VOL.

208, MAY 7, 1992 487

Perla Compania de Seguros, Inc. vs. Court of Appeals
*
G.R. No. 96452. May 7, 1992.

PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE

COURT OF APPEALS, HERMINIO LIM and EVELYN LIM,
respondents.
*
G.R. No. 96493. May 7, 1992.

FCP CREDIT CORPORATION, petitioner, vs. THE COURT OF

APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM, respondents.

Criminal Law; Theft; Insurance; Where a car is unlawfully and

wrongfully taken without the owner’s consent.—Where a car is admittedly,
as in this case, unlawfully and wrongfully taken without the owner’s
consent or knowledge, such taking constitutes theft, and, therefore, it is the
“THEFT” clause, and not the “AUTHORIZED DRIVER” clause, that
should apply.
Civil Law; Obligation; Insurance; Private respondents are not relieved
of their obligation to pay.—This Court agrees with petitioner FCP that
private respondents are not relieved of their obligation to pay the former the
installments due on the promissory note on account of the loss of the
automobile. The chattel mortgage constituted over the automobile is merely
an accessory contract to the promissory note. Being the principal contract,
the promissory note is unaffected by whatever befalls the subject matter of
the accessory contract. Therefore, the unpaid balance on the promissory
note should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.

_____________

* SECOND DIVISION.

488

488 SUPREME COURT REPORTS ANNOTATED

Perla Compania de Seguros, Inc. vs. Court of Appeals

PETITIONS for review on certiorari of the decision of the Court of

Appeals. Elbinias, J.
The facts are stated in the opinion of the Court.
Yolanda Quisumbing-Javellana and Nelson A. Loyola for
petitioner.
Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:

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

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

Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and
Evelyn Lim for the loss of their insured vehicle; while said appellants are
ordered to pay appellee FCP Credit Corporation all the unpaid installments
that were due and payable before the date said vehicle was carnapped; and
appellee Perla Compania de Seguros, Inc. is also ordered to pay appellants
moral damages of P12,000.00 for the latter’s mental sufferings, exemplary
damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.’s
unreasonable refusal on sham grounds to honor the just insurance claim of
appellants by way of example and correction for public good, and attorney’s
fees of P10,000.00 as a just and equitable reimbursement for the expense
incurred therefor by2 appellants, and the costs of suit both in the lower court
and in this appeal.”

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

On December 24, 1981, private respondents spouses Her-

_______________

1 Ponente: Justice Jesus M. Elbinias; Justices Pedro A. Ramirez and Regina G.

Ordoñez-Benitez, concurring.
2 Decision of the Court of Appeals, p. 7; Rollo, p. 63.

489

VOL. 208, MAY 7, 1992 489

Perla Compania de Seguros, Inc. vs. Court of Appeals

minio and Evelyn Lim executed a promissory note in favor of

Supercars, Inc. in the sum of P77,940.00, payable in monthly
installments
3
according to the schedule of payment indicated in said
note, and secured by a chattel mortgage over a brand new red Ford
Laser 1300 5DR Hatchback 1981 model with motor and serial No.
SUPJYK-03780, which is4 registered under the name of private
respondent Herminio Lim and insured with the petitioner Perla
Compania de Seguros, Inc. (Perla for brevity) for 5
comprehensive
coverage under Policy No. PC/41PP-QCB-43383.
On the same date, Supercars, Inc., with notice to private
respondents spouses, assigned to petitioner FCP Credit Corporation
(FCP for brevity) its rights, title and interest on said promissory
6
note
and chattel mortgage as shown by the Deed of Assignment.
At around 2:30 P.M. of November 9, 1982, said vehicle was
carnapped while parked at the back of Broadway Centrum along N.
Domingo Street, Quezon City. Private respondent Evelyn Lim, who
was driving said car before it was carnapped, immediately called up
the Anti-Carnapping Unit of the Philippine Constabulary to report
said incident and thereafter, went to the nearest police substation at
Araneta, Cubao to make a police report regarding said incident, 7
as
shown by the certification issued by the Quezon City police.
On November 10, 1982, private respondent Evelyn Lim reported
said incident to the Land Transportation Commission in Quezon 8
City, as shown by the letter of her counsel to said office, in
compliance with the insurance requirement. She also filed a
complaint
9
with the Headquarters, Constabulary Highway Patrol
Group.
On November 11, 1982, private respondent filed a claim for loss
with the petitioner Perla but said claim was denied on No-

