1

FIRST DIVISION US$30,045.00 for the two policies, inclusive of tax. Said amounts are equivalent to the "time-on risk"
premiums which reflect the period that Chartis was liable from January 5, 2005 up to the policy cancellations
on June 15, 2005. Chartis demanded payment of the premiums in letters dated August 8, 2005, September
G.R. No. 234299, March 03, 2021
14, 2005, and then finally November 8, 2005, all to no avail.19 As such, it sued CCTL for payment of sum of
money with damages.20
CHARTIS PHILIPPINES INSURANCE, INC. (NOW AIG PHILIPPINES INSURANCE, INC.), Petitioner,
v. CYBER CITY TELESERVICES, LTD., Respondent. In its Answer with Compulsory Counterclaim, CCTL claimed that it did not authorize any person or entity to
accept Chartis' offer or to bind it to any insurance contract. Moreover, CCTL invoked Section 77 of the
Insurance Code and argued that since no payment of premiums had been made, the policies took no effect
DECISION at all. In its counter-claim, CCTL argued that complaint was baseless and as such, it is entitled to damages
and costs of suit.21
CARANDANG, J.:
Trial ensued. After Chartis had formally offered its evidence, CCTL filed a Motion for Summary Judgment,
arguing that there was no longer any genuine question of fact. CCTL submitted that the only issue to be
In this Petition for Certoriari1 under Rule 45, Chartis Philippines Insurance Inc. (Chartis) assails the resolved is whether there was a binding policy of insurance on which Chartis may base its claim for
Decision2 dated February 20, 2017 and Resolution3 dated September 26, 2017 of the Court of Appeals (CA) premiums.22 CCTL argued that based on Chartis' own evidence and admissions that the premiums were not
in CAG.R. CV No. 101737. The CA reversed the Order4 dated September 30, 2011 of the Regional Trial Court paid, then under Section 77 of the Insurance Code, the policies were neither valid nor binding. 23 Chartis
(RTC) of Makati City, Branch 139 in Civil Case No. 06-080, rendering summary judgment in favor of Chartis; agreed that the case was ripe for adjudication, but maintained that the policies were valid and binding,
ordering respondent Cyber City Teleservices, Ltd. (CCTL) to pay the premium for two insurance policies, citing UCPB General Ins. Co., Inc. Masagana Telamart, Inc.,24 where We held that as an exception to Section
attorney's fees, and costs of suit; and dismissing CCTL's counterclaim. 77, the insurer may grant credit extension for the payment of the premium. 25 Thus, Chartis argued that it
may recover the premiums under the policies, because it gave CCTL a 90-day period and then until June 15,
Facts of the Case 2005 to pay the premiums. For that period, it was already exposed to the risk insured against. Chartis also
argued that it would not have paid the DST, knowing that the same is non-refundable, if it was not clue on
Petitioner Chartis, previously called Philam Insurance Co., Inc., is a domestic corporation engaged in the validly issued policies.26 Furthermore, Chartis pointed out that under Section 78 of the Insurance Code, if the
business of insurance. Sometime before the filing of this petition, petitioner again changed its name to AIG policies contain an acknowledgment of the receipt of the premiums, then the policies are binding.
Philippines Insurance Inc.5 Among the insurance products Chartis offers is professional indemnity insurance, The professional indemnity policy states: "In consideration of the payment of the Premium specified in the
where, on behalf of the insured, the insurer pays any claim for breach of duty cause by any wrongful schedule x x x."27 Thus, Chartis argues that it has acknowledged receipt of the premium and the policy
professional act committed or allegedly committed by the insured in the course of providing professional should be considered binding.28
services;6 and fidelity insurance, which insures against loss of money, securities, and other property which
the insured shall sustain through any fraudulent or dishonest acts committed by any of the insured's Ruling of the Regional Trial Court
employees, whether acting alone or in collusion with others.7
The RTC granted CCTL's Motion for Summary Judgment and based on the above facts, held that Chartis is
Respondent CCTL is a call center agency specializing in customer relationship management (CRM) services. entitled to the relief prayed for.29 While under Section 77 of the Insurance Code, no policy or contract of
On June 21, 2004, Jardine Lloyd Thompson Insurance Brokers (JLT), acting as broker and agent for CCTL, insurance is valid and binding unless the premium has been paid, the RTC found that Chartis had granted
applied with Chartis for quotations for professional indemnity insurance and fidelity insurance.8 Sometime in CCTL an extension of credit for the payment of premium. This is one of the exceptions to the above rule as
September 2004, Chartis sent JLT the quotations which were valid until October 6, 2004 for professional held in the case of UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc.30 Therefore, the RTC ruled that
indemnity insurance and until September 7, 2004, for the fidelity insurance. there was a valid and binding insurance contract between the pat1ies on the basis of which Chartis is
entitled to payment of premium with interest.31 The RTC also held that CCTL is liable to reimburse Chartis for
On January 20, 2005, JLT transmitted "Placing Instructions"9 to Chartis informing the latter that CCTL had the taxes it had paid for the policies and also for attorney's fees in accordance with Article 2208 of the Civil
accepted the terms and that Chartis was "on risk with effect from 20 January 2005/12:01 Philippine Time Code, because Chartis was compelled to litigate or incurred expenses to protect its interest by reason of
and await your Policy documents." The Placing Instructions provide that the annual premium was agreed to CCTL's unjustified failure to pay.32 Thus, in its Order33 dated September 30, 2011, the RTC rendered
be US$45,060 and US$56,325.00, inclusive of taxes, for fidelity insurance and professional indemnity summary judgment as follows:
insurance, respectively. The indemnity limits for both policies were up to an aggregate of US$2,000,000.00. WHEREFORE, premises considered, the instant motion is hereby GRANTED. Judgment is hereby rendered
The insurance coverage period for both was from January 20, 2005 to January 20, 2006 and that the in favor of the plaintiff Chartis Philippines, Inc. (Philam Insurance Co., Inc.) and against defendant Cyber
premium payment terms is 90 days from the inception of the policies. The Placing Instructions both provide City Teleservices, Ltd. Ordering the latter to pay the former the following:
that in accordance with Bureau of Internal Revenue (BIR) M.O. No. 15-2001 and Revenue Regulation No. 9-
2000, JTL agreed that no payment of the documentary stamp tax (DST) will be refunded as a result of the (a) The amount of Forty Seven Thousand Three Hundred Four Dollars (US$ 47,304.00) or its peso equivalent
cancellation of the policies; and that it guarantees the payment of DST.10 representing the earned premium, as well as the taxes paid, for the two (2) policies plus twelve percent
(12%) legal interest commencing from the date of filing of the complaint until fully paid;
On the same day, Chartis issued Policy No. 13010028411 for fidelity insurance and Policy No. (b) The amount of P100,000.00 as attorney's fees; and
13010028512 for professional indemnity insurance. Chartis paid the DST due for the said policies.13 (c) The amount of P60,713.32 representing the costs of suit.

As the 90-day period was nearing its end, JLT, in behalf of CCTL, requested extensions of the credit term. In Defendant's compulsory counterclaim are hereby DISMISSED for lack of merit.
a series of email exchanges with JTL, Chartis agreed to give CCTL more time to pay the premiums and the
DST. At first up to April 20, 2005,14 then to April 30, 2005,15 then June 3, 2005,16 and then finally on June Furnish copies of this Order to the parties and their respective counsels.
15, 2005.17 No payment having been made by then, Chartis issued notices of cancellation18 dated June 15,
2005 which also declared that it was crediting refund premiums in the amounts of US$24,036.00 and SO ORDERED.34 (Emphasis in the original)
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CCTL filed a motion for reconsideration.35 Chartis opposed and moved for execution pending execution. 36 The However, the CA found no evidence of bad faith in Chartis' institution of an action against CCTL. Thus, for
RTC denied both motions.37 lack of evidence, the CA did not grant CCTL's claim for actual damages, exemplary damages, and attorney's
fees.56
Ruling of the Court of Appeals
Chartis moved for reconsideration,57 but the same was denied.58 Hence, this petition.
CCTL appealed, asking the CA to reverse the RTC and to grant its counterclaim. 38 In its assignment of errors,
CCTL argued that the RTC's summary judgment was based on disputed facts. CCTL maintained that it never Petitioner's Arguments
requested for credit terms on its own or through JTL. Neither did it clothe JTL with authority nor held out JTL
as its agent. In sum, CCTL argued that the RTC had treated its Motion for Summary Judgment as an implied Chartis maintains that the policies are valid and binding because it had extended a credit to CCTL. Because it
admission of Chartis' material allegations. CCTL clarified that it only moved for summary judgment because was on risk, Chartis argues that it would not have reneged on its obligation to indemnify CCTL had loss
the parties were agreed on the fact that no premium was paid, on the basis of which the RTC should have occurred during the credit term. As such, it may recover premiums based on the period that it was on risk as
ruled that there was no binding policy to support Chartis' claim. On such disputed matters as the granting of provided for in a short-rate cancellation table in the policies, which must be presumed to be valid as they
a credit extension through JTL, CCTL argued that it should have been given the chance to present evidence same had been approved by the Insurance Commission in accordance with Section 226 of the Insurance
to contradict Chartis' allegation.39 Nevertheless, CCTL maintained that under Section 77 of the Insurance Code.59 Consequently, the time-on risk provisions are not only valid but reinforces the understanding
Code, there is no valid and binding insurance contract that would make it liable to pay the premiums. 40 between the parties that if Chartis was on risk for a given period, then CCTL is obligated to pay the
corresponding premiums.60 Chartis also maintains that it should be repaid the DST remitted, as per agreed
In its Appellee's Brief,41 Chartis pointed out that CCTL had moved for summary judgment after the trial court under the policies.61
had admitted Chartis' documentary evidence and after it had given CCTL several opportunities to adduce
evidence. By filing said motion, CCTL should be deemed to have waived its right to adduce Respondent's Arguments
evidence.42 Chartis agreed that the case was ripe for judgment because the only issue left to be determined
was purely legal: the proper application of Section 77 of the Insurance Code. CCTL should not be permitted 62
In its Comment,  CCTL makes no mention of the CA's ruling about summary judgment. However, as to
to change its stance just because the RTC did not render summary judgment in its favor.43 Chartis argued whether the policies are valid and binding, CCTL maintains that the CA appreciated the case correctly and
that the RTC was correct in all aspects and so, asked the CA to affirm it in toto.44 reiterates that Chartis has misunderstood Our rulings in Makati Tuscany and UCPB.63 As regards the DST,
CCTL cites Phil. Home Assurance Corp. v. Court of Appeals64 and argues that said tax is due upon the mere
The CA partly granted CCTL's appeal. The dispositive portion of the assailed Decision 45 states: issuance of the policies without regard as to whether premiums have been paid.65 The payment of DST,
WHEREFORE, the appeal is PARTLY GRANTED. The Order dated September 30, 2011 of Branch 139, therefore, is not relevant as to whether the policies are valid and binding. CCTL maintains that the payment
Regional Trial Court of Makati City is VACATED and SET ASIDE. of the DST is Chartis' sole responsibility.66
The Complaint dated January 20, 2006 is hereby DISMISSED.
Issues
SO ORDERED.46 (Emphasis in the original)
The resolution of the petition hinges on the following issues:
The CA ruled that it was proper for the RTC render summary judgment. The CA emphasized that it was CCTL  
who moved for summary judgment, yet it made no reservation that it was or will be contesting the authority
1) Whether petitioner is entitled to payment of the premiums;
of JTL its purported agent. Upon reviewing the motion, the CA observed that CCTL explicitly argued that
"summary judgment is proper in the instant case as there is no genuine issue of fact." 47 As such, the CA 2) Whether the "time on risk" provisions are contrary to law, morals, and/or public policy; and
ruled that "CCTL had in effect submitted the whole case ripe for summary judgment because the only issue
left for the trial court to settle was whether or not the insurance policies were without any legal effect, 3) Whether CCTL is obligated to reimburse petitioner for the documentary stamps tax paid by Chartis.
pursuant to Section 77."48
Ruling of the Court
The CA held that none of the exceptions to Section 77 applies in this case. The CA's understood Our holding
in Makati Tuscany Condominium v. Court of Appeals49 to mean that a policy is valid and binding if the The petition is meritorious.
insured had paid initial installments on the premium. Because there was no payment at all in this case, the  
exception enunciated in Makati Tuscany does not apply.50 The CA also did not find UCPB51 binding. We held in
that case that the insured may recover on the policy if the premium is paid after the loss but within the I. A contract of insurance is valid and binding when the insurer
credit term. In this case, the credit term and extensions lapsed without the premiums being paid. 52 The CA extends credit to the insured as to the premium; the insurer is entitled
held that Chartis' remedy is not to demand the payment of premiums, but to put an end to and render the to payment of premium as soon as the parties are agreed that the
insurance policies are not binding.53 thing insured is exposed to the peril insured against.

The CA also held that the provisions in the policies which allow Charits to demand for the payment of the Section 2(1) of P.D. 612, otherwise known as the Insurance Code, defines a contract of insurance as an
insurance premiums on a prorated basis are void as contrary to law, morals, good customs, public order, agreement where the insurer undertakes for a consideration (the premium) to indemnify the insured against
and policy. Because the Insurance Code requires payment of premiums for the validity of the policies, such loss, damage, or liability arising from an unknown or contingent event. The issues in this case concern the
provisions cannot be considered effective.54 proper understanding of the circumstances in which a policy or contract of insurance may be considered as
valid and binding in relation to the insurer's right to the premium. For such a purpose, a historical review is
Furthermore, the CA ruled that Section 78 does not apply because "in consideration of" is not synonymous necessary to harmonize and clarify the development of our statutes and case law on the subject.
with an acknowledgment of receipt of premiums. Thus, the policies are not binding on such ground. 55
Section 72 of the Insurance Act of 1914 (Act No. 2427) provided that "[a]n insurer is entitled to payment of
 3

the premium soon, as the thing insured is exposed to the peril insured against." Upon the enactment of R.A. (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium, even
3540 on June 20, 1963, the legislature allowed for the granting of credit extensions on the premium due, but if premium has not been actually paid, as expressly provided by Section 78 itself;
it also explicitly required the payment of premiums to make a policy valid and binding, viz.: (3) where the parties agreed that premium payment shall be in installments and partial payment has been
made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;
Section 1. Section Seventy-two of the Insurance Act, (Act No. 2427) As amended, is hereby amended to (4) where the insurer granted the insured a credit term for the payment of the premium, and loss occurs
read as follows: before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and
(5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the
Section 72. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the payment of premiums.80 (Citations omitted)
peril insured against, unless there is clear agreement to grant the insured credit extension of the
The last exception now appears to be expressly provided for by law. Congress enacted R.A. 10607, which
premium due. No policy issued by an insurance company is valid and binding unless and until the
took effect in 2013 (after Chartis had filed its complaint) and which added a clause in Section 77 expressly
premium thereof has been paid. (Emphasis and underscoring supplied)
providing for credit extensions, viz.:
In Velasco v. Hon. Apostol,67 We held that under Section 72 of the Insurance Act, as amended, "the Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
insurance policy in question would be valid and binding notwithstanding the non-payment of the premium if peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
there was a clear agreement to grant to the insured credit extension. Such agreement may be express or issued by an insurance company i s valid and binding unless and until the premium thereof has been paid,
implied."68 Similarly, in Philippine Phoenix Surety & Insurance Co. v. Woodworks, Inc.,69 which was also except in the case of a life or an industrial life policy whenever the grace period provision applies, or
decided on the basis of Insurance cited, We held that "when the policy is tendered the insured must pay the whenever under the broker and agency agreements with duly licensed intermediaries, a ninety
premium unless credit is given or there is a waiver, or some agreement obviating the necessity for (90)-day credit extension is given. No credit extension to a duly licensed intermediary should
prepayment. To constitute an extension of credit there must be a clear and express agreement therefor." 70 exceed ninety (90) days from date of issuance of the policy. (Emphasis and underscoring supplied)
Ever since the Insurance Act was amended by R.A. 3540, most of Our case law has focused on the necessity
Then in 1974, P.D. 612 came to effect and repealed the Insurance Act of 1914. The regime changed. Section
of paying the premium to make the policy valid and binding. Not much has been said on the primordial
77 of P.D. 612 removed all mention of credit extensions and explicitly stated that the only instance when the
provision, as expressed in Section 72 of the Insurance Act, that "[a]n insurer is entitled to payment of the
parties may be bound to the policy despite non-payment of the premium is when the grace period provision
premium as soon as the thing insured is exposed to the peril insured against." Jurisprudence does not
applies in life or industrial life policies, viz.:
readily indicate when the insurer is entitled to payment of the premium in relation to the exceptions to
Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
Section 77. Thus, as discussed in the antecedents, the patties have wildly differing appreciations of case law.
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
However, We can resolve the instant petition by making some logical and necessary inferences.
insurance issued by an insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy whenever the grace
The common factor in the exceptions to Section 77, as enumerated in UCPB, is that the premium is
period provision applies.71 (Emphasis and underscoring supplied).
considered paid by express provision of law (in the case of the grace period for life insurance), by agreement
In Spouses Tibay v. Court of Appeals,72 We discussed the rationale behind the second sentence of Section of the patties, or for equitable reasons (such as when the insurer is in estoppel). For such reasons, the policy
77, that in an insurance contract, both the insured and insurer undertake risks. On one hand, there is the or contract of insurance becomes binding although no money physically changed hands. As long as the
insured, a member of a group exposed to a particular peril, who contributes premiums under the risk of parties are agreed as to who is bearing the cost of the insurance at the inception of the policy, then said
receiving nothing in return in case the contingency does not happen; on the other, there is the insurer, who policy becomes binding. It is worth noting that the text of Section 77 does not expressly require "actual
undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing transfer of cash" to bind the parties. It merely requires that the premium be "paid," which may be done on
mechanism operates under a system where, by prompt payment of the premiums, the insurer is credit. The term "credit" presupposes a creditor-debtor relationship, and may be said to imply ability, by
able to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent reason of property or estates to make a promised payment. It is the correlative debt or indebtedness, and
obligations to the public. The premium, therefore, is the  elixir vitae or source of life of the that which is due to any person as distinguished from that which he asks. 81 When the patties agree to a
insurance business.73 credit term, as under the fourth exception enumerated in Gaisano, it simply means that the insurer, for a
time, agrees to shoulder the cost of the insurance with the expectation that the insured would later
There were some who were of view that Section 77 effectively removed any possibility of making policies reimburse him. The premium, therefore, is considered paid between the parties although no actual transfer
binding upon a credit agreement. This view holds that the policy is binding despite non-payment in only two of money occurred. The premium being paid on credit, a valid and binding contract of insurance arises, and
instances: (1) in case of life or industrial life insurance where the grace period applies; and (2) when there is the insurer becomes liable to indemnify the insured upon the occurrence of the peril insured against.
a written acknowledgment of the premium which is conclusive on the insurer so far as to make the policy Meanwhile, the premium takes on the nature of a debt that the insured must pay the insurer.
binding.74 However, this view is not supported by how jurisprudence had developed. In the 1992 case
of Makati Tuscany Condominium v. Court of Appeals,75 We held that a policy is binding although the In UCPB, the Court was asked to consider the prevalent practice in the insurance industry of extending credit
premium is paid on installments. In the same case, We approved the CA's observation that Section 77 terms. It was because of this and the fact that insurance can be sold on credit that We articulated the fourth
merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does exception. In so holding, We did not create new doctrine in insurance law, but merely reiterated one that has
not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to been long accepted, even in the American jurisdiction. As one eminent authority (Professor W.R. Vance)
morals, good customs, public order, or public policy. 76 explains:
If the payment of the first premium is made a condition precedent to the liability of the insurer, the party
Then came our 2001 Resolution in UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc.,77 which insured cannot recover either on a preliminary oral contract or on the written policy unless such condition
reaffirmed Makati Tuscany. We held that the policy is binding upon an insurer who granted a 60 to 90-day has been fulfilled or waived. So, if the premium is agreed to be paid at some time subsequent to the
credit term to the insured.78 In the 2017 case of Gaisano v. Development Insurance and Surety making of the contract, the insurer's liability attaches at once. A promise to pay a premium will
Corporation,79 We enumerated the exceptions to the second sentence of Section 77 identified by the court support a promise to indemnify as well as a cash payment. "Insurance can be sold on credit as
in UCPB, viz.: well as anything else."82 (Emphasis and underscoring supplied.)
(1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly provided
The second sentence of Section 77 is not, in itself, a ground for the insured to evade paying premiums. The
by Section 77 itself;
insured cannot cite said provision and say that it is not obliged to pay the premiums due under a policy,
 4

because that policy is not binding since it never paid the premium. 83 Not only does that argument categorically found - and the CA affirmed - that it was through JTL that CCTL procured the insurance and
misunderstand case law, but the circularity in its reasoning is obvious. Unfortunately, in reversing the RTC, that the former, in behalf of the latter, requested a credit extension four times through several e-mail
the CA employed the exact same argument when it held as follows: exchanges with Chartis.89 However, Chartis could no longer bear the risk of indemnifying a delinquent
Since no payment for the insurance premiums was ever made, then the insurance policies produced no legal insured, so it cancelled the policies on June 15, 2005. At that point, Chartis had been at risk of indemnifying
effect. x x x With the lapse of the insurance policies through the nonpayment of premiums by the insured for five months. CCTL cannot renege on its promise to pay the premiums after enjoying that period of
(Cyber City), there were no more insurance contracts to speak of. x x x Accordingly, there is thus no basis to coverage. In Great Pacific Life Insurance Corp. v. Court of Appeals,90 We held that the insurer must return
require the payment of insurance premiums x x x.84chanRoblesvirtualLawlibrary the premium to the insured because the former was never at risk. 91 This case is the inverse: the insured
must pay the premium because the insurer was at risk. Similarly, in UCPB, We said it would be unjust and
The policy behind the second sentence of Section 77 of the Insurance Code is not to put it entirely upon the
inequitable if the insured, after incurring loss, cannot recover on a policy to which it had been consistently
will of the insured whether or not to pay the premium when the insurer's liability has already attached. For
granted a credit term for the payment of premiums. 92 This case is the inverse: it would be unjust and
one, that would constitute a potestative condition that would render the obligation to pay premiums - and
equitable if the insurer, after taking on the risk of indemnifying, cannot recover the premiums on policies for
indeed, the very concept of insurance - nugatory. A potestative condition is one the fulfillment of which is
which it had consistently granted credit terms.
dependent solely upon the will of the obligor.85 For another, the second sentence of Section 77 must be read
together with the first, which provides that the insurer is entitled to the "payment of the premium as soon as
It is of no moment that the credit terms and the extensions do not appear on the policies themselves, but on
the thing insured is exposed to the peril insured against." It is not difficult to imagine the havoc it would
separate documents, i.e., the Placing Instructions, because as Vance puts it:
wreak on the insurance industry if We rule, as CCTL presumes, that the insured may choose not to pay the
It is not necessary that a writing of any kind shall be fully set forth in the body of the any given contract in
premium after the insurer was already at risk. The risk-distributing mechanism of insurance would fall apart.
order to become a part of it. By proper reference indicating clearly that the parties intend to be bound by the
terms of a separate paper, it can be made a part of the written contract just as completely as if copied in full
We must hasten to add that unlike in Makati Tuscany, no loss actually occurred in this case; however, it is of
on its face. x x x The separate papers thus incorporated in the policy are most frequently the application and
no matter. It is not the occurrence or non-occurrence of loss which entitles the insurer to the payment of
the survey that sometimes accompanies the application for property insurance. Premium notes given upon
premium. While, the insurer's obligation to indemnify the insured is conditioned on the actual occurrence of
the delivery of the policy or thereafter are also often thus made parts of the
the peril insured against,86 the insured's obligation to pay the premium is conditioned on the mere exposure
contract.93chanRoblesvirtualLawlibrary
of the thing insured to the peril insured against.87 When the parties have agreed to a credit term and loss
occurred, the question of whether the insurer should indemnify depends on whether the insured was able to The Placing Instructions contain a summary of CCTL's application, Chartis' offer, and CCTL's acceptance. The
pay the credit on time. Thus, in Makati Tuscany, because the loss and payment of premium both occurred terms therein, including the credit term, are binding upon the parties. The communications between JTL and
before the expiration of the credit term, the insurer was liable to indemnify. Of course, the same is true if Chartis are sufficient proof that the parties intended to be bound by the terms stated on the Placing
payment was made before the end of the credit term, but the loss occurred after. If loss and payment both Instructions as well as the CCTL's further requests for extension. Although these documents are informal,
happened after the end of the credit term, then the insurer would have had no obligation to indemnify. From they nevertheless evidence a binding agreement94 and do not appear to be incompatible with the formal
the perspective of the insurer, the insured must pay the premium during the credit term, even though no written policies. In fact, the policy for professional indemnity insurance states that the written proposal form
loss occurred, because mere exposure to the peril insured against is what entitles the insurer to the payment which, together with its attachments and all underwriting information, is incorporated in and forms part of
of premiums. this contract.

We may thus make the following summation: first, if the insured paid the premium, the insurer's liability That said, We agree with the CA that Section 78 does not apply and is, therefore, not a basis by which
attaches correspondingly. There is a valid and binding policy or contract of insurance and the insured may Chartis can demand payment of the premium. While We agree that there is nothing in the policies that is
demand indemnification in case of loss. There is no credit on the premium to speak of and, therefore, none worded in such a way as to conform with an 'acknowledgment of receipt,' there is a more fundamental
which the insurer can demand because he has already been paid. Second, if the insured did not pay the reason why Chartis cannot invoke Section 78: it is conceptually incompatible with the fourth exception
premium and the parties did not agree that the insurer's liability has attached, then there is no valid or in UCPB. One cannot demand a debt under the fourth exception and at the same time acknowledge to have
binding contract of insurance. The insured cannot demand indemnification if loss occurs and neither can the already received it under Section 78.
insurer demand payment of the premium. Third, if the insured did not actually pay the premium but the
parties have agreed that the insurer's liability has attached, then the insured is considered to have extended The policies being valid and binding, CCTL is obligated to reimburse Chartis for the DST the latter had paid.
credit on the premium. When the insured accepts the terms of the credit, there is a valid and binding It is clear from the policies95 and the Placing Instructions96 that the amounts due on the policies consist of
contract of insurance. The insured must pay the premium before the end of the credit term; otherwise, he the premiums and taxes. CCTL's reliance on Phil. Home Assurance Corp. v. CA97 is misplaced. The issue in
cannot demand indemnification in case of loss. The insurer may demand the premium, whether or not loss that case was whether insurance companies may claim tax refunds before the Bureau of Internal Revenue
occurred. for DST paid on policies that have been issued but had not yet taken effect. We ruled that the liability for
DST arise upon the mere issuance of the policies.98 The said case says nothing on whether parties to an
The instant case falls under the third situation. We agree with the RTC's finding that the premiums were insurance can or cannot agree that it will be insured who pays the taxes due on the policy. As it is, there
advanced on credit. The parties had agreed that Chartis was already liable to indemnify CCTL if the appears to be nothing that legally prevents the parties to make a stipulation to such effect. As discussed
contingencies occurred from January 20, 2005 onward, even though CCTL had not actually paid the above, CCTL's obligation to pay under the policies includes the DST.
premium. Chartis bore upon itself the costs of the policies in advance. CCTL was deemed to have paid the  
premium on credit and was supposed to make actual payment within a 90-day period. This is evidenced by
the Placing Instructions transmitted by JLT to Chartis:
We are pleased to inform you that the Client [CCTL] has accepted the terms you offered in respect of II. Earned premiums due to the insurer may be computed  
the risk detailed below. We confirm that you are on risk with effect from 20 January 2005/12:01 AM pro rata or according to short rate period agreed upon by the
Philippine Time and await your Policy documents. x x x PREMIUM PAYMENT TERMS: 90 days from parties.
inception of policy.88 (Emphasis and underscoring supplied).
It is worth remembering, at this point, that neither party now contests the factual bases on which the RTC The CA ruled that the provisions in the subject policies allowing Chartis to recover the premiums on a
rendered its summary judgment, including the relationship of agency between JTL and CCTL. The trial court
 5

prorated basis are void for being contrary to law, morals, or public policy. 99 We do not agree. We find the that which may have been stipulated in writing. In the absence of such a stipulation, the interest rate shall
said provisions to be fair and consistent with Sections 79100 and 80101 of the Insurance Code, which provide: be 6% per annum to be computed from judicial or extrajudicial demand. The 12% per annum legal interest
Section 79. A person insured is entitled to a return of premium, as follows: rate shall apply only until June 30, 2013.110 The legal interest rate imposed by the RTC must be modified to
conform with the foregoing.
(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils
insured against; WHEREFORE, the petition is GRANTED. The Decision dated February 20, 2017 and the Resolution dated
(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such September 26, 2017 of the Court of Appeals in CA-G.R. CV No. 101737 are hereby REVERSED and SET
portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short ASIDE.
period rate has been agreed upon and appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That The Order dated September 30, 2011 of the Regional Trial Court of Makati City, Branch 139 in Civil Case No.
no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient 06-080 is hereby REINSTATED with MODIFICATION. Respondent Cyber City Teleservices, Ltd.
cause as otherwise provided by law. (Emphasis and underscoring supplied). is ORDERED to pay petitioner Chartis Philippines Insurance, Inc. (now AIG Philippines Insurance, Inc.) the
following:
Section 80. If a peril insured against has existed, and the insurer has been liable for any period, (1) US$47,304.00 or its peso equivalent, representing the premiums due and documentary stamps tax paid,
however short, the insured is not entitled to return of premiums, so far as that particular risk is plus twelve percent (12%) interest per annum from the date of filing of the complaint (January 20, 2006)
concerned. (Emphasis and underscoring supplied). until June 30, 2013; and six percent (6%) interest per annum from July 1, 2013 until full payment thereof;
(2) P100,000.00 as attorney's fees; and
The foregoing provisions refer to the concepts of "earned premium" and "unearned premium". As the period
(3) P60,713.32 as costs of suit.
of coverage passes, a portion of the premium is "earned" and demandable by the insurer under Section 80.
Meanwhile, the unearned premium "is that portion of a premium which has not been earned by reason of the SO ORDERED.
fact that the policy has been cancelled and is the premium for the unexpired term of the policy." 102 Under
Section 213103 of the Insurance Code, unearned premiums are considered a "liability" of the insurer-not an
asset. Pursuant to Section 79, if the insured had paid the whole premium at the inception of the contract,
but surrenders the policy before the coverage period ends, the insurer must return the unearned premium.

Generally, the earned premium is computed by dividing the whole premium by the total number of days in
coverage period and then multiplying the result by the number of elapsed days. In a typical annual policy,
the premium is divided by 365 days and the result is multiplied by the number of days that the insurer was
at risk. Hence, Section 79(b) provides for a "pro rata rate". However, the parties may agree on a "short
period rate," where the premium is divided by a period of less than a year (although the coverage period
may in fact be one year). For example, the parties may agree that the whole premium is earned nine
months into an annual policy. In this case, both subject policies provide for a short period rate cancellation
table if the policies are cancelled by CCTL. If it is Chartis who cancels, the parties agreed to compute the
earned premium pro rata.104

In its Order105 dated September 30, 2011, it is not clear how the RTC arrived at US$47,304.00 as
representing the premiums due and documentary stamps tax paid by Chartis or whether it applied the pro
rata rate or the short rate. However, considering that this is a question of fact, which is beyond the ambit of
a petition under Rule 45, and the amount not having been controverted by the parties, We see no reason to
disturb the same. Settled is the rule that only questions of law may be raised in a Rule 45 petition, 106 subject
to certain exceptions which the parties have neither invoked nor argued to be applicable to this case.

Under Article 2208(2) and (5) of the Civil Code, attorney's fees may be awarded when a party incurs
expenses to protect its interests or the defendant acted in evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim.107 As discussed above, CCTL was obligated to pay the
premiums, but unjustly refused to do so despite several letters of demand. CCTL was repeatedly given an
extension of the credit term upon the request of its broker-agent, but broke its promise to pay. As such,
Chartis was constrained to incur expenses to protect its interests by filing suit. Thus, we affirm the RTC's
award of attorney's fees and expenses of litigation to be proper.
 
III. The amount of legal interest must be adjusted in
 
accordance with the ruling in Nacar v. Gallery Frames.

In the case of Nacar v. Gallery Frames,108 the Court modified the ruling in Eastern Shipping Lines v. Court of
Appeals109 to embody the adjustment of the legal interest rate as implemented under Bangko Sentral Ng
Pilipinas Circular No. 799. We held that beginning July 1, 2013, when an obligation is breached and it
consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due shall be
 6

THIRD DIVISION On August 26, 2015, the RTC rendered its Joint Decision, the dispositive portion of which reads:

G.R. No. 230528, February 01, 2021 WHEREFORE, in the light of the foregoing, considering that plaintiff violated Policy Condition No. 3 of Fire
Insurance Policy No. 50-118230 issued by defendant Western Guaranty and Fire Insurance Policy No. 80-
43032 issued by defendant Cibeles, all the benefits due to plaintiff under the policies are deemed forfeited.
MULTI-WARE MANUFACTURING, CORPORATION, Petitioner, v. CIBELES INSURANCE
CORPORATION, WESTERN GUARANTY CORPORATION, AND ERNESTY SY, DOING BUSINESS
UNDER THE NAME AND STYLE "PAN OCEANIC INSURANCE SERVICES," Respondents. These two complaints are therefore, ordered DISMISS[ED] for lack of merit.

DECISION Likewise, the counter-claims of the defendants are dismissed. No cost.

