104 Philippine Phoenix Surety & Insurance, Inc. v. Woodworks, Inc.

(1967)

Disposition: Wherefore, the appealed decision being in accordance with

law and the evidence, the same is hereby affirmed, with costs.

FACTS:
105 Philippine Phoenix Surety & Insurance Co. v. Woodworks, Inc.

Phoenix and Woodworks are both corporations duly organized and

existing under the laws of the Philippines.

Woodworks obtained from Phoenix and was issued a fire insurance

policy for the amount of P300k. The premiums amounted to P6,051.95
but Woodworks only paid P3,000.

Despite several demands made by Phoenix, Woodworks failed to pay.

FACTS:

Defendant Woodworks applied for fire insurance from Plaintif

Phoenix. The Policy was for P500,000 over Woodworks building,
equipment, etc. for one year (July 21, 1960-61). The premium, plus
other charges, amounted to P10,593.36.

Woodworks did not pay the premium.

Thus, Phoenix filed a case to recover from Woodworks the unpaid

balance of the premiums (P3,522.09).

On April 19, 1961, Phoenix notified Woodworks of the cancellation

of the Policy, allegedly upon Woodworks request.

CFI Manila decided in favor of Phoenix. Woodworks appealed, claiming

that its non-payment of the premium cancelled the policy and thus is
not liable to pay for the premiums due.

Phoenix credited P3,110.25 to Woodworks for the unexpired period

of 94 days; then claimed the balance of P7,483.11 as earned
premium from July 21, 1960 to April 18, 1961, or 271 days. It
demanded from Woodworks, who countered that Phoenix was not
liable for any indemnity during the period the premiums were not
paid.

Phoenix sued Woodworks for the balance as earned premium.

Woodworks again argued that its own failure to pay the premium
after the policy was issued put an end to the contract and rendered
it unenforceable.

Woodworks appealed to the CA, who certified the case to the SC on

a question of law.

ISSUE: Whether the non-payment of the premium by Woodworks cancelled

the contract of insurance?
HELD:
No, non-payment of premium due did not cancel the contract of
insurance.

As the contract of insurance had already become perfected, the parties

could demand from each other the performance of whatever
obligations they had assumed.

In the case of the insurer (Phoenix), it is obvious that it had the right to
demand from the insured (Woodworks) the completion of the payment
of the premium due OR sue for the rescission of the contract.

Since Phoenix chose to demand specific performance of Woodworks

obligation to pay the balance of the premium, the latter's duty to pay is
indeed indubitable.

If the non-payment of the premium would cancel the policy, it would

place exclusively in the hands of one of the contracting parties the
right to decide whether the contract should stand or not.

ISSUE: WON Phoenix may claim from Woodworks.- NO

HOLDING and RATIO:

In a contract of insurance, the element of consideration is the

premium paid. Without it, there is no contract.

The Policy between Phoenix and Woodworks included such

provisions:

Coverage if the property, or any part thereof, indicated in

the policy is damaged by fire or lightning after payment of
Premium, at any time between 4 pm of July 21, 1960 and 4
pm of July 21, 1961;

The burden is on an insured to keep a policy in force by the

payment of premiums, rather than on the insurer to exert every
efort to prevent the insured from allowing a policy to elapse
through a failure to make premium payments.

No payment in respect of any premium shall be deemed

payment to Phoenix unless a printed receipt for the same,
signed by an official or agent of the company, shall have
been given to Woodworks;

The continuance of the insurers obligation is conditional upon the

payment of premiums, so that no recovery can be had upon a
lapsed policy, the contractual relation between the parties having
ceased.

Woodworks may request to terminate the insurance, and

Phoenix will retain the short period rate for the time the
policy has been in force;

106 Arce vs Capital Insurance

FACTS:

Phoenix may also terminate the insurance, upon notifying

Woodworks, in which case Phoenix will be liable to repay
on demand a ratable proportion of the premium for the
unexpired term.

The petitioner, the insured, was the owner of a residential house in

Tondo, Manila, which had been insured with the Capital insurance
since 1961under Fire Policy No. 24204.

The Policy provides for pre-payment of premium. Accordingly,

when the policy is tendered the insured must pay the premium
unless credit is given or there is a waiver or some agreement
obviating the necessity for payment.

On November 27, 1965, the COMPANY sent to the petitioner

Renewal Certificate No. 47302 to cover the period December 5,
1965 to December 5, 1966. The respondent also requested
payment of the corresponding premium in the amount of P38.10.

There was no agreement

Woodworks.

for a credit extension given to

This case is diferent from the other case with the same parties
because in that case recovery of the balance of the unpaid
premium was allowed. This is because in said case, there was a
perfected, partially performed contract of insurance as far as
payment of the premium was concerned.

Anticipating that the premium could not be paid on time, the

petitioner, thru his wife, promised to pay it on January 4, 1966. The
respondent accepted the promise but the premium was not paid on
January 4, 1966.

When the petitioners house was ravaged with fire, the petitioners
wife presented a claim for indemnity to the respondent. She was
told that no indemnity was due because the premium on the policy
was not paid.

Here, no partial payment of premiums has been made. Therefore,

the policy is deemed to have lapsed.

The non-payment of premiums does not merely suspend but puts

an end to an insurance contract, since the time of the payment is
peculiarly of the essence of the contract.

Nonetheless the respondent tendered a check forP300.00 as

financial aid which was received by the petitioners daughter. The
respondent reiterated that the check was given "not as an
obligation, but as a concession" because the renewal premium had
not been paid. The petitioner cashed the check but then sued the
respondent on the policy.

If a fire did destroy the goods, Phoenix would have had a valid
defense against recovery under the Policy it issued.

CFI: Capital Insurance and Surety Co., Inc. was ordered to pay
Pedro Arce the proceeds of a fire insurance policy.

Compliance by Woodworks with the terms of the contract is a

condition precedent to the right of recovery.

ISSUE: Whether or not the petitioners are entitled to claim from their policy
despite non-payment of their premium. NO
RULING:
1

It is obvious from both the Insurance Act, as amended, and the

stipulation of the parties that time is of the essence in respect of
the payment of the insurance premium so that if it is not paid the
contract does not take efect unless there is still another stipulation
to the contrary. In the instant case, the petitioner was given a
grace period to pay the premium but the period having expired
with no payment made; he cannot insist that the respondent is
nonetheless obligated to him.

Moreover, the parties in this case had stipulated: [T]his insurance

will be deemed valid and binding upon the respondent (Capital
Assurance) only when the premium and documentary stamps
therefor have actually been paid in full and duly acknowledged in
an official receipt signed by an authorized official/representative of
the respondent (Capital Assurance).

An insurer is entitled to payment of premium as soon as the thing

insured is exposed to the perils insured against, unless there is
clear agreement to grant credit extension for the premium due. No
policy issued by an insurance company is valid and binding unless
and until the premium thereof has been paid.

107 MAKATI TUSCANY CONDOMINIUM CORPORATION v CA

Sec 77
An insurer is entitled to the payment of the premium as soon as the thing
is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy whenever
the grace period provision applies."
FACTS:
1. 1982: Private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in
favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) an
insurance on Tuscanys building and premises, for a period 1 March 1982
1 March 1983 , with a total premium of P466,103.05. The premium was
paid on installments, all of which were accepted by private respondent.
2. 1983: AHAC issued to petitioner replaced and renewed the previous
policy, for a term covering 1 March 1983 to 1 March 1984. The premium
was again paid on installments. All payments were likewise accepted.

3. 1984: the policy was again. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent. Thereafter,
petitioner refused to pay the balance of the premium.
4. Private respondent filed an action to recover the unpaid balance of
P314,103.05.
5. Petitioner explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor and the
receipts for the installment payments covering the policy for 1984-85, as
well as the two (2) previous policies, stated the following reservations:
"2. Acceptance of this payment shall not waive any of the company rights
to deny liability on any claim under the policy arising before such
payments or after the expiration of the credit clause of the policy; and
"3. Subject to no loss prior to premium payment. If there be any loss such
is not covered."
6. Petitioner further claimed that the policy was never binding and valid,
and no risk attached to the policy. It then pleaded a counterclaim and
sought the refund of the premium payments.
7. TC: dismissed the complaint and the counterclaim
8. CA: modified TC ruling and ordered to pay the balance of the premiums.
Issue: Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance pursuant to Sec 77
ISSUE: Whether or not payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in view of Sec. 77 of
P.D. 612, otherwise known as the Insurance Code.
RULING:
NO. The Supreme Court hold that the subject policies are valid even if the
premiums were paid on installments. The records clearly show that
petitioner and private respondent intended subject insurance policies to be
binding and efective notwithstanding the staggered payment of the
premiums. The initial insurance contract entered into in 1982 was renewed
in 1983, then in 1984. In those three (3) years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly,
basic principles of equity and fairness would not allow the insurer to
continue collecting and accepting the premiums, although paid on
installments, and later deny liability on the lame excuse that the premiums
were not prepared in full.
The Court, therefore, sustain the Court of Appeals. The court then quote
with approval the well-reasoned findings and conclusion of the appellate
court contained in its Resolution denying the motion to reconsider its
Decision
While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared
to rule that the request to make installment payments duly approved by
the insurer, would prevent the entire contract of insurance from going into
efect despite payment and acceptance of the initial premium or first
installment. Section 78 of the Insurance Code in efect allows waiver by the
insurer of the condition of prepayment by making an acknowledgment in

the insurance policy of receipt of premium as conclusive evidence of

payment so far as to make the policy binding despite the fact that
premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if an agreement is not contrary to
morals, good customs, public order or public policy (premiums are not
paid, but does not expressly prohibit an agreement granting credit
extension, and such De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not so
proscribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.

Hence, no full payment, no efect of insurance contract.

Partial payment of premium must be taken as a deposit to be held in

trust by the insurer.

Exceptions only when insurance coverage relates to life or industrial

life when grace period applies, or when insurer makes a written
acknowledgement of receipt of premium as conclusive evidence of
premium payment.

108 Sps. Tibay and Violeta Tibay v. CA

This case is diferent from the 1967 Philippine Phoenix Surety and
Insurance Inc. v. Woodworks, Inc. case.

Facts:
o

In this case there is a specific stipulation that the policy is not

in force until the premium has been fully paid and duly
receipted by the Company.

By this express agreement of the parties, no vinculum juris or

bond of law was to be established until full payment was
efected prior to the occurrence of the risk insured against.

The building owned by Tibays and/or Roraldos was insured for P600K
covering the period from Jan. 23 1987 to 1988 under Fortune Life and
General Insurance Co (Fortune).

By January 23, 1987, only P600 of the total P2,983.50 premium was
paid.

On March 8, 1987, the building caught on fire.

Two days later, Mar. 10, 1987, Tibay paid remaining balance of
premium and also filed a claim from Fortune on the same day.

In the said case, the parties mutually agreed that the premium
may be paid in installments, which they did for 3 years.

Fortune rejected claims, saying insurance was not binding because of

partial payment.

Thus, the Court refused to invalidate the insurance policy.

RTC ruled in favor of Tibay and adjudged Fortune liable for the total
value of the insured building and personal properties in the amount of
P600,000 plus interest and attorneys fees.

This case is also diferent from the case of

Condominium Corp. v. Court of Appeals.

Makati

Tuscany

J. Vitugs Dissent:
1

The law neither requires nor measures the strength of the vinculum by
any specific amount of premium payment. It is either a juridical tie
exists or it is not extant at all.

Acceptance of insurer of partial payment creates the tie.

ISSUE: WON Fortune is liable under the subject fire insurance despite
partial payment of the premium. NO.

Insurance company should not be allowed to continue accept payment

without assuming the risk.

HELD/RATIO:No.

If not fully paid when loss occurs, legal compensation takes place ipso
jure.

CA reversed RTC decision, declared Fortune not liable to Sps. Tibay but
ordered Fortune to return the premium of P2,983.50 plus 12% interest
from March 10, 1987 until full payment.

The Policy states that it be deemed efective only when premiums

have been made in full.
109 UCPB General Insurance v. Masagana Telemart

Emergency Recit:
Masaganas properties were insured by UCPB General Insurance. The
period of coverage was from May 22, 1991-May 22, 1992. On June 13,
1992, a fire razed Masaganas properties. A month later, on July 14, 1992,
Masagana tendered a payment of premium in an attempt to renew the
policies. UCPB refused to answer for the damage because the loss occurred
after the policies already expired. SC held that UCPB because the
insurance policies already expired, and the attempt to tender payment
after the policies expired did not serve to renew the policies.
Facts:

UCPB answers that it was not liable the loss occurred (June 13, 1992)
after the policies already expired (May 22, 1992) and were not
renewed.

RTC ruled in favor of Masagana, ordering UCPB to pay

P225,753.95 to Masagana.

CA

CA affirmed the RTC decision.

Following alleged established practice, Masagana was allowed a 60-90

day credit term for the renewal of policies, and the acceptance of the
late premium payment suggested an understanding that premium
could be made later.

UCPB issued 5 fire insurance policies for Masagana Telemart, the period
of coverage being May 22 1991-May 22 1992.

Toward the end of the period, on March 1992, UCPB decided not to
renew the insurance policies.

April 6, 1992: UCPB gave formal notice to Masagana of the nonrenewal of the policies.

Held: NO. CA decision reversed.

June 13, 1992: A fire razed Masaganas property

July 13, 1992: Masagana presented UCPB with 5 managers checks

(worth P225,753.95) for the renewal of the policies. (Masagana did not
file a notice of loss of the properties)

Under Sec. 77 of the Insurance Code xxx no policy or contract of

insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid xxx

Parties may not agree expressly or implied on an extension of credit or

time to pay the premium nor may they consider the policy binding
before actual payment.

Since the policies expired on May 22, 1992 and such policies were not
extended, the damage caused by the fire on June 13, 1992 was not
covered.

The alleged payment of premiums on July 14, 1992 did not serve to
renew the expired policies.

Issue: Was there insurance coverage during the time of the fire?

July 14, 1992: Masagana presented UCPB with its formal claim for
indemnification.

