INSURANCE CASES

G.R. No. 172404               August 13, 2014

PEOPLE'S TRANS-EAST ASIA INSURANCE CORPORATION, a.k.a. PEOPLE'S GENERAL INSURANCE CORPORATION, Petitioner,
vs.
DOCTORS OF NEW MILLENNIUM HOLDINGS, INC., Respondent.

LEONEN, J.:

The liabilities of an insurer under the surety bond are not extinguished when the modifications in the principal contract do not sub'stantially or
materially alter the principal's obligations. The surety is jointly and severally liable with its principal when the latter defaults from its obligations
under the principal contract.

This is a petition for review on certiorari under Rule 45 of the Rules of Court, praying for the reversal of the decision 1 of the Court of Appeals which
set aside the decision2 of the Regional Trial Court of Pasig City, Branch 267. In the assailed decision,the Court of Appeals held People's General
Insurance Corporation and Million State Development Corporation jointly and severally liable to respondent Doctors of New Millennium Holdings,
Inc.

As found by the trial court and the Court of Appeals, the facts are as follows.

Doctors of New Millennium Holdings, Inc. is a domestic corporation comprised of about 80 doctors. On March 2, 1999, it entered into a
construction and development agreement (signed agreement) with Million State Development Corporation, a contractor, for the construction of a
200-bed capacity hospital in Cainta, Rizal.3

According to the terms of the signed agreement, Doctors of New Millennium obliged itself to pay ₱10,000,000.00 to Million State Development at
the time of the signingof the agreement to commence the construction of the hospital. Million State Development was to shoulder 95% of the
project cost and committed itself to secure ₱385,000,000.00 within 25 banking days from Doctors of New Millennium’s initial payment,4 part of
which was to be used for the purchase of the lot where the hospital was to be constructed.5

As part of the conditions prior tothe initial payment, Million State Development submitted a surety bond of ₱10,000,000.00 to Doctors of New
Millennium. The surety bond was issued by People’s Trans-East Asia Insurance Corporation, now known as People’s General Insurance
Corporation. Doctors of New Millennium, on the other hand, made the initial payment of ₱10,000,000.00.6

Million State Development, however, failed to comply with its obligation to secure ₱385,000,000.00 within 25 banking days from initial
payment.7 On April 7, 1999, it faxed a letter to Doctors of New Millennium explaining its delay was caused by its foreign creditors’ delay in
processing its application.8

On April 9, 1999, Doctors of New Millennium sent a formal demand letter to Million State Development for the remittance of the funds to be used
for the purchase of the lot and demanding for the cost of money from the time the remittance was due. Instead of replying to the demand letter,
Million State Development sent another letter on April 16, 1999, explaining that they would have their standby letter of credit within 15 banking
days.9

When Million State Development reneged on its obligations, Doctors of New Millennium sent a demand letter dated June 14, 1999 to People’s
General Insurance for the return of itsinitial payment of ₱10,000,000.00, in accordance with its surety bond. 10 On July 9, 1999, Doctors of New
Millennium sent another letter to People’s General Insurance, this time furnishing a copy to the Insurance Commission. The Insurance
Commission referred the matter to its Public Assistance and Investigation Division, which conducted conciliation proceeding.11

After several conferences, People’s General Insurance sent a letter dated September 15, 1999 to then Insurance Commissioner Eduardo T.
Malinis, stating that Doctors of New Millennium’s surety claim was denied on the ground that the guarantee only extended to "the full and faithful
construction of a First Class 200 hospital bed building" 12 and not to "the ‘funding’ of the construction of the hospital." 13 As a result of the letter, the
conciliation proceedings were terminated, and Doctors of New Millennium filed an administrative complaint for unfair claim settlementpractice
against People’s General Insurance.14

On October 5, 1999, while the administrative complaint was pending before the Insurance Commission, Doctors of New Millennium sent a demand
letter to Million State Development for the return of their initial payment of ₱10,000,000.00.15 Due to Million State Development’s inaction, Doctors
of New Millenniumfiled a complaint for breach of contract with damages with prayerfor the issuance of preliminary attachment against Million State
Development and People’s General Insurance with the Regional Trial Court of Pasig City.16

In the proceedings before the trial court, Million State Development did not appear or submit any responsive pleading and was declared in default.
The trial court resolved the issues of the case only as to the remaining parties and primarily involving the surety bond.17

Doctors of New Millennium, represented by its President, Dr. Cenon Alfonso, testified that the surety bond was entered into to protect the release
of the ₱10,000,000.00 initial mobilization fund. People’s General Insurance, on the other hand, represented by its President, Manual Liboro,
testified that its liability was only limited to the construction of the hospital.18

Mr. Liboro also argued that the terms of the surety bond were based on the Draft Construction and Development Agreement (draft agreement). It
alleged that without its knowledge and consent, Doctors of New Millennium and Million State Development substantially altered the conditions of
the draft agreement by inserting the clause"or the Project Owner’s waiver," which appeared in the signed agreement.19

The draft agreement stated:

ARTICLE XIII
CONDITIONS TO DISBURSEMENT OF INITIAL PAYMENT

13.1 The obligations of the Project Owner to pay to the Contractor the amount constituting the Initial Payment shall be subject to and shall be
made on the date (the"Closing Date") following the fulfillment of the following conditions:

(a) the approval and selections by the Project Owner of the subcontractor that shall perform the Works, in accordance with Section 5.1[;]

(b) the submission by the Contractor of a breakdown of the phases of the Work to be performed in pursuance of the Project, the
corresponding percentage value and weight of each such phase, and the schedule of the Works indicating the chronological order in
 which the Contractor proposed to carry out such Works, together with the dates on which each phase of work shall be completed (the
"Schedule of Work");

(c) the submission by the Contractor of a copy of the (Surety Bond) in the form and substance satisfactory to the Project Owner, in
accordance with Section 9.1;

(d) the submission by the Contractor of proof of a firm commitment by banking institution(s) to fund the Project in the form of a
committed credit line and representing committed funds in the amount not less than the Contract Price, or such other similar financing
arrangements acceptable to the Project Owner; and

(e) the compliance by the Contractorwith all the obligations required to be performed by the Contractor as of the Closing Date.20

The same provisions appeared in Article XIII ofthe signed agreement, except for its first paragraph, which stated:

ARTICLE XIII
CONDITIONS TO DISBURSEMENT OF INITIAL PAYMENT

13.1 The obligation of the Project Owner to pay to the Contractor the amount constituting the Initial Payment shall be subject to and shall be made
on the date (the"Closing Date") following the fulfillment or the Project Owner’s waiver of the following conditions: . . . (Emphasis supplied)21

Mr. Liboro claimed that they became aware of the alteration during the conciliation proceedings before the Insurance Commission.22

On February 18, 2002, the Insurance Commission rendered its decision on the administrative complaint, finding that People’s General Insurance
engaged in unfair claim settlement practice under Section 241(1) of the Insurance Code. The Commission imposed a fine of ₱500.00, the
suspension of its certificate of registration of its bond underwriter for six months, and the suspension of its authority to issue bonds for six
months.23

On August 25, 2004, the trial court rendered its decision24 finding only Million State Development liable toDoctors of New Millennium. It discharged
People’s General Insurance from any liability on the ground that the inclusion of the clause "or the Project Owner’s waiver" in the signed
agreement was a novation of the draft agreement. It found that the Doctors of New Millennium’s right under the surety bond can only be exercised
upon the fulfillment of the conditions provided for in Article XIII(13.1).25 The dispositive portion states:

WHEREFORE, IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring the defaulted defendant Contractor,
Million State Development Corporation represented by Peter A. Perez, President solely liable to plaintiff Doctors of New Millen[n]ium Holdings,
Inc., represented by Cenon R. Alfonso in the amount of Ten Million Pesos (Ph₱10,000,000.00), plus legal interests from October 1999 until fully
paid. Saiddefendant Contractor is likewise directed to pay plaintiff the amountof Ph₱150,000.00 as attorney’s fees and litigation expenses as well
as the costs of the suit.

In the meantime, the instant complaint as against the defendant People’s Trans East Asia Insurance Corporation a.k.a. People’s General
Insurance Corporation is hereby dismissed for lack of merit.

SO ORDERED.26

Upon the denial of its motion for partial reconsideration, Doctors of New Millennium filed an appeal with the Court of Appeals, seeking the reversal
of the trial court’s finding that the surety was not liable.27

On December 29, 2005, the Court of Appeals rendered a decision28 granting the appeal and holding People’s General Insurance jointly and
severally liable with Million State Development.

The appellate court found that the surety bond was made to cover for the initial payment made by Doctors of New Millennium. Citing the Whereas
Clause of the surety bond, it ruled that People’s General Insurance guaranteed not only the construction ofthe hospital but also secured the initial
payment in case the contractor defaults.29 The surety bond stated:

That we MILLION STATE DEVELOPMENT CORPORATION . . ., as principal, and PEOPLE’S TRANS-EAST ASIA INSURANCE CORPORATION,
a corporation duly organized and existing under and by virtue of the laws of the Philippines, as surety, are held and firmly bound unto the
DOCTORS OF NEW MILLENNIUM HOLDINGS, INC. . . . in the sum of TEN MILLION PESOS ONLY (10,000,000.00) Philippine Currency, for the
payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns jointly and
severallyfirmly by these presents:

The condition[s] of this obligation are as follows:

WHEREAS, the above bounded principal, on the 2nd day of March, 1999 entered into a construction and Dev’t. Agreement with DOCTORS OF
NEW MILLENNIUM HOLDINGS, INC. to full and faithfully guarantee for the construction of a first class 200 bed capacity hospital building project
Site.

WHEREAS, the DOCTORS OF NEW MILLENNIUM HOLDINGS, INC. requires the Principal to post a Surety (Downpayment) Bond in the above-
stated sum to guarantee the repayment of the downpayment as provided under the terms and conditions of its contract with the obligee, a copy of
which is hereto attached and made an integral part of this bond.

WHEREAS, the liability of the herein Surety shall in no case exceed the sum of TEN MILLION PESOS (₱10,000,000.00) ONLY, Philippine
Currency.

WHEREAS, said DOCTORSOF NEW MILLENNIUM HOLDINGS, INC. requires said principal to give a good and sufficient bond in the above
stated sum to securethe full and faithful performance on his part said contract agreement.

NOW, THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements
stipulated in said contractagreement then, this obligation shall be null and void, otherwise it shall remain in full force and effect.30

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The appellate court also ruled thatthe Doctors of New Millennium’s waiver of the preconditions stated in Article XIII of the signed agreement did not
increase the surety’s risk since it has"absolutely no relation at all and are not material to the undertaking of People’s General Insurance to
guarantee repayment."31 The dispositive portion of the decision states:

WHEREFORE, the judgment appealed as regards the dismissal of the complaint against defendant People’s General Insurance is hereby
REVERSED and SET ASIDE. Surety is hereby adjudged jointly and severally liable with Million State Development Corporation for the damages
suffered by the plaintiff in a) the amount of ten million pesos (₱10,000,000.00), plus legal interests fromOctober 1999 until fully paid and; b) the
amount of ₱200,000.00 representing attorney’s fees and litigation expenses. Costs against defendants.

SO ORDERED.32

People’s General Insurance filed a motion for reconsideration, which the Court of Appeals denied in a resolution dated April 20, 2006. Aggrieved, it
filed the present petition for review on certiorari praying for the reversal of the decision of the Court of Appeals.33

People’s General Insurance argues that Million State Development furnished it a copy of the draft agreement with the assurance that the same
terms and conditions would be embodied in the signed agreement. It argues that when the parties inserted the clause "or the Project Owner’s
waiver," it substantially altered the terms and conditions of the contract as "they exponentially increase[d] the risk that petitioner was willing to take
as surety."34 It explains that under the draft agreement, Million State Development "must hurdle certain stringent requirements" 35 before the
₱10,000,000.00 initial payment could be released to it.36

Petitioner People’s General Insurance also alleges that because of the disputed clause, the initial payment was released to the contractor on the
pretext that the preconditions were already waived by Doctors of New Millennium. 37 It argues that the clause "effectively deprived [it] of the
opportunity to objectively assess the realrisk of its undertaking and fix the reasonable rate of premium thereon."38 This, it argues, constituted an
implied novation, which should automatically relieve it from its undertaking as a surety as it makes its obligation more onerous.39

Doctors of New Millennium, on the other hand, argues that there was no novation since the draft agreement was not yet a valid and binding
contract between it and Million State Development. It alleged that Million State Development entered into a surety agreement with People’s
General Insurance on the basis of the draft agreement without its knowledge.40

It also argues that if People’s General Insurance disagreed with the terms and conditions of the signed agreement, it should have informed
Doctors of New Millennium or Million State Development of the matter since the premium payment of 158,792.50 remained in its possession,
control, and disposal.41

We are asked to resolve the issue of whether the surety bond guaranteeing respondent Doctors of New Millennium’s initial payment was impliedly
novated by the insertion of a clause in the principal contract, which waived the conditions for the initial payment’s release.

The petition is without merit

The principal contract of the suretyship is the signed agreement

The obligations of the surety to the principal under the surety bond are different from the obligations of the contractor to the client under the
principal contract. The surety guarantees the performanceof the contractor’s obligations. Upon the contractor’s default,its client may demand
against the surety bond even ifthere was no privity of contract between them. This is the essence of a surety agreement.

The definition of a surety is provided for under the Civil Code, which states:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such
case the contract is called a suretyship.

In Stronghold Insurance Company v. Tokyu Construction Company:42

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of another party, called the obligee. By its verynature, under the laws regulating suretyship, the
liability of the surety is joint and several but is limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee.43

In American Home Insurance Co. v. F. F. Cruz:44

The surety is considered in law aspossessed of the identity of the debtor in relation to whatever is adjudged touching upon the obligation of the
latter. Their liabilities are so interwoven as to be inseparable. Although the contract of suretyship is, in essence, secondary only to a valid principal
obligation, the surety’s liability to the creditor is direct, primary, and absolute; he becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.45

In this case, the surety bond was executed "to guarantee the repayment of the downpayment" 46 and "to secure the full and faithful
performance"47 of Million State Development. According to the terms of the bond, People’s General Insurance bound itself to be liable in the
amount of ₱10,000,000.00 in the event that Million State Development defaults in its obligations.48

Petitioner, however, contends that the inclusion of the clause "or the Project Owner’s waiver" in Article XIII of the signed agreement made its
obligations more onerous and, therefore,the surety must be released from its bond.

A suretyship consists of two different contracts: (1) the surety contract and (2) the principal contract which it guarantees. Since the insurer’s liability
is strictly based only on the terms stated in the surety contract in relation to the principal contract, any change in the principal contract, which
materially alters the principal’s obligations would, in effect, constitute an implied novation of the surety contract:

[A] surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a
change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the

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legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the
effect of making its obligation more onerous.49

Petitioner insists that the principal contract of the suretyship was the draft agreement since it was assured byits principal that the draft would
embody the same terms and conditions asthe final signed agreement. The insertion of the disputed clause in the signed agreement, it argues,
"effectively deprived petitioner of the opportunity to objectively assess the real risk of its undertaking and fix the reasonable rate of premium
thereon."50

This argument is unmeritorious.

In his testimony before the trial court, Mr. Liboro, representing petitioner, admitted that the signed copyof the agreement was attached to the surety
bond when it was returned to them by Million State Development and respondent:

ATTY. PEREZ: Do I get it correct Mr. Witness that after the contract was finalize[d], it was attached to the bond and returned to you?

A: Yes, it was returned to us together with the attachment.

ATTY. PEREZ: So, that was maybe if the payment was made on March 3, 1999 about March 4, 1999 [sic] you have a copy of the final draft
already? It was attached to your bond?

A: It was attached to our copy of the bond.51

Mr. Liboro also admitted that they were not diligent in reviewing the documents presented to them and merely relied on their principal’s assurances
of the content of the documents:

ATTY. PEREZ:

Q: Is that normal procedure inyour company that you evaluate an application on the basis of a mere draft?

WITNESS:

A: Draft is for us to study whether we can accept or not. In fact, that is the first requirement you have the contract submitted and we have to study,
but once the bond is to be issued, there are some other requirements that you have to comply with. That is the initial requirement.

Q: But do you remember having mentioned that it came to your knowledge that the final signed contract agreement between Million State
Development Corporation and the Doctors of New Millennium happened two (2) days after you issued the bond?

A: No, only one (1) day. In factI did not evenobserve until later on when they were reviewing this bond, from the lawyer "pa nanggaling yon; hindi
naman napupuna iyon eh."I have trust and confidence that the final draft was the same draft that was drafted.52

Petitioner, as the surety, had the responsibility to read through the terms of the principal contract; it cannot simply rely on the assurances of its
principal. It was petitioner’s duty to carefully scrutinize the agreement since the Insurance Code mandates that its liability is determined strictly in
accordance with the provisions of the principal contract:

Sec. 176. The liability of the suretyor sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is
determined strictly bythe terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.53

If petitioner had any objection to the terms of the signed agreement, it could have pointed it out before its principal defaults and it becomes liable
under the surety bond. The silence ofpetitioner must be taken against it since it was responsible for exerting diligence in the conduct of its affairs.

Even the Insurance Commission was aware that petitioner acted irresponsibly when it issued the surety bond:

This Commission, however, took notice of the laxity or irresponsible underwriting practice ofrespondent insurance company’s bond underwriter
when the latter did notrequire a collateral security for this kind of bond considering that the business of suretyship is a very risky one. It would have
been easier for respondent company to settle the claim had there been a collateral given by the principal when the latter defaulted from the
obligation under the contract.54

Petitioner’s failure to notice the changes in the signed agreement was due to its own fault and not to any deception on the part of respondent.
Respondent was not privy to the terms of the surety bond entered into by petitioner and Million State Development. If there were any changes in
the contract that petitioner should have been aware of, it was Million State Development, as its principal, which had the duty to inform them about
the changes.

On the basis of petitioner’s own admissions, the principal contract of the suretyship is the signed agreement. The surety, therefore, is presumed to
have acquiesced to the terms and conditions embodied in the principal contract when it issued its surety bond. Accordingly, petitioner cannot
argue that the insertion of the clause inthe signed agreement constituted an implied novation of the obligation which extinguished its obligations as
a surety since there was nothing to novate: [I]n order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and new obligation be in every point incompatible with each other. Novation of a
contractis never presumed. In the absence of an express agreement, novation takes place only when the old and the new obligations are
incompatible on every point.55

Even if we were to assume, for the sake of argument, that the principal contract in the suretyship was the draft agreement, the addition of the
clause "or the Project Owner’s waiver" in the signed agreement does not operate as a novation of petitioner’s liability under the surety bond.

The disputed clause is not material to People’s General Insurance’s undertaking to guarantee Doctors of New Millennium’s initial payment

Respondent’s waiver of the conditionsset forth under Article XIII of the agreement does not substantially or materially alter petitioner’s obligation to
guarantee the performance of its principal, Million State Development. Article XIII states:

ARTICLE XIII

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CONDITIONS TO DISBURSEMENT OF INITIAL PAYMENT

13.1 The obligation of the Project Owner to pay to the Contractor the amount constituting the Initial Payment shall be subject to and shall be made
on the date (the "Closing date") following the fulfillment or the Project Owner’s waiver of the following conditions:

(a) the approval and selection by the Project Owner of the Subcontractor that shall perform the Works, in accordance with Section 5.1;

(b) the submission by the Contractor of a breakdown of the phases of the Work to be performed in pursuance of the Project, the
corresponding percentage value and weight of each such phase, and a schedule of the Works indicating the chronological order in
which the Contractor proposes to carry out such Works, together with the dates on which each phase of work shall be completed (the
"Schedule of Work");

(c) the submission by the Contractor of a copy of the (Surety Bond) in the form and substance satisfactory to the Project Owner, in
accordance with Section 9.1;

(d) the submission by the Contractor of proof of a firm commitment by banking institution(s) to fund the Project in the form of a
committed credit line and representing committed funds in an amount not less than the Contract Price, or such other similar financing
arrangements acceptable to the Project Owner; and

(e) the compliance by the Contractor with all obligations required to be performed by the Contractor as of the Closing Date.56

These conditions, however, only embody a portion of Million State Development’s obligations to respondent.

Petitioner, as a surety, bound itself to guarantee the repayment of the initial price in the event that Million State Development fails to perform not
only the conditions under Article XIII but all its obligations under the signed agreement. This is clear from the terms of the surety bond: WHEREAS,
the DOCTORS OF NEW MILLENNIUM HOLDINGS, INC. requires the Principal to post a Surety (Downpayment) Bond in the above-stated sum to
guarantee the repayment of the downpayment as provided under the terms and conditions of its contract with the obligee, a copy of which is
hereto attached and made an integral part of this bond.57

The conditions under Article XIII ofthe signed agreement refer only to the conditions that Million State Development was responsible for so that
initial payment could be disbursed to them.1âwphi1 Petitioner failed to take into account that Article XIII must be read together with ArticleIX, which
states:

Article IX
SECURITY FOR CONTRACTOR’S OBLIGATIONS

9.1 Upon receipt of the execution of this Agreement, the Contractor shall deliver to the Project Owner a Surety bond for the amount equal to the
Initial Payment of TEN MILLION PESOS (Ph₱10,000,000.00) secured from Peoples Trans-East Asia Insurance Corporation for the purpose of
securing the performance by the Contractor of its obligations in accordance with the terms and conditions of this Agreement as set out in Annex F
and shall be valid until the issuance by the Project Owner of the Certificate of Final Acceptance of the Project, provided that the amount available
to be drawn under the Surety Bond shall be reduced semi-annually commencing six (6) months from the date of Initial Payment and in proportion
to such work, services, materials, supplies and equipment certified by the Project Owner to have been performed, completed or provided during
the relevant six month period.58

Article IX requires Million State Development to procure a surety bond to cover the initial payment "upon the execution of the Agreement," and not
upon the fulfillment of the conditions under Article XIII. Any waiver by respondent of the conditions for the release of the initial payment would not
affect the conditions by which the surety bond was issued.1âwphi1

Million State Development’s obligations under the contract subsist regardless of whether respondent waives the conditions for the release of the
initial payment. Its obligation upon the release of the initial payment was for it to "make available the funds constituting the Balance Payment . . .
[in] the amount of THREE HUNDRED EIGHTY-FIVE MILLION PESOS (Ph₱385,000,000.00), within twenty-five(25) banking days from payment by
the Project Owner of the Initial Payment."59 It is this performance of this obligation that the surety primarily guarantees.

Even the Insurance Commission arrived at the same conclusion when it found that:

It appears from the provisions of Art. [VII] 7.5 of the Agreement that the initial payment of ₱10 million serves as a basis and a reckoning for the
"Contractor to make available the funds constituting the Balance Payment under the following schedule: a) the amount of ₱385 million within 25
days from payment by the Project Owner of the Initial Payment xxx." Considering that the contractor failed to provide for the Balance Payment on
the prescribed due date, he has the obligation to return what he has received so as not to unjustly enrich himself at the expense of the other. It can
be inferred[,] therefore,that the undertaking pertains to the return of the initial payment of ₱10 million.60

Petitioner cannot feign ignorance of Million State Development’s obligation to provide the funds for the balance since this provision was present in
both the draft agreement and the signed agreement. 61 Since Million State Development failed to fulfillits obligation, the surety becomes jointly and
severally liable for the amount of the bond.

The award of attorney’s fees must be deleted

The trial court and the Court of Appeals awarded attorney’s fees to respondent without giving any factual or legal basis for the award. The award
merely appeared on the dispositive portion of the lower court’s rulings without explanation or justification.

As we have stated in Philippine National Construction Corporation v. APAC Marketing Corporation:62

The general rule is thatattorney’s fees cannot be recovered as part of damages because of the policy that no premium should be placed on the
right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees under Article
220863 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to
protect his rights, still attorney’s fees may not be awarded where no sufficient showing of bad faith could be reflected in a party’s persistence in a
case other than an erroneous conviction of the righteousness of his cause.64

As respondent has not shown any justification as to its award of attorney’s fees, the samemust be deleted.

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WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. CV No. 84645 dated December 29, 2005 is
AFFIRMEDwith MODIFICATION. Petitioner People’s General Insurance Corporation is held jointly and severally liable with Million State
Development Corporation for the payment of ₱10,000,000.00 with legal interest of 12% per annum from June14, 1999 until June 30, 2013 and
legal interest of 6% per annum from July 1, 2013 until fully paid. 65 The award of ₱200,000.00 representing attorney’s fees and litigation expenses
is DELETED.

SO ORDERED.

G.R. No. 195176

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,

vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.

DEL CASTILLO, J.:

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved· the application for
reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the
insured in determining the date when the reinstatement was approved.

Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed the Petition in
CA-GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied the petitioner Insular Life Assurance Company Ltd. 's (Insular Life)
motion for partial reconsideration.4

Factual Antecedents

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s Diamond Jubilee Insurance Plan.
Felipe accomplished the required medical questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life thereafter
issued him Policy Number A000015683 with a face value of P1 million. This took effect on June 22, 1997.5

On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period from June 22, 1999 to June 23, 2000.6

On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change in his occupation
of being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his
application for reinstatement was virtually identical to those mentioned in his original policy.7

On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain conditions
such as payment of additional premium and the cancellation of the riders pertaining to

premium waiver and accidental death benefits. Felipe agreed to these conditions8 and on December 27, 1999 paid the agreed additional premium
of P3,054.50.9

On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:

This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming
parts of this policy [are] deleted.

In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Philippine currency.10

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on
July 2, 2001, he also paid the same amount as annual premium covering the period from June 22, 2001 to June 21, 2002.11

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:

Immediate cause: a. End stage renal failure, Hepatic failure

Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.

Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or respondents) filed with Insular Life
a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe’s beneficiaries that it had decided to
rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the reinstated life insurance policy be
declared valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy,
among others.13

In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic
Liver Cirrhosis with Ascites) that he already had prior to his application for reinstatement of his insurance policy; and that it would not have
reinstated the insurance policy had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe died,
the policy was still

6
contestable.14

Ruling of the Regional Trial Court (RTC)

On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for Felipe’s beneficiaries, thus:

WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is hereby rendered in
their favor and against defendants, ordering the latter to pay jointly and severally the

sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid representing the face value of
Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00
as attorney’s fees; P10,000.00 as litigation expenses.

SO ORDERED.16

In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance policy was reinstated on June 22,
1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court of

Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the principle that an insurance contract
is a contract of adhesion. 18 The RTC also held that the reinstated insurance policy had already become incontestable by the time of Felipe’s death
on September 22, 2001 since more than two years had already lapsed from the date of the policy’s reinstatement on June 22, 1999. The RTC
noted that since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred from taking advantage
of any ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance policy became effective.

Ruling of the Court of Appeals

On June 24, 2010, the CA issued the assailed Decision19 which contained the following decretal portion:

WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the award of
moral damages, attorney’s fees and litigation expenses [is] DELETED.

SO ORDERED.20

The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It declared that contrary
to Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the obscurity/ambiguity in the language of these two
documents, the construction/interpretation that favors the insured’s right to recover should be adopted; and that in keeping with this principle, the
insurance policy in dispute must be deemed reinstated as of June 22, 1999.21

Insular Life moved for partial reconsideration 22 but this was denied by the CA in its Resolution of December 13, 2010. 23 Hence, the present
Petition.

Issue

The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy is already incontestable at the time of his
death.

Petitioner’s Arguments

In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to recover on the reinstated
insurance policy because the two-year contestability period had not yet lapsed inasmuch as the insurance policy was reinstated only on December
27, 1999, whereas Felipe died on September 22, 2001; 24 that the CA overlooked the fact that Felipe paid the additional extra premium only on
December 27, 1999, hence, it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring that resort to the
principles of statutory construction is still necessary to resolve that question given that the Application for Reinstatement, the Letter of Acceptance
and the Endorsement in and by themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should be
reckoned from the date of approval of the reinstatement;25 and that Felipe’s misrepresentation and concealment of material facts in regard to his
health or adverse medical condition gave it (Insular Life) the right to rescind the contract of insurance and consequently, the right to deny the claim
of Felipe’s beneficiaries for death benefits under the disputed policy.26

Respondents’ Arguments

Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the Endorsement is unclear whether
it refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that
granting that there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door of Insular Life as it was this
insurance company that prepared the necessary documents that make up the same;27 and that given the CA’s finding which effectively affirmed
the RTC’s finding on this particular issue, it stands to reason that the insurance policy had indeed become incontestable upon the date of Felipe’s
death.28

Our Ruling

We deny the Petition.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.

7
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.

