ION III ² LOSS OR DAMAGE
(b) by fire, external explosion, self ignition or lig tning or
burglary, ousebreaking or t eft;
(d) w ilst in transit (including t e processes of loading
and unloading) incidental to suc transit by road, rail,
inland, waterway, lift or elevator.
xxx xxx xxx
[Annex "A-1" of PANMALAY's Compliance wit Supplementary Motion for
Bill of Particulars; Record, p. 34; Emp asis supplied].
PANMALAY contends t at t e coverage of insured risks under t e above section, specifically
Section III-1(a), is compre ensive enoug to include damage to t e insured ve icle arising from
collision or overturning due to t e fault or negligence of a t ird party. CANLUBANG is
apparently of t e same understanding. Based on a police report w erein t e driver of t e insured
car reported t at after t e ve icle was sideswiped by a pick-up, t e driver t ereof fled t e scene
[Record, p. 20], CANLUBANG filed its claim wit PANMALAY for indemnification of t e
damage caused to its car. It t en accepted payment from PANMALAY, and executed a Release of
Claim and Subrogation Receipt in favor of latter.
Considering t at t e very parties to t e policy were not s own to be in disagreement regarding t e
meaning and coverage of Section III-1, specifically sub-paragrap (a) t ereof, it was improper for
t e appellate court to indulge in contract construction, to apply t e  ÷
ascribe meaning contrary to t e clear intention and understanding of t ese parties.
It cannot be said t at t e meaning given by PANMALAY and CANLUBANG to t e p rase "by
accidental collision or overturning" found in t e first paint of sub-paragrap (a) is untenable.
Alt oug t e terms "accident" or "accidental" as used in insurance contracts ave not acquired a
tec nical meaning, t e Court as on several occasions defined t ese terms to mean t at w ic
takes place "wit out one's foresig t or expectation, an event t at proceeds from an unknown
cause, or is an unusual effect of a known cause and, t erefore, not expected" [De la Cruz v. „ e
Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino
Merc ants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989].
Certainly, it cannot be inferred from jurisprudence t at t ese terms, wit out qualification, exclude
events resulting in damage or loss due to t e fault, recklessness or negligence of t ird parties. „ e
concept "accident" is not necessarily synonymous wit t e concept of "no fault". It may be
utilized simply to distinguis intentional or malicious acts from negligent or careless acts of man.
Moreover, a perusal of t e provisions of t e insurance policy reveals t at damage to, or loss of, 
t e insured ve icle due to negligent or careless acts of t ird parties is not listed under t e general
and specific exceptions to t e coverage of insured risks w ic are enumerated in detail in t e 
insurance policy itself [7 Annex "A-1" of PANMALAY's Compliance wit Supplementary
Motion for Bill of Particulars, ÷
.]

„ e Court, furt ermore. finds it notewort y t at t e meaning advanced by PANMALAY
regarding t e coverage of Section III-1(a) of t e policy is undeniably more beneficial to 
CANLUBANG t an t at insisted upon by respondents erein. By arguing t at t is section covers
losses or damages due not only to malicious, but also to negligent acts of t ird parties, 
PANMALAY in effect advocates for a more compre ensive coverage of insured risks. And t is,
in t e final analysis, is more in keeping wit t e rationale be ind t e various rules on t e 
interpretation of insurance contracts favoring t e assured or beneficiary so as to effect t e
dominant purpose of indemnity or payment [7 Calanoc v. Court of Appeals, 98 P il. 79 (1955);
Del Rosario v. „ e Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 
8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327].

Parent etically, even assuming for t e sake of argument t at Section III-1(a) of t e insurance
policy does not cover damage to t e insured ve icle caused by negligent acts of t ird parties, and 
t at PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a
collision due to private respondents' negligence would amount to unwarranted or "voluntary

payment", dismissal of PANMALAY's complaint against private respondents for no cause of
action would still be a grave error of law.

For even if under t e above circumstances PANMALAY could not be deemed subrogated to t e
rig ts of its assured under Article 2207 of t e Civil Code, PANMALAY would still ave a cause 
of action against private respondents. In t e pertinent case of 7  ÷(
"÷(÷÷ 
÷


.9  +
÷
., t e Court ruled t at t e insurer w o may ave no rig ts of 
subrogation due to "voluntary" payment may nevert eless recover from t e t ird party responsible
for t e damage to t e insured property under Article 1236 of t e Civil Code.


In conclusion, it must be reiterated t at in t is present case, t e insurer PANMALAY as subrogee


merely prays t at it be allowed to institute an action to recover from t ird parties w o allegedly
caused damage to t e insured ve icle, t e amount w ic it ad paid its assured under t e
insurance policy. Having t us s own from t e above discussion t at PANMALAY as a cause of 
action against t ird parties w ose negligence may ave caused damage to CANLUBANG's car,
t e Court olds t at t ere is no legal obstacle to t e filing by PANMALAY of a complaint for 
damages against private respondents as t e t ird parties allegedly responsible for t e damage.
Respondent Court of Appeals t erefore committed reversible error in sustaining t e lower court's
order w ic dismissed PANMALAY's complaint against private respondents for no cause of 
action. Hence, it is now for t e trial court to determine if in fact t e damage caused to t e insured
ve icle was due to t e "carelessness, recklessness and imprudence" of t e driver of private 
respondent Erlinda Fabie.