HERNANDO, J.: SO ORDERED.11 (Emphasis supplied)

This Petition for Review on Certiorari1 assails the November 29, 2016 Decision2 and the March 9, 2017 Multi-Ware filed a motion for reconsideration but it was denied by the RTC in an Order 12 dated January 8,
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 106334, affirming the August 26, 2015 Joint 2016.
Decision4 of the Regional Trial Court (RTC) of Manila, Branch 25 in Civil Case Nos. 02-105291 and 02-
105317.
Ruling of the Court of Appeals:

The undisputed facts are as follows:

On appeal, the CA sustained the RTC judgment, viz.:

Petitioner Multi-Ware Manufacturing Corporation (Multi-Ware) is a domestic corporation engaged in the

WHEREFORE, premises considered, the appeal of Multi-Wave Manufacturing Corporation is
manufacture of various plastic products.5 On December 14, 1999, petitioner took out Fire Policy Insurance
hereby DENIED for lack of merit. Accordingly, the Joint Decision dated 26 August 2015 and Order dated 8
No. 50-118320 from respondent Western Guaranty Corporation (Western Guaranty) in the amount of
January 2016 of the RTC in Civil Cases Nos. 02-105291 & 02-105317 are AFFIRMED.
P10,000,000.00. The properties insured were the pieces of machinery and equipment, tools, spare parts and
accessories stored at Buildings 1 and 2, PTA Compound, No. 26 Isidro Francisco Street, Malinta, Valenzuela,
Metro Manila.6 SO ORDERED.13

On February 20, 2000, petitioner secured another fire insurance policy, this time from respondent Cibeles Petitioner's motion for reconsideration was denied by the CA m a Resolution dated March 9, 2017. Hence,
Insurance Corporation (Cibeles Insurance) under Fire Insurance Policy No. 80-43032 for P7,000,000.00, this petition before Us.
covering the pieces of machinery and equipment, tools, spare parts and accessories excluding mould, and
stocks of manufactured goods and/or goods still in process, raw materials and supplies found in the PTA
Central Warehouse Compound, Building 1, No. 26 Isidro Francisco Street, Brgy. Vicente Reales, Dalandan, Issues:
Valenzuela, Metro Manila.7
This petition which is hinged on the following grounds:
Subsequently, petitioner obtained from Prudential Guarantee Corp. (Prudential Guarantee) Fire Insurance
Policy Nos. FLMLAY 00000174NA and FLMLAY 00000284NA8 covering the same machinery and equipment
I. THE HONORABLE [CA] SERIOUSLY ERRED IN HOLDING THAT PETITIONER VIOLATED POLICY
located at Building 1, PTA Compound, No. 26 Francisco St., Malinta, Valenzuela, Metro Manila.
CONDITION NO. 3, DESPITE UTTER LACK OF COMPETENT EVIDENCE TO SUPPORT RESPONDENTS'
STANCE;
On April 21, 2000, a fire broke out in the PTA Compound causing damage and loss on the properties of
petitioner covered by the fire insurance policies. Consequently, petitioner filed insurance claims with II. THE HONORABLE [CA] SERIOUSLY ERRED IN HOLDING THAT POLICY CONDITION NO. 3 APPLIES TO
respondents Cibeles Insurance and Western Guaranty, but these were denied on the ground of Multi-Ware's MACHINERIES, EQUIPMENT AND TOOLS.14
violation of Policy Condition Nos. 3, on non-disclosure of co-insurance; 15, on fraudulent claims; and 21, on
arson.9
Stated otherwise, the issue is whether petitioner violated Policy Condition No. 3 or the "other insurance
clause" uniformly contained in the subject insurance contracts resulting to avoidance of the said policies.
Its insurance claims for payment having been denied by Cibeles Insurance and Western Guaranty, petitioner
filed separate civil actions against these insurance companies before the RTC of Manila. These cases were
eventually consolidated for trial.10 Our Ruling

Ruling of the Regional Trial Court: We deny the Petition for lack merit. Policy Condition No. 3 reads:
 7

3. The insured shall give notice to the Company of any insurance or insurances already effected, or which firms were one and the same since they were all located in the same place, is unsubstantiated by the
may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods evidence and grounded entirely on surmises or conjectures. This is not so.
in process and/or inventories only hereby insured and unless such notice be given and the particulars of
such insurance or insurances be stated therein or endorsed on this policy pursuant to Section 50 of the
In ruling that the properties subject of the insurance policies obtained by petitioner from different insurers
Insurance Code, by or on behalf of the company before the occurrence of any loss or damage, all benefits
were identical, the RTC correctly held that:
under this policy shall be deemed forfeited, provided however, that this Condition shall not apply when the
total insurance or insurances in force at the time of loss or damage is not more than P200,000.00. 15
[A]nent to the Fire Insurance Policy Nos. FLMLAY 00000175NA (Exhibit '4' to '4-G') and FLMLAY 00000283NA
(Exhibit '5' to '5-G') procured by plaintiff from Prudential Guarantee on its machineries and equipment
Petitioner insists that there was no violation of Policy Condition No. 3 when it did not disclose to Cibeles
located at Building 1, defendant Western Guaranty and defendant Cibeles alleged that plaintiff failed to
Insurance and Western Guaranty the existence of the other insurance policies that it procured covering its
disclose or notify them of these fire insurance policies taken from Prudential Guarantee.
machinery and equipment since said condition only prohibits non-disclosure of co insurance on stocks in
trade, goods in process and inventories.
An examination of these two fire insurance policies issued by Prudential Guarantee to the plaintiff, reveals
that the property subject of insurance are machineries and equipment located at Building 1, PTA Compound,
We do not agree.
No. 26, Francisco St. Malinta, Valenzuela, Metro Manila. Likewise, the properties subject of insurance in the
fire insurance policies issued by Western Guaranty are machineries and equipment located at Warehouse 1 &
Policy Condition No. 3 is clear that it obligates petitioner, as insured, to notify the insurer of any insurance 2 within PTA Compound No. 26 Isidro Francisco Street, Malinta, Valenzuela, M.M. and machineries and
effected to cover the insured items which involve any of its property or stocks in trade, goods in process equipment insured by defendant Cibeles were contained in Building 1, within Phil. Tobacco Adm. Central
and/or inventories and that non-disclosure by the insured of other insurance policies obtained covering these Warehouse Cpd. along No. 26 Isidro Francisco St. Brgy. Vicente Reales, Dalandanan, Valenzuela, M.M.
items would result in the forfeiture of all the benefits under the policy. To be regarded as a violation of Policy
Condition No. 3, the other existing but undisclosed policies must be upon the same matter and with the
Based on the foregoing, the court finds that the properties such as the machineries and equipment subject
same interest and risk.
of these four insurance policies are one and the same properties considering that the location of these
machineries and equipment are all contained in Building 1 within the PTA Compound. The allegation
The records of this case show that petitioner obtained fire insurance policies from Cibeles Insurance therefore of the plaintiff that the properties mentioned in all the insurance policies are not the same
simultaneously with Western Guaranty and Prudential Guarantee covering the same matter and the same properties holds no water. Thus, for failure of the plaintiff to disclose to defendants Western Guaranty and
risk,  i.e., the policies uniformly cover fire losses of petitioner's machinery and equipment. Although Policy Cibeles of the fire insurance policies it procured over its machineries and equipment from Prudential
Condition No. 3 does not specifically state "machinery and equipment" as among the subject of disclosure, it Guarantee and vice-versa, the plaintiff has violated Policy Condition No. 3 of its insurance policies." 18
is apparent that the disclosure extends to pieces of machinery and equipment as well since Policy Condition
No. 3 speaks of disclosure of other insurance obtained covering "any of the property".
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
The word "property" is a generic term. Hence, it could include machinery and equipment which are assets parties, save for certain exceptional and meritorious circumstances, such as: (1) when the findings of a trial
susceptible of being insured. Inasmuch as machinery and equipment are included under the term "property", court are grounded entirely on speculation, surmises or conjectures; (2) when a lower court's inference from
petitioner must give notice to the insurer of any other fire insurance policies on said machinery and its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion
equipment. As established during trial, petitioner did not notify Cibeles Insurance and Western Guaranty that in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or
it had procured other fire insurance policies covering its property consisting of the same machinery and fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; (5) when
equipment. Consequently, the insurers could validly deny the insurance claim of petitioner for violation of there is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the
Policy Condition No. 3. specific evidence on which they are based, are premised on the absence of evidence, or are contradicted by
evidence on record.19 Not one of these exceptional circumstances is present in this case.
In American Home Assurance Company v. Chua,16 the Court held that where the insurance policy specifies as
a condition the disclosure of existing co insurers, non-disclosure thereof is a violation that entitles the As discussed earlier, it is apparent that Policy Condition No. 3, or the "other insurance clause", was violated
insurer to avoid the policy. This condition is common in fire insurance policies and is known as the "other since petitioner failed to notify the insurers of the fire insurance policies it procured from the different
insurance clause". insurers covering the same subject and interest. Petitioner utterly failed to disprove the RTC's reasonable
conclusion that the machinery and equipment covered by all the fire insurance policies were identical
considering that all these properties were located in the same building inside the PTA Compound. It is
In Geagonia v. Court of Appeals,17 the Court explained that the rationale behind the incorporation of "other
significant to note that aside from its bare allegations, petitioner did not adduce adequate proof to show that
insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When
the buildings and/or warehouses referred to in each of the policies pertain to distinct and separate structures
a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the
inside the PTA Compound.
property's value, the insured may have an inducement to destroy the property for the purpose of collecting
the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would
be profitable to the insured. Since the policy procured by petitioner from Cibeles Insurance covered the same subject and interest as that
covered by the policies issued by Western Guaranty and Prudential Guarantee, the existence of other
insurance policies referred to under Policy Condition No. 3 is undeniable. The non-disclosure of these policies
Petitioner contends that the insurers in this case failed to prove by preponderance of evidence that the
to the insurers was fatal to petitioner's right to recover on the insurance policies.
insurance policies it procured from them covered the same subject matter. It insists that the findings of the
courts below that the properties insured under the policies obtained by petitioner from the three insurance
 8

WHEREFORE, the petitions are DENIED for lack of merit. The November 29, 2016 Decision and March 9, In their Answer Ad Cautelam with Compulsory Counterclaim,20 respondents averred that petitioner's
2017 Resolution of the Court of Appeals in CA-G.R. CV No. 106334 are hereby AFFIRMED. Costs on the insurance claim is already barred by prescription based on Condition No. 27 of the fire insurance policies. 21
petitioner. SO ORDERED.
Thereafter, respondents filed a Motion for Preliminary Hearing of Affirmative Defenses and/or Motion to
Dismiss22 anchored on the RTC's failure to acquire jurisdiction over the case due to insufficient payment of
docket fees, lack of cause of action and prescription.23 Petitioner Alpha Plus filed a
Comment/Opposition24 thereto.
THIRD DIVISION
Ruling of the Regional Trial
 
G.R. No. 203756, February 10, 2021 Court:

ALPHA PLUS INTERNATIONAL ENTERPRISES CORP., Petitioner, v. PHILIPPINE CHARTER In the Order25 dated April 5, 2011, the RTC denied respondents' Motion for Preliminary Hearing of Affirmative
INSURANCE CORP., BIENVENIDO E. LAGUESMA, VYTONNE SO, GERRY Y. TEE, HENRY M. SUN, Defenses and/or Motion to Dismiss. It also did not pass upon the issue of prescription despite the fact that it
EMMANUEL R. QUE, BENJAMIN S. TY, ROBERT T. YU, EDWIN V. SALVAN AND ATTY. MARIA LUISA was squarely raised by the respondents in their motion to dismiss. The RTC Order provides:
CECILIA E. GARCIA, Respondents. Submitted is the motion for preliminary hearing of affirmative defenses and/or motion to dismiss filed by the
defendant Philippine Charter Insurance Corp. xxx and the comment/opposition thereto by the plaintiff.

DECISION PCIC invokes Section 6, Rule 16 of the Revised Rules of Civil Procedure and argues that the Court should
conduct a preliminary hearing on its affirmative defense as it has not acquired jurisdiction over the case at
HERNANDO, J.: bench due to the insufficient payment of the prescribed and correct docket and filing fees. The record
however shows that, in compliance with the [O]rder dated September 6, 2010, plaintiff paid the balance of
the required docket and filing fees reflected in the official receipts it attached as Annexes A and B to its
This Petition for Review on Certiorari1 assails the July 20, 2012 Decision2 of the Court of Appeals (CA) in CA- manifestation of November 19, 2010.
GR. SP No. 121025 which nullified and set aside the April 5, 20113 and June 21, 20114 Orders of the
Regional Trial Court (RTC), Branch 84 of Malolos, Bulacan in Civil Case No. 41-M-2010, as well as order the Be that as it may, the Court has already resolved the same issue in its Order of June 22, 2010 and it finds
dismissal of said civil case. no basis to reverse the proceedings and conduct first hearings on the merits of such affirmative defense.
Withal, while docket fees were based only on the amounts specified, the trial court acquired jurisdiction over
In its October 3, 2012 Resolution,5 the appellate court denied petitioner's Motion for Reconsideration. the action, and judgment awards which were left for determination by the court as or as may be proven
during the trial would still be subject to additional filing fees which shall constitute a lien on the judgment.
Factual Antecedents:
WHEREFORE, for lack of merit, the motion at bar is denied.
Petitioner Alpha Plus International Enterprises Corporation (Alpha Plus), a company engaged in optical media
business,6 obtained two fire insurance policies from respondent Philippine Charter Insurance Corp. (PCIC) Meantime, let this case be set for pre-trial conference on June 2, 2011 at 8:30 in the morning as previously
covering the period of June 9, 2007 to June 9, 2008.7 On February 24, 2008, petitioner's warehouse was scheduled.
gutted by fire destroying its equipment and pieces of machinery stored therein. Thus, it sought to recover
from its insurance policies with the PCIC but its claim was denied in a letter dated January 22, 2009, a copy SO ORDERED.26
of which was received by petitioner on January 24, 2009.8 The parties exchanged clarification and reply
letters but they failed to arrive at a settlement.9 Respondents filed a Motion for Reconsideration27 but it was denied by the RTC in its Order28 dated June 21,
2011 for lack of merit.
Thus, on January 20, 2010, Alpha Plus filed a Complaint10 before Branch 84 of the RTC of Malolos, Bulacan
against respondent PCIC and its officers for Specific Performance, Collection of Sum of Money and Damages Thus, respondents filed a Petition for Certiorari29 under Rule 65 of the Rules of Court before the CA.
and docketed as Civil Case No. 41-M-2010. Petitioner prayed that respondents be ordered to pay the
following: the amount due as per insurance coverage plus legal interest thereon as actual damages; amount Ruling of the Court of Appeals:
of not less than P1 million as exemplary damages; amount of not less than P1 million as attorney's fees; and
costs of suit and litigation expenses.11 The initial docket fees paid by petitioner amounted to P42,545.00 The appellate court granted the Petition for Certiorari of respondents. Consequently, it nullified and set aside
representing the P1 million claim for exemplary damages and another P1 million for attorney's fees. 12 the RTC Orders dated April 5, 2011 and June 21, 2011, and ordered the trial court to dismiss Civil Case No.
41- M-2010. The CA found that since petitioner raised new demands in its Amended Complaint, 30 the period
On February 9, 2010, petitioner filed an Amended Complaint13 praying for similar reliefs as stated in its of prescription should be counted from the filing thereof, and not from the filing of the original
original complaint14 but, this time, it specifically claimed the amount of P300 million as actual damages 15 and complaint.31 The appellate court, relying on the prescriptive period of 360 days, 32 found that "prescription
that respondents be ordered to pay "two (2) times the legal interest per annum on the proceeds of the had already set in"33 and that the RTC oddly "chose to be silent about the said issue. "34 The dispositive
policies for the duration of the delay."16 Petitioner paid additional docket fees in the amount of portion of the assailed CA Decision reads:
P6,056,465.00 for its P300 million claim against respondents.17 WHEREFORE, premises considered, the petition is GRANTED. The April 5, 2011 and June 21, 2011 Orders
of the Regional Trial Court of Malolos City, Branch 84, is (sic) NULLIFIED and SET ASIDE. Aforesaid
Respondents filed Motions to Dismiss18 on grounds of lack of cause of action and insufficient payment of Regional Trial Court is ORDERED to DISMISS the civil complaint before it docketed as Civil Case No. 41-M-
docket fees, but these were denied by the RTC.19 2010.

SO ORDERED.35 (Emphasis in the original)

 9

Petitioner filed a Motion for Reconsideration36 which was denied in the appellate court's Resolution37 dated 27. Action or suit clause - If a claim be made and rejected and an action or suit be not commenced either in
October 3, 2012. the Insurance Commission or any court of competent jurisdiction within twelve (12) months from receipt of
Issues notice of such rejection, or in case of arbitration taking place as provided herein, within twelve (12) months
a. The Court of Appeals egregiously erred in holding that the petitioner's complaint before the court a quo after due notice of the award made by the arbitrator or arbitrators or umpire, then the claim shall for all
had already prescribed when the same was filed with it. purposes be deemed to have been abandoned and shall not thereafter be recoverable
hereunder.45 (Underscoring supplied)
b. The Court of Appeals egregiously erred in holding that the prescriptive period should be counted from the
In the case of Sun Insurance Office, Ltd. v. Court of Appeals46 which involved an insurance policy that
time the amended complaint was filed.38
contained the same condition of bringing a suit within a period of twelve months, it was interpreted therein
The threshold issue before Us is whether or not the CA erred in ordering the dismissal of petitioner's that the 12-month period stated in the insurance policy referred to the period of one year, with a view that
complaint on the ground of prescription. the said insurance policy was stipulated pursuant to Section 63 of the Insurance Code. New Life Enterprises
v. Court of Appeals47 also adopted a similar stance.48
The Parties' Arguments:
Thus, contrary to the finding of the appellate court that the 12-month period should mean 360 days, 49 We
Petitioner contends that the appellate court erred in holding that its complaint filed before the RTC had hold that the 12-month period in Condition No. 27 of the parties' fire insurance policies should refer to the
already prescribed. Petitioner insists that the prescriptive period should have been counted from the filing of period of one (1) year, or 365 days, in line with Section 63 of the Insurance Code and prevailing
its original complaint and not from the filing of the amended complaint. As a rule, when the amended jurisprudence. This is also consistent with Article 13 of the Civil Code which provides that when the law
complaint does not introduce new issues or causes of action, the suit is deemed to have commenced on the speaks of a year, it is understood to be equivalent to 365 days. 50
date that the original complaint was filed. Petitioner asserts that its amended complaint did not introduce
new or different causes of action. Hence, the prescriptive period should be counted from the time that the Like any other contract, parties to a contract of insurance could stipulate on terms and conditions that would
original complaint was filed.39 govern them as long as these stipulations are not contrary to law. An insurance contract is the law between
the parties. Its terms and conditions constitute the measure of the insurer's liability and compliance
Respondents, on the other hand, riposte that the CA correctly reckoned the prescriptive period from the date therewith is a condition precedent to the insured's right to recovery from the insurer. 51
of filing of the Amended Complaint on February 9, 2010. Petitioner alleged in its Amended Complaint the
amount of P300 million as its insurance claim against respondents. In its original complaint, petitioner In the instant case, Condition No. 27 of the parties' fire insurance policies to be considered as an integral
merely paid the measly sum of P42,545.00 as docket fees, and it was only upon the filing of the amended part of their agreement and compliance therewith is a condition precedent to petitioner's right to recover on
complaint that Alpha Plus paid additional docket fees of P6,056,465.00 representing its P300 million claim the insurance policy that it secured from the respondents.
against the respondents.
It bears to stress that the rationale for the necessity of bringing suits against the insurer within one year
Thus, the prescriptive period has not been interrupted by the filing of petitioner's original complaint from the rejection of the claim52 has already been settled. As already laid down in precedent, the condition
considering that it raised the additional claim of P300 million in its Amended Complaint. Petitioner received contained in an insurance policy that claims must be presented within one year after rejection is not merely
the notice denying its insurance claim on January 24, 2009, hence it had until January 24, 2010 within which a procedural requirement but an important matter essential to a prompt settlement of claims against
to bring a court action. In this case, petitioner's amended complaint was only filed on February 9, 2010 insurance companies as it demands that insurance suits be brought by the insured while the evidence as to
which clearly shows that its action had already prescribed.40 the origin and cause of destruction have not yet disappeared. 53

Our Ruling Case law teaches that the prescriptive period for the insured's action for indemnity should be reckoned from
the "final rejection" of the claim.54 The "final rejection" simply means denial by the insurer of the claims of
The petition is bereft of merit. the insured and not the rejection or denial by the insurer of the insured's motion or request for
reconsideration. The rejection referred to should be construed as the rejection in the first instance.55
Prescription is a ground for the dismissal of a complaint without going into trial on the merits. 41 Prescription
is based on a fixed time42 and is concerned with the fact of delay.43 When it appears from the pleadings or In this case, it is settled that respondents' rejection of petitioner's claim was embodied in a Letter dated
the evidence on record that an action is barred by prescription, the court is mandated to dismiss the same. 44 January 22, 2009, copy of which was received by petitioner on January 24, 2009. 56 Hence, in accordance
with the parties' Condition No. 27 of their fire insurance policies, the prescriptive period should be reckoned
In the present case, We agree with the CA's finding that petitioner's insurance claim had already prescribed from petitioner's receipt of the notice of rejection, specifically on January 24, 2009. One (1) year or 365
and that the RTC should dismiss the complaint before it based on said ground. Nonetheless, We differ with days from January 24, 2009 would show that petitioner's prescriptive period to file its insurance claim ends
the appellate court in the computation of the prescriptive period. Instead of the 360-day period used by the on January 24, 2010.
CA in computing whether or not petitioner's action has already prescribed, We find that the 365-day period
should be utilized instead. Based on the records, petitioner Alpha Plus filed its original Complaint on January 20, 2010. 57 Subsequently,
it filed an Amended Complaint58 against the respondents on February 9, 2010. Petitioner posits that its
To determine the prescription of the subject insurance claim, Article 63 of the Insurance Code as well as action has not yet prescribed and that the suit is deemed to have been commenced on the date that the
Condition No. 27 of the two fire insurance policies should be considered. original complaint was filed on January 20, 2010.

Section 63 of the Insurance Code states that: We do not agree.

Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing
an action thereunder to a period of less than one year from the time when the cause of action accrues, is An amended complaint supersedes an original one. As a consequence, the original complaint is deemed
void. withdrawn and no longer considered part of the record.59

On the other hand, Condition No. 27 of the parties' fire insurance policies provides: The settled rule is that the filing of an amended pleading does not retroact to the date of the filing of the
 10

original pleading; hence, the statute of limitation runs until the submission of the amendment. It is true that
as an exception, this Court has held that an amendment which merely supplements and amplifies facts
originally alleged in the complaint relates back to the date of the commencement of the action and is not
barred by the statute of limitations which expired after the service of the original complaint. 60 Thus, when
the amended complaint does not introduce new issues, cause of action, or demands, the suit is deemed to
have commenced on the date the original complaint was filed. 61

In the present case, We find that the exception does not apply to petitioner's case as to allow the period of
prescription to run and for prescription to ultimately set in. A perusal of petitioner's Complaint 62 and
Amended Complaint63 reveals that the latter pleading introduced new demands that were not specified and
averred expressly in the original complaint. In paragraph 26 of the original complaint, 64 what was merely
claimed was actual damages against respondents without specifying therein any definite amount. Legal
interest was also claimed by petitioner.

On the other hand, in paragraph 26 of petitioner's Amended Complaint, 65 it was specified therein that the
actual damages being claimed is in the amount of P300 million and that payment of respondents shall be for
"two times the legal interest per annum on the proceeds of the policies." Clearly, petitioner essentially
introduced new demands against respondents in their Amended Complaint. The disparity of the claims
between the original complaint and the amended complaint is magnified by the fact that petitioner was
required to pay additional docket fees in the amount of P6,056,465.00 66 for its Amended Complaint.

With petitioner's filing of the Amended Complaint which raised new demands, the original complaint of
petitioner must be deemed to have been abandoned and to have been rendered functus
officio.67 Consequently, petitioner could not argue that the filing of the Amended Complaint should retroact
to the date of filing of the original complaint.68

Verily, as the Amended Complaint superseded the original complaint of petitioner, the suit of the latter is
deemed to have been commenced on the date of filing of the Amended Complaint on February 9, 2010.
During this time, prescription had already set in as petitioner had only until January 24, 2010 within which to
file its insurance claim. In sum, We agree with the appellate court as to its ruling that petitioner's Amended
Complaint should have been dismissed by the RTC on the ground of prescription. No hearing by the RTC was
even needed thereon since it could determine the fact of prescription by simply looking at the date of filing
of the complaints.69

From the foregoing disquisition, We find that the appellate court did not err in rendering its assailed Decision
and Resolution.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision dated July 20, 2012 and
Resolution dated October 3, 2012 of the Court of Appeals in CA-G.R. SP No. 121025 are AFFIRMED. Costs
on petitioner.

SO ORDERED.
 11

Under the TMA, Asgard undertook to perform for Milestone toll-manufacturing of paper products in
accordance with the volume and specifications as Milestone may define from time to time.9 Milestone shall
advise Asgard of its requirements for the products to be toll-manufactured via a purchase order submitted
[ G.R. No. 244407, January 26, 2021 ] monthly at least fifteen (15) days in advance of Milestone's desired delivery or withdrawal date stated
therein to enable Asgard to timely complete production thereof. The toll-manufacturing requirements of
UCPB GENERAL, INSURANCE CO., INC., PETITIONER, VS. ASGARD CORRUGATED BOX Milestone shall be performed at Asgard's premises at Asgard Corrugated Box Manufacturing Corporation, No.
MANUFACTURING CORPORATION, RESPONDENT. 80 P. de la Cruz, Street, San Bartolome, Novaliches (the Plant) with the use of the facilities therein.
Milestone shall source materials and supplies and cause the same to be delivered to the Plant.10

DECISION
It appears that Asgard needed additional capital for the purchase of new equipment for its manufacturing
plant. So, it invited Milestone to invest in the company. Instead of immediately investing, Milestone
CARANDANG, J.: proposed to take over the management and operations of Asgard to determine the probability of the
business. Milestone installed new equipment for the manufacturing plant and paper mill. After months of
Assailed in this Petition for Partial Review on Certiorari1 under Rule 45 of the Rules of Court is the managing and operating the business, Milestone accepted Asgard's invitation by contributing the installed
Decision2 dated August 31, 2018 and the Resolution3 dated January 8, 2019 of the Court of Appeals (CA) in equipment and infusing such amount of capital as may be necessary for the operations of the company.11
CA-G.R. CV No. 109543 which partially granted petitioner UCPB General Insurance Co., Inc.'s (UCPB
Insurance) appeal by deleting the awards of exemplary damages and attorney's fees and denied for lack of Sometime in 2007, Asgard and Milestone further agreed that the latter would convert the paper products
merit UCPB Insurance's motion for partial reconsideration. into corrugated carton boxes using the corrugating machines owned by Asgard. The agreement likewise
included the modification of the corrugated machines by replacing the parts with the ones owned by
Facts of the Case Milestone. As a result thereof, all vital parts of the corrugating machines of Asgard were detached and
replaced with parts owned by Milestone.12

This case stemmed from a complaint for "Sum of Money with Application for Writ of Preliminary
Attachment"4 filed by respondent Asgard Corrugated Manufacturing Corp. (Asgard) against UCPB On December 22, 2007, due to financial difficulties, Asgard filed with the Regional Trial Court (RTC) of
Insurance.5 Quezon City, Branch 90 an Amended Petition for Corporate Rehabilitation.13 It submitted an Amended
Rehabilitation Plan stating, among others, that Milestone shall contribute P150,000,000.00 worth of
machinery and equipment in Asgard's business.14 However, the rehabilitation court disapproved the
On February 1, 2006, Asgard and Milestone Paper Products, Inc. (Milestone) entered into a Toll Amended Plan finding the same to be vague, unrealistic and not feasible, and denied the rehabilitation
Manufacturing Agreement (TMA)6 whereby Asgard undertook to perform toll-manufacturing of paper petition in the Order15 dated June 9, 2009. The rehabilitation court ruled that it would be extremely difficult
products for Milestone, effective until January 31, 2008, unless earlier terminated by either party upon 60- for Asgard to undergo corporate rehabilitation with a paid-up capital of only P12,500,000.00 and negative
day prior written notice.7 The TMA shall be deemed automatically extended on a month-to-month basis if no retained earnings of P168,341,292.51.16
new agreement is executed after the lapse of said time. Section 19 of the TMA provides:

On August 7, 2009, Asgard and Milestone took out an insurance policy from UCPB Insurance.17 Upon
19. EFFECTIVITY AND DURATION payment of insurance premium, UCPB Insurance issued Industrial All Risk Policy No. HOF09FD-FAR087915
(Policy)18 to Milestone and/or Market Link and/or Nova Baile and/or Asgard to insure, among others,
This Agreement shall become effective upon signing hereof and shall be in full force and effect until 31st of Asgard's machinery and equipment of every kind and description in Novaliches, Quezon City for
January 2008, unless earlier terminated by either Party upon sixty (60) days prior written notice to the other P500,000,000.00 covering the period August 1, 2009 to August 1, 2010.19
if without cause, or in accordance with the following Clause. In the event the parties fail to execute a new
toll manufacturing agreement upon the lapse of time indicated in this paragraph, the term of this Agreement On July 15, 2010, Milestone pulled out its stocks, machinery, and equipment from Asgard's plant in
shall be deemed automatically extended on a month to month basis only. Novaliches, Quezon City for relocation to Milestone's own premises in Laguna. In the course thereof, it
caused damage to Asgard's complete line of Isowa corrugating machine and accessories as well as its
Termination or expiration of this Agreement will not abrogate, impair, release or extinguish any debt, printer-slotter-stacker.20 Physical inventory of machinery and equipment conducted by the staff of Paul Uy
obligation, or liability of either party incurred or arising prior to the date of termination and all undertakings, Ong of Asgard showed that the following machinery and equipment were damaged:
obligations, releases or indemnities which by their terms or by reasonable implication are to survive, or are
to be performed in whole or in part after the termination of this Agreement, will survive such terminations or 1. "Isowa" corrugating machines such as Single Facer "A" and "B" Flutes, "Lechida" Single Facer
expiration. "A" Flute, "Ishikawa" Single facer "E" Flute and other accessories, originally installed at ground
level were dismantled and were dumped at the rear portion of the warehouse.
Any renewal of this Agreement, under terms and conditions to be mutually agreed upon, may at the option
of the parties be done by a letter-agreement signed by both Parties. Should this Agreement expire without a 2. "Isowa" dual backer conveyor heater, Slitter station, Cut-Off Station, Akebono Tsusho Printer
written renewal thereof, the Parties shall continue their relationship herein and the provisions of this Slotter Machine were welded to steel pole which appear to be unstable.
Agreement shall continue to govern them except for the term of the Agreement, which shall henceforth be
from month to month.8
3. Other machine parts were unaccounted.21
 12

Asgard notified UCPB Insurance about the loss and filed an insurance claim under the Policy based on the incorporated into Asgard's corrugating machines. Even if Milestone was not the owner of the whole machine,
Malicious Damage Endorsement provision which reads: it would still be benefited by its preservation and would be damnified by its loss. Also, Asgard had already
made a judicial admission that Milestone is one of the named insured under the Policy.35
It is hereby declared and agreed that the insurance under the said Riot and Strike endorsement shall extend
to include MALICIOUS DAMAGE, which for the purpose of this extension shall mean: On appeal by Asgard, the CA reversed and set aside the RTC's ruling and remanded the case for further
proceedings. The issues raised therein were as follows:
LOSS OF OR DAMAGE TO THE PROPERTY INSURED DIRECTLY CAUSED BY THE MALICIOUS ACT OF ANY
PERSON (WHETHER OR NOT SUCH ACT IS COMMITTED IN THE COURSE OF DISTURBANCE OF THE PUBLIC I. Whether the trial court patently erred in law and in fact when it granted defendant-appellee's
PEACE) NOT BEING AN ACT AMOUNTING TO OR COMMITTED IN CONNECTION WITH AN OCCURRENCE motion for summary judgment despite the clear existence of genuine issues of fact.36
MENTIONED IN SPECIAL CONDITION NO. 6 OF THE SAID RIOT AND STRIKE ENDORSEMENT.22
II. Whether the trial court patently erred in law and in fact when it ruled that plaintiff-appellant had
UCPB Insurance denied the claim explaining that the Policy had no cross liability cover, and the malicious impliedly admitted MPPI's insurable interest over plaintiff-appellant's machinery and equipment
damage was committed by Milestone, one of the name insured, and not committed by a third party.23 since plaintiff-appellant admitted MPPI is one of the co-insured and invoked the malicious damage
endorsement of the policy.37
Asgard moved for reconsideration but UCPB Insurance denied24 the same contending that Milestone's
infliction of damage is not among the acts contemplated under Section 87 (now Section 89) of the Insurance III. Whether the trial court patently erred in law and in fact when it absolved defendant-appellee
Code which provides: from any liability under the policy.38

Section 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the IV. Whether the trial court patently erred in law and in fact when it took cognizance of defendant-
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents of others.25 appellee's motion for summary judgment despite the fact that it failed to comply with Rules 35, Sec
3 of the 1997 Rules of Procedure.39
Hence, Asgard filed a complaint for sum of money with application for writ of preliminary attachment praying
for actual damages in the amount of P147,000,000.00 plus legal interest.26 Asgard alleged that it solely The CA, in its Decision40 dated April 3, 2014, held that summary judgment cannot be rendered in this case
owns the damaged corrugating machine and Milestone has no insurable interest therein; thus, Section 87 as there are clearly factual issues disputed or contested by the parties. A trial is necessary to ascertain which
(now Section 89) of the Insurance Code is inapplicable. Further, UCPB Insurance's consolidation of the of the conflicting parties' allegations are true. The issue on the existence of insurable interest is a factual and
building, various machineries, equipment and stocks, which are owned by different entities then occupying triable issue which the trial court could not resolve on the basis of the provisions of the Insurance Code. The
one compound, into a single insurance policy may have been resorted to only for convenience, and did not fact that Asgard admitted that MPPI (Milestone) is a co-insured at the time the Policy was taken does not
reflect the actual and separate ownership thereof The damaged machine could be repaired for amount to an admission that Milestone has insurable interest at the time when the machinery and
P147,000,000.00 which was paid by Asgard's sister company, Diamond Packaging Industrial equipment were maliciously damaged. The CA ruled that the core issue is whether Milestone has insurable
Corporation,27 as evidenced by 98 Philippine Business Bank checks issued as payment to Taiphil.28 interest at the time of the loss, not at the time the Policy was taken.