The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban,29

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the
policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy
holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations
of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under
the law.

xxxx

The Court therefore agrees fully with the appellate court’s pronouncement that-

xxxx

‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when
the insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated,
that is, from the date of the last reinstatement’.

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there held that the
reinstatement of the insured’s policy is to be reckoned from the date when the

application was processed and approved by the insurer. There, we stressed that:

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x x

xxxx

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for Reinstatement and deposit

the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated
after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good health.31

Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the reinstatement only on
December 27, 1999. On the other hand, respondents contend that it was on June

22, 1999 that the reinstatement took effect.

The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.

The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-forma document reads
as follows:

LETTER OF ACCEPTANCE

Place: Cag. De [O]ro City

The Insular Life Assurance Co., Ltd.

P.O. Box 128, MANILA

Policy No. A000015683

Gentlemen:

Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we agree to the following condition/s indicated with a
check mark:

[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of insurance; effective June 22, 1999

[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates; the SAR at P____ annually per
thousand of Insurance;

[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.

[]

8
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.

Very truly yours,

Felipe N. Khu, Sr.

After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again quoted as follows:

ENDORSEMENT

PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming
parts of this policy is deleted.

In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00
quarterly, Philippine Currency.

Cagayan de Oro City, 07 January 2000.

RCV/

(Signed) Authorized Signature

Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered as reinstated on
June 22, 1999. This finding must be upheld not only because it accords with the evidence, but also because this is favorable to the insured who
was not responsible for causing the ambiguity or obscurity in the insurance contract.34

The CA expounded on this point thus –

The Court discerns a genuine ambiguity or obscurity in the language of the two documents.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x premium of P5.00 a year per thousand
of insurance; effective June 22, 1999". It is true that the phrase as used in this

particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court notes that the reinstatement was conditioned upon
the payment of additional premium not only prospectively, that is, to cover the

remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the amount of
P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the insurance
coverage starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.

In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase "effective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of this policy," or to the subsequent phrase "changes are made on the
policy."

The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts.

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed.35

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company,36 we ruled in favor of the insured and in
favor of the effectivity of the insurance contract in the midst of ambiguity in the insurance contract provisions. We held that:

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the
insurer from noncompliance with its obligations.

xxxx

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the industry

purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of
the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon
insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective
insurance contract.37

9
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on
September 22, 2001.1âwphi1 As such, the subject insurance policy has already become incontestable at the time of Felipe’s death.

Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral damages, attorney’s fees and litigation
expenses; hence this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13, 2010 Resolution of the Court of Appeals in CA-
GR. CV No. 81730 are AFFIRMED.

SO ORDERED.

G.R. No. 205206, March 16, 2016

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION (PRESENTLY KNOWN AS BPI/MS INSURANCE
CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent.

CARPIO, J.:

The Case

This is a petition for review on certiorari 1 assailing the Decision dated 29 June 2012 2 and Resolution dated 11 December 2012 3 of the Court of
Appeals in CA-G.R. CV No. 01575.

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a "Platinum 2-in-1 Savings and Insurance"
account with petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account
is a savings account where depositors are automatically covered by an insurance policy against disability or death issued by petitioner FGU
Insurance Corporation (FGU Insurance), now known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel
corresponding to Savings Account No. 2233-0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU
Insurance in the name of Rheozel with Laingo as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death issued by the Office of the Civil Registrar
General of Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent family, the Daily Mirror headlined the story in its
newspaper on 26 September 2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to BPI, Claveria, Davao City branch and
inquire about the savings account of Rheozel. Laingo wanted to use the money in the savings account for Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due to Laingo's credit standing and
relationship with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000 from the account of Rheozel. A certain Ms. Laura
Cabico, an employee of BPI, went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some information from Alice and brought with
her a number of documents for Laingo to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while arranging Rheozel's personal things in his
room at their residence in Ecoland, Davao City, found the Personal Accident Insurance Coverage Certificate No. 043549 issued by FGU
Insurance. Rhealyn immediately conveyed the information to Laingo.

Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance requesting them to process her claim as
beneficiary of Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance
stated that Laingo should have filed the claim within three calendar months from the death of Rheozel as required under Paragraph 15 of the
Personal Accident Certificate of Insurance which states:
chanRoblesvirtualLawlibrary
15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three calendar months of death or disability.
On 20 February 2004, Laingo filed a Complaint4 for Specific Performance with Damages and Attorney's Fees with the Regional Trial Court of
Davao City, Branch 16 (trial court) against BPI and FGU Insurance.

In a Decision5 dated 21 April 2008, the trial court decided the case in favor of respondents. The trial court ruled that the prescriptive period of 90
days shall commence from the time of death of the insured and not from the knowledge of the beneficiary. Since the insurance claim was filed
more than 90 days from the death of the insured, the case must be dismissed. The dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the counterclaims.

SO ORDERED.6ChanRoblesVirtualawlibrary
Laingo filed an appeal with the Court of Appeals.

The Ruling of the Court of Appeals

In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial court. The Court of Appeals ruled that Laingo could not be
expected to do an obligation which she did not know existed. The appellate court added that Laingo was not a party to the insurance contract
entered into between Rheozel and petitioners. Thus, she could not be bound by the 90-day stipulation. The dispositive portion of the Decision
states:
chanRoblesvirtualLawlibrary
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008 of the Regional Trial Court, Branch 16, Davao City, is hereby
REVERSED and SET ASIDE.

Appellee Bank of the Philippine Islands and FGU Insurance Corporation are DIRECTED to PAY jointly and severally appellant Yolanda Laingo
Actual Damages in the amount of P44,438.75 and Attorney's Fees in the amount of P200,000.00.

Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the insurance proceeds of the Personal Accident Insurance Coverage of
Rheozel Laingo with legal interest of six percent (6%) per annum reckoned from February 20, 2004 until this Decision becomes final. Thereafter,
an interest of twelve percent (12%) per annum shall be imposed until fully paid.

SO ORDERED.7ChanRoblesVirtualawlibrary
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution dated 11 December 2012.

Hence, the instant petition.

10
The Issue

The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge of the existence of the insurance contract,
is bound by the three calendar month deadline for filing a written notice of claim upon the death of the insured.

The Court's Ruling

The petition lacks merit.

Petitioners contend that the words or language used in the insurance contract, particularly under paragraph 15, is clear and plain or readily
understandable by any reader which leaves no room for construction. Petitioners also maintain that ignorance about the insurance policy does not
exempt respondent from abiding by the deadline and petitioners cannot be faulted for respondent's failure to comply.

Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no provision indicating how the beneficiary is to be
informed of the three calendar month claim period. Since petitioners did not notify her of the insurance coverage of her son where she was named
as beneficiary in case of his death, then her lack of knowledge made it impossible for her to fulfill the condition set forth in the insurance contract.

In the present case, the source of controversy stems from the alleged non-compliance with the written notice of insurance claim to FGU Insurance
within three calendar months from the death of the insured as specified in the insurance contract. Laingo contends that as the named beneficiary
entitled to the benefits of the insurance claim she had no knowledge that Rheozel was covered by an insurance policy against disability or death
issued by FGU Insurance that was attached to Rheozel's savings account with BPI. Laingo argues that she dealt with BPI after her son's death,
when she was allowed to withdraw funds from his savings account in the amount of P995,000. However, BPI did not notify her of the attached
insurance policy. Thus, Laingo attributes responsibility to BPI and FGU Insurance for her failure to file the notice of insurance claim within three
months from her son's death.

We agree.

BPI offered a deposit savings account with life and disability insurance coverage to its customers called the Platinum 2-in-1 Savings and Insurance
account. This was a marketing strategy promoted by BPI in order to entice customers to invest their money with the added benefit of an insurance
policy. Rheozel was one of those who availed of this account, which not only included banking convenience but also the promise of compensation
for loss or injury, to secure his family's future.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its partner. Any customer interested to open a
deposit account under this 2-in-1 product, after submitting all the required documents to BPI and obtaining BPI's approval, will automatically be
given insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect to the insurance feature of its own marketed product.

Under the law, an agent is one who binds himself to render some service or to do something in representation of another. 8 In Doles v.
Angeles,9 we held that the basis of an agency is representation. The question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention.
Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case. For an agency to arise, it is
not necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact contemplates impersonal
dealings where the principal need not personally know or meet the third person with whom the agent transacts: precisely, the purpose of agency is
to extend the personality of the principal through the facility of the agent.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product, offering the insurance coverage for free for
every deposit account opened, Rheozel directly communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the processing of the
deposit account and the collection of necessary documents but also the necessary endorsement for the prompt approval of the insurance
coverage without any other action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every transaction was coursed
through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an agency relationship is established, the agent acts for the principal
insofar as the world is concerned. Consequently, the acts of the agent on behalf of the principal within the scope of the delegated authority have
the same legal effect and consequence as though the principal had been the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be reasonably carried out with full disclosure to
the parties concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the insurance
coverage and the stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary, upon the latter's death.

Articles 1884 and 1887 of the Civil Code state:

chanRoblesvirtualLawlibrary
Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which, through his non-performance, the
principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal.

In default, thereof, he shall do all that a good father of a family would do, as required by the nature of the business.
The provision is clear that an agent is bound to carry out the agency. The relationship existing between principal and agent is a fiduciary one,
demanding conditions of trust and confidence. It is the duty of the agent to act in good faith for the advancement of the interests of the principal. In
this case, BPI had the obligation to carry out the agency by informing the beneficiary, who appeared before BPI to withdraw funds of the insured
who was BPI's depositor, not only of the existence of the insurance contract but also the accompanying terms and conditions of the insurance
policy in order for the beneficiary to be able to properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn, should have fulfilled its duty, as agent of FGU
Insurance, of advising Laingo that there was an added benefit of insurance coverage in Rheozel's savings account. An insurance company has the
duty to communicate with the beneficiary upon receipt of notice of the death of the insured. This notification is how a good father of a family should
have acted within the scope of its business dealings with its clients. BPI is expected not only to provide utmost customer satisfaction in terms of its
own products and services but also to give assurance that its business concerns with its partner entities are implemented accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to the agent is notice to the
principal,11 Here, BPI had been informed of Rheozel's death by the latter's family. Since BPI is the agent of FGU Insurance, then such notice of
death to BPI is considered as notice to FGU Insurance as well. FGU Insurance cannot now justify the denial of a beneficiary's insurance claim for
being filed out of time when notice of death had been communicated to its agent within a few days after the death of the depositor-insured. In
short, there was timely notice of Rheozel's death given to FGU Insurance within three months from Rheozel's death as required by the insurance
company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing, regarding the existence of the insurance policy
attached to the deposit account. First, Rheozel's death was headlined in a daily major newspaper a day after his death. Second, not only was
Laingo, through her representative, able to inquire about Rheozel's deposit account with BPI two days after his death but she was also allowed by
BPI's Claveria, Davao City branch to withdraw from the funds in order to help defray Rheozel's funeral and burial expenses. Lastly, an employee of

11
BPI visited Rheozel's wake and submitted documents for Laingo to sign in order to process the withdrawal request. These circumstances show
that despite being given many opportunities to communicate with Laingo regarding the existence of the insurance contract, BPI neglected to carry
out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo had no means to ascertain that
she was entitled to the insurance claim. It would be unfair for Laingo to shoulder the burden of loss when BPI was remiss in its duty to properly
notify her that she was a beneficiary.

Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the loss and must compensate Laingo for the actual damages
suffered by her family plus attorney's fees. Likewise, FGU Insurance has the obligation to pay the insurance proceeds of Rheozel's personal
accident insurance coverage to Laingo, as Rheozel's named beneficiary.chanrobleslaw

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and Resolution dated 11 December 2012 of the Court of
Appeals in CA-G.R. CV No. 01575.

SO ORDERED.cralawlawlibrary

G.R. No. 152334               September 24, 2014

H.H. HOLLERO CONSTRUCTION, INC., Petitioner,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM and POOL OF MACHINERY INSURERS, Respondents.

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 are the Decision2 dated March 13, 2001 and the Resolution 3 dated February 21, 2002 of the Court
of Appeals (CA) in CA-G.R. CV No. 63175, which set aside and reversed the Judgment 4 dated February 3, 1999 of the Regional Trial Court of
Quezon City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner H.H. Hollero Construction, Inc.' s (petitioner) Complaint for
Sum of Money and Damages under the insurance policies issued by public respondent, the Government Service Insurance System (GSIS), on the
ground of prescription.

The Facts

On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter undertook the development of a GSIS
housing project known as Modesta Village Section B (Project). 5 Petitioner obligated itself to insurethe Project, including all the improvements, upon
the execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance Department for an amount equal
to its cost or sound value, which shall not be subject to any automatic annual reduction.6

Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 7 in the amount of ₱1,000,000.00 for land development, which was later
increased to ₱10,000,000.00,8 effective from May 2, 1988 to May 2, 1989. 9 Petitioner likewise secured CAR Policy No. 88/086 10 in the amount of
₱1,000,000.00 for the construction of twenty (20) housing units, which amount was later increased to ₱17,750,000.00 11 to cover the construction of
another 355 new units, effective from May 2, 1988 toJune 1, 1989. 12 In turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of
Machinery Insurers (Pool).13

Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability within fourteen (14) days from the
occurrence of the loss or damage;14 (b) all benefits thereunder shall be forfeited if no action is instituted within twelve(12) months after the rejection
of the claim for loss, damage or liability;15 and (c) if the sum insured is found to be less than the amount required to be insured, the amount
recoverable shall be reduced tosuch proportion before taking into account the deductibles stated in the schedule (average clause provision).16

During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29,
1988, and Typhoon Saling on October 11, 1989, which caused considerable damage to the Project.17 Accordingly, petitioner filed several claims for
indemnity with the GSIS on June 30, 1988,18 August 25, 1988,19 and October 18, 1989,20 respectively.

In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring and Huaning, finding
that no amount is recoverable pursuant to the average clause provision under the policies. 22 In a letter23 dated June 21, 1990, the GSIS similarly
rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a "no loss" basis, itappearing from its records that the policies
were not renewed before the onset of the said typhoon.24

In a letter25 dated April 18, 1991, petitioner impugned the rejection of its claims for damages/loss on accountof Typhoon Saling, and reiterated its
demand for the settlement of its claims.

On September 27, 1991, petitioner filed a Complaint26 for Sum of Money and Damages before the RTC, docketed as Civil Case No. 91-
10144,27 which was opposed by the GSIS through a Motion to Dismiss28 dated October 25, 1991 on the ground that the causes of action stated
therein are barred by the twelve-month limitation provided under the policies, i.e., the complaint was filed more than one(1) year from the rejection
of the indemnity claims. The RTC, in an Order 29 dated May 13, 1993, denied the said motion; hence, the GSIS filed its answer 30 with counterclaims
for litigation expenses, attorney’s fees, and exemplary damages. Subsequently, the GSIS filed a Third Party Complaint31 for indemnification
against Pool, the reinsurer.

The RTC Ruling

In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s indemnity claims. It held that: (a) the average clauseprovision in the policies
which did not contain the assentor signature of the petitioner cannot limit the GSIS’ liability, for being inefficacious and contrary to public
policy;33 (b) petitioner has established that the damages it sustained were due to the peril insured against; 34 and (c) CAR Policy No. 88/086 was
deemed renewed when the GSIS withheld the amount of 35,855.00 corresponding to the premium payable, 35 from the retentions it released to
petitioner.36 The RTC thereby declared the GSIS liable for petitioner’s indemnity claims for the damages brought about by the said typhoons, less
the stipulated deductions under the policies,plus 6% legal interest from the dates of extrajudicial demand, as well as for attorney’s fees and costs
of suit. It further dismissed for lack of merit GSIS’s counterclaim and third party complaint.37

Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling In a Decision 38 dated March 13, 2001, the CAset aside and reversed the RTC
Judgment, thereby dismissing the complaint. It ruled that the complaint filed on September 27, 1991 was barred by prescription, having been
commenced beyond the twelve-month limitation provided under the policies, reckoned from the final rejection of the indemnity claims on April 26,
1990 and June 21, 1990. The Issue Before the Court

12
The essential issue for the Court’s resolution is whether or not the CA committed reversible error in dismissing the complaint onthe ground of
prescription.

The Court’s Ruling

The petition lacks merit.

Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary, and popular sense.39

Section 1040 of the General Conditions of the subject CAR Policies commonly read:

10. If a claim is in any respect fraudulent, or if any false declaration is 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 a claim is made and rejected and no action or suit is
commenced within twelve months after such rejectionor, in case of arbitration taking place as provided herein, within twelve months after the
Arbitrator or Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited. (Emphases supplied)

In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity should bereckoned from the "final rejection" of
the claim.41

Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990 did not amount to a "final rejection" ofits claims, arguing that
they were mere tentative resolutions pending further action on petitioner’s part or submission of proof in refutation of the reasons for
rejection.42 Hence, its causes of action for indemnity did not accrue on those dates.

The Court does not agree.

A perusal of the letter 43 dated April 26, 1990 shows that the GSIS denied petitioner’s indemnity claims wrought by Typhoons Biring and Huaning, it
appearing that no amount was recoverable under the policies. While the GSIS gave petitioner the opportunity to dispute its findings, neither of the
parties pursued any further action on the matter; this logically shows that they deemed the said letter as a rejection of the claims. Lest it cause any
confusion, the statement in that letter pertaining to any queries petitioner may have on the denial should be construed, at best, as a form of notice
to the former that it had the opportunity to seek reconsideration of the GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a
mere "tentative resolution." In fact, despite its disavowals, petitioner admitted in its pleadings 44 that the GSIS indeed denied its claim through the
aforementioned letter, buttarried in commencing the necessary action in court.

The same conclusion obtains for the letter 45 dated June 21, 1990 denying petitioner’s indemnity claim caused by Typhoon Saling on a "no loss"
basis due to the non-renewal of the policies therefor before the onset of the said typhoon. The fact that petitioner filed a letter 46 of reconsideration
therefrom dated April 18, 1991, considering too the inaction of the GSIS on the same similarly shows that the June 21, 1990 letter was also a final
rejection of petitioner’s indemnity claim.

As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of the insured and not the rejection or denial by
the insurer of the insured’s motion or request for reconsideration. 47 The rejection referred to should be construed as the rejection in the first
instance,48 as in the two instances above-discussed.

Comparable to the foregoing is the Court’s action in the case of Sun Insurance Office, Ltd. v. CA 49 wherein it debunked "[t]he contention of the
respondents [therein] that the one-year prescriptive period does not start to run until the petition for reconsideration had been resolved by the
insurer," holding that such view "runs counter to the declared purpose for requiring that an action or suit be filed in the Insurance Commission or in
a court of competent jurisdiction from the denial of the claim." 50 In this regard, the Court rationalized that "uphold[ing]respondents' contention would
contradict and defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device
to waste time until any evidence which may be considered against them is destroyed."51 Expounding on the matter, the Court had this to say:

The crucial issue in this case is: When does the cause of action accrue?

In support of private respondent’s view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance Co.vs.Chia Yu ([supra
note 41]), where the Court held:

The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract
does not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for
bringing suit.

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:

Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the defendant in violation
of the said legal right, the cause of action does not accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty
(in this case to pay the amount of the bond)."

Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured' s cause of action or his right to file a claim
either in the Insurance Commission or in a court of competent jurisdiction [as in this case] commences from the time of the denial of his claim by
the Insurer, either expressly or impliedly.1âwphi1

But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in the first instance, for if
what is being referred to is a reiterated rejection conveyed in a resolution of a yetition for reconsideration, such should have been expressly
stipulated.52

In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity respectively accrued from its receipt of the letters dated April
26, 1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it allowed more than twelve
(12) months to lapse before filing the necessary complaint before the R TC on September 27, 1991, its causes of action had already prescribed.

WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001 and the Resolution dated February 21, 2002 of the Court of Appeals
(CA) in CA-G.R. CV No. 63175 are hereby AFFIRMED.

13
SO ORDERED.

G.R. No. 195872               March 12, 2014

FORTUNE MEDICARE, INC., Petitioner,

vs.
DAVID ROBERT U. AMORIN, Respondent.

REYES, J.:

This is a petition for review on certiorari 1 under Rule 45 of the Rules of Court, which challenges the Decision 2 dated September 27, 2010 and
Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation engaged in providing health
maintenance services to its members. The terms of Amorin's medical coverage were provided in a Corporate Health Program Contract 4 (Health
Care Contract) which was executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin was a permanent
employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, causing him to incur professional and hospitalization expenses of US$7,242.35 and
US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the company merely
approved a reimbursement of ₱12,151.36, an amount that was based on the average cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro Manila.5 Amorin received under protest the approved amount, but asked for its
adjustment to cover the total amount of professional fees which he had paid, and eighty percent (80%) of the approved standard charges based on
"American standard", considering that the emergency procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on
Benefits and Coverages of the Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member shall be entitled to full
coverage under the benefits provisions of the Contract at any FortuneCare accredited hospitals subject only to the pertinent provision of
Article VII (Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician (MSU), the member shall be
reimbursed 80% of the professional fee which should have been paid, had the member been treated by an affiliated physician. The
availment of emergency care from an unaffiliated physician shall not invalidate or diminish any claim if it shall be shown to have been
reasonably impossible to obtain such emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee (based on the
total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint 7 for breach of contract with damages with the Regional Trial
Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional fees incurred in foreign
countries, as the contract’s operation was confined to Philippine territory. 8 Further, it argued that its liability to Amorin was extinguished upon the
latter’s acceptance from the company of the amount of ₱12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section 3, Article V of the Health Care
Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as basis. Section 3 of the Corporate
Health Care Program Contract provides that:

xxxx

On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have been paid, had the member
been treated by an affiliated physician, the Court concludes that the basis for reimbursement shall be Philippine rates. That provision, taken with
Article V of the health program contract, which identifies affiliated hospitals as only those accredited clinics, hospitals and medical centers located
"nationwide" only point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of the approved standard charges
which shall cover hospitalization costs and professional fees, can only be reasonably construed in connection with the preceding clause on
professional fees to give meaning to a somewhat vague clause. A particular clause should not be studied as a detached and isolated expression,
but the whole and every part of the contract must be considered in fixing the meaning of its parts.10

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already paid by Fortune Care to Amorin as
equivalent to 80% of the hospitalization and professional fees payable to the latter had he been treated in an affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portion of its decision reads:

14
WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006 assailed Decision of the Regional
Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE, and a new one entered ordering Fortune Medicare, Inc. to
reimburse [Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and professional fee of $1,777.79 paid by him to
St. Francis Medical Center pursuant to Section 3, Article V of the Corporate Health Care Program Contract, or their peso equivalent at the time the
amounts became due, less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care Contract, being like insurance
contracts, must be liberally construed in favor of the subscriber. In case its provisions are doubtful or reasonably susceptible of two interpretations,
the construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should be strictly construed against the
provider.14 Second, the CA explained that there was nothing under Article V of the Health Care Contract which provided that the Philippine
standard should be used even in the event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution 16 dated February 24, 2011. Hence, the filing of the present petition for review
on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to interpretation, and that it did not
automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its decision that the American
Standard Cost shall be applied in the payment of medical and hospitalization expenses and professional fees incurred by the
respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject Health Care Contract should
be based on the expenses for hospital and professional fees which he actually incurred, and should not be limited by the amount that he would
have incurred had his emergency treatment been performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence holds that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon
under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare Health Systems v. CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party
which prepared the contract – the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This
is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is
to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 20 (Citations omitted and emphasis
ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an established rule in
insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts
of adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is
equally applicable to health care agreements.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its
obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy" and "care" and with a "jaundiced eye." x x x. 22 (Citations
omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed by Section 3(B), Article V of
the subject Health Care Contract, considering that the appendectomy which the member had to undergo qualified as an emergency care, but the
treatment was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent portions of
Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee (based on the
total approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and professional fees. x x
x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall be the base for the allowable
80% benefit. The trial court ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be

15
allowed for treatments performed by accredited physicians in accredited hospitals. As the appellate court however held, this must be interpreted in
its literal sense, guided by the rule that any ambiguity shall be strictly construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of emergency
care in a foreign country. As the contract recognized Fortune Care’s liability for emergency treatments even in foreign territories, it expressly
limited its liability only insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed was concerned, pegged
at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different meanings. Plainly, the term
"standard charges" could be read as referring to the "hospitalization costs and professional fees" which were specifically cited as compensable
even when incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care Contract could it be reasonably
deduced that these "standard charges" referred to the "Philippine standard", or that cost which would have been incurred if the medical services
were performed in an accredited hospital situated in the Philippines. The RTC ruling that the use of the "Philippine standard" could be inferred from
the provisions of Section 3(A), which covered emergency care in an accredited hospital, was misplaced. Evidently, the parties to the Health Care
Contract made a clear distinction between emergency care in an accredited hospital, and that obtained from a non-accredited
hospital.1âwphi1 The limitation on payment based on "Philippine standard" for services of accredited physicians was expressly made applicable
only in the case of an emergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred from the other provisions of
Section 3(B), considering that Amorin’s case fell under the second case, i.e., emergency care in a non-accredited hospital. Rather than a
determination of Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives emergency care in a non-accredited hospital"
within the Philippines. Thus, for emergency care in non-accredited hospitals, this cited clause declared the standard in the determination of the
amount to be paid, without any reference to and regardless of the amounts that would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories, the only qualification was only as to the percentage, or 80% of that
payable for treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable in the Philippines, the amount
payable by Fortune Care should not be limited to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage of its
member. If, as Fortune Care argued, the premium and other charges in the Health Care Contract were merely computed on assumption and risk
under Philippine cost and, that the American cost standard or any foreign country's cost was never considered, such limitations should have been
distinctly specified and clearly reflected in the extent of coverage which the company voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the House of Representatives, particularly in their 2006 agreement, the provision on
emergency care in non-accredited hospitals was modified to read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or pay one hundred (100%)
percent under approved Philippine Standard covered charges for hospitalization costs and professional fees but not to exceed maximum allowable
coverage, payable in pesos at prevailing currency exchange rate at the time of availment in said territory where he/she is confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any ambiguity in a contract whose
terms are susceptible of different interpretations must be read against the party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24, 2011 of the Court of Appeals
in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.

G.R. No. 193986               January 15, 2014

EASTERN SHIPPING LINES INC., Petitioner,

vs.
BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD., Respondents.

VILLARAMA, JR., J.:

Before this Court is a petition 1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeking the reversal of the
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 88361, which affirmed with modification the Decision 3 of the Regional Trial Court (RTC),
of Makati City, Branch 138 in Civil Case No. 04-1005.

The facts follow:

On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through MV Eastern Challenger V-9-S, a vessel owned by petitioner Eastern
Shipping Lines, Inc. (petitioner), 31 various steel sheets in coil weighing 271,828 kilograms from Yokohama, Japan for delivery in favor of the
consignee Calamba Steel Center Inc. (Calamba Steel).4 The cargo had a declared value of US$125,417.26 and was insured against all risk by
Sumitomo with respondent Mitsui Sumitomo Insurance Co., Ltd. (Mitsui). On or about September 6 2003, the shipment arrived at the port of
Manila. Upon unloading from the vessel, nine coils were observed to be in bad condition as evidenced by the Turn Over Survey of Bad Order
Cargo No. 67327. The cargo was then turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba
Steel’s withdrawal of the goods. When ATI delivered the cargo to Calamba Steel, the latter rejected its damaged portion, valued at US$7,751.15,
for being unfit for its intended purpose.5

Subsequently, on September 13, 2003, a second shipment of 28 steel sheets in coil, weighing 215,817 kilograms, was made by Sumitomo through
petitioner’s MV Eastern Challenger V-10-S for transport and delivery again to Calamba Steel. 6 Insured by Sumitomo against all risk with
Mitsui,7 the shipment had a declared value of US$121,362.59. This second shipment arrived at the port of Manila on or about September 23, 2003.
However, upon unloading of the cargo from the said vessel, 11 coils were found damaged as evidenced by the Turn Over Survey of Bad Order
Cargo No. 67393. The possession of the said cargo was then transferred to ATI for stevedoring, storage and safekeeping pending withdrawal
thereof by Calamba Steel. When ATI delivered the goods, Calamba Steel rejected the damaged portion thereof, valued at US$7,677.12, the same
being unfit for its intended purpose.8

Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel sheets in coil weighing 930,718 kilograms through petitioner’s vessel,
MV Eastern Venus V-17-S, again in favor of Calamba Steel.9 This third shipment had a declared value of US$476,416.90 and was also insured by
Sumitomo with Mitsui. The same arrived at the port of Manila on or about October 11, 2003. Upon its discharge, six coils were observed to be in
bad condition. Thereafter, the possession of the cargo was turned over to ATI for stevedoring, storage and safekeeping pending withdrawal thereof

16
by Calamba Steel. The damaged portion of the goods being unfit for its intended purpose, Calamba Steel rejected the damaged portion, valued at
US$14,782.05, upon ATI’s delivery of the third shipment.10

Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent BPI/MS Insurance Corporation (BPI/MS), and the
former was paid the sums of US$7,677.12, US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments or for the total amount
of US$30,210.32. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages
against petitioner and ATI.11

As synthesized by the RTC in its decision, during the pre-trial conference of the case, the following facts were established, viz:

1. The fact that there were shipments made on or about August 29, 2003, September 13, 2003 and September 29, 2003 by Sumitomo to
Calamba Steel through petitioner’s vessels;

2. The declared value of the said shipments and the fact that the shipments were insured by respondents;

3. The shipments arrived at the port of Manila on or about September 6, 2003, September 23, 2003 and October 11, 2003 respectively;

4. Respondents paid Calamba Steel’s total claim in the amount of US$30,210.32.12

Trial on the merits ensued.

