Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5715 December 20, 1910

E. M. BACHRACH, plaintiff-appellee,
vs.
BRITISH AMERICAN ASSURANCE COMPANY, a corporation, defendant-appellant.

Haussermann, Ortigas, Cohn and Fisher, for appellant

Kincaid & Hurd and Thomas L. Hartigan, for appellee.

JOHNSON, J.:

On the 13th of July, 1908, the plaintiff commenced an action against the defendant to recover the
sum of P9,841.50, the amount due, deducting the salvage, upon the following fire insurance policy
issued by the defendant to the plaintiff:

[Fire policy No. 3007499.]

This policy of insurance witnesseth, that E. M. Bachrach, esq., Manila (hereinafter called the
insured), having paid to the undersigned, as authorized agent of the British American
Assurance Company (hereinafter called the company), the sum of two thousand pesos
Philippine currency, for insuring against loss or damage by fire, as hereinafter mentioned, the
property hereinafter described, in the sum of several sums following, viz:

Ten thousand pesos Philippine currency, on goods, belonging to a general furniture store,
such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands,
mirrors, and sea-grass furniture (in accordance with warranty "D" of the tariff attached
hereto) the property of the assured, in trust, on commission or for which he is responsible,
whilst stored in the ground floor and first story of house and dwelling No. 16 Calle Martinez,
district 3, block 70, Manila, built, ground floor of stone and or brick, first story of hard wood
and roofed with galvanized iron — bounded in the front by the said calle, on one side by
Calle David and on the other two sides by buildings of similar construction and occupation.

Co-insurance allowed, particulars of which to be declared in the event of loss or claim.

The company hereby agrees with the insured (but subject to the conditions on the back
hereof, which are to be taken as a part of this policy) that if the property above described, or
any part thereof, shall be destroyed or damaged by fire, at any time between the 21st day of
February, 1908, and 4 o'clock in the afternoon of the 21st day of February, 1909, or (in case
of the renewal of this policy) at any time afterwards, so long as, and during the period in
respect of which the insured shall have paid to the company, and they shall have accepted,
 the sum required for the renewal of this policy, the company will, out of their capital stock,
and funds, pay or make good to the insured the value of the property so destroyed, or the
amount of such damage thereto, to any amount not exceeding, in respect of each or any of
the several matters above specified, the sum set opposite thereto, respectively, and not
exceeding in the whole the sum of ten thousand pesos, and also not exceeding, in any case,
the amount of the insurable interest therein of the insured at the time of the happening of
such fire.

In witness whereof, the British American Assurance Company has accused these presents
to be signed this 21st day of February, in the year of our Lord 1908.

For the company.

W. F. STEVENSON & Co. LTD.,

"By...............................................,
"Manager Agents."

And indorsed on the back the following:

The within policy and includes a "Calalac" automobile to the extent of (P1,250)
twelve hundred and fifty pesos Philippine currency.

Memo: Permission is hereby granted for the use of gasoline not to exceed 10 gallons
for the above automobile, but only whilst contained in the reservoir of the car. It is
further warranted that the car be neither filled nor emptied in the within-described
building or this policy be null and void.

Manila, 27th February, 1908.

"W. F. STEVENSON & Co. LTD.,

"By.......................................................,
"Manager Agents."

The defendant answered the complaint, admitting some of the facts alleged by the plaintiff and
denying others. The defendant also alleged certain facts under which it claimed that it was released
from all obligations whatever under said policy. These special facts are as follows:

First. That the plaintiff maintained a paint and varnish shop in the said building where the goods
which were insured were stored.

Second. That the plaintiff transferred his interest in and to the property covered by the policy to H.
W. Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the
plaintiff had transferred his interest in certain of the goods covered by the said policy to one Macke,
to secure certain obligations assumed by the said Macke for and on behalf of the insured. That the
sanction of the said defendant had not been obtained by the plaintiff, as required by the said policy.

Third. That the plaintiff, on the 18th of April, 1908, and immediately preceding the outbreak of the
alleged fire, willfully placed a gasoline can containing 10 gallons of gasoline in the upper story of
said building in close proximity to a portion of said goods, wares, and merchandise, which can was
so placed by the plaintiff as to permit the gasoline to run on the floor of said second story, and after
so placing said gasoline, he, the plaintiff, placed in close proximity to said escaping gasoline a
lighted lamp containing alcohol, thereby greatly increasing the risk of fire.

Fourth. That the plaintiff made no proof of the loss within the time required by condition five of said
policy, nor did the insured file a statement with he municipal or any other judge or court of the goods
alleged to have been in said building at the time of the alleged fire, nor of the goods saved, nor the
loss suffered.

The plaintiff, after denying nearly all of the facts set out in the special answer of the defendant,
alleged:

First. That he had been acquitted in a criminal action against him, after a trial duly and regularly had,
upon a charge of arson, based upon the same alleged facts set out in the answer of the defendant.

Second. That her had made no proof of the loss set up in his complaint for the reason that
immediately after he had, on the 20th of April, 1908, given the defendant due notice in writing of said
loss, the defendant, on the 21st of April, 1908, and thereafter on other occasions, had waived all
right to require proof of said loss by denying all liability under the policy and by declaring said policy
to be null and void.

After hearing the evidence adduced during the trial of the cause, the lower court found that the
defendant was liable to the plaintiff and rendered a judgment against the defendant for the sum of
P9,841.50, with interest for a period of one year at 6 per cent, making a total of P10,431.99, with
costs.

From that decision the defendant appealed and made the following assignments of error:

1. The court erred in failing to hold that the use of the building, No. 16 Calle Martinez, as a paint and
varnish shop annulled the policy of insurance.

2. The court erred in failing to hold the execution of the chattel mortgages without the knowledge and
consent of the insurance company annulled the policy of insurance.

3. The court erred in holding that the keeping of gasoline and alcohol not in bottles in the building
No. 16 Calle Martinez was not such a violation of the conditions of the policy as to render the same
null and void.

4. The court erred in failing to find as a fact that E. M. Bachrach, the insured, willfully placed a
gasoline can containing about 10 gallons of gasoline in the upper story of said building, No. 16 Calle
Martinez, in close proximity to a portion of the goods, wares, and merchandise stored therein, and
that said can was so placed by said Bachrach as to permit the gasoline to run on the floor of said
second story.

5. The court erred in failing to find as a fact that E. M. Bachrach, after placing said gasoline can in
close proximity to the goods, wares, and merchandise covered by the policy of insurance, the he
(Bachrach) placed in close proximity to said escaping gasoline a lighted lamp containing alcohol,
thereby greatly increasing the risk of fire.
6. The court erred in holding that the policy of insurance was in force at the time of said fire, and that
the acts or omissions on the part of the insured which cause, or tended to cause, the forfeiture of the
policy, were waived by the defendant.

7. The court erred in holding the defendant liable for the loss under the policy. lawphil.net

8. The court erred in refusing to deduct from the loss sustained by Bachrach the value of the
automobile, which was saved without damage.

9. The court erred in refusing to grant the motion for a new trial.

10. The court erred in refusing to enter judgment in favor of the defendant and against the plaintiff.

With reference to the first above assignment of error, the lower court in its decision said:

It is claimed that either gasoline or alcohol was kept in violation of the policy in
the bodega containing the insured property. The testimony on this point is somewhat
conflicting, but conceding all of the defendant's claims, the construction given to this claim by
American courts would not justify the forfeiture of the policy on that ground. The property
insured consisted mainly of household furniture kept for the purpose of sale. The
preservation of the furniture in a salable condition by retouching or otherwise was incidental
to the business. The evidence offered by the plaintiff is to the effect that alcohol was used in
preparing varnish for the purpose of retouching, though he also says that the alcohol was
kept in store and not in the bodega where the furniture was. It is well settled that the keeping
of inflammable oils on the premises, though prohibited by the policy, does not void it if such
keeping is incidental to the business. Thus, where a furniture factory keeps benzine for the
purposes of operation (Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs.
American Fire Insurance Company, 91 Wis., 158), or where it is used for the cleaning
machinery (Mears vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the
insurer can not on that ground avoid payment of loss, though the keeping of the benzine on
the premises is expressly prohibited. These authorities also appear sufficient to answer the
objection that the insured automobile contained gasoline and that the plaintiff on one
occasion was seen in the bodega with a lighted lamp. The first was incidental to the use of
the insured article and the second being a single instance falls within the doctrine of the case
last cited.

It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended to rely
upon a condition of that character, it ought to have been plainly expressed in the policy.

With reference to the second above assignment of error, the defendant and appellant contends that
the lower court erred in failing to hold that the execution of the said chattel mortgage, without the
knowledge and consent of the insurance company and without receiving the sanction of said
company, annulled the said policy of insurance.

With reference to this assignment of error, upon reading the policy of insurance issued by the
defendant to the plaintiff, it will be noted that there is no provision in said policy prohibiting the
plaintiff from placing a mortgage upon the property insured, but, admitting that such a provision was
intended, we think the lower court has completely answered this contention of the defendant. He
said, in passing upon this question as it was presented:
 It is claimed that the execution of a chattel mortgage on the insured property violated what is
known as the "alienation clause," which is now found in most policies, and which is
expressed in the policies involved in cases 6496 and 6497 by a purchase imposing forfeiture
if the interest in the property pass from the insured. (Cases 6496 and 6497, in which are
involved other action against other insurance companies for the same loss as in the present
action.)

This clause has been the subject of a vast number of judicial decisions (13 Am. & Eng.
Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of authority that the
interest in property insured does not pass by the mere execution of a chattel mortgage and
that while a chattel mortgage is a conditional sale, there is no alienation within the meaning
of the insurance law until the mortgage acquires a right to take possession by default under
the terms of the mortgage. No such right is claimed to have accrued in the case at bar, and
the alienation clause is therefore inapplicable.

With reference to the third assignment of error above noted, upon a reading of the decision of the
lower court it will be found that there is nothing in the decision of the lower court relating to the facts
stated in this assignment of error, neither is there any provision in the policy relating to the facts
alleged in said assignment of error.

Assignment of error numbers 4 and 5 above noted may be considered together.

The record discloses that some time prior to the commencement of this present action, a criminal
action was commenced against the plaintiff herein in the Court of First Instance of the city of Manila,
in which he was charged with willfully and maliciously burning the property covered by the policy in
the present case. At the conclusion of the criminal action and after hearing the evidence adduced
during the trial, the lower court, with the assistance of two assessors, found that the evidence was
insufficient to show beyond peradventure of doubt that the defendant was guilty of the crime. The
evidence adduced during the trial of the criminal cause was introduced as evidence in the present
cause. While the evidence shows some very peculiar and suspicious circumstances concerning the
burning of the goods covered by the said policy, yet, nevertheless, in view of the findings of the
lower court and in view of the apparent conflict in the testimony, we can not find that there is a
preponderance of evidence showing that the plaintiff did actually set fire or cause fire to be set to the
goods in question. The lower court, in discussing this question, said:

As to the claim that the loss occurred through the voluntary act of the insured, we consider it
unnecessary to review the evidence in detail. That was done by another branch of this court
in disposing of the criminal prosecution brought against the insured, on the same ground,
based mainly on the same evidence. And regardless of whether or not the judgment in that
proceeding is res adjudicata as to anything here, we are at least of the opinion that the
evidence to establish this defense should not be materially less convincing than that required
in order to convict the insured of the crime of arson. (Turtell vs. Beamount, 25 Rev. Rep.,
644.) In order to find that the defense of incendiarism was established here, we would be
obliged, therefore, in effect to set aside the findings of the judge and assessors in the
criminal cause, and this we would be loath to do even though the evidence now produced
were much stronger than it is.

With reference to the sixth assignment of error above noted, to wit: That the court erred in holding
itc@ alf

that the policy of insurance was in force at the time of said fire and that the acts or omissions on the
part of the insured which caused or tended to cause a forfeiture of the policy were waived by the
defendant, the lower court, in discussing this question, said:
 Regardless of the question whether the plaintiff's letter of April 20 (Exhibit B) was a sufficient
compliance with the requirement that he furnish notice of loss, the fact remains that on the
following day the insurers replied by a letter (Exhibit C) declaring that the "policies were null
and void," and in effect denying liability. It is well settled by a preponderance of authorities
that such a denial is a waiver of notice of loss, because if the "policies are null and void," the
furnishing of such notice would be vain and useless. (13 Am. & Eng. Encyc. of Law, 347,
348, 349.) Besides, "immediate notice" is construed to mean only within a reasonable time.

Much the same may be said as to the objection that the insured failed to furnish to the
insurers his books and papers or to present a detailed statement to the "juez municipal," in
accordance with article 404 of the Code of Commerce. The last-named provision is similar to
one appearing in many American policies requiring a certificate from a magistrate nearest
the loss regarding the circumstance thereof. A denial of liability on other grounds waives this
requirement (O'Niel vs. Buffalo Fire Insurance Company, 3 N. Y., 122; Peoria Marine Ins.
Co. vs. Whitehill, 25 Ill., 382), as well as that relating to the production of books and papers
(Ga. Home Ins. Co. vs. Goode & Co., 95 Va., 751; 66 Jur. Civ., 16). Besides, the insured
might have had difficulty in attempting to comply with this clause, for there is no longer an
official here with the title of "juez municipal."

Besides the foregoing reasons, it may be added that there was no requirement in the policy in
question that such notice be given.

With reference to the assignments of error numbers 7, 9, and 10, they are too general in their
character to merit consideration.

With reference to the eight assignment of error above noted, the defendant and appellant contends
that he was entitled to have the amount of his responsibility reduced by the full value (P1,250) of the
said automobile.

It does not positively appear of record that the automobile in question was not included in the other
policies. It does appear that the automobile was saved and was considered as a part of the
salvaged. It is alleged that the salvage amounted to P4,000, including the automobile. This amount
(P4,000) was distributed among the different insurers and the amount of their responsibility was
proportionately reduced. The defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now made for the first time. No
reason is given why the objection was not made at the time of the distribution of the salvage,
including the automobile, among all of the insurers. The lower court had no opportunity to pass upon
the question now presented for the first time. The defendant stood by and allowed the other insurers
to share in the salvage, which he claims now wholly belonged to him. We think it is now too late to
raise the question.

For all the foregoing reasons, we are of the opinion that the judgment of the lower court should be
affirmed, and it is hereby ordered that judgment be entered against the defendant and in favor of the
plaintiff for the sum of P9,841.50, with interest at the rate of 6 per cent from the 13th of July, 1908,
with costs. So ordered.

Arellano, C. J., and Torres, J., concur.

Trent, J., concurs in the result.
Moreland, J., dissents.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21196 February 6, 1924

ONG GUAN CAN, plaintiff-appellee,

vs.
THE CENTURY INSURANCE COMPANY, LTD., defendant-appellant.

Eiguren and Razon for appellant.

Montinola, Montinola and Hontiveros for appellee.

JOHNSON, J.:

The only question presented by the appeal is whether or not the judgment by default rendered by the
lower court should be set aside and annulled. We think it should be, for the following reasons:

The action was commenced in the Court of First Instance of the City of Iloilo on the 15th day of May,
1923. Its purpose was to recover an amount due on the policy of insurance issued by the defendant
to the plaintiff. On the same day a copy of the complaint was served upon the defendant, through its
duly authorized representative in the City of Iloilo, Messrs. Andrew & Co. The defendant filed its
appearance with the clerk of the court on the 7th day of June, 1923. The notice of appearance, it is
alleged and not denied, was mailed at the City of Manila on the 2d day of June, 1923. On the 5th
day of June, 1923, the attorneys for the plaintiff presented a motion praying that a judgment by
default be rendered against the defendant. Said motion was granted on the same day, and a
judgment by default was duly entered. On the 8th day of June, 1923, the defendant, through its
attorneys, filed a motion praying that the judge set aside said judgment by default and permit the
defendant to answer. Said motion recited that the said notice of appearance was mailed at the City
of Manila on the 2nd day of June, 1923, and that the steamship Vizcaya, carrying mails, including
the letter containing the notice of appearance on the 2d day of June, did not arrive at Iloilo in the
usual course until after the time had expired for filing its appearance, or on the 7th day of June,
1923, due to the fact that said ship encountered a storm at sea. The lower court denied said motion
on the 11th day of June, 1923, to which order the defendant duly expected, and later presented
another motion to the same effect, alleging and asserting that it had a valid and meritorious defense
to the cause of action presented by the plaintiff. Later the second motion was also denied, to which
the defendant also excepted. Some further proceedings were had in the lower court concerning the
judgment by default, which have no importance in the consideration of the question presented.

From the judgment by default of the lower court the defendant appealed and now alleges that it
committed an error in not granting the motions to set aside said judgment and permit the defendant
to answer. It is admitted that the plaintiff and defendant resided in the same province. Under
paragraph 2 of section 392 of Act No. 190 it became the duty of the defendant to appear within
twenty days from the service of the summons. The summons was served on the 15th day of May.
The twenty days within which the defendant was required to appear expired on the 5th day of June.
No appearance was filed by the defendant until perhaps the 7th day of June. It is admitted that the
defendant mailed its appearance in the City of Manila on the 2d day of June, 1923. It is also a fact
that mail, in the ordinary course, will arrive at Iloilo from Manila in two days. The defendant mailed its
appearance at a time when in the ordinary course of events it would have reached the hand of the
clerk of the court on or before the expiration of the time within which it was obliged to make its
appearance. The reason that the appearance did not reach its destination was due to a fact over
which the defendant had no control. The failure to make the appearance within the time prescribed
by law was due to no fault of the defendant. The defendant evidently made an honest effort to
comply with the law. To render a judgment against it under these circumstances would be to render
a judgment against it without giving it an opportunity to be heard.

It has been frequently decided that, if pleadings or other papers essential to a case are entrusted to
the mails in due season and under proper precaution and are lost or miscarried, it will be ground for
vacating a judgment by default. (Boyd vs. Williams and Overbaugh, 70 N.J. Law, 185;
Corning vs. Tripp, 1 Howard's Practice [N.Y.], 14; Williams vs.Richmond, etc. Railroad Co., 110 N.
C., 466; Chicago, etc. Railway Co. vs. Eastham, 30 L.R.A. [N.S.], 740; 23 Cyc., 943; 15 Ruling Case
Law, 708.)

A delay of mail, such as occurred in the present case, in our opinion amounts to accident or surprise
for which judgments by default may be set aside, especially when the defendant shows by affidavit
or otherwise that he has a valid and meritorious defense. The time fixed for filing papers in a cause
is generally directory and the court always has it in its power, in the exercise of a proper discretion,
to extend the time fixed by law whenever the ends of justice would seem to demand such an
extension. (Wood vs. Fobes and Farnham, 5 Cal., 62.)

Considering the causes which prevented the defendant from making its appearance within the time
prescribed by subparagraph 2 of article 392 of Act No. 190 and considering its showing that, if
permitted to answer, it has a meritorious defense, we are of the opinion, and so decide, that the
judgment by default rendered by the lower court should be and is hereby set aside, and it is hereby
ordered and decreed that the defendant's appearance be admitted and that it be given ten days in
which to answer from notice of this decision. And without any findings as to costs, it is so ordered.

Araullo, C.J., Street, Malcolm, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8405 February 10, 1915

FRANCISCO GALIAN, plaintiff-appellant,

vs.
THE STATE ASSURANCE COMPANY, LTD., defendant-appellant.

Recaredo M.a Calvo for plaintiff.

Haussermann, Cohn and Fisher for defendant.

TRENT, J.:

This is an action upon an open policy of fire insurance of household effects. The property was
insured on January 25, 1912, for P3,000. On March 25, 1912, the day following the fire, the insured
presented an itemized statement of the goods contained in the house at the time of the fire, the total
value of which he claims to be P4,512. The insured property was not a total loss, and some of it was
afterward sold by the insured at public auction for the net amount of P120.40 The complaint prays
for the recovery of the total amount of the policy less two-thirds of the P120.40, or P2,919.74.

The insurance company interposed a special defense to the effect that the policy had been forfeited
by reason of the fact that the claim presented by the plaintiff was fraudulently false in that (a) the
insured had alleged a total loss, (b) that not all the articles listed in the plaintiff's claim of loss were in
the house where and when the fire occurred, and (c) that the plaintiff had attributed much greater
value to the articles included in the list than they were worth.

Upon trial there was evidence for the plaintiff that the statement presented to the insurance company
after the fire was substantially correct, both in quantities and values. The plaintiff testified that the
statement was prepared from memory immediately after the fire by himself with the assistance of his
brother. The defendant introduced three witnesses, who were sent to the scene of the fire shortly
after it occurred to estimate the value of the property contained in the house. From photographs
submitted in evidence it appears that the first floor of the plaintiff's residence was not damaged by
the fire at all, but did suffer damage from water and breakage. In the parlor on the second floor the
rattan work on the chairs was entirely consumed, but the woodwork was probably only charred or
scorched. The fire did the most damages in the bedroom, where the roof partly fell in. Articles of
clothing contained in the wardrobes in this room are visible in the photograph, they having evidently
been taken out for inspection after the fire. Mr. Young testified that upon request of the defendant
company he had examined the contents of the house and estimated the loss at P1,000. He said,
however, that this was only a casual estimate. They pulled out a few drawers of the wardrobes and
examined some of the wearing apparel contained in them. Mr. Dow testified that he made a rough
estimate of the damage done. He estimated the value of the goods on the first floor at P500, and
said that from what he saw of the remains on the upper floor, P1,500 would be a liberal estimate of
the damages done. He did not believe that there was P4,000 worth of property on the second floor.
Mr. Laing, agent of the defendant company, estimated the loss at P1,500. This, he thought, was a
very liberal estimate. He appears to have made a more careful estimate of the value of the different
articles than either of the other witnesses called by the defendant. He testified that nothing had been
entirely consumed by the fire. In this he is contradicted by the plaintiff, who claims that some of the
furniture, even, was totally consumed. From the appearance of the bedroom, as portrayed by the
photograph (Exhibit 4), we are inclined to believe that some, at least, of the plaintiff's effects were
completely destroyed by the fire.

The court below declined to consider as competent the testimony of the plaintiff and his brother as to
the value of the property on the ground that neither was qualified to appraise the property. The
testimony of the three experts was also dismissed as not being a reliable basis for a findings as to
damages. The court then proceeded to determine that the property was worth P1,500 at the time of
the fire, based upon an offer of compromise made to the plaintiff by the defendant company at the
figure. This offer was introduced in evidence, it is claimed, without objection by the defendant
company, and the court held that this failure of the defendant to object to the admission of the offer
of compromise rendered it competent evidence. Thereupon, a judgment in favor of the plaintiff was
entered for P1,500, with interest from the date the complaint was filed. Both parties excepted to this
judgment, and moved for a new trial on the ground that the judgment was manifestly against the
weight of the evidence. These motions being overruled, they have brought the case to this court by
separate bills of exception.

The main issue on this appeal is as to the value of the property. After a careful examination of the
evidence, we are of the opinion that there is no satisfactory evidence that the plaintiff included in his
itemized list of property contained in the house at the time of the fire, any property which was not
there. The plaintiff prepared the list from memory, and absolute accuracy could hardly be expected.
With regard to the fact that the plaintiff claims there were about 25 chairs in the house, it may be
said that the remains of 8 chairs may be seen in the photograph (Exhibit 3), and 3 more in the
photograph (Exhibit 1). This accounts for nearly half the number claimed and the plaintiff asserts that
a bundle of chairs was stored on top of some of the wardrobes in the bedroom. The remaining
furniture described is not of an amount or description which convinces us that the floor space in the
plaintiff's dwelling was too limited to contain all of it, in the absence of something like definite figures
as to the size of the house and of the furniture.

The inventory which the plaintiff gives of the wardrobe of himself and wife covers an amount and
quality of clothing which counsel is quite correct in saying is not usually possessed by persons in the
station of life of the plaintiff. It may be well to state here that the evidence shows the plaintiff to have
been a cashier of a local business house with a salary of P175 per month. In addition to this he and
his wife each had shares of stock in a commercial concerns which brought them between P25 and
P30 per month dividends. He had inherited about P15,000 from his father, and was administrator of
his father's estate. While the family wardrobe denotes what might be considered a high degree of
extravagance, we cannot say from the evidence before us that there was less or other clothing than
that described by the plaintiff. From the photograph (Exhibit 4) it is evident that there was
considerable clothing which had not been consumed and was only damaged by water or smoke. It
appears that the plaintiff's claim wherein this extraordinary list of wearing apparel was set forth was
submitted to the defendant before any of the three experts made his examination of the property.
The defendant was consequently well aware of the claim which the plaintiff intended to make and
could very easily have made an exact list of the quantity and quality of the clothing which had not
been consumed by the fire, and which would doubtedless have aided us considerably in determining
whether the plaintiff's description of the family clothing was correct. The cross-examination of the
plaintiff at the trial did not develop anything material in the way of contradiction to the list of property
submitted by him.

As to the values set out opposite the various items in the plaintiff's list, much the same reasoning
must be applied. If furniture or clothing of the kind and quality described is not worth the amounts set
out by the plaintiff, it would have been easy for the experts introduced by the plaintiff to take each
item separately and show wherein and how much the price was erroneous. After an inspection of
each separate article in the list, we are not prepared to say that the prices are fabulous.

The testimony of the three witnesses introduced by the defendant we decline to accept for two
reasons: First, because it appears that some of the plaintiff's property was entirely consumed by the
fire and some was so badly damaged that it was impossible to judge of its value. In the second
place, the inspection made by these several witnesses was so superficial, in view of their
opportunity, that their conclusions do not carry conviction.