In its Answer with Compulsory Counterclaim,29 UCPB Insurance countered that the inclusion of Milestone's Asgard gave the testimony of its Corporate Treasurer, Claire U. Ong,41 who confirmed that only one policy
name among the insured in the Policy was upon Asgard's request while the malicious damage admittedly was issued over Asgard's machine and Milestone was among those insured. When the petition for
caused by Milestone was not among the risks covered by the Policy pursuant to Section 87 (now Section 89) rehabilitation was denied, Asgard asked Milestone to pull out their stocks, machinery, and equipment from
of the Insurance Code. Even if Asgard was in fact the sole owner of the machine, Milestone still has an the plant. When Milestone finally complied, it maliciously damaged Asgard's complete line of corrugating
insurable interest therein because it would suffer a loss upon its destruction as it cannot produce the machine and left several other machines "floating" on temporary posts. Asgard had the incident blottered. It
corrugated boxes. Asgard and Milestone's insurable interests were not also separate and distinct as the also repeatedly asked Milestone to restore the damaged machine to no avail. Asgard notified UCPB
machine would be inoperable without the parts provided by Milestone.30 Insurance of the loss, but the latter denied the insurance claim and the demand for reimbursement of
replacement costs amounting to P147,000,000.00. Asgard was constrained to replace the damaged machine.
Since it did not have the money, Asgard asked its sister company, Diamond Packaging Industrial
On July 10, 2012, UCPB Insurance filed a Motion for Summary Judgment31 contending that there was no
Corporation, to pay to Taiphil Machinery and Equipment Sales Services which replaced the damaged parts.
genuine issue of fact since Asgard already admitted that Milestone, its co-insured, maliciously caused the
damage, and that UCPB Insurance had consolidated the insurable interests into only one policy. Hence, the
applicability of Section 87 (now Section 89) of the Insurance Code remains to be the only legal issue.32 UCPB Insurance presented Agripina De Luna,42 the Multi-Lines Section Head of UCPB Claim's Department.
She testified that Universal Adjuster-Appraisers Co., Inc. (Universal) conducted an investigation on the
insurance claim of Asgard. It advised UCPB Insurance that Asgard could not claim for damage maliciously
The RTC granted the motion and dismissed Asgard's complaint in its Order33 dated October 9, 2012. In
caused by Milestone. UCPB Insurance also based the denial of Asgard's claim on the exception under the
granting the motion, the RTC declared that no genuine factual issue is extant in this case that would warrant
policy for loss, damage, or destruction caused or occasioned by or happening through any willful act
threshing the same in a full blown trial. Further, the issue on the insurable interest of Milestone over the
committed by or with the connivance of any relative of the insured. De Luna further testified that UCPB
property is a legal issue which does not necessitate a presentation of the parties' respective pieces of
Insurance usually checked for insurable interest in issuing a policy and Milestone had an insurable interest at
evidence considering that this may be determined by referring to specific provisions of the Insurance Code
the time the Policy took effect because it owned some parts of Asgard's damaged machine.
governing the matter.34 In dismissing Asgard's complaint, the RTC ruled that Milestone had insurable
interest over the property. It had actual and real interest in the preservation of the corrugating machines not
only because its maintenance was necessary for Asgard but also because it owns the parts which were Ruling of the Regional Trial Court
 13

In its Order43 dated June 15, 2011, the RTC, Branch 59, Makati City issued a writ of preliminary attachment Hence, this Petition for Partial Review on Certiorari filed by UCPB Insurance anchored on the following
upon Asgard's posting of a bond fixed at P147,000,000.00, directing the Branch Sheriff to attach all the grounds:
properties, real or personal, of UCPB Insurance.44
I. THE COURT OF APPEALS ERRED IN RULING THAT MILESTONE DID NOT HAVE INSURABLE
On February 17, 2017, the RTC rendered a Decision45 which granted Asgard's complaint, the dispositive INTEREST OVER THE CORRUGATING MACHINES AT THE TIME OF THE LOSS, CONSIDERING THAT
portion of which reads: BOTH ASCARD AND MILESTONE ARE CO-INSURED UNDER THE INSURANCE POLICY AND THAT THE
AGREEMENT, WHICH THE COURT INTERPRETED AS HAVING TERMINATED TO SUPPORT ITS
RULING ON LACK OF INSURABLE INTEREST, CLEARLY SUBSISTED AND CONTINUED TO TAKE
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, ordering the
EFFECT AT THE TIME MILESTONE CAUSED MALICIOUS DAMAGE TO SAID MACHINES.
defendant to pay the plaintiff:

II. THE COURT OF APPEALS ERRED IN RULING THAT SECTION 87 OF THE INSURANCE CODE
1. One Hundred Forty-Seven Million Pesos (Php147,000,000.00) as actual damages, with legal
(WHICH RELIEVES THE INSURER FROM LIABILITY FOR LOSS CAUSED BY THE WILLFUL ACT OF
interest at the rate of six percent (6%) per annum from date of demand on May 11, 2011;
THE INSURED) IS INAPPLICABLE CONSIDERING THAT MILESTONE WAS A CO-INSURED AND HAD
INSURABLE INTEREST OVER THE MACHINES WHICH IT MALICIOUSLY DAMAGED.
2. Exemplary damages in the amount of Five Hundred Thousand Pesos (Php500,000.00);
III. THE COURT OF APPEALS ERRED IN DISREGARDING UCPB GEN'S ARGUMENT THAT THE
3. Attorney's fees in the amount of Four Hundred Thousand Pesos (Php400,000.00); and MALICIOUS DAMAGE ENDORSEMENT REFERS ONLY TO STRIKES AND LOCK-OUTS GIVEN THE
CLEAR AND UNMISTAKABLE TERMS OF THE INSURANCE POLICY THAT SUCH CLAUSE APPLIES
ONLY IN CONNECTION WITH THE EXISTENCE OF A STRIKE OR LOCK-OUT. MOREOVER, ASSUMING
4. Defendant to pay the costs of suit. WITHOUT CONCEDING THAT SAID ARGUMENT WAS RAISED FOR THE FIRST TIME ON APPEAL, THE
SME CLEARLY FALLS UNDER THE PUBLIC POLICY EXCEPTION ENUNCIATED BY THE HONORABLE
SO ORDERED.46 COURT.53

The RTC held that UCPB Insurance is liable for the insurance claim of Asgard. It did not apply Section 87 UCPB Insurance's Arguments
(now Section 89) of the Insurance Code stressing that Milestone cannot be considered as an insured with
respect to the damaged machine as it has no insurable interest either at the time the policy took effect or at UCPB Insurance argues that Milestone had insurable interest over the corrugating machines at the time of
the time of the loss considering that the TMA was valid only until January 31, 2008; the rehabilitation the loss considering that both Asgard and Milestone are named insured under the Policy. It claimed that the
petition was denied by the rehabilitation court; and any business relationship with Asgard was effectively TMA remained in effect at the time of the loss when Milestone left Asgard's premises by virtue of the
terminated when Milestone removed its equipment and left Asgard's premises.47 provisions of the TMA itself. The TMA provides that unless there is notice of termination in writing, the TMA
would continue to subsist and govern the relationship of the parties on a month-to-month basis.54 The fact
UCPB Insurance moved for reconsideration but it was denied in the Order dated May 11, 2017.48 that Milestone detached the parts it installed on the corrugating machines and decided to leave the
compound owned by Asgard in July 2010 could not have the effect of terminating the TMA, much less
divesting it of insurable interest over the machines because under Section 22 thereof, Asgard shall only
An appeal was filed by UCPB Insurance with the CA. allow the withdrawal of materials and supplies provided by Milestone in the event of termination of the TMA.
UCPB Insurance claims that since the TMA was not validly terminated, as it was automatically renewed on a
Ruling of the Court of Appeals month-to-month basis, the withdrawal of the parts installed on the corrugating machines was unauthorized.
The performance of unauthorized act could not have the effect of rendering Milestone's insurable interest
inexistent. Milestone had actual and real interest in the preservation of the corrugating machines considering
In the Decision49 dated August 31, 2018, the CA partially granted UCPB's appeal by deleting the awards of that its loss or damage would mean that Milestone would not be able to comply with its obligations under the
exemplary damages and attorney's fees.50 It upheld UCPB Insurance's liability to Asgard under the Policy. TMA.55
The CA agreed with the RTC that Milestone lacked insurable interest and could not properly be considered an
insured under the Policy. At the time the Policy took effect, Milestone had an insurable interest in the parts
of the machine by virtue of ownership and it also had insurable interest in Asgard's machine by virtue of its Further, since Asgard raised the issue of the non-existence of Milestone's insurable interest over the
existing TMA with Asgard. However, Milestone terminated any existing relationship with Asgard and any corrugating machines, the burden of proving said allegation lies on Asgard - a burden which it failed to
remaining insurable interest in Asgard's machine when it removed therefrom its parts and pulled out its discharge. Since Milestone had insurable interest in the corrugating machines, both at the beginning of the
other properties on July 15, 2010. Hence, Milestone had no insurable interest at the time of the loss, and policy and at the time of loss, Section 89 of the Insurance Code is applicable. Milestone, one of the insured
could no longer be deemed an insured under the Policy. Accordingly, the damage inflicted by Milestone on under the Policy caused the malicious damage, hence, UCPB Insurance should be exonerated from liability
the insured property could neither be considered to have arisen from an excepted risk nor be deemed to for the loss of or damage to the machines.56
have been caused by the willful act or through the connivance of the insured under Section 87 (now Section
89) of the Insurance Code.51 In addition, UCPB Insurance contends that the Malicious Damage Endorsement is a mere extension of the
Riot and Strike Endorsement such that the former cannot exists independently of the latter.57 What the
UCPB Insurance filed a motion for partial reconsideration but it was denied by the CA in its Malicious Damage Endorsement seeks to cover is malicious damage caused by any person during a strike or
Resolution52 dated January 8, 2019. lock-out because the probability of occurrence of malicious damage is higher during a strike or lock-out. To
do away with the strike or lock-out requirement would allow the insured to recover from the insurer in any
 14

event just because its property is maliciously damaged. This would increase the possibility of connivance At issue is the determination of whether Milestone had insurable interest over Asgard's corrugating machines
with the insured, and although such a situation exempts the insurer from liability under Section 87 (now at the time of the loss or damage. The resolution of which will determine if UCPB Insurance is liable to
Section 89) under the Insurance Code, the same is usually very difficult to prove, to the detriment of the Asgard for its insurance claim in the amount of P147,000,000.00.
insurer and the insurance industry as a whole.58
It is established that Milestone is a named insured under the Policy. That is settled. A perusal of the
Asgard's Comment Industrial All Risk Policy No. HOF09FDFAR087915 (Policy) shows that it was issued to Milestone and/or
Market Link and/or Nova Bai and/or Asgard to insure, among others, Asgard's machinery and equipment of
every kind and description in Novaliches, Quezon City for P500,000,000.00, covering the period August 1,
Asgard asserts that the CA correctly ruled that Milestone did not have any insurable interest over its
2009 to August 1, 2010. Pertinent portions of the Policy provide:
corrugating machines at the time of the loss, thus, Milestone could not be deemed an insured under the
Policy.59 Under paragraph 20 of the TMA, it uses the word "may" and does not limit the means by which the
same may be terminated. When Milestone left Asgard's premises and remove its own equipment, the Location of Risk: No. 80 P. Dela Cruz Street, Novaliches, Quezon City
business relationship, assuming there was still any at that time, was effectively terminated. Thus, when
Milestone maliciously damaged Asgard's machinery and equipment in July 2010, Milestone had no insurable
INTEREST INSURED     SUM INSURED
interest over these machinery and equipment as it could no longer be damnified by the loss and/or
destruction thereof.60
SECTION I - MATERIAL DAMAGE 900,000,000.00
(REFER TO MEMO FOR BREAKDOWN OF ITEMS)
Further, Asgard avers that the Policy also covers the loss of or damage to the property insured directly
caused by the malicious act of any person. Milestone, which did not have any insurable interest over
Asgard's machinery and equipment at the time of the loss, is included in the phrase "any party" and not as SECTION II - MACHINERY BREAKDOWN 20,000,000.00
an "insured", making UCPB Insurance liable. Also, as the Policy is an "all risk policy," it is incumbent upon
UCPB Insurance to prove that the loss was caused by an excepted risk. Having failed to show that the loss
was caused by the risk excepted, UCPB Insurance is liable to pay Asgard's insurance claim.61 SECTION III - BUSINESS INTERRUPTION 10,000,000.00

Lastly, Asgard claims that the CA correctly ruled that UCPB Insurance's argument that the endorsement INSURANCE PROPERTY BREAKDOWN AND DESCRIPTION
refers only to employee's strikes and lock-out or a disturbance of public peace cannot be considered for the
first time on appeal.62 The Policy contains a Malicious Damage Endorsement and/or includes loss of or ITEM 1
damage to the property insured directly caused by the malicious act of any person. This covers the malicious
damage caused by Milestone to Asgard's corrugating machines.63 The amount of P147,000,000.00 being
claimed by Asgard is within the maximum limit of liability under the Policy.64 Ps - 35,000,00

UCPB Insurance's Reply ON THE BUILDING ONLY OF ONE LOFTY STOREY IN HEIGHT (2-SPAN) CONSTRUCTED OF CONCRETE
FOOTINGS, METAL FRAMED POST ON STEEL TRUSSES FRAMED UNDER LONG SPAN ROOF OCCUPIED AS
PAPER MILL PLANT BUILDING.
UCPB Insurance maintains that the TMA was not terminated upon the withdrawal of materials and supplies.
There should be a valid termination of the Agreement either by a 60-day prior written notice or simply a
written notice if termination is for a cause. Neither party is authorized to terminate their relationship with Ps - 300,000.00
the other except pursuant to the terms of the TMA. It is immaterial whether Milestone have anything more
to do with Asgard's operations, properties, or machines because it is the TMA that governs the parties' ON VARIOUS MACHINERY AND EQUIPMENT OF EVERY KIND AND DESCRIPTION WHILST CONTAINED IN THE
respective obligations. Considering that the TMA was not never terminated, it follows that Milestone's BUILDING DESCRIBE ABOVE.
insurable interest over Asgard's corrugating machines continued to subsist.65

Ps - 50,000,000.00
Ruling of the Court

ON STOCKS USUAL TO THE INSURED'S BUSINESS WHILST CONTAINED IN THE BUILDING DESCRIBED
The petition is meritorious. ABOVE.

In petitions for review under Rule 45, the jurisdiction of this Court is limited to reviewing questions of law ITEM 2
which involves no examination of the probative value of the evidence presented by the litigants or any of
them. The Supreme Court is not a trier of facts; its function is not to analyze or weigh evidence all over
again. Accordingly, findings of fact of the appellate court are generally conclusive on this Court. Ps - 30,000,000.00
Nevertheless, jurisprudence has recognized several exceptions. One of which is when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a ON THE BUILDING ONLY OF ONE STOREY IN HEIGHT (2-SPAN CONSTRUCTED OF REINFORCED CONCRETE
different conclusion.66 This exception justifies this Court's consideration of the instant petition. ON STEEL TRUSSES FRAMED UNDER LONG SPAN ROOF OCCUPIED AS OFFICE, PAPER CORRUGATING,
PRINTING, PACKAGING, MANUFACTURING & MILL WAREHOUSE BUILDING.
 15

Ps - 155,000,000.00 ITEM 6

ON VARIOUS MACHINERY & EQUIPMENT OF EVERY KIND & DESCRIPTION WHILST CONTAINED IN THE Ps - 5,000,000.00
BUILDING DESCRIBED UNDER ITEM 2 ABOVE.
ON THREE (3) BUILDINGS ONLY OF ONE STOREY IN HEIGHT CONSTRUCTED OF CONCRETE AND TIMBER
Ps - 100,000,000.00 UNDER G.I. ROOF OCCUPIED AS WAREHOUSE/BODEGA BUILDING & PARTLY TWO STOREY IN HEIGHT
CONSTRUCTED OF CONCRETE AND/OR CONCRETE HOLLOW BLOCKS UNDER G.I. ROOF OCCUPIED AS
GUARDHOUSE BUILDING.
ON STOCKS USUAL TO THE INSURED'S BUSINESS WHILST CONTAINED IN THE BUILDING DESCRIBED
UNDER ITEM 2 ABOVE.
Ps - 1,000,000.00
ITEM 3
ON VARIOUS MACHINERY & EQUIPMENT OF EVERY KIND & DESCRIPTION WHILST CONTAINED IN THE
BUILDING DESCRIBED UNDER ITEM 6 ABOVE.
Ps - 10,000,000.00

DESCRIPTION OF COVER
ON THE BUILDING ONLY OF ONE LOFTY STOREY IN HEIGHT (2-SPAN) CONSTRUCTED ON REINFORCED
CONCRETE ON STEEL TRUSSES FRAMED UNDER LONG SPAN ROOF OCCUPIED AS WAREHOUSE OF PAPER
PRODUCTS (IN ROLLS/BOTH LOCALE & IMPORTED) MILLED ROLLED WAREHOUSE PLANT BUILDING. FIRE AND LIGHTNING

ITEM 3-A EXTENDED COVERAGE ENDORSEMENT

EATHQUAKE FIRE ANTI SHOCK ENDORSEMENT
FLOOD ENDORSEMENT
Ps - 150,000,000.00
RIOT AND STRIKE-ENDORSEMENT TYPHOON ENDORSEMENT67

ON VARIOUS STOCKS USUAL TO THE INSURED'S BUSINESS WHILST CONTAINED IN BUILDING NUMBER 3 -
xxxx
MILL ROLLED WAREHOUSE PLANT BUILDING DESCRIBED AS ONE LOFTY STOREY IN HEIGHT (TWO-SPAN)
CONSTRUCTED OF REINFORCED CONCRETE ON STEEL TRUSSES FRAMED UNDER LONG SPAN ROOF
OCCUPIED AS WAREHOUSE OF PAPER PRODUCTS. INDUSTRIAL ALL RISK COVER

PS - 10,000,000.00 In consideration of the Insured paying the premium to UCPB General Insurance Co., Inc. (hereinafter called
"the Company"), the Company agrees, subject to the conditions, provisions and exclusions contained herein
or endorsed or otherwise expressed hereon which shall all be deemed to be conditions precedent to the right
ON THE BUILDING ONLY OF ONE LOFTY STOREY IN HEIGHT CONSTRUCTED OF CONCRETE FOOTINGS
of the insured to recover hereunder, to Indemnify the insured respect of
UNDER LONG SPAN COLOR ROOF ON STEEL, FRAMED OCCUPIED AS NOVABALE PLANT BUILDING.

ACCIDENTAL PHYSICAL LOSS OF OR DAMAGE TO THE PROPERTY MORE FULLY DESCRIBED IN THE
Ps - 20,000,000.00
SCHEDULE HERETO DIRECTLY AND WHOLLY ATTRIBUTABLE TO ANY CAUSE, EXCEPT AS HEREINAFTER
EXCLUDED, OCCURING DURING THE CURRENCY OF THE POLICY.
ON VARIOUS MACHINERY & EQUIPMENT OF EVERY KIND & DESCRIPTION WHILST CONTAINED IN THE
BUILDING DESCRIBED UNDER ITEM 4 ABOVE ITEMS.
In no case shall the liability of the Company in respect of the property or any item thereof exceed the Limits
of Liability expressed in the Schedule.
Ps - 10,000,000.00
Basis of Indemnification
ON THE BUILDING ONLY OF ONE STOREY IN HEIGHT WITH MEZZANINE FLOOR CONSTRUCTED ON
REINFORCED CONCRETE UNDER G.I. ROOF OCCUPIED AS MICREX PLANT BUILDING
In the event of the Property Insured under this Policy, other than stocks, being destroyed or damaged by a
contingency insured against, the basis upon which the amount payable under the Policy is to be calculated
Ps - 24,000,000.00 on the cost of replacing or reinstating on the same site with the same kind or type but not superior to or
more extensive than the Property Insured when new, subject also to the terms and conditions of the Policy
except insofar as the same may be varied hereby.
ON VARIOUS MACHINERY & EQUIPMENT OF EVERYKIND & DESCRIPTION WHILST CONTAINED IN THE
BUILSING DESCRIBED UNDER ITEM 5 ABOVE.
Reinstatement or Replacement shall mean:
 16

1) Where property is destroyed, the rebuilding of any buildings or the replacement by similar one year of insurance in respect of each of machines specified in the schedule the sum set opposite thereto
property or any other property, in either case in a condition equal to but not better or more and not exceeding the whole the total sum insured thereby.
extensive than its condition when new.
This insurance applies whether the insured machines are at work or at rest, or being dismantled for the
2) Where property is damaged, there repair of the damaged and the restoration of the damaged purpose of cleaning, overhauling or of being shifted within the said premises, or in the course of the
portion of the property to a condition substantially the same as but not better or more extensive aforesaid operations themselves, or in the course of subsequent re-erection, but in any case only after
than its condition when new. successful commissioning.

Special Provisions THE INSURER SHALL NOT BE LIABLE FOR:

a. The work of reinstatement (which may be carried out in another site and in any manner suitable (a) The deductible stated in the schedule to be borne by the insured in any one occurrence; if more
to the requirements of the Insured subject to the liability of the Company not being thereby than one machine is lost or damaged in one occurrence, the Insured shall not, however, be called
increased) must be carried out within twelve (12) months of the date of the damage, or within upon to bear more than the highest single deductible.
such further time as the Company may (during the said twelve months) in writing allow and may
be carried out wholly or partially upon another site subject to the liability of the Company under
(b) Loss of or damage to belts, ropes, wires, chains, rubber, tyres, dies or exchangeable tool,
this extension not being thereby increased.
engraved cylinders, objects made of glass, porcelain, ceramics, felts, sieve or fabrics, all operating
media (e.g. lubricating oil, fuel, catalysts);
b. Where any property is damaged or destroyed in part only the liability of the Company shall not
exceed the sum representing the cost which the Company could have been called upon to pay for
(c) Loss of or damage arising directly from lightning, directly from fire, the extinguishment of a
reinstatement if such property had been wholly destroyed.
fire, or clearance of debris and dismantling necessitated thereby, chemical explosion (except fuel
gas explosion in boilers), smoke, soot, aggressive substance, theft, subsidence, landslide,
c. No payment beyond the amount which would have been payable under this Policy if this clause rockslide, cyclone, storm, typhoon, flood, inundation, earthquake, volcanic eruption, tsunami,
had not been incorporated therein shall be made if at the time of any destruction or damage such impact of landborne, waterborne or airborne;
property shall be covered by any other insurance affected by or on behalf of the Insured which is
not upon the identical basis of reinstatement as stated in this Policy. If as a result of the application
(d) Loss or damage directly or indirectly caused by or arising out of war, invasion, act of foreign
of any of these special provisions no payment is to be made beyond the amount which would have
enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection,
been payable under the Policy if this clause had not been incorporated therein, the rights and
mutiny, riot, strike, lock-out, civil commotion, military or usurped power, a group of malicious
liabilities of the Insured and the Company in respect of the destruction of same shall be subject to
persons or persons acting on behalf of or in connection with any political organization, conspiracy,
the terms and conditions of the policy including any Condition of Average as if this memorandum
confiscation, commandeering requisition or destruction of or damage by order of any government
had not been incorporated therein.
de facto or by any public authority, nuclear reaction, nuclear radiation or radioactive
contamination;
Average/Co-Insurance Clause
(e) Loss or damage caused by any faults or defects existing at the time of commencement of the
If the property hereby insured shall, on the happening of any loss or damage be collectively or greater value present insurance within the knowledge of the Insured, or his representative, whether such faults
than the total values declared hereon, then the Insured shall be considered as being their own Company for or defects were known to the insurer or not;
the difference, and shall bear a ratable proportion of the loss accordingly. Every item. If more than one, of
the policy shall be separately subject to this condition.
(f) Loss or damage arising out of the willful act or gross negligence of the insured or of
his representatives;
MACHINERY BREAKDOWN COVER
(g) Loss or damages for which the supplier or manufacturer is responsible either by law or under
THE INSURERS HEREBY AGREE with the Insured (subject to the terms and conditions contained herein or contract;
endorsed herein) that if at any time during the period of insurance stated in the schedule, or during any
subsequent period for which the insured pays the premium for the renewal of this policy, there shall occur to
(h) Loss or damage as a direct consequence of the continual influence of operation (e.g. wear and
the machinery insured (or any part thereof) specified in the said Schedule, whilst on the premises mentioned
tear, cavitation, erosion, corrosion, rust, boiler scale);
therein, any unforeseen and sudden physical loss or damage necessitating its repair of replacement due to
causes such as defects in casting and material, faulty design, faults at workshop or in erection, bad
workmanship, lack of skill, carelessness, sabotage, shortage of water in boiler, physical explosion, tearing a (i) Consequential loss or liability of any kind or description, any payments over and above the
part on account of centrifugal force, short-circuit, or any other cause not specifically excluded herein after. indemnity for material damage as provided herein.

THE INSURERS WILL INDEMNIFY the Insured in respect of such loss or damage in payment in cash.
Replacement or repair (at their own option) as herein after provided, up to an amount not exceeding in any
 17

In any action, suit or other proceedings where the insurers allege that by reason of the provisions of of the corrugating machines not only because its maintenance was necessary for Asgard to be able to
exclusions (d) -(g) above any loss, destruction, damage or liability is not covered by this insurance the comply with its prestation to Milestone but also because it owns the parts which was (sic) incorporated into
burden proving that such loss, destruction, damage or liability is covered shall be upon the Asgard's corrugating machines."76
insured.68 (Emphasis supplied)
Further, the RTC held that the TMA was not terminated on January 31, 2008. After January 31, 2008,
The business relationship of Milestone and Asgard arose pursuant to the TMA. On February 1, 2006, Asgard activities in the plant continued and it was only in July 2010 when Milestone decided to leave the premises.
and Milestone executed the TMA whereby Asgard undertook to perform for Milestone toll-manufacturing of The court applied the automatic renewal clause, on a month-to-month basis, under paragraph 19 of the
paper products in accordance with the volume and specifications as Milestone may define from time to TMA. Thus, when the Policy was procured on August 7, 2009, the TMA was still effective.77
time.69 Milestone shall advise Asgard of its requirements for the products to be toll-manufactured via a
purchase order submitted monthly at least 15 days in advance of Milestone's desired delivery or withdrawal
The RTC completely overturned the above ruling when it rendered the Decision78 dated February 17, 2017
date stated therein to enable Asgard to timely complete production thereof. The toll-manufacturing
granting the complaint of Asgard. The RTC held that Milestone cannot be considered as an insured with
requirements of Milestone shall be performed at Asgard's premises at the Plant with the use of the facilities
respect to the damaged machine as it has no insurable interest both at the time the policy took effect on
therein. Milestone shall source materials and supplies and cause the same to be delivered to the Plant.70
August 1, 2009 and at the time of the loss on July 2010 considering that the TMA was valid only until
January 31, 2008. Also, the corporate rehabilitation plan was disapproved by the rehabilitation court, and
Stated earlier, in 2007, Asgard and Milestone further agreed that the latter would convert the paper products any business relationship with Asgard was effectively terminated when Milestone removed its own equipment
into corrugated carton boxes using the corrugating machines ovv11ed by Asgard. The agreement likewise and left Asgard's premises.79
included the modification of the corrugating machines by replacing the parts with the ones owned by
Milestone. As a result, all vital parts of the corrugating machines of Asgard were detached and replaced with
In effect, the RTC concluded that since Milestone had no insurable interest over the machinery and
parts owned by Milestone.71 However, on July 15, 2010, Milestone pulled out its stocks, machinery, and
equipment, it cannot be considered an insured under the Policy. And since Milestone caused the loss or
equipment from Asgard's plant in Novaliches, Quezon City for relocation to its own premises in Laguna. In
damage, Asgard can claim from UCPB under the insurance policy. Hence, Section 87 (now Section 89) of the
the course thereof, it maliciously caused damage to Asgard's complete line of Isowa corrugating machine
Insurance Code does not apply.80
and other accessories and its printer slotter-stacker. Asgard notified UCPB Insurance about the loss and filed
an insurance claim under the Policy. This was denied by UCPB Insurance stating that the malicious damage
was committed by Milestone, one of the named insured. As such, UCPB Insurance is not liable for a loss In affirming the RTC Decision dated February 17, 2017, the CA declared that Milestone lacked insurable
caused by the willful act of the insured.72 interest and could not be properly insured under the Policy. Milestone had insurable interest in the parts of
the machine at the time the Policy took effect by virtue of ownership and the TMA with Asgard. However,
Milestone terminated any existing relationship with Asgard and any remaining insurable interest in Asgard's
In the detailed report73 of Universal Adjusters-Appraisers Co., Inc., one of the nominated adjusters under
machine was negated when it removed from the Novaliches plant, its parts and pulled out its other
the Policy, it made the following recommendation, viz.:
properties on July 15, 2010.81

xxxx
In this petition, UCPB Insurance underscores the fact that Milestone had insurable interest over the
corrugating machines at the time of the loss since the TMA remained effective. It is clear under the TMA that
POLICY LIABILITY unless there is notice of termination in writing, the TMA would continue to subsist and govern the
relationship of the parties on a month-to-month basis.82
In 2007, Asgard agreed with MPPI (Milestone) to replace the parts of its machine with the parts owned by
MPPI. All vital parts of the corrugating machine of Asgard were removed and replaced with new parts by Paragraph 19 and 20 of the TMA provide:
MPPI. In July 2010, MPPI left the premises but allegedly failed to restore the original parts that were
previously attached to the machined.
19. EFFECTIVITY AND DURATION

In our opinion, the failure of MPPI to restore the original parts of Asgard's machine before it left the latter's
This Agreement shall become effective upon signing hereof and shall be in full force and effect until 31st of
premises on July 2010 may not be maliciously done. Milestone merely removed the parts that it owned.
January 2008, unless earlier terminated by either Party upon sixty (60) days prior written notice to the other
There was no contract to the effect that Milestone had to put back the replaced parts.
if without cause, or in accordance with the following Clause. In the event the parties fail to execute a new
toll manufacturing agreement upon the lapse of time indicated in this paragraph, the term of this Agreement
Moreover, MPPI which allegedly committed malicious mischief is one of the named insured in the policy. As shall be deemed automatically extended on a month to month basis only.
such an insured cannot claim against itself.74
Termination or expiration of this Agreement will not abrogate, impair, release or extinguish any debt,
The Court notes that in the Order dated October 9, 2002,75 which initially dismissed Asgard's complaint on obligation, or liability of either party incurred or arising prior to the date of termination and all undertakings,
summary judgment, the RTC ruled that Milestone had insurable interest over the machine and equipment at obligations, releases or indemnities which by their terms or by reasonable implication are to survive, or are
the time of procurement of the Policy and at the time of the loss. It held that Asgard admitted Milestone's to be performed in whole or in part after the termination of this Agreement, will survive such terminations or
insurable interest when it stated that Milestone is a named insured in the Policy. It "impliedly" admitted expiration.
Milestone's insurable interest when Asgard interposed the application of the Malicious Damage Endorsement
Clause. The RTC stated that Milestone had insurable interest over the property as it would be benefited from
Any renewal of this Agreement, under terms and conditions to be mutually agreed upon, may at the option
the use and preservation of the modified machine. "Milestone had actual and real interest in the preservation
of the parties be done by a letter-agreement signed by both Parties. Should this Agreement expire without a
 18

written renewal thereof, the Parties shall continue their relationship herein and the provisions of this default shall be remedied within 30 days from notice. Thus, the removal of the stocks, machinery, and
Agreement shall continue to govern them except for the term of the Agreement, which shall henceforth be equipment by Milestone is not a substantial breach of obligation contemplated that will justify the
from month to month. termination of the TMA for a cause, effective after notice in writing.

20. TERMINATION FOR CAUSE Paragraph 20(c) does not apply either. No assets have passed under the control of any authority, or of a
competitor of the terminating party.
Notwithstanding the provisions in Clause 19, this Agreement may, by notice in writing, be
terminated with immediate effect at the option of either Party (for purposes of this and the When Milestone pulled out its stocks, machinery, and equipment on July 15, 2010 from Asgard's premises in
succeeding Clause, the "Terminating Party") in any of the following events: Novaliches, Quezon City, the TMA remained in force and effect between Milestone and Asgard on a month-
to month basis after January 31, 2008. The TMA continued to govern the business relationship of Asgard and
Milestone. While the TMA ends each month, there is no showing that there was notice in writing served 60
(a) If the other Party (for purposes of this and the succeeding Clause, the "Defaulting Party") shall
days in advance to terminate under paragraph 19 of the TMA or mere notice in writing for termination with
go into liquidation other than a voluntary liquidation for the purpose of reconstruction or
cause under paragraph 20 thereof.
amalgamation, or shall commit an act of bankruptcy or shall compound with its creditors generally,
or if a receiver or juridical manager shall be appointed over the whole or a substantial part of the
assets of the Defaulting Party; The Court does not agree with the CA's ratiocination that the mere removal by Milestone of its machine and
equipment from Asgard's premises resulted in the termination of any existing relationship it had with
Asgard. As argued by UCPB Insurance, the withdrawal by Milestone of the parts installed on the corrugating
(b) If the Defaulting Party shall commit any material or substantial breach of its obligations
machines was unauthorized and the termination of the TMA cannot be left to the sole will of one of the
hereunder and/or suffer any default to occur on any of the provisions of this Agreement and shall
parties.
fail within thirty (30) days from being notified thereof in writing to remedy such breach or default;

The TMA is the contract between Milestone and Asgard. The TMA has the force of law between the parties
(c) If the Defaulting Party or all or substantially all of its assets shall pass under the control of any
and should be complied with in good faith. Milestone cannot unilaterally terminate the TMA other than for
authority, or of a competitor of the Terminating Party (as determined by the latter), or other
causes of termination, but always with notice in writing, under paragraphs 19 and 20 of the TMA. A contract
person or corporation which the Terminating Party shall have reasonable cause to
binds both contracting parties; its validity cannot be left to the will of one of them.85 To hold otherwise
disapprove.83 (Emphasis supplied)
would offend the principle of mutuality of contracts.86

To restate, the TMA shall be effective until January 31, 2008, unless earlier terminated by either Party upon
When Milestone pulled out the parts installed and caused damage to Asgard's corrugating machines,
sixty (60) days prior written notice to the other. In the event the parties fail to execute a new toll
Milestone remained insured under the insurance policy since the TMA was not effectively and properly
manufacturing agreement after its expiry date on January 31, 2008, the term of the Agreement shall be
terminated.
deemed automatically extended on a month-to-month basis only. If the termination is for cause, the
Agreement may, by notice in writing, be terminated with immediate effect at the option of the Terminating
Party. Thus, the termination of the TMA, for any reason whatsoever, should be by notice in writing. It is well- The Court disagrees with the finding of the RTC that Milestone lacked insurable interest over the machine
settled that when the words of a contract are plain and readily understood, there is no room for and equipment both at the time the Policy took effect on August 1, 2009 and at the time of the loss in July
construction.84 2010. Asgard cannot take an inconsistent position that Milestone had no more insurable interest under the
Policy when in the Appellant's Brief, it admitted that both Asgard and Milestone took out the insurance policy
on August 1, 2009 effective until August 1, 2010. Under the condition We cited above, it is very clear that
There is nothing on record to show that the TMA was earlier terminated by either Milestone or Asgard prior
Milestone has insurable interest on the property at the time of the loss and damage on July 15, 2010.
to January 31, 2008. Neither was the TMA terminated for cause under any of the events enumerated in
paragraph 20 thereof.
Section 13 of the Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
Contrary to the ruling of the RTC, paragraph 20(a) (i.e., liquidation as a valid cause for termination) will not
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
apply because the insurance Policy was obtained on August 7, 2009 after the rehabilitation court denied
interest in property may consist in: (a) an existing interest, like that of an owner or lienholder; (b) an
Asgard's amended petition for corporate rehabilitation in its Order dated June 9, 2009. This means that
inchoate interest founded on existing interest, like that of a stockholder in corporate property; or (c) an
despite the denial of Asgard's petition for corporate rehabilitation, the business relationship between Asgard
expectancy, coupled with an existing interest in that out of which the expectancy arises, like that of a
and Milestone pursuant to the TMA continued. After January 31, 2008, activities in the plant persisted for
shipper of goods in the profits he expects to make from the sale thereof.87
two years until Milestone left the premises in July 2010. Verily, the parties could not have obtained an
insurance Policy if the TMA between Asgard and Milestone had been terminated upon the denial of the
petition for rehabilitation. Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest. It is sufficient that the insured is so situated with reference to
Paragraph 20(b) on material or substantial breach will likewise not apply considering that the breach alluded
the property that he would be liable to loss should it be injured or destroyed by the peril against which it is
to relate to the performance and fulfillment of their respective obligations under the TMA. As explained
insured. Anyone has an insurable interest in property who derives a benefit from its existence or would
earlier, Asgard undertook to perform for Milestone toll-manufacturing of paper products in accordance with
suffer loss from its destruction.88
the volume and specifications as Milestone may define from time to time. On the other hand, Milestone shall
source materials and supplies and cause the same to be delivered to Asgard's Plant in Novaliches. The
 19

Insurable interest in property is not limited to property ownership in the subject matter of the insurance. or endorsed or otherwise expressed hereon which shall all be deemed to be conditions precedent to the right
Where the interest of the insured in, or his relation to, the property is such that he will be benefitted by its of the insured to recover hereunder, to Indemnify the insured in respect of
continued existence, or will suffer a direct pecuniary loss by its destruction, his contract of insurance will be
upheld, although he has no legal or equitable title.89 A husband would thus have an insurable interest in the
ACCIDENTAL PHYSICAL LOSS OF OR DAMAGE TO THE PROPERTY MORE FULLY DESCRIBED IN THE
paraphernal property of his wife since the fruits thereof belong the conjugal partnership and may be used for
SCHEDULE HERETO DIRECTLY AND WHOLLY ATTRIBUTABLE TO ANY CAUSE, EXCEPT AS HEREINAFTER
the support of the family.90
EXCLUDED, OCCURING DURING THE CURRENCY OF THE POLICY.

As in this case, when Milestone removed its parts and machines, Milestone still had an actual and real
In no case shall the liability of the Company in respect of the property or any item thereof exceed the Limits
interest in the preservation of the corrugating machines while the TMA is not effectively terminated and non-
of Liability expressed in the Schedule.98
preservation will render Milestone liable for breach of contract as no corrugated carton boxes would be
manufactured under the TMA.
Even Asgard described the act done by Milestone as malicious; therefore, it is intentional and not accidental.
Consequently, the paragraph on Industrial All Risk which covers accidental physical loss or damage to the
Section 89 of the Insurance Code (Republic Act No. 10607) is clear - an insurer is not liable for a loss caused
property will likewise not apply.
by the willful act of the insured, viz.:

The California Insurance Code, Section 553 thereof, likewise states a general exclusion for losses caused by
Section 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the
the willful acts of the insured. The statute is based on the stated public policy objectives of (1) prohibiting
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.
indemnification for intentional misconduct, and (2) preventing the encouragement of willful tortious
acts.99 The "no indemnification" policy is predicated on the desire to deny any economic benefit to the
The insurer is not liable for a loss caused by the intentional act of the insured or through his connivance. insured whose intentional misconduct causes a loss.100 The same public policy obtains in this case.
Such damage/loss is not an insurable risk because the occurrence of the loss was subject to the control of
one of the parties and not merely caused by the negligence of the insured.91
The cause of the loss or damage to the corrugating machines is not a covered risk under the
Policy
However, the insurer is not relieved from liability by the mere fact that the loss was caused by the
negligence of the insured, or of his agents or others.92 Accordingly, it is no defense to an action on the
The insurance policy will specify what risks the insurer has agreed to grant coverage for, and beyond these it
policy that the negligence of the insured caused or contributed to the injury.93 However, when the insured's
may not be held liable.101 And unless the insured can establish that the cause of the loss was covered by
negligence is so gross that it is tantamount to misconduct, or willful or wrongful act, the insurer is not
the policy, his claim cannot prosper.102
liable.94

Again, We restate the Machinery Breakdown Cover provision in the Policy pertains to loss or damage to the
It is basic that the law is deemed written into every contract.95 Although a contract is the law between the
machines insured, as in the case of the corrugating machines. It states:
parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit
and govern the relations between the parties.96 As such, Section 89 of the Insurance Code is deemed
incorporated in every insurance contract. MACHINERY BREAKDOWN COVER

More so, under the heading "The Insurer Shall Not Be Liable For" or the exception clause written in the THE INSURERS HEREBY AGREE with the Insured (subject to the terms and conditions contained herein or
policy, the Insurer (UCPB Insurance) shall not be liable for: endorsed herein) that if at any time during the period of insurance stated in the schedule, or during any
subsequent period for which the insured pays the premium for the renewal of this policy, there shall occur to
the machinery insured (or any part thereof) specified in the said Schedule, whilst on the premises mentioned
(f) Loss or damage arising out of the willful act or gross negligence of the insured or of his
therein, any unforeseen and sudden physical loss or damage necessitating its repair of replacement due to
representatives; (Emphasis supplied)97
causes such as defects in casting and material, faulty design, faults at workshop or in erection, bad
workmanship, lack of skill, carelessness, sabotage, shortage of water in boiler, physical
Since the damage or loss caused by Milestone to Asgard's corrugating machines was willful or intentional, explosion, tearing a part (sic) on account of centrifugal force, short-circuit, or any other cause
UCPB Insurance is not liable under the Policy. To permit Asgard to recover from the Policy for a loss caused not specifically excluded herein after.
by the willful act of the insured is contrary to public policy, i.e., denying liability for willful wrongs.
THE INSURERS WILL INDEMNIFY the Insured in respect of such loss or damage in payment in cash
It is also stated in the Policy under the heading "Industrial All Risk Cover" that the insured shall be replacement or repair (at their own option) as herein after provided, up to an amount not exceeding in any
indemnified in respect of accidental physical loss or damage to the property. To re-state, the provision one year of insurance in respect of each of machines specified in the schedule the sum set opposite thereto
reads: and not exceeding the whole the total sum insured thereby.