On September 17, 2006, the RTC rendered its Decision,13 the dispositive portion of which provides:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendants Eastern Shipping Lines, Inc. and Asian Terminals, Inc.,
jointly and severally, ordering the latter to pay plaintiffs the following:

1. Actual damages amounting to US$30,210.32 plus 6% legal interest thereon commencing from the filing of this complaint, until the
same is fully paid;

2. Attorney’s fees in a sum equivalent to 25% of the amount claimed;

3. Costs of suit. The defendants’ counterclaims and ATI’s crossclaim are DISMISSED for lack of merit.

SO ORDERED.14

Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA in its assailed Decision affirmed with modification the RTC’s findings
and ruling, holding, among others, that both petitioner and ATI were very negligent in the handling of the subject cargoes. Pointing to the affidavit
of Mario Manuel, Cargo Surveyor, the CA found that "during the unloading operations, the steel coils were lifted from the vessel but were not
carefully laid on the ground. Some were even ‘dropped’ while still several inches from the ground while other coils bumped or hit one another at
the pier while being arranged by the stevedores and forklift operators of ATI and [petitioner]." The CA added that such finding coincides with the
factual findings of the RTC that both petitioner and ATI were both negligent in handling the goods. However, for failure of the RTC to state the
justification for the award of attorney’s fees in the body of its decision, the CA accordingly deleted the same.15 Petitioner filed its Motion for
Reconsideration16 which the CA, however, denied in its Resolution17 dated October 6, 2010.

Both petitioner and ATI filed their respective separate petitions for review on certiorari before this Court.1âwphi1 However, ATI’s petition, docketed
as G.R. No. 192905, was denied by this Court in our Resolution 18 dated October 6, 2010 for failure of ATI to show any reversible error in the
assailed CA decision and for failure of ATI to submit proper verification. Said resolution had become final and executory on March 22,
2011.19 Nevertheless, this Court in its Resolution 20 dated September 3, 2012, gave due course to this petition and directed the parties to file their
respective memoranda.

In its Memorandum,21 petitioner essentially avers that the CA erred in affirming the decision of the RTC because the survey reports submitted by
respondents themselves as their own evidence and the pieces of evidence submitted by petitioner clearly show that the cause of the damage was
the rough handling of the goods by ATI during the discharging operations. Petitioner attests that it had no participation whatsoever in the
discharging operations and that petitioner did not have a choice in selecting the stevedore since ATI is the only arrastre operator mandated to
conduct discharging operations in the South Harbor. Thus, petitioner prays that it be absolved from any liability relative to the damage incurred by
the goods.

On the other hand, respondents counter, among others, that as found by both the RTC and the CA, the goods suffered damage while still in the
possession of petitioner as evidenced by various Turn Over Surveys of Bad Order Cargoes which were unqualifiedly executed by petitioner’s own
surveyor, Rodrigo Victoria, together with the representative of ATI. Respondents assert that petitioner would not have executed such documents if
the goods, as it claims, did not suffer any damage prior to their turn-over to ATI. Lastly, respondents aver that petitioner, being a common carrier is
required by law to observe extraordinary diligence in the vigilance over the goods it carries.22

Simply put, the core issue in this case is whether the CA committed any reversible error in finding that petitioner is solidarily liable with ATI on
account of the damage incurred by the goods.

The Court resolves the issue in the negative.

Well entrenched in this jurisdiction is the rule that factual questions may not be raised before this Court in a petition for review on certiorari as this
Court is not a trier of facts. This is clearly stated in Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as amended, which provides:

SECTION 1. Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.

Thus, it is settled that in petitions for review on certiorari, only questions of law may be put in issue. Questions of fact cannot be entertained.23

A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts, or when
the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. A
question of fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole

17
evidence considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances as well as their
relation to each other and to the whole, and the probability of the situation.24

In this petition, the resolution of the question as to who between petitioner and ATI should be liable for the damage to the goods is indubitably
factual, and would clearly impose upon this Court the task of reviewing, examining and evaluating or weighing all over again the probative value of
the evidence presented25 – something which is not, as a rule, within the functions of this Court and within the office of a petition for review on
certiorari.

While it is true that the aforementioned rule admits of certain exceptions, 26 this Court finds that none are applicable in this case. This Court finds no
cogent reason to disturb the factual findings of the RTC which were duly affirmed by the CA. Unanimous with the CA, this Court gives credence
and accords respect to the factual findings of the RTC – a special commercial court 27 which has expertise and specialized knowledge on the
subject matter28 of maritime and admiralty – highlighting the solidary liability of both petitioner and ATI. The RTC judiciously found:

x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity) No. 67393 and Request for Bad Order Survey No. 57692 show that prior
to the turn over of the first shipment to the custody of ATI, eleven (11) of the twenty-eight (28) coils were already found in bad order condition.
Eight (8) of the said eleven coils were already "partly dented/crumpled " and the remaining three (3) were found "partly dented, scratches on inner
hole, crumple (sic)". On the other hand, the TOSBOC No. 67457 and Request for Bad Order Survey No. 57777 also show that prior to the turn
over of the second shipment to the custody of ATI, a total of six (6) coils thereof were already "partly dented on one side, crumpled/cover detach
(sic)". These documents were issued by ATI. The said TOSBOC’s were jointly executed by ATI, vessel’s representative and surveyor while the
Requests for Bad Order Survey were jointly executed by ATI, consignee’s representative and the Shed Supervisor. The aforementioned
documents were corroborated by the Damage Report dated 23 September 2003 and Turn Over Survey No. 15765 for the first shipment, Damage
Report dated 13 October 2003 and Turn Over Survey No. 15772 for the second shipment and, two Damage Reports dated 6 September 2003 and
Turn Over Survey No. 15753 for the third shipment.

It was shown to this Court that a Request for Bad Order Survey is a document which is requested by an interested party that incorporates therein
the details of the damage, if any, suffered by a shipped commodity. Also, a TOSBOC, usually issued by the arrastre contractor (ATI in this case), is
a form of certification that states therein the bad order condition of a particular cargo, as found prior to its turn over to the custody or possession of
the said arrastre contractor.

The said Damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey led the Court to conclude that before the subject
shipments were turned over to ATI, the said cargo were already in bad order condition due to damage sustained during the sea voyage.
Nevertheless, this Court cannot turn a blind eye to the fact that there was also negligence on the part of the employees of ATI and [Eastern
Shipping Lines, Inc.] in the discharging of the cargo as observed by plaintiff’s witness, Mario Manuel, and [Eastern Shipping Lines, Inc.’s] witness,
Rodrigo Victoria.

In ascertaining the cause of the damage to the subject shipments, Mario Manuel stated that the "coils were roughly handled during their
discharging from the vessel to the pier of (sic) ASIAN TERMINALS, INC. and even during the loading operations of these coils from the pier to the
trucks that will transport the coils to the consignee’s warehouse. During the aforesaid operations, the employees and forklift operators of
EASTERN SHIPPING LINES and ASIAN TERMINALS, INC. were very negligent in the handling of the subject cargoes. Specifically, "during
unloading, the steel coils were lifted from the vessel and not carefully laid on the ground, sometimes were even ‘dropped’ while still several inches
from the ground. The tine (forklift blade) or the portion that carries the coils used for the forklift is improper because it is pointed and sharp and the
centering of the tine to the coils were negligently done such that the pointed and sharp tine touched and caused scratches, tears and dents to the
coils. Some of the coils were also dragged by the forklift instead of being carefully lifted from one place to another. Some coils bump/hit one
another at the pier while being arranged by the stevedores/forklift operators of ASIAN TERMINALS, INC. and EASTERN SHIPPING
LINES.29 (Emphasis supplied.)

Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier. 30 As
hereinbefore found by the RTC and affirmed by the CA based on the evidence presented, the goods were damaged even before they were turned
over to ATI. Such damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the goods during the
discharging operations. Thus, it bears stressing unto petitioner that 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 transported by them. Subject to certain exceptions enumerated
under Article 173431 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive
them.32 Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or
negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence
in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed
such high level of diligence.33 In this case, petitioner failed to hurdle such burden.

In sum, petitioner failed to show any reversible error on the part of the CA in affirming the ruling of the RTC as to warrant the modification, much
less the reversal of its assailed decision.

WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of the Court of Appeals in CA-G.R. CV No. 88361 is hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

G.R. No. 198174               September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated May 31, 2011 and
Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor
vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty

18
Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26, 2007 to February
26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle
to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts to locate the
same, said efforts proved futile. Resultantly, respondent promptly reported the incident to the police and concomitantly notified petitioner of the
said loss and demanded payment of the insurance proceeds in the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the culprit, who stole the Insure[d]
unit, is employed with you. We would like to invite you on the provision of the Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to damage of the motor
vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial Court (RTC) of Quezon
City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter as follows:

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the amount is fully settled;

To pay attorney’s fees in the sum of ₱65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis.3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION
WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES
NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR
UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

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

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;

19
(b)

by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

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

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each and every
vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the
Policy Schedule with a minimum deductible amount of Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions to Section III,"
means loss due to injury or harm to person, property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts
that the loss of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this case. This is evident from
the very provision of Section III – "Loss or Damage." The insurance company, subject to the limits of liability, is obligated to indemnify the insured
against theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed by the driver of the insured,
there being no categorical declaration of exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract
should be interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions are
open to two interpretations, that which is most favorable to the insured is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this would result to an absurd situation where the insurer would also be
held liable if the insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured
himself, the same would be an exception to the coverage since in that case there would be fraud on the part of the insured or breach of material
warranty under Section 69 of the Insurance Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech.9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word "loss" refers to the act or
fact of losing, or failure to keep possession, while the word "damage" means deterioration or injury to property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of "Exceptions to Section III,"
since the same refers only to "malicious damage," or more specifically, "injury" to the motor vehicle caused by a person under the insured’s
service. Paragraph 4 clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from coverage, is the damage
that is the direct result from the deliberate or willful act of the insured, members of his family, and any person in the insured’s service, whose clear
plan or purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it should have used the
term "damage" alone in the entire policy or otherwise included a clear definition of the said term as part of the provisions of the said insurance
contract. Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word "damage" in the term "malicious damage" to include the theft of the
insured vehicle.

The Court does not find the particular contention to be well taken.

20
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the
insurer and the assured, determine the import of the various terms and provisions embodied in the policy. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, the
policy will be construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park
Corporation v. Philippine American Life Insurance Company,11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
non-compliance with its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party
which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.

G.R. No. 200784               August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER,

vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.

MENDOZA, J.:

Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011 Decision 1 of the Court of Appeals
(CA), which affirmed with modification the September 17, 2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its February
24, 2012 Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).

The Facts

The undisputed factual antecedents were succinctly summarized by the CA as follows:

On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the
latter’s machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building).
The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal
Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant
thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13,
1998.

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire. Hence,
PAP Co. filed a fire insurance claim with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the insured machineries and
equipment were transferred by PAP Co. to a location different from that indicated in the policy. Specifically, that the insured machineries were
transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace
Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-
bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against
Malayan.4

Ruling of the RTC

On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under the
fire insurance policy as well as for attorney’s fees. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby ordered:

a)

To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the loss under the fire insurance policy, plus
interest thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;

b)

21
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of attorney’s fees; [and,]

c)

To pay the costs of suit.

SO ORDERED.5

The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy because, although there was a
change in the condition of the thing insured as a result of the transfer of the subject machineries to another location, said insurance company failed
to show proof that such transfer resulted in the increase of the risk insured against. In the absence of proof that the alteration of the thing insured
increased the risk, the contract of fire insurance is not affected per Article 169 of the Insurance Code.

The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied with the notice requirement under
the policy considering that it was RCBC which procured the insurance. PAP acted in good faith in notifying RCBC about the transfer and the latter
even conducted an inspection of the machinery in its new location.

Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in ordering it to indemnify PAP for the loss
of the subject machineries since the latter, without notice and/or consent, transferred the same to a location different from that indicated in the fire
insurance policy.

Ruling of the CA

On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the attorney’s fees. The decretal portion
of the CA decision reads:

WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must indemnify PAP Co. Ltd the amount of
Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the
time of loss on October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as
attorney’s fees is DELETED. With costs.

SO ORDERED.6

The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured properties during the efficacy of the
insurance policy. Malayan also failed to show that its contractual consent was needed before carrying out a transfer of the insured properties.
Despite its bare claim that the original and the renewed insurance policies contained provisions on transfer limitations of the insured properties,
Malayan never cited the specific provisions.

The CA further stated that even if there was such a provision on transfer restrictions of the insured properties, still Malayan could not escape
liability because the transfer was made during the subsistence of the original policy, not the renewal policy. PAP transferred the insured properties
from the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan was aware or should have
been aware of such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance policy was a contract of
adhesion, any ambiguity must be resolved against the party that prepared the contract, which, in this case, was Malayan.

Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk of the loss. It, thus, could not use
such transfer as an excuse for not paying the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still sue
Malayan to enforce its rights on the policy because it remained a party to the insurance contract.

Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following

GROUNDS

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS
OF THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED
DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:

CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED,
THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A
REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE
UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT
AT THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31
OF THE INSURANCE CODE, RESPECTIVELY.

RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH
OF AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED
PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE POLICY.

IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL
POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON
ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.

MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL
TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.

22
II

THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE
COURT WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.

JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM
WHICH A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.

MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF
APPEALS BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE
PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN
OPINION ON WHETHER RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER
THE CLAIM AS VOIDED.

III

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS
OF THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE
CLAUSE IN THE INSURANCE POLICY.

IV

THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE
QUESTIONED DECISION AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED.7

Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed concealment, misrepresentation and
breach of an affirmative warranty under the renewal policy when it transferred the location of the insured properties without informing it. Such
transfer affected the correct estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk and, if
so, at what rate of premium. The transfer also affected Malayan’s ability to control the risk by guarding against the increase of the risk brought
about by the change in conditions, specifically the change in the location of the risk.

Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code 8 when it did not inform Malayan of the actual
and new location of the insured properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that there
would be no changes in the renewal policy. Malayan also argues that PAP is guilty of breach of warranty under the renewal policy in violation of
Section 74 of the Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured properties were located at the Sanyo
Factory, these were already transferred to the Pace Factory. Malayan adds that PAP is guilty of misrepresentation upon a material fact in violation
of Section 45 of the Insurance Code 10 when it informed Malayan that there would be no changes in the original policy, and that the original policy
would be renewed on an "as is" basis.

Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured properties under the insurance policy
was with its knowledge and consent. Granting that PAP informed RCBC of the transfer or change of location of the insured properties, the same is
irrelevant and does not bind Malayan considering that RCBC is a corporation vested with separate and distinct juridical personality. Malayan did
not consent to be the principal of RCBC. RCBC did not also act as Malayan’s representative.

With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a result of the unilateral transfer of the
insured properties. According to Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by the assured and factory
of zinc & aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace
Factory was occupied as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.

PAP’s position

On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or deception on its part and that its claim is not
fraudulent. It insists that it can still sue to protect its rights and interest on the policy notwithstanding the fact that the proceeds of the same was
payable to RCBC, and that it can collect interest at the rate of 12% per annum on the proceeds of the policy because its claim for indemnity was
unduly delayed without legal justification.

The Court’s Ruling

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties under the fire insurance policy.

As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 fire insurance policy from Malayan
covering its machineries and equipment effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was
renewed11 on an "as is" basis for another year or until May 13, 1998; that the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at the Pace Factory which totally burned the
insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Malayan

Condition No. 9(c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before the
occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or on behalf of the Company:

x x x           x x x          x x x

(c) If property insured be removed to any building or place other than in that which is herein stated to be insured.12

23
Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any liability.

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal

The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties from the Sanyo
factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was duly notified of the transfer of
the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the referral and
the named beneficiary in the policy. Malayan and RCBC might have been sister companies, but such fact did not make one an agent of the other.
The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral,
PAP dealt directly with Malayan.

The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel stipulated in open court that it was Malayan’s
authorized insurance agent, Rodolfo Talusan, who procured the original policy from Malayan, not RCBC. This was the reason why Talusan’s
testimony was dispensed with.

Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander Barrera, Administrative Assistant of Malayan,
testified that he was the one who procured Malayan’s renewal policy, not RCBC, and that RCBC merely referred fire insurance clients to Malayan.
He stressed, however, that no written referral agreement exists between RCBC and Malayan. He also denied that PAP notified Malayan about the
transfer before the renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire insurance
would be renewed on an "as is basis."15

Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan was not indubitably established. At
best, PAP could only come up with the hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as
follows:

Q What did you do as Branch Manager of Pap Co. Ltd.?

A What I did I instructed my Secretary, because these equipment was bank loan and because of the insurance I told my secretary to notify.

Q To notify whom?

A I told my Secretary to inform the bank.

Q You are referring to RCBC?

A Yes, sir.

xxxx

Q After the RCBC was informed in the manner you stated, what did you do regarding the new location of these properties at Pace Pacific Bldg.
insofar as Malayan Insurance Company is concerned?

A After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance but we were not able to contact
Malayan Insurance so I instructed again my secretary to inform Malayan about the transfer.

Q Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?

A Dory Ramos.

Q How many secretaries do you have at that time in your office?

A Only one, sir.

Q Do you know a certain Maricar Jardiniano?

A Yes, sir.

Q Why do you know her?

A Because she is my secretary.

Q So how many secretaries did you have at that time?

A Two, sir.

Q What happened with the instruction that you gave to your secretary Dory Ramos about the matter of informing the defendant Malayan Insurance
Co of the new location of the insured properties?

A She informed me that the notification was already given to Malayan Insurance.

Q Aside from what she told you how did you know that the information was properly relayed by the said secretary, Dory Ramos, to Malayan
Insurance?

A I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.

24
Q Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance Company about the transfer of the
properties insured to the new location, do you know what happened insofar this information was given to the defendant Malayan Insurance?

A I heard that someone from Malayan Insurance came over to our company.

Q Did you come to know who was that person who came to your place at Pace Pacific?

A I do not know, sir.

Q How did you know that this person from Malayan Insurance came to your place?

A It is according to the report given to me.

Q Who gave that report to you?

A Dory Ramos.

Q Was that report in writing or verbally done?

A Verbal.16 [Emphases supplied]

The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the notice to either Malayan or RCBC.
PAP should have presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.

Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were transferred to a different location only after
the renewal of the fire insurance policy.

COURT

Q When did you transfer the machineries and equipments before the renewal or after the renewal of the insurance?

A After the renewal.

COURT

Q You understand my question?

A Yes, Your Honor.17 [Emphasis supplied]

This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before the policy was renewed.

The transfer from the Sanyo Factory to the PACE Factory increased the risk.

The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to the Pace Factory was insignificant as
it did not increase the risk.

Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace Factory increased the hazard to which
the insured properties were exposed. Malayan wrote:

With regards to the exposure of the risk under the old location, this was occupied as factory of automotive/computer parts by the assured, and
factory of zinc & aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under
Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
Hence, there was an increase in the hazard as indicated by the increase in rate.18

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively affected
the fire rating stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss.
Such increase in risk would necessarily entail an increase in the premium payment on the fire policy.

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute Malayan’s
argument on the increased risk.

Malayan is entitled to rescind the insurance contract

Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with it the same stipulations and
limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo
factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace
Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an
international loss adjuster which investigated the fire incident at the Pace Factory, which opined that "[g]iven that the location of risk covered under
the policy is not the location affected, the policy will, therefore, not respond to this loss/claim."19

It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after the renewal of
the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code
provides:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

25
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. Section 168 of the Insurance Code provides, as follows:

Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the
insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.20

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured properties
were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of the location
increased the risk of loss.

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.

SO ORDERED.

G.R. No. 175666               July 29, 2013

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.

vs.
CRESENCIA P. ABAN, Respondent.

DEL CASTILLO, J.:

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide insurance coverage only to
legitimate and bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy and
while the insured is still alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of fraud, concealment or
misrepresentation. The law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and accepting insurance
business from any Tom, Dick and Harry.

Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286
and its November 9, 2006 Resolution3 denying the petitioner’s Motion for Reconsideration.4

Factual Antecedents

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.

Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in Sotero’s favor on August 30, 1993, after the
requisite medical examination and payment of the insurance premium.6

On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent filed a claim
for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim,8 and came out with the following findings:

1. Sotero did not personally apply for insurance coverage, as she was illiterate;

2. Sotero was sickly since 1990;

3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;

4. Sotero did not sign the July 3, 1993 application for insurance;9 and

5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary.10

For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy.11

On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case No. 97-867 and
assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by fraud,
concealment and/or misrepresentation under the Insurance Code,12 which thus renders it voidable under Article 139013 of the Civil Code.

Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by prescription pursuant to Section 48 of the
Insurance Code, which provides as follows:

26
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous
to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.

During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating among others that the insurance underwriter
who solicited the insurance is a cousin of respondent’s husband, Dindo Aban,15 and that it was the respondent who paid the annual premiums on
the policy.16

Ruling of the Regional Trial Court

On December 9, 1997, the trial court issued an Order17 granting respondent’s Motion to Dismiss, thus:

WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-867 is hereby dismissed.

SO ORDERED.18

In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured the insurance; thus, Sotero could legally
take out insurance on her own life and validly designate – as she did – respondent as the beneficiary. It held further that under Section 48,
petitioner had only two years from the effectivity of the policy to question the same; since the policy had been in force for more than two years,
petitioner is now barred from contesting the same or seeking a rescission or annulment thereof.

Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court stood its ground.

Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned the dismissal of Civil Case No. 97-867,
arguing that the trial court erred in applying Section 48 and declaring that prescription has set in. It contended that since it was respondent – and
not Sotero – who obtained the insurance, the policy issued was rendered void ab initio for want of insurable interest.

Ruling of the Court of Appeals

On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:

WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.

SO ORDERED.20

The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the CA held that petitioner may no longer prove that the subject
policy was void ab initio or rescindible by reason of fraudulent concealment or misrepresentation after the lapse of more than two years from its
issuance. It ratiocinated that petitioner was equipped with ample means to determine, within the first two years of the policy, whether fraud,
concealment or misrepresentation was present when the insurance coverage was obtained. If it failed to do so within the statutory two-year period,
then the insured must be protected and allowed to claim upon the policy.

Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006 Resolution.22 Hence, the present Petition.

Issues

Petitioner raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE
GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.

II

WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE INCONTESTABILITY PROVISION IN THE
INSURANCE CODE BY THE TRIAL COURT.

III

WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR RECONSIDERATION.23

Petitioner’s Arguments

In praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of further proceedings, petitioner
argues in its Petition and Reply24 that Section 48 cannot apply to a case where the beneficiary under the insurance contract posed as the insured
and obtained the policy under fraudulent circumstances. It adds that respondent, who was merely Sotero’s niece, had no insurable interest in the
life of her aunt.

Relying on the results of the investigation that it conducted after the claim for the insurance proceeds was filed, petitioner insists that respondent’s
claim was spurious, as it appeared that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no visible source of
income to pay for the insurance premiums; and that respondent was an impostor, posing as Sotero and fraudulently obtaining insurance in the
latter’s name without her knowledge and consent.

Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and obligations; as such, the action for
the declaration of its nullity or inexistence does not prescribe.25

27
Respondent’s Arguments

Respondent, on the other hand, essentially argues in her Comment 26 that the CA is correct in applying Section 48. She adds that petitioner’s new
allegation in its Petition that the policy is void ab initio merits no attention, having failed to raise the same below, as it had claimed originally that
the policy was merely voidable.

On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero who obtained the insurance, insurable
interest was present. Under Section 10 of the Insurance Code, Sotero had insurable interest in her own life, and could validly designate anyone as
her beneficiary. Respondent submits that the CA’s findings of fact leading to such conclusion should be respected.

Our Ruling

The Court denies the Petition.

The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance for herself, designating
respondent as her beneficiary. Both courts are in accord in this respect, and the Court is loath to disturb this. While petitioner insists that its
independent investigation on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is no longer
feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court.

With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself – petitioner’s case is severely weakened, if not
totally disproved. Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero and forgery of her signature in the insurance
application, are at once belied by the trial and appellate courts’ finding that Sotero herself took out the insurance for herself. "Fraudulent intent on
the part of the insured must be established to entitle the insurer to rescind the contract." 27 In the absence of proof of such fraudulent intent, no right
to rescind arises.

Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by petitioner after the claim was filed may simply
be dismissed as self-serving and may not form the basis of a cause of action given the existence and application of Section 48, as will be
discussed at length below.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two
years – from the effectivity of a life insurance contract and while the insured is alive – to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and
the public in general.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the
policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy
holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations
of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under
the law.

Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the assurance that any dishonest
scheme to obtain life insurance would be exposed, and attempts at unduly denying a claim would be struck down. Life insurance policies that pass
the statutory two-year period are essentially treated as legitimate and beyond question, and the individuals who wield them are made secure by
the thought that they will be paid promptly upon claim. In this manner, Section 48 contributes to the stability of the insurance industry.

Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life insurance, only to later on deny
a claim on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains in the instant case. Thus, instead
of conducting at the first instance an investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411 which would
have timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have turned a blind eye and opted
instead to continue collecting the premiums on the policy. For nearly three years, petitioner collected the premiums and devoted the same to its
own profit. It cannot now deny the claim when it is called to account. Section 48 must be applied to it with full force and effect.

The Court therefore agrees fully with the appellate court’s pronouncement that –

the "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when
the insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated,
that is, from the date of the last reinstatement.

After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie.

Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.

The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts
insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured’s lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The key
phrase in the second paragraph of Section 48 is "for a period of two years."

28
As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the claim was denied on April 16,
1997. The insurance policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering that the insured died after the two-year
period, the plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or
misrepresentation or want of insurable interest on the part of the beneficiary, herein defendant-appellee.

Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the trial court are not based on substantial
evidence or that its conclusions are contrary to applicable law and jurisprudence. The plaintiff-appellant failed to discharge that burden.28

Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondent’s husband, and thus
insinuates that both connived to commit insurance fraud. If this were truly the case, then petitioner would have discovered the scheme earlier if it
had in earnest conducted an investigation into the circumstances surrounding the Sotero policy. But because it did not and it investigated the
Sotero account only after a claim was filed thereon more than two years later, naturally it was unable to detect the scheme. For its negligence and
inaction, the Court cannot sympathize with its plight. Instead, its case precisely provides the strong argument for requiring insurers to diligently
conduct investigations on each policy they issue within the two-year period mandated under Section 48, and not after claims for insurance
proceeds are filed with them.

Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they
should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or if they
do not thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said,
insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same through the years,
generating profits and returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by questioning the authority or
integrity of their own agents or the insurance policies they issued to their premium-paying clients. This is exactly one of the schemes which Section
48 aims to prevent.

Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the inevitable may be put off for years – or
even decades – by the pendency of these unnecessary court cases. In the meantime, they benefit from collecting the interest and/or returns on
both the premiums previously paid by the insured and the insurance proceeds which should otherwise go to their beneficiaries. The business of
insurance is a highly regulated commercial activity in the country, 29 and is imbued with public interest. 30 "An insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the former’s interest."31

WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006 Resolution of the Court of Appeals
in CA-G.R. CV No. 62286 are AFFIRMED.

SO ORDERED.

