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VOL. 47, OCTOBER 30, 1972 271

Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

No. L-27932. October 30. 1972.

UNION MANUFACTURING Co., INC. and the REPUBLIC

BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant,
vs. PHILIPPINE GUARANTY Co., INC., defendant-
appellee.

Insurance Law; Property insurance against fire; Failure to

give notice of existence of other policies thereon, effect of.—Without
deciding- whether notice of other insurance upon the same
property must be given in writing, or whether a verbal notice is
sufficient to render an insurance valid which requires such notice,
whether oral or written, we hold that in the absolute absence of
such notice when it is one of the conditions specified in the fire
insurance policy, the policy is null and void. (Santa Ana vs.
Commercial Union Ass. Co., 55 Phil. 128).
Same; Same; Same.—If the insured has violated or failed to
perform the conditions of the contract, and such a violation or
want of performance has not been waived by the insurer, then the
insured cannot recover. Courts are not permitted to make
contracts for the parties. The functions and duty of the courts
consist simply in enforcing and carrying out the contracts actually
made.
Same; Same; Same; Interpretation of insurance contracts.—
While it is true, as a general rule, that contracts of insurance are
construed most favorably to the insured, yet 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

272

272 SUPREME COURT REPORTS ANNOTATED

Union Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc.

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they must be taken and understood in their plain, ordinary and

popular sense.
Same; Same; Same; Nature of annotation on existence of other
insurance on insured property.—The annotation then, must be
deemed to be a warranty that the property was not insured by
any other policy. Violation thereof entitles the insurer to rescind.
xxx The materiality of non-disclosure of other insurance policies is
not open to doubt.
Same; Insurance contract law between the parties even if
terms onerous.—The insurance contract may be rather onerous,
but that in itself does not justify the abrogation of its express
terms, terms which the insured accepted or adhered to and which
is the law between the contracting parties.

APPEAL from a decision of the Court of First Instance of

Manila, Solidum, J.
The facts are stated in the opinion of the Court,
     Armando L. Abad, Sr. for plaintiff-appellant.
     Gamelo, Francisco & Aquino for defendant-appellee.

FERNANDO, J.:

In a suit arising from a fire insurance policy, the insurer,

Philippine Guaranty Co., Inc., defendant in the lower court
and now appellee, was able to avoid liability upon proof
that there was a violation of a warranty. There was no
denial thereof from the insured, Union Manufacturing Co.,
Inc. With such a legally crippling blow, the ef f ort of the
Republic Bank, the main plaintiff and now the sole
appellant, to recover on such policy as mortgagee, by virtue
of the cover note in the insurance policy providing that it is
entitled to the payment of loss or damages as its interest
may appear, was in vain. The defect being legally
incurable, its appeal is likewise futile. We affirm.
As noted in the decision, the following facts are not
disputed: "(1) That on January 12, 1962, the Union
Manufacturing Co., Inc. obtained certain loans, overdrafts
and
273

VOL, 47, OCTOBER 30, 1972 273

Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

other credit accommodations from the Republic Bank in the

total sum of P415,000.00 with interest at 9% per annum

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from said date and to secure the payment thereof, said

Union Manufacturing Co., Inc. executed a real and chattel
mortgages on certain properties, which are more
particularly described and listed at the back of the
mortgage contract * * *; (2) That as additional condition of
the mortgage contract, the Union Manufacturing Co., Inc.
undertook to secure insurance coverage over the mortgaged
properties for the same amount of P415,000.00 distributed
as follows: (a) Buildings, P30,000.00; (b) Machineries,
P300,000.00; and (c) Merchandise Inventory, P85,000.00,
giving a total of P415,000.00; (3) That as Union
Manufacturing Co., Inc. failed to secure insurance coverage
on the mortgaged properties since January 12, 1962,
despite the fact that Cua Tok, its general manager, was
reminded of said requirement, the Republic Bank procured
from the defendant, Philippine Guaranty Co., Inc. an
insurance coverage on loss against fire for P500,000.00 over
the properties of the Union Manufacturing Co., Inc., as
described in defendant's 'Cover Note' dated September 25,
1962, with the annotation that loss or damage, if any,
under said Cover Note is payable to Republic Bank as its
interest may appear, subject however to the printed
conditions of said defendant's Fire Insurance Policy Form;
(4) That on September 27, 1962, Fire Insurance Policy No.
43170 * * * was issued for the sum of P500,000.00 in favor
of the assured, Union Manufacturing Co., Inc., for which
the corresponding premium in the sum of P8,328.12, which
was reduced to P6,688.12, was paid by the Republic Bank
to the defendant, Philippine Guaranty Co., Inc. * * *; (5)
That upon the expiration of said fire policy on September
25, 1963, the same was renewed by the Republic Bank
upon payment of the corresponding premium in the same
amount of P6,663.52 on September 26, 1963; (6) That in the
corresponding voucher * * *, it appears that although said
renewal premium was paid by the Republic Bank, such
payment was for the account of Union Manufacturing Co.,
Inc. and that the cash voucher for the payment of the first
premium was
274