INDUSTRIAL ALL RISK COVER This insurance applies whether the insured machines are at work or at rest, or being dismantled for the
purpose of cleaning, overhauling or of being shifted within the said premises, or in the course of the
aforesaid operations themselves, or in the course of subsequent re-erection, but in any case only after
In consideration of the Insured paying the premium to UCPB General Insurance Co., Inc. (hereinafter called
successful commissioning.103 (Emphasis supplied)
"the Company"), the Company agrees, subject to the conditions, provisions and exclusions contained herein
 20

If at any time during the period of insurance stated in the schedule, or during any subsequent period for In any action, suit or other proceeding, where the Company alleges that by reason of the provisions of this
which the insured pays the premium for the renewal of the Policy, there shall occur to the machinery insured Condition, any loss or damage is not covered by this insurance, the burden of proving that such loss or
any unforeseen and sudden physical loss or damage necessitating its repair of replacement due to causes damage is covered shall be upon the insured.105
such as defects in casting and material, faulty design, faults at workshop or in erection, bad workmanship,
lack of skill, carelessness, sabotage, shortage of water in boiler, physical explosion, tearing apart on account
In filing its insurance claim with UCPB Insurance, Asgard relied upon the above quoted provision in the
of centrifugal force, short-circuit, or any other cause not specifically excluded herein after, the insurer will
Policy.
indemnify the insured in respect of such loss or damage by paying in cash, by replacing or repairing the
machinery. The insurance applies whether the insured machines are at work or at rest, or being dismantled
for cleaning purposes, overhauling or being shifted within the premises, or in the course of aforesaid UCPB Insurance strongly argues that the Malicious Damage Endorsement is a mere extension of the Riot and
operations themselves, or in the course of subsequent re-erection but only after successful commissioning. Strike Endorsement such that the former cannot exists independently of the latter. The wordings of the
Malicious Damage Endorsement show that it is merely subordinate to and independent on the conditions and
provisions set forth in the Riot and Strike Endorsement. What the Malicious Damage Endorsement seeks to
The Malicious Damage Endorsement under the Policy does not apply to the loss of or damage
cover is malicious damage caused by any person during a strike or lock-out because the probability of
caused herein.
occurrence of malicious damage is higher during a strike or lock-out. To do away with the strike or lock-out
requirement would allow the insured to recover from the insurer in any event to include a situation that its
The Policy provides a Malicious Damage Endorsement, viz.: property is maliciously damaged by the insured.

xxxx The above argument by UCPB Insurance was not considered by the CA stating that it was only raised for the
first time on appeal.
It is hereby declared and agreed that the insurance under the said Riot and Strike endorsement shall extend
to include MALICIOUS DAMAGE, which for the purpose of this extension shall mean: It is not true that it was raised for the first time on appeal because the RTC, even during the pre-trial
hearing106 on June 15, 2012, already noted the Malicious Damage Endorsement clause under the Policy.
However, what is left to be determined is its application to the loss incurred by Asgard in this case - whether
LOSS OF OR DAMAGE TO THE PROPERTY INSURED DIRECTLY CAUSED BY THE MALICIOUS ACT OF ANY
it is a mere extension of the Riot and Strike Endorsement or an independent risk covered under the Policy.
PERSON (WHETHER OR NOT SUCH ACT IS COMMITTED IN THE COURSE OF DISTURBANCE OF THE PUBLIC
PEACE) NOT BEING AN ACT AMOUNTING TO OR COMMITTED IN CONNECTION WITH AN OCCURRENCE
MENTIONED IN SPECIAL CONDITION NO. 6 OF THE SAID RIOT AND STRIKE ENDORSEMENT. The Court agrees with UCPB Insurance that the Malicious Damage Endorsement is a mere extension of the
Riot and Strike Endorsement. The beginning of the paragraph made reference to the Riot and Strike
Endorsement, providing that the said Riot and Strike Endorsement shall extend to include Malicious Damage
but the Company shall not be liable under this extension for any loss or damage by fire or explosion nor for
directly caused by the malicious act of any person, whether or not such act is committed in the course of
any loss or damage arising out of or in the course of burglary, housebreaking, theft or larceny or any
disturbance of public peace. The application of the Malicious Damage Endorsement requires the existence of
attempt thereat or caused by any person taking part therein.
a strike and riot resulting to a loss of or damage to the property insured. Be it stressed that the risks
covered under the policy are: (1) Fire and Lightning; (2) Extended Coverage Endorsement (to include perils
Provided always that all the conditions and provisions of said Riot and Strike Endorsement shall apply to this of explosion in aircraft and vehicle and smoke); (3) Earthquake, Fire and Shock Endorsement; (4) Flood
extension as if they had been incorporated therein.104 Endorsement; (5) Riot and Strike Endorsement; and (6) Typhoon Endorsement.107 Malicious damage is not
an independent risk covered under the Policy.
xxxx
Since the malicious damage to Asgard's corrugating machines was not committed during a strike or riot
which is the risk covered, the said Malicious Damage Endorsement provision finds no application herein.
CONDITION 6 More so, Milestones does not fall within the term "any party" as stated therein considering the established
fact that it is an insured under the Policy.
This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or
indirectly, of any of the following occurrences namely: Asgard failed to discharge its burden as to the proof of loss/damage to justify the grant of its
insurance claim.
(a) War, invasion, act of foreign enemy, hostilities or warlike operations (whether war be declared
or not), civil war. In granting the insurance claim of Asgard amounting to P147,000,000.00, the RTC relied on the quotation
(Exh. "K" and series) submitted by Taiphil Machinery and Equipment Sales Services showing that that the
(b) Mutiny, civil commotion, assuming the proportions of or amounting to a popular rising, military damaged parts of the insured machine will be replaced at the cost of P147,000,000.00, and the 98 Philippine
rising, insurrection, rebellion, revolution, military or usurped power, or any act of any person acting Business Bank checks (Exhs. "R" to "KKKKK")108 issued as payment to Taiphil and which Taiphil deposited
on behalf of or in connection with any organization with activities directed towards the overthrow to its account. The basis of indemnity under the Policy is the replacement cost of the property insured. To
by force of the government "de jure" or "de facto" or to the influencing of it by terrorism or put its damaged corrugating machines back in operation, Asgard claimed that the damaged parts had to be
violence. replaced.
 21

In affirming the RTC, the CA made no further discussion as to the proof of loss in granting Asgard's SO ORDERED.
insurance claim.

The party who alleges a fact has the burden of proving it.

Section 1, Rule 131 of the Rules of Court defines "burden of proof" as "the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the amount of evidence required
by law." In civil cases, the burden of proof rests upon the plaintiff, who is required to establish his case by a
preponderance of evidence.109

Since it is Asgard claiming for actual damages or insurance claim against UCPB Insurance, it bears the
burden of proof to substantiate its claim.ᇈ WᑭHIL Testimony or evidence must be given to sustain the
correctness of the claim.110 As held by this Court, "[a]ctual damages are not presumed. The claimant must
prove the actual amount of loss with a reasonable degree of certainty premised upon competent proof and
on the best evidence obtainable. Specific facts that could afford a basis for measuring whatever
compensatory or actual damages are borne must be pointed out. Actual damages cannot be anchored on
mere surmises, speculations or conjectures."111

Records show that it was Claire U. Ong, the Corporate Treasurer of Asgard, who testified as regards the
malicious damage caused to Asgard's complete line of Isowa corrugating machines when Milestone pulled
out its stocks, machinery, and equipment in July 2010.

In one of the letters sent by Asgard to UCPB Insurance, it averred that as per the physical inventory of
machinery and equipment conducted by the staff of Paul Uy Ong, the following were damaged:

1. "Isowa" corrugating machines such as Single Facer "A" and "B" Flutes, "Lechida" Single Facer
"A" Flute, "Ishikawa" Single facer "E" Flute and other accessories, originally installed at ground
level were dismantled and were dumped at the rear portion of the warehouse.

2. "Isowa" dual backer conveyor heater, Slitter station, Cut-Off Station, Akebono Tsusho Printer
Slatter Machine were welded to steel pole which appear to be unstable.

3. Other machine parts were unaccounted.112

Aside from the foregoing, Asgard did not explain the extent of the damage of its corrugating machines. It
failed to show whether the damaged machines are integral part of the stocks, machinery and equipment
pulled out by Milestone; whether these damaged machines are independent machinery, i.e., it can operate
on its own without the parts installed by Milestone; and whether the stocks, machinery and equipment
installed by Milestone are detachable, or it will not cause any damage when detached.

The Court cannot just rely on the Taiphil quotation to determine the amount of actual loss, the PNB checks
issued and deposited to Taiphil's account as proof of payment, or the pictures113 of the damaged machines.
These pieces of evidence do not convincingly and substantially prove the exact damage or actual loss
sustained by Asgard's corrugating machines caused maliciously by Milestone. More so, what was presented
was a mere "quotation" not a reliable and competent evidence.

IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED. The Decision dated August 31, 2018
and the Resolution dated January 8, 2019 of the Court of Appeals in CA-G.R.CV No. 109543 are PARTIALLY
SET ASIDE. The Complaint for Sum of Money with Application for Writ of Preliminary Attachment in Civil
Case No. 11-531 is hereby DISMISSED.
 22

[ G.R. No. 243733, January 12, 2021 ]

Policy 1 STI & Zenaida Sarte  —> Zenaida Sarte & Jessica Sarte-Gustillo

EDITA A. DE LEON, LARA BIANCA L. SARTE, AND RENZO EDGAR L. SARTE, PETITIONERS, VS. THE Policy 2 STI & Zenaida Sarte —> Zenaida Sarte & Renzo Edgar L. Sarte
MANUFACTURERS LIFE INSURANCE COMPANY (PHILS.) INC., ZENAIDA S. SARTE, JESSICA SARTE-
GUSTILO, VILMA C. CAPARROS, EDGAR ALVIN C. CAPARROS, AND ROBERTO MORENO, Policy 3 Edgar Alvin C. Sarte —> Edgar Alvin C. Sarte and Renzo Edgar L. Sarte
RESPONDENTS.

The March 1, 2002 BDFs were all processed by Manulife and the changes were registered in the company's
DECISION internal records.11

CARANDANG, J.: However, on July 31, 2002, Sarte executed another set of BDFs, changing the beneficiaries of the subject
policies to effect the following changes:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court (Rules) filed by
petitioners to assail the Decision2 dated July 20, 2017 and the Resolution3 dated December 13, 2018 of the
Court of Appeals (CA) in CA-G.R. C.V No. 106718, which denied reconsideration and thereby affirmed the Policy 1 Zenaida Sarte & Jessica Sarte-Gustillo —> Renzo Edgar L. Sarte12
Decision4 dated December 22, 2015 of the Regional Trial Court of Makati City, Branch 139 (RTC) in Civil
Policy 2 Zenaida Sarte & Renzo Edgar L. Sarte —> Renzo Edgar L. Sarte13
Case No. 04-941.
Policy 3 Edgar Alvin C. Sarte and Renzo Edgar L. Sarte —> Lara Bianca L. Sarte14
Facts of the Case

The second set of BDFs were prepared by Sarte's long-time personal and business secretary, Veneranda
This case has its origins from a complaint for interpleader filed by respondent Manufacturers Life Insurance Canta Gealogo (Gealogo) who witnessed Sarte signing them. Sarte executed said BDFs supposedly with the
Company (Phils.) Inc. (Manulife) on August 12, 2004, before the RTC to determine the rightful recipients of intention that his minor children acquire equal amounts from his insurance policies. "Nothing Follows"15 was
the proceeds of three life insurance policies issued to the late Edgar H. Sarte (Sarte), who passed away on typewritten beneath the portion where the names of Lara and Renzo were indicated. Gealogo made
December 23, 2003.5 photocopies of the said BDFs and the originals were then delivered by Sarte's messenger, Allan Quiñones, to
Betty Alejandro Cepeda (Cepeda), the Manulife servicing agent in charge of the subject policies.16
During his lifetime, Sarte sired three sets of children: (1) with his legitimate wife Zenaida S. Sarte
(Zenaida), he had Jessica S. Sarte-Gustilo (Jessica) and Edgard Eldon S. Sarte (Eldon); (2) with Vilma C. On October 22, 2009, before she could adduce evidence on her behalf, Cepeda passed away and has since
Caparros (Vilma), he had Edgar Alvin C. Sarte (Alvin) and Edgar Angelo C. Sarte (Angelo); and (3) with then been represented in this case by her son, herein respondent Roberto Alejandro Moreno Jr.17 In her
Edita De Leon (Edita), he had Lara Bianca L. Sarte (Lara) and Renzo Edgar L. Sarte (Renzo).6 pleading, Cepeda admitted to receiving the originals of the said BDFs, but observed that the designated
beneficiaries, Lara and Renzo, were still minors, but no trustee or individual capacitated to act in their behalf
Three life insurance policies subject to this case, all with revocable beneficiaries, viz.: was designated as required by Manulife. The BDFs could have been easily corrected by the designation of a
trustee. However, since "Nothing Follows"18 was typewritten on the BDFs, such a correction could not be
made. Cepeda declined to affix her signature on the BDFs and alleged that she returned them to Sarte
POLICY DATE POLICY LIFE COVERAGE DESIGNATED AS through Gealogo.19 Gealogo denied ever receiving them20 and testified that Cepeda called her, inquiring as
NO. OF OWNER INSURED AMOUNT REVOCABLE to who should be designated as the trustees of the minors. Gealogo claimed to have faxed to Cepeda a
ISSUE BENEFICIARIES IN tabulation21 indicating the names of the trustees, but only on January 19, 2004, after Mr. Sarte's death on
THE POLICY December 23, 2003.22 Gealogo said that the fax transmittal slip of the tabulation was printed on thermal
paper, which could be easily erased, so she stamped the word "faxed" on the same. Other than the said
"Policy 4321987- August Systems Edgar H. P1,000,000.00 STI & Zenaida Sarte transmittal slip, Gealogo said she had no other proof that she actually faxed the document to Cepeda's
1"7 2 25, Technology, Sarte office.23
1994 Inc. (STI)
Before Sarte died, he gave to Edita the originals of four insurance policies, two of which [Policies 1 and 2 are
"Policy 4319830- August STI Edgar H. P1,000,000.00 STI & Zenaida Sarte
the subject policies of this case.24 She also received photocopies of the BDFs dated July 31,
2"8 8 1, 1991 Sarte
2002.25 Sometime after Sarte's death, Edita met with Cepeda at the latter's office to process the insurance
"Policy 4319831- Sept. 3, STI Edgar H. P2,000,000.00 Edgar Alvin C. Sarte claims in behalf of her children. However, in that meeting, Cepeda initially denied receiving the said BDFs
3"9 6 1991 Sarte and that she had no record of them. A week later, they went to Manulife's office to check the records. They
were accompanied by Gealogo. At that meeting, Edita presented the following documents to Manulife's
representatives in support of her claim: 1) an Acknowledgment Receipt of the July 31, 2002 BDFs signed by
On March 1, 2002, Sarte executed Beneficiary Designation Forms (BDFs) modifying the beneficiaries of the Cepeda's secretary, Lynn Gagan; 2) the trip report of Allan Quiñones; 3) a matrix of Sarte's insurance
subject policies.10 policies and a copy of the tabulation which were provided to her by Yolanda Domingo, who was Sarte's
executive assistant. Manulife, however, did not release the proceeds to her. 26
 23

On January 20, 2004, Edita wrote to Manulife's head office seeking assistance for her claim.27 Manulife, in and returned to Cepeda in March 2002, resulting in changes of the beneficiaries as they now appear in
through their Claims Manager, Jessie Bell Victoriano (Victoriano), responded by mail on February 2, 2004, Manulife's records.38
suggesting that Sarte's three families settle their claims amicably to avoid costly litigation.28
In July 2002, Gealogo again returned with four BDFs, three of which pertain to the subject policies. Cepeda
On March 25, 2004, Zenaida met with Victoriano to inquire into her claims on Sarte's policies that she knew denied registering these BDFs because the intended beneficiaries are minors (herein Lara and Renzo) and as
of, including Policy 2. In that meeting, Victoriano revealed to Zenaida that as per the insurer's records, she per company policy, the insured must designate trustees who may act on such minors. However, they could
was also named in Policy 1 as co-beneficiary with Renzo. Two months after, Manulife still did not release the not be rectified in that manner because "Nothing Follows" was typed on the form. Cepeda thus declined to
proceeds of the said policies. So, Zenaida set another meeting with Victoriano, at which point she was affix her signature in the forms and sent them back to Gealogo. Cepeda maintains that, thereafter, she
informed of Edita's claims on the subject policies. Victoriano thus asked Zenaida for more time.29 never received the BDFs with the required corrections. She maintains that Gealogo had ample time, from
July 31, 2002 until December 23, 2003 to return the BDFs with the necessary corrections. However, Gealogo
never did. As such, Gealogo is the only one to blame. Cepeda thus contended that the third-party complaint
Victoriano testified that the subject BDFs dated July 31, 2002, appeared to be valid as they contained Sarte's
was entirely baseless and that she is entitled to damages for having to defend herself against a frivolous
signature.30 It was because of this that Manulife was in doubt as to the rightful beneficiaries of the subject
suit.39
policies. Thus on August 12, 2004, it filed the complaint31 for interpleader against: (1) Zenaida and Jessica;
(2) minor Alvin, to be represented by his mother, Vilma; and (3) minors Lara and Renzo, to be represented
by their mother, Edita. The RTC gave due course to the complaint, summoned the interpleaded parties, and Manulife's stance
ordered them to file their respective answers.32
Manulife has consistently been neutral as to the issue of the rightful beneficiaries of the subject policies.
Zenaida S. Sarte and Jessica S. Sarte-Gustilo's claim Against the counterclaims, however, it maintained that interpleader is a remedy that it is entitled to and
which it has availed in good faith. As such, it should not be made liable for filing the interpleader suit.
However, it claimed for costs of suit and attorney's fees, arguing that it was only compelled to file the
Zenaida and Jessica argued that as per Manulife's own records, they are entitled to the full proceeds of
interpleader due to the conflicting claims of the interpleaded parties.40
Policy 1. In addition, Zenaida claimed half of the proceeds of Policy 2. They asserted no claim over Policy 3.
However, they filed a counterclaim against Manulife, arguing that the insurer was in bad faith for filing the
complaint for interpleader despite knowing that Zenaida and Jessica are beneficiaries on record for Policies 1 Eden Broñosa (Broñosa), Manulife's Vice President for Clients Services and Customer Care, was presented as
and 2.33 an adverse witness by herein petitioners. Manulife's internal rules and procedure for changing beneficiary
designation was established from her testimony, thus:
Edgar Alvin C. Sarte's claim
1. the insured must submit to Manulife a duly completed and signed BDF;
Alvin made no claim over Policies 1 and 2. However, he claimed all of the proceeds to Policy 3, in which he
was originally named as the lone beneficiary. At the time the interpleader was instituted, Alvin's mother 2. the servicing agent, in this case Cepeda, is authorized by Manulife to accept the BDF in behalf of
Vilma had possession of the original of Policy 3. Like Zenaida and Jessica, Arvin also argued that the Manulife;
complaint was a frivolous suit as Manulife already knew, based on its records, that he is solely entitled to
Policy 3. As such, Manulife is liable for damages.34
3. if the designated beneficiary is a minor, the insured must also designate a trustee as per
company policy;
Lara Bianca L. Sarte and Renzo Edgar L. Sarte's claim
4. a BDF for a minor without a designated trustee is deemed an incomplete form;
Lara and Renzo maintained that on July 31, 2002, their father executed BDFs instituting Renzo as the sole
beneficiary of Policies 1 and 2 and Lara as the sole beneficiary of Policy 3. These BDFs were submitted to
5. incomplete BDFs need not be transmitted by the servicing agent to Manulife and shall be
Betty Q. Alejandro, a.k.a. Betty Cepeda (Cepeda), the Manulife servicing agent in charge of the subject
returned to the insured for necessary corrections;
policies. Meanwhile, they also filed a counterclaim against Manulife, arguing that the insurer should be liable
for compensatory damages for failing to reflect the BDFs in their records despite Sarte having done all that
was necessary to effect the changes.35 6. complete BDFs are transmitted to Manulife, processed, and stamped registered once entered
into their records;
The third-party complaint against the servicing agent, Betty Cepeda
7. Manulife then sends the insured a letter confirming the designation.41
Lara and Renzo also filed a third-party complaint against Cepeda, averring that should the proceeds are not
given to them due to Cepeda's failure to register the BDFs, then the latter should be made to pay the Manulife, however, made no comment as to the legal significance of the aforesaid internal rules in resolving
amount of the proceeds plus damages.36 the interpleader, leaving such matter to the trial court.

In her Answer with Counterclaim,37 Cepeda alleged that sometime in February 2002, Sarte's secretary
Veneranda C. Gealogo requested forms for the changes of beneficiary designations. Cepeda had wanted to
meet Sarte in person to discuss the matter, but Gealogo insisted on having the forms. The forms were filled
 24

Ruling of the Regional Trial Court Furnish copies of this Decision to the parties and there respective counsels.

From the terms of the subject policies, the RTC found the following provisions on "Beneficiary Designation" SO ORDERED.45
and "Change of Beneficiary," as relevant to the issues of this case:
Ruling of the Court of Appeals
Beneficiary Designation. Whenever a beneficiary is designated either in this policy or by a declaration in
writing by the Owner, such beneficiary will be deemed to be beneficially entitled to the proceeds of the
On appeal to the CA,46 the petitioners maintained that the July 31, 2002 BDFs effectively changed the
policy, if and when the policy becomes payable upon the life insured's death. x x x
beneficiaries of the subject policies in favor of Lara and Renzo. They argued that Sarte had complied with all
the requirements of the policy provision on "Change of Beneficiary" by merely filling up and signing Manulife
Change of beneficiary. To the extent allowed by law, during the life insured's lifetime the Owner can change BDFs designating Lara and Renzo and transmitting the same to Cepeda, Manulife's agent. They also
the beneficiary designation from time to time by written notice in form satisfactory to the Company maintained that Sarte had complied with the trustee designation requirement when Gealogo faxed to Cepeda
[Manulife]. The company assumes no responsibility for the validity of such written notice.42 a tabulation with a list of names of trustees, even while maintaining that the BDFs or the policies themselves
do not indicate the necessity of a trustee.47
Based on these provisions, the RTC took the view that in order for the BDFs to be effective, the same must
have been processed, approved, and registered in Manulife's records. The July 31, 2002 BDFs were rejected Zenaida,48 Jessica,49 Vilma,50 Alvin,51 and Betty Cepeda52 defended the RTC's decision and argued that
by Cepeda for non-compliance with Manulife's internal company policy on the designation of trustees for since the July 31, 2002 BDFs were not in a form satisfactory to Manulife, owing to the fact that no trustee
minor beneficiaries, Lara and Renzo. As a consequence, it was not registered in Manulife's records. On the was designated, no change in beneficiary designation was effected. They maintained that the RTC was
other hand, the March 1, 2002 BDFs were duly filled in, signed by Cepeda, transmitted to Manulife's office, correct in ordering Manulife to release the proceeds according to the latter's records. Manulife maintained its
and registered into their records.43 neutral stance.53

Furthermore, the trial court found that the Manulife was not in bad faith in filing the complaint for The CA agreed with the RTC as to the result, but clarified that the petitioners were only able to submit
interpleader. Nor were the interpleaded parties in bad faith for claiming the proceeds of the subject policies. photocopies of the July 31, 2002 BDFs. The RTC had categorically ruled that Sarte had executed the said
The trial court also found no fault on the part of Cepeda.44 Thus, the RTC disposed of the case as follows: BDFs, to wit: "[t]he evidence shows that the insured executed a Beneficiary Designation Form changing the
beneficiaries in the subject policies in favor of minor defendants Lara Bianca and Renzo Edgar."54 However,
the CA reasoned that according to the Best Evidence Rule, under Section 3, Rule 129, the due authenticity
WHEREFORE, premises considered, this Court RENDERS JUDGMENT as follows:
and execution of said documents was not established. Moreover, the CA found that there is no positive proof
that the originals existed and that the photocopies cannot be given evidentiary value.55
(1) Plaintiff The Manufacturer's Life Insurance Company (Phils.), Inc. is hereby DIRECTED
to release the insurance proceeds of the following policies to the beneficiaries as
The petitioners moved for reconsideration, but the CA denied it as the arguments raised were mere
appearing in its records, thus:
reiterations.56 Hence, this petition.

POLICY NO. COVERAGE AMOUNT DESIGNATED BENEFICIARIES Issues

4321987-2 Php 1,000,000.00 Zenaida Sarte and Jessica Sarte-Gustillo

The issues to be resolved by the Court are as follows:
4319830-8 Php 1,000,000.00 Zenaida Sarte and Renzo Edgar L. Sarte
1. whether the subject insurance policies required Sarte to designate a trustee for minor
4319831-6 Php 2,000,000.00 Edgar Alvin C. Sarte and Renzo Edgar L. Sarte
beneficiaries;

(2) The compulsory counterclaims of the conflicting claimants against the plaintiff are 2. whether the CA correctly applied the Best Evidence Rule to the photocopies of the BDFs dated
hereby DENIED FOR LACK OF MERIT; July 31, 2002; and

(3) The claims for attorney's fees and costs of suit of plaintiff against the defendants are 3. whether Sarte effected a change of beneficiary designation by written notice in form satisfactory
hereby DENIED FOR LACK OF MERIT; to the Company by mere submission of the BDFs dated July 31, 2002 to Manulife's servicing agent,
Cepeda.
(4) The third party complaint against third party defendant is hereby DISMISSED for
insufficiency of evidence; and

(5) The compulsory counterclaims of third party defendant against third party plaintiff are
hereby DENIED FOR LACK OF MERIT.
 25

Ruling of the Court Sarte was not contractually required to designate a

trustee for minor beneficiaries.
The petition is meritorious.
Petitioners protest that the RTC and CA erred in disposing the case based on Manulife's internal rules. They
argue that said rules are not binding upon either Sarte or the petitioners.65
In the interest of substantial
justice, the petition is given due
course despite having a We agree.
defective verification and
certificate of non-forum shopping.
The written instrument in which a contract of insurance is set forth, is called a policy of insurance.66 In
relation thereto, Section 227 of the Insurance Code (Presidential Decree No. 612), provides:
Before discussing the substantive merits of this case, We must first deal with a procedural issue concerning
the verification and certification against forum shopping attached to the petition. It appears that the
Section 227. In the case of individual life or endowment insurance, the policy shall contain in substance the
petitioners themselves have not executed it and has been signed by their counsel instead. Respondents
following conditions:
argue that this is in violation of Section 5, Rule 7 and is cause for the summary dismissal of the petition.57

x x x x.
Ordinarily, respondents would be correct; however, the Court has, on occasion, liberally applied its rules of
procedure in the interest of substantial justice. In the case of Bacolor v. VL Makabali Memorial Hospital,
Inc.,58 We summarized some guidelines to follow when confronted with a defective verification or certificate (c) A provision that the policy shall constitute the entire contract between the parties, but if the
against forum shopping, viz: company desires to make the application a part of the contract it may do so provided a copy of
such application shall be indorsed upon or attached to the policy when issued, and in such case
the policy shall contain a provision that the policy and the application therefor shall constitute
xxxx
the entire contract between the parties; (Emphasis and underscoring supplied)

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading
Thus, the subject policies of this case uniformly contain the following provision:
fatally defective. The court may order its submission or correction or act on the pleading if the attending
circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of
justice may be served thereby. CONTRACT

xxxx The application for this policy, any Medical Evidence form and any written statements and
answers furnished evidence of insurability, copies of all of which are attached, and the policy,
constitute the entire contract.
4) As to certification against forum shopping, non compliance therewith or a defect therein, unlike in
verification, is generally not curable by its subsequent submission or correction thereof, unless there is a
need to relax the Rule on the ground of "substantial compliance" or presence of "special circumstances or Only the President or a Vice-President of the Company has power on behalf of the Company to change,
compelling reasons".59 (Emphasis and underscoring supplied). modify or waive the provisions of the policy, and then only in writing.

The interests of substantial justice are paramount at all times. The Rules shall be liberally construed in order The Company will not be bound by any promise or representation heretofore or hereafter made by or to any
to promote their objective of securing a just, speedy and inexpensive disposition of every action and agent or person other than as specified above.67 (Emphasis and underscoring supplied.)
proceeding.60 Law and jurisprudence grant to courts the prerogative to relax compliance with procedural
rules of even the most mandatory character.61 This is not to say that adherence to the Rules could be
dispensed with. However, exigencies and situations might occasionally demand flexibility in their Upon a careful examination of the subject policies, We find that nothing in their provisions require the
application.62 In Bank of the Philippine Islands v. Dando,63 the Court restated the reasons that may provide observance of Manulife's internal rules. As such, the policies themselves do not require either that the
justification for a court to suspend a strict adherence to procedural rules, such as: insured designate a trustee if his chosen beneficiaries are minors or that the BDFs be processed and
registered into Manulife's records. Neither does the Insurance Code (or any statute) or its implementing
rules and regulations require the same.
(a) matters of life, liberty, honor or property; (b) the existence of special or compelling
circumstances; (c) the merits of the case; (d) a cause not entirely attributable to the fault or
negligence of the party favored by the suspension of the rules; (e) a lack of any showing that the In The Wellex Group, Inc. v. U-Land Airlines, Co. Ltd.,68 the Court said:
review sought is merely frivolous and dilatory; and (f) the fact that the other party will not be
unjustly prejudiced thereby.64 (Emphasis supplied) An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical
We find that the CA and the RTC committed errors of judgment, as extensively discussed below, which We tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-
cannot ignore on the mere technicality that the petition has a defective verification and/or certificate of non- contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct, required to be
forum shopping. observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of
the obligation, are the active (obligee) and the passive (obligor) subjects69
 26

The cause is the vinculum juris or juridical tie that essentially binds the parties to the obligation. This linkage Q: Madam Witness, life insurance contracts do not require the participation of beneficiaries in their
between the parties is a binding relation that is the result of their bilateral actions, which gave rise to the execution, do they?
existence of the contract.70 (Emphasis and underscoring supplied)
WITNESS (BROÑOSA):
In this case, the vinculum juris between Sarte and Manulife are the subject policies themselves. Since the
terms of the policies do not mention anything about Manulife's internal rules, there is no juridical tie that
A: No, sir.
binds Sarte to said internal rules. As such, the policies do not obligate the insured to designate trustees for
minor beneficiaries. Neither was it legally necessary for the July 31, 2002 BDFs to be registered in Manulife's
internal records so that Lara and Renzo may acquire a vested interest in the subject policies. Simply put, Q: In other words, as you have earlier said that the insured can make a minor his beneficiary without
Manulife's internal rules are not a legal norm that has any relevance in the resolution of the issues of this naming the trustee, am I correct?
case. Such internal rules are merely for the guidance of the personnel, employees, and officers of Manulife.
A: In our procedure and guidelines, when the insured name (sic) a minor as a beneficiary, we always require
Parenthetically, We must clarify to petitioners that life insurance proceeds are not part of the estate of the a trustee in behalf of the minor beneficiary.
insured. Under Section 85(e) of the National Internal Revenue Code,71 such proceeds may be included in
the gross estate, subject to certain exceptions, but merely for the purpose of computing the estate tax due.
Nevertheless, We must stress that the designation of a beneficiary in an insurance policy is categorically Q: Why? Do you have written rules in that respect?
different from the institution of a testamentary heir. Therefore, We cannot give credence to petitioners'
arguments that they are entitled to the proceeds of the subject policies because that was supposedly Sarte's A: Yes, sir.
way of ensuring that his three families would equally share in his wealth.72 This Court has resolved this case
by applying the pertinent laws on contracts and insurance on the established facts, not on some perceived
estate planning scheme that Sarte had supposedly put in place. Q: Do you have them with you?

The fundamental error in the CA and the RTC's reasoning is that they have premised the entirety of their A: We have processed guideline (sic) wherein we can show that it is indeed written there that a trustee must
judgments upon the assumption that Manulife's internal rules were binding upon the insured. Not only did be named on the minor beneficiary.
the lower courts lack legal basis in applying Manulife's rules, they were not mindful of the proper application
of the parol evidence rule under Section 10, Rule 130 of the Rules,73 that when the terms of an agreement Q: Precisely I'm asking you if you have written rules in that respect?
have been reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the contents of
the written agreement. It forbids any addition to the terms of a written agreement by testimony showing A: Yes, sir.
that the parties orally agreed on other terms before the signing of the document.
Q: Do you have them with you?
In fact, the presentation of the Manulife internal rules was not called for as the procedural conditions
necessary for the presentation of parol evidence are not present in this case. A party may present evidence A: Yes, sir.
to modify, explain, or add to the terms of a written agreement if he puts in issue in his pleadings either: (a)
an intrinsic ambiguity, mistake, or imperfection in the written agreement; (b) the failure of the written
agreement to express the parties' true intent and agreement; (c) the validity of the written agreement; or Q: May I have them please?
(d) the existence of other terms agreed to by the parties or their successors in interest after the execution of
the written agreement. The issue must be squarely presented.74 In this case, the terms of the subject policy A: Yes, sir.
were not put it in issue in either Manulife's complaint or in any of the interpleaded parties' respective
answers. As such, the introduction of Manulife's internal rules was not a proper application of the parol
evidence rule. Consequently, such rules cannot be made to "modify, explain, or add" to the contract Q: Witness coming up with a multi-page document, Your Honor, in answer of the question whether or not
stipulations expressly stated in the subject policies. The terms of the subject policies, therefore, are the company has rules concerning the naming of a trustee for minor beneficiaries.
exclusively those which are stated within the four corners of the document.
A: On page 3 out of page 11 it is clearly stated. Definition of Terminologies on minor beneficiaries under
One might argue that it was necessary to present Manulife's internal rules to clarify certain provisions of the second paragraph.
subject policies. However, we have ruled that although parol evidence is admissible to explain the contract's
meaning, it cannot serve to incorporate into the contract additional conditions which are not mentioned at all
Q: Page 3 of 11-page document classified as Process of Transaction documented under these were: Change
in the contract unless there is fraud or mistake.75
of Beneficiary Designation. And you referred to the second paragraph?

Moreover, it was made abundantly clear by the testimony of Broñosa, Manulife's Vice President for Clients
A: Yes, sir.
Services and Customer Care, that a trustee was not indispensable, rather only advisable, viz:

Q: Which I will read for the record, "When minor children are designated as beneficiaries, it is ADVISABLE to
(ATTY. CARAG)
designate a trustee to receive the insurance proceeds on their behalf during the minority. If no trustee is
 27

named and the share of each minor and the policy exceeds Php 50,000.00, the company will require either a WITNESS: As a general rule, Yes, Your Honor.
Court bond if the proceeds will be paid to the minor's surviving parents or letter of guardianship if the minor
is completely orphan. As general rule, the designation of minors as irrevocable beneficiaries should be
COURT: But insofar as your company is concerned?
discouraged because of legal matters. Naming a trustee is always needed for minor beneficiaries." Now, my
question is on the word "advisable". The first sentence reads, "When minor children are designated as
beneficiaries, it is advisable to designate a trustee to receive the insurance proceed on their behalf during WITNESS: As far as Manulife is concerned, we require appointing of trustee, Your Honor.
their minority." You, of course, observed the use of the word "advisable". Now, under the provisions that
were read to you, does the non-designation of a trustee or guardian for a minor beneficiary named in a
beneficiary change invalidate the beneficiary change? COURT: You require it but assuming the insured did not name?

ATTY. CABRAL: Your honor, may we object? It is already legal in nature and the witness is not competent to WITNESS: We can accept still the beneficiary claim unless it is submitted to Manulife for processing and
testify thereon and that is very (sic) reason why we filed this interpleader, Your Honor, for the Court to recording. If the insured does not want to put a trustee or to designate a trustee on behalf of the minor
decide whether the beneficiary designation making this case was proper. beneficiaries, we can still effect the change on the beneficiary provided that the insured put it in writing that
he does not want to put or designate a trustee on behalf of the minor trustee. x x x 77 (Emphasis,
underscoring and capitalization supplied.)
COURT: Objection sustained.
Indeed, regardless of whether or not a trustee was designated, Manulife would still have to comply with
ATTY. CARAG: I will withdraw my question, Your Honor. Your Honor, may we request that the document be requirements under Section 180 of the Insurance Code (P.D. 612), to wit:
left with (sic) Court?
Section 180. An insurance upon life may be made payable on the death of the person, or on his surviving a
COURT: Can you do that, Atty. Cabral? specified period, or otherwise contingently on the continuance or cessation of life.