G.R. No. 175773               June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), Petitioner,

vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

DEL CASTILLO, J.:

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company shoulder the hospitalization expenses of the
dependents of covered employees subject to certain limitations and restrictions. Accordingly, covered employees pay part of the hospitalization
insurance premium through monthly salary deduction while the company, upon hospitalization of the covered employees' dependents, shall pay
the hospitalization expenses incurred for the same. The conflict arose when a portion of the hospitalization expenses of the covered employees'
dependents were paid/shouldered by the dependent's own health insurance. While the company refused to pay the portion of the hospital
expenses already shouldered by the dependents' own health insurance, the union insists that the covered employees are entitled to the whole and
undiminished amount of said hospital expenses.

By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) assails the March 31,
2006 Decision2 and December 5, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the
Voluntary Arbitrator’s December 3, 2002 Decision 4 and declared respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under no
legal obligation to pay its covered employees’ dependents’ hospitalization expenses which were already shouldered by other health insurance
companies.

Factual Antecedents

The parties’ CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization insurance benefits for the covered
dependents, thus:

SECTION 4. DEPENDENTS’ GROUP HOSPITALIZATION INSURANCE – The COMPANY shall obtain group hospitalization insurance coverage
or assume under a self-insurance basis hospitalization for the dependents of regular employees up to a maximum amount of forty thousand pesos
(₱40,000.00) per confinement subject to the following:

a. The room and board must not exceed three hundred pesos (₱300.00) per day up to a maximum of thirty-one (31) days. Similarly,
Doctor’s Call fees must not exceed three hundred pesos (₱300.00) per day for a maximum of thirty-one (31) days. Any excess of this
amount shall be borne by the employee.

b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the COMPANY shall designate hospitals in
different convenient places to be availed of by the dependents of employees. In cases of emergency where the dependent is confined
without the recommendation of the company doctor or in a hospital not designated by the COMPANY, the COMPANY shall look into the
circumstances of such confinement and arrange for the payment of the amount to the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.

Each employee shall pay one hundred pesos (₱100.00) per month through salary deduction as his share in the payment of the insurance premium
for the above coverage with the balance of the premium to be paid by the COMPANY. If the COMPANY is self-insured the one hundred pesos

29
(₱100.00) per employee monthly contribution shall be given to the COMPANY which shall shoulder the expenses subject to the above level of
benefits and subject to the same limitations and restrictions provided for in Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctor’s bills and any amount in excess of the above mentioned level of
benefits will be for the account of the employee.

For purposes of this provision, eligible dependents are the covered employees’ natural parents, legal spouse and legitimate or legally adopted or
step children who are unmarried, unemployed who have not attained twenty-one (21) years of age and wholly dependent upon the employee for
support.

This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.

Maternity cases are not covered by this section but will be under the next succeeding section on maternity benefits.6

When the CBA expired on July 31, 1999, the parties executed another CBA 7 effective August 1, 1999 to July 31, 2002 incorporating the same
provisions on dependents’ hospitalization insurance benefits but in the increased amount of ₱50,000.00. The room and board expenses, as well as
the doctor’s call fees, were also increased to ₱375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin),
filed claims for reimbursement of hospitalization expenses of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida, his wife, Lanie, was confined at Sto.
Tomas University Hospital from September 4 to 9, 1998 due to Thyroidectomy. The medical expenses incurred totalled ₱29,967.10. Of this
amount, ₱9,000.00 representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides health maintenance to
Lanie.8 MMPC only paid ₱12,148.63.9 It did not pay the ₱9,000.00 already paid by MEDICard and the ₱6,278.47 not covered by official receipts. It
refused to give to Calida the difference between the amount of medical expenses of ₱27,427.10 10 which he claimed to be entitled to under the
CBA and the ₱12,148.63 which MMPC directly paid to the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due to Acid Peptic Disease and incurred
medical expenses amounting to ₱9,101.30. 14 MEDICard paid ₱8,496.00.15 Consequently, MMPC only paid ₱288.40,16 after deducting from the
total medical expenses the amount paid by MEDICard and the ₱316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to ₱27,427.10, ₱6,769.35 and ₱8,123.80, respectively, which should
not be reduced by the amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC. However,
MMPC denied the claims contending that double insurance would result if the said employees would receive from the company the full amount of
hospitalization expenses despite having already received payment of portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President 17 demanding full payment of the hospitalization benefits. Alleging
discrimination against MMPSEU union members, she pointed out that full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a
member of the Hourly Union. In a letter-reply,18 MMPC, through its Vice-President for Industrial Relations Division, clarified that the claims of the
said MMPSEU members have already been paid on the basis of official receipts submitted. It also denied the charge of discrimination and
explained that the case of Cruz involved an entirely different matter since it concerned the admissibility of certified true copies of documents for
reimbursement purposes, which case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested for preventive mediation.19

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of the issue involving the interpretation of the
subject CBA provision.20

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other insurance or declares that medical expenses
can be reimbursed only upon presentation of original official receipts. It stressed that the hospitalization benefits should be computed based on the
formula indicated in the CBA without deducting the benefits derived from other insurance providers. Besides, if reduction is permitted, MMPC
would be unjustly benefited from the monthly premium contributed by the employees through salary deduction. MMPSEU added that its members
had legitimate claims under the CBA and that any doubt as to any of its provisions should be resolved in favor of its members. Moreover, any
ambiguity should be resolved in favor of labor.21

On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the covered employees, including those already
paid by other insurance companies, would constitute double indemnity or double insurance, which is circumscribed under the Insurance Code.
Moreover, a contract of insurance is a contract of indemnity and the employees cannot be allowed to profit from their dependents’ loss.22

Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to the issue at hand. In its letter 23 to the
Insurance Commission, MMPC requested for confirmation of its position that the covered employees cannot claim insurance benefits for a loss
that had already been covered or paid by another insurance company. However, the Office of the Insurance Commission opted not to render an
opinion on the matter as the same may become the subject of a formal complaint before it. 24 On the other hand, when queried by MMPSEU, 25 the
Insurance Commission, through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion contained in a
letter,26 viz:

Ms. Cecilia L. ParasPresident

Mitsubishi Motors Phils.

[Salaried] Employees Union

Ortigas Avenue Extension,
Cainta, Rizal

Madam:

We acknowledge receipt of your letter which, to our impression, basically poses the question of whether or not recovery of medical expenses from
a Health Maintenance Organization bars recovery of the same reimbursable amount of medical expenses under a contract of health or medical
insurance.

30
We wish to opine that in cases of claims for reimbursement of medical expenses where there are two contracts providing benefits to that effect,
recovery may be had on both simultaneously. In the absence of an Other Insurance provision in these coverages, the courts have uniformly held
that an insured is entitled to receive the insurance benefits without regard to the amount of total benefits provided by other insurance.
(INSURANCE LAW, A Guide to Fundamental Principles, Legal Doctrines, and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261).
The result is consistent with the public policy underlying the collateral source rule – that is, x x x the courts have usually concluded that the liability
of a health or accident insurer is not reduced by other possible sources of indemnification or compensation. (ibid).

Very truly yours,

RICHARD DAVID C. FUNK II

Officer-in-Charge
Claims Adjudication Division

(SGD.)
Attorney IV

On December 3, 2002, the Voluntary Arbitrator rendered a Decision 27 finding MMPC liable to pay or reimburse the amount of hospitalization
expenses already paid by other health insurance companies. The Voluntary Arbitrator held that the employees may demand simultaneous
payment from both the CBA and their dependents’ separate health insurance without resulting to double insurance, since separate premiums were
paid for each contract. He also noted that the CBA does not prohibit reimbursement in case there are other health insurers.

Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction 28 before the
CA. It claimed that the Voluntary Arbitrator committed grave abuse of discretion in not finding that recovery under both insurance policies
constitutes double insurance as both had the same subject matter, interest insured and risk or peril insured against; in relying solely on the
unauthorized legal opinion of Atty. Funk; and in not finding that the employees will be benefited twice for the same loss. In its
Comment,29 MMPSEU countered that MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is not made.

On March 31, 2006, the CA found merit in MMPC’s Petition. It ruled that despite the lack of a provision which bars recovery in case of payment by
other insurers, the wordings of the subject provision of the CBA showed that the parties intended to make MMPC liable only for expenses actually
incurred by an employee’s qualified dependent. In particular, the provision stipulates that payment should be made directly to the hospital and that
the claim should be supported by actual hospital and doctor’s bills. These mean that the employees shall only be paid amounts not covered by
other health insurance and is more in keeping with the principle of indemnity in insurance contracts. Besides, a contrary interpretation would "allow
unscrupulous employees to unduly profit from the x x x benefits" and shall "open the floodgates to questionable claims x x x."30

The dispositive portion of the CA Decision31 reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated December 3, 2002 is REVERSED and SET ASIDE
and judgment is rendered declaring that under Art. XI, Sec. 4 of the Collective Bargaining Agreement between petitioner and respondent effective
August 1, 1999 to July 31, 2002, the former’s obligation to reimburse the Union members for the hospitalization expenses incurred by their
dependents is exclusive of those paid by the Union members to the hospital.

SO ORDERED.32

In its Motion for Reconsideration,33 MMPSEU pointed out that the alleged oppression that may be committed by abusive employees is a mere
possibility whereas the resulting losses to the employees are real. MMPSEU cited Samsel v. Allstate Insurance Co., 34 wherein the Arizona
Supreme Court explicitly ruled that an insured may recover from separate health insurance providers, regardless of whether one of them has
already paid the medical expenses incurred. On the other hand, MMPC argued in its Comment 35 that the cited foreign case involves a different set
of facts.

The CA, in its Resolution36 dated December 5, 2006, denied MMPSEU’s motion.

Hence, this Petition.

Issues

MMPSEU presented the following grounds in support of its Petition:

A.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY
ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF THE
INSURANCE COMMISSION THAT RECOVERY FROM BOTH THE CBA AND SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE
ABSENCE OF ANY SPECIFIC PROVISION IN THE CBA.

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE VOLUNTARY ARBITRATOR
WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH REVERSAL.

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION ANYTHING ABOUT THE
AMERICAN AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO SEPARATE
HEALTH PLANS.

D.

31
THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE
BY EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY TO THE EMPLOYEES
WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE
ABLE TO AVAIL OF THE SAME IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.37

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality because it is supported by substantial evidence
and is in accordance with the opinion rendered by the Insurance Commission, an agency equipped with vast knowledge concerning insurance
contracts. It maintains that under the CBA, member-employees are entitled to full reimbursement of medical expenses incurred by their
dependents regardless of any amounts paid by the latter’s health insurance provider. Otherwise, non-recovery will constitute unjust enrichment on
the part of MMPC. It avers that recovery from both the CBA and other insurance companies is allowed under their CBA and not prohibited by law
nor by jurisprudence.

Our Ruling

The Petition has no merit.

Atty. Funk erred in applying the

collateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover benefits from different insurance providers
without regard to the amount of benefits paid by each. According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the defendant is prevented from
benefiting from the plaintiff’s receipt of money from other sources. 38 Under this rule, if an injured person receives compensation for his injuries from
a source wholly independent of the tortfeasor, the payment should not be deducted from the damages which he would otherwise collect from the
tortfeasor.39 In a recent Decision40 by the Illinois Supreme Court, the rule has been described as "an established exception to the general rule that
damages in negligence actions must be compensatory." The Court went on to explain that although the rule appears to allow a double recovery,
the collateral source will have a lien or subrogation right to prevent such a double recovery. 41 In Mitchell v. Haldar,42 the collateral source rule was
rationalized by the Supreme Court of Delaware:

The collateral source rule is ‘predicated on the theory that a tortfeasor has no interest in, and therefore no right to benefit from monies received by
the injured person from sources unconnected with the defendant’. According to the collateral source rule, ‘a tortfeasor has no right to any
mitigation of damages because of payments or compensation received by the injured person from an independent source.’ The rationale for the
collateral source rule is based upon the quasi-punitive nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation
sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from his wrong. A plaintiff who
receives a double recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall.
Because the law must sanction one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.

Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a windfall for the innocent
plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing them. 43 Its application is justified so
that "'the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may
exist between the injured party and third persons." 44 Thus, it finds no application to cases involving no-fault insurances under which the insured is
indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses.45 Here, it is clear that MMPC is
a no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents of its employees which had already been paid
by separate health insurance providers of said dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funk’s view that the covered employees are entitled to full payment of the hospital
expenses incurred by their dependents, including the amounts already paid by other health insurance companies based on the theory of collateral
source rule.

The conditions set forth in the CBA provision indicate an intention to limit MMPC’s liability only to actual expenses incurred by the employees’
dependents, that is, excluding the amounts paid by dependents’ other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization expenses already paid by other insurers.
Hence, the covered employees can recover from both. The CA did not agree, saying that the conditions set forth in the CBA implied an intention of
the parties to limit MMPC’s liability only to the extent of the expenses actually incurred by their dependents which excludes the amounts
shouldered by other health insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and doctor implies that MMPC is only liable to pay medical
expenses actually shouldered by the employees’ dependents. It follows that MMPC’s liability is limited, that is, it does not include the amounts paid
by other health insurance providers. This condition is obviously intended to thwart not only fraudulent claims but also double claims for the same
loss of the dependents of covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be strictly construed for the purpose of
limiting the amount of the employer’s liability.46 The terms of the subject provision are clear and provide no room for any other interpretation. As
there is no ambiguity, the terms must be taken in their plain, ordinary and popular sense. 47 Consequently, MMPSEU cannot rely on the rule that a
contract of insurance is to be liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be resolved in favor of
labor.

Samsel v. Allstate Insurance Co. is not

on all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed the insured to enjoy medical benefits
under an automobile policy insurance despite being able to also recover from a separate health insurer. In that case, the Allstate automobile policy
does not contain any clause restricting medical payment coverage to expenses actually paid by the insured nor does it specifically provide for
reduction of medical payments benefits by a coordination of benefits. 48 However, in the case before us, the dependents’ group hospitalization
insurance provision in the CBA specifically contains a condition which limits MMPC’s liability only up to the extent of the expenses that should be
paid by the covered employee’s dependent to the hospital and doctor. This is evident from the portion which states that "payment by MMPC shall
be direct to the hospital and doctor."49 In contrast, the Allstate automobile policy expressly gives Allstate the authority to pay directly to the insured

32
person or on the latter’s behalf all reasonable expenses actually incurred. Therefore, reliance on Samsel is unavailing because the facts therein
are different and not decisive of the issues in the present case.

To allow reimbursement of amounts paid

under other insurance policies shall
constitute double recovery which is not
sanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will unjustly profit from the
premiums the employees contribute through monthly salary deductions.

This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or
unlawfully.50 A claim for unjust enrichment fails when the person who will benefit has a valid claim to such benefit.51

The CBA has provided for MMPC’s limited liability which extends only up to the amount to be paid to the hospital and doctor by the employees’
dependents, excluding those paid by other insurers. Consequently, the covered employees will not receive more than what is due them; neither is
MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be determined in accordance
with the general principles of insurance law.52 Being in the nature of a non-life insurance contract and essentially a contract of indemnity, the CBA
provision obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents but only up to the extent of the
expenses actually incurred.53 This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the
loss.54 Indeed, to profit from a loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA, to grant the
claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated December 5, 2006 of the Court of Appeals in
CA-G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

G.R. No. 173773               November 28, 2012

PARAMOUNT INSURANCE CORPORATION, Petitioner,

vs.
SPOUSES YVES and MARIA TERESA REMONDEULAZ, Respondents.

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal and setting aside of the Decision 1 dated
April 12, 2005 and Resolution2 dated July 20, 2006 of the Court of Appeals in CA-G.R. CV No. 61490.

The undisputed facts follow.

On May 26, 1994, respondents insured with petitioner their 1994

Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year.

During the effectivity of said insurance, respondents’ car was unlawfully taken. Hence, they immediately reported the theft to the Traffic
Management Command of the PNP who made them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain
Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and improvements thereon, however, Sales failed to return the
subject vehicle within the agreed three-day period.

As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle. However, petitioner refused to pay.

Accordingly, respondents lodged a complaint for a sum of money against petitioner before the Regional Trial Court of Makati City (trial court)
praying for the payment of the insured value of their car plus damages on April 21, 1995.

After presentation of respondents’ evidence, petitioner filed a Demurrer to Evidence.

Acting thereon, the trial court dismissed the complaint filed by respondents. The full text of said Order3 reads:

Before the Court is an action filed by the plaintiffs, spouses Yves and Maria Teresa Remondeulaz against the defendant, Paramount Insurance
Corporation, to recover from the defendant the insured value of the motor vehicle.

It appears that on 26 May 1994, plaintiffs insured their vehicle, a 1994 Toyota Corolla XL with chassis number EE-100-9524505, with defendant
under Private Car Policy No. PC-37396 for Own Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury, for the period
commencing 26 May 1994 to 26 May 1995. Then on 1 December 1994, defendants received from plaintiff a demand letter asking for the payment
of the proceeds in the amount of PhP409,000.00 under their policy. They alleged the loss of the vehicle and claimed the same to be covered by
the policy’s provision on "Theft." Defendant disagreed and refused to pay.

It appears, however, that plaintiff had successfully prosecuted and had been awarded the amount claimed in this action, in another action (Civil
Case No. 95-1524 entitled Sps. Yves and Maria Teresa Remondeulaz versus Standard Insurance Company, Inc.), which involved the loss of the
same vehicle under the same circumstances although under a different policy and insurance company. This, considered with the principle that an
insured may not recover more than its interest in any property subject of an insurance, leads the court to dismiss this action.

SO ORDERED.4

33
Not in conformity with the trial court’s Order, respondents interposed an appeal to the Court of Appeals (appellate court).

In its Decision dated April 12, 2005, the appellate court reversed and set aside the Order issued by the trial court, to wit:

Indeed, the trial court erred when it dismissed the action on the ground of double recovery since it is clear that the subject car is different from the
one insured with another insurance company, the Standard Insurance Company. In this case, defendant-appellee herein petitioner denied the
reimbursement for the lost vehicle on the ground that the said loss could not fall within the concept of the "theft clause" under the insurance policy
xxx

xxxx

WHEREFORE, the October 7, 1998 Order of the Regional Trial Court of Makati City, Branch 63, is hereby REVERSED and SET ASIDE

x x x.

SO ORDERED.5

Petitioner, thereafter, filed a motion for reconsideration against said Decision, but the same was denied by the appellate court in a Resolution
dated July 20, 2006.

Consequently, petitioner filed a petition for review on certiorari before this Court praying that the appellate court’s Decision and Resolution be
reversed and set aside.

In its petition, petitioner raises this issue for our resolution:

Whether or not the Court of Appeals decided the case a quo in a way not in accord with law and/or applicable jurisprudence when it promulgated
in favor of the respondents Remondeulaz, making Paramount liable for the alleged "theft" of respondents’ vehicle.6

Essentially, the issue is whether or not petitioner is liable under the insurance policy for the loss of respondents’ vehicle.

Petitioner argues that the loss of respondents’ vehicle is not a peril covered by the policy. It maintains that it is not liable for the loss, since the car
cannot be classified as stolen as respondents entrusted the possession thereof to another person.

We do not agree.

Adverse to petitioner’s claim, respondents’ policy clearly undertook to indemnify the insured against loss of or damage to the scheduled vehicle
when caused by theft, to wit:

SECTION III – LOSS OR DAMAGE

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

(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear
and tear;

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

(c) by malicious act;

(d) whilst in transit (including the process of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or
elevator.7

Apropos, we now resolve the issue of whether the loss of respondents’ vehicle falls within the concept of the "theft clause" under the insurance
policy.

In People v. Bustinera,8 this Court had the occasion to interpret the "theft clause" of an insurance policy. In this case, the Court explained that when
one takes the motor vehicle of another without the latter’s consent even if the motor vehicle is later returned, there is theft – there being intent to
gain as the use of the thing unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals, 9 this Court held that the taking of a vehicle by another person without the permission or
authority from the owner thereof is sufficient to place it within the ambit of the word theft as contemplated in the policy, and is therefore,
compensable.

Moreover, the case of Santos v. People10 is worthy of note. Similarly in Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and repainting. However, when the owner tried to retrieve her car, she was not able to do so
since Santos had abandoned his shop. In the said case, the crime that was actually committed was Qualified Theft. However, the Court held that
because of the fact that it was not alleged in the information that the object of the crime was a car, which is a qualifying circumstance, the Court
found that Santos was only guilty of the crime of Theft and merely considered the qualifying circumstance as an aggravating circumstance in the
imposition of the appropriate penalty. The Court therein clarified the distinction between the crime of Estafa and Theft, to wit:

x x x The principal distinction between the two crimes is that in theft the thing is taken while in estafa the accused receives the property and
converts it to his own use or benefit. However, there may be theft even if the accused has possession of the property. If he was entrusted only with
the material or physical (natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if he has the juridical
possession of the thing his conversion of the same constitutes embezzlement or estafa.11

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent that the taking of repondents’ vehicle by Sales is
without any consent or authority from the former.

34
Records would show that respondents entrusted possession of their vehicle only to the extent that Sales will introduce repairs and improvements
thereon, and not to permanently deprive them of possession thereof. Since, Theft can also be committed through misappropriation, the fact that
Sales failed to return the subject vehicle to respondents constitutes Qualified Theft. Hence, since repondents’ car is undeniably covered by a
Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner is liable under the policy for the loss of
respondents’ vehicle under the "theft clause."

All told, Sales’ act of depriving respondents of their motor vehicle at, or soon after the transfer of physical possession of the movable property,
constitutes theft under the insurance policy, which is compensable.12

WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and Resolution dated July 20, 2006 of the Court of Appeals are
hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 198588               July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,

vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

CARPIO, J.:

The Case

This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals’ Decision2 dated 16 June 2011 and its Resolution3 dated 8 September
2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed the Decision4 of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that
the claim on the Insurance Policy is void.

The Facts

The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas lights. UMC leased a
warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.

On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights against fire with defendant Country
Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No.
12959A, valid until 6 September 1996, states:

AMOUNT OF INSURANCE: FIFTEEN

MILLION PESOS
PHILIPPINE
CURRENCY

xxx

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or held by them in trust, on
commissions, or on joint account with others and/or for which they are responsible in the event of loss and/or damage during the currency of this
policy, whilst contained in the building of one lofty storey in height, constructed of concrete and/or hollow blocks with portion of galvanized iron
sheets, under galvanized iron rood, occupied as Christmas lights storage.5

On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the Insurance Policy. Endorsement
F/96-154 provides that UMC’s stocks in trade were insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The
sum insured was also increased to ₱50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-
157 where the name of the assured was changed from Alfredo Tan to UMC.

On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and evaluate
UMC’s loss by reason of the fire. CBIC’s reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a
parallel investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.

On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25 February 1997, UMC received
CBIC’s letter, dated 10 January 1997, rejecting UMC’s claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:

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 in 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 the benefits under this Policy shall be forfeited.6

On 19 February 1998, UMC filed a Complaint 7 against CBIC with the RTC of Manila. UMC anchored its insurance claim on the Insurance Policy,
the Sworn Statement of Formal Claim earlier submitted, and the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior
Superintendent Bonifacio J. Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire broke out at United Merchants
Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty-Five Million Pesos
(₱55,000,000.00) to the building and contents, while the reported insurance coverage amounted to Fifty Million Pesos (₱50,000,000.00) with
Country Bankers Insurance Corporation.

The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully, feloniously and intentionally set on fire.

That the investigation of the fire incident is already closed being ACCIDENTAL in nature.8

35
In its Answer with Compulsory Counterclaim 9 dated 4 March 1998, CBIC admitted the issuance of the Insurance Policy to UMC but raised the
following defenses: (1) that the Complaint states no cause of action; (2) that UMC’s claim has already prescribed; and (3) that UMC’s fire claim is
tainted with fraud. CBIC alleged that UMC’s claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as
of 31 December 1995, and that UMC’s suspicious purchases for the year 1996 did not even amount to ₱25,000,000.00. UMC’s GIS and Financial
Reports further revealed that it had insufficient capital, which meant UMC could not afford the alleged ₱50,000,000.00 worth of stocks in trade.

In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that it did not make any false
declaration because the invoices were genuine and the Statement of Inventory was for internal revenue purposes only, not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMC’s disbursing officer. Ebora testified that UMC’s stocks
in trade, at the time of the fire, consisted of: (1) raw materials for its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas
lights purchased from local suppliers. These stocks in trade were delivered from August 1995 to May 1996. She stated that Straight Cargo
Commercial Forwarders delivered the imported materials to the warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had
no importations and only bought from its local suppliers. Ebora identified the suppliers as Fiber Technology Corporation from which UMC bought
stocks worth ₱1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from which UMC bought stocks worth ₱19,500,000.00
from 20 January 1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought several Christmas boxes. Ebora testified that
all these deliveries were not yet paid. Ebora also presented UMC’s Balance Sheet, Income Statement and Statement of Cash Flow. Per her
testimony, UMC’s purchases amounted to ₱608,986.00 in 1994; ₱827,670.00 in 1995; and ₱20,000,000.00 in 1996. Ebora also claimed that UMC
had sales only from its fruits business but no sales from its Christmas lights for the year 1995.

The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to assemble and pack Christmas lights for
UMC from 28 March 1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that
UMC opened letters of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the delivery checker of
Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMC’s goods to its warehouse on 13 August 1995, 6 September 1995, 8
September 1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio
testified that he inspected UMC’s warehouse and prepared preliminary reports in this connection.

On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and Exchange Commission (SEC)
representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned
warehouse on 5 July 1996, took pictures of it and referred the claim to an independent adjuster. The SEC representative’s testimony was
dispensed with, since the parties stipulated on the existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2) UMC’s Financial
Report as of 31 December 1996; (3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years; and (4) UMC’s Statement of
Inventory as of 31 December 1995 filed with the BIR.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMC’s claim. On 19 November 1996, they concluded that arson
was committed based from their interview with barangay officials and the pictures showing that blackened surfaces were present at different parts
of the warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they file a
case for arson.

For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General Insurance, the insurer of Perfect
Investment Company, Inc., the warehouse owner. When asked to bring documents related to the insurance of Perfect Investment Company, Inc.,
Batallones brought the papers of Perpetual Investment, Inc.

The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:

a) the sum of ₱43,930,230.00 as indemnity with interest thereon at 6% per annum from November 2003 until fully paid;

b) the sum of ₱100,000.00 for exemplary damages;

c) the sum of ₱100,000.00 for attorney’s fees; and

d) the costs of suit.

Defendant’s counterclaim is denied for lack of merit.

SO ORDERED.11

The RTC found no dispute as to UMC’s fire insurance contract with CBIC. Thus, the RTC ruled for UMC’s entitlement to the insurance proceeds,
as follows:

Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country Club, 417 SCRA 115 [2003])
Defendant failed to establish by clear and convincing evidence that the documents submitted to the SEC and BIR were true. It is common
business practice for corporations to have 2 sets of reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may
not have been accurate.

The conflicting findings of defendant’s adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera & Mr. Lazaro for Central Surety shall
be resolved in favor of the former. Definitely the former’s finding is more credible as it was made soon after the fire while that of the latter was done
4 months later. Certainly it would be a different situation as the site was no longer the same after the clearing up operation which is normal after a
fire incident. The Christmas lights and parts could have been swept away. Hence the finding of the latter appears to be speculative to benefit the
reinsurer and which defendant wants to adopt to avoid liability.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs. QQQ) [underscoring supplied]. This
is bolstered by the BFP certification that there was no proof of arson and the fire was accidental (Exhs. PPP). The certification by a government
agency like BFP is presumed to be a regular performance of official duty. "Absent convincing evidence to the contrary, the presumption of
regularity in the performance of official functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurance’s
adjuster also found no arson so that the burned warehouse owner PIC was indemnified.12

Hence, CBIC filed an appeal with the Court of Appeals (CA).

36
The Ruling of the Court of Appeals

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the Regional Trial Court, of the National
Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The
plaintiff-appellee’s claim upon its insurance policy is deemed avoided.

SO ORDERED.13

The CA ruled that UMC’s claim under the Insurance Policy is void. The CA found that the fire was intentional in origin, considering the array of
evidence submitted by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMC’s failure to explain the
details of the alleged fire accident. In addition, it found that UMC’s claim was overvalued through fraudulent transactions. The CA ruled:

We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with a conclusion that the claim of the
plaintiff-appellee was indeed overvalued by transactions which were fraudulently concocted so that the full coverage of the insurance policy will
have to be fully awarded to the plaintiff-appellee.

First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n September 6, 1995 its stocks-in-trade were insured for Fifteen Million
Pesos and on May 7, 1996 the same was increased to 50 Million Pesos. Two months thereafter, a fire gutted the plaintiff-appellee’s warehouse.

Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated December 31, 1996 vis-à-vis the
testimony of Ms. Ebora thus:

1994 - ₱608,986.00

1995 - ₱827,670.00

1996 - ₱20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee as well as the value of all stock-in-trade
it had at the time that the fire occurred. Thus:

Exhibit Source Amount (pesos) Dates Covered

Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996

inclusive Manufacturer Phils. January 31, 1996
February 12, 1996
February 20, 1996
February 23, 1996

Exhs. "EE"-"HH", Tomco Commercial Press 1,712,000.00 December 19,

inclusive 1995
January 24, 1996
February 21, 1996
November 24,
1995

Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996

inclusive Trading January 19, 1996
January 26, 1996
February 3, 1996
February 13, 1996
February 20, 1996
February 27, 1996

Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996

"EEE", inclusive Services April 12, 1996
April 19, 1996
April 26, 1996
May 3, 1996
May 10, 1996
May 17, 1996
May 24, 1996
June 7, 1996
June 14, 1996
June 21, 1996
June 28, 1996
July 5, 1996

Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995

"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
materials September 4, 1995
October 2, 1995
October 27, 1995
January 8, 1996
March 19, 1996

Exhs. "GGG-11" SCCFI statements of 384,794.38 June 15, 1995

- "GGG-24", account June 28, 1995
"HHH-12", "HHH-22", "III-11", August 1, 1995
"III-14", September 4, 1995
"JJJ-13", "KKK-11", "LLL-5" September 8, 1995
September 11,

37
 1995
October 30, 199[5]
November 10,
1995
December 21,
1995

  TOTAL 44,315,024.31  

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the pieces of evidence that it adduced during
the trial. The latter alleged that fraud is present in the case at bar as shown by the discrepancy of the alleged purchases from that of the reported
purchases made by plaintiff-appellee. It had also averred that fraud is present when upon verification of the address of Fuze Industries, its office is
nowhere to be found. Also, the defendant-appellant expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when
such purchases escalated to a high 19.5 Million Pesos without any contract to back it up.14

On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution dated 8 September 2011. Hence, this petition.

The Issues

UMC seeks a reversal and raises the following issues for resolution:

I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."

II.

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16

The Ruling of the Court

At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are questions of fact. However, UMC
argues that where the findings of the CA are in conflict with those of the trial court, a review of the facts may be made. On this procedural issue,
we find UMC’s claim meritorious.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be raised. The findings of fact of the
CA are final and conclusive and this Court will not review them on appeal,17 subject to exceptions as when the findings of the appellate court
conflict with the findings of the trial court.18 Clearly, the present case falls under the exception. Since UMC properly raised the conflicting findings of
the lower courts, it is proper for this Court to resolve such contradiction.

Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is entitled to claim from CBIC the full
coverage of its fire insurance policy.

UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense, UMC is entitled to claim
the full coverage under the Insurance Policy. On the other hand, CBIC contends that because arson and fraud attended the claim, UMC is not
entitled to recover under Condition No. 15 of the Insurance Policy.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, 19 which is
preponderance of evidence in civil cases.20 The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of
proof to obtain a favorable judgment. 21 Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of
evidence shifts to the insurer to controvert the insured’s prima facie case.22 In the present case, UMC established a prima facie case against CBIC.
CBIC does not dispute that UMC’s stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMC’s
stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted
risk, then the burden of evidence shifted to CBIC to prove such exception.1âwphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within
the purview of the exception or limitation. 23 If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish
that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. 24 In the present case,
CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus delicti, that is, a fire caused by a
criminal act; and (2) the identity of the defendants as the one responsible for the crime. 25 Corpus delicti means the substance of the crime, the fact
that a crime has actually been committed.26 This is satisfied by proof of the bare occurrence of the fire and of its having been intentionally caused.27

In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured. First, the findings of CBIC’s witnesses,
Cabrera and Lazaro, were based on an investigation conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to
the boxes doused with kerosene as told to them by barangay officials, are hearsay because the barangay officials were not presented in court.
Cabrera and Lazaro even admitted that they did not conduct a forensic investigation of the warehouse nor did they file a case for
arson.28 Second, the Sworn Statement of Formal Claim submitted by UMC, through CRM, states that the cause of the fire was "faulty electrical
wiring/accidental in nature." CBIC is bound by this evidence because in its Answer, it admitted that it designated CRM to evaluate UMC’s
loss. Third, the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys the presumption
of regularity, which CBIC failed to rebut.

Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud. Qua Chee Gan v. Law Union29 does
not apply in the present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based on the dismissal of the arson case against the
insured, because the evidence was identical in both cases, thus:

38
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer’s evidence, to judge from the decision
in the criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance
at the fire in order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of
arson" (Bachrach vs. British American Assurance Co., 17 Phil. 536). 31

In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of which can void the insurance
claim of UMC. The absence of one does not necessarily result in the absence of the

other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.

Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the claim be in any respect fraudulent,
or if any false declaration be made or used in support thereof, to wit:

15. 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 in 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 the benefits under this Policy shall be forfeited.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance policy 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," and the evidence is conclusive that the proof of claim which the insured
submitted was false and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim
is a bar against the insured from recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to ₱50,000,000.00, UMC submitted its Sworn Statement of Formal Claim
together with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and
delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or traffic. 33 Applying UMC’s definition, only the letters of credit and invoices for raw
materials, Christmas lights and cartons may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996 amounts to ₱20,000,000.00
which were purchased in one month. Thus, UMC needs to prove purchases amounting to ₱30,000,000.00 worth of stocks in trade for 1995 and
prior years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry in official records, 34 UMC stated that it had
no stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade the raw materials to be
assembled as Christmas lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted invoices for raw materials,
knowing that the insurance covers only stocks in trade.

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious. The purchases, based on the
invoices and without any supporting contract, amounted to ₱19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996.
The uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s
Village, Quezon City," the business address appearing in the invoices and the records of the Department of Trade & Industry. Cabrera testified
that:

A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the United Merchants Corporation to the
adjuster, and the adjuster in turn now, gave us our basis in conducting investigation, so we went to this place which according to the records, the
address of this company but there was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by the United Merchants as the place of
business of Fuze Industries Manufacturer, Phils. was a residential place, what then did you do after determining that it was a residential place?

A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record, and as appearing a certain Chinese
name Mr. Huang, and the address as appearing there is somewhere in Binondo. We went personally there together with the NBI Agent and I am
with them when the subpoena was served to them, but a male person approached us and according to him, there was no Fuze Industries
Manufacturer, Phils., company in that building sir.35

In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,36 the Court ruled that the submission of false invoices to the adjusters establishes a clear case
of fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Their falsity is the best evidence of the fraudulent
character of plaintiff’s claim.37 In Verendia v. Court of Appeals,38 where the insured presented a fraudulent lease contract to support his claim for
insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits under the policy provision similar to Condition No.
15 of the Insurance Policy in this case.

Furthermore, UMC’s Income Statement indicated that the purchases or costs of sales are ₱827,670.00 for 1995 and ₱1,109,190.00 for 1996 or a
total of ₱1,936,860.00.39 To corroborate this fact, Ebora testified that:

Q: Based on your 1995 purchases, how much were the purchases made in 1995?

A: The purchases made by United Merchants Corporation for the last year 1995 is ₱827,670.[00] sir

Q: And how about in 1994?

A: In 1994, it’s ₱608,986.00 sir.

Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?

A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)

In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4 December 2002 hearing, it had
₱1,050,862.71 as total assets and ₱167,058.47 as total liabilities.41

Thus, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks to enforce. The RTC itself
recognized that UMC padded its claim when it only allowed ₱43,930,230.00 as insurance claim. UMC supported its claim of ₱50,000,000.00 with

39
the Certification from the Bureau of Fire Protection stating that "x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t
Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five Million Pesos (₱55,000,000.00) to the building and contents x x
x." However, this Certification only proved that the estimated damage of ₱55,000,000.00 is shared by both the building and the stocks in trade.

It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy. 42 In Yu Cua v.
South British Insurance Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and
in Tuason v. North China Insurance Co.,45 six times. In the present case, the claim is twenty five times the actual claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to
demand from insurance companies payment for indemnity of goods not existing at the time of the fire.46 This constitutes the so-called "fraudulent
claim" which, by express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability.47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not covered by the warranty such that any
discrepancy in the declaration in other instruments or documents as to matters that may have some relation to the insurance coverage voids the
policy."48

On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves, amount to a breach of
warranty. However, the Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall avoid it."49 Thus, in
fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual
loss and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated
Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including its
insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the
insurer company,51 contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used.52 If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the
contracts actually made.53

WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011 Resolution of the Court of
Appeals in CA-G.R. CV No. 85777.

SO ORDERED.

G.R. No. 184300               July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER SERVICES, INC., Respondents.

REYES, J.:

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co., lnc. (Malayan) assailing the Decision 1 dated
February 29, 2008 and Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification
the decision of the Regional Trial Court (RTC), Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a
contract of carriage, whereby the latter undertook to transport and deliver the former’s products to its customers, dealers or salesmen.3

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other
products usual or incidental to the insured’s business while the same were being transported or shipped in the Philippines. The policy covers all
risks of direct physical loss or damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by
Wyeth’s representative/s.4 Nevertheless, it was admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the
parties and, as previously stated, the same contract of carriage had been annually executed by the parties every year since 1989.5

Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the
loss, destruction, or damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes,
lightning, and other force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the
COMPANY".6

The contract also required Reputable to secure an insurance policy on Wyeth’s goods. 7 Thus, on February 11, 1994, Reputable signed a Special
Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula
worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck
carrying Wyeth’s products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse
to turn over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as
indemnity. Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the
payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996. 8 In its complaint, Philippines First
stated that Reputable is a "private corporation engaged in the business of a common carrier." In its answer, 9 Reputable claimed that it is a private

40
carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeth’s
representative and that the cause of the loss was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to
Reputable, "it was validly insured with Malayan for P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-
0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or hijacking.10

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage
to property which at the time of the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded
third-party liability.

After trial, the RTC rendered its Decision 11 finding Reputable liable to Philippines First for the amount of indemnity it paid to Wyeth, among others.
In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy coverage. The dispositive portion of the RTC decision
provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for the loss of the Wyeth products and orders it to
pay Philippines First the following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired adjusters/surveyors;

3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

SO ORDERED.12

Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.

Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was binding despite Wyeth’s failure to sign the same.
Reputable further contended that the provisions of the contract are unreasonable, unjust, and contrary to law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to property which at the time of the
happening of such loss or damage is insured by or would but for the existence of this policy, be insured by any Fire or Marine policy or policies
except in respect of any excess beyond the amount which would have been payable under the Fire or Marine policy or policies had this insurance
not been effected.

Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter against loss and
that since the monetary coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must
bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable for no more than P468,766.70,
its alleged pro-rata share of the loss based on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy, which
states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby insured, there be any other subsisting
insurance or insurances, whether effected by the insured or by any other person or persons, covering the same property, the company shall not be
liable to pay or contribute more than its ratable proportion of such loss or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as modified in the Order dated 21 July 2001, is
AFFIRMED with MODIFICATION in that the award of attorney’s fees in favor of Reputable is DELETED.

SO ORDERED.13

The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the contract of carriage on the ground of lack of
signature of Wyeth’s representative/s; (2) Reputable is liable under the contract for the value of the goods even if the same was lost due to
fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the latter provision; however, since the ratable proportion
provision of Section 12 applies only in case of double insurance, which is not present, then it should not be applied and Malayan should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00.14

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied by the CA in its Resolution dated August 28,
2008.15

41
Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the liability of common carriers" and the "difference
between an ‘other insurance clause’ and an ‘over insurance clause’."

Malayan also contends that the CA erred when it held that Reputable is a private carrier and should be bound by the contractual stipulations in the
contract of carriage. This argument is based on its assertion that Philippines First judicially admitted in its complaint that Reputable is a common
carrier and as such, Reputable should not be held liable pursuant to Article 1745(6) of the Civil Code.16 Necessarily, if Reputable is not liable for the
loss, then there is no reason to hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the CA failed to apply the express provisions of Section 5 (referred to
by Malayan as over insurance clause) and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as these provisions could
have been read together there being no actual conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by thieves/robbers who act with grave or irresistible threat
whether it is a common carrier or a private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan is liable to
Philippines First for the full amount of its policy coverage and not merely a ratable portion thereof under Section 12 of the SR Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private carrier should be accorded the highest degree of respect and
must be considered conclusive between the parties, and that a review of such finding by the Court is not warranted under the circumstances. As to
its alleged judicial admission that Reputable is a common carrier, Philippines First proffered the declaration made by Reputable that it is a private
carrier. Said declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was duly admitted by Malayan in its answer
to the said third-party complaint. In addition, Reputable even presented evidence to prove that it is a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling of the CA. Philippines First, however, prayed for
a slight modification of the assailed decision, praying that Reputable and Malayan be rendered solidarily liable to it in the amount of P998,000.00,
which represents the balance from the P1,000.000.00 coverage of the SR Policy after deducting P2,000.00 under Section 10 of the said SR
Policy.17

Issues

The liability of Malayan under the SR Policy hinges on the following issues for resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk
of loss or damage, for any cause whatsoever, including that due to theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to Philippines First.

The Court’s Ruling

On the first issue – Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in jurisprudence is the rule that factual findings of the
trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and considered conclusive between the
parties, save for certain exceptional and meritorious circumstances, none of which are present in this case.18

Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common carrier. 19 Invoking Section 4, Rule
129 of the Rules on Evidence that "an admission verbal or written, made by a party in the course of the proceeding in the same case, does not
require proof," it is Malayan’s position that the RTC and CA should have ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeth’s goods
should be dispensed with, or at least diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and need not be offered to be considered by the
court. "The court, for the proper decision of the case, may and should consider, without the introduction of evidence, the facts admitted by the
parties."20 The rule on judicial admission, however, also states that such allegation, statement, or admission is conclusive as against the
pleader,21 and that the facts alleged in the complaint are deemed admissions of the plaintiff and binding upon him. 22 In this case, the pleader or the
plaintiff who alleged that Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as
against Reputable whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a mere subrogee to the right of
Wyeth to collect from Reputable under the terms of the contract of carriage. Philippines First is not in any position to make any admission, much
more a definitive pronouncement, as to the nature of Reputable’s business and there appears no other connection between Philippines First and
Reputable which suggests mutual familiarity between them.

Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable when it stated in paragraphs
2, 4, and 11 of its answer that it is actually a private or special carrier.23 In addition, Reputable stated in paragraph 2 of its third-party complaint that
it is "a private carrier engaged in the carriage of goods." 24 Such allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to the
third-party complaint.25 There is also nothing in the records which show that Philippines First persistently maintained its stance that Reputable is a
common carrier or that it even contested or proved otherwise Reputable’s position that it is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own business, what was stated by Philippines First in its complaint is
reduced to nothing more than mere allegation, which must be proved for it to be given any weight or value. The settled rule is that mere allegation
is not proof.26

42
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by the evidence on record, primarily, the
unrebutted testimony of Reputable’s Vice President and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court that
Reputable serves only one customer, Wyeth.27

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private
carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general
public.28 A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only. 29 For all
intents and purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and
conditions are not contrary to law, morals, good customs, public order, or public policy. "The Civil Code provisions on common carriers should not
be applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public
at large is not involved."30

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the stipulations of the contract of carriage, one of which is that it
shall be liable to Wyeth for the loss of the goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure
while the goods/products are in transit and until actual delivery to Wyeth’s customers, salesmen and dealers.31

On the third issue – other insurance vis-à-vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified ‘other insurance’ clause". 32 In rendering
inapplicable said provisions in the SR Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be sufficient to cover the entire amount of the loss, it is in
direct conflict with Sec. 12 which provides only for a pro-rated contribution between the two insurers. Being the later provision, and pursuant to the
rules on interpretation of contracts, Sec. 12 should therefore prevail.

xxxx

x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it was intended
by the parties to operate only in case of double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan should
pertain to Reputable alone. But since the court a quo correctly ruled that there is no double insurance in this case inasmuch as Reputable was not
privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayan’s stand should be
rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by
another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. Plainly, this unfair situation
could not have been the intention of both Reputable and Malayan in signing the insurance contract in question.33

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct circumstances. Malayan argues
that "it will not be completely absolved under Section 5 of its policy if it were the assured itself who obtained additional insurance coverage on the
same property and the loss incurred by Wyeth’s cargo was more than that insured by Philippines First’s marine policy. On the other hand, Section
12 will not completely absolve Malayan if additional insurance coverage on the same cargo were obtained by someone besides Reputable, in
which case Malayan’s SR policy will contribute or share ratable proportion of a covered cargo loss."34

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to Condition No. 3 in issue in
Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 336 is a
condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s
finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that
the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of
Malayan only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the "other insurance clause" in
Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute a violation of the
clause, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple
insurance policies involved were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was
ruled that there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance
due to double insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of
such loss or damage." This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code, 37 which states that
"where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to
the loss in proportion to the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double
insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:38

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

43
 4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods belonging to
Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to two different persons or
entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured
of Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputable’s. The policy
issued by Philippines First was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was
issued by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s
liability in case of loss or damage to the property and falls within the contemplation of Section 15 of the Insurance Code.39

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double
insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double
insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan.1âwphi1 This is in
keeping with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against
the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations."40

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by
another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. x x x41

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can
directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party[- ]liability does not mean, however, that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different
obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of
the insurer arises from contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR Policy while
Reputable's is based on the contract of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and Resolution dated August 28, 2008 of the
Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.

G.R. No. 186983               February 22, 2012

MA. LOURDES S. FLORENDO, Petitioner,

vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.

ABAD, J.:

This case is about an insured’s alleged concealment in his pension plan application of his true state of health and its effect on the life insurance
portion of that plan in case of death.

The Facts and the Case

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after
some convincing by respondent Perla Abcede. The plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a maturity value of
₱2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of supplying the information needed in the
application.2 Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales counselor.3

44
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. 4 This was covered by a Group
Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. 5 Under the master policy, Philam Life was to
automatically provide life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive pension plan. 6 If
the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-
need price. Further, the life insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan.7

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 8 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as
beneficiary. In time, Manuel paid his quarterly premiums.9

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the
payment of the benefits under her husband’s plan. 10 Because Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11

On May 3, 1999 Philam Plans wrote Lourdes a letter, 12 declining her claim. Philam Life found that Manuel was on maintenance medicine for his
heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for
payment under the plan13 but Philam Plans rejected it,14 prompting her to file the present action against the pension plan company before the
Regional Trial Court (RTC) of Quezon City.15

On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: ₱997,050.00, the proceeds of his term insurance, and ₱2,890,000.00 lump sum pension benefit upon maturity of
his plan; ₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his
health from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that insurance policies are traditionally contracts uberrimae
fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware
or material facts that he knew or ought to know.18

Issues Presented

The issues presented in this case are:

1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in his
pension plan application regarding the ailments he suffered from;

2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the
condition of Manuel’s health in the pension plan application; and

3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan application and acceptance of his
premium payments precluded it from denying Lourdes’ claim.

Rulings of the Court

One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans should
have returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s
part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him
for not mentioning it.19

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel’s health. She forgets that
since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For,
after all, he knew more than anyone that he had been under treatment for heart condition and diabetes for more than five years preceding his
submission of that application. But he kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is
clear from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his
representations and declarations read as follows:

I hereby represent and declare to the best of my knowledge that:

xxxx

(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other
physical impairment in the last five years.

(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space provided for:

Date of confinement : ____________________________

Name of Hospital or Clinic : ____________________________

Name of Attending Physician : ____________________________

Findings : ____________________________

Others: (Please specify) : ____________________________

x x x x.20 (Emphasis supplied)

45
Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition and diabetes, the
assumption is that he has never been treated for the said illnesses in the last five years preceding his application. This is implicit from the phrase
"If your answer to any of the statements above (specifically, the statement: I have never been treated for heart condition or diabetes) reveal
otherwise, please give details in the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous
thrombosis,21 and insulin, a drug used in the treatment of diabetes mellitus, at that time.22

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in
the 70s or about 20 years before he signed up for the pension plan. 23 But by its tenor, the responsibility for preparing the application belonged to
Manuel. Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and
disown the responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application,
then she acted on his instruction, not on Philam Plans’ instruction.

Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did
not fall within the five-year timeframe that the disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and
connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and
restores normalcy to the heartbeat.25 That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that
he remained under treatment for irregular heartbeat within five years preceding that application.

Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application.
These clearly fell within the five-year period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the
theory of imputed knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to
Section 2727 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not make her his
agent and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perla’s fault must be
considered solely her own and cannot prejudice Manuel.28

But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under
his direction. Thus:

APPLICATION FOR PENSION PLAN

(Comprehensive)

I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General Provisions set
forth in this application and hereby certify that the date and other information stated herein are written by me or under my direction. x x
x.29 (Emphasis supplied)

Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her
action. Philam Plans had every right to act on the faith of that certification.

Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval of his
application and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was made aware
when he signed the pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the
representations contained in that application. Thus:

DECLARATIONS AND REPRESENTATIONS

xxxx

I agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the provisions of the
Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)

As the Court said in New Life Enterprises v. Court of Appeals:31

It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without
any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering
that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important
consideration he could not have been unaware as it was precisely the reason for his procuring the same.32

The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected to know that one must read
every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must
come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him
and to his wife in his twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued,
and the premiums have been collected. 34

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:

VIII. INCONTESTABILITY

After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension
program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date
of approval of your request for reinstatement.35 1âwphi1

The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its issuance.

46
Since Manuel died on the eleventh month following the issuance of his plan,36 the one year incontestability period has not yet set in. Consequently,
Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.

SO ORDERED.

G.R. No. 194320               February 1, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.

VELASCO, JR., J.:

The Case

Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside the July 28, 2010 Decision 1 of the Court of
Appeals (CA) and its October 29, 2010 Resolution 2 denying the motion for reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan
Insurance). The July 28, 2010 CA Decision reversed and set aside the Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in
Manila.

The Facts

At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the corner of EDSA and Ayala Avenue, Makati City, involving
four (4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684;
(3) a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with plate number TLM 732.4

Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker
was in front of the Mitsubishi Galant with the Nissan Bus on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt
along EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the rear
left portion of the Nissan Bus. Due to the strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant
rammed into the rear right portion of the Isuzu Tanker.5

Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No. PV-025-00220 in favor of First Malayan
Leasing and Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant against third party liability, own damage and theft,
among others. Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint dated October 18, 1999 that it paid the
damages sustained by the assured amounting to PhP 700,000.6

Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its payment to the latter, Malayan
Insurance sent several demand letters to respondents Rodelio Alberto (Alberto) and Enrico Alberto Reyes (Reyes), the registered owner and the
driver, respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. When respondents refused to settle
their liability, Malayan Insurance was constrained to file a complaint for damages for gross negligence against respondents.7

In their Answer, respondents asserted that they cannot be held liable for the vehicular accident, since its proximate cause was the reckless driving
of the Nissan Bus driver. They alleged that the speeding bus, coming from the service road of EDSA, maneuvered its way towards the middle lane
without due regard to Reyes’ right of way. When the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes but the braking action could
not cope with the inertia and failed to gain sufficient traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant,
which, in turn, hit the rear end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing damage
to the latter in the amount of PhP 20,000. Respondents also controverted the results of the Police Report, asserting that it was based solely on the
biased narration of the Nissan Bus driver.8

After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented the testimony of its lone witness, a motor car claim
adjuster, who attested that he processed the insurance claim of the assured and verified the documents submitted to him. Respondents, on the
other hand, failed to present any evidence.

In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor of Malayan Insurance and declared respondents
liable for damages. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly and severally to pay plaintiff the following:

1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;

2. Attorney’s fees of P10,000.00 and;

3. Cost of suit.

SO ORDERED.9

Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its Decision dated July 28, 2010, the CA reversed
and set aside the Decision of the trial court and ruled in favor of respondents, disposing:

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the assailed Decision dated 2 February 2009 REVERSED
and SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED for lack of merit. No costs.

SO ORDERED.10

The CA held that the evidence on record has failed to establish not only negligence on the part of respondents, but also compliance with the other
requisites and the consequent right of Malayan Insurance to subrogation. 11 It noted that the police report, which has been made part of the records

47
of the trial court, was not properly identified by the police officer who conducted the on-the-spot investigation of the subject collision. It, thus, held
that an appellate court, as a reviewing body, cannot rightly appreciate firsthand the genuineness of an unverified and unidentified document, much
less accord it evidentiary value.12

Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police report is a prima facie evidence of the facts stated in it.
And inasmuch as they never questioned the presentation of the report in evidence, respondents are deemed to have waived their right to question
its authenticity and due execution.13

In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence, Malayan Insurance filed the instant petition.

The Issues

In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the following issues for Our consideration:

WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT SINCE THE POLICE INVESTIGATOR WHO
PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN COURT THEREON.

II

WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR DEFICIENT.

On the other hand, respondents submit the following issues in its Memorandum15 dated July 7, 2011:

WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF MALAYAN INSURANCE TO OVERCOME
THE BURDEN OF PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE OF RESPONDENTS.

II

WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE SUFFICIENT TO CLAIM FOR THE AMOUNT
OF DAMAGES.

III

WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE AND REQUISITES AS PROVIDED
UNDER PERTINENT LAWS.

Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2) the sufficiency of the evidence to support a claim for
gross negligence; and (3) the validity of subrogation in the instant case.

Our Ruling

The petition has merit.

Admissibility of the Police Report

Malayan Insurance contends that, even without the presentation of the police investigator who prepared the police report, said report is still
admissible in evidence, especially since respondents failed to make a timely objection to its presentation in evidence. 16 Respondents counter that
since the police report was never confirmed by the investigating police officer, it cannot be considered as part of the evidence on record.17

Indeed, under the rules of evidence, a witness can testify only to those facts which the witness knows of his or her personal knowledge, that is,
which are derived from the witness’ own perception. 18 Concomitantly, a witness may not testify on matters which he or she merely learned from
others either because said witness was told or read or heard those matters. 19 Such testimony is considered hearsay and may not be received as
proof of the truth of what the witness has learned. This is known as the hearsay rule.20

As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or statements; the general rule that excludes hearsay as
evidence applies to written, as well as oral statements."

There are several exceptions to the hearsay rule under the Rules of Court, among which are entries in official records. 22 Section 44, Rule 130
provides:

Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law are prima facie evidence of the facts therein stated.

In Alvarez v. PICOP Resources, 23 this Court reiterated the requisites for the admissibility in evidence, as an exception to the hearsay rule of entries
in official records, thus: (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 or her duties, or by such other person in the performance of a duty specially enjoined by law; and (c)
that the public officer or other person had sufficient knowledge of the facts by him or her stated, which must have been acquired by the public
officer or other person personally or through official information.

Notably, the presentation of the police report itself is admissible as an exception to the hearsay rule even if the police investigator who prepared it
was not presented in court, as long as the above requisites could be adequately proved.24

48
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report, and he did so in the performance of his duty.
However, what is not clear is whether SPO1 Dungga had sufficient personal knowledge of the facts contained in his report. Thus, the third
requisite is lacking.

Respondents failed to make a timely objection to the police report’s presentation in evidence; thus, they are deemed to have waived their right to
do so.25 As a result, the police report is still admissible in evidence.

Sufficiency of Evidence

Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the rear of the Mitsubishi Galant, he is presumed to be
negligent unless proved otherwise. It further contends that respondents failed to present any evidence to overturn the presumption of
negligence.26 Contrarily, respondents claim that since Malayan Insurance did not present any witness who shall affirm any negligent act of Reyes in
driving the Fuzo Cargo truck before and after the incident, there is no evidence which would show negligence on the part of respondents.27

We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report in evidence, still, respondents cannot evade liability
by virtue of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is quite elucidating:

Petitioner’s contention, however, loses relevance in the face of the application of res ipsa loquitur by the CA. The effect of the doctrine is to warrant
a presumption or inference that the mere fall of the elevator was a result of the person having charge of the instrumentality was negligent. As a
rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that prima facie negligence may be
established without direct proof and furnishes a substitute for specific proof of negligence.

The concept of res ipsa loquitur has been explained in this wise:

While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will not generally give rise to an
inference or presumption that it was due to negligence on defendant’s part, under the doctrine of res ipsa loquitur, which means, literally, the thing
or transaction speaks for itself, or in one jurisdiction, that the thing or instrumentality speaks for itself, the facts or circumstances accompanying an
injury may be such as to raise a presumption, or at least permit an inference of negligence on the part of the defendant, or some other person who
is charged with negligence.

x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control or management of the
defendant, and that the occurrence resulting in the injury was such as in the ordinary course of things would not happen if those who had its
control or management used proper care, there is sufficient evidence, or, as sometimes stated, reasonable evidence, in the absence of
explanation by the defendant, that the injury arose from or was caused by the defendant’s want of care.