However,
because

UCPB

returned

Masaganas

Managers

checks,

The policies already expired and were not renewed

The fire occurred on June 13, 1992, before the tender of

premium payment was made

110 UCPB v Masagana

RTC

Facts:

Masagana Telemart filed a complaint against UCPB for P18,645,000

(the face value of the insurance policies)

CA disagreed with UCPBs stand that Masaganas tender of payment of

the premiums on 13 July 1992 did not result in the renewal of the
policies, having been made beyond the efective date of renewal as
provided under Policy Condition No. 26:

Renewal Clause. Unless the company at least 45 days in

advance of the end of the policy period mails or delivers to the
assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal
upon reduction of limits or elimination of coverages, the
assured shall be entitled to renew the policy upon payment of
the premium due on the efective date of renewal.

4.

Section 78 allows waiver by the insurer of the condition of

prepayment and makes the policy binding despite the fact that
premium is actually unpaid. Section 77 does not expressly prohibit
an agreement granting credit extension. At the very least, both
parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted.

5.

The Tuscany case has provided another exception to Section 77

that the insurer may grant credit extension for the payment of the
premium. If the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration
of the term, recovery on the policy should be allowed even though
the premium is paid after the loss but within the credit term.

6.

Moreover, there is nothing in Section 77 which prohibits the parties

in an insurance contract to provide a credit term within which to
pay the premiums. That agreement is not against the law, morals,
good customs, public order or public policy. The agreement binds
the parties.

7.

It would be unjust if recovery on the policy would not be permitted

against Petitioner, which had consistently granted a 60- to 90-day
credit term for the payment of premiums. Estoppel bars it from
taking refuge since Masagana relied in good faith on such practice.
Estoppel then is the fifth exception.

The following facts have been established:

o

For years, UCPB had been issuing fire policies to th Masagana,

and these policies were annually renewed.

UCPB had been granting Masagana a 60-90-day credit term

within which to pay the premiums on the renewed policies.

There was no valid notice of non-renewal of the policies, as

there is no proof that the notice sent by ordinary mail was
received by Masagana, and the copy allegedly sent to Zuellig
was ever transmitted to Masagana.

The premiums for the policies were paid by Masagana within

the 60- 90-day credit term and were duly accepted and
received by UCPBs cashier.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly

applied to Petitioners advantage despite its practice of granting a 60- to
90-day credit term for the payment of premiums.- NO
Ratio:
1.

2.

3.

Section 77 of the Insurance Code provides: No policy or contract of

insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid
An exception to this section is Section 78 which provides: Any
acknowledgment in a policy or contract of insurance of the receipt
of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until premium is actually paid.
In Makati Tuscany v Court of Appeals- Section 77 may not apply if
the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss.

111 AMERICAN HOME INSURANCE v. CHUA (1999)

Facts:
1

In 1990, Antonio Chua obtained a fire insurance policy over its

stock in trade in its business, Moonlight Enterprises, with American
Home Insurance. The insurance was to expire on March 25 1990.

On April 5, 1991, James Uy, insurers agent, received a check from

Chua as payment for the renewal of the policy. A Renewal
Certificate was delivered to Chua.

The next day Moonlight Enterprises was completely razed by fire

with a total loss estimated to be between 4M and 5M.

Chua filed a claim against American Home Insurance and four

other insurers.

American Home Insurance raised the following defenses: no

existing contract of insurance at the time of the fire since there
was no payment of premium because the check has no efect of

payment until encashed; Chua violated several conditions of the

policy like submission of fraudulent tax returns, failure to establish
actual loss and failure to notify the insurer of other insurances on
the stock in trade.
6

RTC ruled in favor of Chua. There was payment by check and the
same was deposited in insurers bank account and the failure to
give notice of other insurances was not intentional or fraudulent.

Ca affirmed the RTC in toto.

In this petition, American Home Insurance invokes sec.77 of the

Insurance Code: An insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid,
except in the case of life or an industrial life policy whenever the
grace period provision applies.

The renewal certificate issued to respondent contained the

acknowledgment that premium had been paid. Section 306 of the
Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker
shall be deemed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of
insurance. American Home Insurance is bound by its agent's
acknowledgment of receipt of payment.

An acknowledgment in a policy or contract of insurance of the receipt of

premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid. (Sec.78, Insurance Code)
2

Issue:
1

Whether there was a valid payment of premium, considering that

respondent's check was cashed after the occurrence of the fire.
YES.

Whether respondent violated the policy by his submission of

fraudulent documents and non-disclosure of the other existing
insurance contracts. NO.

Whether respondent is entitled to the award of damages. NO.

Indeed, respondent acquired several co-insurers and he failed to disclose

this information to petitioner. Nonetheless, petitioner is estopped from
must invoking this argument because it was known to the loss adjuster of
the petitioner.
3

Ruling:
1

The general rule in insurance laws is that unless the premium is

paid the insurance policy is not valid and binding. The only
exceptions are life and industrial life insurance.

The trial court found, as affirmed by the Court of Appeals, that there was a
valid check payment by respondent to petitioner. Well-settled is the rule
that the factual findings and conclusions of the trial court and the Court of
Appeals are entitled to great weight and respect, and will not be disturbed
on appeal.

The alleged fraudulent documents were Chua's income tax returns

for 1987 to 1989. Respondent, however, presented a BIR
certification that he had paid the proper taxes for the said years.
The trial court and the Court of Appeals gave credence to the
certification and it being a question of fact, we hold that said
finding is conclusive.

No legal and factual basis for 200k award for loss of profit because
what was insured was the stock in trade and not the expected loss
or income.

Moral damages not proper because American Home Insurance did not act
in bad faith or fraudulently. Exemplary damages should not be awarded
because there was no showing that American Home Insurance acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner. 50k
attorneys fees excessive reduced to 10k.

112 GREAT PACIFIC LIFE INSURANCE CORPORATION VS. COURT OF

APPEALS and TEODORO CORTEZ

Facts:
1
2
3

5
6

113 Paris-Manila Perfume Co vs Phoenix Assurance Co

Teodoro Cortez, upon the solicitation of Mrs. Siega, applied for a
20-year endowment policy for P30,000, and his application was
accepted and approved. Thus, a policy was issued in his name.
The efective date indicated on the face of the policy was
December 25, 1972.
The annual premium was P1,416.60. Mrs. Siega assured him that
the first premium may be paid within the grace period of thirty (30)
days from date of delivery of the policy. The first premium of
P1,416.60 was paid by him in three (3) installments.
In a letter date June 1, 1973, insurer advised Teodoro that the
policy was not in force, and to make in enforceable and operative,
he must remit the balance of P1,015.60 to complete the initial
annual premium due December 15, 1972, and to see Dr. Remollo
for another full medical examination at his own expense.
Teodoro immediately informed the insurer that he was cancelling
the policy and demanded the return of his premium plus damages.
Insurer ignored the demand. Teodoro filed a complaint for damages
praying for the refund, moral damages and attys fees. TC granted.
CA affirmed.

FACTS:
1. Paris is a corporation engaged in manufacture of perfume and toiletries.
Phoenix is an insurer organized under Great Britain, and engaged in fire
insurance in PH.
2. On May 22, 1924, Phoenix issued a fire insurance to Paris in the sum of
P13K on its property in Cavite, with the knowledge that Paris is also insured
by 2 other insurance companies for the amount of P12K and P5K.
3. On July 4, 1924, the property was totally destroyed by fire. Paris filed a
claim against Phoenix for the loss, which was denied on the ground that
the fire was caused by an explosion and fire caused by an explosion is not
one of the risks covered in the policy. Further, Phoenix claims that the
policy was issued to one Peter Johnson, and not to Paris. The third reason
given was that there was fraud in the claim because of a discrepancy in the
quantity and value of the insured property at the time of fire. Fourth reason
is that the fire was caused by the willful act of Peter Johnson himself.

Issue: WON Teodoro is entitled to a refund YES

4. Lower court ruled in favor of Paris. Hence, this appeal.

Ruling:

ISSUES:
1. WON the policy was issued to Peter Johnson or Paris-Manila Perfume Co
2. If the insurer denies the claim of the insured, to whom does the burden
of proof shift?

When the petitioner advised private respondent on June 1, 1973,

four months after he had paid the first premium, that his policy had
never been in force, and that he must pay another premium and
undergo another medical examination to make the policy efective,
the petitioner committed a serious breach of the contract of
insurance
if the premium paid by Cortez was unacceptable for being late, it
was the companys duty to return it. By accepting his premiums
without giving him the corresponding protection, the company
acted in bad faith.

Since his policy was in fact inoperative or inefectual from the

beginning, the company was never at risk, hence, it is not entitled
to keep the premium.

The award of moral damages was also proper because he must

have sufered moral shock, serious anxiety and wounded feeling
upon being informed that the policy was in fat worthless even after
paying the premium.

HELD:
1. The policy was issued to Paris-Manila Co
2. The burden of proof of the cause of fire shifted to the insurer, Phoenix
Assurance
RATIO:
1. On the first issue, it can readily be seen that the policy was issued for
Paris, as contained in the provision, to wit:
"This Policy of Insurance Witnesseth. That in consideration of Messrs.
Paris-Manila Perfumery Co. (Peter Johnson, Prop.), Cavite, P. I.,
hereinafter called the insured paying to the Phoenix Assurance
Company, Limited, hereinafter called the company, the sum of pesos two
hundred ninety-two and 50/100, Philippine currency."
Further, the premiums were paid using company checks and were signed
by Peter Johnson, the owner.
2. As regards the cause of fire, it was not proven nor was there any
sufficient evidence that was presented by Phoenix that the fire was caused

by the explosion. The testimonies of Peter Johnson and Francisco Banta,

the only persons in the building at the time of fire, that they heard and
explosion and when they looked around, they saw fire, is conclusive. There
is no evidence that the fire was started before or after the explosion.

The factory was filled with essences and oils used in the manufacture of
perfume and with a quantity of alcohol and manufactured perfumes, all of
which are highly flammable. The fire may have started from any one of a
number of reasons. In the final analysis, there was a fire and the property
was destroyed. Its true that there was an explosion but that is only a
speculation, and upon that point, the burden of proof shifted to Phoenix.

the trial court absolved the defendant from the complaint with
respect to the obligation created by the policy, but ordered the
defendant to pay to the plaintif P11,731.93, with interest from the
filing of the complaint, upon account of moneys received from
salvage sales, conducted by the defendant, of remnants of the
insured stock. Plaintif appealed.

With respect to the insurance upon this stock at the time of the
fire, the following facts appear: In the month of June preceding the
fire, 9 policies aggregating P160K were taken out by Prats in the
name of Hanna, Bejar & Co. on merchandise stored at 95 Plaza
Gardenia.

At the time these policies were taken out the valuation of the
goods then in said store could not have been more than P68,753.
On June 28, 1924, Prats procured from the agent of the defendant
in this case policy insurance in the amount of P200K on
merchandise stored in the same place.

The 9 policies already procured had been taken out in the name of
Hanna, Bejar & Co.; but when Prats applied to the agent of the
defendant for the P200K policy last above mentioned, the agent
told him that if Hanna or Bejar had any interest in the stock to be
insured the policy could not be issued because the defendant
would not be able to obtain reinsurance for any part of the policy,
owing to the bad reputation of Hanna and Bejar.

Accordingly, at the request of Prats & Co.; and Prats at the same
time assured the agent that Hanna and Bejar were not partners in
Prats & Co. With the writing of this policy the amount of insurance
on the merchandise at 95 Plaza Gardenia was increased to P360K,
while the value of the stock at that time was not probably much in
excess of P158K.

10 days before the fire, Prats took out an additional policy for P50K
in the name of Prats & Co. on the same stock. This made a total
insurance of P410K on the contents of the store at 95 Plaza
Gardenia. At the time, according to Prats himself, the evaluation of
the merchandise then in the place was not in excess of P230K.
Furthermore, Prats, about this time, caused the first 9 policies
which had been taken out in the name of Hanna, Bejar & Co. to be
indorsed to Prats & Co., thereby making this firm the sole insured
firm with respect to this stock of merchandise.

This fact was ofered in evidence by the defendant, as tending to

reveal a scheme by which, if a destructive fire should occur, the

Phoenix relied on Sec 6 of its policy where it contained that (h) Loss or
damage occasioned by explosion; but loss or damage by explosion of gas
for illuminating or domestic purposes in a building in which gas is not
generated and which does not form part of any gas works, will be deemed
to be loss by fire within the meaning of this policy. However, Paris
countered using Sec 5 of the same policy where is states that (1)
Earthquake, hurricane, volcanic eruption or other convulsion of nature, and
the company shall not be liable for loss or damage arising during or within
a reasonable time after any of the said occurrences, unless it be proved
by the insured to the satisfaction of the company that such loss or
damage was not in any way occasioned by or through or in
consequence of any of the said occurrences.

oath to the defendant a fraudulent claim of loss, in contravention

of the express terms of the policy.

Sec 6 excludes only the damages which are direct result of the explosion,
but it does not except the damages occurred from the fire occurring after
the explosion. It would have been a complete defense if Phoenix presented
evidence that the fire resulted from an explosion, but Phoenix failed to
satisfy the burden of proof that shifted to it.
114 PRATS & COMPANY vs. PHOENIX INSURANCE COMPANY

FACTS:
1

Plaintif Prats & Co., a mercantile partnership, sued defendant

Phoenix Insurance Co., for the purpose of recovering from the
Phoenix Insurance Co., of Hartford, Connecticut, the sum of
P117,800.60, with interest, by reason of a loss alleged to have
been sustained by the plaintif, on August 21, 1924, from a fire, it
being alleged that said loss was covered by policy of insurance No.
600217, for the sum of P200K, issued by the defendant company
to the plaintif.
For answer, Phoenix Insurance Co., admitted the insurance of the
policy of insurance but, by way of special defense, alleged, among
other things, that the fire in question had been set by Prats & Co,
or with its connivance, and that Prats & Co had submitted under

plaintif would be able to mislead the defendant as to the quantity

of goods stored in the bodega. This item of proof, though
circumstantial in its nature, was undoubtedly competent and
should have been admitted by the trial court.