_______________

3 Exhibit “A”, Exhibit “5”.

4 Exhibit “B”.
5 Exhibit “2”, Exhibit “1-Perla”.
6 Exhibit “B”.
7 Exhibit “6”, Records, p. 101.
8 Exhibit “7”.
9 Exhibit “8”.

490

490 SUPREME COURT REPORTS ANNOTATED

Perla Compania de Seguros, Inc. vs. Court of Appeals
10
vember 18, 1982 on the ground that Evelyn Lim, who was using
the vehicle before it was carnapped, was in possession of an expired
driver’s license at the time of the loss of said vehicle which is in
violation of the authorized driver clause of the insurance policy,
which states, to wit:

“AUTHORIZED DRIVER:

Any of the following: (a) The Insured (b) Any person driving on the
Insured’s order, or with his permission. Provided that the person driving is
permitted, in accordance with the licensing or other laws or regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified by
order of11a Court of Law or by reason of any enactment or regulation in that
behalf.”
On November 17, 1982, private respondents requested from
petitioner FCP for a suspension of payment on the monthly
amortization agreed upon due to the loss of the vehicle and, since
the carnapped vehicle was insured with petitioner Perla, said
insurance company should be made to pay the remaining balance of
the promissory note and the chattel mortgage contract.
Perla, however, denied private respondents’ claim. Consequently,
petitioner FCP demanded that private respondents pay 12
the whole
balance of the promissory note or to return the vehicle but the latter
refused.
On July 25, 1983, petitioner FCP filed a complaint against
private respondents, who in turn filed an amended third party
complaint against petitioner Perla on December 8, 1983. After trial
on the merits, the trial court rendered a decision, the dispositive
portion of which reads:

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

follows:

1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly

and severally, plaintiff the sum of P55,055.93 plus interest

______________

10 Exhibit “2-a-Perla”.
11 Exhibit “1-a Perla de Seguro”; Records, p. 88.
12 Exhibits “C” and “D”.

491

VOL. 208, MAY 7, 1992 491

Perla Compania de Seguros, Inc. vs. Court of Appeals

thereon at the rate of 24% per annum from July 2, 1983 until fully
paid;
2. Ordering defendants to pay plaintiff P5,000.00 as and for attorney’s
fees; and the costs of suit.

Upon the other hand, likewise, ordering the DISMISSAL

13
of the Third-
Party Complaint filed against Third-Party Defendant.”

Not satisfied with said decision, private respondents appealed the

same to the Court of Appeals, which reversed said decision.
After petitioner’s separate motions for reconsideration were
denied by the Court of Appeals in its resolution of December 10,
1990, petitioners filed these separate petitions for review on
certiorari.
Petitioner Perla alleged that there was grave abuse of discretion
on the part of the appellate court in holding that private respondents
did not violate the insurance contract because the authorized driver
clause is not applicable to the “Theft” clause of said Contract.
 For its part, petitioner FCP raised the issue of whether or not the
loss of the collateral exempted the debtor from his admitted
obligations under the promissory note particularly the payment of
interest, litigation expenses and attorney’s fees.
We find no merit in Perla’s petition.
The comprehensive motor car insurance policy issued by
petitioner Perla undertook to indemnify the private respondents
against loss or damage to the car (a) by accidental collision or
overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning
14
or burglary, housebreaking or
theft; and (c) by malicious act.
Where a car is admittedly, as in this case, unlawfully and
wrongfully taken without the owner’s consent or knowledge, such
taking constitutes theft, and, therefore, it is the “THEFT” clause, and
not the “AUTHORIZED DRIVER” clause, that should apply. As
correctly stated by the respondent court in its decision:

_______________

13 RTC’s Decision, pp. 8-9; Records, pp. 34-35.

14 Exhibit, “2”.

492

492 SUPREME COURT REPORTS ANNOTATED

Perla Compania de Seguros, Inc. vs. Court of Appeals

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

Theft is committed by a person with the intent to gain or, to put it in another
way, with the concurrence of the doer’s will. On the other hand, accident,
although it may proceed or result from negligence, is the happening of an
event without the concurrence of the will of the person by whose agency it
was caused. (Bouvier’s Law Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft.
The ‘authorized driver clause’ in a typical insurance policy is in
contemplation or anticipation of accident in the legal sense in which it
should be understood, and not in contemplation or anticipation of an event
such as theft. The distinction—often seized upon by insurance companies in
resisting claims from their assureds—between death occurring as a result of
accident and death occurring as a result of intent may, by analogy, apply to
the case at bar. Thus, if the insured vehicle had figured in an accident at the
time she drove it with an expired license, then, appellee Perla Compania
could properly resist appellants’ claim for indemnification for the loss or
destruction of the vehicle resulting from the accident. But in the present
case. The loss of the insured vehicle did not result from an accident where
intent was involved; the loss in the present case
15
was caused by theft, the
commission of which was attended by intent.”

It is worthy to note that there is no causal connection between the

possession of a valid driver’s license and the loss of a vehicle. To
rule otherwise would render car insurance practically a sham since
an insurance company can easily escape liability by citing
restrictions which are not applicable or germane to the claim,
thereby reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents
are not relieved of their obligation to pay the former the installments
due on the promissory note on account of the loss of the automobile.
The chattel mortgage constituted over the automobile is merely an
accessory contract to the promissory note. Being the principal
contract, the promissory note is unaffected by whatever befalls the
subject matter of the accessory contract. Therefore, the unpaid
balance on the promissory note should be paid, and not just the
installments due and payable

______________

15 Decision of the Court of Appeals, p. 6; Rollo, p. 62.

493

VOL. 208, MAY 7, 1992 493

Perla Compania de Seguros, Inc. vs. Court of Appeals

before the automobile was carnapped, as erronously held by the

Court of Appeals.
However, this does not mean that private respondents are bound
to pay the interest, litigation expenses and attorney’s fees stipulated
in the promissory note. Because of the peculiar relationship between
the three contracts in this case, i.e., the promissory note, the chattel
mortgage contract and the insurance policy, this Court is compelled
to construe all three contracts as intimately interrelated to each other,
despite the fact that at first glance there is no relationship
whatsoever between the parties thereto.
Under the promissory note, private respondents are obliged to
pay Supercars, Inc. the amount stated therein in accordance with the
schedule provided for. To secure said promissory note, private
respondents constituted a chattel mortgage in favor of Supercars,
Inc. over the automobile the former purchased from the latter. The
chattel mortgage, in turn, required private respondents to insure the
automobile and to make the proceeds thereof payable to Supercars,
Inc. The promissory note and chattel mortgage were assigned by
Supercars, Inc. to petitioner FCP, with the knowledge of private
respondents. Private respondents were able to secure an insurance
policy from petitioner Perla,16
and the same was made specifically
payable to petitioner FCP.
The insurance policy was therefore meant to be an additional
security to the principal contract, that is, to insure that the
promissory note will still be paid in case the automobile is lost
through accident or theft. The Chattel Mortgage Contract provided
that:
“ ‘THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT
WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED
TO BE INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT,
THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE
HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE
COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN
AN AMOUNT NOT LESS THAN THE OUTSTANDING