One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent or not available.

The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore is
compelled to allege negligence in general terms and to rely upon the proof of the happening of the accident in order to establish negligence. The
inference which the doctrine permits is grounded upon the fact that the chief evidence of the true cause, whether culpable or innocent, is
practically accessible to the defendant but inaccessible to the injured person.

It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without knowledge of the cause, reaches over to
defendant who knows or should know the cause, for any explanation of care exercised by the defendant in respect of the matter of which the
plaintiff complains. The res ipsa loquitur doctrine, another court has said, is a rule of necessity, in that it proceeds on the theory that under the
peculiar circumstances in which the doctrine is applicable, it is within the power of the defendant to show that there was no negligence on his part,
and direct proof of defendant’s negligence is beyond plaintiff’s power. Accordingly, some courts add to the three prerequisites for the application of
the res ipsa loquitur doctrine the further requirement that for the res ipsa loquitur doctrine to apply, it must appear that the injured party had no
knowledge or means of knowledge as to the cause of the accident, or that the party to be charged with negligence has superior knowledge or
opportunity for explanation of the accident.

The CA held that all the requisites of res ipsa loquitur are present in the case at bar:

There is no dispute that appellee’s husband fell down from the 14th floor of a building to the basement while he was working with appellant’s
construction project, resulting to his death. The construction site is within the exclusive control and management of appellant. It has a safety
engineer, a project superintendent, a carpenter leadman and others who are in complete control of the situation therein. The circumstances of any
accident that would occur therein are peculiarly within the knowledge of the appellant or its employees. On the other hand, the appellee is not in a
position to know what caused the accident. Res ipsa loquitur is a rule of necessity and it applies where evidence is absent or not readily available,
provided the following requisites are present: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the
instrumentality or agency which caused the injury was under the exclusive control of the person charged with negligence; and (3) the injury
suffered must not have been due to any voluntary action or contribution on the part of the person injured. x x x.

No worker is going to fall from the 14th floor of a building to the basement while performing work in a construction site unless someone is
negligent[;] thus, the first requisite for the application of the rule of res ipsa loquitur is present. As explained earlier, the construction site with all its
paraphernalia and human resources that likely caused the injury is under the exclusive control and management of appellant[;] thus[,] the second
requisite is also present. No contributory negligence was attributed to the appellee’s deceased husband[;] thus[,] the last requisite is also present.
All the requisites for the application of the rule of res ipsa loquitur are present, thus a reasonable presumption or inference of appellant’s
negligence arises. x x x.

Petitioner does not dispute the existence of the requisites for the application of res ipsa loquitur, but argues that the presumption or inference that
it was negligent did not arise since it "proved that it exercised due care to avoid the accident which befell respondent’s husband."

Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, the defendant’s negligence is presumed or inferred
when the plaintiff establishes the requisites for the application of res ipsa loquitur. Once the plaintiff makes out a prima facie case of all the
elements, the burden then shifts to defendant to explain. The presumption or inference may be rebutted or overcome by other evidence and, under
appropriate circumstances a disputable presumption, such as that of due care or innocence, may outweigh the inference. It is not for the defendant
to explain or prove its defense to prevent the presumption or inference from arising. Evidence by the defendant of say, due care, comes into play
only after the circumstances for the application of the doctrine has been established.28

In the case at bar, aside from the statement in the police report, none of the parties disputes the fact that the Fuzo Cargo Truck hit the rear end of
the Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it. Respondents, however, point to the reckless driving of the Nissan
Bus driver as the proximate cause of the collision, which allegation is totally unsupported by any evidence on record. And assuming that this

49
allegation is, indeed, true, it is astonishing that respondents never even bothered to file a cross-claim against the owner or driver of the Nissan
Bus.

What is at once evident from the instant case, however, is the presence of all the requisites for the application of the rule of res ipsa loquitur. To
reiterate, res ipsa loquitur is a rule of necessity which applies where evidence is absent or not readily available. As explained in D.M. Consunji,
Inc., it is partly based upon the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the
accident or has the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and, therefore, is compelled to allege
negligence in general terms and to rely upon the proof of the happening of the accident in order to establish negligence.

As mentioned above, the requisites for the application of the res ipsa loquitur rule are the following: (1) the accident was of a kind which does not
ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused the injury was under the exclusive control of the
person charged with negligence; and (3) the injury suffered must not have been due to any voluntary action or contribution on the part of the
person injured.29

In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi Galant unless someone is negligent. Also, the Fuzo
Cargo Truck was under the exclusive control of its driver, Reyes. Even if respondents avert liability by putting the blame on the Nissan Bus driver,
still, this allegation was self-serving and totally unfounded. Finally, no contributory negligence was attributed to the driver of the Mitsubishi Galant.
Consequently, all the requisites for the application of the doctrine of res ipsa loquitur are present, thereby creating a reasonable presumption of
negligence on the part of respondents.

It is worth mentioning that just like any other disputable presumptions or inferences, the presumption of negligence may be rebutted or overcome
by other evidence to the contrary. It is unfortunate, however, that respondents failed to present any evidence before the trial court. Thus, the
presumption of negligence remains. Consequently, the CA erred in dismissing the complaint for Malayan Insurance’s adverted failure to prove
negligence on the part of respondents.

Validity of Subrogation

Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim check voucher30 and the Release of
Claim and Subrogation Receipt31 presented by it before the trial court. Respondents, however, claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper subrogation.

As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the presentation of its evidence. Thus, and as We have
mentioned earlier, respondents are deemed to have waived their right to make an objection. As this Court held in Asian Construction and
Development Corporation v. COMFAC Corporation:

The rule is that failure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard such
evidence. We note that ASIAKONSTRUCT’s counsel of record before the trial court, Atty. Bernard Dy, who actively participated in the initial
stages of the case stopped attending the hearings when COMFAC was about to end its presentation. Thus, ASIAKONSTRUCT could not object to
COMFAC’s offer of evidence nor present evidence in its defense; ASIAKONSTRUCT was deemed by the trial court to have waived its chance to
do so.

Note also that when a party desires the court to reject the evidence offered, it must so state in the form of a timely objection and it
cannot raise the objection to the evidence for the first time on appeal. Because of a party’s failure to timely object, the evidence
becomes part of the evidence in the case. Thereafter, all the parties are considered bound by any outcome arising from the offer of
evidence properly presented.32 (Emphasis supplied.)

Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by Malayan Insurance are already part
of the evidence on record, and since it is not disputed that the insurance company, indeed, paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer has paid a
loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all
means that the creditor could employ to enforce payment.1âwphi1

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured
may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it
grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation
has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a
debt by one who, in justice, equity, and good conscience, ought to pay.33

Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the assured.

WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and October 29, 2010 Resolution in CA-G.R. CV No. 93112 are
hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby
REINSTATED.

No pronouncement as to cost.

SO ORDERED.

G.R. No. 177839               January 18, 2012

FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE CORPORATION), Petitioner,
vs.
CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.), Respondent.

VILLARAMA, JR., J.:

50
Before this Court is a Rule 45 Petition assailing the Decision1 dated November 20, 2006 and Resolution2 dated May 8, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 86623, which reversed the Decision 3 dated August 5, 2005 of the Regional Trial Court (RTC) of Makati City,
Branch 59 in Civil Case No 02-857.

Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-Taisho Insurance Corporation (now known
as FLT Prime Insurance Corporation) for the payment of unpaid oil and petroleum purchases made by its distributor Fumitechniks Corporation
(Fumitechniks).

Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond FLTICG (16) No. 01012 by petitioner for the
amount of ₱15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the
respondent "to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the terms and
conditions of the agreement." The surety bond was executed on October 15, 2001 and will expire on October 15, 2002.4

Fumitechniks defaulted on its obligation. The check dated December 14, 2001 it issued to respondent in the amount of ₱11,461,773.10, when
presented for payment, was dishonored for reason of "Account Closed." In a letter dated February 6, 2002, respondent notified petitioner of
Fumitechniks’ unpaid purchases in the total amount of ₱15,084,030.30. In its letter-reply dated February 13, 2002, petitioner through its counsel,
requested that it be furnished copies of the documents such as delivery receipts. 5 Respondent complied by sending copies of invoices showing
deliveries of fuel and petroleum products between November 11, 2001 and December 1, 2001.

Simultaneously, a letter6 was sent to Fumitechniks demanding that the latter submit to petitioner the following: (1) its comment on respondent’s
February 6, 2002 letter; (2) copy of the agreement secured by the Bond, together with copies of documents such as delivery receipts; and (3)
information on the particulars, including "the terms and conditions, of any arrangement that [Fumitechniks] might have made or any ongoing
negotiation with Caltex in connection with the settlement of the obligations subject of the Caltex letter."

In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioner’s counsel informing that it cannot submit the requested
agreement since no such agreement was executed between Fumitechniks and respondent. Fumitechniks also enclosed a copy of another surety
bond issued by CICI General Insurance Corporation in favor of respondent to secure the obligation of Fumitechniks and/or Prime Asia Sales and
Services, Inc. in the amount of ₱15,000,000.00.7 Consequently, petitioner advised respondent of the non-existence of the principal agreement as
confirmed by Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist without a principal agreement as it is
essential that the copy of the basic contract be submitted to the proposed surety for the appreciation of the extent of the obligation to be covered
by the bond applied for.8

On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety bond. However, petitioner reiterated its
position that without the basic contract subject of the bond, it cannot act on respondent’s claim; petitioner also contested the amount of
Fumitechniks’ supposed obligation.9

Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for judgment ordering petitioner to pay the sum of
₱15,080,030.30, plus interest, costs and attorney’s fees equivalent to ten percent of the total obligation.10

Petitioner, in its Answer with Counterclaim,11 asserted that the Surety Bond was issued for the purpose of securing the performance of the
obligations embodied in the Principal Agreement stated therein, which contract should have been attached and made part thereof.

After trial, the RTC rendered judgment dismissing the complaint as well as petitioner’s counterclaim. Said court found that the terms and conditions
of the oral credit line agreement between respondent and Fumitechniks have not been relayed to petitioner and neither were the same conveyed
even during trial. Since the surety bond is a mere accessory contract, the RTC concluded that the bond cannot stand in the absence of the written
agreement secured thereby. In holding that petitioner cannot be held liable under the bond it issued to Fumitechniks, the RTC noted the practice of
petitioner, as testified on by its witnesses, to attach a copy of the written agreement (principal contract) whenever it issues a surety bond, or to be
submitted later if not yet in the possession of the assured, and in case of failure to submit the said written agreement, the surety contract will not
be binding despite payment of the premium.

Respondent filed a motion for reconsideration while petitioner filed a motion for partial reconsideration as to the dismissal of its counterclaim. With
the denial of their motions, both parties filed their respective notice of appeal.

The CA ruled in favor of respondent, the dispositive portion of its decision reads:

WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment is hereby entered ORDERING defendant-appellant First
Lepanto-Taisho Insurance Corporation to pay plaintiff-appellant Caltex (Philippines) Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.

SO ORDERED.12

According to the appellate court, petitioner cannot insist on the submission of a written agreement to be attached to the surety bond considering
that respondent was not aware of such requirement and unwritten company policy. It also declared that petitioner is estopped from assailing the
oral credit line agreement, having consented to the same upon presentation by Fumitechniks of the surety bond it issued. Considering that such
oral contract between Fumitechniks and respondent has been partially executed, the CA ruled that the provisions of the Statute of Frauds do not
apply.

With the denial of its motion for reconsideration, petitioner appealed to this Court raising the following issues:

I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE PROVISIONS OF THE SURETY
BOND WHEN IT HELD THAT THE SURETY BOND SECURED AN ORAL CREDIT LINE AGREEMENT NOTWITHSTANDING THE
STIPULATIONS THEREIN CLEARLY SHOWING BEYOND DOUBT THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT,
PARTICULARLY, THE WRITTEN AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO BE ATTACHED TO THE SURETY BOND AND
MADE A PART THEREOF.

II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE QUESTIONED RESPONDENT’S
EVIDENCE FOR BEING CONTRARY TO THE PAROL EVIDENCE RULE, IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE
STATUTE OF FRAUDS.

III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE RESPONDENT’S MOTION FOR
RECONSIDERATION OF THE RTC DECISION FOR BEING A MERE SCRAP OF PAPER AND PRO FORMA AND, CONSEQUENTLY, IN NOT
DECLARING THE RTC DECISION AS FINAL AND EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.

51
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE RTC DECISION AND IN NOT GRANTING
PETITIONER’S COUNTERCLAIM.13

The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the absence of a written contract with the
principal.

Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes
official recognizances, stipulations, bonds or undertakings issued under Act 536, 14 as amended. Suretyship arises upon the solidary binding of a
person – deemed the surety – with the principal debtor, for the purpose of fulfilling an obligation. 15 Such undertaking makes a surety agreement an
ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid
principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. And notwithstanding the fact that the surety contract is secondary to the principal obligation,
the surety assumes liability as a regular party to the undertaking.16

The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication,
beyond the terms of the contract. 17 Thus, to determine whether petitioner is liable to respondent under the surety bond, it becomes necessary to
examine the terms of the contract itself.

Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner, which states:

That we, FUMITECHNIKS CORP. OF THE PHILS.  of #154 Anahaw St., Project 7, Quezon City as principal and First Lepanto-Taisho Insurance
Corporation a corporation duly organized and existing under and by virtue of the laws of the Philippines as Surety, are held firmly bound
unto CALTEX PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION SEVEN HUNDRED THOUSAND ONLY PESOS (P15,700,000.00),
Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors,
and assigns, jointly and severally, firmly by these presents:

The conditions of this obligation are as follows:

WHEREAS, the above-bounden principal, on 15th day of October, 2001 entered into [an] agreement with CALTEX PHILIPPINES, INC. of
________________ to fully and faithfully

a copy of which is attached hereto and made a part hereof:

WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful
performance on his part of said agreement__.

NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements
stipulated in said agreement__ then this obligation shall be null and void; otherwise it shall remain in full force and effect.

The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15, 2002__.

x x x x18 (Emphasis supplied.)

The rider attached to the bond sets forth the following:

WHEREAS, the Principal has applied for a Credit Line in the amount of PESOS: Fifteen Million Seven Hundred thousand only (₱15,700,000.00),
Philippine Currency with the Obligee for the purchase of Fuel Products;

WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost of fuel products withdrawn within the
stipulated time in accordance with terms and conditions of the agreement;

IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen million seven hundred thousand only
(₱15,700,000.00), Philippine Currency.

NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions and agreements
stipulated in said undertakings, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.

The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire on 10.15.01_. Furthermore, it is hereby
understood that FIRST LEPANTO-TAISHO INSURANCE CORPORATION will not be liable for any claim not presented to it in writing within fifteen
(15) days from the expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against the Surety after the
termination of fifteen (15) days from the time its cause of action accrues.19

Petitioner posits that non-compliance with the submission of the written agreement, which by the express terms of the surety bond, should be
attached and made part thereof, rendered the bond ineffective. Since all stipulations and provisions of the surety contract should be taken and
interpreted together, in this case, the unmistakable intention of the parties was to secure only those terms and conditions of the written agreement.
Thus, by deleting the required submission and attachment of the written agreement to the surety bond and replacing it with the oral credit
agreement, the obligations of the surety have been extended beyond the limits of the surety contract.

On the other hand, respondent contends that the surety bond had been delivered by petitioner to Fumitechniks which paid the premiums and
delivered the bond to respondent, who in turn, opened the credit line which Fumitechniks availed of to purchase its merchandise from respondent
on credit. Respondent points out that a careful reading of the surety contract shows that there is no such requirement of submission of the written
credit agreement for the bond’s effectivity. Moreover, respondent’s witnesses had already explained that distributorship accounts are not covered
by written distribution agreements. Supplying the details of these agreements is allowed as an exception to the parol evidence rule even if it is
proof of an oral agreement. Respondent argues that by introducing documents that petitioner sought to exclude, it never intended to change or
modify the contents of the surety bond but merely to establish the actual terms of the distribution agreement between Fumitechniks and
respondent, a separate agreement that was executed shortly after the issuance of the surety bond. Because petitioner still issued the bond and
allowed it to be delivered to respondent despite the fact that a copy of the written distribution agreement was never attached thereto, respondent
avers that clearly, such attaching of the copy of the principal agreement, was for evidentiary purposes only. The real intention of the bond was to
secure the payment of all the purchases of Fumitechniks from respondent up to the maximum amount allowed under the bond.

52
A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the payment of purchases on credit by Fumitechniks in accordance with
the terms and conditions of the "agreement" it entered into with respondent. The word "agreement" has reference to the distributorship agreement,
the principal contract and by implication included the credit agreement mentioned in the rider. However, it turned out that respondent has executed
written agreements only with its direct customers but not distributors like Fumitechniks and it also never relayed the terms and conditions of its
distributorship agreement to the petitioner after the delivery of the bond. This was clearly admitted by respondent’s Marketing Coordinator, Alden
Casas Fajardo, who testified as follows:

Atty. Selim:

Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety bond as part of the requirements of [Fumitechniks] before
the Distributorship Agreement was approved?

A : Yes Sir.

xxxx

Q : Is it the practice or procedure at Caltex to reduce distributorship account into writing?

xxxx

A : No, its not a practice to make an agreement.

xxxx

Atty. Quiroz:

Q : What was the reason why you are not reducing your agreement with your client into writing?

A : Well, of course as I said, there is no fix pricing in terms of distributorship agreement, its usually with regards to direct service to the
customers which have direct fixed price.

xxxx

Q : These supposed terms and conditions that you agreed with [Fumitechniks], did you relay to the defendant…

A : Yes Sir.

xxxx

Q : How did you relay that, how did you relay the terms and conditions to the defendant?

A : I don’t know, it was during the time for collection because I collected them and explain the terms and conditions.

Q : You testified awhile ago that you did not talk to the defendant First Lepanto-Taisho Insurance Corporation?

A : I was confused with the question. I’m talking about Malou Apostol.

Q : So, in your answer, you have not relayed those terms and conditions to the defendant First Lepanto, you have not?

A : Yes Sir.

Q : And as of this present, you have not yet relayed the terms and conditions?

A : Yes Sir.

x x x x 20

Respondent, however, maintains that the delivery of the bond and acceptance of premium payment by petitioner binds the latter as surety,
notwithstanding the non-submission of the oral distributorship and credit agreement which understandably cannot be attached to the bond.

The contention has no merit.

The law is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the principal.
Section 176 of the Insurance Code states:

Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is
determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Emphasis
supplied.)

A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. 21 Necessarily, the stipulations in such
principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the
payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond
specifically makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. 22 Moreover, being an onerous undertaking, a surety agreement is strictly
construed against the creditor, and every doubt is resolved in favor of the solidary debtor. 23 Having accepted the bond, respondent as creditor must
be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least

53
communicated in writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety
contract but on the creditor’s right to demand performance.

It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction,
although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a
faithful observance of the rights of the surety and to the performance of every duty necessary for the protection of those rights. 24 Moreover, in this
jurisdiction, obligations arising from contracts have the force of law between the parties and should be complied with in good faith.25 Respondent is
charged with notice of the specified form of the agreement or at least the disclosure of basic terms and conditions of its distributorship and credit
agreements with its client Fumitechniks after its acceptance of the bond delivered by the latter. However, it never made any effort to relay those
terms and conditions of its contract with Fumitechniks upon the commencement of its transactions with said client, which obligations are covered
by the surety bond issued by petitioner. Contrary to respondent’s assertion, there is no indication in the records that petitioner had actual
knowledge of its alleged business practice of not having written contracts with distributors; and even assuming petitioner was aware of such
practice, the bond issued to Fumitechniks and accepted by respondent specifically referred to a "written agreement."

As to the contention of petitioner that respondent’s motion for reconsideration filed before the trial court should have been deemed not filed for
being pro forma, the Court finds it to be without merit. The mere fact that a motion for reconsideration reiterates issues already passed upon by the
court does not, by itself, make it a pro forma motion. Among the ends to which a motion for reconsideration is addressed is precisely to convince
the court that its ruling is erroneous and improper, contrary to the law or evidence; the movant has to dwell of necessity on issues already passed
upon.26 1avvphi1

Finally, we hold that the trial court correctly dismissed petitioner’s counterclaim for moral damages and attorney’s fees. The filing alone of a civil
action should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for
moral damages.27 Besides, a juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. 28 Although in some recent cases we
have held that the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the
existence of the factual basis of the damage and its causal relation to the defendant’s acts. This is so because moral damages, though incapable
of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.29 There is no evidence presented to establish the factual basis of petitioner’s claim for moral damages.

Petitioner is likewise not entitled to attorney’s fees. The settled rule is that no premium should be placed on the right to litigate and that not every
winning party is entitled to an automatic grant of attorney’s fees. 30 In pursuing its claim on the surety bond, respondent was acting on the belief that
it can collect on the obligation of Fumitechniks notwithstanding the non-submission of the written principal contract.

WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated November 20, 2006 and Resolution dated May 8,
2007 of the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET ASIDE. The Decision dated August 5, 2005 of the Regional
Trial Court of Makati City, Branch 59 in Civil Case No. 02-857 dismissing respondent’s complaint as well as petitioner’s counterclaim, is hereby
REINSTATED and UPHELD.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 171468               August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP.,
ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN
INSURANCE CO., INC., Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 174241

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.

ABAD, J.:

These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured goods under the Carriage of Goods by Sea
Act and the Insurance Code.

The Facts and the Case

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech
Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From
there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan
Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good
condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993. Upon
inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. Eventually, on
October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and
deliver the same to petitioner New World’s job site in Makati City.

54
An examination of the three generator sets in the presence of petitioner New World’s representatives, Federal Builders (the project contractor) and
surveyors of petitioner New World’s insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive
damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT,
Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand,
both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying
on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories, with
corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance
policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional
Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that
the generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise
the degree of diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage
of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7,
1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre
operator and not from the date they were delivered to petitioner’s job site.1

As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim against
it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing
of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.

On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the RTC’s rulings except with respect to Seaboard’s
liability. The CA held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New
World’s right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured.

Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file a
motion for reconsideration of that decision. On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World.
Further, the CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s right
against the vessel owner. New World’s failure to comply promptly with what was required of it prejudiced such right.

Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the Court in G.R. 174241, assailing the CA’s
amended decision.

The Issues Presented

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of respondents DMT, Advatech, LEP, LEP
Profit, Marina, and Serbros who were at one time or another involved in handling the shipment; and

b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner New World for an itemized list is a
reasonable imposition and did not violate the insurance contract between them; and 2) whether or not the CA erred in failing to rule that
the one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim against
Seaboard, its insurer.

The Court’s Rulings

In G.R. 171468 --

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its
shipment from Wisconsin to Manila collectively resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the
vessel owner.

But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on
certiorari. And petitioner New World has been unable to make out an exception to this rule. 3 Consequently, the Court will not disturb the finding of
the RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s voyage from Hong Kong to
Manila and that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New World’s loss.

That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not automatically relieve the common
carrier of liability. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it exercised due
diligence to prevent or minimize such loss before, during, and after the disastrous typhoon. 4 As found by the RTC and the CA, NYK failed to
discharge this burden.

In G.R. 174241 --

One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of the
damage that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements evidencing
damage to its generator sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all causes of conceivable loss or
damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The
policy covered all losses during the voyage whether or not arising from a marine peril.5

55
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among
others.6 But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the documents
that it already submitted, namely, (1) copy of the Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6)
copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of
Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of the generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy. 8 Being
a contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a requirement in the
policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was
incumbent on the latter as the seller DMT’s local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.

Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in
case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on
October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right
to take, as early as November 16, 1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New World’s
right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand
on February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared settled that
New World’s loss was total and when the insurance policy did not require the production of such a list in the event of a claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should
not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that
were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit
directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or
settle claims arising under coverages provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss,
the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be
entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. Under Section 244, a prima
facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section
243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the rate of
twice the ceiling prescribed by the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12%
per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116. 9 Section 244 of the Insurance Code also provides for an
award of attorney’s fees and other expenses incurred by the assured due to the unreasonable withholding of payment of his claim.

In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc., 10 the Court regarded as proper an award of 10% of the insurance
proceeds as attorney’s fees. Such amount is fair considering the length of time that has passed in prosecuting the claim. 11 Pursuant to the Court’s
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the finality of judgment until full satisfaction of the claim
should likewise be imposed, the interim period equivalent to a forbearance of credit.1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorney’s fees as discussed above.

WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as
petitioner New World International Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries,
Inc., LEP International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation.

With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of
August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International Development
(Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections 243
and 244 of the Insurance Code and attorney’s fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of
judgment, a 12% interest per annum on the total amount due to petitioner until its full satisfaction.

SO ORDERED.

G.R. No. 165487               July 13, 2011

56
 COUNTRY BANKERS INSURANCE CORPORATION, Petitioner,
vs.
ANTONIO LAGMAN, Respondent.

PEREZ, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision 1 and Resolution2 of the Court of
Appeals dated 21 June 2004 and 24 September 2004, respectively.

These are the undisputed facts.

Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of storing not more than 30,000
sacks of palay valued at ₱5,250,000.00 in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded
Warehouse Act, as amended, 3 the approval for said license was conditioned upon posting of a cash bond, a bond secured by real estate, or a
bond signed by a duly authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-three and
one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received.

Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. 03304 4 for ₱1,749,825.00 on 5 November
1989 and Warehouse Bond No. 02355 5 for ₱749,925.00 on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman).
Santos was the bond principal, Lagman was the surety and the Republic of the Philippines, through the NFA was the obligee. In consideration of
these issuances, corresponding Indemnity Agreements6 were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee
Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for
any damages, prejudice, losses, costs, payments, advances and expenses of whatever kind and nature, including attorney’s fees and legal costs,
which it may sustain as a consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or
become liable to pay thereunder; and to pay interest at the rate of 12% per annum computed and compounded monthly, as well as to pay
attorney’s fees of 20% of the amount due it.7

Santos then secured a loan using his warehouse receipts as collateral. 8 When the loan matured, Santos defaulted in his payment. The sacks of
palay covered by the warehouse receipts were no longer found in the bonded warehouse. 9 By virtue of the surety bonds, Country Bankers was
compelled to pay ₱1,166,750.37.10

Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC)
of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their issuance, as evidenced by receipts;
that the bonds were never renewed and revived by payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond
No. 03515 (1990 Bond) which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the 1990 Bond
supersedes, cancels, and renders no force and effect the 1989 Bonds.11

The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be found. 12 The case was eventually
dismissed against them without prejudice.13 The other co-signor, Reguine, was declared in default for failure to file her answer.14

On 21 September 1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to pay Country Bankers the
amount of ₱2,400,499.87.15 The dispositive portion of the RTC Decision16 reads:

WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants Rhomesita [sic] Reguine and Antonio Lagman, jointly and
severally liable to pay plaintiff, Country Bankers Assurance Corporation, the amount of ₱2,400,499.87, with 12% interest from the date the
complaint was filed until fully satisfied plus 20% of the amount due plaintiff as and for attorney’s fees and to pay the costs.

As the Court did not acquire jurisdiction over the persons of defendants Nelson Santos and Ban Lee Lim Santos, let the case against them be
DISMISSED. Defendant Antonio Lagman’s counterclaim is likewise DISMISSED, for lack of merit.17

In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court relied on the express terms of the Indemnity Agreement that
they jointly and severally bound themselves to indemnify and make good to Country Bankers any liability which the latter may incur on account of
or arising from the execution of the bonds.18

The trial court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and cannot be unilaterally cancelled by
Lagman. The trial court emphasized that for the failure of Lagman to comply with his obligation under the Indemnity Agreements, he is likewise
liable for damages as a consequence of the breach.

Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as
the corresponding Indemnity Agreements was only 12 months. According to Lagman, the 1990 Bond was not pleaded in the complaint because it
was not covered by an Indemnity Agreement and it superseded the two prior bonds.19

On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing and setting aside the Decision of the RTC and ordering the
dismissal of the complaint filed against Lagman.20

The appellate court held that the 1990 Bond superseded the 1989 Bonds. The appellate court observed that the 1990 Bond covers 33.3% of the
market value of the palay, thereby manifesting the intention of the parties to make the latter bond more comprehensive. Lagman was also
exonerated by the appellate court from liability because he was not a signatory to the alleged Indemnity Agreement of 5 November 1990 covering
the 1990 Bond. The appellate court rejected the argument of Country Bankers that the 1989 bonds were continuing, finding, as reason therefor,
that the receipts issued for the bonds indicate that they were effective for only one-year.