ATTY. ESPINA: Your honor, the pertinent provisions applicable to this case has already been read. It is Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance
already on record so there is no need to include the entire Rules and Regulations of Manulife on record. contract for purpose of this Code

ATTY. CARAG: As a matter of fact, Your Honor, I was on the focus on that provision so that is why - In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, or any
minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may exercise,
in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a
COURT: That is why the objection here of Atty. Espina is for you not to mark that anymore. Anyway, you
bond, where the interest of the minor in the particular act involved does not exceed twenty thousand
have read into record the pertinent portion. x x x.76 (Emphasis and underscoring supplied)
pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy,
receiving the proceeds of the policy, and giving the minor's consent to any transaction on the policy.
Upon clarificatory questioning by the trial judge, Broñosa further testified as follows: (Emphasis and underscoring supplied)

COURT: For the Court. You said your company requires the appointment of trustee for a minor beneficiary In light of the foregoing, it is clear that Manulife's internal rules are only for its own operational
and the purpose of that is to make the beneficiary designation as what? convenience.ℒαwρhi ৷ There is absolutely no legal reason why they should be the parameter by which the
conflicting claims over Sarte's life insurance policies are judged. The conflicting claims of the interpleaded
parties must be resolved with reference only to the express provisions of the subject policies.
WITNESS: We always require the appointed trustee for minor beneficiaries the purpose of that is if there is a
death claim, we can already know to whom we can transact the proceeds on the behalf of the minor
beneficiaries BUT OF COURSE WE WILL STILL BE NEEDING COURT APPOINTED GUARDIAN. The provisions of the subject policies relating to
designation of beneficiaries have been substantially
complied with by the insured
COURT: Despite the appointment of trustee?

The petitioners and the lower courts are not agreed on the point at which the change in beneficiary is
WITNESS: Yes, Your Honor.
effected. Petitioners contend that all that was required of the insured is to designate his beneficiary in a
Manulife form and submit the same to Manulife or one of its agents – in this case, Cepeda.78 The CA and
COURT: But you said earlier it is at the option of the insured to name or not nem (sic) the trustee? RTC take the view that there are subsequent steps that must have been complied with, culminating m the
registration of the BDF in Manulife's records.79
WITNESS: Yes, Your Honor.
Once again, We do not agree with the lower courts' reliance on Manulife's internal rules in resolving this
question for reasons already explained above. Nowhere in the subject policies is it provided that the
COURT: So the failure to name a trustee does not invalidate the beneficiary designation, is that what you are beneficiary designation must go through the internal mechanisms of the insurer and then entered into its
saying? records before such designation becomes binding.
 28

To recall, the subject policies provide that "...a beneficiary is designated either in the policy or by a and Renzo Edgar. While the forms were transmitted to third party defendant, [Cepeda], insured's agent, the
declaration in writing by the Owner"80 and that "during the life insured's lifetime the Owner can change the same was however returned to the insured, through his secretary, because the same were incomplete as no
beneficiary designation from time to time by written notice in form satisfactory to the Company."81 Other trustee was designated for the minor beneficiaries."90 The RTC allowed the photocopies into evidence. The
provisions of the policy make it clear that claims are not settled on the basis of Manulife's records. For CA disagreed with the RTC on this point, explaining that under the Best Evidence Rule, the photocopies of
example, the policies provide that a claimant must provide proof of his/her right to receive payment. Thus: the July 31, 2002 BDFs are not sufficient to prove their authenticity and due execution.91 When the factual
findings of the CA are contrary to those of the trial court, a review of the facts is permitted.92 After
reviewing the records, We find that the RTC took the correct view on this matter.
SETTLEMENT ON DEATH, MATURITY OR
SURRENDER
Under the Best Evidence Rule, which is now called the Original Document Rule under the 2019 Revised Rules
on Evidence (A.M. No. 19-08-15-SC),93 when the subject of inquiry is the contents of a document, writing,
The policy will be settled in accordance with its terms on receipt by the Company of due proof of the life
recording, photograph or other record, no evidence is be admissible other than the original document itself,
insured's death (and of his age unless previously admitted), or on the policy's maturity as an endowment or
except in the following cases:
its surrender for its cash value. Due proof of the claimant's right to receive payment will be required when
such settlement is made.82 (Emphasis supplied)
(a) When the original is lost or destroyed, or cannot be produced in court, without bad faith on the
part of the offeror; x x x94
On the cover page of the policies, the following is written:

In this case, it is clear that the subject of inquiry is the contents of the July 31, 2002 BDFs, specifically the
Subject to this policy's provisions, the death benefit proceeds under the policy will be paid to the beneficiary
designation of Lara and Renzo as beneficiaries. However, petitioners were only able to present photocopies
immediately upon receipt by the Company of due proof of the life insured's death. Such proceeds will include
of the said BDFs, which is secondary evidence. In Citibank, N.A. Mastercard v. Teodoro,95 We said that
the policy's face amount together with any other benefit payable under the policy's terms because of such
before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror
death.83 (Emphasis and underscoring supplied)
must prove the following: (l) the existence or due execution of the original; (2) the loss and destruction of
the original or the reason for its nonproduction in court; and (3) on the part of the offeror, the absence of
Meanwhile, at the back of the subject policies, it is stated: bad faith to which the unavailability of the original can be attributed.96 We find that these predicates had
been complied with during trial.
IMPORTANT NOTICE
When you wish to obtain payment of any benefit under the policy, write to the Company's Head Office at the In this case, the existence of the July 31, 2002 BDFs were established by Gealogo's positive testimony that
address below or communicate with the nearest authorized representative of the Company. By so doing, she saw Sarte signing them.97 In fact, she was the one who prepared the originals for Sarte to
time and expense may be saved, since the Company will furnish free of charge the required forms for sign.98 Moreover, there is evidence that the originals were received by Lynn Gagan, Cepeda's secretary.99
completion with any necessary advice and instructions.84 (Emphasis and underscoring supplied)
The manner of proving the execution of a document depends on its classification. Indubitably, the July 31,
The clear import of all of these provisions is that the insurer will not pay a claim after conducting a quick 2002 BDFs are private documents as understood in Section 19 of Rule 132.100 Proving private documents
name-check in its own records. Otherwise, Manulife's interpleader complaint is improper. We agree with the are provided for under Section 20 of the same rule, viz.:
trial court, however, that Manulife was prudent in withholding payment to any of the claimants and that
interpleader is proper in this case.85 At most, the records can only create a presumption that the
Section 20. Proof of private documents. - Before a private document offered as authentic is received in
beneficiaries registered therein are entitled to the benefits. However, such a presumption does not foreclose
evidence, its due execution must be proved by any of the following means:
the possibility that other persons may have been designated by the insured prior to his death. Thus, the
interpleaded parties in this case may prove that he/she is entitled to the proceeds in one of only two ways,
either (a) that he/she was originally named as beneficiary in the policy and that the insured made no (a) By anyone who saw the document executed or written;
subsequent designations; or (b) that although he/she was not the beneficiary originally named in the policy,
he/she was the last person designated as beneficiary, and the insurer was notified of such designation.
(b) By evidence of the genuiness of the signature or handwriting of the maker[;] or

Having said that, We may summarize the positions of the interpleaded parties as follows: Zenaida and
(c) By other evidence showing its due execution and authenticity. (Emphasis and
Jessica's claim rests on the BDFs dated March 1, 2002;86 Alvin's claim rests on the fact that he was the
underscoring on (a) supplied; underscoring on (b) and (c) removed)
original beneficiary in Policy 3; while Lara and Renzo's claim rests on the BDFs dated July 31, 2002.87

Again, the execution was duly proven by Gealogo's testimony that she saw Sarte sign the original July 31,
The case now turns on whether the BDFs dated July 31, 200288 effected a "change [of] beneficiary
2002 BDFs.101
designation by written notice x x x in form satisfactory to the Company."89 The issue may be dissected as
follows: (1) whether the insured had notified the insurer of the beneficiary designation in writing; and (2)
whether notice was in a form satisfactory to the insurer. Petitioners proved the loss or reason for nonproduction in court by admitting that Edita only received
photocopies of the July 31, 2002 BDFs and so was not in a position to present the originals.102 Gealogo also
testified that she gave the originals to Cepeda, who in turn alleged that she returned them to Sarte.
It is worth recalling that the RTC categorically made the factual finding that Sarte indeed executed the BDFs
Unfortunately, she could not account as their whereabouts as she passed away before she could adduce her
dated July 31, 2002. The RTC said: "[t]he evidence shows that the insured executed a (sic) Beneficiary
own evidence.
Designation Form changing the beneficiaries in the subject policies in favor of minor defendants Lara Bianca
 29

Section 5 of Rule 130 provides for the manner by which the contents of a lost or destroyed original insured, evolved a "substantial compliance" principle rendering effective any attempted change in which the
document may be proven, viz: insured had done all he reasonably could do to accomplish it.115 (Emphasis and underscoring supplied)

Section 5. When original document is unavailable. - When the original document has been lost or destroyed, The "substantial compliance" principle has been otherwise expressed as follows:
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 or her part, may prove its contents by a copy, or by recital of its
A clearly proved intention to change is not sufficient, if any of the formal requirements are lacking, except:
contents in some authentic document, or by the testimony of witnesses in the order stated. (Emphasis
when the insured has done all in his power to comply with such requirements, but has failed to surrender the
supplied)
policy because it is beyond his control, equity will protect the rights of the intended beneficiary; or if the
insured has pursued the courses pointed out by the policy..., and has done all required of him to effect a
The contents of the original July 31, 2002 BDFs were duly proven in this case by the photocopies of the change, but dies before the new certificate has been issued... equity will decree that to be done which ought
originals and by the testimony Gealogo, who was the very person who typed in the name of Lara and Renzo to be done, and regard the change as fully completed.116 (Emphasis supplied)
in the originals and who saw Sarte signing them.103
On the whole, the substantial compliance view appears to be more in tune with our doctrines on contract law
Lastly, there is no evidence that the unavailability of the original BDFs was due to bad faith on the part of relevant to the instant case.ℒαwρhi ৷ Article 1377 of the New Civil Code117 provides that the interpretation
the petitioners. As stated above, petitioners candidly admitted that they never had possession of the of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. In this
originals and that Edita only received photocopies of the BDFs.104 There is simply no evidence that they are case, absent a clear stipulation as to what might constitute "satisfactory form", such clause cannot be
at fault for the loss or nonproduction of the originals. interpreted in a manner that would be more burdensome to the insured. To reiterate Our discussion above,
We cannot require strict adherence to Manulife's internal standards when the insured was not contractually
bound to them to begin with.
From the foregoing, We find that the RTC correctly admitted the photocopies of the July 31, 2002 BDFs into
evidence and, on the basis of which, found that Sarte had indeed designated Lara and Renzo as his
beneficiaries in the subject policies. Furthermore, under Article 1373 of the New Civil Code,118 if some stipulation of any contract should admit
of several meanings, it shall be understood as bearing that import which is most adequate to render it
effectual. So that the right of the insured to designate his chosen beneficiary – both under the subject
By the contract of agency, a person binds himself to render some service or to do something in
policies and Section 11 of the Insurance Code119 – might be given effect in the circumstances of this case,
representation or on behalf of another, with the consent or authority of the latter.105 In the case of Filipinas
it is more just to take the substantial compliance view. Sarte had substantially complied with all that was
Life Assurance Company v. Pedroso,106 We bound the principal, an insurance company, for an act by its
required of him under the subject policies to designate Lara and Renzo as his beneficiaries. Since Cepeda
insurance agent done within the scope of authority.107 As Manulife's agent, Cepeda was authorized to
had received the originals of the July 31, 2002 BDFs, Manulife is deemed to have been notified in writing of
receive the BDFs. This was confirmed by Broñosa.108 Receipt by Cepeda was duly proven by Quinones'
said beneficiary designations. Such notice was sufficient to vest Lara and Renzo with rights over the
testimony and the Acknowledgment Receipt.109 Cepeda, in fact, had confirmed in her Answer that she had
proceeds of the subject policy.
received the originals of the July 31, 2002 BDFs.110 Furthermore, under the doctrine of imputed knowledge,
notice to the agent is deemed notice to the principal.111 Thus, upon Cepeda's receipt of the July 31, 2002
BDFs, Manulife is deemed to have been notified of the designations therein. That said, We have to correct certain premises in the CA and RTC's disposition of Manulife's prayer for
attorney's fees, the counterclaims, the third-party complaint, and the third-party counterclaim. We deal first
with the third-party complaint and the third-party counterclaim which were rightly dismissed by the lower
We now turn to the second part of the issue, which is whether the July 31, 2002 BDFs were in "form
court. Petitioner's cause of action in their third-party complaint was based on Cepeda's failure to cause the
satisfactory to the Company."112 The question is not without difficulty as the policies do not set out a list of
recording of the July 31, 2002 BDFs.120 As We have said above, such recording was not necessary to effect
requirements or a criteria to meet what may be considered as "satisfactory" to Manulife. The clause,
the beneficiary designation. Consequently, Cepeda cannot be made liable on that basis. We also cannot
therefore, admits of any number of interpretations. Petitioners contend that "satisfactory form" refers to the
grant Cepeda's counterclaim for actual, moral, temperate, nominal, exemplary damages, attorney's fees and
physical pro forma document which Manulife itself provides to clients when the latter wish to change their
costs of suit.121 Her death denied her the chance to adduce sufficient evidence to support of her
beneficiaries. Thus, they argue that the July 31, 2002 BDFs were in satisfactory form.113 On the other hand,
counterclaim. In fact, all that was entered into evidence on her behalf mostly constitutes her achievements
the RTC and the CA's considers a "satisfactory form" as not only one that has been duly-filled up by the
and awards as a Manulife agent.122 More importantly, however, her causes of action is specific to her
insured, but that has also been processed by Manulife, approved, registered in the records, and then
person and not predicated on property rights or interests. In Bonilla v. Barcena,123 We said that an action
confirmed to the insured by mail.114 Thus, the lower courts applied a "stricter" standard. It appears that the
does not survive if "the injury complained of is to the person, the property and rights of property affected
question is one of first impression in our jurisdiction, but one that is familiar to American courts, to whom
being incidental." 124
We may reasonably refer considering that the law on life insurance first came to our shores during the
Commonwealth period with the enactment of the Insurance Act of 1914. As one scholar in 1969 observed:
Meanwhile, the counterclaims against Manulife must fail as the latter had properly availed of the remedy of
interpleader. In the case of Bank of Commerce v. Planters Development Bank125 We said that "through this
Reservation to the insured of the right to change the beneficiary has produced a kind of backlash in many
remedy, the stakeholder [Manulife] can join all competing claimants in a single proceeding to determine
courts. Policies containing this reservation specify a procedure by which such changes are to be
conflicting claims without exposing the stakeholder to the possibility of having to pay more than once on a
accomplished and usually stipulate that such changes are not to take effect until this procedure is fully
single liability. It was developed on the theory that the stakeholder should not be forced to take the personal
carried out. Courts in many cases made strict adherence to these contract terms a condition of the
risk of evaluating the claims."126 Thus, We cannot fault Manulife for bringing the conflicting claimants into
effectiveness of any attempted change. This approach undoubtedly was prompted in part by a desire to
one judicial proceeding via interpleader which is relatively better than possibly having to face multiple suits
provide some protection to beneficiaries whose interests had been so easily reduced from a vested interest
and so unnecessarily expend the resources of the parties and the courts.
to a mere expectancy. Subsequently, however, the strict compliance approach produced a counterreaction
as courts, uncomfortable with a dogma requiring them at times to disregard the plain intention of the
 30

However, under Article 2209 of the New Civil Code,127 when a debtor delays in his obligation to pay money,
he may be made to pay legal interest, which is 6% per annum unless another rate was stipulated.128 It is
not disputed that Manulife had the obligation to pay the proceeds of the subject policies upon notice of
Sarte's death. As soon as its obligation to pay arose, it should have consigned the proceeds to the court;
otherwise, it incurs delay in payment. It is of no moment that Manulife did not know at the time who the
rightful beneficiary is. In Philippine National Bank v. Chan,129 We said:

"Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment. [I]t generally requires a prior tender of payment."130

Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of payment
a) when the creditor is absent or unknown or does not appear at the place of payment; b) when he is
incapacitated to receive the payment at the time it is due; c) when, without just cause, he refuses to give a
receipt; d) when two or more persons claim the same right to collect; and e) when the title of the obligation
has been lost.131 (Emphasis and underscoring supplied)

Meanwhile, under Article 1169 of the New Civil Code,132 those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands the fulfillment of the obligation.
In Nacar v. Gallery Frames,133 We clarified that where the demand is established with reasonable certainty,
the legal interest of 6% per annum shall begin to run from the time the claim is made judicially or
extrajudicially.134 In this case, Edita claimed that she met with Cepeda on January 8, 2004. However, this
was not established by evidence. What is undisputed, however, is that on January 21, 2004, Manulife
received Edita's letter reiterating her children's claim over the subject policies.135 Therefore, we find it
fitting that the legal interest rate of 6% per annum be applied on the proceeds of the subject policies
starting from January 21, 2004.

Corollary to the above, we cannot grant Manulife's prayer for attorney's fees and expenses of litigation.
There must be factual, legal, and equitable justification for attorney's fees and the award thereof is within
the discretion of the court taking into account the circumstances of each case.136 We agree with the lower
courts that Manulife was not injured when the interpleaded parties pursued their respective claims. As
discussed above, their conflicting claims was brought about by their different views as to how a beneficiary is
designated. These differences have now been settled.

WHEREFORE, the petition is GRANTED. The Decision dated July 20,2017 and the Resolution dated
December 13, 2018 of the Court of Appeals in CA-G.R. C.V. No. 106718 are hereby REVERSED and SET
ASIDE. Respondent the Manufacturers Life Insurance Company (Phils.) Inc., is hereby ORDERED to release
the proceeds of life insurance policies 4321987-2 & 4319830-8 to Renzo Edgar L. Sarte and of life insurance
policy 4319831-6 to Lara Bianca L. Sarte with six percent (6%) interest per annum beginning January 21,
2004 until fully paid.

SO ORDERED.
 31

 G.R. No. 224863, December 02, 2020 ] 25, 2011, Susan's investment was only in the amount of P3,000,000.00 and P2,000,000.00 was already
refunded to her by Rossana. The rest of the investment in the amount of P12,000,000.00 was only invested
by Susan after the policy took effect.23 Even assuming that Susan has insurable interest over the life of
SUSAN CO DELA FUENTE, PETITIONER, VS. FORTUNE LIFE INSURANCE CO., INC. RESPONDENT.
Reuben to the extent of P15,000,000.00 or that she was legally appointed as the beneficiary of Reuben,
Fortune insisted that Susan has no cause of action because Reuben's death was due to suicide which is an
DECISION excepted risk under his policy.24

CARANDANG, J.: Ruling of the Regional Trial Court

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court (Rules) assailing On February 27, 2015, the Regional Trial Court (RTC) rendered its Decision25 the dispositive portion of
the Decision2 dated February 17, 2016 and the Resolution3 dated May 26, 2016 of the Court of Appeals (CA) which states:
in CAG.R. CV No. 105012 filed by petitioner Susan Co Dela Fuente (Susan).
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff SUSAN CO DELA
Antecedents FUENTE and against the defendant FORTUNE LIFE INSURANCE CO., INC. ordering the latter to pay the
former the following:
On February 17, 2011, Susan invested P2,000,000.00 in the lending business of Reuben Protacio
(Reuben).4 On March 3, 2011, she invested an additional P1,000,000.00.5 On March 10, 2011, Reuben 1. FIFTEEN MILLION PESOS (Php 15,000,000.00) plus interest at the rate of twelve
applied for a life insurance with respondent Fortune Life Insurance Co., Inc. (Fortune) in the amount of percent (12%) per annum from May 18, 2011 until fully paid;
P15,000,000.00 with Susan as the revocable beneficiary.6 On March 14, 2011, she again invested another
P1,000,000.00.7 On March 25, 2011, Policy No. 61761 was issued after the premium of P82,500.00 was
2. FIFTY THOUSAND PESOS (Php 50,000.00) as and by way of attorney's fees; and
paid.8 The policy stated inter alia that:

3. Costs of suit.
In case of death of the Insured by self-destruction within (2) years from the Policy Date or date of last
reinstatement of this Policy, the pertinent provisions of the Insurance code, as amended, shall apply. Where
the death of the Insured by selfdestruction is not compensable, we shall refund the premiums actually paid SO ORDERED.26 (Emphasis in the original)
less indebtedness.9
The RTC found no merit in the contention of Fortune that the information Randolph gave to Dr. Pagayatan is
On March 28, 2011, Susan invested P12,000,000.00 in Reuben's lending business.10 an exception to the hearsay rule for being part of res gestae. For the RTC, the statement cannot be treated
as spontaneous because a considerable amount of time had lapsed from the moment the deceased was
found bleeding and the time the alleged statement was given to Dr. Pagayatan at the hospital. The RTC
About a month after the issuance of the policy, Susan submitted a copy of Policy No. 61761 with a face value
declared that such considerable amount of time was more than enough for Randolph to deliberate on the
of P15,000,000.00 to claim its proceeds.11 Based on the Death Certificate12 submitted, Reuben died on
matter which rendered the information given regarding the case of Reuben's death fall beyond the ambit of
April 15, 2011 due to a gunshot wound on the chest.13 Medico Legal Report No. M-239-2011 prepared by
spontaneity.27
Dr. Voltaire P. Nulud (Dr. Nulud) confirmed that the cause of death of Reuben is "Gunshot wound, trunk."14

The RTC did not give credence to the testimony of Dr. Raquel Fortun (Dr. Fortun) as her findings were only
Fortune conducted an investigation and uncovered a Clinical Abstract15 executed by Dr. Allen Pagayatan
based on documents provided by Fortune. She did not examine the body of Reuben nor present additional
(Dr. Pagayatan) stating that he conducted an interview with Randolph Protacio (Randolph), brother of
evidence to convince the RTC that Reuben took his own life. The RTC ruled that her testimony regarding the
Reuben, within minutes after he brought Reuben to the emergency room of Makati Medical Center. Based on
presence of gun powder or residue on the shooter's hand has no weight because her qualifications and
Dr. Pagayatan's interview, Randolph stated that prior to the shooting incident, Reuben intimated that he
expertise restrict her from testifying on the subject matter.28
already wanted to die. When he thought that he had already pacified Reuben, Randolph left the room.
Subsequently, he heard a gunshot and found Reuben bleeding.16 Because of this information, Fortune
denied the claim of Susan.17 Fortune refunded Susan P80,643.00, which represents the amount of For the RTC, Susan was able to establish that she is entitled to the proceeds of the policy. On the other
premiums paid on the policy less service charge18 but Susan refused to accept it.19 Thereafter, Susan filed hand, the RTC found that Fortune failed to establish by preponderance of evidence its defense that Reuben
a complaint for a sum of money and damages against Fortune.20 committed suicide.29

Incidentally, Rossana Ajon (Rossana), a business partner of Reuben, sent a letter to Fortune informing the The RTC awarded interest of 12% per annum from May 18, 2011 until fully paid because of Fortune's
latter that she already paid Susan the amount of P2,000,000.00. Rossana requested that the amount of unreasonable refusal to pay Susan's claim.30 The RTC held that Fortune's strong reliance on the
P1,000,000.00 be segregated in the settlement to be made with Susan.21 unsubstantiated statements of Randolph relayed to Dr. Pagayatan to justify its obstinate refusal to pay the
claim of Susan was a clear sign of wanton disregard of its obligations arising from the contract of
insurance.31
In their Answer,22 Fortune argued that Susan has no insurable interest over the life of Reuben since she had
not invested yet in the business of Reuben. Fortune pointed out that when the policy was secured on March
 32

In an Order32 dated May 8, 2015, the RTC denied the Motion for Reconsideration33 of Fortune for lack of In its Comment,48 Fortune highlights that Susan belatedly filed her motion for reconsideration on the
merit.34 Decision of the CA. Susan moved for reconsideration of the Decision of the CA that she received on March 1,
2016 only on March 17, 2016 (Thursday), or 16 days after the receipt of the assailed Decision.49 Fortune
maintains that the death of Reuben is an excepted risk. Based on the pictures taken and the testimonies of
Ruling of the Court of Appeals
the responding officers and investigator, there appears to be no cleaning kit nor any piece of cleaning
material which Reuben could have used in purportedly cleaning his gun.50 Fortune asserts that the
On February 17, 2016, the CA rendered its Decision35 the dispositive portion of which states: possibility that the insured could have been using his own clothes or his hand when he was cleaning his gun
cannot be raised in a motion for reconsideration.51 Fortune likewise claims that the CA correctly held that
the statement Randolph made to Dr. Pagayatan qualified as part of res gestae, an exception to the hearsay
WHEREFORE, premises considered, the appeal is GRANTED. The assailed decision dated February 27, rule. Fortune argues that Randolph's statement to Dr. Pagayatan was spontaneously given and under
2015 of the RTC, Branch 133, Makati City is hereby VACATED and SET ASIDE and a new one is entered circumstances which would bar him from inventing the same.52 Fortune also submits that the CA correctly
ordering the DISMISSAL of the complaint. gave credence to the testimony of Dr. Fortun, a known forensic pathologist, who opined that Reuben
committed suicide.53
SO ORDERED.36 (Emphasis in the original)
In her Reply,54 Susan insists that Fortune is now barred by laches in questioning the timeliness of the filing
The CA held that the evidence on record proved that Reuben committed suicide. The photos taken at the of the petition because the belated filing of the Motion for Reconsideration was not raised in the
crime scene did not show any cleaning kit which would have proved the claim of Susan that Reuben was Comment/Opposition to Susan's Motion for Reconsideration.55 Susan also reiterates her argument that the
cleaning his gun before his death. Not even a piece of cloth was found at the scene of the crime, as statement of Randolph cannot be admitted as part of res gestae.56
confirmed by the statement of PO3 Serquena and SPO1 Rico Caramat.37
Issues
The CA ruled that the statement Randolph gave to Dr. Pagayatan was spontaneously given and found no
reason for him to concoct or fabricate his narration of the events. Between the statement of Randolph given The issues to be resolved in this case are:
to Dr. Pagayatan at the emergency room and his statement given to the police after a considerable length of
time, the CA declared that the former should be given more weight because it was given spontaneously and
at a time when Randolph still had no chance to think and make up a story. The CA stated that if the (1) whether Fortune is now barred by laches from questioning the timeliness of the filing of the
statement of Randolph to Dr. Pagayatan made several minutes after the incident is considered inadmissible, petition because the issue on the belated filing of the Motion for Reconsideration was not raised in
there is more reason to consider as inadmissible the statement Randolph gave to the police after a the Comment/Opposition to Susan's Motion for Reconsideration;
considerable length of time. By then, he already had the opportunity to fabricate his account to conceal the
real story behind Reuben's death.38
(2) whether the insurer carries the burden of proving that the insured's death was caused by
suicide or self-destruction; and
Although Dr. Fortun did not perform an autopsy on the body of Reuben, the CA gave credence to her
testimony as she based her findings on the same medico-legal report and investigation report Susan
(3) whether Susan, as creditor of Reuben and beneficiary of the policy, is entitled to the entire face
presented as evidence. For the CA, Dr. Fortun merely interpreted the results of official records. The
value of the policy in the amount of P15,000,000.00 despite the fact that her insurable interest at
genuineness and authenticity of these documents were never assailed. The CA believed the explanation of
the time the policy took effect was only P4,000,000.00 and Rossana had already returned
Dr. Fortun that gunshot residues on a shooter's hand is not always visible even with sensitive testing. The
P2,000,000.00.
CA gave weight to the opinion of Dr. Fortun that the trajectory of the bullet which went "straight front to
back" supported the conclusion that the gun shot was deliberate and self-inflicted.39
Ruling of the Court
The CA denied the Motion for Reconsideration40 Susan filed in a Resolution41 dated May 26, 2016.
Fortune is now barred from raising
the belated filing of the motion
In her petition,42 Susan insists that Reuben's death is compensable because he died when he accidentally
for reconsideration in its Comment to
fired his gun while cleaning it. Susan argues that the CA erred in holding that the absence of a gun cleaning
Susan's petition filed in this Court.
kit in the room where Reuben was found lifeless disproves that the latter accidentally shot himself while
cleaning his gun.43 Susan also avers that the testimony of Dr. Pagayatan on the information Randolph
relayed to him is inadmissible and cannot be considered as part of res gestae as this was not spontaneously At the outset, We must address the claim of Susan that Fortune is now barred by laches from questioning
given. Susan emphasizes that it took more than 15 minutes from the time the shooting happened in the the timeliness of the filing of her petition since the issue on the belated filing of her Motion for
house of Reuben and the moment Randolph allegedly gave the information to Dr. Pagayatan at the Reconsideration was not raised in the Comment/Opposition to Susan's Motion for Reconsideration. The CA
emergency room.44 Susan likewise claims that the testimony of Dr. Fortun is biased and weak since she is entertained Susan's Motion for Reconsideration despite having been filed 16 days from the receipt of the
an expert witness hired by Fortune.45 Susan posits that instead of discrediting Dr. Nulud for entertaining the assailed Decision of the CA or one day after the last day to file her Motion for Reconsideration in violation of
possibility that Reuben killed himself, the CA should have appreciated his open-mindedness and should have Section 1, Rule 52 of the Rues of Court (Rules) which clearly provides:
looked at it as signs of impartiality and disinterestedness.46 After all, Dr. Nulud's opinion is based on the
absence of muzzle imprint of the gun barrel on the skin of the deceased, the direction and trajectory of the
Section 1. Period for filing. - A party may file a motion for reconsideration of a judgment or final resolution
bullet in the victim's body, and the negative result of the paraffin examination on the victim's hands.47
within fifteen (15) days from notice thereof, with proof of service on the adverse party.
 33

A motion for reconsideration of a judgment or final resolution should be filed within 15 days from notice. The Section 42. Part of res gestae. - Statements made by a person while a startling occurrence is taking place or
15-day reglementary period for filing a motion for reconsideration is non-extendible and if no appeal or immediately prior or subsequent thereto with respect to the circumstances thereof, may be given in
motion for reconsideration is timely filed, the judgment or final resolution shall be entered by the clerk in the evidence as part of the res gestae. So, also, statements accompanying an equivocal act material to the
book of entries of judgment as provided under Section 10, Rule 51 of the same Rules. issue, and giving it a legal significance may be received as part of the res gestae.

Nevertheless, under exceptional circumstances, such as when stringent application of the rules will result in In People v. Dianos60 the Court explained that the exclamations and statements contemplated in this
manifest injustice, the Court may set aside technicalities57 and proceed with the petition for review exception are:
on certiorari. The present petition deserves the liberality of the Court considering that the substantial issues
Susan raised will ultimately affect the final disposition in this case. Susan stands to lose the money she
x x x made by either the participants, victims, or spectators to a crime, immediately before, during or
invested in Reuben's business simply because she was one day late in filing her Motion for Reconsideration.
immediately after the commission of the crime, when the circumstances are such that the statements
To Our mind, this is too harsh a penalty for a day's delay. Therefore, the rules should be relaxed to afford
constitute nothing but spontaneous reaction or utterance inspired by the excitement of the occasion there
both parties an opportunity for a just and proper disposition of the case.
being no opportunity for the declarant to deliberate and to fabricate a false statement become admissible in
evidence against the otherwise hearsay rule of inadmissibility.61 (Emphasis supplied; italics in the original)
Moreover, considering that Fortune did not interpose any objection on the timeliness of the filing of Susan's
motion for reconsideration in its Comment/Opposition, Fortune can no longer raise the belated filing of the
Here, Dr. Pagayatan was neither a participant, victim, or spectator to the death of Reuben. He merely
motion for reconsideration in its Comment to Susan's petition filed in this Court.
repeated in court what was relayed to him by Randolph who was also not a participant, victim or spectator
to the act in controversy. He is not the declarant envisioned by the Rules as he had no personal knowledge
The burden of proving an excepted of the fact that Reuben took his own life. Nobody witnessed Reuben take his own life. The information
risk or condition that negates Randolph relayed to Dr. Pagayatan, which the latter testified on during trial, cannot be admitted as proof of
liability lies on the insurer and the veracity of said information. This is not the res gestae statement contemplated by the Rules. Thus, the
not on the beneficiary. CA committed error in admitting and giving credence to Dr. Pagayatan's testimony on the matter.

Susan essentially assails the appreciation made by the CA of the pieces of evidence presented in concluding The testimony of Dr. Fortun failed to
that Reuben's death was caused by a self-inflicted gunshot wound. In United Merchants Corp. v. Country prove that Reuben's death was caused by suicide.
Bankers Insurance Corp.,58
The CA also erroneously gave credence to the testimony of Dr. Fortun despite the fact that she did not
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of perform an autopsy on the body of Reuben which had already been cremated.62 Though Dr. Fortun is a
establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently renowned expert in the field of forensic pathology, her analysis and opinion were confined to documentary
within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of evidence, including the medico-legal report,63 investigation report,64 and photographs that We consider
loss which is excepted or for which it is not liable, or from a cause which limits its liability.59 insufficient to conclude with certainty that Reuben took his own life. Her conclusions and suppositions were
not reached through a comprehensive examination of Reuben, the weapon involved, nor the scene of the
incident.
In the context of life insurance policies, the burden of proving suicide as the cause of death of the insure to
avoid liability rests on the insurer. Therefore, Fortune must prove suicide to defeat Susan's claim.
Between the testimony of Dr. Fortun, who admitted that she did not conduct a post-mortem examination on
Reuben, and Dr. Nulud, who actually conducted an autopsy on Reuben and prepared the medico-legal
In the present case, We find that Fortune failed to discharge its burden of proving, by preponderance of
report, the latter should be given more weight. While Fortune tried to discredit the findings of Dr. Nulud
evidence, that Reuben's death was caused by suicide, an excluded risk in his policy. The CA primarily relied
during his cross-examination by pointing out that he had no training in forensic or clinical pathology,65 it
on the testimony of Dr. Pagayatan which the CA considered res gestae, and the testimony of Dr. Fortun in
cannot be denied that he is competent to conduct an autopsy considering the 9600 medico-legal cases,
concluding that Reuben committed suicide. However, these pieces of evidence cannot be given credence by
8,246 autopsies he had previously handled and 2,627 gunshot wound cases.66 Even Dr. Fortun recognized
the Court.
that the conduct of an autopsy could have been a better basis to make a conclusive finding on the matter of
death of Reuben.67 Therefore, Dr. Nulud is in a better position to know the circumstances surrounding the
Dr. Pagayatan's testimony on the statement death of Reuben.
Randolph allegedly gave moments after
Reuben was brought to the hospital is
According to Dr. Nulud, the trajectory of the wound is "posterior ward, upward and medial ward."68 In Dr.
inadmissible.
Nulud's Judicial Affidavit which was adopted as his direct-examination, he explained his findings in Medico-
Legal Report No. M-239-2011, as revealed in the following exchange:
We do not agree with the ruling of the CA that the statement given by Randolph, which was repeated in
court by Dr. Pagayatan, is admissible. It is not the res gestae contemplated by the Rules.
26 Q. So according to you, the cause of the death of Reuben Protacio is gunshot wound whose point of entry
was left anterior mid-line with an area of smudging, measuring c6x5 cm., 115 cm from the heel, directed
Section 36 of Rule 130 of the Rules provides that "a witness can testify only to those facts which he knows of posterior-ward, upward and medialward, fracturing the sternum of the level of 5th thoracic rib and
his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in 8th thoracic vertebra, lacering the pericardial sac, right ventricle of the heart and thoracic aorta, making a
these rules." Res gestae, one of the exceptions to the hearsay rule, is found in Section 42 of Rule 130 which point of exit at the vertebra region, measuring 1.8 x 1 cm., along the posterior midline, 118 cm from the
states:
 34

heel and exited at the vertebra region along the posterior mid-line. Based on those findings of your, can you Noticeably, Dr. Fortun contradicted her own statement that trajectory alone does not indicate that a gunshot
tell whether said wound was self inflicted or not? wound is self-inflicted by hastily concluding that the trajectory of the bullet in Reuben's case showed that it
was not an accident.
A. It is not self inflicted.
Moreover, the admission of Dr. Fortun that she also considered the purported information supplied by
Randolph to Dr. Pagayatan that Reuben wanted to end his life74 is another reason for Us not to give
27 Q. What made you say that?
credence to her testimony. She does not have personal knowledge about this information as she did not
personally talk to Randolph, Dr. Pagayatan, or any of Reuben's house helpers.75 We have already settled
A Based on my experience, I could categorically say that the wound is not self-inflicted, due to the following that the purported statement made by Randolph to Dr. Pagayatan which the latter included in his Clinical
reason: (1) the distance range of the firearm from the wound's point of entry which resulted in the absence Abstract is not a res gestae statement that may be admitted by the Court as an exception to the hearsay
of muzzle imprinting of the gun barrel on the skin; (2) the direction/trajectory of the bullet in the victim[']s rule.
body; (3) and the negative result of the paraffin exam on the victim's hands.69
Likewise, the RTC correctly ruled that Dr. Fortun's testimony regarding the presence of gun powder or
Fortune failed to refute the findings of Dr. Nulud. Fortune even furnished Dr. Fortun the report prepared by residue on Reuben's hand carries no weight because her qualifications and expertise restrict her from
Dr. Nulud so that she can form her own opinion on the cause of Reuben's death. testifying on it.76 In her cross-examination, Dr. Fortun admitted that forensic chemistry is not her expertise
as revealed in the following exchange:
Relying on Dr. Nulud's sketch70, Dr. Fortun illustrated in her own anatomic sketch71 a similar trajectory of
the bullet and expounded on this matter in her Judicial Affidavit as follows: Q. Do you agree that there are people whose duties include the determination of the presence of gun powder
nitrate such as a forensic chemical officer?
75 Q: Earlier during the testimony of Dr. Nulud he made an illustration of the trajectory, can you confirm the
accuracy of the said illustration? A. Yes, sir.