As to the ruling of the trial court that the plaintiff and his brother were not qualified to appraise the
value of the household effects of the former, we must say that we do not agree with the learned trial
court on the point. There is nothing in the whole list, except the jewelry, but what may be legitimately
described as household effects — furniture, clothing, dishes, kitchen utensils, etc. They are with
which all people of ordinary education and refinement are reasonably familiar. Such articles are on
sale in retail shops everywhere and the prices are readily available to anyone seeking the
information. Not only this, but most of them are articles which persons with a reasonably fair income
purchase for their own convenience and comfort. Hence, information as to their value must
necessarily be acquired by all such individuals. While the knowledge of some persons on the subject
may be greater than that possessed by others, this is true of all other branches of knowledge and
equally as true of experts. For these reasons we cannot subscribe to the proposition that none but
experts can testify as to the values of ordinary household articles.

The knowledge of values in most cases does not depend upon professional or other special
skill; and witnesses without having any special experience or training as would entitle them
 to be called experts, may yet have gained such knowledge of the land, or other subject under
inquiry, as to aid the court or jury in arriving at a conclusion. . . . Persons by their common
experience and observation necessarily gain some common use by all or nearly all; and their
evidence as to such values is not excluded by the fact that experts may have more accurate
knowledge as to such values. Obviously the witness must have some means of knowledge
as to the nature and quality of the articles in question before he is qualified to express an
opinion as to values. It would be an idle ceremony to allow witnesses to give their opinions in
evidence, unless they had better means of knowledge as to the subject matter of their
testimony than the jury might possess in common with all other persons. The qualification of
the witness is, of course, a question for the court. (Jones on Ev., sec. 363.)

The plaintiff was intimately acquianted with the articles described by him. He, no doubt, had
purchased most of them. One could hardly expected to be in much better position to estimate the
value of the articles than this. We conclude, therefore, that the preponderance of the evidence is to
the effect that the quantity and quality of the goods contained in the house at the time of the fire
were substantially those described by the plaintiff in his claim of loss.

Having reached this conclusion, we presume that the defendant company will no longer insist upon
the remainder of its points, which would, if decided favorably to its contention, tend to reduce the
total value of the plaintiff's household effects, but not to a figure which would make the company's
liability under the policy less than that which they would be held liable under the coinsurance clause
of the policy.

We do not understand that the plaintiff at any time alleged a total loss. The list presented by him the
day after the fire is designated as a "Statement of household furniture and personal effects . . . on
hand" at the time of the fire. He latter offered to abandon the remains of the fire, and still later
caused these remains to be sold at public auction. These facts clearly negative the assertion that he
alleged a total loss.

Clause 17 of the conditions of the policy reads: "If the property hereby insured shall, at the breaking
out of any fire, be collectively of greater value than the sum insured thereon, then the insured shall
be considered as being his own insurer for the difference, and shall bear a ratable proportion of the
loss accordingly. Every item, if more than one, of the policy shall be separately subject to this
condition."

The property was worth P4,512. The salvage amounted to P120.40. This leaves a partial loss
amounting to P4,391.60. As the property was insured for only P3,000, the insurer must bear a
portion of the loss represented by a fraction the numerator of which is the amount of the insurance
and the denominator of which is the value of the property at the time of the fire. This entitles the
insured to a judgment against the insurrer for 2,919.92. Let judgment be entered accordingly, without
costs in this instance. So ordered.

Arellano, C. J., Torres, Carson and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., concurring:

The facts in this case are fully stated in the foregoing opinion. I desire to add only one or two other
facts appearing in the record which have to do with the ideas which I desire to present in this
opinion.

The policy on which this action is brought reads as follows:

This policy of insurance witnesseth that Mr. Francisco Galian, of Manila (hereinafter
called the insured), having paid to the undersigned, as authorized agent of the State
Assurance Company, Limited (hereinafter called the company), the premium as
above noted for insuring against loss or damages by fire or lightning as hereinafter
mentioned, the property hereinafter described, in the sum or several sums following,
namely:

(Then follows description of the property insured consisting of household goods

exclusively.)

The company hereby agrees with the insured (but subject to the conditions on the
back hereof, which are to be taken as part of this policy) that if the property above
described, or any part thereof, shall be destroyed by fire or lightning, at any time
between the 24th January, 1912, and four o'clock in the afternoon of the 24th
January, 1913, or at any time afterwards so long as and during the period in respect
of which the insured or the insured's representative in interest shall have paid to the
company, and in shall have accepted, the sum required for the renewal of this policy,
on or before the date of renewal in each succeeding year, the company will, out of its
capital stock, and funds, pay or make good to the insured the amount of such loss or
damage, but not exceeding in respect of each or any of the several matters above
specified, the sum set opposite thereto respectively, and not exceeding in the whole
the sum of three thousand pesos Philippine currency. And also not exceeding, in any
case the amount of the insurable interest therein of the insured at the time of the
happening of such fire.

In witness whereof, this is subscribed by the authorized agent of the company, this
25th January, 1912.

For Warner, Barnes & Co., Ltd.:

(Sgd.) J.T. FIGUERAS, Manager.

Per power of attorney.

As is clear from this policy, which is the contract signed by the parties, the company agrees to pay to
the insured whatever loss he may suffer on the household goods by reason of the causes mentioned
not to exceed P3,000. In other words, the company agrees to pay all (not a part only) of the loss or
damages which the property may suffer to the amount of P3,000. This is the essential stipulation of
the policy, the one on which the minds of the parties really met, and, in reality, the only contract to
which the signatures of the parties are attached. However, when we examine the back of the policy,
we find there, in the print, a clause (called clause 17) by means of which the company withdraws the
agreement which forms the body of the policy, which is signed by the parties and is the one on which
the minds of the parties really met, and substitutes another in its place wholly different in terms,
nature and effect. This clause is quoted in the opinion of the court and is as follows:

17. If the property hereby insured shall, at the breaking out of any fire, be collectively of
greater value than the sum insured thereon, then the insured shall be considered as being
 his own insurer for the difference, and shall bear a ratable proportion of the loss accordingly.
Every item, if more than one, of the policy shall be separately subject to this condition.

This clause, if valid between the parties, creates a contracts, as I have stated, different in every
conceivable aspect from the contract of the policy. By virtue of this clause we have this situation
presented: Mr. Rogers has a library of the value of P2,000. Not desiring to incur the expense of
insuring it for full value, he insured it against loss or damage by fire to the amount of P1,000. He paid
the insurance premium on P1,000 for ten years. At the end of that item a fire occurs by which the
library is damages in the admitted sum of P1,000. He goes to the insurance company, confidently
expecting that he will receive the amount of the damage, 1,000, for which his library had been
insured and on which sum he has been paying premiums for ten years. Arriving at the office of the
company he is informed that the company did not agree to pay the full loss suffered but that, by
virtue of clause 17 above quoted, it agreed to pay only P500; "For," says the company to him, "the
value of your library was P2,000. We were an insurer for P1,000 and you for the other P1,000. You
being a coinsurer with the company in equal amount, you must stand with the company an equal
share of the loss. The loss being P1,000, we pay you P500, although we admit that, for ten years,
you have been paying premiums on P1,000." Stated concisely, the company pays one-half of what,
in the contract signed by both parties, it had agreed to pay.

By virtue of this clause, therefore, a person who insures his property for less than its value is
required to become an insurer himself . In other words, unless he insures for full value or more, he
becomes himself an insurer (this is the inexplicable part of it), not for his own benefit but for the
benefit of the insurance company. In addition to having bought the goods and paid for them, he
himself insures the uncovered portion so that he may enjoy the privilege of relieving the company
from paying the sum it has solemnly agreed to pay and on which sum and for the payment of which
by the company he has been paying premiums since the insurance was created. This amounts to
the proposition that, in order to secure what the company has agreed to pay him, the insured must
not only lose P1,000 worth of books but he must lose all the books he has. To obtain payment for
the loss of half of his property he must lose all of his property. This is very like the assertion of an
accident insurance company that it would pay the insured only half the sum agreed on for the loss of
a leg on the ground that he had escaped with his life. Having lost his leg instead of his life, he should
reduce by one-half or more the amounts of the insurance to which he was entitled under the terms of
the policy for the loss of a leg. So with the one insured against loss by fire; having had the good
fortune to save half of his property, he must pay for his good fortune by donating to the insurance
company one-half of the value of the property saved.

Whether this condition of affairs is permitted by the laws of the Philippine Islands now in force I do
not stop to inquire. The question was not directly presented or argued. The validity of the clause
creating that condition has been assumed in default of a challenge thereto. It is clear, however, that
the principle involved in sustaining the legality of such a clause provides a method of payment of
loss in insurance cases quite different from that found in article 428 of the Code of Commerce, which
seems to require full payment of the loss regardless of the value of the property at the breaking out
of the fire. It is possible, however, that, under article 385, such a clause is legal and enforceable. I
have not gone into the matter deeply, as it seems from a casual reading that such a situation as I
have described above will be difficult under section 164 of the new insurance law, which is to take
effect on the 1st of July next. I do not, therefore, undertake, at this time, to pass on the question of
the validity of the clause, particularly as my brethen on the court are unanimous in the opinion that
clause 17 is legal and proper.

I am aware that such clauses are earnestly defended by insurance companies. But, in spite of that
defense, such clauses are directly opposes to the ordinary meaning of the contract as written and
signed. Their very existence is unknown in most cases, and were known they are not understood.
They are violate of the fair intent of the agreement and, as a natural consequence, deceive the
insured in the majority of cases. After an insurance company has solemnly agreed, in an instrument
signed by the parties, to pay an insured P1,000 if his loss is P1,000, and then, when his loss in
admittedly P1,000, offers him only P500, clauses permitting such a result are deception and
explanations supporting them without effect. Dissertations on community of interest, ownership in
common, inability to ascertain which portion of the insured goods was destroyed, the protection to all
the property by an insurance on only half, etc., are metaphysical rather than substantial and, in the
great majority of cases, form no party of the contract which the insured believes, and has the right to
believe, he is entering into. When the company agrees to pay the whole loss, one must go outside
the understanding of the ordinary man to defend the payment of only half the loss; and when one is
insured by an insurance company, common reason fails and explanations are a burden when he is
informed that by the act of being insured by the insurance company, he became an insurer of the
insurance company. In making contracts with public corporations citizens are entitled to plain words
with plain meanings. They should not be compelled to call upon a dialectician to plead their cause or
a metaphysician to secure their rights. Common sense and ordinary understanding should be their
recourse, and not metaphysics — that fertile field of delusion propagated by language.

JOHNSON, J., dissenting:

I cannot secure my consent to either the argument or the law applied in the present case.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.

Regulus E. Cabote & Associates for petitioner.

Benito P. Fabie for private respondents.

CORTES, J.:

Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the
Court of Appeals which upheld an order of the trial court dismissing for no cause of action
PANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver.

The principal issue presented for resolution before this Court is whether or not the insurer
PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an
insurance claim against private respondents as the parties allegedly responsible for the damage
caused to the insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against
private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a
Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang
Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness,
recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the
insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed
the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated
demands, defendants, failed and refused to pay the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion
thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to
the insured car was settled under the "own damage", coverage of the insurance policy, and that the
driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive
the vehicle. PANMALAY also submitted a copy of the insurance policy and the 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 that PANMALAY had
no cause of action against them. They argued that payment under the "own damage" clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.

After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an
order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19,
1986, the RTC denied PANMALAY's motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November
27, 1987. Consequently, PANMALAY filed the present petition for review.

After private respondents filed its comment to the petition, and petitioner filed its reply, the Court
considered the issues joined and the case submitted for decision.

Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident
allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY
contended, therefore, that its cause of action against private respondents was anchored upon Article
2207 of the Civil Code, which reads:

If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. . . .

PANMALAY is correct.

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer
[Compania Maritima v. Insurance Company of North 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].

There are a few recognized exceptions to this rule. For instance, if the assured by his own act
releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312,
29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co.,
229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the assured's claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action against the
carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)].
And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting "voluntary payment", the former has no right of subrogation against the third party liable for
the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September
5, 1967, 21 SCRA 12].

None of the exceptions are availing in the present case.

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally
subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not
have any cause of action against private respondents. On the one hand, the trial court held that
payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance
policy was an admission by the insurer that the damage was caused by the assured and/or its
representatives. On the other hand, the Court of Appeals in applying the ejusdem generis rule held
that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not
cover damage arising from collision or overturning due to the negligence of third parties as one of
the insurable risks. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and
claim reimbursement from private respondents as alleged wrongdoers or parties responsible for the
damage.

The above conclusion is without merit.

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy
implies damage to the insured car caused by the assured itself, instead of third parties, proceeds
from an incorrect comprehension of the phrase "own damage" as used by the insurer. When
PANMALAY utilized the phrase "own damage" — a phrase which, incidentally, is not found in the
insurance policy — to define the basis for its settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs for repairing the damage to the insured
vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, p. 1;
Record, p. 31]. It is in this sense that the so-called "own damage" coverage under Section III of the
insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability"
coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from
Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by
the insured vehicle to the properties of third parties).

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section
III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to
the negligent acts of the third party. Not only does it stem from an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts.

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only
when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, that the courts will intervene. In
such an event, the policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer [Union Manufacturing Co., Inc. v. Philippine 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. Also Articles 1370-1378 of the Civil Code].

Section III-1 of the insurance policy which refers to the conditions under which the insurer
PANMALAY is liable to indemnify the assured CANLUBANG against damage to or loss of the
insured vehicle, reads as follows:

SECTION III — LOSS OR DAMAGE

1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon: —

(a) by accidental collision or overturning, or collision or overturning consequent upon

mechanical breakdown or consequent upon wear and tear;

(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or

theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unloading) incidental to
such transit by road, rail, inland, waterway, lift or elevator.

xxx xxx xxx

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars;
Record, p. 34; Emphasis supplied].

PANMALAY contends that the coverage of insured risks under the above section, specifically
Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from
collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of
the same understanding. Based on a police report wherein the driver of the insured car reported that
after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20],
CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It
then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation
Receipt in favor of latter.

Considering that the very parties to the policy were not shown to be in disagreement regarding the
meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the
appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe
meaning contrary to the clear intention and understanding of these parties.

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by
accidental collision or overturning" found in the first paint of sub-paragraph (a) is untenable. Although
the terms "accident" or "accidental" as used in insurance contracts have not acquired a technical
meaning, the Court has on several occasions defined these terms to mean that which takes place
"without one's foresight or expectation, an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected" [De la Cruz v. The Capital Insurance
& Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance
Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred
from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss
due to the fault, recklessness or negligence of third parties. The concept "accident" is not necessarily
synonymous with the concept of "no fault". It may be utilized simply to distinguish intentional or
malicious acts from negligent or careless acts of man.

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the
insured vehicle due to negligent or careless acts of third parties is not listed under the general and
specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance
policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars, supra.]

The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the
coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that
insisted upon by respondents herein. By arguing that this section covers losses or damages due not
only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a
more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping
with the rationale behind the various rules on the interpretation of insurance contracts favoring the
assured or beneficiary so as to effect the dominant purpose of indemnity or payment [SeeCalanoc v.
Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The 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].

Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy
does not cover damage to the insured vehicle caused by negligent acts of third parties, and that
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 the above circumstances PANMALAY could not be deemed subrogated to the
rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of
action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening
v. Qua Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation
due to "voluntary" payment may nevertheless recover from the third party responsible for the
damage to the insured property under Article 1236 of the Civil Code.

In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee
merely prays that it be allowed to institute an action to recover from third parties who allegedly
caused damage to the insured vehicle, the amount which it had paid its assured under the insurance
policy. Having thus shown from the above discussion that PANMALAY has a cause of action against
third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds
that there is no legal obstacle to the filing by PANMALAY of a complaint for damages against private
respondents as the third parties allegedly responsible for the damage. Respondent Court of Appeals
therefore committed reversible error in sustaining the lower court's order which dismissed
PANMALAY's complaint against private respondents for no cause of action. Hence, it is now for the
trial court to determine if in fact the damage caused to the insured vehicle was due to the
"carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.

WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for
damages against private respondents is hereby REINSTATED. Let the case be remanded to the
lower court for trial on the merits.

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.

Agustin M. Gramata for plaintiff and appellee.

BARRERA, J.:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of
First Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon
de la Cruz for the death of the latter's son, to pay the burial expenses, and attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the
holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance &
Surety Co., Inc., for the period beginning November 13, 1956 to November 12, 1957. On January 1,
1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a
boxing contest for general entertainment wherein the insured Eduardo de la Cruz, a non-
professional boxer participated. In the course of his bout with another person, likewise a non-
professional, of the same height, weight, and size, Eduardo slipped and was hit by his opponent on
the left part of the back of the head, causing Eduardo to fall, with his head hitting the rope of the ring.
He was brought to the Baguio General Hospital the following day. The cause of death was reported
as hemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the policy,
thereupon filed a claim with the insurance company for payment of the indemnity under the
insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of First
Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the
death of the insured, caused by his participation in a boxing contest, was not accidental and,
therefore, not covered by insurance. After due hearing the court rendered the decision in favor of the
plaintiff which is the subject of the present appeal.

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped,
which was unintentional. At this opportunity, his opponent landed on Eduardo's head a blow, which
sent the latter to the ropes. That must have caused the cranial injury that led to his death. Eduardo
was insured "against death or disability caused by accidental means". Appellant insurer now
contends that while the death of the insured was due to head injury, said injury was sustained
because of his voluntary participation in the contest. It is claimed that the participation in the boxing
contest was the "means" that produced the injury which, in turn, caused the death of the insured.
And, since his inclusion in the boxing card was voluntary on the part of the insured, he cannot be
considered to have met his death by "accidental means". 1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus,
the terms have been taken to mean that which happen by chance or fortuitously, without intention
and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes
place without one's foresight or expectation — an event that proceeds from an unknown cause, or is
an unusual effect of a known cause and, therefore, not expected.1

Appellant however, would like to make a distinction between "accident or accidental" and "accidental
means", which is the term used in the insurance policy involved here. It is argued that to be
considered within the protection of the policy, what is required to be accidental is the means that
caused or brought the death and not the death itself. It may be mentioned in this connection, that the
tendency of court decisions in the United States in recent years is to eliminate the fine distinction
between the terms "accidental" and "accidental means" and to consider them as legally
synonymous.2 But, even if we take appellant's theory, the death of the insured in the case at bar
would still be entitled to indemnification under the policy. The generally accepted rule is that, death
or injury does not result from accident or accidental means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything
unforeseen except the death or injury.3 There is no accident when a deliberate act is performed
unless some additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death.4 In other words, where the death or injury is
not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in
the doing of the act which produces the injury, the resulting death is within the protection of policies
insuring against death or injury from accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injury
was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw
him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that blow in the head and would not have died. The
fact that boxing is attended with some risks of external injuries does not make any injuries received
in the course of the game not accidental. In boxing as in other equally physically rigorous sports,
such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does,
the injury or death can only be accidental or produced by some unforeseen happening or event as
what occurred in this case.

Furthermore, the policy involved herein specifically excluded from its coverage —
 (e) Death or disablement consequent upon the Insured engaging in football, hunting,
pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or
motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of the
protection of the insurance contract. Failure of the defendant insurance company to include death
resulting from a boxing match or other sports among the prohibitive risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.5

Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed,
with costs against appellant. so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez,
JJ., concur.

Footnotes

1 29A Am. Jur. pp. 308-309, and cases cited therein.

2Traveler's Protective Association v. Stephens, 185 Ark. 660, 49 S.W. (2d) 364; Equitable
Life Assur. v. Hemenover, 100 Colo. 231, 67 P. (2d) 80, 110 ALR 1270; see cases cited in
29A Am. Jur. sec. 1166.

3Landress v. Phoenix Mut. Life Ins. Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct. 461, 90 ALR
1382; Davis v. Jefferson Standard Life Ins. Co., 73 F (2d) 330, 96 ALR 599, and others.

4 Evans v. Metropolitan Life Ins. Co., 26 Wash. (2d) 594, 174 P. (2d) 961.

Brams v. New York Life Ins. 299 Pa. 11 148 Atl. 855; Jolley v. Jefferson Standard Life Ins.
5

Co., 95 Wash, 683, 294 Pac. 585.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim
was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the face value of the
policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus
the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was
denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown cause, or is an
unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence
or casualty to the injured without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or death."
There was such a happening. This was the firing of the gun, which was the additional unexpected
and independent and unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury
 xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to

needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against accident.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity
agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents
are caused by negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of
this case as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic
issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident
that the petitioner was acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.

In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the act or to the payment of moral damages.
The law could not have meant to impose a penalty on the right to litigate; such right
is so precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his
act in bringing the action wrongful because in most cases one party will lose; we
would be imposing an unjust condition or limitation on the right to litigate. We hold
that the award of moral damages in the case at bar is not justified by the facts had
circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the private
respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from the date of
the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21821-22 and L-21824-27 May 31, 1966

DIOSDADO C. TY, plaintiff-appellant,
vs.
FILIPINAS COMPAÑIA DE SEGUROS, et al., defendants-appellees.

Porfirio V. Villaroman for plaintiff-appellant.

Ramirez and Ortigas for defendants-appellees Filipinas Compañia de Seguros, Philippine Guaranty
Co., Inc. and Universal Insurance and Indemnity Co.
Renato L. Liboro for defendant-appellee People's Surety and Insurance Co., Inc.
Perfecto P. R. Chua Cheng for defendant-appellee South Sea Surety and Insurance Co., Inc.
Gil Carlos and Associates for defendant-appellee Plaridel Surety and Insurance Co., Inc.

BARRERA, J.:

These are appeals instituted by Diosdado C. Ty from a single decision of the Court of First Instance
of Manila (in Civ. Cases Nos. 26343, 26344, 26404, 26405, 26406, 26442, which were tried
together), dismissing the six separate complaints he filed against six insurance companies (Filipinas
Compañia de Seguros, People's Surety & Insurance Co., Inc., South Sea Surety & Insurance Co.,
Inc., The Philippine Guaranty Company, Inc., Universal Insurance & Indemnity Co., and Plaridel
Surety & Insurance Co., Inc.) for collection from each of them, of the sum of P650.00, as
compensation for the disability of his left hand.

The facts of these cases are not controverted:

Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City,
working as mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took
Personal Accident Policies from several insurance companies, among which are herein defendants-
appellees, on different dates,1 effective for 12 months. During the effectivity of these policies, or on
December 24, 1953, a fire broke out in the factory where plaintiff was working. As he was trying to
put out said fire with the help of a fire extinguisher, a heavy object fell upon his left hand. Plaintiff
received treatment at the National Orthopedic Hospital from December 26, 1953 to February 8,
1954, for the following injuries, to wit:

(1) Fracture, simple, oraximal phalanx, index finger, left;

(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx
simple;

(3) Fracture, compound, communite phalanx, 4th finger, left;

(4) Fracture, simple, middle phalanx, middle finger, left;

(5) Lacerated wound, sutured, volar aspect, small finger, left;

(6) Fracture, simple, chip, head, 1st phalanx 5th digit, left.

which injuries, the attending surgeon certified, would cause temporary total disability of appellant's
left hand.

As the insurance companies refused to pay his claim for compensation under the policies by reason
of the said disability of his left hand, Ty filed motions in the Municipal Court of Manila, which
rendered favorable decision. On appeal to the Court of First Instance by the insurance companies,
the cases were dismissed on the ground that under the uniform terms of the insurance policies,
partial disability of the insured caused by loss of either hand to be compensable, the loss must result
in the amputation of that hand. Hence, these appeals by the insured. 1äwphï1.ñët

Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract,
uniform in all the cases, which reads:

"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

If the Insured sustains any Bodily Injury which is effected solely through violent, external,
visible and accidental means, and which shall not prove fatal but shall result, independently
of all other causes and within sixty (60) days from the occurrence, thereof, in Total or Partial
Disability of the Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury.

xxx xxx xxx

PARTIAL DISABILITY

LOSS OF:

xxx xxx xxx

Either Hand P650.00

xxx xxx xxx

The loss of a hand shall mean the loss, by amputation through the bones of the wrist.

Appellant contends that to be entitled to indemnification under the foregoing provision, it is enough
that the insured is disabled to such an extent that he cannot substantially perform all acts or duties of
the kind necessary in the prosecution of his business. It is argued that what is compensable is the
disability and not the amputation of the hand. The definition of what constitutes loss of hand, placed
in the contract, according to appellant, consequently, makes the provision ambiguous and calls for
the interpretation thereof by this Court.

This is not the first time that the proper construction of this provision, which is uniformly carried in
personal accident policies, has been questioned. Herein appellant himself has already brought this
matter to the attention of this Court in connection with the other accident policies which he took and
under which he had tried to collect indemnity, for the identical injury that is the basis of the claims in
these cases. And, we had already ruled:

While we sympathize with the plaintiff or his employer, for whose benefit the policies were
issued, we can not go beyond the clear and express conditions of the insurance policies, all
of which definite partial disability as loss of either hand by amputation through the bones of
the wrist. There was no such amputation in the case at bar. All that was found by the trial
court, which is not disputed on appeal, was that the physical injuries "caused temporary total
disability of plaintiff's left hand." Note that the disability of plaintiff's hand was merely
temporary, having been caused by fractures of the index, the middle and the fourth fingers of
the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties.
As the terms of the policies are clear, express and specific that only amputation of the left hand
should be considered as a loss thereof, an interpretation that would include the mere fracture or
other temporary disability not covered by the policies would certainly be unwarranted.2

We find no reason to depart from the foregoing ruling on the matter.

Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the
contract. The provision is clear enough to inform the party entering into that contract that the loss to
be considered a disability entitled to indemnity, must be severance or amputation of that affected
member from the body of the insured.

Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without
costs. So ordered.

Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ.,
concur.

Footnotes

1South Sea Surety & Ins. Co., Dec. 17, 1963; The Philippine Guaranty Company, Inc., Oct.
30, 1953; Universal Ins. & Indemnity Co., Oct. 30, 1953; Filipinas Compañia de Seguros,
Oct. 30, 1953; People's Surety & Ins. Co., Oct. 19, 1953; Plaridel Surety & Ins. Co., Dec. 22,
1953, Pacific Union, Ins.Co., Nov. 18, 1953.

2 Ty v. First National Surety & Ins. Co., G.R. Nos. L-16133-16145, April 29, 1961.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner,

vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.

Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering
accidental death which was secured by one Melencio Basilio from the Philippine American Life
Insurance Company. The case originated in the Municipal Court of Manila and judgment being
favorable to the plaintiff it was appealed to the court of first instance. The latter court affirmed the
judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now
before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal
and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached a supplementary contract covering death
by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery
committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia
Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded
the payment of the additional sum of P2,000 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was murdered by a
person who took part in the commission of the robbery and while making an arrest as an officer of
the law which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.

The pertinent facts which need to be considered for the determination of the questions raised are
those reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed
at about seven o'clock in the night of January 25, 1951, he was on duty as watchman of the
Manila Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty.
Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away
from Basilio's station, had come home that night and found that his house was well-lighted,
but with the windows closed; that getting suspicious that there were culprits in his house,
Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki uniform, asked him
to accompany him to the house with the latter refusing on the ground that he was not a
policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the
corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said
corner and reported the matter, asking the policeman to come along with him, to which the
policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda
passed by Basilio and somehow or other invited the latter to come along; that as the tree
approached the Ojeda residence and stood in front of the main gate which was covered with
galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the
policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it
turned out afterwards that the special watchman Melencio Basilio was hit in the abdomen,
the wound causing his instantaneous death; that the shot must have come from inside the
yard of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate;
that upon inquiry Atty. Ojeda found out that the savings of his children in the amount of P30
in coins kept in his aparador contained in stockings were taken away, the aparador having
been ransacked; that a month thereafter the corresponding investigation conducted by the
police authorities led to the arrest and prosecution of four persons in Criminal Case No.
15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited House and in
Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer
of the law" or as a result of an "assault or murder" committed in the place and therefore his death
was caused by one of the risks excluded by the supplementary contract which exempts the company
from liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion,
made the following comment:
 From the foregoing testimonies, we find that the deceased was a watchman of the Manila
Auto Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and
Policeman Magsanoc to see the trouble, or robbery, that occurred in the house of Atty.
Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in
uniform asked him to accompany him to his house, but the latter refused on the ground that
he was not a policeman and suggested to Atty. Ojeda to ask help from the traffic policeman
on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the help of
the traffic policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate of said
residence, he was shot and thus died. The death, therefore, of Basilio, although unexpected,
was not caused by an accident, being a voluntary and intentional act on the part of the one
wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out considered
opinion that the death of Basilio, though unexpected, cannot be considered accidental, for
his death occurred because he left his post and joined policeman Magsanoc and Atty. Ojeda
to repair to the latter's residence to see what happened thereat. Certainly, when Basilio
joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he
was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was
fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman
of the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something
suspicious was happening which caused the latter to ask for help. While at first he declied the
invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he
was not a regular policeman, he later agreed to come along when prompted by the traffic policeman,
and upon approaching the gate of the residence he was shot and died. The circumstance that he
was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a
capricious desire on his part to expose his life to danger considering the fact that the place he was in
duty-bound to guard was only a block away. In volunteering to extend help under the situation, he
might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it
being a matter that affects the security of the neighborhood. No doubt there was some risk coming to
him in pursuing that errand, but that risk always existed it being inherent in the position he was
holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his
duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer
of the law, as contended, simply because he went with the traffic policeman, for certainly he did not
go there for that purpose nor was he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the
very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result
of either crime for the record is barren of any circumstance showing how the fatal shot was fired.
Perhaps this may be clarified in the criminal case now pending in court as regards the incident but
before that is done anything that might be said on the point would be a mere conjecture. Nor can it
be said that the killing was intentional for there is the possibility that the malefactor had fired the shot
merely to scare away the people around for his own protection and not necessarily to kill or hit the
victim. In any event, while the act may not excempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor
aimed at the deceased precisely because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary
contract which enumerates the cases which may exempt the company from liability. While as a
general rule "the parties may limit the coverage of the policy to certain particular accidents and risks
or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J. S.
781-782), however, it is to be desired that the terms and phraseology of the exception clause be
clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms
are doubtful or obscure the same must of necessity be interpreted or resolved aganst the one who
has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally held that the
"terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved"
(29 Am. Jur., 181), and the reason for this rule is that he "insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the bearings and possible complications of
every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat
the very purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co.,
LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not
warrant the finding that the death of the unfortunate victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-
appellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J.
B. L., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and
GRACIA T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance
Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract
denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of
the Insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident ... and independently of all other causes." The clause, however,expressly
provided that it would not apply where death resulted from an injury"intentionally inflicted by another
party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered
the house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial
court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said
life policy and supplementary contract were in full force and effect, the house of
insured Juan S. Biagtan was robbed by a band of robbers who were charged in and
convicted by the Court of First Instance of Pangasinan for robbery with homicide; that
in committing the robbery, the robbers, on reaching the staircase landing on the
second floor, rushed towards the door of the second floor room, where they suddenly
met a person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing
wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on
the same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid
the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the
accidental death benefit clause, on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover,
and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by
the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-
mortal — were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the
parties presented no evidence and submitted the case upon stipulation, there was no "proof that the
act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective
which was robbery."

The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine
wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments
wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five
of those wounds caused the death of the insured. Whether the robbers had the intent to kill or
merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act
itself of inflicting the injuries was intentional. It should be noted that the exception in the accidental
benefit clause invoked by the appellant does not speak of the purpose — whether homicidal or not
— of a third party in causing the injuries, but only of the fact that such injuries have been
"intentionally" inflicted — this obviously to distinguish them from injuries which, although received at
the hands of a third party, are purely accidental. This construction is the basic idea expressed in the
coverage of the clause itself, namely, that "the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident ... and
independently of all other causes." A gun which discharges while being cleaned and kills a
bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive
game involving physical effort who collides with an opponent and fatally injures him as a result:
these are instances where the infliction of the injury is unintentional and therefore would be within
the coverage of an accidental death benefit clause such as thatin question in this case. But where a
gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab
him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally
inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove
fatal, and the robbers have been accused and convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of
its decision. The facts in that case, however, are different from those obtaining here. The insured
there was a watchman in a certain company, who happened to be invited by a policeman to come
along as the latter was on his way to investigate a reported robbery going on in a private house. As
the two of them, together with the owner of the house, approached and stood in front of the main
gate, a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the
wound causing his death. Under those circumstances this Court held that it could not be said that
the killing was intentional for there was the possibility that the malefactor had fired the shot to scare
people around for his own protection and not necessarrily to kill or hit the victim. A similar possibility
is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot
conceivably be considered as innocent insofar as such intent is concerned. The manner of execution
of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit
clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it
has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted
by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition.1 Where a provision of the policy excludes intentional injury, it is the
intention of the person inflicting the injury that is controlling.2 If the injuries suffered by the insured
clearly resulted from the intentional act of a third person the insurer is relieved from liability as
stipulated.3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484,
the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were
interposed to the action to recover indemnity, namely: (1) that the insured having been killed by
intentional means, his death was not accidental, and (2) that the proviso in the policy expressly
exempted the insurer from liability in case the insured died from injuries intentionally inflicted by
another person. In rendering judgment for the insurance company the Court held that while the
assassination of the insured was as to him an unforeseen event and therefore accidental, "the
clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally
inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was
shot three times by a person unknown late on a dark and stormy night, while working in the coal
shed of a railroad company. The policy did not cover death resulting from "intentional injuries
inflicted by the insured or any other person." The inquiry was as to the question whether the shooting
that caused the insured's death was accidental or intentional; and the Court found that under the
facts, showing that the murderer knew his victim and that he fired with intent to kill, there could be no
recovery under the policy which excepted death from intentional injuries inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of
the view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced
me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the
purposes of an accident insurance policy or a life insurance policy with a double indemnity clause in
case death results from accident. Indeed, it is quite logical to think that any event whether caused by
fault, negligence, intent of a third party or any unavoidable circumstance, normally unforeseen by the
insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question,
both the insurer and the insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard the American
decisions cited and quoted in the main opinion as not even persuasive authorities. But examining the
unequivocal language of the provision in controversy and considering that the insured accepted the
policy without asking that it be made clear that the phrase "injury intentionally inflicted by a third
party" should be understood to refer only to injuries inflicted by a third party without any wilful
intervention on his part (of the insured) or, in other words, without any connivance with him (the
insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to agree
that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the
insured happens to have violent enemies or is found in circumstances that would make his life fair
game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.
TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia
T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and ruling that
defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within
ninety days after the date of sustaining such injury, and independently of all other
causes, this Company shall pay, in addition to the sum insured specified on the first
page of this Policy, a further sum equal to said sum insured payable at the same time
and in the same manner as said sum insured, provided, that such death occurred
during the continuance of this Clause and of this Policy and before the sixtieth
birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident
thereto; (c) while travelling as a passenger or otherwise in any form of submarine
transportation, or while engaging in submarine operations; (d) in any violation of the
law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the
Insured, and whether or not the attack or the defense by the third party was caused
by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any kind of
training or instruction or has any duties aboard the aircraft or requiring descent
therefrom; and
 (7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured
is reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows:
"that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was
robbed by a band of robbers who were charged in and convicted by the Court of First Instance of
Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S.
Biagtan who received thrust from their sharp-pointed instruments, causing wounds on the body of
said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met
his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its
stipulated "Exceptions" on its theory that the insured's death resulted from injuries "intentionally
inflicted by a third party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada
with which the deceased insured Juan S. Biagtan was also insured for much larger sums under
similar contracts with accidental death benefit provisions have promptly paid the benefits thereunder
to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and
convicted by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and
(3) the injuries inflicted on the insured by the robbers consisted of five mortal and four non-mortal
wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the
wounds inflicted upon him by the malefactors on the early morning of May 21, 1964
by means of thrusts from sharp-pointed instruments delivered upon his person, and
there is likewise no question that the thrusts were made on the occasion of the
robbery. However, it is defendants' position that the killing of the insured was
intentionally done by the malefactors, who were charged with and convicted of the
crime of robbery with homicide by the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them.
Thus, the court does not have before it proof that the act of receiving thrust(s) from
the sharp-pointed instrument of the robbers was intended to inflict injuries upon the
person of the insured or any other person or merely to scare away any person so as
to ward off any resistance or obstacle that might be offered in the pursuit of their
main objective which was robbery. It was held that where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling ... and to come within the exception, the act which causes the injury must
be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme Court
ruled that "the shot (which killed the insured) was merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took
out life insurance from the Philippine American Life Insurance Company in the
amount of P2,000.00 to which was attached a supplementary contract covering
death by accident. Calanoc died of gunshot wounds on the occasion of a robbery
committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was
paid P2,000.00, the face value of the policy, but when she demanded payment of the
additional sum of P2,000.00 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case)
expressly excluded in the contract and have the effect of exempting the company
from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the
Court of Appeals in its decision which findings of fact were adopted by the Supreme
Court, as follows:

"...that on the way to the Ojeda residence (which was then being
robbed by armed men), the policeman and Atty. Ojeda passed by
Basilio (the insured) and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in
front of the main gate which was covered by galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was
fired; ... that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on
the part of the one who robbed, or one of those who robbed, the house of Atty.
Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:
 "... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare
away the people around for his own protection and not necessarily to
kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case
as to the real intention of the malefactors in making a thrust with their sharp-pointed
instrument on any person, the victim in particular, the case falls squarely within the
ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual
and unforeseen, or that which takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary contract. However,
there is no evidence here that the thrusts with sharp-pointed instrument (which led to
the death of the insured) was "intentional," (sic) so as to exempt the company from
liability. It could safely be assumed that it was purely accidental considering that the
principal motive of the culprits was robbery, the thrusts being merely intended to
scare away persons who might offer resistance or might obstruct them from pursuing
their main objective which was robbery.5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here.6 This Court, there
construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This Court
there clearly held that in such cases where the killing does not amount to murder, it must be held to
be a "pure accident" on the part of the victim, compensable with double-indemnity, even though the
malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary claim,
thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court a regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had
 fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted upon the deceased intentionally,
i.e. deliberately. The lower court correctly held that since the case was submitted upon the parties' stipulation of facts which did not cover the
malefactors' intent at all, there was an "utter absence of evidence in this case as to the real intention of the malefactors in making a thrust
with their sharp-pointed instrument(s) on any person, the victim in particular." From the undisputed facts, supra,8 the robbers had "rushed
towards the doors of the second floor room, where they suddenly met a person ... who turned out to be the insured Juan S. Biagtan who
received thrusts from their pointed instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a
reflex action on the robbers' part upon their being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill
must necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the question. Defendant must suffer the
consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the
fatal injuries were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by
defendant company, to wit, that the fatal injuries were not accidental as held by the lower court but
should be held to have been intentionally inflicted, raises a question of fact — which defendant is
now barred from raising, since it expressly limited its appeal to this Court purely "on questions of
law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and
"no other questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have
conceded the findings of fact of the trial court, since he thereby waived all questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion such as
insurance contracts, where the insured is handed a printed insurance policy whose fine-print
language has long been selected with great care and deliberation by specialists and legal advisers
employed by and acting exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly expressed so as to
be easily understood by the insured and any "ambiguous, equivocal or uncertain terms" are to be
"construed strictly and most strongly against the insurer and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks
or causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the
terms and phraseology of the exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one
who has caused the obscurity. (Article 1377, new Civil Code) And so it has been
generally held that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain ... are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture is involved" (29
AM. Jur., 181), and the reason for this rule is that the "insured usually has no voice in
the selection or arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44
C.J.S., p. 1174)
 Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate the
bearing and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical provisions,
which conceal rather than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured." (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is
contractually stipulated as follows in the policy: "that the death of the insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident," supra. The
policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of submarine
transportation, or in any violation of law by the insured or assault provoked by the insured, or in any
aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy
clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or
war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the
very exception herein involved, which would also except injuries "inflicted intentionally by a third
party, either with or without provocation on the part of the insured, and whether or not the attack or
the defense by the third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a third
party, regardless of any violation of law or provocation by the insured, and defeat the very purpose
of the policy of giving the insured double indemnity in case of accidental death by "external and
violent means" — in the very language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether caused
by fault, negligence or intent of a third party which is unforeseen and unexpected by the insured. All
the associated words and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of
the insured or are incurred in some expressly excluded calamity such as riot, war or atomic
explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of
the view upheld in the main opinion penned by Justice Makalintal. Further reflection has convinced
me, however, that there are good reasons to support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the
purposes of an accident insurance policy or a life insurance policy with a double indemnity clause in
case death results from accident. Indeed, it is quite logical to think that any event whether caused by
fault, negligence, intent of a third party or any unavoidable circumstance, normally unforeseen by the
insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question,
both the insurer and the insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard the American
decisions cited and quoted in the main opinion as not even persuasive authorities. But examining the
unequivocal language of the provision in controversy and considering that the insured accepted the
policy without asking that it be made clear that the phrase "injury intentionally inflicted by a third
party" should be understood to refer only to injuries inflicted by a third party without any wilful
intervention on his part (of the insured) or, in other words, without any connivance with him (the
insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to agree
that death caused by criminal assault is not covered by the policies of the kind here in question,
specially if the assault, as a matter of fact, could have been more or less anticipated, as when the
insured happens to have violent enemies or is found in circumstances that would make his life fair
game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any
intentional act can be, hence this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging
defendant insurance company liable, under its supplementary contract denominated "Accidental
Death Benefit Clause" with the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia
T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal interest) and ruling that
defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within
ninety days after the date of sustaining such injury, and independently of all other
causes, this Company shall pay, in addition to the sum insured specified on the first
page of this Policy, a further sum equal to said sum insured payable at the same time
and in the same manner as said sum insured, provided, that such death occurred
during the continuance of this Clause and of this Policy and before the sixtieth
birthday of the Insured."1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter,
thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident
thereto; (c) while travelling as a passenger or otherwise in any form of submarine
transportation, or while engaging in submarine operations; (d) in any violation of the
law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the
Insured, and whether or not the attack or the defense by the third party was caused
by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any kind of
training or instruction or has any duties aboard the aircraft or requiring descent
therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

 The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the

additional premium therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured
is reached.2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows:
"that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was
robbed by a band of robbers who were charged in and convicted by the Court of First Instance of
Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned out to be the insured Juan S.
Biagtan who received thrust from their sharp-pointed instruments, causing wounds on the body of
said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met
his death, disclaimed liability under its accidental death benefit clause under paragraph 5 of its
stipulated "Exceptions" on its theory that the insured's death resulted from injuries "intentionally
inflicted by a third party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance
companies such as the Lincoln National Life Insurance Co. and Sun Life Assurance Co. of Canada
with which the deceased insured Juan S. Biagtan was also insured for much larger sums under
similar contracts with accidental death benefit provisions have promptly paid the benefits thereunder
to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and
convicted by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and
(3) the injuries inflicted on the insured by the robbers consisted of five mortal and four non-mortal
wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the
wounds inflicted upon him by the malefactors on the early morning of May 21, 1964
by means of thrusts from sharp-pointed instruments delivered upon his person, and
there is likewise no question that the thrusts were made on the occasion of the
robbery. However, it is defendants' position that the killing of the insured was
intentionally done by the malefactors, who were charged with and convicted of the
crime of robbery with homicide by the Court of First Instance of Pangasinan.
It must be noted here that no evidence whatsoever was presented by the parties who
submitted the case for resolution upon the stipulation of facts presented by them.
Thus, the court does not have before it proof that the act of receiving thrust(s) from
the sharp-pointed instrument of the robbers was intended to inflict injuries upon the
person of the insured or any other person or merely to scare away any person so as
to ward off any resistance or obstacle that might be offered in the pursuit of their
main objective which was robbery. It was held that where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling ... and to come within the exception, the act which causes the injury must
be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme Court
ruled that "the shot (which killed the insured) was merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took
out life insurance from the Philippine American Life Insurance Company in the
amount of P2,000.00 to which was attached a supplementary contract covering
death by accident. Calanoc died of gunshot wounds on the occasion of a robbery
committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was
paid P2,000.00, the face value of the policy, but when she demanded payment of the
additional sum of P2,000.00 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case)
expressly excluded in the contract and have the effect of exempting the company
from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the
Court of Appeals in its decision which findings of fact were adopted by the Supreme
Court, as follows:

"...that on the way to the Ojeda residence (which was then being
robbed by armed men), the policeman and Atty. Ojeda passed by
Basilio (the insured) and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in
front of the main gate which was covered by galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was
fired; ... that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on
the part of the one who robbed, or one of those who robbed, the house of Atty.
Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the
possibility that the malefactors had fired the shot merely to scare
 away the people around for his own protection and not necessarily to
kill or hit the victim. In any event, while the act may not exempt the
triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case
as to the real intention of the malefactors in making a thrust with their sharp-pointed
instrument on any person, the victim in particular, the case falls squarely within the
ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual
and unforeseen, or that which takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary contract. However,
there is no evidence here that the thrusts with sharp-pointed instrument (which led to
the death of the insured) was "intentional," (sic) so as to exempt the company from
liability. It could safely be assumed that it was purely accidental considering that the
principal motive of the culprits was robbery, the thrusts being merely intended to
scare away persons who might offer resistance or might obstruct them from pursuing
their main objective which was robbery.5

It is respectfully submitted that the lower court committed no error in law in holding defendant
insurance company liable to plaintiffs-beneficiaries under its accidental death benefit clause, by
virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here.6 This Court, there
construing a similar clause, squarely ruled that fatal injuries inflicted upon an insured by a
malefactor(s) during the latter's commission of a crime are deemed accidental and within the
coverage of such accidental death benefit clauses and the burden of proving that the killing was
intentional so as to have it fall within the stipulated exception of having resulted from injuries
"intentionally inflicted by a third party" must be discharged by the insurance company. This Court
there clearly held that in such cases where the killing does not amount to murder, it must be held to
be a "pure accident" on the part of the victim, compensable with double-indemnity, even though the
malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary claim,
thus:

Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court a regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had
fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
 triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were
inflicted upon the deceased intentionally, i.e. deliberately. The lower court correctly held that since
the case was submitted upon the parties' stipulation of facts which did not cover the malefactors'
intent at all, there was an "utter absence of evidence in this case as to the real intention of the
malefactors in making a thrust with their sharp-pointed instrument(s) on any person, the victim in
particular." From the undisputed facts, supra,8 the robbers had "rushed towards the doors of the
second floor room, where they suddenly met a person ... who turned out to be the insured Juan S.
Biagtan who received thrusts from their pointed instruments." The thrusts were indeed properly
termed "purely accidental" since they seemed to be a reflex action on the robbers' part upon their
being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill must
necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the
question. Defendant must suffer the consequences of its failure to discharge its burden of proving by
competent evidence, e.g. the robbers' or eyewitnesses' testimony, that the fatal injuries
were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by
defendant company, to wit, that the fatal injuries were not accidental as held by the lower court but
should be held to have been intentionally inflicted, raises a question of fact — which defendant is
now barred from raising, since it expressly limited its appeal to this Court purely "on questions of
law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and
"no other questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have
conceded the findings of fact of the trial court, since he thereby waived all questions of facts. 11

4. It has long been an established rule of construction of so-called contracts of adhesion such as
insurance contracts, where the insured is handed a printed insurance policy whose fine-print
language has long been selected with great care and deliberation by specialists and legal advisers
employed by and acting exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly expressed so as to
be easily understood by the insured and any "ambiguous, equivocal or uncertain terms" are to be
"construed strictly and most strongly against the insurer and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved.

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly except other risks
or causes of loss therefrom" (45 C.J.S. 781-782), however, it is to be desired that the
terms and phraseology of the exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one
who has caused the obscurity. (Article 1377, new Civil Code) And so it has been
generally held that the "terms in an insurance policy, which are ambiguous,
equivocal, or uncertain ... are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture is involved" (29
AM. Jur., 181), and the reason for this rule is that the "insured usually has no voice in
 the selection or arrangement of the words employed and that the language of the
contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44
C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate the
bearing and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical provisions,
which conceal rather than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance construe every ambiguity in favor of the
insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured." (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the
provisions of Article 1377 of our Civil Code that "The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon
payment of an extra premium, in the event that the insured meets violent accidental death is
contractually stipulated as follows in the policy: "that the death of the insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident," supra. The
policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or
mental infirmity or disease, poisoning or infection, injuries with no visible contusions or exterior
wounds (exceptions 1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore
similarly exepted: injuries received while on police duty, while travelling in any form of submarine
transportation, or in any violation of law by the insured or assault provoked by the insured, or in any
aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy
clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or
war or atomic energy explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the
very exception herein involved, which would also except injuries "inflicted intentionally by a third
party, either with or without provocation on the part of the insured, and whether or not the attack or
the defense by the third party was caused by a violation of the law by the insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5
particularly that immediately preceding it in item (d) which excepts injuries received where the
insured has violated the law or provoked the injury, while this clause, construed as the insurance
company now claims, would seemingly except also all other injuries, intentionally inflicted by a third
party, regardless of any violation of law or provocation by the insured, and defeat the very purpose
of the policy of giving the insured double indemnity in case of accidental death by "external and
violent means" — in the very language of the policy."
It is obvious from the very classification of the exceptions and applying the rule of noscitus a
sociis that the double-indemnity policy covers the insured against accidental death, whether caused
by fault, negligence or intent of a third party which is unforeseen and unexpected by the insured. All
the associated words and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of
the insured or are incurred in some expressly excluded calamity such as riot, war or atomic
explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the
exception is further heightened by the stipulated fact that two other insurance companies which
likewise covered the insured for which larger sums under similar accidental death benefit clauses
promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-
appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent.

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary
mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering
petitioner Finman General Assurance Corporation to pay private respondent Julia Surposa the
proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman General Teachers Protection Plan Master
Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October
18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without
provocation and warning on the part of the former as he and his cousin, Winston Surposa, were
waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the
celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written
notice of claim with the petitioner insurance company which denied said claim contending that
murder and assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same
cannot be entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant

the sum of P15,000.00 with legal interest from the date of the filing of the complaint
until fully satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate
court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance
policy since death resulting from murder and/or assault are impliedly excluded in said insurance
policy considering that the cause of death of the insured was not accidental but rather a deliberate
and intentional act of the assailant in killing the former as indicated by the location of the lone stab
wound on the insured. Therefore, said death was committed with deliberate intent which, by the very
nature of a personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident
or accidental means within the terms of an accident-policy if it is the natural result of
the insured's voluntary act, unaccompanied by anything unforeseen except the death
or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death. In other words, where the
death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident. 5
As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of
an assault or murder as a result of his voluntary act considering the very nature of
these crimes. In the first place, the insured and his companion were on their way
home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted. Nor
can it be pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place
without his foresight or expectation, an event that proceeded from an unusual effect
of a known cause and, therefore, not expected. Neither can it be said that where was
a capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten
(10) circumstances wherein no liability attaches to petitioner insurance company for any injury,
disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of
" expresso unius exclusio alterius" — the mention of one thing implies the exclusion of another thing
— is therefore applicable in the instant case since murder and assault, not having been expressly
included in the enumeration of the circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner insurance company from liability for,
any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the
petition for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of
merit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.