ISSUE: Can plaintif recover from Phoenix Insurance Company defendant

for the sum of P117,800.60, with interest, by reason of a loss alleged to
have been sustained by the plaintif (NO)
HELD:

The insurance policy was held to have been avoided by the

connivance of the insured in setting fire to the insured goods and
the submission by the insured of fraudulent proof of loss.

The proof submitted by the defendant tends to show that obscure

manipulations were used by the plaintif in the storing of
merchandise at 95 Plaza Gardenia and in the removal of part of the
contents of the bodega before the fire. If overinsurance and the
assemblage of goods at inflated values in the bodega at 95 Plaza
Gardenia, together with the surreptitious abstraction of goods
therefrom by the insured, have suggested a possible intention on
the part of its manager to realize improperly on its insurance
policies, this inference is, in our opinion, but beyond reach of
reasonable doubt by facts relative to the destruction of the place.
After the fire that a special investigation was made by the police
department with the result that Deputy Chief Lorenzo came to the
conclusion that the fire had originated from an intentional act.
Reflection upon the proof before the court engenders in us the
same belief and conducts us to the further conclusion that Prats &
Co. was not alien to the deed.

The finding of the TC in the efect that the plaintif had submitted
false proof in the support of his claim is well founded. That
conclusion appears to have been based upon three items of proof,
and with respect to at least two of these, we think that the
conclusion of his Honor was correctly drawn. These two facts are,
first, that the plaintif had submitted a claim for jewelry lost in the
fire as of a value of P12,800 when the rule value of said jewelry
was about P600; and, secondly, that the plaintif had sought to
recover from the insurance company the value of goods which had
been surreptitiously withdrawn by it from the bodega prior to the
fire. Neither of these two facts are consistent with good faith on the
part of the plaintif, and each constituted a breach of the
stipulations of the policy against the use of fraudulent devices and
false proof with respect to the loss.

The other point relied upon to sustain the conclusion that the
plaintif had attempted to deceive the defendant with respect to
the extent of the loss: After the fire the plaintif presented to the
adjuster certain cost sheets and copies of supposed invoices in
which the prices and expenses of importation of a quantity of
goods were stated at double the true amount. The adjuster soon
discovered the artificial nature of these documents, and, with his
consent, they were withdrawn by Prats and subsequently
destroyed. At the hearing Prats stated that these documents had
been fabricated in order that they might be exhibited to intending
purchasers of the goods, thereby making it appear to them that
the cost of the merchandise had been much greater than it in fact
was a rise which is supposed to have been entirely innocent or
at least not directed against the insurer. But a question naturally
arises as to the purpose which these documents might have been
made to serve if the fire, as doubtless intended by its designers,
had been so destructive as to remove all vestiges of the stock
actually involved. Upon the whole we are forced to state the
conclusion, not only that the plaintif caused the fire to be set, or
connived therein, but also that it submitted fraudulent proof as the
trial judge found.

115 East Furniture v Globe & Rutgers Fire, L-35848, 57 Phil 576
(1929)

FACTS:
3 actions were instituted in the CFI to recover 3 fire insurance policies
aggregating P20,000. The complaints alleged that the plaintif is engaged
in the sale of furniture; that the defendant is an insurance business; that
the plaintif insured against fire the articles existing in its establishment
situated at Nos. 626 and 628 Rizal Avenue, Manila; that the insurance
policies issued by the defendants, respectively, were: Globe & Rutgers,
P5,000; Commercial Union, P5,000; and The Continental, P10,000; that on
March 2, 1929, a fire broke out in plaintif's establishment, as a result of
which the insured articles therein found were destroyed by the fire; that
within the period marked in the policies the plaintif presented to the
insurance companies an inventory of the insured furniture which was
destroyed by the fire, the value of which, before or at the time of the fire,
amounted to P52,061.99; and that of the furniture destroyed by the fire
some was saved, of the value of P5,000, more or less.
The defendants alleged (1) that the fire in question was of intentional
origin; (2) that the claims of loss presented by the plaintif were false and
fraudulent; (3) that the furniture in question had been mortgaged by the
plaintif to the Manila Finance and Discount Corporation, so that at the time
of the fire the plaintif was not the only party interested therein, contrary to
the representations made in its claims of loss; and (4) that the plaintif
violated one of the conditions of the policies by refusing to furnish the

defendants with a physical inventory of the contents of its store at the time
of the fire.

he came out of the building and said to him: "You have set fire to the
building."

CFI found the claims to be notoriously fraudulent, and accordingly,

sustained defendant's and dismissed the complaint in each of the three
cases, with costs against the plaintif. As to the first special defense,
referring to the origin of the fire, the trial judge merely said that "altho
much might be said against the manager of the plaintif corporation it is
not necessary to make a detailed analysis of the proofs with respect to the
fire, inasmuch as for the purposes of this decision a consideration of the
second special defense is sufficient." The trial court overruled the third and
fourth special defenses. From that judgment, the plaintif appealed.

We are thus led to the conclusion that defendants' first special defense is
well founded that the fire in question was of intentional origin and was
caused with the connivance of the plaintif. Neither the interest of the
justice nor public policy would be promoted by an omission of the courts to
expose and condemn incendiarism once the same is established by
competent evidence. It would tend to encourage rather than suppress that
great public menace if the courts do not expose the crime to public
condemnation when the evidence in a case like the present shows that it
has really been committed.

ISSUES:
(1) W/N the fire in question was of intentional origin. YES.
(2) W/N the claims of loss were fraudulent. YES

(2) We may also consider the damage caused by the fire in relation with
defendant's second special defense that plaintif's claims of loss were false
and fraudulent.

HELD/RATIO:
(1) With reference to the origin of the fire, the evidence shows that it
started at about 9.55 p. m. in the second floor of the building which was
occupied by the plaintif as office and workshop. That floor was constructed
of wood, with a galvanized iron roof. Immediately after the fire was
extinguished Captain Lorenzo, the deputy chief of the fire department,
investigated its origin and found in the second floor three cans containing
gasoline and kapok saturated with gasoline. For this reason, in his official
report of that fire, he stated the cause to be: "Suspected incendiary.
Intentional. Preventable."

To each of the proofs of loss which the plaintif presented to the respective
insurance companies four days after the fire was attached an inventory of
the furniture claimed to have been in the building at the time of the fire.
This inventory contains 506 pieces of furniture and 3,700 board
feet of lumber of the alleged total value of P52,061.99. This
amount was the total loss claimed to have been suffered by the
plaintiff, although we note that in its complaints in these cases
amended it is conceded that some furniture of the value of about
P5,000 was saved.
To support the validity of this inventory Filoteo Miranda testified that he
had taken the date appearing therein from his books of account. Neither he
nor any other witness testified as to the correctness of the prices therein
set forth, and it was not even shown whether they were costs prices or
selling prices. But a comparison between the prices listed in the inventory
of all of plaintif's stock, supposed, to have been taken on or as of
December 31, 1928, and those listed in the list of furniture sold by the
plaintif from January 4, 1929, to the date of the fire tends to show that the
value claimed against the insurance companies is much higher
than the selling price. An examination of this document reveals that the
settees therein listed are valued by the plaintif at from P32.50 to P110
each.

Filoteo Miranda, the proprietor and manager of the East Furniture Store,
made no attempt to deny the presence of three cans of gasoline and kapok
saturated with gasoline. It also appears from the record that in connection
with the fire in question the said Filoteo Miranda caused one Eugenio Lim
Pineda to be prosecuted for calumny, alleging that the latter had imputed
to the former the commission of a crime, namely, that Miranda had caused
his store to be burned or ordered a certain person to set it on fire. Pineda
was acquitted by the CFI on the ground that it was proven that the
imputation made by him against Miranda was true.
The said Eugenio Lim Pineda testified at the trial of these cases that he had
known Miranda for about fifteen years; that about six months before the
fire in question, Miranda intimated to him that he (Miranda) intended to
burn the East Furniture Store because it was on the verge of bankruptcy;
that he communicated this information to attorney Eriberto de Silva, who
in turn communicated it to his friend Aurelio Periquet, an insurance agent,
and the latter thereupon caused one of the policies issued by Smith, Bell
& Co. to be cancelled; that on the night of the fire he saw Garcia, the
cashier of the plaintif enter the back door of the building in question, and
that ten minutes later the building burned; that witness called Garcia when

The only book the plaintif produced and ofered in evidence to support
Miranda's testimony as to the validity of the inventory in question appears
to be a new book because only the first six pages of which contain entries,
the first page consisting of a testament of assets and liabilities as of
December 31, 1928, and the second to the sixth pages consisting of a list
of furniture and its price, from which list the inventory in question appears
to have been copied. The remaining 194 pages of said book are entirely
blank. This seems to us significant in view of Miranda's testimony that at
the end of the two preceding years, 1927 and 1926, he took a physical
inventory similar to that, and in view of his inability to account for the
whereabouts of those alleged previous inventories. Thus, the book is not

genuine but was evidently prepared by the plaintif for the purpose of
bolstering up its claim against the insurance companies.
Turning now to the evidence for the defense, we find from the
uncontradicted testimony of Captain Lorenzo, who had directed the task of
extinguishing the fire, that it lasted only twelve minutes and caused no
damage to the first floor of the building were most of the insured furniture
was located. Said witness also testified that he found but few pieces of
furniture in the second floor and that he believed none had been
completely burned.
Regardless of any difference of opinion as to the value of the
insured furniture and the extent of the damage caused thereto by
the fire in question, the fact that the insured only had
approximately 202 pieces of furniture in the building at the time
of the fire and sought to compel the insurance companies to pay
for 506 pieces conclusively shows that its claim was not honestly
conceived. The trial court's conclusion that said claim is notoriously
fraudulent, is correct.

3.

On July 1, 1989, at or about 12:40 a.m., the respondents building

located at Brgy. Diatagon, Lianga, Surigao del Sur was gutted by
fire resulting in the total loss of the respondents stocks-in-trade,
pieces of furnitures and fixtures, equipments and records.

4.

So, the respondent filed an insurance claim submitting as

evidence:

5.

Condition 12 of each of the insurance policies sued upon provides

that "if the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this policy; or, if
the loss or damage be occasioned by the willful act, or with the
connivance of the Insured, all benefit under this policy shall be
forfeited."
116 COUNTRY BANKERS INSURANCE CORPORATION vs. LIANGA BAY
AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC.

2.

the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator

b.

the Sworn Statement of Jose Lomocso; and

c.

the Sworn Statement of Ernesto Urbiztondo.

The petitioner, however, denied the insurance claim on the ground

that, based on the submitted documents, the building was set on
fire by two (2) NPA rebels who wanted to obtain canned goods, rice
and medicines as provisions for their comrades in the forest, and
that such loss was an excepted risk under paragraph No. 6 of the
policy conditions, which provides:
a.

That the insurance does not cover any loss or damage

occasioned by or through or in consequence of: (d) Mutiny,
riot, military or popular uprising, insurrection, rebellion,
revolution, military or usurped power.

b.

Any loss or damage happening during the existence of

such shall be deemed to be loss or damage which is not
covered by this insurance, except to the extent that the
Insured shall prove that such loss or damage happened
independently of the existence of such abnormal
conditions.

6.
Petitioner is a domestic insurance corporation while the respondent
is a duly registered cooperative judicially declared insolvent and
represented by the elected assignee, Cornelio Jamero.

With this, the respondent then instituted in the trial court the
complaint for recovery of loss, damage or liability against
petitioner.

7.

The petitioner, in its answer, reiterated the ground it earlier cited

to deny the insurance claim.

Sometime in 1989, the petitioner and the respondent entered into

a fire insurance contract.

8.

The trial court rendered its Decision in favor of the cooperative,

and ordering defendant-Country Bankers to pay.

9.

The insurance company filed an appeal to the Court of Appeals

which affirmed the challenged decision of the trial. Hence, this
petition.

FACTS:
1.

a.

a.

Under the Policy, the petitioner insured the respondents

stocks-in-trade against fire loss, damage or liability during
the period starting from June 20, 1989 at 4:00 p.m. to June
20, 1990 at 4:00 p.m., for the sum of P200,000.00.

ISSUE: WON the insurance claim should be granted YES, because the
insurance company failed to show that the loss in this case was in fact
covered in the excepted risks

RULING: The appealed Decision is MODIFIED. The interest rate shall be

(6%) per annum computed from the date of filing of the Complaint in the
trial court because the claim is not a forbearance of money, goods, or
credit. Other monetary awards by the TC are DELETED because these had
no legal basis. Costs against the petitioner.
117 HEIRS OF ILDEFONSO COSCOLLUELA SR., INC V RICO GENERAL
INSURANCE CORPORATION

RATIO:
1.

FACTS:
The petitioner argues that the cause of the loss was an excepted
risk under the terms of the fire insurance policy. Where a risk is
excepted by the terms of a policy which insures against other perils
or hazards, loss from such a risk constitutes a defense which the
insurer may urge, since it has not assumed that risk, and from this
it follows that an insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of proving
that the loss comes within the purview of the exception or
limitation set up. But petitioner failed to do so.

Petitioner is a domestic corporation and the registered owner of an

Isuzu KBD Pickup truck.

The vehicle was insured with the private respondent Rico General
Insurance Corporation for a consideration of P100,000.00 excluding
third party liability. The premiums and other expenses for
insurance paid covered the period from October 1, 1986 to October
1, 1987.

2.

The petitioner relied on the Sworn Statements of Jose Lomocso and

Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V.
Juarbal. But, the Sworn Statements are inadmissible in evidence,
for being hearsay, inasmuch as they did not take the witness stand
and could not therefore be cross-examined.

Within the period covered by the insurance, the insured vehicle

was severely damaged and rendered unserviceable when fired
upon by a group of unidentified armed persons at Hacienda Puyas,
Negros Occidental.

4
3.

The exceptions to the hearsay rule are not present in this case. To
be admissible in evidence, however, three (3) requisites must
concur:

Petitioner filed its claim of P80,000.00 for the repair of the vehicle
but private respondent, in a letter dated October 8, 1987, refused
to grant it. As a consequence, the petitioner was prompted to file a
complaint with the Regional Trial Court.

The private respondent filed a motion to dismiss alleging that the

complaint lacks a cause of action because the firing by armed men
is a risk excepted under the following provisions in the insurance
policy, alleging that the firing was an indirect consequence of
rebellion, insurrection or civil commotion.