Country Bankers sought reconsideration which was denied in a Resolution dated 24 September 2004.21

Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of Appeals, to wit:

A.

THE HONORABLE COURT OF APPEALS seriously erred in disregarding the express provisions of Section 177 of the insurance code
when it held that the subject surety bonds were superseded by a subsequent bond notwithstanding the non-cancellation thereof by the
bond obligee.

57
 B.

The honorable court of appeals seriously erred in holding that receipts for the payment of premiums prevail over the express provision of
the surety bond that fixes the term thereof.22

Country Bankers maintains that by the express terms of the 1989 Bonds, they shall remain in full force until cancelled by the Administrator of the
NFA. As continuing bonds, Country Bankers avers that Section 177 of the Insurance Code applies, in that the bond may only be cancelled by the
obligee, by the Insurance Commissioner or by a competent court.

Country Bankers questions the existence of a third bond, the 1990 Bond, which allegedly cancelled the 1989 Bonds on the following grounds:
First, Lagman failed to produce the original of the 1990 Bond and no basis has been laid for the presentation of secondary evidence; Second, the
issuance of the 1990 Bond was not approved and processed by Country Bankers; Third, the NFA as bond obligee was not in possession of the
1990 Bond. Country Bankers stresses that the cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo, the bonds
remain subsisting until cancelled by the bond obligee. Country Bankers further assert that Lagman also failed to prove that the NFA accepted the
1990 Bond in replacement of the 1989 Bonds.

Country Bankers notes that the receipts issued for the 1989 Bonds are mere evidence of premium payments and should not be relied on to
determine the period of effectivity of the bonds. Country Bankers explains that the receipts only represent the transactions between the bond
principal and the surety, and does not involve the NFA as bond obligee.

Country Bankers calls this Court’s attention to the incontestability clause contained in the Indemnity Agreements which prohibits Lagman from
questioning his liability therein.

In his Comment, Lagman raises the issue of novation by asserting that the 1989 Bonds were superseded by the 1990 Bond, which did not include
Lagman as party. Therefore, Lagman argues, Country Bankers has no cause of action against him. Lagman also reiterates that because of
novation, the 1989 bonds are neither perpetual nor continuing.

Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates the 1989 Bonds.

The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the payment of premiums.

We do not agree.

The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically
mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium.
Section 177 of the Insurance Code expresses:

Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor.
No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee
has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall
collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes
imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of
the surety, no such service fee, stamps or taxes shall be collected. (Emphasis supplied)

The 1989 Bonds have identical provisions and they state in very clear terms the effectivity of these bonds, viz:

NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the depositors PALAY received by him for STORAGE at any
time that demand therefore is made, or shall pay the market value therefore in case he is unable to return the same, then this obligation shall be
null and void; otherwise it shall remain in full force and effect and may be enforced in the manner provided by said Act No. 3893 as amended by
Republic Act No. 247 and P.D. No. 4. This bond shall remain in force until cancelled by the Administrator of National Food Authority.23

This provision in the bonds is but in compliance with the second paragraph of Section 177 of the Insurance Code, which specifies that a continuing
bond, as in this case where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance
Commissioner, and by the court. Thus:

In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the
obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.

By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business
of receiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA. From beginning to
end, the Administrator’s brief is the enabling or disabling document.

The clear import of these provisions is that the surety bonds in question cannot be unilaterally cancelled by Lagman. The same conclusion was
reached by the trial court and we quote:

As there appears no record of cancellation of the Warehouse Bonds No. 03304 and No. 02355 either by the administrator of the NFA or by the
Insurance Commissioner or by the Court, the Warehouse Bonds are valid and binding and cannot be unilaterally cancelled by defendant Lagman
as general agent of the plaintiff.24

While the trial court did not directly rule on the existence and validity of the 1990 Bond, it upheld the 1989 Bonds as valid and binding, which could
not be unilaterally cancelled by Lagman. The Court of Appeals, on the other hand, acknowledged the 1990 Bond as having cancelled the two
previous bonds by novation. Both courts however failed to discuss their basis for rejecting or admitting the 1990 Bond, which, as we indicated, is
bone to pick in this case.

Lagman’s insistence on novation depends on the validity, nay, existence of the allegedly novating 1990 Bond. Country Bankers understandably
impugns both. We see the point. Lagman presented a mere photocopy of the 1990 Bond. We rule as inadmissible such copy.

Under the best evidence rule, the original document must be produced whenever its contents are the subject of inquiry. 25 The rule is encapsulated
in Section 3, Rule 130 of the Rules of Court, as follow:

58
Sec. 3. Original document must be produced; exceptions. — When the subject of inquiry is the contents of a documents, no evidence shall be
admissible other than the original document itself, except in the following cases:

(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;

(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to
produce it after reasonable notice;

(c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time
and the fact sought to be established from them is only the general result of the whole; and

(d) When the original is a public record in the custody of a public officer or is recorded in a public office.26

A photocopy, being a mere secondary evidence, is not admissible unless it is shown that the original is unavailable. 27 Section 5, Rule 130 of the
Rules of Court states:

SEC.5 When original document is unavailable. — When the original document has been lost or destroyed, or cannot be produced in court, the
offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or
by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated.

Before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror must prove the following: (1) the existence
or due execution of the original; (2) the loss and destruction of the original or the reason for its non-production in court; and (3) on the part of the
offeror, the absence of bad faith to which the unavailability of the original can be attributed. The correct order of proof is as follows: existence,
execution, loss, and contents.28

In the case at bar, Lagman mentioned during the direct examination that there are actually four (4) duplicate originals of the 1990 Bond: the first is
kept by the NFA, the second is with the Loan Officer of the NFA in Tarlac, the third is with Country Bankers and the fourth was in his
possession.29 A party must first present to the court proof of loss or other satisfactory explanation for the non-production of the original
instrument.30 When more than one original copy exists, it must appear that all of them have been lost, destroyed, or cannot be produced in court
before secondary evidence can be given of any one. A photocopy may not be used without accounting for the other originals.31

Despite knowledge of the existence and whereabouts of these duplicate originals, Lagman merely presented a photocopy. He admitted that he
kept a copy of the 1990 Bond but he could no longer produce it because he had already severed his ties with Country Bankers. However, he did
not explain why severance of ties is by itself reason enough for the non-availability of his copy of the bond considering that, as it appears from the
1989 Bonds, Lagman himself is a bondsman. Neither did Lagman explain why he failed to secure the original from any of the three other
custodians he mentioned in his testimony. While he apparently was able to find the original with the NFA Loan Officer, he was merely contented
with producing its photocopy. Clearly, Lagman failed to exert diligent efforts to produce the original.

Fueling further suspicion regarding the existence of the 1990 Bond is the absence of an Indemnity Agreement. While Lagman argued that a 1990
Bond novates the 1989 Bonds, he raises the defense of "non-existence of an indemnity agreement" which would conveniently exempt him from
liability. The trial court deemed this defense as indicia of bad faith, thus:

To the observation of the Court, defendant Lagman contended that being a general agent (which requires a much higher qualification than an
ordinary agent), he is expected to have attended seminars and workshops on general insurance wherein he is supposed to have acquired
sufficient knowledge of the general principles of insurance which he had fully practised or implemented from experience. It somehow appears to
the Court’s assessment of his reneging liability of the bonds in question, that he is still short of having really understood the principle of suretyship
with reference to the transaction of indemnity in which he is a signatory. If, as he alleged, that he is well-versed in insurance, the Court finds no
excuse for him to stand firm in denying his liability over the claim against the bonds with indemnity provision. If he insists in not recognizing that
liability, the more that this Court is convinced that his knowledge that insurance operates under the principle of good faith is inadequate. He missed
the exception provided by Section 177 of the Insurance Code, as amended, wherein non-payment of premium would not have the same essence
in his mind that the agreements entered into would not have full force or effect. It could be glimpsed, therefore, that the mere fact of cancelling
bonds with indemnity agreements and replacing them (absence of the same) to escape liability clearly manifests bad faith on his part. 32 (Emphasis
supplied.)

Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the
object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For
novation to take place, the following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to
a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract.33

In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989 Bonds. There is however neither a
valid new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered
dubious. Without the new contract, the old contract is not extinguished.

Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by
the new one.34 Quite obviously, neither can there be implied novation. In this case, there is no new obligation.

The liability of Lagman is expressed in Indemnity Agreements executed in consideration of the 1989 Bonds which we have considered as
continuing contracts. Under both Indemnity Agreements, Lagman, as co-signor, together with Santos, Ban Lee Lim and Reguine, bound
themselves jointly and severally to Country Bankers to indemnify it for any damage or loss sustained on the account of the execution of the bond,
among others. The pertinent identical stipulations of the Indemnity Agreements state:

INDEMNITY: ─ To indemnify and make good to the COMPANY jointly and severally, any damages, prejudice, loss, costs, payments advances and
expenses of whatever kind and nature, including attorney’s fees and legal costs, which the COMPANY may, at any time, sustain or incur, as well
as to reimburse to said COMPANY all sums and amounts of money which the COMPANY or its representatives shall or may pay or cause to be
paid or become liable to pay, on account of or arising from the execution of the above-mentioned BOND or any extension, renewal, alteration or
substitution thereof made at the instance of the undersigned or anyone of them.35

Moreover, the Indemnity Agreements also contained identical Incontestability Clauses which provide:

INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: ─ Any payment or disbursement made by the COMPANY on account of the
above-mentioned Bond, its renewals, extensions, alterations or substitutions either in the belief that the COMPANY was obligated to make such
payment or in the belief that said payment was necessary or expedient in order to avoid greater losses or obligations for which the COMPANY

59
might be liable by virtue of the terms of the above-mentioned Bond, its renewals, extensions, alterations, or substitutions, shall be final and shall
not be disputed by the undersigned, who hereby jointly and severally bind themselves to indemnify [Country Bankers] of any and all such
payments, as stated in the preceding clauses.

In case the COMPANY shall have paid[,] settled or compromised any liability, loss, costs, damages, attorney’s fees, expenses, claims[,] demands,
suits, or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of the
COMPANY and other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or
compromise, as well as the liability of the undersigned in any and all suits and claims against the undersigned arising out of said bond or this bond
application.361awphil

Lagman is bound by these Indemnity Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds gave rise to Lagman’s
obligation to reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is liable for the entire obligation.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE
and the Decision dated 21 September 1998 of the RTC is hereby REINSTATED.

SO ORDERED.

G.R. No. 171406               April 4, 2011

ASIAN TERMINALS, INC., Petitioner,

vs.
MALAYAN INSURANCE, CO., INC., Respondent.

DEL CASTILLO, J.:

Once the insurer pays the insured, equity demands reimbursement as no one should benefit at the expense of another.

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the July 14, 2005 Decision 2 and the February 14, 2006
Resolution3 of the Court of Appeals (CA) in CA G.R. CV No. 61798.

Factual Antecedents

On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense
(each bag weighing 50 kilograms) from China to Manila.4 The shipment, with an invoice value of US$456,000.00, was insured with respondent
Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation
Company with Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party.5

On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila,6 the stevedores of petitioner Asian Terminals, Inc., a duly
registered domestic corporation engaged in providing arrastre and stevedoring services, 7 unloaded the 60,000 bags of soda ash dense from the
vessel and brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of
Customs and delivery to the consignee. 8 When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in
bad order condition.9

On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to
the consignee.10 On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad
order condition due to spillage, caking, and hardening of the contents.11

On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of ₱643,600.25.12

Ruling of the Regional Trial Court

On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a
Complaint13 for damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage.14

After the filing of the Answers,15 trial ensued.

On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable for the damage/loss sustained by the shipment but absolving the other
defendants. The RTC found that the proximate cause of the damage/loss was the negligence of petitioner’s stevedores who handled the unloading
of the cargoes from the vessel.17 The RTC emphasized that despite the admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor
Antonio not to use steel hooks in retrieving and picking-up the bags, petitioner’s stevedores continued to use such tools, which pierced the bags
and caused the spillage.18 The RTC, thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles
217619 and 2180 paragraph (4)20 of the Civil Code.21 Hence, the dispositive portion of the Decision reads:

WHEREFORE, judgment is rendered ordering defendant Asian Terminal, Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum of
₱643,600.25 plus interest thereon at legal rate computed from November 20, 1996, the date the Complaint was filed, until the principal obligation
is fully paid, and the costs.

The complaint of the plaintiff against defendants Inchcape Shipping Services and MEC Customs Brokerage, and the counterclaims of said
defendants against the plaintiff are dismissed.

SO ORDERED.22

Ruling of the Court of Appeals

Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In its July 14, 2005 Decision, the CA agreed with the RTC that the
damage/loss was caused by the negligence of petitioner’s stevedores in handling and storing the subject shipment. 24 The CA likewise rejected
petitioner’s assertion that it received the subject shipment in bad order condition as this was belied by Marine Cargo Surveyors Redentor Antonio
and Edgar Liceralde, who both testified that the actual counting of bad order bags was done only after all the bags were unloaded from the vessel

60
and that the Turn Over Survey of Bad Order Cargoes (TOSBOC) upon which petitioner anchors its defense was prepared only on November 28,
1995 or after the unloading of the bags was completed.25 Thus, the CA disposed of the appeal as follows:

WHEREFORE, premises considered, the appeal is DENIED. The assailed Decision dated June 26, 1998 of the Regional Trial Court of Manila,
Branch 35, in Civil Case No. 96-80945 is hereby AFFIRMED in all respects.

SO ORDERED.26

Petitioner moved for reconsideration27 but the CA denied the same in a Resolution28 dated February 14, 2006 for lack of merit.

Issues

Hence, the present recourse, petitioner contending that:

1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION
AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID, EXISTING,
ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN COURT.

2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE
ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND RESPONDENT.

3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS DOCUMENTATIONS WOULD POINT TO THE VESSEL’S
LIABILITY AS THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING DOCUMENTARY EVIDENCE TO PROVE THAT THE
DAMAGE IN QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE CUSTODY OF THE VESSEL.

4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT
THAT THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE COMPLETION OF
THE DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS, CONCLUDING THAT DAMAGE TO THE CARGOES WAS
DUE TO THE IMPROPER HANDLING THEREOF BY ATI STEVEDORES.

5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING JUDICIAL NOTICE OF THE CONTRACT FOR CARGO
HANDLING SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT PROVISIONS THEREOF AS REGARDS ATI’S
LIABILITY.29

In sum, the issues are: (1) whether the non-presentation of the insurance contract or policy is fatal to respondent’s cause of action; (2)
whether the proximate cause of the damage/loss to the shipment was the negligence of petitioner’s stevedores; and (3) whether the
court can take judicial notice of the Management Contract between petitioner and the Philippine Ports Authority (PPA) in determining
petitioner’s liability.

Petitioner’s Arguments

Petitioner contends that respondent has no cause of action because it failed to present the insurance contract or policy covering the subject
shipment.30 Petitioner argues that the Subrogation Receipt presented by respondent is not sufficient to prove that the subject shipment was
insured and that respondent was validly subrogated to the rights of the consignee.31 Thus, petitioner submits that without proof of a valid
subrogation, respondent is not entitled to any reimbursement.32

Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the proximate cause of the damage/loss to the
shipment was the negligence of petitioner’s stevedores.33 Petitioner avers that such finding is contrary to the documentary evidence, i.e., the
TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report of Survey. 34 According to petitioner, these documents prove that it
received the subject shipment in bad order condition and that no additional damage was sustained by the subject shipment under its
custody.35 Petitioner asserts that although the TOSBOC was prepared only after all the bags were unloaded by petitioner’s stevedores, this does
not mean that the damage/loss was caused by its stevedores.36

Petitioner also claims that the amount of damages should not be more than ₱5,000.00, pursuant to its Management Contract for cargo handling
services with the PPA.37 Petitioner contends that the CA should have taken judicial notice of the said contract since it is an official act of an
executive department subject to judicial cognizance.38

Respondent’s Arguments

Respondent, on the other hand, argues that the non-presentation of the insurance contract or policy was not raised in the trial court. Thus, it
cannot be raised for the first time on appeal. 39 Respondent likewise contends that under prevailing jurisprudence, presentation of the insurance
policy is not indispensable.40 Moreover, with or without the insurance contract or policy, respondent claims that it should be allowed to recover
under Article 123641 of the Civil Code.42 Respondent further avers that "the right of subrogation has its roots in equity - it is designed to promote
and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good
conscience ought to pay."43

Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss sustained by the subject shipment was caused by
the negligent acts of petitioner’s stevedores.44 Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be
disturbed.45 In fact, under Section 146 of Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari.47

As to the Management Contract for cargo handling services, respondent contends that this is outside the operation of judicial notice.48 And even if
it is not, petitioner’s liability cannot be limited by it since it is a contract of adhesion.49

Our Ruling

The petition is bereft of merit.

Non-presentation of the insurance contract or policy is not fatal in the instant case

61
Petitioner claims that respondent’s non-presentation of the insurance contract or policy between the respondent and the consignee is fatal to its
cause of action.

We do not agree.

First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be resolved during
the pre-trial.50 As we have said, "the determination of issues during the pre-trial conference bars the consideration of other questions, whether
during trial or on appeal."51 Thus, "[t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving
privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial
because they themselves agreed to the same."52

Neither was this issue raised on appeal. 53 Basic is the rule that "issues or grounds not raised below cannot be resolved on review by the Supreme
Court, for to allow the parties to raise new issues is antithetical to the sporting idea of fair play, justice and due process."54

Besides, non-presentation of the insurance contract or policy is not

necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of Appeals,56 we ruled that:

Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the
lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.

The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA (a case cited by petitioner) because the
shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port
of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific
Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre
operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in
that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it
received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it
actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurer’s
liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was
sustained.57 (Emphasis supplied.)

In International Container Terminal Services, Inc. v. FGU Insurance Corporation, 58 we used the same line of reasoning in upholding the Decision of
the CA finding the arrastre contractor liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance
contract or policy. We explained:

Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee,
ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court
ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the
Court in Home Insurance Corporation v. Court of Appeals.

However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the
presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel, unlike
in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the
cargo occurred, such that the insurer should be liable for it.

As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner’s custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in
the records of the case.59

Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner objected to the admission of the
Subrogation Receipt in its Comment to respondent’s formal offer of evidence on the ground that respondent failed to present the insurance
contract or policy,60 a perusal of petitioner’s Answer 61 and Pre-Trial Brief62 shows that petitioner never questioned respondent’s right to
subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue regarding the validity of the insurance
contract or policy, or any provision thereof, respondent had no reason to present the insurance contract or policy as evidence during the trial.

Factual findings of the CA, affirming the RTC, are conclusive and binding

Petitioner’s attempt to absolve itself from liability must likewise fail.

Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. Thus, it is not our duty "to review,
examine, and evaluate or weigh all over again the probative value of the evidence presented," 63 especially where the findings of both the trial court
and the appellate court coincide on the matter.64 As we have often said, factual findings of the CA affirming those of the RTC are conclusive and
binding, except in the following cases: "(1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the [CA] is based on
misapprehension of facts; (5) when the [CA], in making its findings, went beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee; (6) when the findings of fact are conclusions without citation of specific evidence on which they are based; (7)
when the [CA] manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different
conclusion; and (8) when the findings of fact of the [CA] are premised on the absence of evidence and are contradicted by the evidence on
record."65 None of these are availing in the present case.

Both the RTC and the CA found the negligence of petitioner’s stevedores to be the proximate cause of the damage/loss to the shipment. In
disregarding the contention of petitioner that such finding is contrary to the documentary evidence, the CA had this to say:

62
ATI, however, contends that the finding of the trial court was contrary to the documentary evidence of record, particularly, the Turn Over Survey of
Bad Order Cargoes dated November 28, 1995, which was executed prior to the turn-over of the cargo by the carrier to the arrastre operator ATI,
and which showed that the shipment already contained 2,702 damaged bags.

We are not persuaded.

Contrary to ATI’s assertion, witness Redentor Antonio, marine cargo surveyor of Inchcape for the vessel Jinlian I which arrived on November 21,
1995 and up to completion of discharging on November 28, 1995, testified that it was only after all the bags were unloaded from the vessel
that the actual counting of bad order bags was made, thus:

xxxx

The above testimony of Redentor Antonio was corroborated by Edgar Liceralde, marine cargo surveyor connected with SMS Average
Surveyors and Adjusters, Inc., the company requested by consignee Chemphil Albright and Wilson Corporation to provide superintendence, report
the condition and determine the final outturn of quantity/weight of the subject shipment. x x x

xxxx

Defendant-appellant ATI, for its part, presented its claim officer as witness who testified that a survey was conducted by the shipping company and
ATI before the shipment was turned over to the possession of ATI and that the Turn Over Survey of Bad Order Cargoes was prepared by ATI’s
Bad Order (BO) Inspector.

Considering that the shipment arrived on November 21, 1998 and the unloading operation commenced on said date and was completed
on November 26, 1998, while the Turn Over Survey of Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and
signed on November 28, 1998 by ATI’s BO Inspector and co-signed by a representative of the shipping company, the trial court’s finding that
the damage to the cargoes was due to the improper handling thereof by ATI’s stevedores cannot be said to be without substantial
support from the records.

We thus see no cogent reason to depart from the ruling of the trial court that ATI should be made liable for the 2,702 bags of damaged shipment.
Needless to state, it is hornbook doctrine that the assessment of witnesses and their testimonies is a matter best undertaken by the trial court,
which had the opportunity to observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point are accorded
great respect and will not be reversed on appeal, unless it overlooked substantial facts and circumstances which, if considered, would materially
affect the result of the case.

We also find ATI liable for the additional 179 damaged bags discovered upon delivery of the shipment at the consignee’s warehouse in Pasig. The
final Report of Survey executed by SMS Average Surveyors & Adjusters, Inc., and independent surveyor hired by the consignee, shows that the
subject shipment incurred a total of 2881 damaged bags.

The Report states that the withdrawal and delivery of the shipment took about ninety-five (95) trips from November 29, 1995 to December 28, 1995
and it was upon completion of the delivery to consignee’s warehouse where the final count of 2881 damaged bags was made. The damage
consisted of torn/bad order condition of the bags due to spillages and caked/hardened portions.

We agree with the trial court that the damage to the shipment was caused by the negligence of ATI’s stevedores and for which ATI is liable under
Articles 2180 and 2176 of the Civil Code. The proximate cause of the damage (i.e., torn bags, spillage of contents and caked/hardened portions of
the contents) was the improper handling of the cargoes by ATI’s stevedores, x x x

xxxx

ATI has not satisfactorily rebutted plaintiff-appellee’s evidence on the negligence of ATI’s stevedores in the handling and safekeeping of the
cargoes. x x x

xxxx

We find no reason to disagree with the trial court’s conclusion. Indeed, from the nature of the [damage] caused to the shipment, i.e., torn bags,
spillage of contents and hardened or caked portions of the contents, it is not difficult to see that the damage caused was due to the negligence of
ATI’s stevedores who used steel hooks to retrieve the bags from the higher portions of the piles thereby piercing the bags and spilling their
contents, and who piled the bags in the open storage area of ATI with insufficient cover thereby exposing them to the elements and [causing] the
contents to cake or harden.66

Clearly, the finding of negligence on the part of petitioner’s stevedores is supported by both testimonial and documentary evidence. Hence, we see
no reason to disturb the same.

Judicial notice does not apply

Finally, petitioner implores us to take judicial notice of Section 7.01, 67 Article VII of the Management Contract for cargo handling services it entered
with the PPA, which limits petitioner’s liability to ₱5,000.00 per package.

Unfortunately for the petitioner, it cannot avail of judicial notice.

Sections 1 and 2 of Rule 129 of the Rules of Court provide that:

SECTION 1. Judicial notice, when mandatory. — A court shall take judicial notice, without the introduction of evidence, of the existence and
territorial extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime
courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive and judicial
departments of the Philippines, the laws of nature, the measure of time, and the geographical divisions.1avvphi1

SEC. 2. Judicial notice, when discretionary. — A court may take judicial notice of matters which are of public knowledge, or are capable of
unquestionable demonstration or ought to be known to judges because of their judicial functions.

63
The Management Contract entered into by petitioner and the PPA is clearly not among the matters which the courts can take judicial notice of. It
cannot be considered an official act of the executive department. The PPA, which was created by virtue of Presidential Decree No. 857, as
amended,68 is a government-owned and controlled corporation in charge of administering the ports in the country.69 Obviously, the PPA was only
performing a proprietary function when it entered into a Management Contract with petitioner. As such, judicial notice cannot be applied.

WHEREFORE, the petition is hereby DENIED. The assailed July 14, 2005 Decision and the February 14, 2006 Resolution of the Court of Appeals
in CA-G.R. CV No. 61798 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 167330               September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

CORONA, J.:

ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among them.

ARTICLE XIII
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential
goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged
sick, elderly, disabled, women, and children. The State shall endeavor to provide free medical care to paupers.1

For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008, respectively,
filed by petitioner Philippine Health Care Providers, Inc.2

We recall the facts of this case, as follows:

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide
for the administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or
accredited by it.

x x x           x x x          x x x

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the
total amount of ₱224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health
care program pursuant to Section 185 of the 1997 Tax Code xxxx

x x x           x x x          x x x

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the
deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT
deficiency and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.

SO ORDERED.

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that petitioner’s
health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in the nature of a non-life insurance contract
subject to DST.

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE.

Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the
Tax Code, until the same shall have been fully paid.

64
SO ORDERED.

Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.

x x x           x x x          x x x

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held that petitioner’s health care agreement
during the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner’s contention that it is a health maintenance organization
(HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans
are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility
offered at exchanges for the transaction of the business.

Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration, asserting the
following arguments:

(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an insurance company.

(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA’s disposition that health care
services are not in the nature of an insurance business.

(c) Section 185 should be strictly construed.

(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of the amendments
made in the DST law in 2002.

(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not those contemplated under Section 185.

(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health insurance is not covered by Section 185.

(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.

(h) The June 12, 2008 decision should only apply prospectively.

(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.6

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.

In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 9480 7 (also known as the "Tax
Amnesty Act of 2007") by fully paying the amount of ₱5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.8

We find merit in petitioner’s motion for reconsideration.

Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987.9 It is engaged in the
dispensation of the following medical services to individuals who enter into health care agreements with it:

Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet,
exercise and other healthy habits, and immunization;

Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and

Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the
part of the enrolled member.10

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care practitioners regarding payment schemes, financing and other procedures
for the delivery of health services. Except in cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e.
those directly employed by it11 or whose services are contracted by it. 12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care.13 If and when a member avails of the benefits
under the agreement, petitioner pays the participating physicians and other health care providers for the services rendered, at pre-agreed rates.14

To avail of petitioner’s health care programs, the individual members are required to sign and execute a standard health care agreement
embodying the terms and conditions for the provision of the health care services. The same agreement contains the various health care services
that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the
medical service offered, the enrolled member may actually make use of the health care services being offered by petitioner at any time.

Health Maintenance Organizations Are Not Engaged In The Insurance Business

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as
insurance contracts and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the transaction of the
business.15

Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine whether it is an HMO
or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care
agreements.16

65
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of
any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond
or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to
any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall
be collected a documentary stamp tax of fifty centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium charged.
(Emphasis supplied)

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or
superfluous, meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over that which
makes some words idle and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute – its every word.18

From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document must be
a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and
fire insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan members for a fixed prepaid premium." 19 The payments do not vary with the
extent, frequency or type of services provided.

The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We rule that it was not.

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting
an insurance business:"

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;

c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions
of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does
not constitute the doing or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,21 have determined that HMOs are not in the
insurance business. One test that they have applied is whether the assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the
principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not
insurance.

Applying the "principal object and purpose test,"22 there is significant American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the
insurance business.

The rule was enunciated in Jordan v. Group Health Association 23 wherein the Court of Appeals of the District of Columbia Circuit held that Group
Health Association should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care
services rather than the assumption of insurance risk.

xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx The functions of such an organization are not
identical with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of
living. Hazard is predominant. On the other hand, the cooperative is concerned principally with getting service rendered to its members
and doing so at lower prices made possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the
cost rather than the risk of medical care; to broaden the service to the individual in kind and quantity; to enlarge the number receiving it;
to regularize it as an everyday incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting against
the financial loss caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado.  It is, in this instance,
to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual
illness. To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of physician
and patient together, the preventive features, the regularization of service as well as payment, the substantial reduction in cost by
quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to these features, the indemnification for
cost after the services is rendered. Except the last, these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of service, even on the contingency
that it be needed, and contracting merely to stand its cost when or after it is rendered.