Footnotes
 1 Rollo, pp. 12-17. Ponente: Justice Luis L. Victor with the concurrence of Justice
Santiago M. Kapunan and Justice Segundino G. Chua.

2 Original Record, pp. 50-54. Penned by Insurance Commissioner Adelita A. Vergel

de Dios.

3 Id., at pp. 2-5.

4 Id.. at p. 50.

5 De la Cruz vs. Capital Insurance & Surety Co., Inc., 17 SCRA 559 [1966].

6 Rollo, pp. 15-16.

7 National Power Corporation vs. Court of Appeals, 145 SCRA 533 [1986].

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends
otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner
Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum
of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to
its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring

cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de

Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security

Services, Inc. with the plaintiff by virtue of a contract of Security
Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities,

the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the

aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;

7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page 1 thereof,
"General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . .
 8. The plaintiff opposes the contention of the defendant and contends
that Atiga and Magalong are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the robbery.1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and

(a) orders defendant to pay plaintiff the net amount of

P540,000.00 as liability under Policy No. 0207 (as
mitigated by the P40,000.00 special clause deduction
and by the recovered sum of P145,000.00), with
interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of

P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, their services as armored car driver and as security guard
having been merely offered by PRC Management and by Unicorn Security and which
latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to
dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such — in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps entitling
plaintiff to request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance
of defendant's liability under the policy, particularly the general exceptions therein
embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were
neither employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured

and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain,

ordinary and simple. No other interpretation is necessary. The word "employee" must
be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily
be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-

appellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and
the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within
the general exceptions clause considering that driver Magalong and security guard Atiga were
Producers' authorized representatives or employees in the transfer of the money and payroll from its
branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from
one branch to another, they effectively and necessarily became its authorized representatives in the
care and custody of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an
employer-employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers, on
the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers
with PRC Management System for Magalong and with Unicorn Security Services for Atiga which
state that Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages;
(3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test has been held to be the
decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the

person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as
if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling
in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct. Producers argued that the rule in International Timber Corp. is not
applicable to all cases but only when it becomes necessary to prevent any violation or circumvention
of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines
vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of
his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per
driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn
Security Services which provides that the guards of the latter "are in no sense employees of the
CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
 insurance, personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of their
contract, taking into consideration its purpose and always in accordance with the general principles
of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their
policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded
under such provisions are those in the insured's service and employment. 11 The purpose of the
exception is to guard against liability should the theft be committed by one having unrestricted
access to the property. 12 In such cases, the terms specifying the excluded classes are to be given
their meaning as understood in common speech. 13 The terms "service" and "employment" are
generally associated with the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the
insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without
saying then that if the terms of the contract are clear and unambiguous, there is no room for
construction and such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It
is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence
of statutory prohibition to the contrary, insurance companies have the same rights as individuals to
limit their liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
granted or having unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the
case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract
as employees of the party employing them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of
Magalong. Notwithstanding such express assumption of PRC Management Systems and
Unicorn Security Services that the drivers and the security guards each shall supply to
Producers are not the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for
in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the
City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific
duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide
the needed security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one who
represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court
of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No.
1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur.

Padilla, J., took no part.

Quiason, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21380 May 20, 1966

MISAMIS LUMBER CORPORATION, plaintiff and appellee,

vs.
CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.

F. Capistrano, Jr. for plaintiff and appellee.

REYES, J.B.L., J.:

Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc.,
insured its Ford Falcon motor car for the amount of P14,000 with the defendant-appellant, Capital
Insurance & Surety Company, Inc. The pertinent provisions of the policy provided, as follows:

1. The Company will subject to the Limits of Liability indemnify the Insured against loss or
damage to the Motor Vehicle and its accessories and spare parts whilst thereon.

2. (a) by accidental collision or overturning or collision or overturning consequent when

mechanical breakdown or consequent upon wear and tear.

xxx xxx xxx

3. At its option, the Company may pay in cash the amount of the loss or damage or may
repair, reinstate or replace the Motor Vehicle or any part thereof or its accessories or spare
parts. The liability of the Company shall not exceed the value of the parts lost or damaged
and the reasonable cost of fitting such parts or the value of the Motor Vehicle at the time of
the loss or damage whichever is the loss. The Insured's estimate of value stated in the
schedule shall be the maximum amount payable by the Company in respect of any claim for
loss or damage. 1äw phï1.ñët

xxx xxx xxx

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for
which the Company may be liable under this policy provided that:

(a) the estimated cost of such repair does not exceed the authorized Repair Limit.

(b) a detailed estimate of the cost is forwarded to the Company without delay.

and providing also that the authorized repair limit is P150.00.

At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned
insurance policy was in force, the insured car, while traveling along in Aurora Boulevard in front of
the Pepsi-Cola plant in Quezon City, passed over a water hole which the driver did not see because
an oncoming car did not dim its light. The crankcase and flywheel housing of the car broke when it
hit a hollow block lying alongside the water hole. At the instance of the plaintiff-appellee, the car was
towed and repaired by Morosi Motors at its shop at 1906 Taft Avenue Extension at a total cost of
P302.27.

On 29 November 1961, when the repairs on the car had already been made, the plaintiff-appellee
made a report of the accident to the defendant-appellant Capital Insurance & Surety Company.

Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed
in the municipal court originally.

The case before Us is now a direct appeal on a point of law from the judgment of the Court of First
Instance of Manila finding for the plaintiff and against the defendant-insurer in its Civil Case No.
51757. Per our resolution on 13 February 1964, it was resolved to proceed with the case without the
appellee's brief, which was filed late.

The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.

The lower court did not exonerate the said appellant for the excess because, according to it, the
company's absolution would render the insurance contract one-sided and that the said insurer had
not shown that the cost of repairs in the sum of P302.27 is unreasonable, excessive or padded, nor
had it shown that it could have undertaken the repairs itself at less expense.

The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4 that
if the insured authorizes the repair the liability of the insurer, per its sub-paragraph (a), is limited to
P150.00. The literal meaning of this stipulation must control, it being the actual contract, expressly
and plainly provided for in the policy (Art. 1370, Civil Code; Young vs. Midland Textile Ins. Co., 30
Phil. 617; Ty vs. First Nat. Surety & Assur. Co., Inc., L-16138-45, 29 April 1961).

The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the policy
is clear and specific and leaves no room for interpretation. The interpretation given is even
unjustified because it opposes what was specifically stipulated. Thus, it will be observed that the
policy drew out not only the limits of the insurer's liability but also the mechanics that the insured had
to follow to be entitled to full indemnity of repairs. The option to undertake the repairs is accorded to
the insurance company per paragraph 2. The said company was deprived of the option because the
insured took it upon itself to have the repairs made, and only notified the insurer when the repairs
were done. As a consequence, paragraph 4, which limits the company's liability to P150.00, applies.

The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in
itself does not justify the abrogation of its express terms, terms which the insured accepted or
adhered to and which is the law between the contracting parties.

Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is
unreasonable, as the appealed decision does, when the insurer was not given an opportunity to
inspect and assess the damage before the repairs were made, strikes Us as contrary to elementary
justice and equity.
For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-
appellant Capital Insurance & Surety Company, Inc. to pay not more than P150.00 to the plaintiff-
appellee Misamis Lumber Corporation. Each party shall bear its own costs and attorney's fees.

Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Dizon, Regala, Makalintal, Bengzon, J.P., and
Sanchez, JJ., concur.
Zaldivar, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-54171 October 28, 1980

JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,

vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

TEEHANKEE, Acting C.J.:

The Court sets aside respondent Insurance Commission's dismissal of petitioner's complaint and
holds that where the insured's car is wrongfully taken without the insured's consent from the car
service and repair shop to whom it had been entrusted for check-up and repairs (assuming that such
taking was for a joy ride, in the course of which it was totally smashed in an accident), respondent
insurer is liable and must pay insured for the total loss of the insured vehicle under the theft clause
of the policy.

The undisputed facts of the case as found in the appealed decision of April 14, 1980 of respondent
insurance commission are as follows:

Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 —
Own Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective
May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly
taken by six (6) persons and driven out to Montalban, Rizal. While travelling along
Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked at the
right side of the road going south. As a consequence, the gravel and sand truck
veered to the right side of the pavement going south and the car veered to the right
side of the pavement going north. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well,
suffered extensive damage. Complainant, thereafter, filed a claim for total loss with
the respondent company but claim was denied. Hence, complainant, was compelled
to institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by respondent Empire
Insurance Company admittedly undertook to indemnify the petitioner-insured against loss or damage
to the car (a) by accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-
ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the
total loss of the vehicle against private respondent, sustaining respondent insurer's contention that
the accident did not fall within the provisions of the policy either for the Own Damage or Theft
coverage, invoking the policy provision on "Authorized Driver" clause.1

Respondent commission upheld private respondent's contention on the "Authorized Driver" clause in
this wise: "It must be observed that under the above-quoted provisions, the policy limits the use of
the insured vehicle to two (2) persons only, namely: the insured himself or any person on his
(insured's) permission. Under the second category, it is to be noted that the words "any person' is
qualified by the phrase

... on the insured's order or with his permission.' It is therefore clear that if the person
driving is other than the insured, he must have been duly authorized by the insured,
to drive the vehicle to make the insurance company liable for the driver's negligence.
Complainant admitted that she did not know the person who drove her vehicle at the
time of the accident, much less consented to the use of the same (par. 5 of the
complaint). Her husband likewise admitted that he neither knew this driver Benito
Mabasa (Exhibit '4'). With these declarations of complainant and her husband, we
hold that the person who drove the vehicle, in the person of Benito Mabasa, is not an
authorized driver of the complainant. Apparently, this is a violation of the 'Authorized
Driver' clause of the policy.

Respondent commission likewise upheld private respondent's assertion that the car was not stolen
and therefore not covered by the Theft clause, ruling that "The element of 'taking' in Article 308 of
the Revised Penal Code means that the act of depriving another of the possession and dominion of
a movable thing is coupled ... with the intention. at the time of the 'taking', of withholding it with the
character of permanency (People vs. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have
been shown a felonious intent upon the part of the taker of the car, and the intent must be an intent
permanently to deprive the insured of his car," and that "Such was not the case in this instance. The
fact that the car was taken by one of the residents of the Sunday Machine Works, and the
withholding of the same, for a joy ride should not be construed to mean 'taking' under Art. 308 of the
Revised Penal Code. If at all there was a 'taking', the same was merely temporary in nature. A
temporary taking is held not a taking insured against (48 A LR 2d., page 15)."

The Court finds respondent commission's dismissal of the complaint to be contrary to the evidence
and the law.

First, respondent commission's ruling that the person who drove the vehicle in the person of Benito
Mabasa, who, according to its finding, was one of the residents of the Sunday Machine Works, Inc.
to whom the car had been entrusted for general check-up and repairs was not an "authorized driver"
of petitioner-complainant is too restrictive and contrary to the established principle that insurance
contracts, being contracts of adhesion where the only participation of the other party is the signing of
his signature or his "adhesion" thereto, "obviously call for greater strictness and vigilance on the part
of courts of justice with a view of protecting the weaker party from abuse and imposition, and prevent
their becoming traps for the unwary.2
The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a
person other than the insured owner, who drives the car on the insured's order, such as his regular
driver, or with his permission, such as a friend or member of the family or the employees of a car
service or repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts
his car key to the shop owner and employees who are presumed to have the insured's permission to
drive the car for legitimate purposes of checking or road-testing the car. The mere happenstance
that the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized
purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the
"authorized driver" clause has been violated such as to bar recovery, provided that such employee is
duly qualified to drive under a valid driver's license.

The situation is no different from the regular or family driver, who instead of carrying out the owner's
order to fetch the children from school takes out his girl friend instead for a joy ride and instead
wrecks the car. There is no question of his being an "authorized driver" which allows recovery of the
loss although his trip was for a personal or illicit purpose without the owner's authorization.

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft
clause, not the "authorized driver" clause, that applies), where a car is admittedly as in this case
unlawfully and wrongfully taken by some people, be they employees of the car shop or not to whom
it had been entrusted, and taken on a long trip to Montalban without the owner's consent or
knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of the
Revised Penal Code, viz. "Who are liable for theft. — Theft is committed by any person who, with
intent to gain but without violence against or intimidation of persons nor force upon things, shall take
personal property of another without the latter's consent," for purposes of recovering the loss under
the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of the
taker of the car "permanently to deprive the insured of his car" and that since the taking here was for
a "joy ride" and "merely temporary in nature," a "temporary taking is held not a taking insured
against."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". From
the very investigator's report cited in its comment, 3 the police found from the waist of the car driver
Benito Mabasa Bartolome who smashed the car and was found dead right after the incident "one
cal. 45 Colt. and one apple type grenade," hardly the materials one would bring along on a "joy ride".
Then, again, it is equally evident that the taking proved to be quite permanent rather than temporary,
for the car was totally smashed in the fatal accident and was never returned in serviceable and
useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy
ride", the Court sustains as the better view that which holds that when a person, either with the
object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession
of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by
taking possession of the personal property belonging to another and using it, his intent to gain is
evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C.
Aquino cites in his work Groizard who holds that the use of a thing constitutes gain and Cuello Calon
who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total loss of the insured car in the
sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.

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

SO ORDERED.

Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

Footnotes

1 The "Authorized Driver" clause reads, thus:

AUTHORIZED DRIVER: Any of the following:

(a) The insured

(b) Any person driving on the Insured's Order, or with his permission; Provided, that
the person driving is permitted, in accordance with the licensing or other laws or
regulations, to drive the Scheduled Vehicle, or has been permitted and is not
disqualified by order of a Court of Law or by reason or any enactment or regulation in
that behalf."

2 Sweet Lines, Inc. vs. Teves, 83 SCRA 361 (1978), citing Qua Chee Gan vs. Law
Union and Rock Insurance Co., Ltd., 98 Phil. 95.

3 Rollo, page 38.

4 Aquino's Revised Penal Code, Vol. III, 1977 Edition, p. 1516.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,

vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

G.R. No. 96493 May 7, 1992

FCP CREDIT CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.

Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:

These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in
G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul
and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037,
which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-
19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals
reads, as follows:

WHEREFORE, the decision appealed from is reversed; and appellee Perla

Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn
Lim for the loss of their insured vehicle; while said appellants are ordered to pay
appellee FCP Credit Corporation all the unpaid installments that were due and
payable before the date said vehicle was carnapped; and appellee Perla Compania
de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for
the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla
Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the
just insurance claim of appellants by way of example and correction for public good,
and attorney's fees of P10,000.00 as a just and equitable reimbursement for the
expenses incurred therefor by appellants, and the costs of suit both in the lower court
and in this appeal. 2

The facts as found by the trial court are as follows:

On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a
promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments
according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage
over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No.
SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and
insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5

On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to
petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory
note and chattel mortgage as shown by the Deed of Assignment. 6

At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of
Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was
driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the
Philippine Constabulary to report said incident and thereafter, went to the nearest police substation
at Araneta, Cubao to make a police report regarding said incident, as shown by the certification
issued by the Quezon City police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land
Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in
compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9

On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said
claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the
vehicle before it was carnapped, was in possession of an expired driver's license at the time of the
loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which
states, to wit:

AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance with
the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has
been permitted and is not disqualified by order of a Court of Law or by reason of any
enactment or regulation in that behalf. 11

On November 17, 1982, private respondents requests from petitioner FCP for a suspension of
payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the
carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the
remaining balance of the promissory note and the chattel mortgage contract.

Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that
private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the
latter refused.

On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an
amended third party complaint against petitioner Perla on December 8, 1983. After trial on the
merits, the trial court rendered a decision, the dispositive portion which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per
annum from July 2, 1983 until fully paid;

2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the
costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint
filed against Third-Party Defendant. 13

Not satisfied with said decision, private respondents appealed the same to the Court of Appeals,
which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its
resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari.

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in
holding that private respondents did not violate the insurance contract because the authorized driver
clause is not applicable to the "Theft" clause of said Contract.

For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the
debtor from his admitted obligations under the promissory note particularly the payment of interest,
litigation expenses and attorney's fees.

We find no merit in Perla's petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents against loss or damage to the car (a) by accidental collision or overturning, or
collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act.14

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's
consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and
not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent
court in its decision:

. . . Theft is an entirely different legal concept from that of accident. Theft is

committed by a person with the intent to gain or, to put it in another way, with the
concurrence of the doer's will. On the other hand, accident, although it may proceed
or result from negligence, is the happening of an event without the concurrence of
the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol.
I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction — often
seized upon by insurance companies in resisting claims from their assureds —
between death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had
figured in an accident at the time she drove it with an expired license, then, appellee
Perla Compania could properly resist appellants' claim for indemnification for the loss
or destruction of the vehicle resulting from the accident. But in the present case. The
loss of the insured vehicle did not result from an accident where intent was involved;
the loss in the present case was caused by theft, the commission of which was
attended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's
license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham
since an insurance company can easily escape liability by citing restrictions which are not applicable
or germane to the claim, thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious.

This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to
pay the former the installments due on the promissory note on account of the loss of the automobile.
The chattel mortgage constituted over the automobile is merely an accessory contract to the
promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls
the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note
should be paid, and not just the installments due and payable before the automobile was carnapped,
as erronously held by the Court of Appeals.

However, this does not mean that private respondents are bound to pay the interest, litigation
expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship
between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and
the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated
to each other, despite the fact that at first glance there is no relationship whatsoever between the
parties thereto.

Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount
stated therein in accordance with the schedule provided for. To secure said promissory note, private
respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the
former purchased from the latter. The chattel mortgage, in turn, required private respondents to
insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory
note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge
of private respondents. Private respondents were able to secure an insurance policy from petitioner
Perla, and the same was made specifically payable to petitioner FCP. 16

The insurance policy was therefore meant to be an additional security to the principal contract, that
is, to insure that the promissory note will still be paid in case the automobile is lost through accident
or theft. The Chattel Mortgage Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE
THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST
LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE
YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR
COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS
THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT
HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES,
PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY
APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . . 17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance
company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the
outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the
claim on the insurance policy had been approved by petitioner Perla, it would have paid the
proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing
private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in
asking petitioner FCP to demand the unpaid installments from petitioner Perla.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should not
be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory
note. As mentioned above, the contract of indemnity was procured to insure the return of the money
loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim
of the private respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner
FCP since they will be required to pay the latter the unpaid balance of its obligation under the
promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring
petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the
latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid
installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account
prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and attorney's fees, private respondents are
legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to
honor the insurance claim of the private respondents. Besides, awards for moral and exemplary
damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if
well exercised, will not be disturbed on appeal. 19

WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983
until fully paid. The decision appealed from is hereby affirmed as to all other respects. No
pronouncement as to costs.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.

FIRST DIVISION

[G.R. No. L-28772. September 21, 1983.]

ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC., Plaintiff, v. FIELDMEN’S INSURANCE

CO., INC., Defendant-Appellant.

SYLLABUS

1. MERCANTILE LAW; INSURANCE; COMPREHENSIVE POLICY; UNLAWFUL AND WRONGFUL TAKING OF

VEHICLE FOR A JOY RIDE CONSTITUTES THEFT WITHIN THE MEANING OF INSURANCE POLICY; RECOVERY
FOR DAMAGE NOT BARRED BY THE ILLEGAL USE OF THE VEHICLE. — The Comprehensive Policy issued by
the insurance company includes loss of or damage to the motor vehicle by "burglary . . . or theft." It is
settled that the act of Catiben in taking the vehicle for a joy ride to Toril, Davao City, constitutes theft within
the meaning of the insurance policy and that recovery for damage to the car is not barred by the illegal use
of the car by one of the station boys.

2. ID.; ID.; ID.; ID.; ID.; LIABILITY OF INSURER UNDER THE THEFT CLAUSE OF AN INSURANCE POLICY;
PRIOR CONVICTION NOT REQUIRED IN AN ACTION FOR RECOVERY ON AN AUTOMOBILE INSURANCE; CASE
AT BAR. — There need be no prior conviction for the crime of theft to make an insurer liable under the theft
clause of the policy. Upon the facts stipulated by the parties it is admitted that Catiben had taken the vehicle
for a joy ride and while the same was in his possession he bumped it against an electric post resulting in
damages. That act is theft within a policy of insurance. In a civil action for recovery on an automobile
insurance, the question whether a person using a certain automobile at the time of the accident stole it or
not is to be determined by a fair preponderance of evidence and not by the rule of criminal law requiring
proof of guilt beyond reasonable doubt (Villacorta v. Insurance Commission, 100 SCRA 467 [1980]).
Besides, there is no provision in the policy requiring prior criminal conviction for theft.

RESOLUTION

MELENCIO-HERRERA, J.:

This case for "Indemnity for Damages and Attorney’s Fees" was elevated to this Tribunal by the then Court
of Appeals on a question of law.

The Stipulation of Facts submitted by the parties before the Court of First Instance of Davao, Branch I, in
Case No. 3789, reads as follows: jgc:chan roble s.com.p h

"COMES the parties in the above entitled case, through their respective counsels and to this Honorable Court
respectfully submit the following stipulations of facts: chanrob 1es vi rtual 1aw li brary

‘1. That plaintiff is a religious corporation duly organized and registered under the laws of the Philippines,
while defendant is also a domestic corporation duly organized and existing under the laws of the Philippines;

‘2. That plaintiff, having an insurable interest in a Chevrolet Carry-all, 1955 Model, with Motor No.
032433272555 and Plate No. E-73317 covered by Registration Certificate No. 288141 Rizal, issued by the
Davao Motor Vehicles Office Agency No. 20 and owned by Reverend Clinton Bonnel, insured said vehicle with
the defendant under Fieldmen’s Insurance Co., Inc. Private Car Comprehensive Policy No. 22 Jl 1107,
attached hereto as Annex ‘A’ to ‘A-2’ against loss or damage up to the amount of P5,000.00;

‘3. That in the latter part of 1961, through plaintiff’s representative, Dr. Antonio Lim, the aforementioned
Chevrolet Carry-all was placed at the Jones Monument Mobilgas Service Station at Davao City, under the
care of said station’s operator, Rene Te so that said carry-all could be displayed as being for sale, with the
understanding that the latter or any of his station boys would receive a 2% commission should they sell said
vehicle.

‘4. That on the night of January 18, 1962, Romeo Catiben one of the boys at the aforementioned Jones
Monument Service Station and a nephew of the wife of Rene Te who is residing with them, took the
aforementioned chevrolet carry-all for a joy ride to Toril, Davao City, without the prior permission, authority
or consent of either the plaintiff or its representative Dr. Antonio Lim, or of Rene Te, and on its way back to
Davao City, said vehicle, due to some mechanical defect accidentally bumped an electric post causing actual
damages valued at P5,518.61.

‘5. That the issue before the Honorable Court is whether or not for the damage to the abovementioned
Chevrolet Carry-all to be compensable under the aforementioned Fieldmen’s Private Car Comprehensive
Policy No. 22 JL 11107, there must be a prior criminal conviction of Romeo Catiben for theft.

WHEREFORE, it is respectfully prayed that this Honorable Court render judgment on the facts and issues
above stipulated after the parties shall have submitted their respective memoranda." cralaw virtua1aw li bra ry

The Trial Court rendered judgment based on the facts stipulated and ordered defendant insurance company
to pay plaintiff association the amount of P5,000.00 as indemnity for the damage sustained by the vehicle,
P2,000.00 for attorney’s fees, and costs. Dissatisfied, the insurance company interposed an appeal to the
Appellate Court, docketed as CA-G.R. No. 33543-R, which as above stated, elevated it to this instance. chanroble s.com:c ralaw:re d

We affirm. The Comprehensive Policy issued by the insurance company includes loss of or damage to the
motor vehicle by "burglary . . . or theft." It is settled that the act of Catiben in taking the vehicle for a joy
ride to Toril, Davao City, constitutes theft within the meaning of the insurance policy and that recovery for
damage to the car is not barred by the illegal use of the car by one of the station boys.

". . . where a car is admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a long trip to Montalban
without the owner’s consent or knowledge, such taking constitutes or partakes of the nature of theft as
defined in Article 308 of the Revised Penal Code, viz.’(W)ho are liable for theft. — Theft is committed by any
person who, with intent to gain but without violence against or intimidation of persons nor force upon
things, shall take personal property of another without the latter’s consent,’ for purposes of recovering the
loss under the policy in question." cralaw virt ua1aw li bra ry

". . . the Court sustains as the better view that which holds that when a person, either with the object of
going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle
belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of
the personal property belonging to another and using it, his intent to gain is evident since he derives
therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard
who holds that the use of a thing constitutes gain and Cuello Calon who calls it ‘hurto de uso.’ 1

There need be no prior conviction for the crime of theft to make an insurer liable under the theft clause of
the policy. Upon the facts stipulated by the parties it is admitted that Catiben had taken the vehicle for a joy
ride and while the same was in his possession he bumped it against an electric post resulting in damages.
That act is theft within a policy of insurance. In a civil action for recovery on an automobile insurance, the
question whether a person using a certain automobile at the time of the accident stole it or not is to be
determined by a fair preponderance of evidence and not by the rule of criminal law requiring proof of guilt
beyond reasonable doubt. 2 Besides, there is no provision in the policy requiring prior criminal conviction for
theft. chanrob lesvi rtualaw lib rary

ACCORDINGLY, finding no error in the judgment appealed from, the same is hereby affirmed.