The petitioner opposed the motion, saying that the quoted

provision does not apply in the absence of an official governmental
proclamation of any of the enumerated conditions.

RTC dismissed. MR denied. CA affirmed.

a.

that the entry was made by a public officer, or by another

person specially enjoined by law to do so;

b.

that it was made by the public officer in the performance of

his duties, or by such other person in the performance of a
duty specially enjoined by law; and

c.

4.

that the public officer or other person had sufficient

knowledge of the facts by him stated, which must have
been acquired by him personally or through official
information.

The 3rd requisite was not met in this case since no investigation,
independent of the statements gathered from Jose Lomocso, was
conducted by Pfc. Arturo V. Juarbal.

ISSUE: WON a dismissal on the ground of lack of cause of action is properNO

RULING:
1

Court found that the allegations set forth in the complaint

sufficiently establish a cause of action.
a

of the case, considering that the circumstances demand a factual

determination of whether the incident was a result of events falling
under the exceptions to the liability of private respondent
contained in the policy of insurance.

The facts as alleged clearly define the existence of a right

of the petitioner to a just claim against the insurer for the
payment of the indemnity for a loss due to an event
against which the petitioner's vehicle was insured.
The insurance contract mentioned therein manifests a right
to pursue a claim and a duty on the part of the insurer or
private respondent to compensate the insured in case of a
risk insured against.
The refusal of the insurer to satisfy the claim and the
consequent loss to the petitioner in incurring the cost of
acquiring legal assistance on the matter constitutes a
violation or an injury brought to the petitioner.

The private respondent's invocation of the exceptions clause in the

insurance policy, as the basis for its nonliability and the
consequent dismissal of the complaint, is without merit. The Court
reiterated the established rule that when the terms of an insurance
contract contain limitations on liability, the court should construe
them in such a way as to preclude the insurer from noncompliance
with his obligations.
A policy of insurance with a narration of exceptions tending to work
a forfeiture of the policy shall be interpreted liberally in favor of the
insured and strictly against the insurance company or the party for
whose benefit they are inserted.
The burden of proof to show that the insured is not liable because
of an excepted risk is on the private respondent. The Rules of Court
in its Section 1, Rule 131 provides that "each party must prove his
affirmative allegations." Where the insurer denies liability for a loss
alleged to be due to a risk not insured against, but fails to establish
the truth of such fact by concrete proofs, the Court rules that the
insurer is liable under the terms and conditions of the policy by
which it has bound itself.
In this case, the dismissal order without hearing and reception of
evidence to prove that the firing incident was indeed a result of a
civil commotion, rebellion or insurrection constitutes reversible
error on the part of the trial court as it was incumbent upon the
trial judge to have made a deeper scrutiny into the circumstances
of the case by receiving evidence instead of summarily disposing

118 FGU Insurance Corporation vs. Court of Appeals

Emergency Recit: While unloading cases of beer in San Jose, Antique, the
barge D/B Lucio owned by ANCO was destroyed by typhoon Sisang. As
such, San Miguel Corporation sued ANCO for damages and breach of
contract. ANCO invoked the defense of fortuitous event but the Court did
not sustain the same. The Court found that ANCO was negligent because:

The barge D/B Lucio had no engine of its own and could not
maneuver by itself. Yet M/T ANCO left it to fend for itself
notwithstanding the fact that signs of the impending storm were
already manifest.

The records show that the D/B Lucio was the only vessel left at San
Jose, Antique, during the time in question.

To be exempted from responsibility, the natural disaster should have been

the proximate and only cause of the loss. There must have been no
contributory negligence on the part of the common carrier.
The Court also held that when evidence show that the insureds negligence
or recklessness is so gross as to be sufficient to constitute a willful act, the
insurer must be exonerated. As such, ANCO could not claim against its
insurer FGU.
Facts:

Anco Enterprises Company (ANCO), a partnership between Ang Gui

and Co To, was engaged in the shipping business. It owned the M/T
ANCO tugboat and the D/B Lucio barge which were operated as
common carriers. Since the D/B Lucio had no engine of its own, it
could not maneuver by itself and had to be towed by M/T ANCO for
it to move from one place to another.

San Miguel Corporation (SMC) shipped from Mandaue City, Cebu,

on board the D/B Lucio, a total of 40,550 cases of Pale Pilsen and
Cerveza Negra.

When the barge and tugboat arrived at San Jose, Antique, the
clouds over the area were dark and the waves were already big
(referring to Typhoon Sisang). By that time, only the D/B Lucio was

left at the wharf as all other vessels already left to seek shelter.
With the waves growing bigger and bigger, only 10,790 cases of
beer were discharged into the custody of the arrastre operator.

Later that evening, the crew of D/B Lucio abandoned the vessel
because the barges rope attached to the wharf was cut of by the
big waves. At around midnight, the barge run aground and was
broken and the cargoes of beer in the barge were swept away.
ANCO failed to deliver 29,210 cases of Pale Pilsen and Five
Hundred Fifty 550 cases of Cerveza Negra which amounted to
P1,346,197.00. As such, SMC filed a complaint for Breach of
Contract of Carriage and Damages against ANCO. Upon Ang Guis
death, ANCO, as a partnership, was dissolved hence, SMC filed a
second amended complaint impleading the surviving partner, Co To
and the Estate of Ang Gui.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza
Negra mentioned in the complaint were indeed loaded on the
vessel. It claimed however that it had an agreement with SMC that
ANCO would not be liable for any losses by reason of fortuitous
event.
ANCO further asserted that there was an agreement between them
and SMC to insure the cargoes in order to recover indemnity in
case of loss. Pursuant to that agreement, the cargoes to the extent
of 20,000 cases was insured with FGU Insurance Corporation (FGU).

total loss of the entire shipment;

loss of any case as a result of the sinking of the vessel; or

loss as a result of the vessel being on fire.

With respect to the Third-Party complaint, the court a quo

found FGU liable to bear Fifty-Three Percent (53%) of the
amount of the lost cargoes.

The appellate court affirmed in toto the decision of the

lower court.

CA:

Issue:
1

Whether or not the negligence of ANCOs representatives was the

proximate cause of the loss;

Whether or not FGU can be held liable to reimburse ANCO despite

the finding that such loss was occasioned by the blatant
negligence of the ANCOs employees.

Held:
1

Whether or not the negligence of ANCOs representatives was the

proximate cause of the loss - YES

ANCO, with leave of court, filed a Third-Party Complaint against

FGU. FGU admitted the existence of the Insurance Policy but
maintained that the alleged loss of the cargoes was not a risk
insured against. According to FGU, it is only liable for:
o

A careful study of the records shows no cogent reason to fault the

findings of the lower court, as sustained by the appellate court,
that ANCOs representatives failed to exercise the extraordinary
degree of diligence required by the law to exculpate them from
liability for the loss of the cargoes.
o

ANCO admitted that they failed to deliver 29,210 cases

of Pale Pilsen and 550 cases of Cerveza Negra.

The barge D/B Lucio had no engine of its own and could
not maneuver by itself. Yet M/T ANCO left it to fend for
itself notwithstanding the fact that signs of the
impending storm were already manifest.

The records show that the D/B Lucio was the only vessel
left at San Jose, Antique, during the time in question.

RTC:
o

The trial court found that while the cargoes were lost due
to fortuitous event, there was failure on ANCOs part to
observe the degree of diligence required that would
exonerate them from liability. The trial court thus held the
Estate of Ang Gui and Co To liable to SMC.

The Civil Code provides:

o

Art. 1733. Common carriers, from the nature of their

business and for reasons of public policy are bound to
observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported

by them, according to all the circumstances of each

case.

failure to exercise the extraordinary degree of diligence mandated

by law.

Such extraordinary diligence in vigilance over the goods

is further expressed in Articles 1734, 1735, and 1745
Nos. 5, 6, and 7

Art. 1734. Common carriers are responsible for the loss,

destruction, or deterioration of the goods, unless the
same is due to any of the following causes only:

Whether or not FGU can be held liable to reimburse ANCO despite the
finding that such loss was occasioned by the blatant negligence of the
ANCOs employees NO.

One of the purposes for taking out insurance is to protect the

insured against the consequences of his own negligence and that
of his agents. Thus, it is a basic rule in insurance that the
carelessness and negligence of the insured or his agents constitute
no defense on the part of the insurer. This rule however
presupposes that the loss has occurred due to causes which could
not have been prevented by the insured, despite the exercise of
due diligence.

When evidence show that the insureds negligence or recklessness

is so gross as to be sufficient to constitute a willful act, the insurer
must be exonerated. The ordinary negligence of the insured and
his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is
the proximate cause of the loss, does not absolve the insurer from
liability. But willful exposure, gross negligence, negligence
amounting to misconduct, etc., have often been held to release the
insurer from such liability

ANCOs representatives had failed to exercise extraordinary

diligence required of common carriers in the shipment of SMCs
cargoes. Such blatant negligence of is of such gross character that
it amounts to a wrongful act which must exonerate FGU from
liability under the insurance contract.

(1) Flood, storm, earthquake, lightning, or other natural

disaster or calamity;

Art. 1739. In order that the common carrier may be

exempted from responsibility, the natural disaster must
have been the proximate and only cause of the loss.
However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and
after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or
deterioration of the goods . . .

Caso fortuito or force majeure by definition, are extraordinary

events not foreseeable or avoidable, events that could not be
foreseen, or which though foreseen, were inevitable.
In this case, the calamity which caused the loss of the cargoes was
not unforeseen nor was it unavoidable. In fact, the other vessels in
the port of San Jose, Antique, managed to transfer to another
place.
The D/B Lucio had no engine and could not maneuver by itself. The
captain of the tugboat should have had the foresight not to leave
the barge alone considering the pending storm.

WHEREFORE, premises considered, the Decision is hereby AFFIRMED with

MODIFICATION.
119 MALAYAN v. CRUZ ARNALDO -- SUPRA
FACTS:

While the loss of the cargoes was admittedly caused by the

typhoon Sisang, ANCO could not escape liability because of its

To be exempted from responsibility, the natural disaster should

have been the proximate and only cause of the loss. There must
have been no contributory negligence on the part of the common
carrier.

June 7, 1981 -- the Malayan Insurance Co (MICO) issued to the private

respondent, Coronacion Pinca, fire insurance policy on her property for
the amount of P100,000.00, efective July 22, 1981, until July 22, 1982

MICO allegedly cancelled the policy for non-payment, of the premium

and sent the corresponding notice to Pinca

However, it appeared that the payment of the premium for Pinca was
received by Domingo Adora, agent of MICO

Adora remitted this payment to MICO, together with other payments

January 18, 1982 -- Pinca's property was completely burned.

February 5, 1982 -- Pinca's payment was returned by MICO to Adora on

the ground that her policy had been cancelled earlier. But Adora
refused to accept it

In due time, Pinca made the requisite demands for payment, which
MICO rejected. She then went to the Insurance Commission, which
sustained her claim.

Hence, the petitioner came to the Supreme Court for relief.

MICO: argued that -- there was no payment of premium and that the
policy had been cancelled before the occurrence of the loss

suggests that Pinca knew the policy had already been cancelled
and that when she paid the premium on December 24, 1981, her
purpose was "to renew it," As this could not be done by the agent
alone under the terms of the original policy

had not been informed of the cancellation either and saw no reason not to
accept the said payment.
The last point raised by the petitioner should not pose much
difficulty. The valuation fixed in fire insurance policy is conclusive, in case
of total loss in the absence of fraud, which is not shown here.
Loss and its amount may be determined on the basis of
such proof as may be offered by the insured, which need not be of
such persuasiveness as is required in judicial proceedings.
If, as in this case, the insured files notice and preliminary
proof of loss and the insurer fails to specify to the former all the
defects thereof and without unnecessary delay, all objections to
notice and proof of loss are deemed waived under Section 90 of
the Insurance Code.
The certification issued by the Integrated National Police, Lao-ang,
Samar, as to the extent of Pinca's loss should be considered sufficient.
Notably, MICO submitted no evidence to the contrary nor did it even
question the extent of the loss in its answer before the Insurance
Commission. It is also worth observing that Pinca's property was not the
only building burned in the fire that razed the commercial district of
Laoang, Samar, on January 18,1982
There is nothing in the Insurance Code that makes the participation
of an adjuster in the assessment of the loss imperative or indispensable, as
MICO suggests. Section 325, which it cites, simply speaks of the licensing
and duties of adjusters.
120 Yuq Ban Chuan v. Fieldmens Insurance Co.
FACTS:
1

Yu Ban Chuan was engaged in the wholesale dealing of general

merchandise and school supplies. At first, his business was located
at 612 Nueva Street, Manila.

He insured his merchandise against fire with Fieldmens Insurance

Co and Paramount. Surety & Insurance Co. also issued an open
policy.

When Yu Ban Chuan transferred its business establishment at 680

Muelle de Binondo, Fieldmens and Paramount agreed to have the
coverage of its insurance policy transferred to the same new
premises.

ISSUE:
Whether MICO could be held liable for Pincas loss. YES.
HELD:
A close study of the transcript of the case will show that Pinca
meant to renew the policy, if it had really been already cancelled, but not if
it was still efective. It was all conditional. As it has not been shown that
there was a valid cancellation of the policy, there was consequently no
need to renew it but to pay the premium thereon. Payment was thus
legally made on the original transaction and it could be, and was, validly
received on behalf of the insurer by its agent Adora. Adora, incidentally,

While both insurance policies were in full force and efect, Yu Ban
Chuans business establishment was destroyed by fire.

The next day after the occurrence of fire, Yu Ban Chuan verbally
notified the respective agents of the defendant insurer.

The adjusters (H.H Bayne and Manila Adjustment Co.) of the

defendant insurance company required Yu Ban Chuan to submit
certain papers and documents. However, Yu Ban Chuan failed to
submit the required documets. Until finally the defendants
insurance company rejected the claims and denied liability.

Yu Ban Chuan commenced suit in the Court of First Instance of

Manila.

In their defense, the insurance companies contend that Yu Ban

Chuan failed to prove the the loss claimed and that the claim was
false and fraudulent claim. They also invoked that the cause of fire
was intentional.