That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If attention is focused only on
that feature, the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint, if not extinct.
This is especially true when the contract is for the sale of goods or services on contingency. But obviously it was not the purpose of the insurance
statutes to regulate all arrangements for assumption or distribution of risk. That view would cause them to engulf practically all contracts,

66
particularly conditional sales and contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all
others present or their subordination to it. The question turns, not on whether risk is involved or assumed, but on whether that or
something else to which it is related in the particular plan is its principal object purpose. 24 (Emphasis supplied)

In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation as a whole of the corporation, it
was service rather than indemnity which stood as its principal purpose.

There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence or presence of
assumption of risk or peril is not the sole test to be applied in determining its status. The question, more broadly, is whether, looking at
the plan of operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and purpose.  Certainly the objects and purposes of
the corporation organized and maintained by the California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income. The medical profession
unitedly is endeavoring to meet that need. Unquestionably this is ‘service’ of a high order and not ‘indemnity.’ 26 (Emphasis supplied)

American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of
New Jersey27 is clear on this point:

The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide
prepaid medical services through participating physicians, thus relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.

x x x           x x x          x x x

The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on
a prepaid basis. Hence, if there are no physicians participating in the medical service corporation’s plan, not only will the subscribers be
deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing
business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent
financial requirements of the General Insurance Laws….

A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract
issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)

Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as
needed, with payment made directly to the provider of these services. 29 In short, even if petitioner assumes the risk of paying the cost of these
services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance
business.

By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating health
providers would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not transform it into an
insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set up a system and the facilities for the delivery of
such medical services. This indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to keep members from developing
medical conditions or diseases. 30 As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care
programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its
agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.31

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are
incidental to the principal activity of providing them medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as
being in the insurance business.

It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not saying that petitioner’s
operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that,
for the purpose of determining what "doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not
its mere components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American
authorities who have found particular HMOs to be actually engaged in insurance activities.32

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the
Insurance Commission but by the Department of Health. 33 In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that
the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the
interpretation of laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34

The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of
specialized capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations
pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The
courts give much weight to the government agency officials charged with the implementation of the law, their competence, expertness, experience
and informed judgment, and the fact that they frequently are the drafters of the law they interpret.36

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997

Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity for loss, damage, or liability…." In
our decision dated June 12, 2008, we ruled that petitioner’s health care agreements are contracts of indemnity and are therefore insurance
contracts:

67
It is … incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies
its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at
all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member
has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk,
that is, among all the other members of the health care program. This is insurance.37

We reconsider. We shall quote once again the pertinent portion of Section 185:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of
accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis supplied)

In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing authority. 38 This is
because taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their
property for the support of the government. 39 Hence, tax laws may not be extended by implication beyond the clear import of their language, nor
their operation enlarged so as to embrace matters not specifically provided.40

We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of
a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this reason, we reconsider our ruling that  Blue Cross and Philamcare are
applicable here.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements
concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk
and

5. In consideration of the insurer’s promise, the insured pays a premium.41

Do the agreements between petitioner and its members possess all these elements? They do not.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a contract of insurance:

It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance contract. The
primary purpose of the parties in making the contract may negate the existence of an insurance contract . For example, a law firm which
enters into contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits for or against
them, is not engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a
contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for
damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. Unlike the lawyer’s
retainer contract, the essential purpose of such a contract is not to render personal services, but to indemnify against loss and damage resulting
from the defense of actions for malpractice.42 (Emphasis supplied)

Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To begin with, there is no loss, damage
or liability on the part of the member that should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and professional services rendered by the petitioner’s physician or affiliated
physician to him. In case of availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member
as the latter does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member to any third party-
provider of medical services which might in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that
a liability or claim has already been incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or
already paid in advance at a pre-agreed price under the agreements.

Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray, routine
annual physical examination and consultations, vaccine administration as well as family planning counseling, even in the absence of any peril, loss
or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating physician or hospital.
However, this is only a very minor part of the list of services available. The assumption of the expense by petitioner is not confined to the
happening of a contingency but includes incidents even in the absence of illness or injury.

68
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts called for the defendant to
partially reimburse a subscriber for treatment received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the
Court determined that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of prepayment
for such services."44 Since indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member
at an affordable cost, it did not partake of the nature of a contract of insurance.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost anyone
who undertakes a contractual obligation always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid
service contracts (like those of petitioner) from the usual insurance contracts.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable
return on its investment. But it is not the risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the
risk that the cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions
made relative to the insured.45

However, assuming that petitioner’s commitment to provide medical services to its members can be construed as an acceptance of the risk that it
will shell out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner’s objective is to provide medical services
at reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an insurance contract within the context of
our Insurance Code.

There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs

Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care agreements under Section 185 of the NIRC
of 1997 is the provision’s legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements
were not even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal
Revenue Law of 1904")46 enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of
1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:

ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stock and
indebtedness, and other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the vellum,
parchment, or paper upon which such instrument, matters, or things or any of them shall be written or printed by any person or persons who shall
make, sign, or issue the same, on and after January first, nineteen hundred and five, the several taxes following:

x x x           x x x          x x x

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or liability made or renewed
by any person, association, company, or corporation transacting the business of accident, fidelity, employer’s liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to internal
revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act
No. 2339. The very detailed and exclusive enumeration of items subject to DST was thus retained.

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise
known as the Administrative Code of 1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the internal revenue laws of
the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained substantially
the same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs
1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.1avvphi1

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section 198. And under
Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.

Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal provision was retained
as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA 924348 but Section 185 was untouched.

On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in 1974. The
same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim
that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been formally
incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2
million.49

We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST was first
passed, HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in
existence in the Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the legislature to impose DST on
health care agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the
NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies
any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more
than a decade in the business as an HMO.50

69
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care agreements were
never, at any time, recognized as insurance contracts or deemed engaged in the business of insurance within the context of the provision.

The Power To Tax Is Not The Power To Destroy

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it. 51 So
potent indeed is the power that it was once opined that "the power to tax involves the power to destroy."52

Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net worth of ₱259 million.54 Respondent never
disputed these assertions. Given the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of
the government to throttle private business. On the contrary, the government ought to encourage private enterprise.55 Petitioner, just like any
concern organized for a lawful economic activity, has a right to maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."58

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another matter and should not be allowed. It is counter-productive and ultimately
subversive of the nation’s thrust towards a better economy which will ultimately benefit the majority of our people.59

Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and academic 60 when it
availed of the tax amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment
of taxes as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from
the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.61

Far from disagreeing with petitioner, respondent manifested in its memorandum:

Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved, including the civil,
criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.

In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed above, respondent
concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not meant to preclude a revocation
of the amnesty granted in case it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said amnesty
law.62 (Emphasis supplied)

Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480. 63 There is no other
conclusion to draw than that petitioner’s liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.

Is The Court Bound By A Minute Resolution In Another Case?

Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA64 in CIR v. Philippine
National Bank65 that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the DST.

In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not an insurance contract.

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we
dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final.67 When
a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together
with its findings of fact and legal conclusions, are deemed sustained.68 But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and the same issues, was previously disposed
of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous
case "ha(d) no bearing" on the latter case because the two cases involved different subject matters as they were concerned with the taxable
income of different taxable years.72

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly
and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the
justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published
in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. 73 Indeed, as a rule, this Court lays down doctrines
or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its health care agreement was not the
subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in
its favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact that petitioner’s health care
agreements are not subject to DST.

A Final Note

Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative
intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.

70
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive
health care system made possible by quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service
system (wherein individuals are charged a fee each time they receive medical services), including the ability to control costs. They protect their
members from exposure to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they
play an important role in society as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health
services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its imposition will elevate the cost of health care services.
This will in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of the ordinary wage
earner or driving the industry to the ground. At the end of the day, neither side wins, considering the indispensability of the services offered by
HMOs.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.

No costs.

SO ORDERED.

G.R. No. 174116               September 11, 2009

EASTERN SHIPPING LINES, INC., Petitioner,

vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.

DEL CASTILLO, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to set aside the April 26, 2006 Decision 2 and
August 15, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 68165.

The facts of the case:

On November 8, 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded on board M/V Apollo
Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila. The shipment was consigned to Nissan Motor Philippines, Inc. (Nissan) and was
covered by Bill of Lading No. NMA-1.4 The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc.

On November 16, 1995, the carrier arrived at the port of Manila. On November 22, 1995, the shipment was then discharged from the vessel onto
the custody of the arrastre operator, Asian Terminals, Inc. (ATI), complete and in good condition, except for four cases.5

On November 24 to 28, 1995, the shipment was withdrawn by Seafront Customs and Brokerage from the pier and delivered to the warehouse of
Nissan in Quezon City.6

A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at Nissan’s warehouse. On January 16, 1996,
the surveyor submitted its report7 with a finding that there were "short (missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and
"broken/scratched" and "broken" items in Case No. 10/A26/70K"; and that "(i)n (its) opinion, the "shortage and damage sustained by the shipment
were due to pilferage and improper handling, respectively while in the custody of the vessel and/or Arrastre Contractors."8

As a result, Nissan demanded the sum of ₱1,047,298.34 9 representing the cost of the damages sustained by the shipment from petitioner, the
owner of the vessel, and ATI, the arrastre operator. However, the demands were not heeded.10

On August 21, 1996, as insurer of the shipment against all risks per Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95,
respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum of ₱1,047,298.34.

On October 1, 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to Nissan before the Regional Trial Court (RTC)
of Makati City, Branch 148, docketed as Civil Case No. 96-1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern Shipping Lines,
Inc. Respondent claimed that it was subrogated to the rights of Nissan by virtue of said payment.11

On June 21, 1999, the RTC rendered a Decision,12 the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants Eastern Shipping Lines, Inc.
and ATI, and said defendants are hereby ordered to pay jointly and solidarily plaintiff the following:

1) The claim of ₱1,047,298.34 with legal interest thereon of 6% per annum from the date of the filing of this complaint until the same is
fully paid;

2) [Twenty-five (25%)] percent of the principal claim, as and for attorney’s fees;

3) Plus costs of suit.

Both the counterclaims and crossclaims are without legal basis. The counterclaims and crossclaims are based on the assumption that the other
defendant is the one solely liable. However, inasmuch as the solidary liability of the defendants have been established, the counterclaims and
crossclaims must be denied.

Equal costs against Eastern Shipping Lines, Inc. and Asian Terminals, Inc.

SO ORDERED.13

71
Both petitioner and ATI appealed to the CA.

On April 26, 2006, the CA rendered a Decision the dispositive portion of which reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS, in that (i) defendant-appellant Eastern Shipping Lines, Inc. is ordered
to pay appellee (a) the amount of ₱904,293.75 plus interest thereon at the rate of 6% per annum from the filing of the complaint up to the finality of
this judgment, when the interest shall become 12% per annum until fully paid, and (b) the costs of suit; (ii) the award of attorney’s fees is
DELETED; and (iii) the complaint against defendant-appellant Asian Terminals, Inc. is DISMISSED.

SO ORDERED.14

The CA exonerated ATI and ruled that petitioner was solely responsible for the damages caused to the cargoes. Moreover, the CA relying
on Delsan Transport Lines, Inc. vs. Court of Appeals, 15 ruled that the right of subrogation accrues upon payment by the insurance company of the
insurance claim and that the presentation of the insurance policy is not indispensable before the appellee may recover in the exercise of its
subrogatory right.16

Petitioner then filed a motion for reconsideration, which was, however, denied by the CA in a Resolution dated August 15, 2006.

Hence, herein petition, with petitioner raising the following assignment of errors to wit:

I.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT FINDING HEREIN
PETITIONER LIABLE DESPITE THE FACT THAT RESPONDENT FAILED TO SUBMIT ANY INSURANCE POLICY.

II.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT APPLYING THE US$500.00/PACKAGE/CASE PACKAGE LIMITATION OF
LIABILITY IN ACCORDANCE WITH THE CARRIAGE OF GOODS BY SEA ACT.17

The petition is meritorious.

The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for review on  certiorari. This rule, however, is
not iron-clad and admits of certain exceptions, one of which is when the CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion.18 In the case at bar, the records of the case contain evidence which justify the application
of the exception.

Anent the first error, petitioner argues that respondent was not properly subrogated because of the non-presentation of the marine insurance
policy. In the case at bar, in order to prove its claim, respondent presented a marine cargo risk note and a subrogation receipt. Thus, the question
to be resolved is whether the two documents, without the Marine Insurance Policy, are sufficient to prove respondent’s right of subrogation.

Before anything else, it must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the
insurer confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium. 19 In
International Container Terminal Services, Inc. v. FGU Insurance Corporation (International), 20 the nature of a marine cargo risk note was
explained, thus:

x x x It is the marine open policy which is the main insurance contract. In other words, the marine open policy is the blanket insurance to be
undertaken by FGU on all goods to be shipped by RAGC during the existence of the contract, while the marine risk note specifies the particular
goods/shipment insured by FGU on that specific transaction, including the sum insured, the shipment particulars as well as the premium paid for
such shipment. x x x.21

For clarity, the pertinent portions of the Marine Cargo Risk Note, 22 relied upon by respondent, are hereunder reproduced, to wit:

RN NO 39821/95
Date: Nov. 16, 1995
NISSAN MOTOR PHILS., INC.

xxx

Gentlemen:

We have this day noted a Risk in your favor subject to all clauses and condition of the Company’s printed form of Marine Open Policy No.
86-168

For PHILIPINE PESOS FOURTEEN MILLION ONE HUNDRED SEVENTY-THREE THOUSAND FORTY-TWO & 91/100 ONLY (P14, 173,042.91)
xxx

CARGO: 56 CASES NISSAN MOTOR VEHICLE CKD (GC22)

CONDITIONS: INSTITUTE CARGO CLAUSES "A"
OTHER TERMS AND CONDITIONS PER
MOP-86-168

From: NAGOYA

To: MANILA, PHILS.

ETD: NOV. 8, 1995 ETA: NOV. 17, 1995

72
CARRIER: "APOLLO TUJUH"

B/L NO: NMA-1

BANK: BANK OF THE PHILLIPINE ISLANDS

L/C NO: 026010051971

Shipper/ Consignee: MARUBENI CORPORATION

It is undisputed that the cargoes were already on board the carrier as early as November 8, 1995 and that the same arrived at the port of Manila
on November 16, 1995. It is, however, very apparent that the Marine Cargo Risk Note was issued only on November 16, 1995. The same,
therefore, should have raised a red flag, as it would be impossible to know whether said goods were actually insured while the same were in transit
from Japan to Manila. On this score, this Court is guided by Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,23 where this Court ruled:

Thus, we can only consider the Marine Risk Note in determining whether there existed a contract of insurance between ABB Koppel and Malayan
at the time of the loss of the motors. However, the very terms of the Marine Risk Note itself are quite damning. It is dated 21 March 1995, or
after the occurrence of the loss, and specifically states that Malayan "ha[d] this day noted the above-mentioned risk in your favor and hereby
guarantee[s] that this document has all the force and effect of the terms and conditions in the Corporation’s printed form of the standard Marine
Cargo Policy and the Company’s Marine Open Policy."24

Likewise, the date of the issuance of the Marine Risk Note also caught the attention of petitioner. In petitioner’s Comment/Opposition25 to the
formal offer of evidence before the RTC, petitioner made the following manifestations, to wit:

Exhibit "B," Marine Cargo Risk Note No. 39821 dated November 16, 1995 is being objected to for being irrelevant and immaterial as it was
executed on November 16, 1995. The cargoes arrived in Manila on November 16, 1995. This means that the cargoes are not specifically
covered by any particular insurance at the time of transit. The alleged Marine Open Policy was not presented. Marine Open Policy may be
subject to Institute Cargo Clauses which may require arbitration prior to the filing of an action in court.26

In addition, petitioner also contended that the Marine Cargo Risk Note referred to "Institute Cargo Clauses A and other terms and conditions per
Marine Open Policy-86-168."

Based on the forgoing, it is already evident why herein petition is meritorious. The Marine Risk Note relied upon by respondent as the basis for its
claim for subrogation is insufficient to prove said claim.

As previously stated, the Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine insurance policy, it would
be impossible and simply guesswork to know whether the cargo was insured during the voyage which started on November 8, 1995. Again,
without the marine insurance policy, it would be impossible for this Court to know the following: first, the specifics of the "Institute Cargo Clauses A
and other terms and conditions per Marine Open Policy-86-168" as alluded to in the Marine Risk Note; second, if the said terms and conditions
were actually complied with before respondent paid Nissan’s claim.

Furthermore, a reading of the transcript of the records clearly show that, at the RTC, petitioner had already objected to the non-presentation of the
marine insurance policy, to wit:

Q. Are you also the one preparing the Marine Insurance Contract?

A. No, sir.

Q. Who is the one?

A. Our Marine Cargo Underwriting Department.

Q. And do you know anybody in that department?

A. Yes, sir.

Q. And you were aware that this particular cargo of the shipment was insured?

A. Yes, sir, per policy issued.

Q. And that you are referring to Exhibit?

A. The Marine Cargo Risk.

Q. Is this the only contract of Insurance between Prudential Guarantee and Nissan?

A. Sir, there is a Marine Open Policy.

Q. Do you have any copy of that?

A. It is in the office.

Atty. Alojado Can you produce that copy?

Atty. Zapa May we know the request of counsel for producing this Marine Open Policy?

Atty. Alojado The basis of the question is the answer of the witness which says that there is another contract of insurance.

73
 COURT Yes, that is a Marine Open Policy.

Are you familiar with Marine Open Policy?

Atty. Alojado Yes, Your Honor.

But we would also like to be familiarize with that contract.

COURT But you know already a Marine Open Policy

Atty. Alojado Yes, Your Honor.

COURT I do not know if you work as a lawyer for several Insurance Company?

Atty. Alojado No, Your Honor. Honestly, Your Honor I worked as

a Maritime lawyer.

COURT Then you should know what is Marine Open Policy.

Atty. Alojado I would like to know the specification of the

Marine Open Policy in this regard.

Atty. Zapa I think your Honor, between the plaintiff and the defendant there is no issue against the insurance.

COURT Yes because this witness it not testifying on the Marine Open Policy.

Atty. Alojado We submit.

COURT Proceed.

Atty. Alojado

Q. But there is a Marine Open Policy

A. Yes, sir.27

xxxx

COURT

Q. Is the policy a standing policy, a continuing policy or is it going only for only a year or for a particular shipment or what?

A. For this particular consignee, they have Marine Open Policy.

Atty. Alojado That was not presented.

COURT That’s why I’m asking. So the policy is not only for a particular shipment, but all other shipments that may come?

A. Yes, Your Honor.

Q. Are covered?

A. Yes, Your Honor.

Q. Without any specifications?

A. Yes, Your Honor.28

Clearly, petitioner was not remiss when it openly objected to the non-presentation of the Marine Insurance Policy. As testified to by respondent’s
witness, they had a copy of the marine insurance policy in their office. Thus, respondent was already apprised of the possible importance of the
said document to their cause.

In addition, this Court takes notice that notwithstanding that the RTC may have denied the repeated manifestation of petitioner of the non-
presentation of the marine insurance policy, the same by itself does not exonerate respondent. As plaintiff, it was respondent’s burden to present
the evidence necessary to substantiate its claim.

In its Complaint,29 respondent alleged: "That the above-described shipment was insured for ₱14,173,042.91 against all risks under plaintiff’s
Marine Cargo Risk Note No. 39821/Marine Open Policy No. 86-168."30 Therefore, other than the marine cargo risk note, respondent should have
also presented the marine insurance policy, as the same also served as the basis for its complaint. Section 7, Rule 9 of the 1997 Rules of Civil
Procedure, provide:

74
SECTION 7. Action or defense based on document.—Whenever an action or defense is based upon a written instrument or document, the
substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as
an exhibit, which shall be deemed to be a part of the pleading, or said copy may, with like effect, be set forth in the pleading.

On this score, Malayan is instructive:

Malayan’s right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the respondent to ABB Koppel, even
though such liability will necessarily have to be established at the trial for Malayan to recover. Because Malayan’s right to recovery derives from
contractual subrogation as an incident to an insurance relationship, and not from any proximate injury to it inflicted by the respondents, it is critical
that Malayan establish the legal basis of such right to subrogation by presenting the contract constitutive of the insurance relationship between it
and ABB Koppel. Without such legal basis, its cause of action cannot survive.

Our procedural rules make plain how easily Malayan could have adduced the Marine Insurance Policy. Ideally, this should have been
accomplished from the moment it filed the complaint. Since the Marine Insurance Policy was constitutive of the insurer-insured relationship from
which Malayan draws its right to subrogation, such document should have been attached to the complaint itself, as provided for in Section 7, Rule
9 of the 1997 Rules of Civil Procedure: x x x31

Therefore, since respondent alluded to an actionable document in its complaint, the contract of insurance between it and Nissan, as integral to its
cause of action against petitioner, the Marine Insurance Policy should have been attached to the Complaint. Even in its formal offer of evidence,
respondent alluded to the marine insurance policy which can stand independent of the Marine Cargo Risk Note, to wit:

EXH "B" = Marine Cargo Risk Note No. 39821/95 Dated November 16, 1995.

Purpose: As proof that the subject shipment was covered by insurance for ₱14,173, 042.91 under Marine Open Policy No. 86-168.32

It is significant that the date when the alleged insurance contract was constituted cannot be established with certainty without the contract itself.
Said point is crucial because there can be no insurance on a risk that had already occurred by the time the contract was executed. 33 Surely, the
Marine Risk Note on its face does not specify when the insurance was constituted.

The importance of the presentation of the Marine Insurance Policy was also emphasized in Wallem Philippines Shipping, Inc. v. Prudential
Guarantee & Assurance, Inc.,34 where this Court ruled:

x x x Wallem still cannot be held liable because of the failure of Prudential to present the contract of insurance or a copy thereof. Prudential claims
that it is subrogated to the rights of GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation receipt (Exh. J) and a
marine cargo risk note (Exh. D). However, as the trial court pointed out, this is not sufficient. As GMC’s subrogee, Prudential can exercise only
those rights granted to GMC under the insurance contract. The contract of insurance must be presented in evidence to indicate the extent of its
coverage. As there was no determination of rights under the insurance contract, this Court’s ruling in Home Insurance Corporation v. Court of
Appeals is applicable:

The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be
used to establish the relationship between the petitioner [Home Insurance Corporation] and the consignee [Nestlé Phil.] and the amount paid to
settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioner’s claim holding
the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the engine.

....

It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was
presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must
prove fatal to this petition.35

Finally, there have been cases where this Court ruled that the non-presentation of the marine insurance policy is not fatal, as can be gleaned in

International, where this Court held:

Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee,
ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court
ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the
Court in Home Insurance Corporation v. Court of Appeals.

However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the
presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike
in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the
cargo occurred, such that the insurer should be liable for it.

As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in
the records of the case.36

Although the CA may have ruled that the damage to the cargo occurred while the same was in petitioner’s custody, this Court cannot apply the
ruling in International to the case at bar. In contrast, unlike in International where there was no issue as regards the provisions of the marine
insurance policy, such that the presentation of the contract itself is necessary for perusal, herein petitioner had repeatedly objected to the non-
presentation of the marine insurance policy and had manifested its desire to know the specific provisions thereof. Moreover, and the same is
critical, the marine risk note in the case at bar is questionable because: first, it is dated on the same day the cargoes arrived at the port of Manila
and not during the duration of the voyage; second, without the Marine Insurance Policy to elucidate on the specifics of the terms and conditions
alluded to in the marine risk note, it would be simply guesswork to know if the same were complied with.

Lastly, to cast all doubt on the merits of herein petition, this Court is guided by the ruling in Malayan, to wit:

75
It cannot be denied from the only established facts that Malayan and ABB Koppel comported as if there was an insurance relationship between
them and documents exist that evince the presence of such legal relationship. But, under these premises, the very insurance contract emerges as
the white elephant in the room – an obdurate presence which everybody reacts to, yet, legally invisible as a matter of evidence since no attempt
had been made to prove its corporeal existence in the court of law. It may seem commonsensical to conclude anyway that there was a contract of
insurance between Malayan and ABB Koppel since they obviously behaved in a manner that indicates such relationship, yet the same conclusion
could be had even if, for example, those parties staged an elaborate charade to impress on the world the existence of an insurance contract when
there actually was none. While there is absolutely no indication of any bad faith of such import by Malayan or ABB Koppel, the fact that the
"commonsensical" conclusion can be drawn even if there was bad faith that convinces us to reject such line of thinking.1avvphi1

The Court further recognizes the danger as precedent should we sustain Malayan’s position, and not only because such a ruling would formally
violate the rule on actionable documents. Malayan would have us effectuate an insurance contract without having to consider its particular terms
and conditions, and on a blind leap of faith that such contract is indeed valid and subsisting. The conclusion further works to the utter prejudice of
defendants such as Regis or Paircargo since they would be deprived the opportunity to examine the document that gives rise to the plaintiff’s right
to recover against them, or to raise arguments or objections against the validity or admissibility of such document. If a legal claim is irrefragably
sourced from an actionable document, the defendants cannot be deprived of the right to examine or utilize such document in order to intelligently
raise a defense. The inability or refusal of the plaintiff to submit such document into evidence constitutes an effective denial of that right of the
defendant which is ultimately rooted in due process of law, to say nothing on how such failure fatally diminishes the plaintiff’s substantiation of its
own cause of action.37

In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of the Marine Cargo Risk Note for the
reasons already stated, it was incumbent on respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its claim
of subrogation must necessarily fail.

Because of the foregoing, it would be unnecessary to discuss the second error raised by petitioner.

WHEREFORE, premises considered, the petition is GRANTED. The April 26, 2006 Decision and August 15, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 68165 are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 96-1665 is DISMISSED.

SO ORDERED.

G.R. No. 181132               June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,

vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE
MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

NACHURA, J.:

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution 2 dated January 8, 2008 of the
Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal for lack of jurisdiction.

The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance
proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s
illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified
to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great Pacific Life Assurance
Corporation (Grepalife);5 (3) the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the
legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were
inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had
already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors,
upon the appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as actual litigation expenses and
attorney’s fees.

In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate
children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal
wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining
designated beneficiaries; and that it released Odessa’s share as she was of age, but withheld the release of the shares of minors Karl Brian and
Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar
as it sought to declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070
and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha
Angelie, considering that no settlement of Loreto’s estate had been filed nor had the respective shares of the heirs been determined. Insular
further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section
53 of the Insurance Code.

In its own answer 7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims
filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his
application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the
case was premature, there being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the
designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still,
the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order
dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial
court ordered petitioners to comment within 15 days.

76
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal – whether the complaint itself was proper or
not – and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 7528 and
7729 of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to
the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants
Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and
Grepalife.

SO ORDERED.10

In so ruling, the trial court ratiocinated thus –

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the
Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53
thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made,
unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by
the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance
proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the
right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules
on testamentary succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity
cannot be considered as an advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern
Luzon Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate
property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was
insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was
insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x
x x."

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl
Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances
(sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late
Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If
a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and
not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the
declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance
of evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva
Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the
Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take
cognizance as the action for the declaration for the nullity of a void donation falls within the general jurisdiction of this Court.11

Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action.
Insular further averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also
alleged that the premiums paid had already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a
cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would
be better threshed out during trial.1avvphi1

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.

SO ORDERED.14

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to
the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As
to the claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced based on the rules on legitime, the trial court held that
the distribution of the insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and
inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian,
and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance
proceeds by Grepalife.

77
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial
court dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners
did not file within the reglementary period a motion for reconsideration of the trial court’s Resolution, dated September 21, 2004, dismissing the
complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not
alleged in the Complaint, particularly the defenses put up by the defendants in their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court
engage in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the
dismissal on allegations of the defendants in their answer – which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?15

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because
the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto,
hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a
motion to dismiss to prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming
Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children with Loreto but, instead, awarded to them,
being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as provided in Rule 16,
Section 1(g), of the Rules of Court, which reads –

SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be
made on any of the following grounds:

xxxx

(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another.16 A complaint states a cause of action when it contains the
three (3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission
of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court
must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the
case.18

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named
as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto
and a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s children with Loreto,
being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the
Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they
prayed that the share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of
Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which
expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if
the insured is already deceased, upon the maturation of the policy.20 The exception to this rule is a situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties
may directly sue and claim from the insurer.21

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a
beneficiary in one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children

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as beneficiaries in Loreto’s insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit
relationships by the insured, 22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said
illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any
beneficiary,23 or when the designated beneficiary is disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall redound
to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8,
2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of
action is a question of law and not of fact, there being no findings of fact in the first place.25

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

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