A: Yes. This illustration is consistent with the description of Dr. Nulud. Q. And are you a forensic chemical officer?

76 Earlier marked as Exhibit 35. A. No, sir, forensic chemistry is not my line.77 (Emphasis supplied)

77 Q: Dr. Nulud is his testimony also stated that the trajectory of the bullet in the victim's body indicates The Final Investigation Report78 prepared by PO3 Rico P. Caramat (PO3 Caramat), the investigator on the
that the wound was not self-inflicted, what is your opinion on this? case, made the following conclusion:

A: The trajectory of a bullet describes its path inside the body in reference to a person in an anatomic 1. Based on the foregoing facts and the forensic examination conducted, and the absence of direct
position  i.e. standing straight, legs apart and arms away from the trunk with palms forward. Trajectory witness who actually saw what had transpired inside the bedroom of the deceased, the fact
alone does not indicate whether a gunshot wound is self-inflicted or not. In Mr. Protacio's case however the remains that prior to the death of REUBEN PROTACIO, he told his brother that he is cleaning his
bullet went straight front to the back supporting a deliberate selfinflicted shot, not random gunfire such as in gun after which a shot rang out and REUBEN was discovered with a gunshot wound on his body,
an accident.72 (Emphasis and underscoring supplied) thus his death. With this it could be surmised that REUBEN PROTACIO died of an accidental
gunshot wound.
However, when Dr. Fortun was pressed about the implication of the trajectory of the bullet, she did not
disregard the possibility that the shooting was accidental as shown in the following exchange: 2. As far as this office is concerned[,] this case is considered close[d], without prejudice should
new evidence surfaces (sic) to prove otherwise.79 (Emphasis supplied)
Q. In question no. 77 according to you, in the case of Mr. Protacio because the bullet went straight from the
front to the back it is indicative of a deliberate self-inflicted shot? In the Judicial Affidavit of PO3 Caramat which was adopted as his direct-examination, PO3 Caramat
identified the Final Investigation Report marked as Exhibit U that he prepared and adopted his findings
therein.80 PO3 Caramat concluded that Reuben died of an accidental gunshot based on the absence of an
A. Yes, sir. eye witness and the information Reuben gave to Randolph prior to the incident. When pressed on how he
arrived at his conclusion, PO3 Caramat explained that:
Q. Are you saying that it is impossible for an accidental shooting for the bullet to go through from the front
to back? THE WITNESS:

A. Not impossible sir.73 A: Sir, my conclusion arriving to this statement of the brother that he saw his brother cleaning the gun.

ATTY. OCO:
 35

Q: So, your report merely based on the testimonies of the brother, the drivers and the house helper of the Section 10. Every person has an insurable interest in the life and health:
deceased. Correct?
xxxx
A: Yes, sir.81
(c) Of any person under a legal obligation to him for the payment of money, or respecting property or
Taking into consideration all the evidence presented, We are convinced that Reuben's death was caused by services, of which death or illness might delay or prevent the performance; and
an accident and not a deliberate self-inflicted gunshot. We are inclined to give more credence to the
testimonies and reports prepared by the police investigators and medico-legal officer, Dr. Nulud than the
x x x x89 (Emphasis supplied)
testimony of Dr. Fortun, since they personally examined Reuben, the scene of the incident, and the weapon
used.
Therefore, a debtor may name his creditor as a beneficiary on a life insurance policy taken out in good faith
and maintained by the debtor. Likewise, a creditor may take out an insurance policy on the life of his debtor.
Susan is entitled to the value of
However, there are marked differences in the implication of these two scenarios.
Reuben's outstanding obligation.

In the United States (US) Supreme Court case of Crotty v. Union Mutual Life Ins. Co. of Maine,90 a person
The critical question to be resolved now is the extent of Fortune's liability to Susan in light of the fact that
obtained an insurance policy upon his life with a stipulation that the amount of the policy should be payable
the amount of Reuben's obligation at the time of his death exceeded the face value of the policy and Susan
to the insured if he survived the stipulated term; or, if he should die within that term, then "to Michael
had already recovered P2,000,000.00 from Rossana.
Crotty, his creditor, if living; if not, then to the said executors, administrators or assigns." When his creditor
Crotty brought a suit against the insurer, the US Supreme Court declared that:
Fortune argued that even if it is liable to Susan, the extent of its liability should only be limited to
P1,000,000.00 because when the policy took effect, her investment only amounted to P3,000,000.00 and
x x x [I]f a policy of insurance be taken out by a debtor on his own life, naming a creditor as beneficiary, or
P2,000,000.00 had already been returned to her by Rossana.82 Fortune pointed out that the additional
with a subsequent assignment to a creditor, the general doctrine is that, on payment of the debt, the
investments amounting to P12,000,000.00 were made after the policy took effect.83 For Fortune, the policy
creditor loses all interest therein, and the policy becomes one for the benefit of the insured, and collectible
was assigned to Susan only up to the extent of the debt at the time the policy took effect.84 This argument
by his executors or administrators.91
is erroneous.

Professor Sulpicio Guevara, an eminent author in insurance law, highlighted the differences between a policy
It must be clarified that at the time the policy took effect, the investment Susan made was already
taken by a creditor on the life of his debtor and a policy taken by the debtor on his own life and made
P4,000,000.00.85 After the policy took effect, Susan invested P12,000,000.00 more to Reuben's business.
payable to his creditor. Reconciling the case of Crotty and Philippine insurance law, Professor Guevara
The argument of Fortune is belied by the Endorsement Letter86 wherein Ma. Teresa B. Catapang
explained that:
(Catapang), Senior Manager - New Business Division of Fortune, stated:

x x x [A] distinction should be made between a policy taken by a debtor on his life and made payable to his
Policy Number : 61761
creditor, and one taken by a creditor on the life of his debtor. Where a debtor in good faith insures his life for
the benefit of his creditor, full payment of the debt does not invalidate the policy; in such case, the proceeds
Insured : REUBEN M. PROTACIO should go to the estate of the debtor.92

This certifies that the above policy contract is assigned to SUSAN CO DELA FUENTE-UG7 Megaplaza Bldg. Meanwhile, in a situation where an insurance is taken by a creditor on the life of his debtor, Professor
ADB Ave. Ortigas Ctr. Pasig as creditor, up to the extent of the indebtedness, the balance if any, to the Guevara adopted the ruling in Godsall v. Boldero93 and rationalized that:
designated beneficiaries.
x x x [T]he insuring creditor could only recover such amount as remains unpaid at the time of the death of
Done at Makati City, Philippines, this 25th day of March, 2011.87 (Emphasis supplied) the debtor, - such that, if the whole debt has already been paid, then recovery on the policy is no longer
permissible.94
Nowhere in the Endorsement Letter88 is it stated that the insurer shall only be liable to the beneficiary for
the amount owing to Susan at the time the policy took effect. Instead, what is clear is that Susan, as the Noticeably, the actual investment of Susan at the time of Reuben's death is P16,000,000.00 of
creditor of Reuben and the designated beneficiary of his policy, is entitled to her claim up to the extent of his P1,000,000.00 more than the face value of the policy.(awÞhi( The intention of the parties in entering into
indebtedness. several memoranda of agreement reflecting the investment contracts, and in taking out an insurance policy
on the life of Reuben with Susan as the beneficiary is to secure Reuben's debt. To Our mind, in taking out a
policy on his own life and paying its premium, Reuben intended to use it as a collateral for his debt at least
The policy of the State against wagering contracts is apparent in Section 3 of the Insurance Code, as
to the amount of the policy's face value. The insurable interest of Susan is not limited to just what Reuben
amended, requiring the presence of insurable interest for a contract of insurance to be valid. This is meant
owed her at the time the policy took effect. Instead, she becomes entitled to the value of Reuben's
to eliminate the temptation of taking out a policy for speculative or evil purposes. Insurance policies should
outstanding obligation at the time of his death the maximum recoverable amount of which is the face value
be obtained in good faith, and not for the purpose of speculating upon the hazard of a life in which one has
of the policy.
no interest in Paragraph (c), Section 10 of the same Code enumerates the kinds of insurable interest
contemplated in Section 3, to wit:
 36

Nevertheless, taking into consideration the state's policy against wagering contracts and the principle of computed from default, i.e., from judicial or extrajudicial demand under and subject to the
equity, the P2,000,000.00 which Susan received from Rossana should be deducted from P16,000,000.00, provisions of Article 1169 of the Civil Code.
the total outstanding obligation of Reuben at the time of his death. The face value of the policy,
P15,000,000.00 should be the maximum amount that Susan may receive. Therefore, the amount of
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
Fortune's liability to Susan should be computed as follows:
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
Investment on February 17, 201195 Php 2,000,000.00 when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
Investment on March 3, 201196 1,000,000.00 claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to run only from
Investment on March 14, 201197 1,000,000.00 the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
Investment prior to effectivity date of policy Php 4,000,000.00

Add: Investment on March 28, 201198 6,000,000 3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
Investment on March 28, 201199 6,000,000.00
be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. And in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be
Total Investment of Susan Php 16,000,000.00 implemented applying the rate of interest fixed therein.102 (Emphasis and italics in the original;
Less: Amount paid by Rossana citation omitted)

Ajon to Susan Dela Fuente (2,000,000.00)

Applying the guidelines in the case of Nacar to the present case, 12% interest rate per annum shall be
Total outstanding obligation of Fortune to Susan Php 14,000.000.00 imposed on the principal amount due from the time of judicial demand, i.e., from the time of the filing of the
complaint, until June 30, 2013. Thereafter, from July 1, 2013, until full satisfaction of the monetary award,
the interest rate shall be 6% per annum.

Limiting the extent of Fortune's liability to Susan is consistent with the ruling in the case of WHEREFORE, the Decision dated February 17, 2016 and the Resolution dated May 26, 2016 of the Court of
Crotty.100 Though the case of Crotty may not be on all fours with the one at bar, its principle is instructive Appeals in CA-G.R. CV No. 105012 are SET ASIDE. Respondent Fortune Life Insurance Co., is ORDERED to
in resolving Susan's claim. Having already received P2,000,000.00 of the P16,000,000.00 Susan invested in pay petitioner Susan Co Dela Fuente the following:
Reuben business, she can now only recover up to the balance of his outstanding obligation, P14,000,000.00.
a. P14,000,000.00 representing Reuben's outstanding obligation;
Attorney's fees
b. P50,000.00 as attorney's fees; and
With respect to the award of attorney's fees, the Civil Code allows attorney's fees to be awarded if, as in this
case, exemplary damages are imposed. Considering the protracted litigation of this dispute, an award of
P50,000.00 as attorney's fees is awarded to Susan. c. costs of suit

Legal interest Interest at twelve percent (12%) per annum of the total monetary awards, computed from the date of the
filing of the complaint for damages to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until
their full satisfaction shall also be imposed on the total judgment award.
In accordance with the Court's ruling in the case of Nacar v. Gallery Frames and/or Felipe Bordey,
Jr.,101 Susan is entitled to legal interest. In Nacar, the Court, modified the imposable interest rates on the
basis of Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, which took effect on July 1, 2013, SO ORDERED.
thus:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be
 37

THIRD DIVISION the initial installment payment was not completed.15 Loyola asked for a reconsideration, insisting that the
Timeplan Dwight obtained was already in full force and effect upon payment of the premium on April 28,
2000.16
G.R. No. 228402, August 26, 2020
On October 16, 2001, ATR, through its Vice President of Legal and Compliance, denied Angelita's claim,
LOYOLA LIFE PLANS INCORPORATED (NOW LOYOLA PLANS CONSOLIDATED INC.) AND ANGELITA reiterating its position that payment of the premium had not been completed. 17 ATR also invalidated Dwight's
D. LUMIQUED, PETITIONERS, V. ATR PROFESSIONAL LIFE ASSURANCE CORPORATION (NOW application as his signature appearing therein was allegedly forged. 18 To bar Angelita from further pursuing
ASIAN LIFE AND GENERAL ASSURANCE CORPORATION), RESPONDENT. any claim for the insurance benefits, ATR instituted a complaint 19 to declare the individual insurance
coverage of Dwight under Master Policy No. GCL-878 void and of no effect at the time of his death on May 1,
G.R. No. 222912 2000. ATR also prayed for the payment of attorney's fees, litigation expenses, and costs of suit. 20

ATR PROFESSIONAL LIFE ASSURANCE CORPORATION (NOW ASIAN LIFE AND GENERAL In Loyola's Answer with Compulsory Counterclaim,21 which was adopted  in toto by Angelita,22 Loyola argued
ASSURANCE CORPORATION), PETITIONER, V. LOYOLA LIFE PLANS INCORPORATED (NOW that: (1) Dwight's signature appearing in his Timeplan application was not forged; 23 and (2) Dwight paid in
LOYOLA PLANS CONSOLIDATED INC.) AND ANGELITA D. LUMIQUED, RESPONDENTS. full the first installment of the insurance premium in the amount of P5,040.00 on April 28, 2000, prior to his
death.24 Loyola added that ATR cannot escape paying the proceeds under the Group Creditors Life Insurance
in the amount of P599,760.00, Group Yearly Renewable Term Life in the amount of P604,800,00, and the
DECISION Accidental Death Benefit in the amount of P604,800.00 by insisting that Dwight was murdered. Loyola
pointed out that ATR failed to give any evidence to support its claim that Dwight was murdered and not a
CARANDANG, J.: victim of homicide.25 Thus, Loyola and Angelita prayed that ATR be directed to comply with its obligations
under the Group Creditors Life Insurance Agreement by paying P1,809,360.00 in actual damages. In
addition, Loyola and Angelita prayed that judgment be rendered ordering ATR to pay moral damages, and
Before this Court are two consolidated Petitions for Review on Certiorari1 under Rule 45 of the Rules of exemplary damages. Attorney's fees, litigation expenses, and costs of suit were also prayed for. 26cralawred
Court, assailing the Decision2 dated February 4, 2016 and the Resolution3 dated November 17, 2016 of the
Court of Appeals (CA) in CA-G.R. CV No. 97528.
Ruling of the Regional Trial Court

Antecedents
On July 7, 2011, the RTC rendered its Decision, 27 the dispositive portion of which reads:

Loyola Life Plans, Inc. (Loyola) is a pre-need company engaged in the business of insuring the lives of its
plan holders through its Timeplans (pension contracts) and Lifeplans (memorial service contracts), which are WHEREFORE, the Court renders judgment:
covered by insurance benefits provided by several insurance companies including GE Life Insurance
Company, Incorporated (GE Life), later known as ATR Professional Life Assurance Corporation (ATR). 4 On 1. DISMISSING the Complaint of plaintiff;
June 8, 1999, Loyola applied with ATR for a Group Creditors Life Insurance plan, with Group Yearly 2. HOLDING plaintiff ATR Professional Life Insurance Corporation, now the Asian Life and General Assurance
Renewable Term Life and Accidental Death Benefit as supplementary benefits.5 They entered into a Group Corporation, liable for defendants' counterclaim. Plaintiff is ordered to: 
Creditors Life Insurance Agreement, effective on June 15, 1999, under Master Policy No. GCL-878. 6 a. Pay to defendant Angelita Lumiqued actual damages in the amount of P1,809,360;
b. Pay to defendants Loyola Plans Inc. and Angelita Lumiqued moral damages in the amount of P100,000;
On April 28, 2000, Dwight L. Lumiqued (Dwight), husband of Angelita Lumiqued (Angelita), purchased a c. Pay to the defendants exemplary damages in the amount of P100,000;
Timeplan from Loyola payable in 120 monthly installments in the amount of P5,040.00 per month. To pay d. Pay to the defendants attorney's fees in the amount of P100,000;
for the first monthly premium, Dwight issued two Metrobank checks in the amounts of P2,824.75 and e. Pay to the defendants the costs of suit.
P600.00 under Check Nos. 1200011493 and 1200114994, respectively. He also paid in cash P1,615.25. SO ORDERED.28 (Emphasis omitted)
Simultaneous with the payment of the first monthly premium, Dwight executed Timeplan Application No. OT-
003810717 for which Timeplan Contract No. GGG4300047858 was issued.9 He was then issued an Official
Receipt,10 which expressly states:
The RTC held that Dwight timely paid the premium of the policy. Since the agreement and the official receipt
state that the insurance coverage of a planholder shall take effect on the date of initial payment and/or
This Receipt is valid for downpayment only. Checks and other similar forms shall be valid only when cleared down payment on the Timeplan, the RTC ruled that the date of receipt by the agent of Loyola of the down
by the Bank.11cralawlawlibrary payment on April 28, 2000 is also the date of payment of the premium. 29 The RTC also found that ATR's
allegation of forgery was a mere afterthought.30 The RTC noted that it was only on September 22, 2001, or
almost 18 months after the death of the Dwight, that the genuineness of his signature was assailed for the
Belen Edith C. Ganit (Ganit), Loyola's Sales Operation Assistant, deposited on the same day the two first time.31
Metrobank checks while the cash payment was deposited to the account of Loyola on May 2, 2000. 12
The RTC computed the actual damages as follows:
On May 1, 2000, Dwight died due to multiple stab wounds. 13

Thereafter, Angelita filed a claim to recover the proceeds of the insurance benefits through Loyola's broker, Group Creditors Life   Insurance P599.760.00
Network Unlimited, Inc. However, in a letter14 dated April 17, 2001, ATR denied the claim on the ground that (outstanding balance net
 38

of the first installment

The moral and exemplary damages awarded were deleted as the CA found that ATR did not commit any
paid)
fraudulent act nor employ bad faith. The CA also removed the award of attorney's fees as the RTC decision
did not state the reason why it was awarded.42
Group Yearly Renewable 604,800.00 (the gross
Term Life contract price)
On March 16, 2016, ATR filed its petition for review on  certiorari  docketed as G.R. No. 222912,43 claiming
that it is not liable to pay the heirs of Dwight because: (1) Dwight did not complete the monthly premium
Accidental Death Benefit 604,800.00 (the gross payment prior to his death because the cash payment of P1,615.25 was only deposited on May 2,
contract price)             2000;44 (2) the Timeplan application of Dwight is forged;45 and (3) murder is not among the risks covered by
the Group Creditors Life Insurance Agreement.46
TOTAL P1,809,360.0032
In its Comment47 , Loyola pointed out that ATR's petition is premature because the CA had not yet resolved
Loyola's Motion for Reconsideration48 to the Decision of the CA. Loyola proposed that the case be remanded
The RTC also awarded P100,000.00 as moral damages for ATR's bad faith and P100,000.00 as exemplary to the CA for the final disposition of the Motion for Reconsideration. 49
damages for not honoring its obligation. Attorney's fees in the amount of P100,000.00 was also found to be
reasonable.33cralawred Thereafter, in a Resolution50 dated November 17, 2016, the CA denied the Motion for (Partial)
Reconsideration Loyola filed.
Ruling of the Court of Appeals
Meanwhile, in the petition filed on January 11, 2017 docketed as G.R. No. 228402, Loyola emphasized that
the records, including documentary evidence and pleadings submitted by ATR, recognize that the policy in
question is entitled to the Group Creditors Life Insurance and the Group Yearly Renewable Term Life benefits
On February 4, 2016, the CA rendered its Decision,34 the dispositive portion of which reads:
Loyola obtained under Master Policy No. GCL-878.51 Loyola also highlighted that the amount of P1,809,360
was stipulated by the parties and that the specific amount of loss need not be proven. 52 Loyola further
WHEREFORE, premises considered, the instant Appeal is hereby DENIED. The assailed Decision dated 7 argued that the CA erred in deleting the award of moral and exemplary damages despite the trial court's
July 2011 of the Regional Trial Court, Branch 136, Makati City in Civil Case No. Q-01-1665 is finding of bad faith on the part of ATR and its failure to honor its obligation. 53 Contrary to the ruling of the
hereby AFFIRMED with MODIFICATION by holding appellant liable to pay the heirs or beneficiaries listed CA, Loyola averred that the award of attorney's fees is justified because it was clearly stated in the RTC
in the insurance policy Plan Benefit in the amount of P992,000.00. Actual damages awarded in the aggregate decision that ATR filed an unfounded suit.54
amount of P1,809,360.00 including the damages for moral and exemplary as well as attorney's fees each in
the sum of P100,000.00 are hereby DELETED. On January 18, 2017, the Court issued a Resolution ordering that G.R. No. 228402 and G.R. No. 222912 be
consolidated as both cases assail the same Decision of the CA in CA-G.R. CV No. 97528.
35
SO ORDERED.  (Emphasis in the original)
In its Comment55 in G.R. No. 228402, ATR insisted that the amount paid by Dwight should be treated only as
a deposit and not a premium payment because the cash payment of P1,615.25 was deposited on May 2,
The CA held that the partial payment of the premium rendered the policy in full force and effect. This is 2000, making the first installment not fully paid.56 Because the downpayment in the amount of P5,040.00
expressly provided in the terms of the policy.36 The CA declared that the assumption of risk by ATR started was not fully paid on its due date, April 28, 2000, ATR reiterated its position that the policy is not valid and
from the moment of the initial down payment on the premium through the payment of checks and the cash binding.57 ATR also maintained that it is not liable because "[m]urder or provoked assault; or any attempt
received by Loyola's agent, as reflected in the Official Receipt issued to Dwight on April 28, 2000. 37 thereat" are among the exclusions of the policy.58 Moreover, ATR insisted that it has substantially proven
that Dwight's Timeplan application was forged.59
The CA explained that, though delivery of the checks does not immediately effect payment, it simply
suspends the action arising from the original obligation until payment is accompanied either actually or In its Reply,60 Loyola essentially restated its substantive arguments to support its position.
presumptively. The payment of the premium on the policy thus became an independent obligation, the non-
fulfillment of which would entitle the insurer to recover. The CA opined that the insurer could just deduct the Issues
premium due and unpaid upon the satisfaction of the loss under the policy. It does not have a right to cancel
the policy. It could place the insured in default in case of such and give the latter personal notice to that
effect.38 The issues to be resolved are:

The CA also did not find any merit to ATR's claim that Dwight's application was forged. The testimony
1. Whether Dwight's Timeplan application was forged;
confirming the genuineness of Dwight's signature by the Philippine National Police handwriting examiner
2. Whether an insurance contract was perfected between Dwight and ATR on April 28, 2000 when
Mely Feliciano Sora was given full credence.39 Likewise, the CA believed Jacobo Gumiran's (Gumiran)
Dwight paid Loyola's agent, Gumiran, cash in the amount of P1,615.25 and two checks amounting
statement that he personally witnessed Dwight affix his signature in the application and even admitted
to P2,824.75, and P600.00, thus entitling his heirs to the proceeds of the policy following his death
receiving the down payment.40
on May 1, 2000;
3. Whether the cause of Dwight's death is a risk covered by the Timeplan contract;
The CA deleted the award of actual damages in the amount of P1,809,360.00, stating that the Timeplan
4. Whether Dwight's Timeplan contract is entitled to the Group Creditors Life Insurance and the Group
contract specifically provides payment of P992,000.00 as plan benefit only. The CA did not find sufficient
Yearly Renewable Term Life benefits obtained by Loyola; and
evidence to prove that the policy in question falls within the categories of Group Creditors Life Insurance and
5. Whether the CA correctly deleted the award of moral damages, exemplary damages, and attorney's
Group Yearly Renewable Term Life or that the death of Dwight was accidental in order for him to be entitled
fees.
to P1,809,360.00.41
 39

Dwight timely paid the initial monthly

premium for the Timeplan on April
Ruling of the Court 28, 2000 to Loyola who is an agent of
ATR. Hence, an insurance contract was
perfected.
ATR failed to sufficiently establish
that Dwight's Timeplan application A contract of insurance is defined as an agreement whereby one undertakes for a consideration to indemnify
was forged. another against loss, damage, or liability arising from an unknown or contingent event.67 An insurance
contract exists where the following elements concur: (1) the insured has an insurable interest; (2) the
It is well-settled that allegations of forgery, like all other allegations, must be proved by clear, positive, and insured is subject to a risk of loss by the happening of the designated peril; (3) the insurer assumes the risk;
convincing evidence by the party alleging it. It should not be presumed but must be established by (4) such assumption of risk is part of a general scheme to distribute actual losses among a large group of
comparing the alleged forged signature with the genuine signatures. Although handwriting experts are often persons bearing a similar risk; and (5) in consideration of the insurer's promise, the insured pays a
offered as witnesses, they are not indispensable because judges must exercise independent judgment in premium.68 In the case of  Perez v. Court of Appeals,69 the Court held that assent is given when the insurer
determining the authenticity or genuineness of the signatures in question. 61 issues a corresponding policy to the applicant. The Court declared that "[i]t is only when the applicant pays
the premium and receives and accepts the policy while he is in good health that the contract of insurance is
In this case, to prove forgery, ATR relied on the Report 62 of retired Chief Document Examiner of the National deemed to have been perfected."70
Bureau of Investigation, Atty. Desiderio A. Pagui (Atty. Pagui), who concluded that:
The fact that Dwight was only able to make an initial payment of the insurance premium and that Loyola
failed to immediately remit cash portion of the initial payment to ATR should not affect the validity of the
FINDINGS-CONCLUSION: perfected insurance contract.
The questioned signature "Dwight L. Lumiqued" in carbon-original appears inherent defect in line quality Furthermore, ATR agreed to insure all present and future planholders of Loyola. The pertinent provisions in
which comparing scientifically with standard signatures, assuming that they are authentic copies of the Master Policy No. GCL-878 on payment of premium and effectivity of policy read:
originals, which though the latter are undoubtedly clear copies reflecting free flowing execution of the
writing strokes reveals inconsistency in line qualities with the former. As consequence, while the original
of questioned document is preferably the most desired to be examined, the available signatures DATE OF EFFECTIVITY OF INDIVIDUAL
would show significant differences in handwriting characteristics between said questioned and standard INSURANCE
signatures. Using those that are available as aforesaid, the questioned and standard signatures could have
not been affixed by one and the same person.63 (Emphasis supplied) The insurance coverage of all present and future eligible PLANHOLDER shall become effective on the latest
of the following dates.

Noticeably, the language used by Atty. Pagui in his findings is not definitive and cannot be considered a 1. the date the contract of agreement with the CREDITOR is legally perfected; or
reliable examination of the genuineness of Dwight's signature. While it concludes that the questioned and 2. the date of the initial payment and/or down payment;
standard signatures could not have been affixed by one and the same person, this conclusion is made on the 3. the date written application is accomplishment (sic); or
assumption that the standard signatures provided by ATR are authentic copies of the originals. Moreover, 4. the date of approval by the COMPANY of evidence of insurability, if required; or
only the carbon-original copy of Dwight's questioned document was examined, not the original questioned 5. the date the COMPANY received the corresponding premium.71
document bearing his signature. Atty. Pagui admitted that the original copy of the document where the
questioned signature appears is "preferably the most desired to be examined." Even Mely Feliciano Sora,
Chief of the Questioned Document Examination Division of the Philippine National Police Crime Laboratory, xxxx
opined that it is impossible to conduct a reliable handwriting examination of Dwight's signature appearing on
the Timeplan Application. According the her, the Application is a mere carbon original wherein the minute PAYMENT OF PREMIUMS
details are not clear.64 Moreover, it must be stressed that ATR hired Atty. Pagui to prepare the report. Thus,
the CA was correct in not giving credence to Atty. Pagui's testimony because his report is susceptible to bias The initial premium for each benefit provided in the Policy shall be stated in the SCHEDULE OF PREMIUM
and prejudice.65 Given the unreliable quality of the available sample signatures of Dwight in the records, the RATES provision applicable to said benefit. All premium on this Policy are payable in advance directly to the
Court is inclined to refuse conducting an independent examination of the genuineness of his signature in the Home Office of the Company or to a duly authorized Agent of the Company.
disputed Timeplan application.
Payment of premiums whether monthly, quarterly, semi-annually, or annually are payable as they become
Nevertheless, the Court finds Gumiran's admission that he personally witnessed Dwight affix his signature in due according to the mode of premium payment. Any change in the mode of premium payments may be
the application sufficient to rebut the allegation of forgery. Between the unreliable findings of Atty. Pagui and affected only at the beginning of any Policy year. No premium payment shall maintain this Policy in force
the sworn statement of Gumiran, the Court is inclined to give more credence to the latter. beyond the date when the next premium becomes due, except as provided in the Grace Period provision
herein.72
The Court also agrees with the observation of the lower courts that the allegation of forgery is a mere
afterthought. It was only on September 22, 2001, or almost 18 months after the death of Dwight, that ATR xxxx
belatedly assailed for the first time the genuineness of his signature. ATR's timing in raising the allegation of
forgery is suspicious and questionable.66 Thus, the Court is convinced that the signature of Dwight appearing EFFECTIVE DATE
in his Timeplan application is genuine.
The coverage of insurable PLANHOLDER shall take effect on the date of initial payment and/or
 40

down payment on the selected plan (as shown in the Binding Deposit Receipt). However, the holder and all communications were coursed through BPI. 79
Company reserves the right to require a PLANHOLDER to submit Evidence of Insurability even the coverage
does not exceed the Non-Medical Limit. While the facts and issue surrounding the case of  Laingo is different from the case at bar, the ruling of the
Court still finds applications to the present case. The relationship between BPI and FGU Insurance in
REPORTING OF INSURED PLANHOLDERS the  Laingo  case is similar to the arrangement between Loyola and ATR in the present case. Loyola offered its
Timeplan product with a life insurance feature to entice customers to invest their money. Loyola secured
xxxx Master Policy No. GCL-878 from ATR to insure all of its future planholders. Customers who intend to avail the
Timeplan of Loyola do not transact with ATR and merely submit all the requirements, including the payment
Applications for insurance must be submitted to GE LIFE within seven (7) working days from the date of of premiums, to Loyola. As such, it is apparent that Loyola acted as agent of ATR with respect to the
initial/ first payment of the Plan holders together with the list of Certificate issued. Effective Date shall insurance feature of its Timeplan product. The collective conduct of Loyola, as an agent of ATR, in accepting
coincide with the date of first payment if complied with. However, GE LIFE will not be held liable for from Dwight the initial payment, issuing the corresponding Official Receipt,80 and delivering the pre-signed
Certificates issued not reported for coverage within the said 7-working day period. 73 (Emphasis supplied) Timeplan contract reveal that a contract of insurance was perfected. The acts of Loyola, as an agent of ATR,
binds the latter.

The effectivity of the Timeplan cannot be left to the will of Loyola and ATR. This arrangement will leave
Noticeably, the date of effectivity of individual insurance provision contains conflicting terms that are
Dwight in a helpless position where the implementation of the contract is put on hold and made dependent
susceptible to different interpretations. While the policy states that it shall become effective on the "latest"
upon the will of Loyola and ATR despite having complied with his contractual obligations. Moreover, the
of a list of dates, the use of the conjunction "or" suggests that there are options and that any of the options
Official Receipt81 Gumiran issued to Dwight clearly states:
chosen can give rise to the effectivity of the individual insurance. Meanwhile, in the clause pertaining to the
"EFFECTIVE DATE" of the policy, it clearly states that "[t]he coverage of insurable PLANHOLDER shall take
effect on the date of initial payment and/or down payment on the selected plan (as shown in the Binding This Receipt is valid for down payment only. Checks and other similar forms shall be valid only when cleared
Deposit Receipt)."74 by the Bank.82cralawlawlibrary

The contract between ATR and Loyola is a contract of adhesion as it was prepared solely by ATR for Loyola
and its planholders to conform to. Any ambiguity in a contract of adhesion is construed strictly against the As far as Dwight is concerned, his payment to Gumiran is considered his payment to Loyola and ATR for the
party that prepared it. In this case, the obscure provision pertaining to the date of effectivity of the policy initial monthly installment of the Timeplan even if the cash portion of his payment was not immediately
coverage should be resolved in favor of Angelita. Thus, the happening of any of the instances enumerated deposited to Loyola's account.
should suffice in giving rise to the effectivity of the individual insurance. This interpretation is more
consistent with the other provisions of the policy such as the clause on the "EFFECTIVE DATE" of the policy. Furthermore, upon payment of the premium, Dwight was issued a copy of the Timeplan contract that was
pre-signed by Jesusa Puyat-Concepcion, President and Chief Executive Officer of Loyola, and Francisco D.
ATR argues that the date of receipt of payment of premium is the date when the cash was actually deposited Cauilan, Area Manager of Loyola.83 Dwight's receipt of the Timeplan contract, while he was in good health,
in the bank. The Court finds this proposition contrary to logic and unreasonable. signifies that the contract was perfected. The delivery of the corresponding Timeplan contract signifies the
perfection of the contract between him and Loyola.
Here, it is undisputed that at 10:34 am on April 28, 2000, Loyola's Sales Operation Assistant deposited the
two Metrobank checks at Metrobank Solano, Nueva Viscaya branch. However, instead of immediately More importantly, it must be clarified that, while the first monthly installment due from Dwight is P5,040.00,
depositing the cash payment of P1,615.25, Loyola used the money and waited until May 2, 2000, the next the insurance premium payable to ATR is only a fraction of said installment payment. The breakdown of the
banking day which fell on a Tuesday, to deposit the remainder of the initial payment of Dwight. 75 By then, cost allocation of the installment values made on the plan of Dwight indicates that the insurance premium
Dwight had already passed away due to the multiple stab wounds he sustained on May 1, 2000. Loyola payable to ATR is only P447.55. Pursuant to the Certification of Distribution of Monthly Installments 84 as of
admitted that the delay in the deposit of the P1,615.25 cash was due to its district office's immediate need April 28, 2000 Loyola issued, the breakdown of the initial payment is as follows:
for cash.76

It is important to clarify that Loyola is an agent of ATR. In a contract of agency, "a person binds himself to Installment Amount 1st Month 5,040
render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter."77 Therefore, a planholder's payment made to Loyola has the same legal effect as       Filing fee       50.40
payment made to ATR, even if Loyola failed to immediately deposit the cash payment to its account.
      Documentary stamp       252.00
In the case of  Bank of the Philippine Islands v. Laingo,78 the Court held that the Bank of the Philippine
Islands (BPI) acted as agent of FGU Insurance with respect to the insurance feature of its commercial       10% VAT       403.20
product, a savings account which offered insurance coverage for free for every deposit account opened. The
controversy in  Laingo involved the alleged non-compliance with the requirement of submitting a written
      Commission/ Overrides       2,166.66
notice of insurance claim to FGU Insurance within three calendar months from the death of the insured. The
beneficiary of the policy contended that BPI did not notify her of the attached insurance policy yet allowed
      Collection fee       0.00
her to withdraw from the savings account after the death of the insured. In ruling that it was incumbent
upon BPI, as agent of FGU Insurance, to give proper notice of the existence of the insurance coverage and
      Bonuses       140.11
the stipulation in the insurance contract for filing a claim, the Court observed that the account holder directly
communicated with BPI as the agent of FGU Insurance. BPI facilitated the processing of the deposit account,
collection of necessary documents, and the endorsement for the approval of the insurance coverage without       Other expenses (GAE)       504.00
any other action on the part of the account holder. FGU Insurance did not interact directly with the account
 41

amounting to P604,800.00. The evidence on record and the pleadings submitted by ATR all show that Loyola
      Insurance cost       447.55
obtained a Group Creditors Life Insurance from ATR, with supplementary Group Yearly Renewable Term Life
and Accidental Death benefits, for its present and future planholders.88
      Trust fund deposit       1,008.00
The cover page of Master Policy No. GCL-878, where the dry seal of GE Life and the signature of its
      Total Expenses       4,971.92 president & chief executive officer Eulogio A. Mendoza appear, specifically states:

      Remainder of Installment       68.0885

MASTER POLICY NO. : GCL-878

Here, it is readily apparent that the amount Loyola received from Dwight is more than enough to cover the POLICYHOLDER/ CREDITOR : LOYOLA TIMEPLAN
P447.55 insurance cost. The cash payment of P1,615.25 alone was more than sufficient to pay for the
insurance cost payable to ATR yet the employees of Loyola opted to delay depositing it and used it for other PLAN OF INSURANCE : GROUP CREDITORS LIFE INSURANCE
purposes not intended by the parties. The insurance coverage of Dwight should not be adversely affected by
Loyola's delay. SUPPLEMENTARY BENEFITS : GROUP YEARLY RENEWABLE TERM LIFE ACCIDENTAL
DEATH BENEFIT
The cause of Dwight's death is a risk
covered by the Timeplan contract. POLICY EFFECTIVE DATE : JUNE 15, 1999

ATR argues that the cause of Dwight's death is an excluded risk because he was murdered. The Exclusions PREMIUM DUE DATE : JUNE 15, 1999 & EVERY YEAR THEREAFTER
Clause of Master Policy No. GCL-878 states:
POLICY ANNIVERSARIES : JUNE 15, 2000 & EVERY YEAR THEREAFTER 89 (Emphasis
No benefit shall be payable for any loss resulting from or caused directly or indirectly, wholly or partially, by: supplied)
xxxx

10. Murder or provoked assault; or any attempt thereat; or Master Policy No. GCL-878 enumerates the amount of insurance for each benefit as follows:
86
x x x x cralawlawlibrary
AMOUNT OF INSURANCE

Group Creditorss Life Insurance - equal to the outstanding and unpaid balance of the gross
Noticeably, the records are bereft of any circumstance showing that the fatal stabbing of Dwight is a product
contract price.
of the crime of murder. The Investigation Report of ATR states:
Group Yearly Renewable - equal to the original amount of gross contract price.
Since the coverage was only 3 days from the effective date, I went to Nueva Vizcaya to have this case
investigated. I found out, however, that the insured died actually on May 1, 2000 at about 2:30 in the Accidental Death Benefit - equal to the original amount of gross contract
morning. He was stabbed to death by his brother in law Joemar Tallud after trying to pacify price.90 [Emphasis and underscoring in the original]
Joemar and his wife Angelita quarelling  (sic) over real property inheritances. A case was already
filed against Joemar Tallud at the Regional Trial Court in Bayombong, Nueva Vizcaya. 87 (Emphasis supplied)

Throughout the text of Master Policy No. GCL-878, the listed benefits have been consistently mentioned and
is deemed to cover all present and future eligible planholders of Loyola.91 Even the Claims Committee Action
From the foregoing, it is clear that, though Dwight died as a result of stab wounds inflicted by his brother-in- Sheet reflecting ATR's denial of Angelita's claim confirm that Master Policy No. GCL-878 includes said
law Joemar Tallud (Joemar), nothing in the Investigation Report suggests that he was murdered or that he benefits.92 ATR never denied the inclusion of Dwight's Timeplan in Master Policy No. GCL-878. Thus, the RTC
died due to a provoked assault as understood in criminal law. The act of Joemar cannot be equated to was correct in including the proceeds from those benefits in computing the award of actual damages in the
murder or provoked assault without a final judgment from the court finding Joemar guilty beyond reasonable amount of P1,809,360 in favor of Angelita computed as follows:
doubt. The conclusion of ATR, unsupported by any competent evidence, fails to persuade the Court that the
cause of Dwight's death comes within the purview of the exclusion clause of Master Policy No. GCL-878.
Hence, ATR is not exempted from liability.   