After trial, the court below upheld the claim of the plaintif, but
refused to award damages or interest at more than the legal rate.
Both parties appealed.

10 In proving the value of his loss, Yu Ban Chuan relied upon the
merchandise inventory, which he allegedly submitted to BIR. The
inventory reflected the total value of P328,202.67.

ISSUE: Whether the merchandise inventory submitted by Yu Ban Chuan can

be the basis of the of the actual value of the merchandise destroyed- NO
HELD:
The plaintif adheres to the inventory as the immaculate basis for the
actual worth of stocks that were burned, on the ground that it was made
from actual count, and in compliance with law. But this inventory is not
binding on the defendants, since it was prepared without their
intervention. It is well to note that plaintif had every reason to show that
the value of his stock of goods exceeded the amount of insurance that he
carried. And the inventory, having been made prior to the fire, was no
proof of the existence of these goods at the store when the fire occurred.
True, there were merchandise that were actually destroyed by. But when
fraud is conceived, what is true is subtly hidden by the schemer beneath
proper and legal appearances, including the preparation of the inventory.
Shielding himself under Section 82 of the Insurance Act, the plaintif
asserts that in submitting his proof of loss he was "not bound to give such
proof as would be necessary in a court of justice". The assertion is correct,

but does not give him any justification for submitting false proofs. Their
falsity is the best evidence of the fraudulent character and the
unmeritoriousness of plaintif's claim.
The filing of collection suits for unpaid purchases against Yu Ban Chuan,
however valid these may be, do not legitimize his fraudulent claim against
the insurers in the present case, nor show that the goods allegedly
delivered were at the store when the fire occurred. It is markworthy that in
some instances the debts are only attested by certifications from the
creditors.
121 GO LU v. YORKSHIRE INSURANCE COMPANY
FACTS:
1

Go Lu was a merchant engaged in the purchase and sale of bolt goods

in Manila. He occupied a bodega at Calle Jaboneros, also occupied by
Eastern Asia Commercial Company.

Northern Assurance Company and

Commercial Assurance
Company , for P10,000, and for a premium of P250, each insured Go
Lus stocks of goods in the bodega against loss from fire for one year.

A week later, the Yorkshire Insurance Company issued a policy on the

same goods for another P10,000 for the same period.

A week thereafter, Scottish Union and National Insurance Company

also issued a policy on the same goods for P10,000 for a period of one
year.

While all 4 policies were in force, a fire occurred in that portion of the
building occupied by the Eastern Asia Commercial Company, resulting
in a loss and damage to the Go Lus goods, which were insured.

At the time of the fire, Go Lu claims that he had 66 case of bolt goods
in the bodega -- total loss of 50 cases, total damage of the remaining
16 cases, the value of w/c is P14,102.27.

Hence, Go Lu filed an action against (1) Yorkshire, and (2) Scottish, in

which he seeks to recover from each of them the full amount of their
respective policies. Go Lu claimed that the value of the 66 cases is
P51,427.96, and that, after deducting the salvage value, his net loss
was P44,539.96, and that the total amount of insurance w/c he should
receive under the four policies was P33,492.40.

To prove the number of cases in the building, Go Lu introduced in

evidence certain original books of entry w/c were in Chinese, together
with a translation into Spanish. It appears therein that:

March 1919: 50 cases in stock

In April, May, and June, he bought 87 cases; Total of 137 cases,

were delivered to, and placed in this particular bodega, or that when
sold, they were taken from, and out of, that bodega.

The fire alarm was promptly turned on, and the fire department
reached the building within two or three minutes after the alarm, and
that period, it threw water on the remains of the building to prevent
the fire from spreading. All witnesses for both parties agree that after
the fire, there were about 16 cases of piece goods found, 3 of which
were in a burnt condition.

Although numerous persons were at and around the fire, no witness

testified that there was any evidence remaining of the 50 cases, w/c
the claimed were destroyed. There is no evidence anywhere in the
record that, after the fire, anything was found or remained of the 50
cases, and it is the theory of Go Lu that the 50 cases were completely
destroyed and consumed by the fire, w/c is why there was not any
physical evidence left of their destruction. In the very nature of things,
there would be some evidence of the existence of the other 50 cases.

Although Go Lus goods were in the same building caught up by fire,

they were in a separate and distinct portion from that which was
occupied by the Eastern Asia Commercial Company where hemp was
stored. The burden was upon Go Lu to prove the amount of his loss by
a preponderance of the evidence. The record does not show why all of
the 50 cases in dispute were completely consumed by the fire, and no
particle of any one of them was left remaining, and why the other 16
were found in the building after the fire and were not totally destroyed,
and, yet, it is admitted that 16 cases were found in the building after
the fire. It is common and ordinary sense that in a fire of that nature,
something would have been left or found after the fire, which would
tend to show the loss and destruction of portions of some of the other
50 cases. It is not reasonable that the 50 cases would be completely
destroyed and wiped out of existence, and that the identity of the
other 16 would remain, 13 of which were intact. If the 50 cases were
totally destroyed, the other 16 cases would also have been destroyed,
and that there would not have been any evidence left of their identity.

Go Lu did not ofer any evidence of the remains or physical condition of

the 50 cases after the fire tending to show that the 50 cases were
destroyed and consumed by the fire.

George B. Blake, the foreman of the fire department, was there a few
minutes after the alarm, and had charge of the fire. His testimony is
clear and convincing that he did not see more than 16 cases, and that
there was no evidence or any loss, destruction, or damage of any more
than 16 cases.

Sold 71 cases; Hence, at the time of the fire, he had 66 cases

left, of w/c 16 only were salvaged.

LC ordered Yorkshire and Scottish to each pay for P8,373.10. Found

that at the time of the fire, there were indeed 66 cases. It based its
finding on Go Lus books.

10 Yorkshire & Scottish: That not more than 16 cases were destroyed
from which he received P6,888, the amount of their salvage value, and,
in substance, admit their liability for the diference between the actual
value of the 16 cases and their salvage value; That Go Lu submitted
fraudulent proof of the amount of his loss and so, he is not entitled to
recover anything.

ISSUE:
1

What is the value of the goods which Go Lu had in the building at the
time of the fire? Value of 16 cases -- P7,594.67.

Is Go Lu entitled to recover? NO

RULING:
1

All the members of this court are of the opinion that Go Lu lost 16
cases only in the fire which are of the admitted value of P14,102.27,
from which he received P6,507.60 net, as salvage, leaving his actual
loss at P7,594.67.

In an action on a fire insurance policy to recover the value of bolt

goods alleged to have been destroyed by fire, it devolves upon the
plaintiff to prove the amount of his loss by a preponderance of the
evidence.

While the trial court gave credence to the original entries in Go Lus
books, w/c might tend to prove that he purchased 87 cases, and had
50 cases in stock, out of w/c he sold 71 cases, the entries made in the
books, however, are NOT evidence that the goods when purchased

YES. Go Lu is not entitled to recover anything.

Section 13 of the policy provides: "If the claim be in any respect fraudulent,
or if any false declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone acting on
his behalf to obtain any benefit under this Policy; or, if the loss or damage
be occasioned by willful act, or with the connivance of the Insured; or, if
the Insured or anyone acting on his behalf shall hinder or obstruct the
Company in doing any of the acts referred to in Condition 12; or, if the
claim be made and rejected and an action or suit be not commenced
within three months after such rejection, or within three months after the
Arbitrator or Arbitrators or Umpire shall have made their award, all benefit
under this Policy shall be forfeited."
The validity of the clause above quoted is sustained by numerous uniform
decisions, and is valid.

The facts existing at and after the fire are conclusive evidence that
there were only 16 cases of goods in the bodega at the time of the fire,
and the majority of the court are of the opinion Go Lu knew that his
claim was fraudulent at the time it was made, and for such reason, he
is not entitled to recover anything.

Pacific sent a letter of demand to Oriental for indemnity due to the loss
of property by fire.

Oriental said it was not ready to pay pending investigation.

The insurance adjuster notified Pacific that the insured under the policy
had not filed any claim with it, nor submitted proof of loss which is a
violation of Policy Condition 11 and for that reason, determination of
the liability of Oriental cannot be ascertained.

Pacific: The records by the Bureau of Customs of the merchandise

taken into a bonded warehouse that was razed by fire should be
reliable proof.

Pacific filed against Oriental a claim for P61k.

10 Oriental: Lack of formal claim by insured, premature filing because no

proof of loss was submitted as required in the Policy.
11 During trial, several undeclared co-insurances were discovered
undertaken by Paramount. (Violation of Condition No. 3 but was not
pleaded in the answer/MTD).
12 TC: Oriental ordered to pay.
13 CA: Reversed. Failure to declare co-insurances was false declaration.

122 PACIFIC BANKING v. CA and ORIENTAL ASSURANCE

ISSUE: Whether there were violations of the Policy Conditions. YES.

FACTS:
1

A fire police (open policy) was issued to the Paramount Shirt

Manufacturing (insured) by Oriental Assurance (P61k).
a

RATIO:

Policy Condition No. 3: Notice shall be given to the Company of any

insurance already efected or subsequently efected covering the
properties insured unless given, all benefit shall be forfeited.

Had the insurer known that there were many co-insurances, it could
have hesitated or desisted from entering into such contract.

Concrete evidence of fraud or false declaration by the insured was

furnished by the petitioner itself when the facts alleged in the policy
under clauses Co-Insurances Declared and Other Insurance Clause
are materially diferent from the actual number of co-insurances taken
over the subject property.

The stocks, materials, and supplies usual to a shirt factory,

including furniture, machinery and equipment were insured.

Paramount was then a debtor of Pacific Banking (P800k) and the goods
described were held in trust by Paramount for Pacific.

Policy was endorsed to Pacific as mortgagee/trustor of the properties

insured, with the consent of Oriental. It was made payable to Pacific.

A fire broke out destroying the goods.

Representations of facts are the foundation of the contract and if the

foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that
no contract has ever existed.

It is to be construed according to the sense and meaning of the

terms which the parties used.

123 PACIFIC TIMBER v. CA and WORKMENS INSURANCE COMPANY

A void or inexistent contract is one which has no force and efect from
the very beginning, as if it had never been entered into, and which
cannot be validated either by time or by ratification.

1.

Pacific Timber secured temporary insurance from Workmens for its

export of 1.25M board feet of Lauan and Apitong logs to be shipped
from Quezon Province to Japan.

As the insurance policy against fire expressly required that notice

should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.

2.

Workmens issued a Cover Note, insuring the cargo subject to the

terms and conditions printed in the marine policy form.

RE: Mortgage Clause of the Policy:

3.

The regular marine policies were issued. 1 st policy: 542 pcs. 2nd policy:
853 pcs.

The paragraph clearly states the exceptions to the general rule

that insurance as to the interest of the mortgagee, cannot be
invalidated; namely: fraud, or misrepresentation or arson.

4.

After the issuance of Cover Notes but before the issuance of the Marine
Policies, some of the logs intended to be exported were lost due to
loading operations in the Diapitan Bay due to bad weather.

As correctly found by the Court of Appeals, concealment of the

aforecited co-insurances can easily be fraud, or in the very
least, misrepresentation

5.

75 pcs. of logs which were rafter together, broke loose from each other.
45 were salvaged, 40 were lost or washed away.

6.

Pacific Timber informed Workmens about the loss of approximately

32 pcs. of logs

7.

Letter was sent Apr. 4, received only on Apr. 15.

8.

Pacific demanded payment under the policies.

9.

Workmens requested First Philippine Adjustment Corp to inspect the

loss and assess the damage.

Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right, with more reason, Pacific
which is merely claiming as indorsee of said insured, cannot be entitled
to such proceeds.

RE: Policy No. 11

Notice should be given 15 days after loss through a claim in

writing as to the articles destroyed and particulars of all other
insurances. Claimant shall also produce documents and proofs.

24 days after the fire, Pacific merely wrote letters to Oriental

to serve as notice of loss. No pertinent documents were
furnished. Pacific shifted the burden to Oriental to ascertain
which is contrary to the Policy.

Compliance to the Policy Condition is a requirement sine qua non to

the right to maintain an action.

Terms of the contract are clear and unambiguous.

10. Report found that the loss of 30 pcs of logs is not covered by the
policies inasmuch as the policies covered the actual number of logs
loaded. The loss was within the coverage of the COVER NOTE.
11. Workmens denied the claim of Pacific saying that from the
investigation, all those covered by the Marine Policies were received in
good order.
a.

The loss is no even covered by the Cover Note because it

became null and void by virtue of the issuance of the Marine
Policies.

12. Insurance Commissioner: In favor of Pacific.

RE: Delay in reporting loss

13. CFI: In favor of Pacific. CA: Reversed.

Delay of insured in reporting the loss must be objected to promptly by

insurer. Sending of insurance adjuster to assess the loss amounts to
waiver of delay in giving notice of loss.

In the proceedings that took place later in the Office of the Insurance
Commissioner, private respondent should then have raised this ground
of delay to avoid liability.

But even on the assumption that there was delay, this Court is satisfied
and convinced that as expressly provided by law, waiver can
successfully be raised against Workmens, citing Sec. 84.

ISSUE: Whether Workmens is liable to pay for the loss. YES.

The fact that no separate premium was paid on the Cover Note before
the loss insured against occurred, does not militate against the validity
of Pacifics contention, for no such premium could have been paid,
since by the nature of the Cover Note, it did not contain, as all Cover
Notes do not contain particulars of the shipment that would serve as
basis for the computation of the premiums.
As a logical consequence, no separate premiums are intended or
required to be paid on a Cover Note. This is a fact admitted by an
official of respondent company, Juan Jose Camacho, in charge of
issuing cover notes of the respondent company
At any rate, it is not disputed that Pacific paid in full all the premiums
as called for by the statement issued by private respondent after the
issuance of the two regular marine insurance policies, thereby leaving
no account unpaid by Pacific due on the insurance coverage, which
must be deemed to include the Cover Note.
If the Note is to be treated as a separate policy instead of integrating it
to the regular policies subsequently issued, the purpose and function
of the Cover Note would be set at naught or rendered meaningless, for
it is in a real sense a contract, not a mere application for insurance
which is a mere ofer.
The non-payment of premium on the Cover Note is, therefore, no cause
for Pacific to lose what is due it as if there had been payment of
premium, for non-payment by it was not chargeable against its fault.