WHEREFORE, in view of t e foregoing, t e present petition is GRAN„ED. Petitioner's
complaint for damages against private respondents is ereby REINS„A„ED. Let t e case be 
remanded to t e lower court for trial on t e merits.

SO ORDERED.

$ $%$&(",(1*%!"!)+,
-
   
petitioner,
vs.

- .8 
    
respondents. from t e insurance company for t e injury or loss arising out of t e wrong or
. t e deficiency from t e person causing t e loss or injury.
Petition to review t e decision È of t e Court of Appeals, in CA-G.R. No. SP-08642, dated 21
Marc 1979, ordering petitioner Manila Ma ogany Manufacturing Corporation to pay private
respondent Zenit Insurance Corporation t e sum of Five „ ousand Pesos (P5,000.00) wit 6%
annual interest from 18 January 1973, attorney's fees in t e sum of five undred pesos (P500.00),
and costs of suit, and t e resolution of t e same Court, dated 8 February 1980, denying petitioner's
motion for reconsideration of it's decision.
From 6 Marc 1970 to 6 Marc 1971, petitioner insured its Mercedes Benz 4-door sedan wit
respondent insurance company. On 4 May 1970 t e insured ve icle was bumped and damaged by
a truck owned by San Miguel Corporation. For t e damage caused, respondent company paid
petitioner five t ousand pesos (P5,000.00) in amicable settlement. Petitioner's general manager
executed a Release of Claim, subrogating respondent company to all its rig t to action against San
Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand
reimbursement from San Miguel Corporation of t e amount it ad paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging t at San Miguel Corporation ad already paid
petitioner P4,500.00 for t e damages to petitioner's motor ve icle, as evidenced by a cas vouc er
and a Release of Claim executed by t e General Manager of petitioner disc arging San Miguel
Corporation from "all actions, claims, demands t e rig ts of action t at now exist or ereafter [sic]
develop arising out of or as a consequence of t e accident."
Respondent insurance company t us demanded from petitioner reimbursement of t e sum of
P4,500.00 paid by San Miguel Corporation. Petitioner refused; ence, respondent company filed
suit in t e City Court of Manila for t e recovery of P4,500.00. „ e City Court ordered petitioner
to pay respondent P4,500.00. On appeal t e Court of First Instance of Manila affirmed t e City
Court's decision
, w ic CFI decision was affirmed by t e Court of Appeals, wit t e
modification t at petitioner was to pay respondent t e total amount of P5,000.00 t at it ad earlier
received from t e respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and muc more, P5,000.00 to
respondent company as t e subrogation in t e Release of Claim it executed in favor of respondent
was conditioned on recovery of t e total amount of damages petitioner ad sustained. Since total
damages were valued by petitioner at P9,486.43 and only P5,000.00 was received by petitioner
from respondent, petitioner argues t at it was entitled to go after San Miguel Corporation to claim
t e additional P4,500.00 eventually paid to it by t e latter, wit out aving to turn over said
amount to respondent. Respondent of course disputes t is allegation and states t at t ere was no
qualification to its rig t of subrogation under t e Release of Claim executed by petitioner, t e
contents of said deed aving expressed all t e intents and purposes of t e parties.
÷ 
)  ., "
„o support its alleged rig t not to return t e P4,500.00 paid by San Miguel Corporation, petitioner
cites Art. 2207 of t e Civil Code, w ic states:
If t e plaintiff's property as been insured, and e as received indemnity
breac of contract complained of t e insurance company s all be subrogated
to t e rig ts of t e insured against t e wrongdoer or t e person w o as
violated t e contract. If t e amount paid by t e insurance company does not
fully cover t e injury or loss t e aggrieved party s all be entitled to recover
Petitioner also invokes Art. 1304 of t e Civil Code, stating.
A creditor, to w om partial payment as been made, may exercise is rig t for
t e remainder, and e s all be preferred to t e person w o as been
subrogated in is place in virtue of t e partial payment of t e same credit.
We find petitioners arguments to be untenable and wit out merit. In t e absence of any ot er
evidence to support its allegation t at a gentlemen's agreement existed between it and respondent,
not embodied in t e Release of Claim, suc ease of Claim must be taken as t e best evidence of
t e intent and purpose of t e parties. „ us, t e Court of Appeals rig tly stated:
Petitioner argues t at t e release claim it executed subrogating Private
respondent to any rig t of action it ad against San Miguel Corporation did
not preclude Manila Ma ogany from filing a deficiency claim against t e
wrongdoer. Citing Article 2207, New Civil Code, to t e effect t at if t e
amount paid by an insurance company does not fully cover t e loss, t e
aggrieved party s all be entitled to recover t e deficiency from t e person
causing t e loss, petitioner claims a preferred rig t to retain t e amount
coming from San Miguel Corporation, despite t e subrogation in favor of
Private respondent.
Alt oug petitioners rig t to file a deficiency claim against San Miguel
Corporation is wit legal basis, wit out prejudice to t e insurer's rig t of
subrogation, nevert eless w en Manila Ma ogany executed anot er release
claim (Ex ibit K) disc arging San Miguel Corporation from "all actions,
claims, demands and rig ts of action t at now exist or ereafter arising out of
or as a consequence of t e accident" after t e insurer ad paid t e proceeds of
t e policy- t e compromise agreement of P5,000.00 being based on t e
insurance policy-t e insurer is entitled to recover from t e insured t e amount
of insurance money paid (Metropolitan Casualty Insurance Company of New
York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and
Insolvency Law wit comments and annotations, H.B. Perez 1976, p. 151).
Since petitioner by its own acts released San Miguel Corporation, t ereby
defeating private respondents, t e rig t of subrogation, t e rig t of action of
petitioner against t e insurer was also nullified. (Sy Keng & Co. vs.
Queensland Insurance Co., Ltd., 54 O.G. 391) Ot erwise stated: private
respondent may recover t e sum of P5,000.00 it ad earlier paid to
petitioner.!
As eld in ()
 If a property is insured and t e owner receives t e indemnity from t e insurer, of Court; Rosales vs. Reyes Ordoveza, 25 P il. 495 ; Cabigao vs. Lim, 50
it is provided in [Article 2207 of t e New Civil Code] t at t e insurer P il. 844; Baguiro vs. Barrios „upas, 77 P il 120).
is