_______________

16 Exhibit “2”; Records, p. 88.

494

494 SUPREME COURT REPORTS ANNOTATED

Perla Compania de Seguros, Inc. vs. Court of Appeals

BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL

MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES,
PAYABLE TO THE MORTGAGEE OR ITS ASSIGNS AS ITS INTERESTS
MAY APPEAR AND FORTHWITH DELIVER 17
SUCH POLICY OR
POLICIES TO THE MORTGAGEE, X X X.’ ”

It is clear from the abovementioned provision that upon the loss of

the insured vehicle, the insurance company Perla undertakes to pay
directly to the mortgagor or to their assignee, FCP, the outstanding
balance of the mortgage at the time of said loss under the mortgage
contract. If the claim on the insurance policy had been approved by
petitioner Perla, it would have paid the proceeds thereof directly to
petitioner FCP, and this would have had the effect of extinguishing
private respondents’ obligation to petitioner FCP. Therefore, private
respondents were justified in asking petitioner FCP to demand the
unpaid installments from petitioner Perla.
Because petitioner Perla had unreasonably denied their valid
claim, private respondents should not be made to pay the interest,
liquidated damages and attorney’s fees as stipulated in the
promissory note. As mentioned above, the contract of indemnity was
procured to insure the return of the money loaned from petitioner
FCP, and the unjustified refusal of petitioner Perla to recognize the
valid claim of the private respondents should not in any way
prejudice the latter.
Private respondents can not be said to have unduly enriched
themselves at the expense of petitioner FCP since they will be
required to pay the latter the unpaid balance of its obligation under
the promissory note.
In view of the foregoing discussion, We hold that the Court of
Appeals did not err in requiring petitioner Perla to indemnify private
respondents for the loss of their insured vehicle. However, the latter
should be ordered to pay petitioner FCP the amount of P55,055.93,
representing the unpaid installments from December 30, 1982 up to
July 1, 1983, 18a shown in the statement of account prepared by
petitioner FCP, plus legal

______________

17 Exhibit “B”; Records, p. 80. Emphasis supplied.

18 Exhibit “D”, Records, p. 84.

495

VOL. 208, MAY 7, 1992 495

Perla Compania de Seguros, Inc. vs. Court of Appeals

interest from July 2, 1983 until fully paid.

As to the award of moral damages, exemplary damages and
attorney’s fees, private respondents are legally entitled to the same
since petitioner Perla had acted in bad faith by unreasonably
refusing to honor the insurance claim of the private respondents.
Besides, awards for moral and exemplary damages, as well as
attorney’s fees are left to the sound discretion of the Court. 19
Such
discretion, if well exercised, will not be disturbed on appeal.
WHEREFORE, the assailed decision of the Court of Appeals is
hereby MODIFIED to require private respondents to pay petitioner
FCP the amount of P55,055.93, with legal interest from July 2, 1983
until fully paid. The decision appealed from is hereby affirmed as to
all other respects. No pronouncement as to costs.
SO ORDERED.

Melencio-Herrera (Chairman), Paras, Padilla and

Regalado, JJ., concur.

Decision affirmed with modification.

Notes.—Liability of insurer to total loss due to car accident of

insured vehicle under the theft clause of the policy of an insured’s
car wrongfully takes without the insured’s consent from the car
service and repair shop entrusted for check-up and repair. (Villacorta
vs. Insurance Commission, 100 SCRA 467.)
The insurer must therefor indemnify the petitioner-owner for the
total loss of the insured car in the sum of P35,000.00 under the theft
clause of the policy, subject to the filing of such claim for
reimbursement or payment of as it may have as subrogee against
Sunday Machine Works, Inc. Villacorta. (Sunday Machine Works,
Inc. Villacorta vs. Insurance Commission, 100 SCRA 467.)

——o0o——

_____________

19 Philippine Airline, Inc. vs. Court of Appeals, 188 SCRA 461 (1990).

496
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