Had all the logs been lost during the loading operations, but after the
issuance of the Cover Note, liability on the note would have already
arisen even before payment of premium.

This is how the cover note as a binder should legally operate;

otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is
delivered without requiring payment of the premium, the presumption
is that a credit was intended and policy is valid.

124 Philippine Charter Insurance Corp. v. Chemoil Lighterage Corp

FACTS:
1

PCIC is engaged in the business of non-life insurance. Chemoil is

engaged in the transport of goods.

Samkyung, based on South Korea, shipped 62.06 metric tons of Dioctyl

Phthalate (DOP), liquid chemical, on board MT Tachibana and another
436.7 metric tons of DOP to the Philippines. The consignee was Plstic
Group Philippines.

PGP insured the cargo with PCIC against all risks. Marine insurances
worth P31M (later amended to P24M) and P4M.

MT Tachibana unloaded the cargo to the Tanker Barge of Chemoil

Lighterage which will transport it to Del Pan Bridge.

The Tanker Barge will unload the cargo to tanker trucks, also owned by
Chemoil, and haul it by land to PGPs storage tanks in Laguna.

The samples showed discoloration (from yellow to amber). Damages

since DOP is colorless.

PGP sent a letter to PCIC claiming for the loss it sustained due to the
contamination.

PCIC requested an independent insurance adjuster (GIT) to conduct the

survey. GIT issued a report confirming the discoloration due to loose
covers.

PCIC paid PGP P5M as full and final payment for the loss. PGP issued a
Subrogation Receipt to PCIC.

Art. 366. Within twenty-four hours following the receipt of the

merchandise a claim may be made against the carrier on account
of damage or average found upon opening the packages, provided
that the indications of the damage or average giving rise to the
claim cannot be ascertained from the exterior of said packages, in
which case said claim shall only be admitted at the time of the
receipt of the packages.

After the periods mentioned have elapsed, or after the

transportation charges have been paid, no claim whatsoever shall
be admitted against the carrier with regard to the condition in
which the goods transported were delivered.

A telephone call was made but nothing in the trial courts decision
stated that the notice of claim was relayed or filed with the
respondent-carrier immediately or within a period of twenty-four
hours from the time the goods were received.

The Court of Appeals made the same finding. Having examined the
entire records of the case, we cannot find a shred of evidence that
will precisely and ultimately point to the conclusion that the notice
of claim was timely relayed or filed.

The filing of a claim with the carrier within the time limitation
therefore actually constitutes a condition precedent to the accrual
of a right of action against a carrier for loss of, or damage to, the
goods. The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The
aforementioned requirement is a reasonable condition precedent;
it does not constitute a limitation of action.

The second paragraph of Article 366 of the Code of Commerce is

also edifying. It is not only when the period to make a claim has
elapsed that no claim whatsoever shall be admitted, as no claim
may similarly be admitted after the transportation charges have
been paid.

In this case, there is no question that the transportation charges

have been paid, as admitted by the petitioner, and the
corresponding official receipt duly issued.

However, there is no evidence to confirm that the notice of claim

was filed within the period provided for under Article 366 of the
Code of Commerce. Petitioners contention proceeds from a false
presupposition that the notice of claim was timely filed.

10 PGP later paid Chemoil P301k for its services.

11 An action for damages was instituted by PCIC against ChemOil.
12 Chemoil denied the allegation saying that when the tanks were first
inspected, the same were clean, dry, and fit for loading.
a

Further, the
surveyor.

loading/unloading

was

monitored

by

PGPs

The contract between Chemoil and PGP expressly stipulated

that Chemoil shall be free from any and all claims arising from
contamination, loss of cargo, etc, without protest.

That the cargo shall be insured by owner without recourse

against all risks.

As subrogee, PCIC is bound by that.

No fault/negligence.

13 TC: In favor of PCIC.

14 Chemoil: PGP failed to file any notice within the period required by Art.
366 of the Code of Commerce, which is a condition precedent to the
accrual of a right of action.
a

A telephone call which was made by Chan, PGPs employee, to

a VP of ChemOil informing the latter of the discoloration is not
the notice required under Art. 366.

15 CA: Reversed.

ISSUES: Whether the notice of claim was filed within the required period.
NO.

RATIO:

125 Geagonia v. CA
Emergency Recit: Geagonia mortgaged the property in his store with
Cebu Tesin Textile. Geagonia then insured the products in his store with
Country Bankers for P100,000. A fire burned his store and the products so
he sought to claim with Country Bankers. Country Bankers denied the
claim because Condition 3 of the policy states that Geagonia should
inform Country Bankers of any other insurance over the same products,
and Country Bankers found out that Geagonia had an existing policies over
the same products with PFIC. The Supreme Court ruled that Condition 3
was a prohibition on double insurance, and in this case, there was no
double insurance because the interests of mortgagors and mortgagees
are not the same. The Country Bankers policy insured Geagonias interest
over the products, while the PFIC policies were policies with a loss-payable
clause which means it insures only the interest of Geagonias mortgagee,
Cebu Tesin Textile. As such, there was no violation and Country Bankers
must pay the P100,000 due.

Armando Geagonia owns Norman's Mart which sells RTW clothing

He obtained a P100,000 fire insurance policy from Country Bankers

Insurance Corporation that covered the ready-to-wear clothing
(RTW) for sale in the store

the insured (Geagonia) shall give notice to Country Bankers of any

insurance already efected covering the properties

These policies indicate that the insured was Discount Mart, with a
mortgage clause stating that Cebu Tesing Textiles is Geagonias
Mortgagee, and loss, if any, shall be payable to Cebu Tesing Textiles,
as their interest may appear

Issue: W/N Condition 3s provision on double insurance was violated?

Held : NO, double insurance is not present in this case. Cebu

Bankers must pay the P100,000 due on the policy.

The SC held that what Condition 3 prohibits is double insurance

A double insurance exists where the same person is insured by several

insurers separately in respect of the same subject and interest.

Since the insurable interests of a mortgagor and a mortgagee on the

mortgaged property are distinct and separate; the two policies of the
PFIC do not cover the same interest as that covered by the policy of
Country Bankers, no double insurance exists.

The PFIC insurance policies name Geagonia as the insured but contain
a mortgage clause which reads: "Loss, if any, shall be payable to Cebu
Tesing Textiles as their interest may appear subject to the terms of the
policy."

Condition 3 of the policy states that:

o

Country Bankers found that at the time of the loss, there was also
another insurance over the insured RTW from Philippines First
Insurance Co., Inc. (PFIC) worth P200,000

Facts:

the failure to do so forfeits the insurance benefits

however, there is still coverage if the damage is not more than

P200,000

On 27 May 1990, fire of accidental origin broke out at the public

market of San Francisco, Agusan del Sur, across Normans Mart, and
Geagonia's insured RTW clothing products were completely
destroyed.

This is a loss payable clause, which means that for the PFIC
insurance policies, it is the interest of the mortgagee Cebu Tesin Textile
that is insured

Unlike the Cebu Bankers insurance policy, where it is the interest of

mortgagor Geagonia, over the value of all the products, that was
insured

Geagonia filed a claim with Country Bankers, but Country Bankers

denied the claim
Country Bankers denied because Geagonia violated Condition 3
of the policy

126 PACIFIC BANKING v. CA and ORIENTAL ASSURANCE

FACTS:

1.

Policy Condition No. 3: Notice shall be given to the Company of any

insurance already efected or subsequently efected covering the
properties insured unless given, all benefit shall be forfeited.

The stocks, materials, and supplies usual to a shirt factory,

including furniture, machinery and equipment were insured.

Had the insurer known that there were many co-insurances, it could
have hesitated or desisted from entering into such contract.

Paramount was then a debtor of Pacific Banking (P800k) and the goods
described were held in trust by Paramount for Pacific.

Concrete evidence of fraud or false declaration by the insured was

furnished by the petitioner itself when the facts alleged in the policy
under clauses Co-Insurances Declared and Other Insurance Clause
are materially diferent from the actual number of co-insurances taken
over the subject property.

Representations of facts are the foundation of the contract and if the

foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that
no contract has ever existed.

A void or inexistent contract is one which has no force and efect from
the very beginning, as if it had never been entered into, and which
cannot be validated either by time or by ratification.

As the insurance policy against fire expressly required that notice

should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.

RE: Mortgage Clause of the Policy:

A fire police (open policy) was issued to the Paramount Shirt

Manufacturing (insured) by Oriental Assurance (P61k).
a.

2.

3.

Policy was endorsed to Pacific as mortgagee/trustor of the properties

insured, with the consent of Oriental. It was made payable to Pacific.

4.

A fire broke out destroying the goods.

5.

Pacific sent a letter of demand to Oriental for indemnity due to the loss
of property by fire.

6.

Oriental said it was not ready to pay pending investigation.

7.

The insurance adjuster notified Pacific that the insured under the policy
had not filed any claim with it, nor submitted proof of loss which is a
violation of Policy Condition 11 and for that reason, determination of
the liability of Oriental cannot be ascertained.

8.

Pacific: The records by the Bureau of Customs of the merchandise

taken into a bonded warehouse that was razed by fire should be
reliable proof.

9.

Pacific filed against Oriental a claim for P61k.

o

The paragraph clearly states the exceptions to the general rule

that insurance as to the interest of the mortgagee, cannot be
invalidated; namely: fraud, or misrepresentation or arson.

As correctly found by the Court of Appeals, concealment of the

aforecited co-insurances can easily be fraud, or in the very
least, misrepresentation

10. Oriental: Lack of formal claim by insured, premature filing because no

proof of loss was submitted as required in the Policy.
11. During trial, several undeclared co-insurances were discovered
undertaken by Paramount. (Violation of Condition No. 3 but was not
pleaded in the answer/MTD).
12. TC: Oriental ordered to pay.
13. CA: Reversed. Failure to declare co-insurances was false declaration.

Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right, with more reason, Pacific
which is merely claiming as indorsee of said insured, cannot be entitled
to such proceeds.

ISSUE: Whether there were violations of the Policy Conditions. YES.

RATIO:

RE: Policy No. 11

Notice should be given 15 days after loss through a claim in

writing as to the articles destroyed and particulars of all other
insurances. Claimant shall also produce documents and proofs.

24 days after the fire, Pacific merely wrote letters to Oriental

to serve as notice of loss. No pertinent documents were
furnished. Pacific shifted the burden to Oriental to ascertain
which is contrary to the Policy.

RULING:
1.

Compliance to the Policy Condition is a requirement sine qua non to

the right to maintain an action.

Terms of the contract are clear and unambiguous.

It is to be construed according to the sense and meaning of the

terms which the parties used.

The insurance policies required insured to give written notice of any

prior insurance of the property and that there must be a necessary
endorsement by the companies to clearly show that insured has
complied with the requirement
a.

Although Sta. Ana claims he gave notices to their agents

b.

But he has been contradicted in this by all the persons mentioned,

and this deprives his allegations of probative force, especially
considering that such advises or notices, so basic and essential to
the existence and validity of the policies, must be given in writing
as required in the noted attached to the four policies above
mentioned, and must be given in writing as required in the note
attached to the four policies above mentioned, and must be
endorsed upon each of them, so that in case of necessity, as in the
instant one, when a loss occurs, the insured may clearly show that
he has fulfilled this indispensable requisite, since all companies, to
which people apply for insurance upon property already assured,
have an interest in knowing what other policies issued by other
companies the insured already holds, for the purpose of knowing
just what interest the applicant has in the preservation of the
property, and the care and precaution to be taken for the
prevention of loss.

c.

The absence of the notice which is a condition in the policy renders

said policy null and void.

127 Sta. Ana vs Commercial Union

FACTS:
1

Sta. Ana built a house with an iron roof in Pasig

a

He insured his house for P3000 for fire with Phoenix; P6000 for
Guardian Assurance (for 1 year)

Sta. Ana mortgaged the house to Garcia for a P5000 loan for 2 years,
however, the contract was drawn up as a retro sale
a

The policies of Phoenix and Guardian were endorsed to Garcia

128 Pioneer v Yap

FACTS:

The house was reinsured by Sta. Ana to Globe and Rutgers Fire
Insurance Company and Commercial Union Assurance for P3K each
a

Respondent Oliva Yap was the owner of a store in a two-storey

building where she sold shopping bags and footwear. Chua Soon
Poon, her son-in-law, was in charge of the store.

2.

Yap took out a Fire Insurance Policy No. 4216 from Pioneer
Insurance with a value of P25,000.00 covering her stocks, office
furniture, fixtures and fittings.
Among the conditions in the policy executed by the parties are the
following:
unless such notice be given and the particulars of such insurance
or insurances be stated in, or endorsed on this Policy by or on
behalf of the Company before the occurrence of any loss or
damage, all benefits under this Policy shall be forfeited Any false

And insured it again with Filipinas for P6000 for a year

12 hours before the expiration of the policy with Phoenix and Guardian,
a fire broke out and consumed the house
a

1.

The companies refused to pay because the P21k demanded by him

was in excess of the value of the property; that the fire was
intentional;

ISSUE: WON Sta. Ana may claim- NO

3.
4.

declaration or breach or this condition will render this policy null

and void.
5. Another insurance policy for P20,000.00 issued by Great American
covering the same properties. The endorsement recognized coinsurance by Northwest for the same value.
6. Oliva Yap took out another fire insurance policy for P20,000.00
covering the same properties from the Federal Insurance Company,
Inc., which was procured without notice to and the written consent
of Pioneer.
7. A fire broke out in the building, and the store was burned. Yap filed
an insurance claim, but the same was denied for a breach.
8. Oliva Yap filed a case for payment of the face value of her fire
insurance policy. The insurance company refused to pay because
she never informed Pioneer of another insurer. The trial court
decided in favor of Yap. The CA affirmed.
ISSUE:
Whether petitioner should be absolved from liability on the Pioneeer policy
on account of any violation of the co-insurance clause?

were overlooked the defendant insurer would still be free from

liability because there is no question that the policy issued by
General Indemnity has not been stated in nor endorsed on Policy
No. 471 of defendant. The obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and thus
avert the perpetration of fraud where a fire would be profitable to
the insured.
129 New Life Enterprises and Julian Sy v. CA
FACTS:

New Life Enterprises (New Life) is a partnership between Julian Sy

and Jose Sy Bang engaged in the sale of construction materials.