Costs against defendant Fieldmen’s Insurance Co., Inc.

SO ORDERED.

Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 78848 November 14, 1988

SHERMAN SHAFER, petitioner,

vs.
HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and MAKATI
INSURANCE COMPANY, INC., respondents.

R.M. Blanco for petitioner.

Camacho and Associates for respondents.

PADILLA, J.:

This is a petition for review on certiorari of the Order * of the Regional Trial Court, Olongapo City, Branch 75, dated 24 April 1986 dismissing
petitioner's third party complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence resulting in damage to property
and serious physical injuries.1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889, 2 over his
Ford Laser car with Plate No. CFN-361 from Makati Insurance Company, Inc., for third party liability
(TPL). During the effectivity of the policy, an information 3 for reckless imprudence resulting in
<äre||anº•1àw>

damage to property and serious physical injuries was filed against petitioner. The information reads
as follows:

That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo,
Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, being then the driver and in actual physical control of a Ford Laser car
bearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminally
drive, operate and manage the said Ford Laser car in a careless, reckless and
imprudent manner without exercising reasonable caution, diligence and due care to
avoid accident to persons and damage to property and in disregard of existing traffic
rules and regulations, causing by such carelessness, recklessness and imprudence
the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. NJE-
338 owned and driven by Felino llano y Legaspi, thereby causing damage in the total
amount of P12,345.00 Pesos, Philippine Currency, and as a result thereof one
Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained
physical injuries, to wit:

1. 2 cm. laceration of left side of tongue.

2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side of
face.

3. Full thickness laceration of lower lip and adjacent skin.

which injuries causing [sic] deformity on the face. 4

The owner of the damaged Volkswagen car filed a separate civil action against petitioner for
damages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car when allegedly
hit and bumped by the car driven by petitioner, did not reserve his right to file a separate civil action
for damages. Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on his claim
for damages for the serious physical injuries which he claimed to have sustained as a result of the
accident.

Upon motion, petitioner was granted leave by the former presiding judge of the trail court to file a
third party complaint against the herein private respondent, Makati Insurance Company, Inc. Said
insurance company, however, moved to vacate the order granting leave to petitioner to file a third
party complaint against it and/or to dismiss the same. 5

On 24 April 1987, the court a quo issued an order dismissing the third party complaint on the ground
that it was premature, based on the premise that unless the accused (herein petitioner) is found
guilty and sentenced to pay the offended party (Poblete Sr.) indemnity or damages, the third party
complaint is without cause of action. The court further stated that the better procedure is for the
accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether
or not the accused, also the third party plaintiff, has a cause of action against the third party
defendant for the enforcement of its third party liability (TPL) under the insurance contract.6Petitioner
moved for reconsideration of said order, but the motion was denied; 7 hence, this petition.

It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a
denial or curtailment of his right to defend himself in the civil aspect of the case. Petitioner further
raises the legal question of whether the accused in a criminal action for reckless imprudence, where
the civil action is jointly prosecuted, can legally implead the insurance company as third party
defendant under its private car insurance policy, as one of his modes of defense in the civil aspect of
said proceedings.

On the other hand, the insurance company submits that a third party complaint is, under the rules,
available only if the defendant has a right to demand contribution, indemnity, subrogation or any
other relief in respect of plaintiff's claim, to minimize the number of lawsuits and avoid the necessity
of bringing two (2) or more suits involving the same subject matter. The insurance company further
contends that the contract of motor vehicle insurance, the damages and attorney's fees claimed by
accused/third party plaintiff are matters entirely different from his criminal liability in the reckless
imprudence case, and that petitioner has no cause of action against the insurer until petitioner's
liability shall have been determined by final judgment, as stipulated in the contract of insurance. 8

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or
passengers as a result of a negligent operation and use of motor vehicles.9 The victims and/or their
dependents are assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.

The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for
loss or damage. Where an insurance policy insures directly against liability, the insurer's liability
accrues immediately upon the occurrence of the injury or event upon which the liability depends, and
does not depend on the recovery of judgment by the injured party against the insured. 10

The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such
injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be
liberally construed so that their intended purpose may be accomplished. It has even been held that
such a provision creates a contractual relation which inures to the benefit of any and every person
who may be negligently injured by the named insured as if such injured person were specifically
named in the policy. 11

In the event that the injured fails or refuses to include the insurer as party defendant in his claim for
indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Not even a "no action" clause under the policy-which requires
that a final judgment be first obtained against the insured and that only thereafter can the person
insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding
multiplicity of suits. 12

In the instant case, the court a quo erred in dismissing petitioner's third party complaint on the
ground that petitioner had no cause of action yet against the insurance company (third party
defendant). There is no need on the part of the insured to wait for the decision of the trial court
finding him guilty of reckless imprudence. The occurrence of the injury to the third party immediately
gave rise to the liability of the insurer under its policy.

A third party complaint is a device allowed by the rules of procedure by which the defendant can
bring into the original suit a party against whom he will have a claim for indemnity or remuneration as
a result of a liability established against him in the original suit.13 Third party complaints are allowed
to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more actions
involving the same subject matter. They are predicated on the need for expediency and the
avoidance of unnecessary lawsuits. If it appears probable that a second action will result if the
plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain,
then the motion to dismiss the third party complaint should be denied. 14

Respondent insurance company's contention that the third party complaint involves extraneous
matter which will only clutter, complicate and delay the criminal case is without merit. An offense
causes two (2) classes of injuries the first is the social injury produced by the criminal act which is
sought to be repaired thru the imposition of the corresponding penalty, and the second is the
personal injury caused to the victim of the crime, which injury is sought to be compensated thru
indemnity, which is civil in nature. 15

In the instant case, the civil aspect of the offense charged, i.e., serious physical injuries allegedly
suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus
raise all defenses available to him insofar as the criminal and civil aspects of the case are
concerned. The claim of petitioner for payment of indemnity to the injured third party, under the
insurance policy, for the alleged bodily injuries caused to said third party, arose from the offense
charged in the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to recover
civil damages. Hence, such claim of petitioner against the insurance company cannot be regarded
as not related to the criminal action.

WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET
ASIDE and a new one entered admitting petitioner's third party complaint against the private
respondent Makati Insurance Company, Inc.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22042 August 17, 1967

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed

GUINGON, plaintiffs-appellees,
vs.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO.,
INC., defendants.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.

Generoso Almario and Associates for plaintiffs-appellees.

Achacoso and Associates for defendant-appellant.

BENGZON, J.P., J.:

Julio Aguilar owned and operated several jeepneys in the City of Manila among which was one with
plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital Insurance & Surety
Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability. As a
consequence thereof an insurance policy was executed by the Capital Insurance & Surety Co., Inc.,
the pertinent provisions of which in so far as this case is concerned contains the following:

Section II —LIABILITY TO THE PUBLIC

1. The Company, will, subject to the limits of liability, indemnify the Insured in the event of
accident caused by or arising out of the use of the Motor Vehicle/s or in connection with the
loading or unloading of the Motor Vehicle/s, against all sums including claimant's costs and
expenses which the Insured shall become legally liable to pay in respect of:

a. death of or bodily injury to any person

b. damage to property

During the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte, one of the
drivers of the jeepneys operated by Aguilar, while driving along the intersection of Juan Luna and
Moro streets, City of Manila, bumped with the jeepney abovementioned one Gervacio Guingon who
had just alighted from another jeepney and as a consequence the latter died some days thereafter.

A corresponding information for homicide thru reckless imprudence was filed against Iluminado del
Monte, who pleaded guilty. A penalty of four months imprisonment was imposed on him.

As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages praying that
the sum of P82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del
Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc. For failure to
answer the complaint, Del Monte and Aguilar were declared in default. Capital Insurance & Surety
Co., Inc. answered, alleging that the plaintiff has no cause of action against it. During the trial the
following facts were stipulated:

COURT: The Court wants to find if there is a stipulation in the policy whereby the insured is
insured against liability to third persons who are not passengers of jeeps.

ALMARIO: As far as I know, in my honest belief, there is no particularization as to the

passengers, whether the passengers of the jeep insured or a passenger of another jeep or
whether it is a pedestrian. With those, we can submit the stipulation.

SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)

On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the following
dispositive portion:

WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio Aguilar
jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death of their
father, plus P1,000.00 for attorney's fees plus costs.

The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay the
plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00) Pesos
as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged against
 Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction of the judgment
rendered against Iluminado del Monte and Julio Aguilar in this case.

SO ORDERED.

The case was appealed to the Court of Appeals which appellate court on September 30, 1963
certified the case to Us because the appeal raises purely questions of law.

The issues raised before Us in this appeal are (1) As the company agreed to indemnify the insured
Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first show himself to be
entitled to indemnity before the insurance company may be held liable for the same? (3) Plaintiffs
not being parties to the insurance contract, do they have a cause of action against the company; and
(4) Does the fact that the insured is liable to the plaintiffs necessarily mean that the insurer is liable
to the insured?

In the discussion of the points thus raised, what is paramount is the interpretation of the insurance
contract with the aim in view of attaining the objectives for which the insurance was taken. The Rules
of Court provide that parties may be joined either as plaintiffs or defendants, as the right to relief in
respect to or arising out of the same transactions is alleged to exist (Sec. 6, Rule 3). The policy, on
the other hand, contains a clause stating:

E. Action Against Company

No action shall lie against the Company unless, as a condition precedent thereto, the Insured
shall have fully complied with all of the terms of this Policy, nor until the amount of the
Insured's obligation to pay shall have been finally determined either by judgment against the
Insured after actual trial or by written agreement of the Insured, the claimant, and the
Company.

Any person or organization or the legal representative thereof who has secured such
judgment or written agreement shall thereafter be entitled to recover under this policy to the
extent of the insurance afforded by the Policy. Nothing contained in this policy shall give any
person or organization any right to join the Company as a co-defendant in any action against
the Insured to determine the Insured's liability.

Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the
Company of any of its obligations hereunder.

Appellant contends that the "no action" clause in the policy closes the avenue to any third party
which may be injured in an accident wherein the jeepney of the insured might have been the cause
of the injury of third persons, alleging the freedom of contracts. Will the mere fact that such clause
was agreed upon by the parties in an insurance policy prevail over the Rules of Court which
authorizes the joining of parties plaintiffs or defendants?

The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all? (2) If so,
can plaintiffs sue the insurer jointly with the insured?

The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnify the
insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a.
death of or bodily injury to any person . . . ." Clearly, therefore, it is one for indemnity against
liability;1 from the fact then that the insured is liable to the third person, such third person is entitled
to sue the insurer.1äwphï1.ñët

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether
the contract of insurance is intended to benefit third persons also or only the insured. And the test
applied has been this: Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable, can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually discharged by him thru payment to
third persons, said third persons' recourse being thus limited to the insured alone.2

The next question is on the right of the third person to sue the insurer jointly with the insured. The
policy requires, as afore-stated, that suit and final judgment be first obtained against the insured; that
only "thereafter" can the person injured recover on the policy; it expressly disallows suing the insurer
as a co-defendant of the insured in a suit to determine the latter's liability. As adverted to before, the
query is which procedure to follow — that of the insurance policy or the Rules of Court.

The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision
aimed at avoiding multiplicity of suits. In a case squarely on the point, American Automobile Ins. Co.
vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action" clause in a policy of insurance
cannot override procedural rules aimed at avoidance of multiplicity of suits. We quote:

Appellants filed a plea in abatement on the grounds that the suit had been prematurely
brought against the insurance company, and that it had been improperly joined with Zunker,
as said insurance company, under the terms of the policy, was only liable after judgment had
been awarded against Zunker. . . .

* * * That plea was properly overruled, because under the laws of Texas a dual suit will
always be avoided whenever all parties can have a fair trial when joined in one suit.
Appellee, had he so desired, could have prosecuted his claim to judgment as against Zunker
and then have sued on that judgment against the insurance company, but the law does not
make it imperative that he should do so, but would permit him to dispose of the whole matter
in one suit.

The rule has often been announced in Texas that when two causes of action are connected
with each other, or grow out of the same transaction, they may be properly joined, and in
such suit all parties against whom the plaintiff asserts a common or an alternative liability
may be joined as defendants. . . . Even if appellants had presented any plea in abatement as
to joinder of damages arising from a tort with those arising from a contract, it could not, under
the facts of this case, be sustained, for the rule is that a suit may include an action for breach
of contract and one for tort, provided they are connected with each other or grew out of the
same transaction.

Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on
"Permissive joinder of parties" cannot be superseded, at least with respect to third persons not a
party to the contract, as herein, by a "no action" clause in the contract of insurance.

Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.
Footnotes

1See Capelle vs. US Fidelity & Guaranty Co. of Baltimore, Md., — Md.; 120 Atl. 556
containing substantially the same pertinent clauses used here, also held as a contract to
indemnify assured from liability, and not one to indemnify him from loss.

29A Am. Jur. 604; See cases collected in Anno. 3 ALR 381; 13 ALR 136; 19 ALR 881; 23
2

ALR 1474; 28 ALR 1303; 41 ALR 516; 81 ALR 1296.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,

vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN
LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC., respondents.

Freqillana Jr. for petitioner.

B.F. Estrella & Associates for respondent Martin Vallejos.

Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.

PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, which affirmed,
with some modifications, the decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of First Instance of
Pangasinan.

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private
respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April
1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate
No. J-21536, Quezon City, 1967. The insurance coverage was for "own damage" not to exceed
P600.00 and "third-party liability" in the amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about
3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo an
employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the
respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at the national highway in
Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the
driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co.,
Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as
Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him, jointly and
severally, the amount of P15,000.00, as reimbursement for medical and hospital expenses;
P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive
speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the
highway in order to avoid the jeep; and that it had observed the diligence of a good father of a family
to prevent damage, especially in the selection and supervision of its employees and in the
maintenance of its motor vehicles. It prayed that it be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to
the plaintiff, claiming that the fault in the accident was solely imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the herein petitioner
wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00
for hospitalization and other expenses, and, in his cross-claim against the herein petitioner, he
alleged that the petitioner had issued in his favor a private car comprehensive policy wherein the
insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor
vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of
such insurance contract, which policy was in full force and effect when the vehicular accident
complained of occurred. He prayed that he be reimbursed by the insurance company for the amount
that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against
the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of
the accident, was an employee of the San Leon Rice Mill, Inc. performing his duties within the scope
of his assigned task, and not an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is
the employer of the deceased driver, Juan P. Campollo, it should be liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be
rendered against the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff
and/or ordering said San Leon Rice Mill, Inc. to reimburse and indemnify the petitioner for any sum
that it may be ordered to pay the plaintiff.

After trial, judgment was rendered as follows:

WHEREFORE, in view of the foregoing findings of this Court judgment is hereby

rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co.,
Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for
the period of three (3) years;

(c) P5,000.00 as moral damages;

 (d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.

The above-named parties against whom this judgment is rendered are hereby held
jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its
liability will be up to only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant

Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees
is also dismissed for not being proved. 1

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy,
the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for
the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice
Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance company for whatever
amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to
the contract of insurance between Sio Choy and the insurance company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order
the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half (1/2) of the
entire amount of damages, petitioner may be ordered to pay jointly and severally with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns
the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no
other aspect of the decision of the Court of Appeals shall be reviewed, hence, execution may
already issue in favor of respondent Martin C. Vallejos against the respondents, without prejudice to
the determination of whether or not petitioner shall be entitled to reimbursement by respondent San
Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it has
been adjudged to pay respondent Vallejos." 3

However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to
petitioner, it is important to determine first the nature or basis of the liability of petitioner to
respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill, Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by the
Court of Appeals, was correct in holding petitioner and respondents Sio Choy and San Leon Rice
Mill, Inc. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is entitled to be
reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been
adjudged to pay respondent Vallejos on its insurance policy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that
petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable to
respondent Vallejos.

We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy and
San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to respondent
Vallejos for the damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated
Willys jeep, pursuant to Article 2184 of the Civil Code which provides:
 Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the
former, who was in the vehicle, could have, by the use of due diligence, prevented
the misfortune it is disputably presumed that a driver was negligent, if he had been
found guilty of reckless driving or violating traffic regulations at least twice within the
next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.

On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to
plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the
motor vehicle mishap, is Article 2180 of the Civil Code which reads:

Art. 2180. The obligation imposed by article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are
not engaged ill any business or industry.

xxx xxx xxx

The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a family to
prevent damage.

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors
who are primarily liable to respondent Vallejos. The law states that the responsibility of two or more
persons who are liable for a quasi-delict is solidarily.4

On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio
Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than
P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third party
liability clause included in the private car comprehensive policy existing between petitioner and
respondent Sio Choy at the time of the complained vehicular accident.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was
bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the
heirs of said passenger against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party liability, the trial court,
affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and severally
liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees;
while the insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to
be applied as partial satisfaction of the judgment rendered against said owner and driver of the
jeepney. Thus, in said Guingon case, it was only the owner and the driver of the jeepney at fault, not
including the insurance company, who were held solidarily liable to the heirs of the victim.

While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely
respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with
said two (2) respondents by reason of the indemnity contract against third party liability-under which
an insurer can be directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. 7 On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability arising from an unknown or
contingent event." 8

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon
Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the
qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation,
petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,013.00,
notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third party liability is only P20,000.00? Moreover, the qualification made in the
decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when
the obligation to pay P29,103.00 is made solidary, is an evident breach of the concept of a solidary
obligation. Thus, We hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to respondent
Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that
petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that
said respondent is not privy to the contract of insurance existing between petitioner and respondent
Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts. Thus —

... 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 the loss, the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss (44 Am.
Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance
Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance is that
of the insured but after reimbursement or compensation, it becomes the loss of the
insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22
Ohio St. 382).

Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur.
 2nd 746). Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon , nor does it grow out of any privity of contract (emphasis supplied)
or upon written assignment of claim, and payment to the insured makes the insurer
assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C.
456, 142 SE 2d 18). 9

It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding
P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is
subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217
of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be
reimbursed by his co-debtors for the share which corresponds to each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.

He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment
is made before the debt is due, no interest for the intervening period may be
demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby
becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent
San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are
solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may
enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor is
made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is
compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of
Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of
P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of
Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without pronouncement as
to costs.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.

Footnotes

* Penned by Justice Ramon C. Fernandez, concurred in by Justice Hermogenes

Concepcion, Jr. and Emilio A. Gancayco.
 ** Penned by Judge Vicente M. Santiago, Jr.

1 Record on Appeal, pp. 202-203.

2 Rollo, p.46.

3 Rollo, p. 67.

4 Article 2194, Civil Code.

5 G. R. No. L-22042, August 17, 1967, 20 SCRA 1043.

6 Coquia vs. Fieldman's Insurance Co., Inc., G.R. No. L-23276, November 29, 1968,
26 SCRA 178.

7 The Imperial Insurance, Inc. vs. David, G.R. No. L-32425, November 21, 1984, 133
SCRA 317.

8 Philippine Phoenix Surety Insurance Co. vs. Woodworks, Inc., G.R. No. L-25317,
August 6, 1979, 92 SCRA 419.

9 Fireman's Fund Insurance Company, et al. vs. Jamila & Company, Inc., et al., G.R.
No. L- 27427, April 7, 1976, 70 SCRA 323.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M.

MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed
MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION, respondents.

Jose B. Guyo for petitioners.

Angel E. Fernandez for private respondent.

ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-owner of a common
carrier which figured in an accident causing the death of a third person is sought to be defined in this
petition for certiorari.

The facts as found by the trial court are as follows:

. . . Lope Maglana was an employee of the Bureau of Customs whose work station
was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope
Maglana was on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted
by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant
Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by
the deceased who was going towards the direction of Lasa, Davao City. The point of
impact was on the lane of the motorcycle and the deceased was thrown from the
road and met his untimely death. 1

Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and
attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for
brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru
reckless imprudence was also filed against Pepito Into.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one
(1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine
(9) months and eleven (11) days of prision correccional, as maximum, with all the accessory
penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve
thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand
pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was
interposed by accused who later applied for probation. 2

On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised
sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads:

WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to
pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event
judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have
been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial
expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages
which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D
against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's
fees and to pay the costs of suit.

The defendant insurance company is ordered to reimburse defendant Destrajo

whatever amounts the latter shall have paid only up to the extent of its insurance
coverage.

SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of
the decision contending that AFISCO should not merely be held secondarily liable because the
Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally
with the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence,
they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have
been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code
does not expressly provide for a solidary obligation, the presumption is that the obligation is joint.

In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that
since the insurance contract "is in the nature of suretyship, then the liability of the insurer is
secondary only up to the extent of the insurance coverage." 5

Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners became direct
beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This
motion was likewise denied for lack of merit.

Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal
of the lower court's decision in its entirety, prays for the setting aside or modification of the second
paragraph of the dispositive portion of said decision. Petitioners reassert their position that the
insurance company is directly and solidarily liable with the negligent operator up to the extent of its
insurance coverage.

We grant the petition.

The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 — LIABILITY TO THE PUBLIC

1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of

(a) death of or bodily injury to any THIRD PARTY

(b) . . . .

2. . . . .

3. In the event of the death of any person entitled to indemnity under this Policy, the
Company will, in respect of the liability incurred to such person indemnify his
personal representatives in terms of, and subject to the terms and conditions
hereof. 7

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable
by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an
insurance policy insures directly against liability, the insurer's liability accrues immediately upon the
occurrence of the injury or even upon which the liability depends, and does not depend on the
recovery of judgment by the injured party against the insured." 8 The underlying reason behind the third party
liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who
causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had
received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan
Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to
the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident.
We categorically ruled thus:

While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability does
not mean that the insurer can be held solidarily liable with the insured and/or the
other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos
(the injured third party), but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and
San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two
(2) respondents by reason of the indemnity contract against third party liability —
under which an insurer can be directly sued by a third party — this will result in a
violation of the principles underlying solidary obligation and insurance contracts.
(emphasis supplied)

The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same
in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may
enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer
undertakes for a consideration to indemnify the insured against loss, damage or liability arising from
an unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is
liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire
obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary
obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance
policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of
P53,901.70 in accordance with the decision of the lower court. Since under both the law and the
insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive
portion of the decision in question may have unwittingly sown confusion among the petitioners and
their counsel. What should have been clearly stressed as to leave no room for doubt was the liability
of AFISCO under the explicit terms of the insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not
solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners
have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce
the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the
insurance coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that
the lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of
(80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is
P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with
prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of
P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of
P12,000.00 to P50,000.00.

SO ORDERED.

Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-43706 November 14, 1986

NATIONAL POWER CORPORATION, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC., respondents.

Conrado Q. Crucillo for petitioner.

Gregorio D. David for private respondent.

PARAS, J.:

This is a petition for review on certiorari seeking to set aside: (a) the judgment of respondent Court
of Appeals dated March 25, 1976 in CA-G.R. No. 50112-R, entitled National Power Corporation,
Plaintiff-Appellee vs. The Philippine American Insurance Company, Inc. Defendant-Appellant, which
reversed the decision of the Court of First Instance of Manila in Civil Case No. 70811
entitled "National Power Corporation v. Far Eastern Electric, Inc., et al." and (b) respondent's Court's
resolution dated April 19, 1976 denying petitioner National Power Corporation's Motion for
Reconsideration (Petition, p. 13, Rollo).

The undisputed facts of this case are as follows:

The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc.
(FFEI) on December 26, 1962 for the erection of the Angat Balintawak 115-KW-3-Phase
transmission lines for the Angat Hydroelectric Project. FEEI agreed to complete the work within 120
days from the signing of the contract, otherwise it would pay NPC P200.00 per calendar day as
liquidated damages, while NPC agreed to pay the sum of P97,829.00 as consideration. On the other
hand, Philippine American General Insurance Co., Inc. (Philamgen) issued a surety bond in the
amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as required.

The condition of the bond reads:

 The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC. under this bond will expire One (1) year from final Completion and Acceptance
and said bond will be cancelled 30 days after its expiration, unless surety is notified
of any existing obligation thereunder. (Exhibit 1-a)

in correlation with the provisions of the construction contract between Petitioner and Far Eastern
Electric, Inc. particularly the following provisions of the Specifications. to wit:

1. Par. 1B-2l Release of Bond

1B-21 Release of Bond

The Contractor's performance bond will be released by the National Power

Corporation at the expiration of one (1) year from the completion and final
acceptance of the work, pursuant to the provisions of Act No. 3959, and subject to
the General Conditions of this contract. (Page 49, Printed Record on Appeal); and

2. GP-19 of Specifications, which reads:

(a) Should the Contractor fail to complete the construction of the work as herein
specified and agreed upon, or if the work is abandoned, ... the Corporation shall have
the power to take over the work by giving notice in writing to that effect to the
Contractor and his sureties of its intention to take over the construction work.

(b) ... It is expressly agreed that in the event the corporation takes over the work from
the Contractor, the latter and his bondsmen shall continue to be liable under this
contract for any expense in the completion of the work in excess of the contract price
and the bond filed by the Contractor shall be answerable for the same and for any
and all damages that the Corporation may suffer as a result thereof. (pp. 76-78,
Printed Record on Appeal)

FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and Philamgen
wrote NPC requesting the assistance of the latter to complete the project due to unavailability of the
equipment of FEEI. The work was abandoned on June 26, 1963, leaving the construction unfinished.
On July 19, 1963, in a joint letter, Philamgen and FEEI informed NPC that FEEI was giving up the
construction due to financial difficulties. On the same date, NPC wrote Philamgen informing it of the
withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for the cost of
the work to be completed as of July 20, 1962 plus damages.