274 SUPREME COURT REPORTS ANNOTATED

Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

paid also by the Republic Bank but for the account of Union
Manufacturing Co., Inc.; (7) That sometime on September
6, 1964, a fire occurred in the premises of the Union
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Manufacturing Co., Inc.; (8) That on October 6, 1964, the

Union Manufacturing Co., Inc. filed its fire claim with the
defendant Philippine Guaranty Co., Inc., thru its adjuster,
H. H. Bayne Adjustment Co., which was denied by said
defendant in its letter dated November 27, 1964 * * *, on
the following grounds: 'a. Policy Condition No. 3 and/or the
'Other Insurance Clause' of the policy was violated because
you did not give notice to us the other insurance which you
had taken from New India for P80,000.00, Sincere
Insurance for P25,000.00 and Manila Insurance for
P200,000.00 with the result that these insurances, of which
we became aware of only after the fire, were not endorsed
on our policy; and (b) Policy Condition No. 11 was not
complied with because you have failed to give to our
representatives the required documents and other proofs
with respect to your claim and matters touching on our
liability, if any, and the amount of such liability'; (9) That
as of September, 1962, when the defendant Philippine
Guaranty Co., issued Fire Insurance Policy No. 43170 * * *
in the sum of P500,000.00 to cover the properties of the
Union Manufacturing Co., Inc., the same properties were
already covered by Fire Policy No. 1533 of the Sincere
Insurance Company for P25,000.00 for the period from
October 7, 1961 to October 7, 1962 * * *; and by insurance
policies Nos. F-2314 * * * and F-2590 * * * of the Oceanic
Insurance Agency for the total sum of P300,000.00 and for
periods respectively, from January 27, 1962 to January 27,
1963, and from June 1, 1962 to June 1, 1963; and (10) That
when said defendant's Fire Insurance Policy No. 43170 was
already in full force and effect, the Union Manufacturing
Co., Inc. without the consent of the defendant, Philippine
Guaranty Co., Inc., obtained other insurance policies
totalling P305,000.00 over the same properties prior to the
fire, to wit: (1) Fire Policy No. 250 of New India Assurance
Co., Ltd., for P80,000.00 for the period from May 27, 1964
to May 27, 1965 * * *; (2) Fire Policy No. 3702 of the
Sincere Insurance Company for P25,000.00 for the

275

VOL. 47, OCTOBER 30, 1972 275

Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

period from October 7, 1963 to October 7, 1964 * * *; and

(3) Fire Policy No. 6161 of Manila Insurance Co. for
P200,000.00 1for the period from May 15, 21964 to May 15,
1965 * * *." There is in the cover note and in the fire
3
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3
insurance policy4
the following warranty: " [Co-Insurance
Declared]: Nil." .
Why the appellant Republic Bank could not recover, as
payee, in case of loss as its "interest may appear subject to
the terms and conditions, clauses and warranties" of the
policy was expressed in the appealed decision thus:
"However, inasmuch as the Union Manufacturing Co., Inc.
has violated the condition of the policy to the effect that it
did not reveal the existence of other insurance policies over
the same properties, as required by the warranty
appearing on the f ace of the policy issued by the def
endant and that on the other hand said Union
Manufacturing Co., Inc. represented that there were no
other insurance policies at the time of the issuance of said
defendant's policy, and it appearing furthermore that while
the policy of the defendant was in full force and effect the
Union Manufacturing Co., Inc. secured other fire insurance
policies without the written consent of the defendant
endorsed on the policy, the conclusion is inevitable that
both the Republic Bank and Union Manufacturing Co., Inc.
cannot recover from the same policy 5
of the defendant
because the same is null and void." The tone of confidence
apparent in the above excerpts from the lower court
decision is understandable. The conclusion reached by the
lower court finds support in authoritative precedents. It is
far from easy, therefore, for appellant Republic Bank to
impute to such a decision a failure to abide by the law.
Hence, as noted at the outset, the appeal cannot prosper.
An affirmance is indicated.