Julian insured the stocks in trade of New Life with:

o

Western Guaranty P350,000 fire insurance issued on 15

May 1981 and renewed 13 May 1982;

Reliance Surety and Insurance P300,000 fire insurance

issued on 30 July 1981 (was also renewed) and additional
P700,000 fire insurance issued on 12 Nov. 1981; and

Equitable Insurance P200,000 fire insurance issued on 8

Feb. 1982.

HELD: No. Petition dismissed.

1.

There was a violation. The insurance policy for P20,000.00 issued

by the Great American, ceased to be recognized by them as a coinsurance policy.

2.

The endorsement shows the clear intention of the parties to

recognize on the date the endorsement was made, the existence of
only one co-insurance, the Northwest one. The finding of the Court
of Appeals that the Great American Insurance policy was
substituted by the Federal Insurance policy is indeed contrary to
said stipulation.
Other insurance without the consent of Pioneer would avoid the
contract. It required no affirmative act of election on the part of the
company to make operative the clause avoiding the contract,
wherever the specified conditions should occur. Its obligations
ceased, unless, being informed of the fact, it consented to the
additional insurance.
The validity of a clause in a fire insurance policy to the efect that
the procurement of additional insurance without the consent of the
insurer renders the policy void is in American jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this
state and practically all of the states is to the efect that a clause in
a policy to the efect that the procurement of additional insurance
without the consent of the insurer renders the policy void is a valid
provision.
In this jurisdiction, General Insurance & Surety Corporation vs. Ng
Hua- The annotation then, must be deemed to be a warranty that
the property was not insured by any other policy. Violation thereof
entitled the insurer to rescind. Furthermore, even if the annotations

3.

4.
5.

6.

19 Oct. 1982 New Lifes building and stocks were razed by an

electrical fire. The total amount of insurance claims on its stocks in
trade at the time was P1,550,000.

Julian claimed that the three insurance companies are sister

companies, claiming that when he followed up his claim with
Equitable, the Claims Manager told him to go to Reliance and if
they would pay, so would Equitable. The other companies did the
same.

However, all three companies denied the claim for payment. Their
reasons being that Julian/New Life breached or violated policy
conditions: Western, on 9 March 1983; Reliance, on 23 Nov. 1982;
and Equitable, on 22 Feb. 1983.

As regards Reliances denial, Atty. Dator, on Julians behalf, wrote

to their Executive VP Mary Dee Co asking for the specific policy
conditions violated by his client. Co wrote back, saying that it was
Policy Condition No. 3, which requires the insured (Julian) to give

notice of any insurance/s already efected covering the stocks in

trade.

Julian/New Life filed separate civil actions against the companies

before the RTC of Lucena City. They were consolidated for trial, and
on 19 Dec. 1986, judgment was rendered in Julians/New Lifes
favor, ordering all three companies to pay the claims and
attorneys fees with interest.

The CA reversed the RTC decision.

ISSUE: WON Conditions No. 3 and 27 of the insurance contracts were

violated, resulting in forfeiture of all the benefits.

Julian/New Life argued that the insurance agents (Leon Alvarez for
Western, Yap Kam Chuan for the other two) knew about the
additional insurance coverage, and did not know that the same
should be stated in the policies, as they have not read policies. The
theory of imputed knowledge (that knowledge of the agent =
knowledge of the principal) cannot apply here; even if it did, this is
not the notice that would estop the insurers from denying the
claims.

Just because Yap Kam was agent of two companies, it did not
automatically make them sister companies. Diferent companies
availing of the services of the same agents is common practice in
the insurance business.

Insured persons who accept policies without reading them are not
negligent per se, but a businessman like Julian is expected to read
the insurance contracts, given his experience, interests, etc.

In Pioneer Insurance v. Yap, it was held that a term in the policy

which requires the insured to declare other insurances is deemed
to be a warranty binding on both insurer and insured. Its purpose is
to prevent over-insurance and avoid the perpetration of fraud.

In Pacific Banking v. CA, it was held that non-revelation of other

insurances is tantamount to a false declaration because the
insured had been asked to reveal but did not, committing
deception. This results not in variation or termination of the
contract, but in its inexistence because it is void or had never
existed, it has no force and efect from the very beginning.

Condition No. 27 of the insurance contract with reliance simply

provides that if no action is taken or suit commenced within 12
months after a claim is rejected (and due notice given), the claim is
deemed abandoned and is no longer recoverable.

The 12-month limit cannot be done away with for it is not merely
procedural, but essential to prompt settlement of claims against
insurance companies since it demands that insurance suits be
brought by the insured while the evidence as to the origin and
cause of destruction have not yet disappeared. (Ang v. Fulton Fire
Insurance)

Julian/New Life had ample time from their receipt of Reliances

clarificatory letter (30 March 1983) to the expiration of the oneyear period (29 Nov. 1983).

HOLDING and RATIO:

Yes they were. CA decision AFFIRMED. Insurance companies need not pay.

3. The insured shall give notice to the Company of any

insurance or insurances already effected, or which may
subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process,
and/or inventories only hereby insured, and unless such notice
be given and the particulars of such insurance or insurances be
stated therein or endorsed on this policy pursuant to Section 50 of
the Insurance Code, by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this
policy shall be deemed forfeited, provided however, that this
condition shall not apply when the total insurance or insurances in
force at the time of loss or damage is not more than P200,000.00.
Julian/New Life admits that the respective insurance policies issued
by the companies did not state the other insurance coverage
efected on the same stocks in trade (e.g. Western did not declare
Reliance and Equitable as co-insurers on the stocks in trade,
Equitables policy stated nil in the space requiring indication of
any co-insurance, etc.).
The coverage by the other insurance or co-insurance
effected were neither stated nor endorsed in the policies of
the three companies, warranting forfeiture of all benefits
thereunder. This is in clear and unambiguous terms in the
contracts, and thus binds the parties to abide by such
terms. These terms constitute the measure of the insurers
liability and compliance therewith is a condition precedent
to the insureds right of recovery from the insurer.

130 EMILIO GONZALES LA O v. THE YEK TONG LIN FIRE AND

MARINE INSURANCE

policy." And attached to said policies issued by the defendant there

is a sheet of "Other insurances" with the amount and the
assurance companies in blank, which, according to the appellee,
constitutes a notification that there were other insurances existing
at the time.

Facts:
1.

Gonzales was issued 2 fire insurance policies by Yek for 100T

covering his leaf tobacco prducts.

2.

They were stored in Gonzales building on Soler St., which on Jan.

11, 1928, burned down.

3.

Art. 3 of the Insurance policies provided that: Any insurance in

force upon all or part of the things unsured must be declared in
writing by the insured and he (insured) should cause the company
to insert or mention it in the policy. Without such requisite, such
policy will be regarded as null and void and the insured will be
deprived of all rights of indemnity in case of loss.

4.

Notwithstanding said provision, Gonzales entered into other

insurance contracts. When he sought to claim from Yek after the
fire, the latter denied any liability on the ground of violation of Art.
3 of the said policies.

5.

Gonzales however proved that the insurer knew of the other

insurance policies obtained by him long before the fire, and the
insurer did NOT rescind the insurance polices in question but
demanded and collected from the insured the premiums.

Issue:
Whether or not Yek is still entitled to annul the contract.
Held: NO.
1. The action by the insurance company of taking the premiums of
the insured notwithstanding knowledge of violations of the
provisions of the policies amounted to waiver of the right to annul
the contract of insurance. Gonzales was able to prove that the
insurer knew of the other insurance policies obtained by him long
before the fire. This is also shown in Yek Tongs answer wherein it
alleged, by way of special defense, the fact that there exist other
policies issued by the companies mentioned therein. Furthermore,
the insurer did not rescind the insurance policies in question.
Instead, it demanded and collected increased premiums from
Gonzales. If, with the knowledge of the existence of other
insurances, which the defendant deemed violations of the contract,
it has preferred to continue the policy, its action amounts to a
waiver of the annulment of the contract.
2. Also, the clause, which included Art. 3 of the policy has been
inserted with a typewriter in the policies: "Subject to clauses G and
A and other insurances with a special short period attached to this

3.

In the case of Benedict vs. Ocean Insurance Co., one of the clauses
if the policy included one about making other insurance upon the
same property, where in note must be given to the corporation to
have the same indorsed on the instrument, or otherwise
acknowledged by them, in writing. In the case cited the same
goods insured by the defendant company were reinsured to the
amount of $4,500 in accordance with the clause "privilege for
$4,500 additional insurance;" but in the instant case it may be said
that the tobacco insured in the other companies was diferent from
that insured with the defendant, since the number of bales of
tobacco in the warehouse greatly exceeded that insured with the
defendant and the other companies put together. To be insurance
of the sort prohibited the prior policy must have been insurance
upon the same subject matter, and upon the same interest therein.

131 General lnsurance v Ng Hua

FACTS:
1.

Defendant General Insurance and Surety Corporation issued its

insurance policy insuring against fire, for one year, the stock in trade of
the Central Pomade Factory owned by Ng Hua, the court insured. The
next day, the Pomade factory building burned, resulting in destruction
by fire of the insured properties. Ng Hua claimed indemnity from the
insurer. The policy covered damages up to P10K; but after some
negotiations and upon suggestion of the Manila Adjustment Company,
he reduced the claim of P5K. Nevertheless, the defendant insurer
refused to pay for various reasons, namely (a) action was not filed in
time; (b) violation of warranty; (c) submission of fraudulent claim; and
(f) failure to pay the premium.
a.

b.

The said policy contains the stipulation: The insured shall

give notice to the company of any insurance or insurances
already afected, or which may subsequently be efected,
covering any of the property hereby insured, and unless
such notice be given and the particulars of such insurance
or insurances be stated in or endorsed on this Policy by or
on behalf of the Company before the occurrence of any
loss or damage, all benefits under the policy shall be
forfeited.
The face of the policy bore the annotation: "Co-Insurance
Declared NIL"

2.

A suit was filed in the CFI to recover on a fire insurance policy. After
trial, it was required to pay. On appeal to the CA, the judgment was
affirmed.

ISSUE: WON there was double insurance? NO

RULING:
1.

2.

3.

4.

5.

Ng Hua had obtained fire insurance on the same goods, for the same
period of time, in the amount of P20Kfrom General Indemnity Co.
However, the CA referring to the annotation and overruling the
defense, held that there was no violation of the above clause,
inasmuch as "co-insurance exists when a condition of the policy
requires the insured to bear ratable proportion of the loss when the
value of the insured property exceeds the face value of the policy,"
hence there is no co-insurance here.
Undoubtedly, co-insurance exists under the condition described by the
appellate court. But that is one kind of co-insurance. It is not the
only situation where co-insurance exists. Other insurers of the same
property against the same hazard are sometimes referred as coinsurers and the ensuing combination as co-insurance. And considering
the terms of the policy which required the insured to declare other
insurances, the statement in question must be deemed to be a
statement (warranty) binding on both insurer and insured, that there
were no other insurance on the property. Remember it runs "CoInsurance declared"; emphasis on the last word. If "Co-Insurance"
means that the CA says, the annotation served no purpose. It would
even be contrary to the policy itself, which in its clause No. 17 made
the insured a co-insurer for the excess of the value of the property over
the amount of the policy.
The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof entitles
the insurer to rescind. (Sec. 69. Insurance Act) Such misrepresentation
is fatal. The materiality of non-disclosure of other insurance policies is
not open to doubt.
Furthermore, even if the annotations were overlooked, the defendant
insurer would still be free from liability because there is no question
that the policy issued by General Indemnity had not been stated in nor
endorsed on the policy of defendant. And as stipulated in the abovequoted provisions of such policy "all benefit under this policy shall be
forfeited."
To avoid the dissastrous efect of the misrepresentation or concealment
of the other insurance policy, Ng Hua alleges "actual knowledge" on
the part of General insurance of the fact that he had taken out
additional insurance with General Indemnity. He does not
say when such knowledge was acquired or imparted. If General
Insurance knew before issuing its policy or before the fire, such
knowledge might overcome the insurer's defense. However, the CA

found no evidence of such knowledge. As to knowledge of General

Insurance before issuance of its policy or the fire, there was none.
132 Union Manufacturing Co., Inc. and Republic Bank v. Philippine
Guaranty Co., Inc.
Doctrine: Where a fire policy requires the insured to give notice of the
existence of other insurance policies over the same property insured, the
non-disclosure thereof is a violation of a material warranty which entitles
the insurer to rescind.
FACTS:
1.

On January 12, 1962, the Union Manufacturing Co.(UMC), Inc. obtained

certain loans from the Republic Bank in the total sum of 415,000.00.

2.

To secure the payment thereof, UMC executed real and chattel

mortgage on certain properties.

3.

The Republic Bank procured from the defendant Philippine Guaranty

Co., Inc. an insurance coverage on loss against fire for 500,000.00
over the properties of the UMC, as described in defendants cover note
dated September 25, 1962, with the annotation that loss or damage, if
any, under said cover note is payable to Republic Bank as its interest
may appear. However, in the said cover note and fire insurance policy,
there was also a warranty wherein it was stated that there were no
other co-insurance declared.

4.

On September 6, 1964, a fire occurred in the premises of UMC.

5.

A month later, UMC filed its fire claim with the Philippine Guaranty Co.
Inc., through its adjuster, H.H. Bayne Adjustment Co., which was
denied by said defendant in its letter dated November 26, 1964 on
ground that Policy Condition No. 3 and/or the Other Insurance Clause
of the policy was violated because:

6.

a.

UMC did not give notice to Phil. Guaranty of the other

insurance which it had taken from the f: New India for
80,000.00. Sincere Insurance for 25,000.00 and Manila
Insurance for 200,000.00.

b.

These were not endorsed on their policy.

LOWER COURT: Philippine Guaranty Co., Inc was not liable upon proof
that there was a violation of a warranty. There was no denial thereof
from the insured, Union Manufacturing Co., Inc.