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC notified
Philamgen that FEEI had an outstanding obligation in the amount of P75,019.85, exclusive of
interest and damages, and demanded the remittance of the amount of the surety bond the answer
for the cost of completion of the work. In reply, Philamgen requested for a detailed statement of
account, but after receipt of the same, Philamgen did not pay as demanded but contended instead
that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any
obligation of the surety was made within 30 days after its expiration. (Record on Appeal, pp. 191-
194; Rollo, pp. 62-64).

NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the
work abandoned; P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only
Philamgen answered while FEEI was declared in default.
The trial court rendered judgment in favor of NPC, the dispositive portion of which reads:

WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the plaintiff
the sum of P75,019.86 plus interest at the legal rate from September 21, 1967 until
fully paid. Out of said amount, both defendants, Far Eastern Electric, Inc., and the
Philippine American Insurance Company, Inc., are ordered to pay, jointly and
severally, the amount of P30,672.00 covered by Surety Bond No. 26268, dated
December 26, 1962, plus interest at the legal rate from September 21, 1967 until fully
paid,

Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's
fees and costs.

On appeal by Philamgen, the Court of Appeals reversed the lower court's decision and dismissed
the complaint.

Hence this petition.

Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo, p. 62) in
compliance with the resolution dated June 16, 1976 of the First Division of this Court (Rollo, p. 52)
while petitioner NPC filed its Reply to the comment of respondent (Rollo, p. 76) as required in the
resolution of this Court of August 16, 1976, (Rollo, p. 70). In the resolution of September 20, 1976,
the petition for certiorari was given due course (Rollo, p. 85). Petitioner's brief was filed on
November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the required period and
this case was submitted for decision without respondent's brief in the resolution of this Court of
February 25. 1977) Rollo, p. 103).

In its brief, petitioner raised the following assignment of errors:

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

SHOULD HAVE GIVEN NOTICE TO PRIVATE RESPONDENT PHILAMGEN OF
ANY EXISTING OBLIGATION WITHIN 30 DAYS FROM EXPIRATION OF THE
BOND TO HOLD SAID SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S
TAKING OVER OF THE WORK ABANDONED BY THE CONTRACTOR BEFORE
ITS COMPLETION.

II

ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE

RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION UNDER THE
BOND DESPITE THE TAKE-OVER OF WORK BY PETITIONER, RESPONDENT
COURT OF APPEALS NONETHELESS ERRED IN HOLDING THAT PETITIONER'S
LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE RESPONDENT WAS NOT
SUFFICIENT COMPLIANCE WITH THE CONDITION OF THE BOND.

III

RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE

RESPONDENT PHILAMGEN FROM ITS LIABILITY UNDER THE BOND.
The decisive issue in this case is the correct interpretation and/or application of the condition of the
bond relative to its expiration, in correlation with the provisions of the construction contract, the
faithful performance of which, said bond was issued to secure.

The bone of contention in this case is the compliance with the notice requirement as a condition in
order to hold the surety liable under the bond.

Petitioner claims that it has already complied with such requirement by virtue of its notice dated July
19, 1963 of abandonment of work by FEEI and of its takeover to finish the construction, at the same
time formally holding both FEEI and Philamgen liable for the uncompleted work and damages. It
further argued that the notice required in the bond within 30 days after its expiration of any existing
obligation, is applicable only in case the contractor itself had completed the contract and not when
the contractor failed to complete the work, from which arises the continued liability of the surety
under its bond as expressly provided for in the contract. Petitioner's contention was sustained by the
trial court.

On the other hand, private respondent insists that petitioner's notice dated July 19, 1983 is not
sufficient despite previous events that it had knowledge of FEEI's failure to comply with the contract
and claims that it cannot be held liable under the bond without notice within thirty days from the
expiration of the bond, that there is a subsisting obligation. Private respondent's contention is
sustained by the Court of Appeals.

The petition is impressed with merit.

As correctly assessed by the trial court, the evidence on record shows that as early as May 30,
1963, Philamgen was duly informed of the failure of its principal to comply with its undertaking. In
fact, said notice of failure was also signed by its Assistant Vice President. On July 19, 1963, when
FEEI informed NPC that it was abandoning the construction job, the latter forthwith informed
Philamgen of the fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen was
seasonably notified, was even bolstered by its request from NPC for information of the percentage
completed by the bond principal prior to the relinquishment of the job to the latter and the reason for
said relinquishment. (Record on Appeal, pp. 193-195). The 30-day notice adverted to in the surety
bond applies to the completion of the work by the contractor. This completion by the contractor never
materialized.

The surety bond must be read in its entirety and together with the contract between NPC and the
contractors. The provisions must be construed together to arrive at their true meaning. Certain
stipulations cannot be segregated and then made to control.

Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should
be interpreted in favor of its beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327, July 16,
1984).

In the case at bar, it cannot be denied that the breach of contract in this case, that is, the
abandonment of the unfinished work of the transmission line of the petitioner by the contractor Far
Eastern Electric, Inc. was within the effective date of the contract and the surety bond. Such
abandonment gave rise to the continuing liability of the bond as provided for in the contract which is
deemed incorporated in the surety bond executed for its completion. To rule therefore that private
respondent was not properly notified would be gross error.
PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution dated April 19,
1976 of the Court of Appeals are hereby SET ASIDE, and a new one is hereby rendered reinstating
the decision of the Court of First Instance of Manila in Civil Case No. 70811 entitled "National Power
Corporation v. Far Eastern Electric, Inc., et al."

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21250 March 31, 1966

INTESTATE ESTATE OF HONOFRE LEYSON (Deceased); MARGARITA LEYSON

LAURENTE, administratrix-appellee,
vs.
RIZAL SURETY AND INSURANCE COMPANY, bondsman-appellant.

G. R. Carlos for the appellant.

F. J. Silva for the appellee.

REGALA, J.:

The Rizal Surety & Insurance Co. brings this appeal from an order of the Court of First Instance of
Manila which declared it liable for P6,051.57 on its bond it had given in behalf of Victorio L.
Rodriguez.

Rodriguez was the administrator of the estate of Honofre Leyson. On December 27, 1951, the
Manila Court of First Instance, in which the estate was at the time pending settlement, ordered
Rodriguez relieved of his trust after finding him guilty of maladministration. As Rodriguez appealed
the order of relief, the court, as a measure of "protection of this estate," required him to file an
increased bond of P10,000 (which then was P500 only) to answer for "the faithful execution of his
trust as of the date of his appointment."

Rodriguez filed a bond, given by the appellant, but instead of a bond for the purpose specified by the
court in its order, he filed a bond which reads:

R.S. & I. No. 28764

Republic of the Philippines

Court of First Instance of Manila

Case No. 1894

In the Matter of the Intestate )
Administrator's
Estate of Honofre Leyson, )
Bond
; Deceased. )

Know all men by these Presents:

That we, Victorio L. Rodriguez — 232 Madrid St., Manila as principal, and the Rizal Surety &
Insurance Company, a corporation duly organized and existing under and by virtue of the laws of the
Philippine Islands, as surety, are held and firmly bound to the Republic of the Philippines in the sum
of Ten Thousand and 00/100 .............. (P10,000.00) Pesos, Philippine currency for the benefit of the
heirs, legatees or creditors of the said Honofre Leyson deceased, for which payment, well and truly
to be made, we bind ourselves, our heirs, executors and administrators, jointly and severally, firmly
by these presents.

The condition of the foregoing bond is such that whereas an order was issued by the Court of First
Instance of Manila, Philippine Islands, on the .... day of ..........., 19 ... appointing .......... administrator
of the estate of Honofre Leyson deceased, and to whom it was ordered that letters of administration
be issued, upon him furnishing a bond in the sum of Ten Thousand and 00/100 (P10,000.00) Pesos,
Philippine Currency, with good and sufficient surety to the satisfaction of the Court.

THEREFORE, if the said Victorio L. Rodriguez faithfully prepares and present to the Court, within
three months from the date of his appointment, a correct inventory of all the property of the
deceased which may have come into his possession or into the possession of any other person
representing him according to law, if he administers all the property of the deceased which at any
time comes into his possession or any other person representing him faithfully pays all the debts,
legacies, and bequests which encumber said estate, pays whatever dividends which the Court may
decide should be paid, and renders a just and true account of his administration to the Court within a
year or at any other date that he may be required so to do, and faithfully execute all orders and
decrees of said Court, then in this case obligation shall be void, otherwise it shall remain in full force
and effect. 1äw phï1.ñët

s/t VICTORIO L. RODRIGUEZ

Principal

RIZAL SURETY & INSURANCE CO.

By:

(Sgd.) Pablo I. de Jesus

Executive Vice President

xxx xxx xxx

In its order of June 27, 1952 approving the bond, the court stated:

The bond filed by Victorio L. Rodriguez in the amount of P10,000.00 in accordance with the
order of May 28, 1952 is hereby approved.

Said bond shall answer for the faithful execution of his trust as of the date of his
appointment.

Let the Rizal Surety & Insurance Company be notified of this order.
Required to account for the period June 27, 1951 to August 30, 1954, Rodriguez was found short of
P6,248.22. (The amount of shortage was later found by final judgment of the Court of Appeals to be
P6,051.57.) Despite several deadlines given to him, Rodriguez failed to pay the money in court, for
which reason he was ordered arrested and declared in contempt.

On November 8, 1962, the Court, acting on motion of the new administratrix, ordered the
confiscation of Rodriguez' bond for the satisfaction of the amount of P6,051.57. It is from this order
that the surety company appeals.

It is first of all contended that appellant cannot beheld liable on its bond because the defalcations, for
which the bond was ordered forfeited, were committed by the principal before the bond was filed.
The rule is invoked that a contract of suretyship must be strictly construed and since the contract in
this case contains no provision malting it expressly retroactive, the point is made that the bond
cannot cover violations of trust by the administrator before the filing of that bond.

While it is indeed true that the bond does not specify the date when it took effect, the fact is that both
in its order requiring the administrator to file an increased bond and in its subsequent order
approving the bond, the court made plain that the bond would answer "for the faithful execution of
his (administrator's) trust as of the date of his appointment." Rodriguez' appointment as administrator
was made on December 8, 1947 and it was on this date that the bond must be understood to have
taken effect. That the court should require this condition is understandable, considering that it had
earlier found the former administrator guilty of maladministration and, as a consequence, ordered his
removal. To repeat, the bond in question was required by the court "for the protection of (the) estate"
in view of the fact that Rodriguez had appealed the order of removal and, therefore, could not
immediately be relieved of his position of trust.

Of course the bond given by the appellant is not responsive to the requirement of the court order.
Instead of reciting that it is being given "to answer for the faithful execution (by the administrator) of
his trust as of the date of his appointment," it recites that —

The condition of the foregoing bond is such that whereas an order was issued by the Court
of First Instance of Manila, Philippine Islands, on the .... day
of ........, 19 ... to whom it was ordered that letters of administration be issued . . . .

But, then, the contract, having been made on a form prepared by the surety, must be construed
against the surety and in favor of the promisee. (Pacific Tobacco Corporation vs. Lorenzana, G.R.
No. L-8086, Oct. 31, 1957. Cf. Vadil v. de Venecia, G. R. No. L-16113, Oct 31, 1963). As this Court
explained in Pacific Tobacco:

Although We might acknowledge that a surety is a favorite of the law and his
contract strictissimi juris, this rule has no bearing on the case at bar. Anyway, it commonly
refers to an accommodation surety and should not be extended to favor a compensated
surety, as is appellant in this case. The rationale of this doctrine is reasonable; an
accommodation surety acts without motive of pecuniary gain and, hence, should be
protected against unjust pecuniary impoverishment by imposing on the principal duties akin
to those of a fiduciary. This cannot be said of a compensated corporate surety which is a
business association organized for the purpose of assuming classified risks in the medium of
standardized written contractual forms drawn by its representatives with the primary aim of
protecting his own interest. (See Stearn's The Law of Suretyship, 4th ed., 402-403) American
courts in refusing to apply this rule on compensated sureties have expressed themselves in
varying language. Sometimes it is said that a corporate compensated surety is not entitled to
the benefit of the strictissimi juris (U.S. vs. Geo. F. Pawling & Co., 297 F. 65); or that the
 contract is to be construed against the surety and in favor of the promisee (Consolidated
Indem. & Ins. Co. vs. State, 184 Ark. 581, 43 S.W. [2] 240); or that the contract is like one of
insurance hence one or the other of the above rules is to be applied (Lassetter vs. Becker,
26 Ariz. 224, 224 P. 810; Md. Cas. Co. vs. Dunlap, 68 F. [2d] 289 . . .

Slovenko states with lucidity the distinction between an accommodation and a compensated
corporate sureties and the reasons for treating them differently thus:

The law has authorized the formation of corporations for the purpose of conducting surety
business, and the corporate surety differs significantly from the individual private surety.
First, unlike the private surety, the corporate surety signs for cash and not for friendship. The
private surety is regarded as someone doing a rather foolish act for praiseworthy motives;
the corporate surety, to the contrary, is in business to be a profit and charges a premium
depending upon the amount of guaranty and the risk involved. Second, the corporate surety,
like an insurance company, prepares the instrument, which is a type of contract of adhesion,
whereas the private surety usually does not prepare the note or bond which he signs. Third,
the obligation of the private surety often is assumed simply on the basis of the debtor's
representations and without legal advice, while the corporate surety does not bind itself until
a full investigation has been made. For these reasons, the courts distinguish between the
individual gratuitous surety and the vocational corporate surety. In the case of the corporate
surety, the rule of strictissimi juris is not applicable, and courts apply the rules of
interpretation ... appertaining to contracts of insurance. (Slovenko, Suretyship, 39 TUL. L.
REV. 427, 442-443 [1965] ).

Nor is there any merit in the claim that the bond in this case was confiscated without giving the
appellant a chance to be heard on "the reality and reasonableness of the damages." It has already
been held that the nature of a surety's obligation on an administrator's bond, which makes him privy
to the proceedings against his principal, is such that he is bound and concluded, in the absence of
fraud or collusion, by a judgment against his principal, even though the surety was not a party to the
proceedings. (Philippine Trust Co. v. Luzon Surety Co., G.R. No. L-13031, May 30, 1961)

Furthermore, the record shows that the surety was given an opportunity to be heard. In the order of
the Court dated November 8, 1962, the following appears.

The Rizal Surety and Insurance Company filed its opposition to the above motion on October
22, this year, to which opposition the administratrix filed her reply, dated October 27, 1962. . .
..

This motion refers to the petition filed by the heiress and the temporary administratrix to make the
surety liable to the extent of P6,051.57, which amount was found due from the said former
administrator.

Wherefore, the order appealed from is affirmed, without pronouncement as to costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
Dizon, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 107062 February 21, 1994

PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO, INC., respondents.

Ocampo, Dizon & Domingo and Rey Nathaniel C. Ifurung for petitioner.

A.M. Sison, Jr. & Associates for private respondent.

NOCON, J.:

Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid to get a favorable
decision from the Regional Trial Court and then again in the Court of Appeals. 1 These are non-
appearance during the pre-trial despite due notice, and non-payment of docket fees upon filing of its
third-party complaint. Just how strict should these rules be applied is a crucial issue in this present
dispute.

Petitioner, Interworld Assurance Corporation (the company now carries the corporate name
Philippine Pryce Assurance Corporation), was the butt of the complaint for collection of sum of
money, filed on May 13, 1988 by respondent, Gegroco, Inc. before the Makati Regional Trial Court,
Branch 138. The complaint alleged that petitioner issued two surety bonds (No. 0029, dated July 24,
1987 and No. 0037, dated October 7, 1987) in behalf of its principal Sagum General Merchandise for
FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONE MILLION (1,000,000.00) PESOS,
respectively.

On June 16, 1988, summons, together with the copy of the complaint, was served on petitioner.
Within the reglementary period, two successive motions were filed by petitioner praying for a total of
thirty (30) days extention within which to file a responsible pleading.

In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner admitted having
executed the said bonds, but denied liability because allegedly 1) the checks which were to pay for
the premiums bounced and were dishonored hence there is no contract to speak of between
petitioner and its supposed principal; and 2) that the bonds were merely to guarantee payment of its
principal's obligation, thus, excussion is necessary. After the issues had been joined, the case was
set for pre-trial conference on September 29, 1988. the petitioner received its notice on September
9, 1988, while the notice addressed to its counsel was returned to the trial court with the notation
"Return to Sender, Unclaimed." 2

On the scheduled date for pre-trial conference, only the counsel for petitioner appeared while both
the representative of respondent and its counsel were present. The counsel for petitioner manifested
that he was unable to contract the Vice-President for operations of petitioner, although his client
intended to file a third party complaint against its principal. Hence, the pre-trial was re-set to October
14, 1988. 3

On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party Complaint" with the
Third-Party Complaint attached. On this same day, in the presence of the representative for both
petitioner and respondent and their counsel, the pre-trial conference was re-set to December 1,
1988. Meanwhile on November 29, 1988, the court admitted the Third Party Complaint and ordered
service of summons on third party defendants. 4

On scheduled conference in December, petitioner and its counsel did not appear notwithstanding
their notice in open court. 5 The pre-trial was nevertheless re-set to February 1, 1989. However,
when the case was called for pre-trial conference on February 1, 1989, petitioner was again nor
presented by its officer or its counsel, despite being duly notified. Hence, upon motion of respondent,
petitioner was considered as in default and respondent was allowed to present evidence ex-parte,
which was calendared on February 24, 1989. 6 Petitioner received a copy of the Order of Default and
a copy of the Order setting the reception of respondent's evidence ex-parte, both dated February 1,
1989, on February 16, 1989. 7

On March 6, 1989, a decision was rendered by the trial court, the dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Interworld Assurance Corporation to pay the amount of P1,500,000.00
representing the principal of the amount due, plus legal interest thereon from April 7,
1988, until date of payment; and P20,000.00 as and for attorney's fees. 8

Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989, having been denied it
elevated its case to the Court of Appeals which however, affirmed the decision of the trial court as
well as the latter's order denying petitioner's motion for reconsideration.

Before us, petitioner assigns as errors the following:

I. The respondent Court of Appeals gravely erred in declaring that the case was
already ripe for pre-trial conference when the trial court set it for the holding thereof.

II. The respondent Court of Appeals gravely erred in affirming the decision of the trial
court by relying on the ruling laid down by this Honorable Court in the case of
Manchester Development Corporation v. Court of Appeals, 149 SCRA 562, and
disregarding the doctrine laid down in the case of Sun Insurance Office, Ltd. (SIOL)
v. Asuncion, 170 SCRA 274.

III. The respondent Court of Appeals gravely erred in declaring that it would be
useless and a waste of time to remand the case for further proceedings as
defendant-appellant has no meritorious defense.

We do not find any reversible error in the conclusion reached by the court a quo.

Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since the last pleading,
which was supposed to be the third-party defendant's answer has not been filed, the case is not yet
ripe for pre-trial. This argument must fail on three points. First, the trial court asserted, and we agree,
that no answer to the third party complaint is forthcoming as petitioner never initiated the service of
summons on the third party defendant. The court further said:

. . . Defendant's claim that it was not aware of the Order admitting the third-party
complaint is preposterous. Sec. 8, Rule 13 of the Rules, provides:

Completeness of service — . . . Service by registered mail is

complete upon actual receipt by the addressee, but if he fails to claim
his mail from the post office within five (5) days from the date of first
notice of the postmaster, service shall take effect at the expiration of
such time. 9

Moreover, we observed that all copies of notices and orders issued by the court for petitioner's
counsel were returned with the notation "Return to Sender, Unclaimed." Yet when he chose to, he
would appear in court despite supposed lack of notice.

Second, in the regular course of events, the third-party defendant's answer would have been
regarded as the last pleading referred to in Sec. 1, Rule 20. However, petitioner cannot just
disregard the court's order to be present during the pre-trial and give a flimsy excuse, such as that
the answer has yet to be filed.

The pre-trial is mandatory in any action, the main objective being to simplify, abbreviate and
expedite trial, if not to fully dispense with it. Hence, consistent with its mandatory character the Rules
oblige not only the lawyers but the parties as well to appear for this purpose before the Court 10 and
when a party fails to appear at a pre-trial conference he may be non-suited or considered as in
default. 11

Records show that even at the very start, petitioner could have been declared as in default since it
was not properly presented during the first scheduled pre-trial on September 29, 1988. Nothing in
the record is attached which would show that petitioner's counsel had a special authority to act in
behalf of his client other than as its lawyer.

We have said that in those instances where a party may not himself be present at the pre-trial, and
another person substitutes for him, or his lawyer undertakes to appear not only as an attorney but in
substitution of the client's person, it is imperative for that representative or the lawyer to have
"special authority" to enter into agreements which otherwise only the client has the capacity to
make. 12

Third, the court of Appeals properly considered the third-party complaint as a mere scrap of paper
due to petitioner's failure to pay the requisite docket fees. Said the court a quo:

A third-party complaint is one of the pleadings for which Clerks of court of Regional
Trial Courts are mandated to collect docket fees pursuant to Section 5, Rule 141 of
the Rules of Court. The record is bereft of any showing tha(t) the appellant paid the
corresponding docket fees on its third-party complaint. Unless and until the
corresponding docket fees are paid, the trial court would not acquire jurisdiction over
the third-party complaint (Manchester Development Corporation vs. Court of
Appeals, 149 SCRA 562). The third-party complaint was thus reduced to a mere
scrap of paper not worthy of the trial court's attention. Hence, the trial court can and
correctly set the case for pre-trial on the basis of the complaint, the answer and the
answer to the counterclaim.13
It is really irrelevant in the instant case whether the ruling in Sun Insurance Office, Ltd. (SIOL) v.
Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was applied. Sun Insurance and
Manchester are mere reiteration of old jurisprudential pronouncements on the effect of non-payment
of docket fees. 16 In previous cases, we have consistently ruled that the court cannot acquire
jurisdiction over the subject matter of a case, unless the docket fees are paid.

Moreover, the principle laid down in Manchester could have very well been applied in Sun
Insurance. We then said:

The principle in Manchester [Manchester Development Corp. v. C.A., 149 SCRA 562
(1987)] could very well be applied in the present case. The pattern and the intent to
defraud the government of the docket fee due it is obvious not only in the filing of the
original complaint but also in the filing of the second amended complaint.

xxx xxx xxx

In the present case, a more liberal interpretation of the rules is called for considering
that, unlike Manchester, private respondent demonstrated his willingness to abide by
the rules by paying the additional docket fees as required. The promulgation of the
decision in Manchester must have had that sobering influence on private respondent
who thus paid the additional docket fee as ordered by the respondent court. It
triggered his change of stance by manifesting his willingness to pay such additional
docket fees as may be ordered. 17

Thus, we laid down the rules as follows:

1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time, but in no case beyond the applicable prescriptive or
reglamentary period.

2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
prescriptive or reglementary period.

3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee, but subsequently, the
judgment awards a claim nor specified in the pleading, or if specified the same has
not been left for determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment. It shall be the responsibility of the clerk of court or
his duly authorized deputy to enforce said lien and assess and collect the additional
fee. 18

It should be remembered that both in Manchester and Sun Insurance plaintiffs therein paid docket
fees upon filing of their respective pleadings, although the amount tendered were found to be
insufficient considering the amounts of the reliefs sought in their complaints. In the present case,
petitioner did not and never attempted to pay the requisite docket fee. Neither is there any showing
that petitioner even manifested to be given time to pay the requisite docket fee, as in fact it was not
present during the scheduled pre-trial on December 1, 1988 and then again on February 1, 1989.
Perforce, it is as if the third-party complaint was never filed.

Finally, there is reason to believe that partitioner does not really have a good defense. Petitioner
hinges its defense on two arguments, namely: a) that the checks issued by its principal which were
supposed to pay for the premiums, bounced, hence there is no contract of surety to speak of; and 2)
that as early as 1986 and covering the time of the Surety Bond, Interworld Assurance Company
(now Phil. Pryce) was not yet authorized by the insurance Commission to issue such bonds.

The Insurance Code states that:

Sec. 177. The surety is entitled to payment of the premium as soon as the contract of
suretyship or bond is perfected and delivered to the obligor. No contract of suretyship
or bonding shall be valid and binding unless and until the premium therefor has been
paid, except where the obligee has accepted the bond, in which case the bond
becomes valid and enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety. . . . (emphasis added)

The above provision outrightly negates petitioner's first defense. In a desperate attempt to escape
liability, petitioner further asserts that the above provision is not applicable because the respondent
allegedly had not accepted the surety bond, hence could not have delivered the goods to Sagum
Enterprises. This statement clearly intends to muddle the facts as found by the trial court and which
are on record.

In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter of the
original action. 19Secondly, the testimony of Mr. Leonardo T. Guzman, witness for the respondent,
reveals the following:

Q. What are the conditions and terms of sales you extended to

Sagum General Merchandise?

A. First, we required him to submit to us Surety Bond to guaranty

payment of the spare parts to be purchased. Then we sell to them on
90 days credit. Also, we required them to issue post-dated checks.

Q. Did Sagum General merchandise comply with your surety bond

requirement?

A. Yes. They submitted to us and which we have accepted two surety

bonds.

Q Will you please present to us the aforesaid surety bonds?