Dwight's Timeplan contract entitles Group P599.760.00

him to the Group Creditors Life
Insurance and the Group Yearly Renewable Term Life benefits Creditors (outstanding
obtained by Loyola.
Life balance net of
The CA committed serious error in deleting the award of actual damages comprising the insurance benefits
from the Group Creditors Life Insurance amounting to P599.760.00 and Group Yearly Renewable Term Life Insurance the first
 42

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
  installment
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
  paid)
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
Group 604,800.00 xxxx
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
Yearly (the gross (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid,
just and demandable claim;
Renewable contract price) xxxx
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of
Term Life   litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.96cralawlawlibrary
Accidental 604,800.00

Death (the gross

The RTC was correct in awarding attorney's fees because exemplary damages were awarded and due to the
length of the proceedings. In addition, the Court finds the civil action initiated by ATR unfounded and that its
Benefit contract price)       
continued refusal to honor the insurance claim of Angelita under Master Policy No. GCL-878 justifies the
award of attorney's fees in the amount of P50,000.00 in her favor.
TOTAL P1,809,360.00
Similarly, the Court finds that an award of attorney's fees in the amount of P50,000.00 in favor of Loyola
and Angelita is proper due to the unfounded suit ATR filed against it and the length of the proceedings.
The CA committed error in deleting
the award of moral damages, exemplary damages, Interest
and attorney's fees.
Lastly, award of interest in accordance with the Court's ruling in the case of  Nacar v.  Gallery Frames97 is
Moral Damages proper. In  Nacar, the Court modified the imposable interest rates on the basis of Bangko Sentral ng Pilipinas
Monetary Board Circular No. 799, which took effect on July 1, 2013, thus:
The RTC awarded moral damages to Loyola and Angelita after finding that ATR acted in bad faith in bringing
a baseless suit against Loyola and Angelita.93 However, the CA deleted the award in its decision. The Court xxxx
finds that an award of moral damages in the amount of P50,000.00 is commensurate to the anxiety and
inconvenience Angelita suffered for ATR's callous treatment of her claim for death benefits. Indeed, ATR II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
reneged on its obligation to pay the proceeds from the policy Angelita is entitled to receive and intentionally rate of interest, as well as the accrual thereof, is imposed, as follows:
delayed the procedure to claim through its unsubstantiated assertion that Dwight was murdered. It also did
not escape the Court's attention that ATR belatedly assailed the genuineness of the Timeplan application of 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
Dwight 18 months after his death. For the Court, these acts collectively show the intention of ATR to unduly forbearance of money, the interest due should be that which may have been stipulated in writing.
prolong the process of claiming the benefits, thus justifying the award of moral damages in favor of Angelita. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default,  i.e., from
Exemplary Damages judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary amount of damages awarded may be imposed at the  discretion of the court at the rate of 6% per annum. No
damages may be awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive, or interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
malevolent manner.94 Article 2234 of the Civil Code further requires that, to be entitled to exemplary can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
damages, the claimant must show that he is entitled to moral, temperate, or compensatory damages. 95 certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
ATR undertook to insure Loyola's planholders upon the fulfillment of any of the instances enumerated in the made, the interest shall begin to run only from the date the judgment of the court is made (at which time
"Date of Effectivity of Individual Insurance" clause of Master Policy No. GCL-878. Considering that ATR the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
refused to honor the insurance coverage of Dwight's Timeplan, and unduly prolonged the procedure for computation of legal interest shall, in any case, be on the amount finally adjudged.
claiming the benefits under the policy, the Court finds that the award of exemplary damages in the amount 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
of P50,000.00 in favor of Angelita reasonable. interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
Attorney's Fees forbearance of credit.

The instances when attorney's fees may be awarded are enumerated in Article 2208 of the Civil Code which And in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall
reads: not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.98 (Emphasis and italics in the original; citations omitted)
 43

Applying the guidelines in  Nacar to the present case, 12% interest rate  per annum shall be imposed on the
principal amount due from the time of judicial demand,  i.e., from the time of the filing of the complaint, until
June 30, 2013. Thereafter, from July 1, 2013, until full satisfaction of the monetary award, the interest rate
shall be 6%  per annum.

WHEREFORE, premises considered, the Decision dated February 4, 2016 and the Resolution dated
November 17, 2016 of the Court of Appeals in CA-G.R. CV No. 97528 are MODIFIED. ATR Professional Life
Insurance Corporation, now Asian Life and General Assurance Corporation, is ORDERED to:

a. Pay Angelita Lumiqued actual damages in the amount of P1,809,360.00;

b. Pay Angelita Lumiqued moral damages in the amount of P50,000.00;
c. Pay Angelita Lumiqued exemplary damages in the amount of P50,000.00; and
d. Pay Loyola Plans Inc. and Angelita Lumiqued attorney's fees in the amount of P50,000.00 each.

In addition, ATR Professional Life Insurance Corporation, now Asian Life and General Assurance Corporation,
is DIRECTED to pay interest of twelve percent (12%)  per annum on the monetary award computed from
the time of the filing of the complaint until June 30, 2013 and six percent (6%)  per annum from July 1, 2013
until full satisfaction thereof.

SO ORDERED.
 44

SECOND DIVISION 23, 1908 because of Rudy's death on April 19, 1998.15 It argued that for want of consideration in view of the
non-release of the proceeds of the loan, the Sales Agreement and the Deed of Sale, together with the Deed
of Assignment with Special Power of Attorney executed by Rudy in favor of FMSCI should be deemed as null
G.R. No. 210582, July 29, 2020
and void.16

HOME DEVELOPMENT MUTUAL FUND (HDMF), V. PETITIONER, EULOGIA N. CATAQUIZ AND Ruling of the RTC
MANUEL P. CATAQUIZ, RESPONDENTS.
On June 27, 2006, Branch 14, RTC, Davao City rendered a Decision. 17 The dispositive portion of which is
RESOLUTION cited herein, to wit: 
IN VIEW WHEREOF, judgment is hereby rendered for the plaintiffs and against the defendants, ordering:

INTING, J.: 1.  Defendant HDMF to pay the plaintiffs the amount due as death benefits of their son, Rudy N. Cataquiz;

Before the Court is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Rules of Court filed by 2.   Defendant HDMF to turn over to the plaintiffs Transfer Certificate of Title No. T-296838, to cause the
Home Development Mutual Fund (HDMF) seeking to reverse and set aside the Decision2 dated July 4, 2013 cancellation of the mortgage and to consider the loan obligation of Rudy N. Cataquiz as fully paid and
and the Resolution3 dated December 12, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 01967-MIN extinguished by reason of his death;
which affirmed with modification the Decision4 dated June 27, 2006 of Branch 14 of the Regional Trial Court
3.  Defendant FMSCI to turn over the possession of Lot No. 11, Block 16. Phase II, Well-Spring Village,
Catalunan Pequeño, Davao City and the house constructed thereon to the plaintiffs; and

The Antecedents 4. Both defendants, jointly and severally, to pay attorney's fees in the amount of THIRTY THOUSAND
(P30,000.00) PESOS and to pay the costs.
On January 19, 1998, Rudy N. Cataquiz (Rudy) undertook a sales agreement and a construction contract
with Francisco M. Soriano Co. Inc., (FMSCI) for the purchase of a lot consisting of 100 square meters located The cross-claims of defendant FMSCI against defendant HDMF cannot be granted for lack of factual and legal
at Lot 11, Block 16, Phase II, Well-Spring Village, Catalunan Pequeño, Davao City in the amount of basis.
P70,000.00, and for the construction of a house thereon in the amount of P190,000.00.5
SO ORDERED.18cralawlawlibrary
FMSCI is an HDMF-accredited developer of Well-Spring Village.6 Thus, to finance the acquisition of the lot
and the construction of the house, Rudy applied for a housing loan with HDMF and designated FMSCI as the The RTC ruled that the legal problem which gave rise to the case was entirely due to the fault of HDMF for its
beneficiary of the loan proceeds.7 On March 12, 1998, HDMF issued a Notice of Approval/Letter of Guaranty failure to include the loan of Rudy in the list of loans for take out on April 23, 1998 despite Rudy's timely
to Rudy in the amount of P180,000.00.8 submission of the documentary requirements. In the same manner, it found FMSCI liable since it acted in
bad faith when it caused the withdrawal'of Rudy's loan application and the cancellation of the mortgage
On March 14, 1998, Rudy entered into a Loan and Mortgage Agreement with HDMF for P188,500.00 for his which the latter executed during his lifetime. It also declared FMSCI as negligent for its failure to follow-up
lot purchase and house construction. The mortgage was annotated in Transfer Certificate of Title (TCT) No. on Rudy's loan application considering that, as a subdivision developer, it directly transacts with HDMF.
T-296838 issued in the name of Rudy.9
Ruling of the CA
On March 26, 1998, the construction of the house was completed which Rudy thereafter accepted. Several
days later, or on April 19, 1998, Rudy died.10 On appeal, the CA ruled as follows: 
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. Accordingly, the Decision dated 27
As the only surviving heirs of Rudy, who are his parents, respondents Eulogia N. Cataquiz and Manuel P. June 2006 of the RTC Branch 14 Davao City, 11th Judicial Region, in Civil Case No. 27,050-99, is hereby
Cataquiz (Spouses Cataquiz) requested for the release of the title over the subject property in their favor. AFFIRMED with MODIFICATION that plaintiffs-appellees Spouses Eulogia N. Cataquiz and Manuel P. Cataquiz
However, HDMF refused on account of Rudy's failure to accept the loan during his lifetime. 11 are hereby DIRECTED to pay to the Home Development Mutual Fund (HDMF) the cost of the premium for
coverage of the subject loan under the Mortgage Redemption Insurance.
Aggrieved, Spouses Cataquiz filed a complaint for specific performance and damages to compel HDMF and
FMSCI to turn over to them the title and possession of the subject property. 12 SO ORDERED.19cralawlawlibrary
The CA affirmed the findings of the RTC as it would not countenance HDMF's invocation of a mere
HDMF countered that the housing loan was not included in the loan accounts taken out on April 23, 1998
technicality to renege on its obligation to Rudy, it equally shared the view of the RTC that Rudy, during his
because of Rudy's failure to submit the required documents on time and his untimely demise on April 19,
lifetime, complied with and performed all the requirements of FMSCI and HDMF; that he had, in fact, already
1998.13 It argued that, as a consequence, the loan was not covered by Mortgage Redemption Insurance
been issued a notice of approval of his loan by HDMF; and that he had even accepted the fully constructed
(MRI) so that Spouses Cataquiz' claim for insurance proceeds including the member's death benefit could not
house from FMSCI.20 According to the CA, to subscribe to HDMF's position that its denial was by reason of
be processed. It furtner contended that ownership and possession over the subject house and lot remained
Rudy's death, which occurred prior to the lapse of the 15-day period allotted for the release of the loan,
with FMSCI; hence, there is nothing for it to turn over to Spouses Cataquiz. 14
despite the timely submission of the documentary requirements, would be iniquitous as the inaction could
not be attributable to the deceased person.21
On the other hand, FMSCI ratiocinated that the Mortgage Redemption Insurance Settlement of Rudy could
not be processed since the latter's housing loan was not included among those that were taken out on April
With regard to the theory of HDMF that the loan was not covered by the MRI since the premium should be
 45

taken from the loan proceeds, the CA cited the Serrano v. CA, et al.22 (Serrano) case which allowed the insurance proceeds to the mortgage indebtedness.37
refund or payment of the unpaid premium by the heirs of the borrower in the event that the premium
corresponding to the amount to be deducted from the first release of the loan was not paid by the deceased Veritably, to deny herein Spouses Cataquiz of the benefit of the MRI coverage would run counter to the very
borrower.23 rationale of the insurance scheme. In the same manner, the creation of the Pag-IBIG Fund was pursuant to
the state's policy of motivating the employed and other earning groups to better plan and provide for their
HDMF moved to reconsider the Decision, but the CA denied it in a Resolution 24 dated December 12, 2013. housing needs as a social justice tool, with the end of improving their quality of life through sufficient shelter
and housing through mobilization of funds for shelter finance. 38Serrano even outlined a remedy in case the
Aggrieved by the CA's Decision, HDMF elevated the case to the Court via a Petition for Review premium corresponding to the amount to be deducted from the first release of the loan was not paid:
on Certiorari and questions the CA's order upon the Spouses Cataquiz to pay insurance premiums to give payment of the unpaid premium by the heirs of the borrower.
effect to the MRI, when the reckoning period for MRI coverage is the loan takeout date and not the receipt of
the notice of approval.25 Moreover, HDMF highlights that, as a consequence of the death of Rudy before the Hence, the Court sees no cogent reason to deviate from the findings of both the RTC and the CA.
release of the loan proceeds, the loan approval was cancelled which disqualified him from enrollment in the
insurance pool considering that he was not a mortgagor in the real sense, having no outstanding liability yet WHEREFORE, the petition is DENIED. The Decision dated July 4, 2013 and the Resolution dated December
to pay.26 It further asserts that its obligation to release the loan proceeds was subject to a suspensive period 12, 2013 of the Court of Appeals in CA-G.R. CV No. 01967-MIN are hereby AFFIRMED.
expressly stated in the Notice of Approval/Letter of Guaranty and that it was not negligent nor at fault in the
performance of its duty.27 SO ORDERED.

Our Ruling

The petition is without merit. The Court finds no reversible error on the part of the CA which would merit the
exercise of discretionary appellate jurisdiction.

It is worth noting that the execution of the Loan and Mortgage Agreement between Rudy and HDMF was
signed before Notary Public Francis Arnold de Vera on March 14, 1998 or more than a month before Rudy's
death. The Loan and Mortgage Agreement was even annotated on TCT No. T-296338 on March 17, 1998, or
three days after the execution of the aforementioned Agreement. Paragraph 2 of the Notice of
Approval/Letter of Guaranty even required the submission of the Loan and Mortgage Agreement duly
stamped by the Register of Deeds, the TCT, and Tax Declaration registered in the name of Rudy, among
others, pursuant to the loan approval28 which Rudy complied with. The MRI, being a compulsory part of the
Loan and Mortgage Agreement, was in effect, already binding between Rudy and HDMF. Initial premium
payment /or MRI was even deducted beforehand in the computation of the loan amount. 29 Indeed, upon,
issuance of a Notice of Approval/Letter of Guaranty, the Loan and Mortgage Agreement between HDMF and
the borrower takes effect, including its provisions on MRI coverage.

As correctly found by the CA, the lapse or completion of the 15- day period allotted to HDMF is not a
requisite for the release of the loan proceeds.30 The release of the loan proceeds is a duty imposed upon
HDMF and not on the borrower, the performance of which is solely dependent on HDMF on account of Rudy's
faithful and timely submission of the required documents before his untimely demise. Both the RTC and the
CA similarly found HDFM and FMSCI negligent in the performance of their duties under the agreement, a
factual determination which is beyond the ambit of the Court. Considering that a loan is a reciprocal
obligation wherein the performance of the obligation of one party is dependent upon the performance of the
obligation of the other,31 the Court sees no reason to depart from this principle, especially when a perfected
consensual contract to grant the loan was already executed, and the borrower had complied with his part of
the obligation through the submission of the necessary documents.

Incidentally, even HDMF Circular Nos. 247-09,32 312-12,33 379- 17,34 and Pag-IBIG Fund Circular No.
40335 recognize that it is not the release of the loan proceeds which determines the effectivity of MRI
coverage as the issuances contain a common provision on MRI Interim Coverage which states that there is
MRI Interim Coverage which shall take effect on the date of the issuance of the Notice of Approval/Letter of
Guaranty by the PaG-IBIG Fund. The issuances are in line with the ruling of the Court in Serrano wherein the
Court held that the MRI device is not only for the protection of the System (the SSS in that case), in the
event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, since the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby insuring the
payment, to itself of the loan with the insurance proceeds'.36 It is also for the benefit of the mortgagor so
that in the event of his death, the mortgage obligation will be extinguished by the application of the
 46

FIRST DIVISION Petitioners, on the other hand, interposed extinctive prescription as an affirmative defense. They claimed
that under Article 1146 of the Civil Code, actions based on quasi-delict prescribes in four (4) years. Too, the
complaint failed to state a cause of action as respondent failed to attach thereto proof of payment to Gutang
[ G.R. No. 229877, July 15, 2020 ]
and to show any privity between Gutang and BPI Rental which was named as the payee in the undated and
unnotarized Release and Discharge.8
FILCON READY MIXED, INC. AND GILBERT S. VERGARA, PETITIONERS, VS. UCPB GENERAL
INSURANCE COMPANY, INC., RESPONDENT.
The Trial Court's Ruling

DECISION
By Decision9 dated August 16, 2013, the trial court dismissed the complaint on ground of prescription. Since
the accident happened on November 16, 2007, the claim should have been filed only until November 16,
LAZARO-JAVIER, J.: 2011. Here, the claim was filed on February 1, 2012 or more than two (2) months late.

The Case The Regional Trial Court's (RTC's) Ruling

This petition for review on certiorari1 assails the following dispositions of the Court of Appeals in CA-G.R. SP On appeal, the RTC affirmed, viz.:10
No. 140921, entitled "UCPB General Insurance Company, Inc. v. Filcon Ready Mixed, Inc. and Gilberts.
Vergara ":
WHEREFORE, viewed in the light of the foregoing considerations, this Court finds no cogent reason to
reverse, modify or set aside the decision of the court a quo as the same is supported by the evidence and
1. Decision2 dated September 30, 2016, which reversed the trial court's ruling and held that law.
respondent's action for sum of money had not prescribed; and
Accordingly, the decision of the court a quo dated August 16, 2013 is hereby ordered AFFIRMED IN TOTO.
2. Resolution3 dated February 1, 2017, denying petitioners' motion for reconsideration.
SO ORDERED.
Antecedents
Respondent moved for reconsideration which was denied in Resolution11 dated June 1, 2015.
Marco P. Gutang is the registered owner of a Honda Civic with plate number ZDR-835. The vehicle was
insured with respondent UCPB General Insurance Company, Inc. (UCPB) with Policy No. QCT07MD-MNP
The Proceedings Before the Court of Appeals
586570 covering the period April 17, 2007 to April 17, 2008. On November 16, 2007, the car figured in a
vehicular accident in Quezon City involving three (3) other vehicles: a Toyota Revo, a Mitsubishi Adventure
and a cement mixer bearing Plate Number UCK-750 owned by petitioner Filcon Ready Mixed Inc. and driven Respondent alleged that the RTC ignored the fact that its subrogation to the rights of Gutang was by virtue
by petitioner Gilbert S. Vergara.4 of an express provision of law under Articles 220712 and 1144 (2)13 of the Civil Code stating that an
obligation created by law must be brought within ten (10) years from the time the cause of action
accrued.14
Based on the Traffic Accident Investigation Report, Vergara left the cement mixer with its engine running at
the uphill portion of Boni Serrano Extension. It moved backward and hit the front portion of the Mitsubishi
Adventure parked behind it. This car, in turn, hit the front portion of the insured vehicle. The rear portion of The Court of Appeals' Ruling
the insured vehicle rammed into the Toyota Revo parked behind it.5
By Decision15 dated September 30, 2016, the Court of Appeals reversed. It found that respondent
By Complaint dated February 1, 2012, respondent essentially averred that the proximate cause of the successfully proved it was subrogated to the rights of its assured, Marco Gutang. Evidence showed that the
accident was Vergara's gross negligence and lack of precaution. As a consequence, the insured vehicle got repairs on the insured vehicle were undertaken by Honda Cars Pasig pursuant to Letters of Authority dated
damaged. Gutang brought the car to Honda Cars Pasig City for repair. As Gutang's insurer, respondent paid December 7, 2007 and January 8, 2008 issued by respondent. On February 6, 2008, per Service Invoice
the total cost of repairs in the amount of P195,409.50 to Honda. Thereafter, Gutang executed a document Nos. 0468927 and 0468928, the insured vehicle was released to Gutang. The following day, Honda sent
captioned "Release and Discharge" which effectively assigned to respondent all his claims against respondent a Statement of Account which reflected the cost of parts and repairs of the insured vehicle
petitioners.6 amounting to P195, 409.50. On March 6, 2008, respondent issued a Motor Claims Requisition Voucher for
this amount with notation "release to payee."16
By virtue of this legal subrogation, respondent sent a demand letter dated September 1, 2011 to petitioners,
but the latter simply ignored it. Hence, respondent was constrained to file the present action for sum of Respondent's payment to Gutang operates as an equitable assignment to the former all the remedies that
money before the Metropolitan Trial Court (MeTC) - Branch 62, Makati City.7 the latter may have against petitioners whose negligence caused the damage on the former's insured
vehicle.17
 47

As for prescription, it held that following the pronouncement of this Court in Vector Shipping Corp, et al. v. xxx The Court must heretofore abandon the ruling in Vector that an insurer may file an action against the
American Home Assurance Company, et al.,18 since respondent's cause of action was anchored on legal tortfeasor within ten (10) years from the time the insurer indemnifies the insured. Following the principles of
subrogation, an obligation created by law, the same must be brought within ten (10) years from the time subrogation, the insurer only steps into the shoes of the insured and therefore, for purposes of
the right of action accrued. Considering that respondent indemnified Gutang on February 6, 2008, the action prescription, inherits only the remaining period within which the insured may file an action against the
will prescribe on February 6, 2018. Hence, the filing of respondent's complaint on February 1, 2012 was well wrongdoer. To be sure, the prescriptive period of the action that the insured may file against the wrongdoer
within the ten year prescriptive period.19 begins at the time that the tort was committed and the loss/injury occurred against the insured. The
indemnification of the insured by the insurer only allows it to be subrogated to the former's rights, and does
not create a new reckoning point for the cause of action that the insured originally has against the
By Resolution20 dated February 1, 2017, the Court of Appeals denied petitioners' motion for reconsideration.
wrongdoer.

The Present Petition

Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector doctrine
should be prospective in application for the reason that judicial decisions applying or interpreting the laws or
Petitioners now seek affirmative relief and pray that the assailed dispositions of the Court of Appeals be the Constitution, until reversed, shall form part of the legal system of the Philippines, x x x
reversed and the trial court's ruling declaring respondent's action for sum of money to have already
prescribed, be reinstated.
In Henson, the Court came up with guidelines relative to the application of Vector and its Decision vis-a-vis
the prescriptive period in cases where the insurer is subrogated to the rights of the insured against the
Petitioners argue in the main that respondent's cause of action is based on quasi-delict since the cause of wrongdoer based on a quasi-delict, thus:
action stemmed from the alleged gross negligence of Vergara which led to the vehicular mishap on
November 16, 2007. Thus, the prescriptive period within which to file the action is four (4) years from the
1. For actions of such nature that have already been filed and are currently pending before the courts at the
accrual of cause of action or until November 16, 2011. Since respondent filed the action only on February 1,
time of the finality of this Decision, the rules on prescription prevailing at the time the action is filed would
2012, the action had already prescribed.
apply. Particularly:

In subrogation, the rights to which the subrogee (respondent) succeeds are the same as, but not greater
(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling (i.e.,
than those of the person (Gutang) whom he substituted. In effect, since Gutang's cause of action is based
from Vector's, finality on August 15, 2013 up until the finality of this Decision), the prescriptive period is ten
on quasi-delict which prescribes in four (4) years, when respondent stepped into Gutang's shoes, it can only
(10) years from the time of payment by the insurer to the insured, which gave rise to an obligation created
initiate the action for sum of money also within the same four-year period. Failure to do so will render the
by law.
action prescribed as in this case.21

Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription must be
On the other hand, respondent basically riposted that petitioners' cause of action is based on legal
resolved under Vector's, parameters.
subrogation and not one based on quasi-delict because subrogation under Article 2207 of the Civil Code
gives rise to a cause of action created by law. Its cause of action, too, had not prescribed pursuant to this
Court's ruling in Vector which decreed that subrogation of an insurer to the rights of the insured is by virtue (b)     For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling (i.e.,
of an express provision of law which provides for a prescriptive period of ten (10) years from the time the before August 15, 2013), the prescriptive period is four (4) years from the time the tort is committed against
cause of action arose within which to file an action.22 the insured by the wrongdoer.

Issue Rationale: The Vector doctrine, which espoused unique rules on legal subrogation and prescription as
aforedescribed, was not yet a binding precedent at this time; hence, issues of prescription must be resolved
under the rules prevailing before Vector, which, incidentally, are the basic principles of legal subrogation vis-
Is respondent's action for money claims against petitioners barred by prescription?
a-vis prescription of actions based on quasi-delicts.

Ruling
2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:

We DENY the petition.
(a) For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of this Decision, the subrogee-insurer is given a period not exceeding four (4)
At the outset, it is noted that in the recent case of Henson, Jr. v. UCPB General Insurance Co., Inc.23 the years from the time of the finality of this Decision to file the action against the wrongdoer: provided, that in
Court overturned Vector and held that subrogation under Article 2207 of the Civil Code only allows the all instances, the total period to file such case shall not exceed ten (10) years from the time the insurer is
insurer, as the new creditor who assumes ipso jure the old creditor's rights without the need of any contract, subrogated to the rights of the insured.
to go after the debtor. But this does not mean that a new obligation is created between the debtor and the
insurer. The insurer, as the new creditor, remains bound by the limitations of the old creditor's claims
Rationale: The erroneous reckoning and running of the period of prescription pursuant to the Vector doctrine
against the debtor, which includes, among others, the aspect of prescription. Hence, the debtor's right to
should not be taken against any and all persons relying thereon because the same were based on the then-
invoke the defense of prescription cannot be circumvented by the mere expedient of successive payments of
prevailing interpretation and construction of the Court. Hence, subrogees-insurers, who are, effectively, only
certain insurers that purport to create new obligations when, in fact, what remains subsisting is only the
now notified of the abandonment of Vector, must be given the benefit of the present doctrine on subrogation
original obligation, viz.:
as ruled in this Decision.
 48

However, the benefit of the additional period (i.e., not exceeding four 4 years) under this Decision must not
result in the insured being given a total of more than ten (10) years from the time the insurer is subrogated
to the rights of the insured (i.e., the old prescriptive period in Vector); otherwise, the insurer would be able
to unduly propagate its right to file the case beyond the ten (10)-year period accorded by Vector to the
prejudice of the wrongdoer.

(b) For cases where the tort was committed and the consequent loss/injury against the insured occurred
only upon or after the finality of this Decision, the Vector doctrine would hold no application. The prescriptive
period is four (4) years from the time the tort is committed against the insured by the wrongdoer.

Rationale: Since the cause of action for quasi-delict and the consequent subrogation of the insurer would
arise after clue notice of Vector's abandonment, all persons would now be bound by the present doctrine on
subrogation as ruled in this Decision.

We apply here paragraph 1(b). Since the action was filed on February 1, 2012, prior to Vector, the applicable
prescriptive period is four (4) years pursuant to Article 1146 of the Civil Code.24 Respondent, therefore, had
four (4) years from November 16, 2007 when the vehicular mishap took place or until November 16, 2011
within which to file its action for sum of money against Vergara and his employer Filcon.

Within the four (4) year prescriptive period, or on September 1, 2011, respondent sent petitioners a demand
letter of even date. The latter never denied receipt thereof. Pursuant to Article 1155 of the Civil Code,
respondent's demand letter and petitioners' receipt thereof had the effect of interrupting the four (4) year
prescriptive period and gave respondent a whole fresh period of four (4) years from petitioners' receipt of
the demand letter within which to file the action for sum of money. Records show that respondent filed the
action just within five (5) months from September 1, 2011, the date when it sent the demand letter to
petitioners, who, as stated, never denied receipt thereof.

The Court of Appeals, thus, correctly reversed the dispositions of both MeTC and RTC and in lieu thereof,
properly ruled that complaint was filed within the prescriptive period of four (4) years.

ACCORDINGLY, the petition is DENIED. The Decision dated September 30, 2016 and Resolution dated
February 1, 2017 of the Court of Appeals in CA-G.R. SP No. 140921 are AFFIRMED. The case
is REMANDED to the trial court for further proceedings.

SO ORDERED.
 49

[ G.R. No. 223377, June 10, 2020 ] ICE ARE PERISHABLE AND MUST DELIVER TO OUR CUSTOMER WITHIN 72 HOURS. DO NOT DELAY." It is
further stated in the Shipment Handling Instructions that:
2100 CUSTOMS BROKERS, INC., PETITIONER, VS. PHILAM INSURANCE COMPANY [NOW AIG
PHILIPPINES INSURANCE INC.], RESPONDENT. DECEMBER 1, 2020 Frozen products must maintain temperatures of-40F.
If transit is to be longer than 72 hours total shipment
must be re-iced in transit or at broker's import
DECISION
destination, depending on flight schedule.
Shipment must be stored upon arrival in destination
CARANDANG, J.: broker's freezer with temperatures of 32F or colder.15

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court (Rules), assailing TSPIC also sent an extra copy16 of Airway Bill No. 131-66081842 with "freight collect" stamped on its face
the Decision2 dated October 12, 2015 and.the Resolution3 dated March 7, 2016 of the Court of Appeals (CA) which meant that freight charges must be paid to JAL before it could release the original copy of Airway Bill
in CA-G.R. SP No. 138302 filed by petitioner 2100 Customs Brokers, Inc. (2100 CBI). No. 131-66081842. This is required to process the discharge of the shipment from the custody of the Bureau
of Customs (BOC).17 TSPIC informed 2100 CBI that the latter will advance the necessary funds for the
freight charges in the amount of P14,672.00. Since it was already past 3 p.m. on a Friday, the banks were
The Antecedents already closed, and there were no available signatories to sign the checks. The freight charges were only
settled on March 5, 2001.18
On February 27, 2001, Ablestik Laboratories (Ablestik) placed two (2) cardboard boxes containing 63 jars of
Ablebond Adhesive on board Japan Airlines (JAL) Flight No. JL 5261 in Los Angeles, California, United States At around 2:00 a.m. on March 6, 2001 (Tuesday) or five (5) days after the date of arrival of the shipment in
of America4 covered by Airway Bill No. 131-660818425 for consignee (TSPIC). After transshipment in Japan, Manila, 2100 CBI delivered the cargo to TSPIC.19 Upon receipt of the goods, TSPIC's representatives found
the goods were expected to arrive in Manila aboard JAL Flight No. JL 745 on March 1, 2001.6 Ablestik issued that the dry ice stuffed inside the boxes have melted due to the delay in the delivery as shown in the
a handling instruction7 addressed to its freight forwarding agent, U-Freight America Inc., stating the Damage Report20 and photographs taken by the Manila Adjusters Surveyors Company (MASCO).21
following:

TSPIC filed a claim22 against 2100 CBI for the value of the shipment but the latter refused to pay. 2100 CBI
SHIPMENTS CONTAINING DRY ICE ARE contended that the delay in the delivery of the goods was due to TSPIC's failure to give pre-alerts as to the
PERISHABLE AND MUST DELIVER TO OUR expected arrival thereof and TSPIC's failure to pay the freight charges on time.23
CUSTOMER WITHIN 72 HOURS. DO NOT DELAY.