_______________

1 Decision of the lower court, Record on Appeal, pp. 116120.

2 Exhibit A.
3 Exhibit C.
4 Decision of the lower court, Record on Appeal, p. 120.
5 Ibid, 128-129.

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276 SUPREME COURT REPORTS ANNOTATED

Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

6
It is to Santa Ana v. Commercial Union Assurance Co., a
1930 decision, that one turns to for the first explicit
formulation as to the controlling principle. As was made
clear in the opinion of this Court, penned by Justice Villa-
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Real: "Without deciding whether notice of other insurance

upon the same property must be given in writing, or
whether a verbal notice is sufficient to render an insurance
valid which requires such notice, whether oral or written,
we hold that in the absolute absence of such notice when it
is one of the conditions specified7 in the fire insurance
policy, the policy is null and void." The next year, in8 Ang
Giok Chip v. Springfield Fire & Marine Ins. Co., the
conformity of the insured to the terms of the policy, implied
from the failure to express any disagreement with what is
provided for, was stressed in these words of the ponente,
Justice Malcolm: "It is admitted that the policy before us
was accepted by the plaintiff. The receipt of this policy by
the insured without objection binds both the acceptor and
the insured to the terms thereof. The insured may not
thereafter be heard to say that he did not read the policy or
know its terms, since it is his duty
9
to read his policy and it
will be assumed that he did so." As far back as101915, in
Young v. Midland Textile Insurance Company, it was
categorically set forth that as a condition precedent to the
right of recovery, there must be compliance on the part of
the insured with the terms of the policy. As stated in the
opinion of the Court through Justice Johnson: "If the
insured has violated or failed to perform the conditions of
the contract, and such a violation or want of performance
has not been waived by the insurer, then the insured
cannot recover. Courts are not permitted to make contracts
f or the parties. The function and duty of the courts consist
simply in enforcing and carrying out the contracts actually
made. While it is true, as a general rule, that contracts of
insurance are

_______________

6 55 Phil. 329.
7 Ibid, 335.
8 56 Phil. 375.
9 Ibid, 381.
10 30 Phil. 617.

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Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

construed most favorably to the insured, yet contracts of

insurance, like other contracts, are to be construed
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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 11
understood in their
plain, ordinary and popular sense." More specif ically,
there was a reiteration of this Santa Ana ruling in a
decision by the then Justice, later Chief Justice, Bengzon,
12
in General Insurance & Surety Corp. v. Ng Hua. Thus:
"The annotation then, must be deemed to be a warranty
that the property was not insured by any other policy.
Violation thereof entitles the insurer to rescind. (Sec. 69,
Insurance Act) Such misrepresentation is fatal in the light
of our views in Santa Ana v. Commercial Union Assurance
Company, Ltd. * * *. The materiality of non-disclosure
13
of
other insurance policies is not open to doubt." As a matter
of fact, in a 1966 decision, Misamis
14
Lumber Corp. v.
Capital Ins. & Surety Co., Inc., Justice J.B.L. Reyes, for
this Court, made manifest anew its adherence to such a
principle in the face of an assertion that thereby a highly
unfavorable provision for the insured would be accorded
recognition. This is the language used: "The insurance
contract may be rather onerous ('one sided', as the lower
court put it), but that in itself does not justify the
abrogation of its express terms, terms which the insured
accepted or adhered15to and which is the law between the
contracting parties."
There is no escaping the conclusion then that the lower
court could not have disposed of this case in a way other
than it did. Had it acted otherwise, it clearly would have
disregarded pronouncements of this Court, the compelling
force of which cannot be denied. There is, to repeat, no
justification for a reversal.
WHEREFORE, the decision of the lower court of March
31, 1967 is affirmed. No costs.

_______________

11 Ibid, 622.
12 106 Phil. 117 (1960).
13 Ibid, 1119.
14 L-21380, May 20, 1966, 17 SCRA 228.
15 Ibid, 231.

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Union Manufacturing Co., Inc. vs. Philippine Guaranty
Co., Inc.

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          Concepcion, C.J., Zaldivar, Barredo, Makasiar,

Antonio and Esguerra,, JJ., concur.
     Castro and Teehankee, JJ., reserve their votes.
     Makalintal, J., is on official leave.

Decision affirmed.

Notes.—a) A concealment, whether intentional or

unintentional entitles the insurer to rescind the contract of
insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to
communicate." (Saturnino vs. Philippine American Life Ins.
Co., 7 SCRA 316.)

b) In order to form the basis for the cancellation of a

policy, notice to the insured need not be in any
particular form, in the absence of a statute or policy
provision prescribing such form, and it is sufficient,
so long as it positively and unequivocably indicates
to the insured, that it is the intention of the
company that the policy shall cease to be binding.
(Saura Import & Export Co., Inc. vs. Philippine
International Surety Co., Inc., 8 SCRA 143). But
even where a policy contains no provision that a
certain number of days of notice of its cancellation
shall be given, a reasonable notice and opportunity
to obtain other insurance must be given in order to
prevent the cancellation without allowing the
insured ample opportunity to negotiate for other
insurance in its stead. (Ibid.).
c) In fire insurance policies, risk attaches upon the
issuance and delivery of the policy to the insured,
despite non-payment of premium due. (Philippine
Phoenix Surety & Ins., Inc. vs. Woodwork, 20 SCRA
1270.)
d) Where the language used in insurance contract or
application for such insurance is such as to create
an ambiguity, the same should be resolved against
the party responsible therefor, i.e., the insurance
company which prepared the contract. (Landicho
vs. GSIS, 44 SCRA 7).

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279

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