A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000

dated July 24, 1987 and Interworld Assurance Corp. Surety Bond No.
0037 for P1,000.000 dated October 7, 1987. 20

Likewise attached to the record are exhibits C to C-18 21 consisting of delivery invoices addressed to
Sagum General Merchandise proving that parts were purchased, delivered and received.
On the other hand, petitioner's defense that it did not have authority to issue a Surety Bond when it
did is an admission of fraud committed against respondent. No person can claim benefit from the
wrong he himself committed. A representation made is rendered conclusive upon the person making
it and cannot be denied or disproved as against the person relying thereon. 22

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dismissing the petition
before them and affirming the decision of the trial court and its order denying petitioner's Motion for
Reconsideration are hereby AFFIRMED. The present petition is DISMISSED for lack of merit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

SECOND DIVISION
AFP GENERAL INSURANCE G.R. No. 151133
CORPORATION,
Petitioner, Present:

QUISUMBING, J., Chairperson,

CARPIO MORALES,
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.
NOEL MOLINA, JUANITO
ARQUEZA, LEODY VENANCIO,
JOSE OLAT, ANGEL CORTEZ,
PANCRASIO SIMPAO, CONRADO Promulgated:
CALAPON AND NATIONAL LABOR
RELATIONS COMMISSION (FIRST June 30, 2008
DIVISION),
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUISUMBING, J.:

This is a petition for review on certiorari of the Decision[1] dated August 20, 2001 of
the Court of Appeals in CA-G.R. SP No. 58763 which dismissed herein petitioners
special civil action for certiorari. Before the appellate court, petitioner AFP General
Insurance Corporation (AFPGIC) sought to reverse the Resolution [2] dated October
5, 1999 of the National Labor Relations Commission (NLRC) in NLRC NCR CA-
011705-96 for having been issued with grave abuse of discretion. The NLRC
affirmed the Order[3] dated March 30, 1999 of Labor Arbiter Edgardo Madriaga in
NLRC NCR Case No. 02-00672-90 which had denied AFPGICs Omnibus Motion
to Quash Notice/Writ of Garnishment and Discharge AFPGICs appeal bond for
failure of Radon Security & Allied Services Agency (Radon Security) to pay the
premiums on said bond. Equally challenged is the Resolution[4] dated December 14,
2001 of the appellate court in CA-G.R. SP No. 58763 which denied herein
petitioners motion for reconsideration.

The facts of this case are not disputed.

The private respondents are the complainants in a case for illegal dismissal, docketed
as NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied Services
Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision dated August
20, 1996, the Labor Arbiter ruled that the private respondents were illegally dismissed
and ordered Radon Security to pay them separation pay, backwages, and other
monetary claims.

Radon Security appealed the Labor Arbiters decision to public respondent NLRC and
posted a supersedeas bond, issued by herein petitioner AFPGIC as surety. The appeal
was docketed as NLRC NCR CA-011705-96.

On April 6, 1998, the NLRC affirmed with modification the decision of the Labor
Arbiter. The NLRC found the herein private respondents constructively dismissed
and ordered Radon Security to pay them their separation pay, in lieu of reinstatement
with backwages, as well as their monetary benefits limited to three years, plus
attorneys fees equivalent to 10% of the entire amount, with Radon Security and Ever
Emporium, Inc. adjudged jointly and severally liable.

Radon Security duly moved for reconsideration, but this was denied by the NLRC
in its Resolution dated June 22, 1998.

Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891 with
this Court, but we dismissed this petition in our Resolution of August 31, 1998.
When the Decision dated April 6, 1998 of the NLRC became final and executory,
private respondents filed an Urgent Motion for Execution. As a result, the NLRC
Research and Information Unit submitted a Computation of the Monetary Awards
in accordance with the NLRC decision. Radon Security opposed said computation
in its Motion for Recomputation.

On February 5, 1999, the Labor Arbiter issued a Writ of Execution [5] incorporating
the computation of the NLRC Research and Information Unit. That same date, the
Labor Arbiter dismissed the Motion for Recomputation filed by Radon Security. By
virtue of the writ of execution, the NLRC Sheriff issued a Notice of
Garnishment[6] against the supersedeas bond.

Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.

On March 30, 1999, the Labor Arbiter denied both motions, and Radon Security
appealed to the NLRC.

On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an
Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGICs
Appeal Bond on the ground that said bond has been cancelled and thus non-existent
in view of the failure of Radon Security to pay the yearly premiums.[7]

On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion for lack of
merit.[8] The Labor Arbiter pointed out that the question of non-payment of
premiums is a dispute between the party who posted the bond and the insurer; to
allow the bond to be cancelled because of the non-payment of premiums would result
in a factual and legal absurdity wherein a surety will be rendered nugatory by the
simple expedient of non-payment of premiums.

The petitioner then appealed the Labor Arbiters order to the NLRC. The appeals of
Radon Security and AFPGIC were jointly heard as NLRC NCR CA-011705-96.

On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this wise:
WHEREFORE, premises considered, the appeals under
consideration are hereby DISMISSED for lack of merit.
 SO ORDERED.[9]

In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGICs theory
that the bond cannot anymore be proceeded against for failure of Radon Security to
pay the premium is untenable, considering that the bond is effective until the finality
of the decision.[10] The NLRC stressed that a contrary ruling would allow
respondents to simply stop paying the premium to frustrate satisfaction of the money
judgment.[11]

AFPGIC then moved for reconsideration, but the NLRC denied the motion in its
Resolution[12] dated February 29, 2000.

AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No.
58763, with the Court of Appeals, on the ground that the NLRC committed a grave
abuse of discretion in affirming the Order dated March 30, 1999 of the Labor
Arbiter.

On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763,
disposing as follows:
WHEREFORE, the foregoing considered, the petition is denied due
course and accordingly DISMISSED.

SO ORDERED.[13]

AFPGIC seasonably moved for reconsideration, but this was denied by the appellate
court in its Resolution[14] of December 14, 2001.

Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING
THE PUBLIC RESPONDENT NLRC ALTHOUGH THE LATTER
GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY
IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS
ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM AND
THUS IT COULD NOT BE SUBJECT OF EXECUTION OR
GARNISHMENT.[15]
The petitioner contends that under Section 64 [16] of the Insurance Code, which is
deemed written into every insurance contract or contract of surety, an insurer may
cancel a policy upon non-payment of the premium. Said cancellation is binding upon
the beneficiary as the right of a beneficiary is subordinate to that of the
insured. Petitioner points out that in South Sea Surety & Insurance Co., Inc. v.
CA,[17] this Court held that payment of premium is a condition precedent to and
essential for the efficaciousness of a contract of insurance.[18] Hence,
following UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc.,[19] no insurance
policy, other than life, issued originally or on renewal is valid and binding until
actual payment of the premium.[20] The petitioner also points to Malayan Insurance
Co., Inc. v. Cruz Arnaldo,[21] which reiterated that an insurer may cancel an insurance
policy for non-payment of premium.[22] Hence, according to petitioner, the Court of
Appeals committed a reversible error in not holding that under Section 77 [23] of the
Insurance Code, the surety bond between it and Radon Security was not valid and
binding for non-payment of premiums, even as against a third person who was
intended to benefit therefrom.

The private respondents adopted in toto the ratiocinations of the Court of Appeals that
inasmuch as a supersedeas bond was posted for the benefit of a third person to
guarantee that the money judgment will be satisfied in case it is affirmed on appeal, the
third person who stands to benefit from said bond is entitled to notice of its cancellation
for any reason. Likewise, the NLRC should have been notified to enable it to take the
proper action under the circumstances. The respondents submit that from its very
nature, a supersedeas bond remains effective and the surety liable thereon until
formally discharged from said liability. To hold otherwise would enable a losing party
to frustrate a money judgment by the simple expedient of ceasing to pay premiums.

We find merit in the submissions of the private respondents.

The controversy before the Court involves more than just the mere application of the
provisions of the Insurance Code to the factual circumstances. This instant case, after
all, traces its roots to a labor controversy involving illegally dismissed workers. It
thus entails the application of labor laws and regulations. Recall that the heart of the
dispute is not an ordinary contract of property or life insurance, but an appeal bond
required by both substantive and adjective law in appeals in labor disputes,
specifically Article 223[24] of the Labor Code, as amended by Republic Act No.
6715,[25] and Rule VI, Section 6[26] of the Revised NLRC Rules of Procedure. Said
provisions mandate that in labor cases where the judgment appealed from involves
a monetary award, the appeal may be perfected only upon the posting of a cash or
surety bond issued by a reputable bonding company accredited by the NLRC.[27] The
perfection of an appeal by an employer only upon the posting of a cash or surety
bond clearly and categorically shows the intent of the lawmakers to make the posting
of a cash or surety bond by the employer to be the exclusive means by which an
employers appeal may be perfected.[28] Additionally, the filing of a cash or surety
bond is a jurisdictional requirement in an appeal involving a money judgment to the
NLRC.[29] In addition, Rule VI, Section 6 of the Revised NLRC Rules of Procedure
is a contemporaneous construction of Article 223 by the NLRC. As an interpretation
of a law by the implementing administrative agency, it is accorded great respect by
this Court.[30] Note that Rule VI, Section 6 categorically states that the cash or surety
bond posted in appeals involving monetary awards in labor disputes shall be in effect
until final disposition of the case. This could only be construed to mean that the
surety bond shall remain valid and in force until finality and execution of judgment,
with the resultant discharge of the surety company only thereafter, if we are to give
teeth to the labor protection clause of the Constitution. To construe the provision any
other way would open the floodgates to unscrupulous and heartless employers who
would simply forego paying premiums on their surety bond in order to evade
payment of the monetary judgment. The Court cannot be a party to any such iniquity.

Moreover, the Insurance Code supports the private respondents

arguments. The petitioners reliance on Sections 64 and 77 of the Insurance Code is
misplaced. The said provisions refer to insurance contracts in general. The instant
case pertains to a surety bond; thus, the applicable provision of the Insurance Code
is Section 177,[31] which specifically governs suretyship. It provides that a surety
bond, once accepted by the obligee becomes valid and enforceable, irrespective of
whether or not the premium has been paid by the obligor. The private respondents,
the obligees here, accepted the bond posted by Radon Security and issued by the
petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est
recedendum (from the language of the law there must be no departure).[32]

When petitioner surety company cancelled the surety bond because Radon
Security failed to pay the premiums, it gave due notice to the latter but not to the
NLRC. By its failure to give notice to the NLRC, AFPGIC failed to acknowledge
that the NLRC had jurisdiction not only over the appealed case, but also over the
appeal bond. This oversight amounts to disrespect and contempt for a quasi-judicial
agency tasked by law with resolving labor disputes. Until the surety is formally
discharged, it remains subject to the jurisdiction of the NLRC.

Our ruling, anchored on concern for the employee, however, does not in any
way seek to derogate the rights and interests of the petitioner as against Radon
Security. The former is not devoid of remedies against the latter. Under Section
176[33] of the Insurance Code, the liability of petitioner and Radon Security is
solidary in nature. There is solidary liability only when the obligation expressly so
states, or when the law so provides, or when the nature of the obligation so
requires.[34] Since the law provides that the liability of the surety company and the
obligor or principal is joint and several, then either or both of them may be proceeded
against for the money award.

The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued
by the petitioner. The latter, as surety, is mandated to comply with the writ of
garnishment, for as earlier pointed out, the bond remains enforceable and under the
jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed
to collect the amount it paid on the bond, plus the premiums due and demandable,
plus any interest owing from Radon Security. This is pursuant to the principle of
subrogation enunciated in Article 2067[35] of the Civil Code which we apply to the
suretyship agreement between AFPGIC and Radon Security, in accordance with
Section 178[36] of the Insurance Code.Finding no reversible error committed by the
Court of Appeals in CA-G.R. SP No. 58763, we sustain the challenged decision.

WHEREFORE, the instant petition is DENIED for lack of merit. The

assailed Decision dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No.
58763 and the Resolution dated December 14, 2001, of the appellate court denying
the herein petitioners motion for reconsideration are AFFIRMED. Costs against the
petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36488 July 25, 1983

CAPITAL INSURANCE & SURETY CO., INC., herein represented by its General Agent, the PAN
AMERICAN INSURANCE AGENCIES, INC., plaintiff-appellant,
vs.
RONQUILLO TRADING and JOSE L. BAUTISTA, defendants-appellees.

Aristorenas, Relova & Enriquez Law Office for plaintiff-appellant.

Josefino Corpuz for defendants-appellees.

GUTIERREZ, JR., J.:

Before us for review is a decision of the Court of First Instance of Manila affirming a judgment of the
City Court of Manila dismissing the plaintiff- appellant's complaint for sum of money. The case was
originally appealed to the Court of Appeals but was certified to us on a finding that only questions of
law are raised.

Capital Surety and Insurance Co., Inc., thru its general agent, executed and issued a surety bond in
the amount of $14,800.00 or its peso equivalent in behalf of Ronquillo Trading and in favor of S.S.
Eurygenes, its master, and/or its agents, Delgado Shipping Agencies. The bond was a guarantee for
any additional freight which may be determined to be due on a cargo of 258 surplus army vehicles
consigned from Pusan, Korea to the Ronquillo Trading on board the S.S. Eurygenes and booked on
said vessel by the Philippine Merchants Steamship Company, Inc.

In consideration for the issuance by the appellant of the aforesaid surety bond the appellees
executed an indemnity agreement whereby among other things, they jointly and severally promised
to pay the appellant the sum of P1,827.00 in advance as premium and documentary stamps for each
period of twelve months while the surety bond was in effect.

On April 30, 1963 or about five (5) days before the expiration of the liability on the bond, P.D.
Marchessini and Co., Ltd. and Delgado Shipping Agencies, Inc., filed Civil Case No. 53853 in the
Court of First Instance of Manila against the Philippine Merchants Steamship Co., Inc., Jose L.
Bautista, doing business under the name and style of "Ronquillo Trading", and the herein appellant
Capital Insurance & Surety Co., Inc. for the sum of $14,800.00 or its equivalent in Philippine
currency, the loss they allegedly suffered as a direct consequence of the failure of the defendants to
load the stipulated quantity of 406 U.S. surplus army vehicles. The appellant was made party
defendant because of the bond it posted in behalf of the appellees.
Upon the expiration of the 12 months life of the bond, the appellant made a formal demand for the
payment of the renewal premiums and cost of documentary stamps for another year in the amount
of P1,827.00.

The appellees refused to pay, contending that the liability of the appellant under the surety bond
accrued during the period of twelve months the said bond was originally in force and before its
expiration and that the defendants-appellees were under no obligation to renew the surety bond.

The appellant, therefore, filed a complaint to recover the sum of P l,827.00 against the appellees in
the City Court of Manila. As earlier stated, the city court rendered judgment absolving the appellees
from the complaint.

The appellant appealed the judgment to the Court of First Instance of Manila where the decision of
the city court was affirmed and the complaint dismissed.

Its motion for reconsideration having been denied, appellant filed the instant appeal with the
following lone assignment of error:

THE TRIAL COURT ERRED IN HOLDING THAT ONCE SURETY'S LIABILITY

UNDER THE BOND HAS ACCRUED, DEFENDANTS- APPELLEES ARE UNDER
NO OBLIGATION TO PAY THE PREMIUMS AND COSTS OF DOCUMENTARY
STAMPS FOR THE SUCCEEDING PERIOD THAT IT IS IN EFFECT.

The appellant contends that the conclusion of the trial court that "once surety's liability under the
bond has accrued, defendants are under no obligation to pay the premiums and cost of documentary
stamps for the succeeding period that it is in effect by reason of existing obligation of surety under
the bond" is erroneous because it contradicts the provision of the indemnity agreement which
provides:

PREMIUMS. — As consideration for the Surety, the undersigned, jointly and

severally, agree to pay the COMPANY the sum of ONE THOUSAND EIGHT
HUNDRED ONLY (P1,800.00) PESOS, Philippine Currency, in advance as premium
thereof for every ... twelve (12) months or fraction thereof, while this bond or any
renewal or substitution thereof is in effect.

According to the appellant, it can be deduced that the payment of renewal premiums should depend
upon the life and effectivity of the bond and not on the accrual of its liability. It states that as long as
the bond is in full force and effect, the principal should pay the corresponding renewal premium and
should continue to do so even if the liability on the bond has accrued, otherwise, surety companies
will be at the mercy of their principals because while their liability continues to subsist as long as
their accrued liability is not determined, or as long as the court has not determined their liability,
which may take years, the principals pay no consideration for the use of their bond. And if the case
is decided against appellant thereby holding its bond liable, it must pay the face value of its bond,
and yet it is barred from collecting any consideration for the use of its bond during the pendency of
the case.

The appellees countered that the only purpose of Civil Case No. 53853 was to enforce a liability
which existed even before the bond was executed. The bond was given to secure payment by
appellees of such additional freight as would already be due on the cargo when it actually arrived in
Manila. The bond was not executed to secure obligation or liability which was still to arise after its
twelve month life. While it is true that the lower court held that the bond was still in effect after its
expiry date, the effectivity was not due to a renewal made by the appellees but because the surety
bond provided that "the liability of the surety will not expire if, as in this case, it is notified of an
existing obligation thereunder". The meaning of the bond's still being in effect is that, the suit on the
bond instituted by the obligees prior to the expiration of the "liability" thereunder was only for the
purpose of enforcing that liability and amounted to notice to appellant of an already existing or
accrued liability so as not to let that liability lapse or expire and thereby bar enforcement.

We agree with the contention of the appellees. It must be noted that in the surety bond it is stipulated
that the "liability of surety on this bond will expire on May 5, 1963 and said bond will be cancelled 15
days after its expiration, unless surety is notified of any existing obligations thereunder." Under this
stipulation the bond expired on the stated date and the phrase "unless surety is notified of any
existing obligations thereunder" refers to obligations incurred during the term of the bond.

Furthermore, under the Indemnity Agreement, the appellees "agree to pay the COMPANY the sum
of ONE THOUSAND EIGHT HUNDRED ONLY (P1,800.00) Pesos, Philippine Currency, in advance
as premium thereof for every twelve (12) months or fraction thereof, while this bond or any renewal
or substitution thereof is in effect." Obviously, the duration of the bond is for "every twelve (12)
months or fraction thereof, while this bond or any renewal or substitution is in effect." Since the
appellees opted not to renew the contract they cannot be obliged to pay the premiums. More
specifically, where a contract of surety is terminated under its terms, the liability of the principal for
premiums after such termination ceases notwithstanding the pendency of a lawsuit to enforce a
liability that accrued during its stipulated lifetime.

WHEREFORE, the appeal is dismissed for lack of merit. The decision of the court a quo is affirmed.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

Vasquez, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 85624 June 5, 1989

CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE SOCIETY OF
CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE CO., &
PHILIPPINE FIRST INSURANCE CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.

Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for petitioners.

Garcia & Pepito Law Offices for private respondent.

GRIÑO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or tragedy through
insurance, to realize that insurance is quite easy to buy but difficult to collect. Insurance companies
are prone to invent excuses to avoid their just obligations (American Home Ins. Co. vs. Court of
Appeals, 109 SCRA 180). This case is one such instance.

Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad
daylight, she is still waiting to collect the proceeds of seven (7) fire policies which the petitioners sold
to her.

The petitioners are the six (6) insurance companies that issued fire insurance policies for the total
sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as follows:

1. Cathay Insurance Company for P1,000,000 under Fire Insurance

Policy No. F-31056 dated June 10, 1981 renewing Policy No. F27942
(Exh-B-5), covering the period from June 20, 1981 to June 20, 1982
(Exh-B);

2. Empire Insurance Company for P500,000 under Fire Insurance

Policy No. YASCO/F-1101 dated March 7, 1981, renewing Policy No.
F-1095 (Exh. C-5), covering the period from March 19, 1981 to March
19, 1982 (Exh. C);

3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire

Insurance Policy No. NU-0530 dated May 5, 1981, renewing Policy
No. MU-223903 (Exh. D-5), covering the period from May 21, 1981 to
May 21, 1982 (Exh. D);

4. Paramount Insurance Corp. for P500,000 under Fire Insurance

Policy No. 25311 dated July 1, 1981, covering the period from July
15, 1981 to July 15, 1982 (Exh. E);

5. Philippine British Insurance Company for P500,000 under Fire

Insurance Policy No. PB-107861 dated July 6, 1981, renewing Policy
No. PB-933 11 (Exh. F-5), covering the period from July 10, 1981 to
July 10, 1982 (Exh. F).

6. Philippine British Insurance Company for P500,000 under another

Fire Insurance Policy No. PB-107848 dated July 1, 1981, renewing
Policy No. PB-102653 (Exh G-5), covering the period from July 5,
1981 to July 5, 1982 (Exh. G); and

7. Philippine First Insurance Company for P500,000 under Fire

Insurance Policy No. CEB-G-0515 dated January 28, 1981, covering
the period from February 15, 1981 to February 15, 1982 (Exh. H). (p.
76, Rollo.)

The fire policies described the insured property as "stocks of printing materials, papers and general
merchandise usual to the Assured's trade" (p. 53, Rollo) stored in a one-storey building of strong
materials housing the Cebu Filipina Press located at UNNO Pres. Quirino cor. Don V. Sotto Sts.,
Mabolo, Cebu City. The co-insurers were indicated in each of the policies. All, except one policy
(Paramount's), were renewals of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press was razed by
electrical fire together with all the stocks and merchandise stored in the premises.

On January 15, 1982, Mrs. Lugay, owner and operator of the printing press, submitted sworn
Statements of Loss Formal Claims to the insurers, through their djusters. She claimed a total loss of
P4,595,00.

She submitted proofs of loss required by the adjusters. After nearly ten (10) months of wating for the
insurers to pay his claim, she sued to collect on December 15, 1982. The insurance companies
denied liability, alleging violation of certain conditions of the policy, misdeclaration, and even arson
which was not seriously pressed for, come the pre-trial, the petitioners offered to pay 50% of her
claim, but she insisted in full recovery.

After the trial on the merits, the court rendered judgment in her favor, as follows:

... directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000,
by Empire the amount of P5,000,000.00, by Insurance Society of Canton Limited the
amount P5,000,000.00, by Paramount Insurance Company, the amount
P5,000,000.00, by Philippine British Insurance Company Inc., the amount of
P5,000,000.00 by Philippine First Insurance Company, Inc., the amount of
P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00
representing expenses of the plaintiff, and a separate amount of 20% of the
P4,000,000.00 representing fees of councel; and interests at the rate of twice the
ceiling being prescribe by the Monetary Board starting from the time when the case
was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)

On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67, Rollo). Hence, this
petition for review under Rule 45 of the Rules of Court wherein the petitioners allege that the Court
of Appeals erred:

1. in holding that the private respondent's cause of action had already

acrued when the complaint was filed on December 15, 1982 and in
not holding that the action is premature;

2. in finding that sufficient proofs of loss had been presented by the

private respondent;

3. in not holding that the private respondent's claim for loss was
infrated;

4. in awarding damages to the private respondent in the form of

interests equivalent to double the interest ceiling set by the Monetary
Board despite absence of a finding of unreasonable withholding or
refusal to pay the claim; and

5. in awarding exorbitant attorney's fees.

It is plain to see that all these grounds of the petition for review present factual issues which, in view
of the provision in Section 2, Rule 45 of the Rules of Court that "only questions of law may be raised"
this Court may not inquire into by conducting a tedious reassessment of the "maze of testimonial and
documentary evidence" (p. 57, Rollo) of the parties. Referring to the evidence presented at the trial
of this case, the Court of Appeals said:

We are impressed indeed with the patience, diligence and perseverance of the trial
judge in wading through the voluminous documents, making an exhaustive
examination and detailed evaluation of the evidence, and thus emerging from the
maze of testimonial and documentary evidence with accuracy of perception in
determining the merits of the respective claims of the litigants. Accordingly, We are
constrained to honor and stamp our imprimatur to the findings of fact and
conclusions of the trial court since, admittedly, it was in a better position than We are
to examine the real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365). (p. 57,
Rollo.)

The finding of the trial court and the Court of Appeals that the insured's cause of action had already
accrued before she filed her complaint is supported by Section 243 of the Insurance Code which
fixes a maximum period of 90 days after receipt of the proofs of loss by the insurer for the latter to
pay the insured s claim.

Sec. 243. The amount of any loss or damage for which an insurer may be liable,
under any policy other than the insurance policy, shall be paid within thirty days after
proof of loss is received by the insurer and ascertainment of the loss or damage is
made either by agreement between the insured and the insurer or by arbitration; but
if such ascertainiment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within ninety days
after such receipt. ... (Insurance Code.)

As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs
of loss were submitted from January 15, 1982 through June 21, 1982 in compliance with the
adjusters' numerous requests for various documents, payment should have been made within 90
days thereafter, or on or before September 21, 1982. Hence, when the assured file her complaint on
December 15, 1982, her cause of action had a ready accrued.

There is no merit in the petitioners' contention that the proof of loss were insufficient because
respondent Emilia Chan Luga failed to comply with the adjuster's request for the submission of her
bank statements. Condition No. 13 of the insurance policy on proofs of loss, provides:

13. The insured shall give immediate written notice to th company of any loss, protect
the property from further damage, forth with separate the damaged and undamaged
personal property, put it in the best possible order, furnish a complete inventory of
the destroyed damaged and undamaged property, showing in detail quantities, costs,
actual cash value and the amount of loss claimed; AN WITHIN SIXTY DAYS AFTER
THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY,
THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed
and sworn to by the insured, stating the knowledge and belief of th insured as to the
following: the time and origin of the loss, the interest of the insured and of all others
in the property, the actual cash value of each item thereof and the amount of loss
thereto, all encumbrances thereon, all other contracts of insurance, whether valid or
not covering any of said property, any changes in the title, use, occupation, location,
possession or exposures of said property since the issuing of this policy, by whom
and for what purpose any buildings herein described and the several parts thereof
were occupied at the time of the loss and whether or not they stood on leased
 ground, and shall furnish a copy of all the descriptions and schedules in all policies
and, if required, verified plans and specifications of any building, fixtures or machine
destroyed or damaged. The insured as often as may be reasonable required shall
exhibit to any person designated by the Company all that remains of any property
therein described, and submit to examination under oath by any person named by
the Company, and subscribe the same; as often as may be reasonably required,
shall produce for examination all books of account, bills, invoices, and other
vouchers, or certified copies thereof if originals be lost. At such reasonable time and
place as may be designated by the Company or its representative, and shall permit
extracts and copies thereof to be made.