÷ 
to t e rig ts of t e insured against t e wrongdoer and if
t e amount paid by t e insurer does not fully cover t e loss, t en t e WHEREFORE, premises considered, t e petition is DENIED. „ e judgment appealed from is
aggrieved party is t e one entitled to recover t e deficiency. ... Under t is ereby AFFIRMED wit costs against petitioner.
legal provision,   


  ÷ 
 

" 





÷ 
÷  


 
÷ 
· (Emp asis supplied)
SO ORDERED.
„ e decision of t e respondent court ordering petitioner to pay respondent company, not t e
P4,500.00 as originally asked for, but P5,000.00, t e amount respondent company paid petitioner
as insurance, is also in accord wit law and jurisprudence. In disposing of t is issue, t e Court of
Appeals eld:

... petitioner is entitled to keep t e sum of P4,500.00 paid by San Miguel

Corporation under its clear rig t to file a deficiency claim for damages
incurred, against t e wrongdoer, s ould t e insurance company not fully pay
for t e injury caused (Article 2207, New Civil Code).   

   ÷
7 r 
 " 
 :÷
   ÷ "5;;;;;    ÷
    

  ÷

   ÷ . (Emp asis supplied)

As as been observed:

... „ e rig t of subrogation can only exist after t e insurer as paid t e

ot erwise t e insured will be deprived of is rig t to full indemnity. If t e
insurance proceeds are not sufficient to cover t e damages suffered by t e
insured, t en e may sue t e party responsible for t e damage for t e t e [sic]
remainder. „o t e extent of t e amount e as already received from t e
insurer enjoy's [sic] t e rig t of subrogation.

Since t e insurer can be subrogated to only suc rig ts as t e insured may

ave, ÷ 
  ÷ 
"    
 "  ÷    ÷  
 
  ÷
 ÷÷  ÷  ÷ ÷÷÷ ÷  
  ÷ ÷   ÷    
  "  ÷ 

  ÷

    ÷÷   ÷ ÷
 
 ÷ "  ÷  . #(Emp asis supplied.)

And even if t e specific amount asked for in t e complaint is P4,500.00 only and not P5,000.00,
still, t e respondent Court acted well wit in its discretion in awarding P5,000.00, t e total amount
paid by t e insurer. „ e Court of Appeals rig tly reasoned as follows:

It is to be noted t at private respondent, in its companies, prays for t e

recovery, not of P5,000.00 it ad paid under t e insurance policy but
P4,500.00 San Miguel Corporation ad paid to petitioner. On t is score, We
believe t e City Court and Court of First Instance erred in not awarding t e
proper relief. Alt oug private respondent prays for t e reimbursement of
P4,500.00 paid by San Miguel Corporation, instead of P5,000.00 paid under
t e insurance policy, t e trial court s ould ave awarded t e latter, alt oug
not prayed for, under t e general prayer in t e complaint "for suc furt er or
ot er relief as may be deemed just or equitable, (Rule 6, Sec. 3, Revised Rules