ISSUE: Whether or not the Republic Bank can recover.

Facts:

HELD:

If the insured has violated or failed to perform the conditions of the

contract, and such a violation or want of performance has not been
waived by the insurer, then the insured cannot recover.

Between April 11, 1960-January 9, 1961, Asian Surety and Fieldmens

Insurance entered into 7 reinsurance agreements

Courts are not permitted to make contracts for the parties. The
functions and duty of the courts consist simply in enforcing and
carrying out the contracts actually made.

These agreements would be in force until cancelled by either party

(with at least 3 months prior notice). Once a notice of cancellation
is sent, such cancellation takes efect on Dec. 31 of that year.

Sep. 19, 1961: Fieldmens gave notice to Asian that it wanted to be

released from the agreement, to be efective Dec. 31, 1961.

This letter was received by Asian Surety on Sep. 25, 1961. Asian Surety
did not reply.

Dec. 7, 1961: Fieldmens sent another letter, restating its position

that it would no longer be at risk for any reinsurance/cession given by
Asian until Dec. 31, 1961.

Feb. 17, 1962: Fieldmens reminded Asian of the Dec. 7 letter and
cancellation of all reinsurance treaties and cessions.

February 16, 1962: Meanwhile, GSIS property was burned. This GSIS
property was covered by one of the cessions (an insurance policy
effective from July 1, 1961-July 1, 1962)

Asian then notified Fieldmens of the loss, and sought to pass the
liability to Fieldmens.

Asian stated that their agreement was still in efect because there was
no prior 3-month notice of cancellation, because they counted the
period from the Dec. 7 letter.

Fieldmens, however, stated that their first notice was given on Sep.
19, hence the 3-month notice was sufficient to terminate the contract
on Dec. 31 of that year.

Asian Surety says it never received the Sep. 19 letter, and even if it
did, the letter only stated a desire to cancel the treaties, not a formal
notice of cancellation.

RTC ruled in favor of Asian Surety. Fieldmens is liable because

the GSIS policy was already in effect (July 1, 1961-July 1, 1962)
prior to the cancellation. CA affirmed.

1.

2.

3.

As a general rule, contracts of insurance are construed most favorably

to the insured and, if clear and unambiguous, also construed in their
plain, ordinary and popular sense.

4.

The annotation then, must be deemed to be a warranty that the

property was not insured by any other policy.

5.

Violation thereof entitles the insurer to rescind. The materiality of nondisclosure of other insurance policies is not open to doubt.

6.

7.

The insurance contract may be rather onerous, 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.
Court also used the doctrine laid down in Santa Ana v. Commercial
Union Assurance Co.: Without deciding- whether notice of other
insurance upon the same property must be given in writing, or whether
a verbal notice is sufficient to render an insurance valid which requires
such notice, whether oral or written, we hold that in the absolute
absence of such notice when it is one of the conditions specified in the
fire insurance policy, the policy is null and void.

133 Fieldmens Insurance v. Asian Surety

Emergency Recit:
Asian Surety ceded 7 insurance agreements to Fieldmens Insurance.
Fieldmens eventually terminated the agreement. However, after the
expiration of the agreement between the parties, a fire burned GSIS
properties covered by one of the agreements. The SC held that Fieldmens
is liable because the policy involving the properties was already in efect
prior to the termination of the agreement between Asian Surety and
Fieldmens. As such, the term of the GSIS policy must be honored since it
was still in efect even after the termination of the agreement.

Maglana, Bormaheco and the Cervantess filed cross -claims

against Lim alleging that they were not privies to the contracts
signed by Lim and for recovery of the sum of money they
advanced to Lim for the purchase of the aircrafts. The decision was
rendered holding Lim liable to pay

Issue: Was Fieldmens still liable for the cessions issued prior to
the termination of the contracts?
Held: YES. CA decision affirmed.

Under their agreement (Art. 10 of the Facultative-Obligatory

Reinsurance Treaty Fire), it provides that: in the event of termination of
the agreement, Fieldmens liability under current cessions shall
continue in full force and efect until their natural expiry.

Issue: Whether Pioneer has a cause of action against the BORDER

MACHINERY & HEAVY EQUIPMENT, INC

It can be seen from the agreements that mere cancellation of the

agreements does not mean that Fieldmens liability stops.

Any cession in efect must be honored until the cessions expiry date.

Since the cession covering the GSIS property was in efect from July 1,
1961, Fieldmens was liable thereon because it was an agreement was
already in place when Fieldmens sought to terminate the agreement.

No. Pioneer has no right to institute and maintain in its own name an action
for the benefit of the reinsurers. It is well-settled that an action brought by
an attorney-in-fact in his own name instead of that of the principal will not
prosper, and this is so even where the name of the principal is disclosed in
the complaint. An attorney-in-fact is not a real party in interest, that there
is no law permitting an action to be brought by an attorney-in-fact.

Held:

In general a reinsurer, on payment of a loss acquires the same rights by

subrogation as are acquired in similar cases where the original insurer
pays a loss.

134 Pioneer Insurance v CA

135 GIBSON v. REVILLA (1979)

Facts:

Facts:

Lim is an owner-operator of Southern Airlines (SAL). Japan

Domestic Airlines (JDA) and Lim entered into a sales contract.
Pioneer Insurance and Surety Corp. as surety executed its surety
bond in favor of JDA on behalf of its principal Lim. Border
Machinery and Heacy Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed funds based on
the misrepresentation of Lim that they will form a new corporation
to expand his business.

On Sept. 9, 1971, Malayan issued Marine Open Policy No. LIDCMOP-001/71 covering shipments of copper, gold and silver
concentrates in bulk from Poro, San Fernando, La Union to the
United States which Lepanto may make.

Malayan obtained reinsurance abroad through Sedgwick, Collins &

Co., Limited, a London insurance brokerage:

Lloyds 62.808%
They executed two separate indemnity agreements in favor of
Pioneer, one signed by Maglana and the other jointly signed by Lim
for SAL, Bormaheco and the Cervanteses. The indemnity
agreements stipulated that the indemnitors principally agree and
bind themselves jointly and severally to indemnify and hold and
save Pioneer from and against any/all damages, losses, etc. of
whatever kind and nature may incur in consequence of having
become surety.
Lim executed in favor of Pioneer a deed of chattel mortgage as
security. Upon default on the payments, Pioneer paid for him and
filed a petition for the foreclosure of chattel mortgage as security.

Companies (I.L.U.) 34.705%

Other Companies 2.487%
3

Robert Dayton Gibson claims to be the leading

insurer/underwriter for Lloyds assuming 2.48% of the risk.

re-

In November, 1971, a cargo of concentrates was shipped by

Lepanto on the M/V Hermosa at Poro, San Fernando, La Union
destined for Tacoma, Washington. The vessel encountered heavy

weather and rough seas which caused it to roll, pitch and vibrate
heavily so that certain shifting boards in the vessel broke and part
of the cargo shifted transversely, thereby causing a list. The vessel
deviated to Moji, Japan.
5

The ship once again met with strong winds, monsoon rains, severe
winter and very rough seas and it roiled, pitched and vibrated
heavily so other shifting boards broke and part of the cargo also
shifted causing a heavier list. The captain of the boat, fearing that
the vessel might sink, sailed to Osaka and unloaded the cargo.
Expenses were incurred by Lepanto relative to the cargo while in
Japan but eventually the cargo was transhipped to Tacoma via
another vessel.
Also in November, 1971, another cargo of concentrates was
shipped by Lepanto on board the MIV General Aguinaldo at Poro,
San Fernando, La Union and destined for Tacoma, Washington. The
vessel met with heavy weather and rough seas, causing it to pitch,
roll and vibrate heavily so that certain shifting boards in the vessel
broke and part of the cargo shifted transversely which caused the
listing of the vessel. The captain, fearing also that the vessel might
sink, sailed for Miyako, Japan, unloaded the cargo and expenses
were incurred relative to the cargo while in Japan. Thereafter, the
cargo was transhipped to Tacoma on board another vessel.

1.
2.

3.

4.

5.
6.

Lepanto filed a claim with Malayan but the latter refused to pay on
the ground that the cargoes were inherently vicious on loading and
such condition caused the listing of the vessel.
Hence, the complaint filed by Lepanto against Malayan in Civil
Case No. 20046 for the interest-free loan to Lepanto as stipulated
in the policy computed at P1,831,695.75.
Ivor Robert Dayton Gibson, a British citizen, filed a motion to
intervene as defendant saying that he has a legal interest in the
subject matter of litigation in that he stands to be held liable to pay
on its re-insurance contract should judgment be rendered requiring
the defendant to pay the claim of the plaintif.

10 Motion for intervention was denied by the lower court.

Issue: Whether the lower court committed reversible error in refusing the
intervention of petitioner Ivor Robert Dayton Gibson in the suit between
Lepanto and Malayan. NO.
Ruling:

7.
8.
9.

We rule that the respondent Judge committed no error of law in

denying petitioners Motion to Intervene.
Section 2(b) of Rule 12 which specifically directs the Court in allowing
or disallowing a motion for intervention in the exercise of discretion to
consider whether or not the intervention will unduly delay or
prejudice the adjudication of the rights of the original parties
and whether or not the intervenors rights may be fully
protected in a separate proceeding.
We agree with the holding of the respondent Court that since movant
Ivor Robert Dayton Gibson appears to be only one of several reinsurers of the risks and liabilities assumed by Malayan Insurance
Company, Inc., it is highly probable that other re- insurers may likewise
intervene and this may result in the delay of the case.
Petitioners contention that he has to pay once Malayan is finally
adjudged to pay Lepanto because of the very nature of a contract of
reinsurance and considering that the re-insurer is obliged to pay as
may be paid thereon (referring to the original policies), although this is
subject to other stipulations and conditions of the reinsurance contract,
is without merit. The general rule in the law of reinsurance is that the
re-insurer is entitled to avail itself of every defense which the reinsured (which is Malayan) might urge in an action by the person
originally insured (which is Lepanto).
As to the efect of the clause to pay as may be paid thereon
contained in petitioners re-insurance contract, Arnould, on the Law of
Marine Insurance and Average, states the rule, thus:
It has been decided that this clause does not preclude the reinsurer
from insisting upon proper proof that a loss strictly within the terms of
the original policy has taken place.
This clause does not enable the original underwriter to recover from
his re-insurer to an extent beyond the subscription of the latter.
It is significant and revealing that petitioner himself admits in his
Memorandum, p. 231, Records, that of course, petitioner, if finally
sued in London, (he) could avail himself of remedies available to him.
Therefore, Gibsons rights could be well protected in another
proceeding.

136 Artex Development Co., Inc. vs. Wellington Insurance Co., Inc.
Facts:
1

Wellington insurance insured for P24,346,509 the building stocks

and machinery of plaintif Artex against loss or damage by fire or
lightning upon august 2, 1963 with an additional sum of P833,034.

Another insurance against business interruption (use and

occupancy)forP5,200,000. On September 22, 1963 the building,
and machineries were burned and a notice of loss and damage was
given to Wellington. Insurance adjusters computed the loss for the
fire as P10,106,544.40 and Wellington paid only 6,481,870.07,
leaving a balance of 3,624,683.43. The computed business

interruption loss was P3M but Wellington paid onlyP1,864,134.08

leaving a balance of P1,748,460 (computation based on case)
3

RATIO:

Artex through counsel Norberto Quisumbing made a manifestation

that only about P397,ooo is the remaining balance and liability
which was the subjectof reinsurance with Alexander and Alexander
Inc, of New York, Artex acknowledging here the receipt of
P3,600,000 as FINAL and FULLSETTLEMENT of all claims against
Welllington. Artex further prays to the court to affirm the lower
courts decision of liquidation and prayed for modification of the
amount of liability to be fixed toP397,813.00 plus 12% interest per
annum thereof for the late payment until april 10, 1969 and
attorneys fees of 15% of the recovery, expenses of litigation, no
writ of execution however to be made within 3years from july10,
1969 per collateral agreement of the parties.

Plaintif-insured, not being a party or privy to defendant insurer's

reinsurance contracts, therefore, could not directly demand
enforcement of such insurance contracts.

Unless there is a specific grant in, or assignment of, the

reinsurance contract in favor of the insured or a manifest
intention of the contracting parties to the reinsurance
contract to grant such benefit or favor to the insured, the
insured, not being privy to the reinsurance contract, has no
cause of action against the reinsurer. It is expressly
provided in section 91 of the Insurance Act1 that "(T)he
original insured has no interest in a contract of insurance."

Wellington in its brief raises the issue that Artex deemed to have
agreed to look SOLELY to the reinsurers for indemnity in case of
loss since their paid up capital stock is only P500,000 and that they
have to secure such reinsurance coverage the over P24M fire
insurance coverage of the policy issued by Wellington to Artex.

Assuming that plaintif-insured could avail of the reinsurance

contracts and directly sue the reinsurers for payment of the loss,
still such assumption would not in any way afect or cancel out
defendant-insurer's direct contractual liability to plaintif-insured
under the insurance policy to indemnify plaintif for the property
losses. Plaintif's right as insured to sue defendant as insurer
directly and solely would thereby not be afected or curtailed in
any way, without prejudice to defendant in turn filing a third party
complaint or separate suit against its reinsurers: Thus, in Naga
Development Corp. vs. Court of Appeals the Court held that the
contractor remain liable to the supplier for materials delivered,
notwithstanding arrangements made on its GSIS loan for the GSIS
to issue treasury warrants on account of such loan, directly in favor
of the supplier, since "such an arrangement obviously cannot
destroy or modify the direct legal responsibility of the (contractor)
to the (supplier) to pay for what the latter gave and rendered to
the former."

ISSUE: WON reinsurance contract of the parties makes the insured to look
SOLELY to the reinsurers for indemnity in case of loss
HELD: NO. The insured who is not directly a party or privy to the
reinsurance contract between Wellington and Alexander and Alexander
Inc., cannot demand enforcement of such insurance contracts. The
Contracts take efect only between the parties, their assigns and heirs as
provided by Art 1311 of our civil code. Further it provides that a contract
with stipulations pour autrui or in favor of a third person not a party to the
contract, the parties must have CLEARLY and DELIBERATELY conferred
favor upon a third person.