No claim under this policy shall be payable unless the terms of this condition have
been complied with. (pp. 55-56, Rollo.)

Condition No. 13, as the Court of Appeals observed, does not require the insured to produce her
bank statements. Therefore, the insured was not obligated to produce them and the insurers had no
right to ask for them. Condition No. 13 was prepared by the insurers themselves, hence, it "should
be taken most strongly" (p. 58, Rollo) against them.

The Court of Appeals found that the insured "fully complied with the requirements of Condition No.
13" (p. 58, Rollo). The adjuster's demand for the assured's bank statements (which under the law on
the secrecy of bank deposits, she need not disclose) would add more requirements to Condition No.
13 of the insurance contract, and, as pointed out by the Appellate Court, "would amount to giving the
insurers limitless latitude in making unreasonable demands if only to evade and avoid liability" (p. 58,
Rollo).

Nor was the claim inflated. Both the trial court and the Court of Appeals noted that the proofs were
ample and "more than enough ... for defendants (insurers) to do a just assessment supporting the
1981 fire claim for an amount exceeding four million pesos" (p. 60, Rollo).

The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private
respondent's claim is lawful and justified under Sections 243 and 244 of the Insurance Code which
provide:

Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, ...

Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist attorney's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of claim due the insured, ... (Emphasis supplied; p. 66, Rollo.)

Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the policies issued by
the petitioners to th private respondents (p. 82, Rollo).
The petitioners' contention that the charging of double interest was improper because no
unreasonable delay in the processing of the fire claim was proven, is refuted by the trial court'
explicit finding that "there was a delay that was not reasonable in processing the claim and doing
payments" (p. 81, Rollo). Under Section 244, a prima facieevidence of unreasonable delay in
payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in
both Section 242 and 243 of the Insurance Code.

As provided in Section 244 also, by reason of the delay and consequent filing of this suit by the
insured, the insurers "shall be adjudged to pay damages which shall consist of attorney's fees and
other expenses incurred by the insured." In view of the not insubstantial value of the private
respondent's claims and the considerable time and effort expended by them and their counsel in
prosecuting these claims for the past eight (8) years, We hold that attorney's fees were properly
awarded to the private respondents. However, an award equivalent to (10%) percent of the proceeds
of the policies would be more reasonable than the 20% awarded by the trial court and th Appellate
Court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is affirmed, except
the award of attorney's fees to the private respondents which is hereby reduced to ten (10%) percent
of the proceeds of the insurance policies sued upon. Costs against the petitioners.

SO ORDERED.

Narvasa, Cruz and Gancayco, JJ., concur.

Medialdea, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee
v. Zenith Insurance Corp., defendant-appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil
Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration.
The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the
car figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedly
being given a run around by Zenith for two (2) months, Fernandez filed a complaint with the
Regional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith to
pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for moral damages in the amount of
P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses
of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private respondent rejected. After the
issues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved
to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case although
at an amount lower than private respondent's claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,
however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984
submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a
petition for certiorari with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.
However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent
Fernandez. The dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending appeal. The order was assailed by
petitioner in a petition for certiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No.
10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was
granted in the same order granting private respondent's motion for execution pending appeal. The
appeal to respondent court assigned the following errors:
 I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint. (p. 12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without Zenith's evidence, was
dismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was
denied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on
October 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution ran
counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction. The issues raised by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages,

exemplary damages and attomey's fees in an amount more than that prayed for in
the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral
damages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary damages, the trial court awarded
P20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial court
awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attomey's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
 such claim within the time prescribed in said sections shall be considered prima
facie evidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claim
due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the
Philippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.
Moral damages are emphatically not intended to enrich a complainant at the expense of a
defendant, they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the
defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, Revised
Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral
damages may be adjudicated, the assessment of which is left to the discretion of the court according
to the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding
moral damages in case of breach of contract, there must be a showing that the breach was wanton
and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court of
Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent was
given a "run-around" for two months, which is the basis for the award of the damages granted under
the Insurance Code for unreasonable delay in the payment of the claim. However, the act of
petitioner of delaying payment for two months cannot be considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there was
no total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondent
within the two-month period was that the parties could not come to an agreement as regards the
amount of the actual damage on the car. The amount of P10,000.00 prayed for by private
respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction
for the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-
Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded as
the insurance company had not acted in wanton, oppressive or malevolent manner. The same is
true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this
case considering that there were other petitions filed and defended by private respondent in
connection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been
established before the trial court and affirmed by the appellate court. Respondent appellate court
correctly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had no
basis. Respondent court ruled:
 Under its second assigned error, defendant-appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiff-
appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . .
(p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary
damages is hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.

Narvasa, Cruz and Griño-Aquino, JJ., concur.

Gancayco, J., is on leave.

THIRD DIVISION

REPUBLIC OF THE PHILIPPINES, G.R. No. 158085

Represented by the COMMISSIONER
OF INTERNAL REVENUE, Present:
Petitioner,
Panganiban, J.,
Chairman,
Sandoval-Gutierrez
- versus - Corona,
Carpio Morales, and
Garcia, JJ
SUNLIFE ASSURANCE Promulgated:
COMPANY OF CANADA,
Respondent. October 14, 2005

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

H
aving satisfactorily proven to the Court of Tax Appeals, to the
Court of Appeals and to this Court that it is a bona fide
cooperative, respondent is entitled to exemption from the
payment of taxes on life insurance premiums and
documentary stamps. Not being governed by the Cooperative Code of the
Philippines, it is not required to be registered with the Cooperative
Development Authority in order to avail itself of the tax exemptions.
Significantly, neither the Tax Code nor the Insurance Code mandates this
administrative registration.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of

Court, seeking to nullify the January 23, 2003 Decision[2] and the April 21,
2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 69125.
The dispositive portion of the Decision reads as follows:

WHEREFORE, the petition for review is hereby DENIED.[4]

The Facts

The antecedents, as narrated by the CA, are as follows:

Sun Life is a mutual life insurance company organized and
existing under the laws of Canada. It is registered and authorized by
the Securities and Exchange Commission and the Insurance
Commission to engage in business in the Philippines as a mutual life
insurance company with principal office at Paseo de Roxas, Legaspi
Village, Makati City.

On October 20, 1997, Sun Life filed with the [Commissioner of

Internal Revenue] (CIR) its insurance premium tax return for the third
quarter of 1997 and paid the premium tax in the amount
of P31,485,834.51. For the period covering August 21 to December
18, 1997, petitioner filed with the CIR its [documentary stamp tax
(DST)] declaration returns and paid the total amount
of P30,000,000.00.

On December 29, 1997, the [Court of Tax Appeals] (CTA)

rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which
held that mutual life insurance companies are purely cooperative
companies and are exempt from the payment of premium tax and DST.
This pronouncement was later affirmed by this court in [CIR] v. Insular
Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual
life insurance company, it was likewise exempt from the payment of
premium tax and DST. Hence, on August 20, 1999, Sun Life filed with
the CIR an administrative claim for tax credit of its alleged erroneously
paid premium tax and DST for the aforestated tax periods.

For failure of the CIR to act upon the administrative claim for tax
credit and with the 2-year period to file a claim for tax credit or refund
dwindling away and about to expire, Sun Life filed with the CTA a
petition for review on August 23, 1999. In its petition, it prayed for the
issuance of a tax credit certificate in the amount of P61,485,834.51
representing P31,485,834.51 of erroneously paid premium tax for the
third quarter of 1997 and P30,000[,000].00 of DST on policies of
insurance from August 21 to December 18, 1997. Sun Life stood firm
on its contention that it is a mutual life insurance company vested with
all the characteristic features and elements of a cooperative company
or association as defined in [S]ection 121 of the Tax Code. Primarily,
the management and affairs of Sun Life were conducted by its
members; secondly, it is operated with money collected from its
members; and, lastly, it has for its purpose the mutual protection of its
members and not for profit or gain.

In its answer, the CIR, then respondent, raised as special and

affirmative defenses the following:

7. Petitioners (Sun Lifes) alleged claim for refund is subject

to administrative routinary investigation/examination by
respondents (CIRs) Bureau.

8. Petitioner must prove that it falls under the exception

provided for under Section 121 (now 123) of the Tax Code to be
exempted from premium tax and be entitled to the refund sought.

9. Claims for tax refund/credit are construed strictly against

the claimants thereof as they are in the nature of exemption from
payment of tax.

10. In an action for tax credit/refund, the burden is upon the

taxpayer to establish its right thereto, and failure to sustain this
burden is fatal to said claim x x x.

11. It is incumbent upon petitioner to show that it has

complied with the provisions of Section 204[,] in relation to Section
229, both in the 1997 Tax Code.

On November 12, 2002, the CTA found in favor of Sun Life.

Quoting largely from its earlier findings in Insular Life Assurance
Company, Ltd. v. [CIR], which it found to be on all fours with the
present action, the CTA ruled:
 The [CA] has already spoken. It ruled that a mutual life
insurance company is a purely cooperative company[;] thus,
exempted from the payment of premium and documentary stamp
taxes. Petitioner Sun Life is without doubt a mutual life insurance
company. x x x.

xxxxxxxxx

Being similarly situated with Insular, Petitioner at bar is

entitled to the same interpretation given by this Court in the earlier
cases of The Insular Life Assurance Company, Ltd. vs. [CIR] (CTA
Case Nos. 5336 and 5601) and by the [CA] in the case entitled [CIR]
vs. The Insular Life Assurance Company, Ltd., C.A. G.R. SP No.
46516, September 29, 1998. Petitioner Sun Life as a mutual life
insurance company is[,] therefore[,] a cooperative company or
association and is exempted from the payment of premium tax and
[DST] on policies of insurance pursuant to Section 121 (now
Section 123) and Section 199[1]) (now Section 199[a]) of the Tax
Code.

Seeking reconsideration of the decision of the CTA, the CIR

argued that Sun Life ought to have registered, foremost, with the
Cooperative Development Authority before it could enjoy the
exemptions from premium tax and DST extended to purely
cooperative companies or associations under [S]ections 121 and 199
of the Tax Code. For its failure to register, it could not avail of the
exemptions prayed for. Moreover, the CIR alleged that Sun Life failed
to prove that ownership of the company was vested in its members
who are entitled to vote and elect the Board of Trustees among
[them]. The CIR further claimed that change in the 1997 Tax Code
subjecting mutual life insurance companies to the regular corporate
income tax rate reflected the legislatures recognition that these
companies must be earning profits.

Notwithstanding these arguments, the CTA denied the CIRs

motion for reconsideration.
 Thwarted anew but nonetheless undaunted, the CIR comes to
this court via this petition on the sole ground that:

The Tax Court erred in granting the refund[,] because respondent

does not fall under the exception provided for under Section 121
(now 123) of the Tax Code to be exempted from premium tax and
DST and be entitled to the refund.

The CIR repleads the arguments it raised with the CTA and
proposes further that the [CA] decision in [CIR] v. Insular Life Assurance
Company, Ltd. is not controlling and cannot constitute res judicata in the
present action. At best, the pronouncements are merely persuasive as
the decisions of the Supreme Court alone have a universal and
mandatory effect.[5]

Ruling of the Court of Appeals

In upholding the CTA, the CA reasoned that respondent was a purely

cooperative corporation duly licensed to engage in mutual life insurance
business in the Philippines. Thus, respondent was deemed exempt from
premium and documentary stamp taxes, because its affairs are managed and
conducted by its members with money collected from among themselves,
solely for their own protection, and not for profit. Its members or
policyholders constituted both insurer and insured who contribute, by a
system of premiums or assessments, to the creation of a fund from which all
losses and liabilities were paid. The dividends it distributed to them were not
profits, but returns of amounts that had been overcharged them for
insurance.

For having satisfactorily shown with substantial evidence that it had

erroneously paid and seasonably filed its claim for premium and
documentary stamp taxes, respondent was entitled to a refund, the CA ruled.

Hence, this Petition.[6]

The Issues

Petitioner raises the following issues for our consideration:

I.

Whether or not respondent is a purely cooperative company or

association under Section 121 of the National Internal Revenue Code
and a fraternal or beneficiary society, order or cooperative company
 on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of
each member and not for profit under Section 199 of the National
Internal Revenue Code.

II.

Whether or not registration with the Cooperative Development

Authority is a sine qua non requirement to be entitled to tax
exemption.

III.

Whether or not respondent is exempted from payment of tax on life

insurance premiums and documentary stamp tax.[7]

We shall tackle the issues seriatim.

The Courts Ruling

The Petition has no merit.

 First Issue:
Whether Respondent Is a Cooperative

The Tax Code defines a cooperative as an association conducted by the

members thereof with the money collected from among themselves and
solely for their own protection and not for profit. [8] Without a doubt,
respondent is a cooperative engaged in a mutual life insurance business.

First, it is managed by its members. Both the CA and the CTA found that
the management and affairs of respondent were conducted by its member-
policyholders.[9]

A stock insurance company doing business in the Philippines may alter its
organization and transform itself into a mutual insurance
company.[10] Respondent has been mutualized or converted from a stock life
insurance company to a nonstock mutual life insurance
corporation[11] pursuant to Section 266 of the Insurance Code of 1978.[12] On
the basis of its bylaws, its ownership has been vested in its member-
policyholders who are each entitled to one vote;[13] and who, in turn, elect
from among themselves the members of its board of trustees.[14] Being the
governing body of a nonstock corporation, the board exercises corporate
powers, lays down all corporate business policies, and assumes responsibility
for the efficiency of management.[15]

Second, it is operated with money collected from its members. Since

respondent is composed entirely of members who are also its policyholders,
all premiums collected obviously come only from them.[16]

The member-policyholders constitute both insurer and insured[17] who

contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid.[18] The premiums[19] pooled
into this fund are earmarked for the payment of their indemnity and benefit
claims.

Third, it is licensed for the mutual protection of its members, not for the
profit of anyone.

As early as October 30, 1947, the director of commerce had already issued a
license to respondent -- a corporation organized and existing under the laws
of Canada -- to engage in business in the Philippines.[20] Pursuant to Section
225 of Canadas Insurance Companies Act, the Canadian minister of state
(for finance and privatization) also declared in its Amending Letters Patent
that respondent would be a mutual company effective June 1, 1992.[21] In the
Philippines, the insurance commissioner also granted it annual Certificates
of Authority to transact life insurance business, the most relevant of which
were dated July 1, 1997 and July 1, 1998.[22]

A mutual life insurance company is conducted for the benefit of its member-
policyholders,[23] who pay into its capital by way of premiums. To that extent,
they are responsible for the payment of all its losses.[24] The cash paid in for
premiums and the premium notes constitute their assets x x x.[25] In the event
that the company itself fails before the terms of the policies expire, the
member-policyholders do not acquire the status of creditors.[26] Rather, they
simply become debtors for whatever premiums that they have originally
agreed to pay the company, if they have not yet paid those amounts in full,
for [m]utual companies x x x depend solely upon x x x premiums.[27] Only
when the premiums will have accumulated to a sum larger than that required
to pay for company losses will the member-policyholders be entitled to a pro
rata division thereof as profits.[28]

Contributing to its capital, the member-policyholders of a mutual company

are obviously also its owners.[29] Sustaining a dual relationship inter se, they
not only contribute to the payment of its losses, but are also entitled to a
proportionate share[30] and participate alike[31] in its profits and surplus.
Where the insurance is taken at cost, it is important that the rates of premium
charged by a mutual company be larger than might reasonably be expected
to carry the insurance, in order to constitute a margin of safety. The table of
mortality used will show an admittedly higher death rate than will probably
prevail; the assumed interest rate on the investments of the company is made
lower than is expected to be realized; and the provision for contingencies
and expenses, made greater than would ordinarily be necessary. [32] This
course of action is taken, because a mutual company has no capital stock and
relies solely upon its premiums to meet unexpected losses, contingencies and
expenses.

Certainly, many factors are considered in calculating the insurance premium.

Since they vary with the kind of insurance taken and with the group of
policyholders insured, any excess in the amount anticipated by a mutual
company to cover the cost of providing for the insurance over its actual
realized cost will also vary. If a member-policyholder receives an excess
payment, then the apportionment must have been based upon a calculation
of the actual cost of insurance that the company has provided for that
particular member-policyholder. Accordingly, in apportioning divisible
surpluses, any mutual company uses a contribution method that aims to
distribute those surpluses among its member-policyholders, in the same
proportion as they have contributed to the surpluses by their payments.[33]
Sharing in the common fund, any member-policyholder may choose to
withdraw dividends in cash or to apply them in order to reduce a subsequent
premium, purchase additional insurance, or accelerate the payment period.
Although the premium made at the beginning of a year is more than
necessary to provide for the cost of carrying the insurance, the member-
policyholder will nevertheless receive the benefit of the overcharge by way
of dividends, at the end of the year when the cost is actually ascertained. The
declaration of a dividend upon a policy reduces pro tanto the cost of insurance
to the holder of the policy. That is its purpose and effect.[34]

A stipulated insurance premium cannot be increased, but may be lessened

annually by so much as the experience of the preceding year has determined
it to have been greater than the cost of carrying the insurance x x x.[35] The
difference between that premium and the cost of carrying the risk of loss
constitutes the so-called dividend which, however, is not in any real sense a
dividend.[36] It is a technical term that is well understood in the insurance
business to be widely different from that to which it is ordinarily attached.

The so-called dividend that is received by member-policyholders is not a

portion of profits set aside for distribution to the stockholders in proportion
to their subscription to the capital stock of a corporation.[37] One, a mutual
company has no capital stock
to which subscription is necessary; there are no stockholders to speak of, but
only members. And, two, the amount they receive does not partake of the
nature of a profit or income. The quasi-appearance of profit will not change
its character. It remains an overpayment, a benefit to which the member-
policyholder is equitably entitled.[38]

Verily, a mutual life insurance corporation is a cooperative that promotes the

welfare of its own members. It does not operate for profit, but for the mutual
benefit of its member-policyholders. They receive their insurance at cost,
while reasonably and properly guarding and maintaining the stability and
solvency of the company.[39] The economic benefits filter to the cooperative
members. Either equally or proportionally, they are distributed among
members in correlation with the resources of the association utilized.[40]

It does not follow that because respondent is registered as a nonstock

corporation and thus exists for a purpose other than profit, the company can
no longer make any profits.[41] Earning profits is merely its secondary, not
primary, purpose. In fact, it may not lawfully engage in any business activity
for profit, for to do so would change or contradict its nature[42] as a non-
profit entity.[43] It may, however, invest its corporate funds in order to earn
additional income for paying its operating expenses and meeting benefit
claims. Any excess profit it obtains as an incident to its operations can only
be used, whenever necessary or proper, for the furtherance of the purpose
for which it was organized.[44]
 Second Issue:
Whether CDA Registration Is Necessary

Under the Tax Code although respondent is a cooperative, registration with

the Cooperative Development Authority (CDA)[45] is not necessary in order
for it to be exempt from the payment of both percentage taxes on insurance
premiums, under Section 121; and documentary stamp taxes on policies of
insurance or annuities it grants, under Section 199.

First, the Tax Code does not require registration with the CDA. No tax
provision requires a mutual life insurance company to register with that
agency in order to enjoy exemption from both percentage and documentary
stamp taxes.

A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-

91 requires the submission of the Certificate of Registration with the
CDA,[46]before the issuance of a tax exemption certificate. That provision
cannot prevail over the clear absence of an equivalent requirement under the
Tax Code. One, as we will explain below, the Circular does not apply to
respondent, but only to cooperatives that need to be registered under the
Cooperative Code. Two, it is a mere issuance directing all internal revenue
officers to publicize a new tax legislation. Although the Circular does not
derogate from their authority to implement the law, it cannot add a
registration requirement,[47] when there is none under the law to begin with.

Second, the provisions of the Cooperative Code of the Philippines[48] do not

apply. Let us trace the Codes development in our history.

As early as 1917, a cooperative company or association was already defined

as one conducted by the members thereof with money collected from among
themselves and solely for their own protection and not profit.[49] In 1990, it
was further defined by the Cooperative Code as a duly registered association
of persons, with a common bond of interest, who have voluntarily joined
together to achieve a lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair share of
the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.[50]

The Cooperative Code was actually an offshoot of the old law on

cooperatives. In 1973, Presidential Decree (PD) No. 175 was
signed into law by then President Ferdinand E. Marcos in order to
strengthen the cooperative movement.[51] The promotion of cooperative
development was one of the major programs of the New Society under his
administration. It sought to improve the countrys trade and commerce by
enhancing agricultural production, cottage industries, community
development, and agrarian reform through cooperatives.[52]

The whole cooperative system, with its vertical and horizontal linkages --
from the market cooperative of agricultural products to cooperative rural
banks, consumer cooperatives and cooperative insurance -- was envisioned
to offer considerable economic opportunities to people who joined
cooperatives.[53] As an effective instrument in redistributing income and
wealth,[54] cooperatives were promoted primarily to support the agrarian
reform program of the government.[55]

Notably, the cooperative under PD 175 referred only to an organization

composed primarily of small producers and consumers who voluntarily
joined to form a business enterprise that they themselves owned, controlled,
and patronized.[56] The Bureau of Cooperatives Development -- under the
Department of Local Government and Community Development (later
Ministry of Agriculture)[57] -- had the authority to register, regulate and
supervise only the following cooperatives: (1) barrio associations involved in
the issuance of certificates of land transfer; (2) local or primary cooperatives
composed of natural persons and/or barrio associations; (3) federations
composed of cooperatives that may or may not perform business activities;
and (4) unions of cooperatives that did not perform any business
activities.[58] Respondent does not fall under any of the above-mentioned
types of cooperatives required to be registered under PD 175.

When the Cooperative Code was enacted years later, all cooperatives that
were registered under PD 175 and previous laws were also deemed registered
with the CDA.[59] Since respondent was not required to be registered under
the old law on cooperatives, it followed that it was not required to be
registered even under the new law.

Furthermore, only cooperatives to be formed or organized under the

Cooperative Code needed registration with the CDA.[60] Respondent already
existed before the passage of the new law on cooperatives. It was not even
required to organize under the Cooperative Code, not only because it
performed a different set of functions, but also because it did not operate to
serve the same objectives under the new law -- particularly on productivity,
marketing and credit extension.[61]

The insurance against losses of the members of a cooperative referred to in

Article 6(7) of the Cooperative Code is not the same as the life insurance
provided by respondent to member-policyholders. The former is a function
of a service cooperative,[62] the latter is not. Cooperative insurance under the
Code is limited in scope and local in character. It is not the same as mutual
life insurance.

We have already determined that respondent is a cooperative. The

distinguishing feature of a cooperative enterprise[63] is the mutuality of
cooperation among its member-policyholders united for that purpose.[64] So
long as respondent meets this essential feature, it does not even have to
use[65] and carry the name of a cooperative to operate its mutual life insurance
business. Gratia argumenti that registration is mandatory, it cannot deprive
respondent of its tax exemption privilege merely because it failed to register.
The nature of its operations is clear; its purpose well-defined. Exemption
when granted cannot prevail over administrative convenience.

Third, not even the Insurance Code requires registration with the CDA. The
provisions of this Code primarily govern insurance contracts; only if a
particular matter in question is not specifically provided for shall the
provisions of the Civil Code on contracts and special laws govern.[66]

True, the provisions of the Insurance Code relative to the organization and
operation of an insurance company also apply to cooperative insurance
entities organized under the Cooperative Code.[67] The latter law, however,
does not apply to respondent, which already existed as a cooperative
company engaged in mutual life insurance prior to the laws passage of that
law. The statutes prevailing at the time of its organization and mutualization
were the Insurance Code and the Corporation Code, which imposed no
registration requirement with the CDA.

Third Issue:
Whether Respondent Is Exempted
from Premium Taxes and DST

Having determined that respondent is a cooperative that does not have to

be registered with the CDA, we hold that it is entitled to exemption from
both premium taxes and documentary stamp taxes (DST).

The Tax Code is clear. On the one hand, Section 121 of the Code exempts
cooperative companies from the 5 percent percentage tax on insurance
premiums. On the other hand, Section 199 also exempts from the DST,
policies of insurance or annuities made or granted by cooperative companies.
Being a cooperative, respondent is thus exempt from both types of taxes.
It is worthy to note that while RA 8424 amending the Tax Code has deleted
the income tax of 10 percent imposed upon the gross investment income of
mutual life insurance companies -- domestic[68] and foreign[69] -- the
provisions of Section 121 and 199 remain unchanged.[70]

Having been seasonably filed and amply substantiated, the claim for
exemption in the amount of P61,485,834.51, representing percentage taxes
on insurance premiums and documentary stamp taxes on policies of
insurance or annuities that were paid by respondent in 1997, is in order.
Thus, the grant of a tax credit certificate to respondent as ordered by the
appellate court was correct.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision

and Resolution are AFFIRMED. No pronouncement as to costs.

SO ORDERED.