TSPIC then filed a formal claim for the recovery of the value of the damaged goods against Philam. After the
xxxx survey conducted by the MASCO,24 payment in the amount of P391,917.69 was recommended.25 Philam
paid the insurance claim of TSPIC. On July 30, 2001, a subrogation receipt for Claim No. 200140080A was
5. Frozen products must maintain temperatures of -40F. executed certifying that Philam paid the insurance claim of TSPIC.26

6. If transit is to be longer than 72 hours[,] total shipment must  be reiced [sic] in transit or at Thereafter, Philam filed a claim for reimbursement against 2100 CBI but its claim was denied. Hence, Philam
broker's import destination, depending on flight schedule. filed a complaint for damages docketed as Civil Case No. 78072 in the Metropolitan Trial Court of Makati City
(MeTC).27

7. Shipment must be stored upon arrival in destination broker's freezer with temperatures of 32F
or colder.8 (Emphasis and italics in the original) In 2100 CBI's Answer with Counterclaim,28 it denied the allegations against it and maintained that it has no
liability to pay consignee TSPIC because it had exercised the diligence and care required by law in the
vigilance and custody over the shipment. 2100 CBI claimed that the alleged damage, if there is any, did not
The goods were insured with respondent Philam Insurance Company (Philam; now AIG PHILIPPINES occur when the shipment was under its custody. 2100 CBI also argued that it was just a mere customs
INSURANCE, INC.) against all risks per Marine Cargo Certificate 08010121549 and Open Policy Number broker or a commercial agent in the transaction specifically tasked to release the shipment from the BOC
9595292.10 only after the receipt of the original import documents from the consignees or freight forwarder or at least a
pre-alert advice about the arrival of the shipment from the consignee.29 In the letter attached to its Answer
At 1:30 a.m. on March 1, 2001 (Thursday), the goods arrived at the Ninoy Aquino International Airport with Counterclaim, 2100 CBI insisted that it received from TSPIC the shipment documents late in the
(NAIA) and were subsequently stored at the Paircargo warehouse located in NAIA Complex, Parañaque afternoon of Friday March 2, 2001. Freight payment was advanced by 2100 CBI on March 5, 2001 (Monday)
City.11 because freight payment is not accepted on Saturdays and Sundays and TSPIC's funds were not sufficient.30

At 2:47 p.m. on March 2, 2001 (Friday), TSPIC notified 2100 CBI that the shipment had arrived.12 TSPIC For its counterclaim, 2100 CBI maintained that because of the unfounded suit, it was exposed to litigation
allegedly forwarded to 2100 CBI the Packing List from Ablestik indicating "1 Year @-40C or colder/ Dry ice and was constrained to hire the services of a lawyer in the amount of P50,000.00.31
shipment"13 and the Shipment Handling Instructions14 from Ablestik stating "SHIPMENTS CONTAINING DRY
Ruling of the Metropolitan Trial Court
 50

In a Decision32 dated June 6, 2013, the MeTC ordered 2100 CBI to pay Philam the following: (1) In the present petition,52 2100 CBI insists that Philam failed to show that it was negligent in handling the
P391,917.69 as actual damages; (2) P10,000.00 as attorney's fees; and (3) costs of suit.33 The MeTC held subject goods from the time the BOC released the goods on March 6, 2001 at 2:00 a.m. until they were
that, as customs broker, 2100 CBI is regarded as a common carrier because transportation of goods is an delivered to TSPIC in good order and condition on March 6, 2001 at 3:44 a.m., or approximately two hours.
integral part of its business. It is mandated by law to exercise extraordinary diligence in handling TSPIC's It would be physically impossible and contrary to logic and experience for 2100 CBI to implement any control
shipment.34 or handling instructions over goods not in its possession or custody. Even assuming that it is a common
carrier, 2100 CBI suggests that it is excused from liability as it did not cause the delay in the delivery of the
goods to TSPIC. The delay in the release of the goods was due to TSPIC's failure to provide sufficient money
The MeTC explained that because of the nature of 2100 CBI's business, it should have devised ways to
for the freight charges to be paid.53
prevent the damage to the cargo under its custody and to deliver the same to the consignee with
extraordinary care and diligence. Even if the cargo was not released immediately by the BOC due to
insufficient funds for the freight payment, 2100 CBI knew from the start that the cargo contained perishable 2100 CBI also alleges that TSPIC failed to give a copy of the handling instruction. The Shipment Handling
materials and had to be stored in a cool place and required re-icing beyond 72 hours in transit. The packing Instruction presented was addressed to U-Freight America, Inc., not 2100 CBI.54
list clearly indicated that the items are "1 Year @ - 40C or colder/ Dry ice shipment."35 For the MeTC, 2100
CBI should have undertaken precautionary measures to avoid or lessen the cargo's possible deterioration.36
In addition, 2100 CBI argues that it was incumbent upon Philam to show that the alleged damage was within
the coverage of the supposed insurance with TSPIC. 2100 CBI posits that the Marine Cargo Certificate, by
The MeTC noted that in 2100 CBI's DR No. 659556,37 "the defendant [2100 CBI] accepted the items in good itself, does not show the scope of coverage over the subject goods. The contract of insurance must be
order and condition, noting the carton of frozen adhesive."38 The MeTC concluded that the goods "went from presented to prove the extent of its coverage.55 2100 CBI also points out that as the name "Marine Cargo
good order to bad order condition while in the custody of the defendant 2100 CBI]"39 and that it "failed to Certificate" implies, it covers goods transported by sea, and not through air such as the shipment of TSPIC
adduce evidence that it exerted extraordinary diligence to prevent the same from occurring.40 placed onboard JAL Flight No. JL 5261.56 Even if the Marine Cargo Certificate covers shipment of goods by
air, the Insurance Declaration Report attached to the Marine Cargo Certificate only covers Ablestik's
shipment on JL Flight No. 745 from Narita, Japan. Shipment of goods aboard JL Flight No. 5621 from USA
In an Order41 dated January 8, 2014, the MeTC denied the Motion for Reconsideration of 2100 CBI.42
was allegedly not included.57

Ruling of the Regional Trial Court

2100 CBI claims that an insurer who pays the insured for loss or liability not covered by the policy is not
subrogated to rights of the latter.58
In a Decision43 dated May 23, 2014, the Regional Trial Court (RTC) affirmed the ruling of the MeTC. In
sustaining the ruling of the MeTC, the RTC found that the cargo deteriorated while inside the Paircargo
In its Comment,59 Philam argues that the present petition only raised questions of fact which, as a general
warehouse because of the delay in the release and withdrawal to TSPIC, as stated in the Certificate of
rule, are not reviewable under Rule 45 of the Rules.60 Philam also claims that there was a valid subrogation
Survey and Material Status Report. The RTC explained that although the cargo was not released immediately
in its favor by virtue of its payment of TSPIC's insurance claim.61 Philam also insists that 2100 CBI is a
by the BOC due to the insufficient freight payment, 2100 CBI knew at the outset that the cargo contained
common carrier whose liability is governed by Article 1735 of the Civil Code.62
perishable material which had to be stored in cool places and re-iced after 72 hours in transit.44 The RTC
found that 2100 CBI failed to prove that it exerted extraordinary diligence while the cargo was in its custody.
Issues
Ruling of the Court of Appeals
The issues to be resolved are:
In a Decision45 dated October 12, 2015, the CA denied the petition of 2100 CBI and affirmed the ruling of
the RTC ordering 2100 CBI to pay P391,917.69 as actual damages, P10,000.00 as attorney's fees, and costs 1. Whether 2100 CBI is a common carrier engaged in the transportation of goods;
of suit.46
2. Whether a Marine Cargo Certificate may include goods transported by air;
In affirming the ruling of the RTC, the CA held that 2100 CBI, as a common carrier, failed to exercise
extraordinary diligence over the goods. The CA observed that 2100 CBI already knew that the goods cannot
3. Whether the insurance policy must be presented to establish the liability of the common carrier
be released on March 2, 2001 yet it did not take precautionary measures to avoid damage to the cargo. It
to Philam; and
received the Ablestik packing list which stipulated "1 Year @ -40C or colder/ Dry Ice shipment"47 on March
2, 2001. Considering that the transit has exceeded 72 hours, 2100 CBI should have re-iced the goods to
maintain its required temperature at -40C or colder.48 4. Whether 2100 CBI was negligent in handling the shipment of TSPIC, thus making it liable for
damages.
Moreover, the CA found no merit in 2100 CBI's contention that there was no valid subrogation. The goods
were insured with Philam against all risks pursuant to Marine Cargo Certificate 0801012154 and Open Policy The Court's Ruling
Number 9595292. When the shipment was damaged, TSPIC filed a claim for recovery of the value against
Philam. The CA concluded that since Philam paid the insurance claim of TSPIC, it is only but proper that
Philam be subrogated to the rights of TSPIC.49 At the outset, We deem it necessary to emphasize that a petition for review on certiorari under Rule 45 is
limited only to questions of law. As a rule, We do not review factual questions raised under Rule 45 as it is
not Our function to analyze or weigh evidence already considered in the proceedings below. Nevertheless,
In a Resolution50 dated March 7, 2016, the CA denied the Motion for Reconsideration51 of 2100 CBI. this rule is not absolute. In the case of Microsoft Corp. v. Farajallah,63 the Court declared that a review of
the factual findings of the CA is proper in the following instances:
 51

(1) when the factual findings of the Court of Appeals and the trial court are contradictory; transportation of goods to the consignee. The participation of a customs broker, through the acts listed
above, are essential to an entity engaged in the business of transporting goods. A customs broker has been
regarded as a common carrier because transportation of goods is an integral part of its business. We have
(2) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures;
already settled in a number of cases that a customs broker is a common carrier because it undertakes to
deliver goods for a pecuniary consideration.67
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;
The fact that 2100 CBI is a common carrier is buttressed by the testimony of its own witness, Ildefonso
Magnawa (Magnawa), the Night Operations Manager of 2100 CBI, in the following exchange:
(4) when there is a grave abuse of discretion in the appreciation of facts;
Q Can you describe what is the procedure of 2100 Customs Brokers, Inc. for shipment clearances with the
(5) when the Appellate Court, in making its findings, went beyond the issues of the case and such Customs?
findings are contrary to the admissions of both appellant and appellee;
A Normally, we have to receive the original airway bill copy and then we have to prepare the import
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts; documents which has import entry and other supporting papers like the Bureau of Customs and then
proceed to releasing the cargo from the warehouse and delivery of the cargo to the consignee.
(7) when the Court of Appeals failed to notice certain relevant facts which, if properly considered,
would justify a different conclusion; Q Mr. Witness, during this process of shipment clearance, where is the shipment or the goods covered by the
transaction?
(8) when the findings of fact are themselves conflicting;
A The cargo is stored at the warehouse.
(9) when the findings of fact are conclusions without citation of the specific evidence on which they
are based; and Q And who has custody of this cargo?

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but A The cargo is in the custody of the warehouse who was under the control of the Bureau of Customs.
such findings are contradicted by the evidence on record.64 (Emphasis supplied)
Q How about the customs broker like 2100 Customs Brokers, Inc, has it having [sic] custody of this cargo at
In this case, a careful re-examination of the evidence on record will reveal that the CA failed to notice the time of the shipment clearance?
certain relevant facts which, if properly considered, would justify a different conclusion. There is a need to
review the factual findings of the lower court to determine when 2100 CBI acquired possession over the
A The custody of 2100 was that if it was already released from the warehouse. It was during delivery of the
goods, an issue that is crucial in determining the rights and liabilities of the parties.
cargo from the warehouse to the consignee. That is the time the cargo is under their custody.68 (Emphasis
supplied)
2100 CBI, a customs broker,
is a common carrier.
No matter how minimal or short the period the goods are placed in the custody of 2100 CBI, it remains
settled that the participation of 2100 CBI is indispensable to the delivery of the goods to TSPIC. For
2100 CBI claims that it is not a common earner because it is not engaged in the transportation or delivery of undertaking the transport of the cargo from Paircargo warehouse to TSPIC's warehouse for a fee, 2100 CBI
goods and is primarily engaged in the business of customs brokerage, as reflected in its Amended Articles of is considered a common carrier.
Incorporation.65
A Marine Car so Certificate
To support 2100 CBI's position, it cited Section 6 of RA No. 9280, otherwise known as "Customs Brokers Act may include goods
of 2004" the pertinent portion of which states: transported by air.

Sec. 6. Scope of the Practice of Customs Brokers. - Customs Broker Profession involves services consisting 2100 CBI posits that, as the name "Marine Cargo Certificate" implies, it covers goods transported by sea,
of consultation, preparation of customs requisite documents for imports and exports, declaration of customs and not through air such as the shipment of TSPIC.69
duties and taxes, preparation, signing, filing, lodging and processing of import and export entries;
representing importers and exporters before any government agency and private entities in cases related to
2100 CBI is mistaken. Simply because the word "marine" was used in Marine Cargo Certificate does not
valuation and classification of imported articles and rendering of other professional services in matters
mean that TSPIC availed the wrong insurance policy for its cargo transported through airplane.
relating to customs and tariff laws, its procedures and practices.66

Section 101(a)(2) of Republic Act No. (R.A). 10607 states: Sec. 101. Marine Insurance includes:
The contention of 2100 CBI is untenable. A careful study of the scope of the practice of customs brokers
reveals that the acts enumerated above clearly pertain to acts incidental and necessary for the
 52

(a) Insurance against loss of or damage to: In addition, Section 7, Rule 8 of the Rules provides:

xxxx Sec. 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
2) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation
be a part of the pleading, or said copy may with like effect be set forth in the pleading.78
insurance, including liability for loss of or damage arising out of or in connection with the construction,
repair, operation, maintenance or use of the subject matter of such insurance (but not including life
insurance or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of As an actionable document, the insurance policy must be presented in order to determine whether the
ownership, maintenance, or use of automobiles); x x x70 (Emphasis supplied) damage sustained by the cargo of TSPIC is caused by a peril or risk covered by the policy.

Thus, the scope of marine insurance includes inland marine insurance and covers over the land In the absence of proof of the contents of the policy confirming that the damage to the cargo is covered by
transportation perils of property shipped by airplanes.71 the insurance policy chargeable against 2100 CBI, Philam cannot hold 2100 CBI responsible for the damage
to the cargo. Philam's failure to present the original copy, which was presumably in its possession, or even a
copy of it, for unknown reasons, is fatal to its claim against 2100 CBI as this document is the primary basis
Presentation of the insurance
for its claim of right to subrogation. Had a copy of the insurance policy been presented by Philam, it would
policy is necessary.
have clearly delineated the scope of its coverage. We cannot ignore the possibility that the insurance policy
did not cover all phases of handling the shipment.
Marine Cargo Certificate No. 0801012154 certifies that Philam received the premium for Open Policy Number
9595292 and details the clauses, warranties, and special conditions of the policy.72
2100 CBI is not negligent
in handling the shipment of
Noticeably, Open Policy Number 9595292 was not presented during trial nor on appeal. From the start, 2100 TSPIC.
CBI had already raised the issue of non-presentation of the insurance policy yet it was never produced by
Philam. The issue was also repeatedly raised on appeal.73
Assuming arguendo that the risk or peril that caused the damage to the cargo is covered by the insurance
policy, We find that 2100 CBI was not negligent in handling the shipment of TSPIC.
Rule 130, Section 3, of the Rules states:
It must be pointed out that the arrangement for the payment of the freight charges is on a "Freight Collect"
Sec. 3. Original document must be produced; exceptions. -When the subject of inquiry is the contents of a basis which means that the consignee or receiver of the goods will be responsible for paying the freight and
document, no evidence shall be admissible other than the original document itself, except in the following other charges79 in the total amount of P14,672.00. This is confirmed by Magnawa in his testimony, the
cases: relevant portion of which is reproduced below:

(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith Q What is freight collect means [sic]?
on the part of the offeror;
A It is the freight collect of the shipment from origin to Philippines.
(b) When the original is in custody or under the control of the party against whom the evidence is
offered, and the  latter fails to produce  it after reasonable notice;
Q And who is supposed to pay that?

(c) When the original consists of numerous accounts or other  documents which cannot be
A TSPIC.
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
Q And how much freight or how much fund would TSPIC provided [sic] for this cargo?
(d) When the original is a public record in the custody of a public officer or is recorded in a public
office. A The freight is Php 14,672.00 and there is a requirement for importer that they have to post a fund
deposited to the bank that is for the import processing fee for every shipment and it so happened that it is
insufficient.
The original copy of the insurance policy is the best proof of its contents. The contract of insurance must be
presented in evidence to indicate the extent of its coverage.74 At most, Marine Cargo Certificate No.
080101215475 and the subrogation receipt76 may be used to establish the relationship between the insurer Q After finding out that there was insufficient fund, what did you do next?
and the consignee and the amount paid to settle the claim. The subrogation receipt, by itself, is not
sufficient to prove a claim holding an insurer liable for damage sustained by an insured item.77 These
A We informed TSPIC that they are insufficient in fund.
documents are not sufficient to prove that the damage to the cargo is compensable under the insurance
policy chargeable against 2100 CBI.
Q What happened after you informed TSPIC of the insufficient fund?
 53

A We kept waiting until they advised us March 5 in the afternoon almost 5:00 o'clock. We started processing A Yes ma'am, we paid them on March 5 then nagkaproblema yung import processing fee then hapon na po
on backdoor procedure.80 (Emphasis supplied) nila naayos sa Customs yung payment. That is the only time we continue with the processing, Your Honor.

2100 CBI's customs representative, Elmer Remo (Remo) also corroborated Magnawa's testimony, as Q That is why you received this shipment early morning on March 6.
revealed in the following exchange:
A Yes, Your Honor.81 [Emphasis supplied]
Q Mr. Witness, the defendant here mentioned that there were handling instructions forwarded to the freight
forwarders, can you confirm if 2100 Customs Brokers, Inc. received this shipment handling instructions [sic].
From the foregoing, it is clear that there is no need to rely on the presumption of the law that a common
carrier is presumed to have been at fault or have acted negligently in case of damaged goods. This is
A No, ma'am. because the delay in the release of the goods was through no fault of 2100 CBI. The damage was caused by
the late payment of the funds needed for the release of the goods from the custody of BOC which was
originally TSPIC's responsibility. It must be noted that while waiting for the freight charges to be settled,
Q For the record, I am showing to the witness Exhibit "H" which was also previously marked as defendant's
2100 CBI did not have custody over the shipment.
Exhibit "8". Mr. Witness, the clearance of these goods and the delivery from the time it arrived took five (5)
days, to what do you attribute the length of period it took for the goods to be delivered?
The pro-forma stipulation in DR No. 65955682 that TSPIC received the cargo in good order and condition
from 2100 CBI does not disprove the claim of 2100 CBI that the cargo may have been damaged while it was
A We were informed on March 2 by the consignee TSPIC that they received an adhesive shipment and it
in the possession of BOC. It is important to note that at the time the cargo was released to 2100 CBI from
was freight collect, ma'am. Then on Saturday - Sunday, March 3 and 4, the Japan Airlines do not accept
BOC and delivered to TSPIC, the cargo remained sealed. Thus, said pro-forma stipulation did not accurately
payment on weekends.
describe the condition of the cargo at the time delivery was made to TSPIC and cannot be used as basis for
holding 2100 CBI accountable for the damaged goods.
Q What time did you received [sic] the notice on Friday, March 2?
As aptly pointed out by 2100 CBI in its Reply,83 there is no basis to conclude that it was apprised of
A Late it [sic] the afternoon, ma'am. Ablestik's specific handling instructions and could have taken precautionary measures to avoid damage to
the cargo.84 2100 CBI, through the testimony of Remo, denied receiving handling instructions from
TSPIC.85 The respective testimonies of Elmer Dumo (Dumo), Philam's Senior Claims Examiner and Renato
Q Approximately what time are you referring to? Layug, former Assistant Manager for Cargo Survey of MASCO confirm that they do not have personal
knowledge that the subject goods were damaged as none of them personally examined the goods nor
A Past three (3), ma'am. prepared any of the documents presented to establish the damage.86 Thus, their testimonies are hearsay
and do not have any probative value.1âшphi1

Q And why do you consider that late already?

It is clear that the only handling instruction 2100 CBI received was to "PLS. PUT INTO (sic) COOL ROOM
UPON ARRIVAL," which was stated in Airway Bill No. 131-66081842.87 2100 CBI could not have undertaken
A Because if we were going to advance the freight charges, the banks are already closed and no one will sign precautionary measures nor implement handling instructions because it did not have possession of the cargo
the checks, ma'am. until 2:00 a.m. of March 6, 2001 - when the goods were released by the BOC. It must be emphasized that,
until the freight charges are paid, JAL cannot release the original copy of Airway Bill No. 131-66081842 and
COURT: the goods to 2100 CBI. Payment of the freight charges is required to process the release of the goods in the
custody of the BOC. At 2:47 p.m. on March 2, 2001, 2100 CBI only received a duplicate copy of Airway Bill
No. 131-66081842.88 Therefore, without the original copy of the Airway Bill No. 131-66081842, the goods
Were you able to pay the freight collect charges on March 5, Monday? remained in the possession of the BOC and were not released to 2100 CBI.

WITNESS: Moreover, 2100 CBI may only be expected to implement the handling instructions when the shipment was in
the Paircargo warehouse which was under the control of the BOC. It would be physically impossible and
Yes, Your Honor, March 5. unreasonable for 2100 CBI to implement any control or handling instructions over goods not in its custody.
Based on the evidence presented, Philam failed to establish that negligence in the handling of the shipment
could be attributed to 2100 CBI from the time the BOC released the goods to the custody of 2100 CBI at
Q You were able to pay Japan Airlines on March 5? 2:00 a.m. on March 6, 2001 until they were delivered to TSPIC in good order and condition at 3:44 a.m. on
March 6, 2001.
A Yes, Your Honor, March 5.
Accordingly, as an insurer who pays the insured for loss or liability not proven to be compensable under the
Q But the shipment was released to you early morning of March 6? subject policy, Philam is not subrogated to the rights of TSPIC. WHEREFORE, premises considered, the
petition is GRANTED. Civil Case No. 78072 filed against petitioner 2100 Customs Brokers, Inc. is
hereby DISMISSED. SO ORDERED.
 54

EN BANC

The RTC Ruling

G.R. No. 223134, August 14, 2019
In an Order24 dated June 10, 2014, the RTC ruled in respondent's favor and accordingly, ordered the: (a)
VICENTE G. HENSON, JR., PETITIONER, v. UCPB GENERAL INSURANCE CO., INC., RESPONDENT. dropping of CHI as party-defendant; and (b) joining of petitioner as one of the party-defendants in the
case.25
DECISION The RTC pointed out that respondent's cause of action against the party-defendants, including petitioner,
arose when it paid Copylandia's insurance claim and became subrogated to the rights and claims of the latter
PERLAS-BERNABE, J.: in connection with the water leak damage incident. Since respondent was merely enforcing its right of
subrogation, the prescriptive period is ten (10) years based on an obligation created by law reckoned from
the date of Copylandia's indemnification, or on November 2, 2006. As such, respondent's claim against
Assailed in this petition for review on certiorari1 are the Decision2 dated November 13, 2015 and the petitioner has yet to prescribe when it sought to include the latter as party-defendant on April 21, 2014. 26
Resolution3 dated February 26, 2016 of the Court of Appeals (CA) in CA-G.R. SP. No. 138147, which affirmed
the Orders dated June 10, 20144 and September 22, 20145 of the Regional Trial Court of Makati City, Branch CHI moved for reconsideration,27 which was, however, denied in an Order28 dated September 22, 2014.
138 (RTC) in Civil Case No. 10-885, ruling that the suit filed by respondent UCPB General Insurance Co., Inc. Aggrieved with his inclusion as party-defendant to the case, petitioner filed a petition for certiorari29 under
(respondent) has yet to prescribe, and resultantly, allowing the inclusion of petitioner Vicente G. Henson, Jr. Rule 65 of the Rules of Court before the CA, docketed as CA-G.R. SP. No. 138147.
(petitioner) as party-defendant to the same.
The CA Ruling
The Facts
30
In a Decision  dated November 13, 2015, the CA affirmed the RTC ruling. It held that respondent's cause of
From 1989 to 1999, National Arts Studio and Color Lab6 (NASCL) leased the front portion of the ground floor action has not yet prescribed since it was not based on quasi-delict, which must be brought within four (4)
of a two (2)-storey building located in Sto. Rosario Street, Angeles City, Pampanga, then owned by years from the date of the occurrence of the negligent act. Rather, it is based on an obligation created by
petitioner.7 In 1999, NASCL gave up its initial lease and instead, leased the right front portion of the ground law, which has a longer prescriptive period often (10) years reckoned from its accrual. 31
floor and the entire second floor of the said building, and made renovations with the building's piping
assembly.8 Meanwhile, Copylandia Office Systems Corp. (Copylandia) moved in to the ground floor.9 On May Undaunted, petitioner moved for reconsideration, 32 but the same was denied in a Resolution33 dated
9, 2006, a water leak occurred in the building and damaged Copylandia's various equipment, causing injury February 26, 2016; hence, this petition.
to it in the amount of P2,062,640.00.10 As the said equipment were insured with respondent, 11 Copylandia
filed a claim with the former. Eventually, the two parties settled on November 2, 2006 for the amount of
P1,326,342.76.12 This resulted in respondent's subrogation to the rights of Copylandia over all claims and The Issue Before the Court
demands arising from the said incident.13 On May 20, 2010, respondent, as subrogee to Copylandia's rights,
demanded from, inter alia, NASCL for the payment of the aforesaid claim, but to no avail.14 Thus, it filed a The issue for the Court's Resolution is whether or not respondent's claim has yet to prescribe.
complaint for damages15 against NASCL, among others, before the RTC, docketed as Civil Case No. 10-885. 16
The Court's Ruling
Meanwhile, sometime in 2010, petitioner transferred the ownership of the building to Citrinne Holdings, Inc.
(CHI), where he is a stockholder and the President.17 In ruling that respondent's claim against petitioner has yet to prescribe, the courts a quo cited Vector
Shipping Corporation v. American Home Assurance Company (Vector).34 In that case, therein petitioner
18
On October 6, 2011, respondent filed an Amended Complaint (Second Amendment),  impleading CHI as a Vector Shipping Corporation (Vector) entered into a contract of affreightment with Caltex Philippines, Inc.
party-defendant to the case, as the new owner of the building. However, on April 21, 2014, respondent (Caltex) for the transport of the latter's goods. In connection therewith, Caltex insured its goods with therein
filed a Motion to Admit Attached Amended Complaint and Pre-Trial Brief (Third [A]mendment), 19 praying that respondent American Home Assurance Company (American Home). During transport on December 20,
petitioner, instead of CHI, be impleaded as a party-defendant to the case, considering that petitioner was 1987, Vector's ship collided with another vessel and sank, resulting in the total loss of Caltex's goods.
then the owner of the building when the water leak damage incident happened. 20 On July 12, 1988, American Home fully indemnified Caltex for its loss in the amount of P7,455,421.08, and
thereafter, filed a suit against, inter alia, Vector for the recovery of such amount on March 5, 1992.
In the said complaints, respondent faults: (a) NASCL for its negligence in not properly maintaining in good Initially, the RTC ruled that American Home's claim against Vector has prescribed as it was based on
order the comfort room facilities where the renovated building's piping assembly was utilized; and (b) a quasi-delict which should have been filed within four (4) years from the time Caltex suffered a total loss of
CHI/petitioner, as the owner of the building, for neglecting to maintain the building's drainage system in its goods. However, the CA reversed the ruling, holding that the claim has yet to prescribe as it is based on a
good order and in tenantable condition. According to respondent, such negligence on their part directly breach of Vector's contract of affreightment with Caltex, which has a longer prescriptive period often (10)
resulted in substantial damage to Copylandia's various equipment amounting to P2,062,640.00. 21 years, again reckoned from the time of the loss.35 The Court, in Vector, agreed with the CA that the claim
has yet to prescribe, but qualified that "the present action was not upon a written contract, but upon an
CHI opposed22 the motion principally on the ground of prescription, arguing that since respondent's cause of obligation created by law,"36viz.:
action is based on quasi-delict, it must be brought within four (4) years from its accrual on May 9, 2006. As We concur with the CA's ruling that respondent's action did not yet prescribe. The legal provision governing
such, respondent is already barred from proceeding against CHI/petitioner, especially since the latter never this case was not Article 1146 of the Civil Code, but Article 1144 of the Civil Code, which states:
received any prior demand from the former.23 Article 1144. The following actions must be brought within ten years from the time the cause of action
accrues:
 55

(1) Upon a written contract; transferred to American Home as the subrogee-insurer. In other words, by operation of Article 2207 of the
(2) Upon an obligation created by law; Civil Code, Caltex cannot deny American Home of its right to claim against Vector. However, the subrogation
(3) Upon a judgment. of American Home to Caltex's rights did not alter the original obligation between Caltex and Vector.
We need to clarify, however, that we cannot adopt the CA's characterization of the cause of action as based
Accordingly, the Court, in Vector, erroneously concluded that "the cause of action [against Vector] accrued
on the contract of affreightment between Caltex and Vector, with the breach of contract being the failure of
as of the time [American Home] actually indemnified Caltex in the amount of P7,455,421.08 on July 12,
Vector to make the M/T Vector seaworthy, so as to make this action come under Article 1144 (1),
1988."39 Instead, it is the subrogation of rights between Caltex and American Home which arose from the
supra. Instead, we find and hold that the present action was not upon a written contract, but
time the latter paid the indemnity therefor. Meanwhile, the accrual of the cause of action that Caltex had
upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is
against Vector did not change because, as mentioned, no new obligation was created as between them by
because the subrogation of respondent to the rights of x x x the insured was by virtue of the express
reason of the subrogation of American Home. The cause of action against Vector therefore accrued at the
provision of law embodied in Article 2207 of the Civil Code, to wit:
time it breached its original obligation with Caltex whose right of action just so happened to have been
Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
assumed in the interim by American Home by virtue of subrogation. "[A] right of action is the right to
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
presently enforce a cause of action, while a cause of action consists of the operative facts which give rise to
company shall be subrogated to the rights of the insured against the wrongdoer or the person
such right of action."40
who has violated the contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss
The foregoing application hews more with the fundamental principles of civil law, especially on the well-
or injury.
established doctrines on subrogation. Article 1303 of the Civil Code states that "[s]ubrogation transfers to
The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against
Corporation v. [CA,37] as follows: third persons x x x." In Loadstar Shipping Company, Inc. v. Malayan Insurance Company, Inc.,41 the Court
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property had clearly explained that because of the nature of subrogation as a mode of "creditor-substitution," the
is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, rights of a subrogee cannot be superior to the rights possessed by a subrogor, viz.:
upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation
to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured is the substitution of one person in the place of another with reference to a lawful claim or right ,
operates as an equitable assignment to the former of all remedies which the latter may have so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
against the third party whose negligence or wrongful act caused the loss. The right of remedies or securities. The rights to which the subrogee succeeds are the same as, but not greater than,
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the
written assignment of claim. It accrues simply upon payment of the insurance claim by the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the
insurer [Compañia Maritima v. Insurance Company of North America, 120 Phil. 998 (1964); Fireman's Fund subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the
Insurance Company v. Jamila & Company, Inc., 162 Phil. 421 (1976)]. insured likewise could have recovered."

Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually suffered
obligation of Vector and Soriano to pay the demand for reimbursement by respondent because it concerned from. If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the
only the agreement for the transport of Caltex's petroleum cargo. As the Court has aptly put it in Pan insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if
Malayan Insurance Corporation v. [CA], supra, respondent's right of subrogation pursuant to Article 2207, due, the amount paid is excessive, the insurer takes the risk of not being able to seek
supra, was "not dependent upon, nor d[id] it grow out of, any privity of contract or upon written assignment recompense from the alleged wrongdoer. This is because the supposed subrogor did not possess
of claim [but] accrue[d] simply upon payment of the insurance claim by the insurer." the right to be indemnified and therefore, no right to collect is passed on to the
subrogee.42 (Emphases and underscoring supplied)
Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the
amount of P7,455,421.08 on July 12, 1988, the action was not yet barred by the time of the filing of its Despite its error, Vector had aptly cited the case of Pan Malayan Insurance Corporation v. CA (Pan
complaint on March 5, 1992, which was well within the 10-year period prescribed by Article 1144 of the Civil Malayan),43 wherein it was explained that subrogation, under Article 2207 of the Civil Code, operates as a
Code.38 (Emphases and underscoring supplied) form of "equitable assignment"44 whereby "the insurer, upon payment to the assured, will be subrogated
to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated
In Vector, the Court held that the insured's (i.e., American Home's) claim against the debtor (i.e., Vector) to pay."45It is characterized as an "equitable assignment" since it is an assignment of credit
was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and hence, an obligation without the need of consent - as it was, in fact, mentioned in Pan Malayan, "[t]he right of subrogation is
created by law. While indeed American Home was entitled to claim against Vector by virtue of its not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
subrogation to the rights of the insured (i.e., Caltex), the Court failed to discern that no new obligation accrues simply upon payment of the insurance claim by the insurer." 46It is only to this extent that the
was created between American Home and Vector for the reason that a subrogee only steps into the equity aspect of subrogation must be understood. Indeed, subrogation under Article 2207 of the Civil
shoes of the subrogor; hence, the subrogee-insurer only assumes the rights of the subrogor-insured Code allows the insurer, as the new creditor who assumes ipso jure the old creditor's rights without the need
based on the latter's original obligation with the debtor. of any contract, to go after the debtor, but it does not mean that a new obligation is created between the
debtor and the insurer. Properly speaking, the insurer, as the new creditor, remains bound by the limitations
To expound, subrogation's legal effects under Article 2207 of the Civil Code are primarily between the of the old creditor's claims against the debtor, which includes, among others, the aspect of prescription.
subrogee-insurer and the subrogor-insured: by virtue of the former's payment of indemnity to the latter, it is Hence, the debtor's right to invoke the defense of prescription cannot be circumvented by the mere
able to acquire, by operation of law, all rights of the subrogor-insured against the debtor. The debtor is a expedient of successive payments of certain insurers that purport to create new obligations when, in fact,
stranger to this juridical tie because it only remains bound by its original obligation to its creditor whose what remains subsisting is only the original obligation. Verily, equity should not be stretched to the prejudice
rights, however, have already been assumed by the subrogee. In Vector's case, American Home was able to of another.
acquire ipso jure all the rights Caltex had against Vector under their contract of affreightment by virtue of its
payment of indemnity. If at all, subrogation had the effect of obliging Caltex to respect this assumption of To better understand the concept of legal subrogation under Article 2207 of the Civil Code as a form of
rights in that it must now recognize that its rights against the debtor, i.e., Vector, had already been
 56

"equitable assignment," it deserves mentioning that there exist intricate differences between assignment and same as an assignment of credit (as the former is in fact, called an "equitable assignment"), no privity of
subrogation, both in their legal and conventional senses. In Ledonio v. Capitol Development Corporation:47 contract is needed to produce its legal effects. Accordingly, "the insurer can take nothing by subrogation but
An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known the rights of the insured, and is subrogated only to such rights as the insured possesses. This principle has
as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and without been frequently expressed in the form that the rights of the insurer against the wrongdoer cannot rise higher
need of the debtor's consent, transfers that credit and its accessory rights to another (known as the than the rights of the insured against such wrongdoer, since the insurer as subrogee, in contemplation of
assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it law, stands in the place of the insured and succeeds to whatever rights he may have in the
against the debtor. matter. Therefore, any defense which a wrongdoer has against the insured is good against the
insurer subrogated to the rights of the insured,"51 and this would clearly include the defense of
On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third prescription.
person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is
that which takes place without agreement but by operation of law because of certain Based on the above-discussed considerations, the Court must heretofore abandon the ruling
acts. Conventional subrogation is that which takes place by agreement of parties. in Vector that an insurer may file an action against the tortfeasor within ten (10) years from the time the
insurer indemnifies the insured. Following the principles of subrogation, the insurer only steps into
Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights the shoes of the insured and therefore, for purposes of prescription, inherits only the remaining
of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional period within which the insured may file an action against the wrongdoer. To be sure, the
subrogation are one and the same. prescriptive period of the action that the insured may file against the wrongdoer begins at the time that the
tort was committed and the loss/injury occurred against the insured. The indemnification of the insured by
A noted authority on civil law provided a discourse on the difference between these two transactions, to wit - the insurer only allows it to be subrogated to the former's rights, and does not create a new reckoning point
Conventional Subrogation and Assignment of Credits. - In the Argentine Civil Code, there is essentially no for the cause of action that the insured originally has against the wrongdoer.
difference between conventional subrogation and assignment of credit. The subrogation is merely the effect
of the assignment. In fact[,] it is expressly provided (Article 769) that conventional redemption shall be Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector doctrine
governed by the provisions on assignment of credit. should be prospective in application for the reason that judicial decisions applying or interpreting the laws
or the Constitution, until reversed, shall form part of the legal system of the Philippines. 52 Unto this Court
Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, devolves the sole authority to interpret what the law means, and all persons are bound to follow its
the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and interpretation. As explained in De Castro v. Judicial and Bar Council:53
gives rise to a new one; assignment refers to the same right which passes from one person to another. The Judicial decisions assume the same authority as a statute itself and, until authoritatively abandoned,
nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; necessarily become, to the extent that they are applicable, the criteria that must control the actuations, not
but the nullity of an obligation is not remedied by the assignment of the creditor's right to another. x x x only of those called upon to abide by them, but also of those duty-bound to enforce obedience to them. 54
This Court has consistently adhered to the foregoing distinction between an assignment of credit and a Hence, while the future may ultimately uncover a doctrine's error, it should be, as a general rule,
conventional subrogation. Such distinction is crucial because it would determine the necessity of the debtor's recognized as a "good law" prior to its abandonment. 55 In Philippine International Trading Corporation
consent. In an assignment of credit, the consent of the debtor is not necessary in order that the Commission on Audit,56 it was elucidated that:
assignment may fully produce the legal effects. What the law requires in an assignment of credit It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was
is not the consent of the debtor, but merely notice to him as the assignment takes effect only originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a
from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its different view is adopted, and more so when there is a reversal thereof, the new doctrine should be
accessories without the debtor's consent. On the other hand, conventional subrogation requires an applied prospectivelv and should not apply to parties who relied on the old doctrine and acted in
agreement among the parties concerned - the original creditor, the debtor, and the new creditor. good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there
It is a new contractual relation based on the mutual agreement among all the necessary is no recognition of what had transpired prior to such adjudication.57 (Emphasis and underscoring supplied)
parties.48 (Emphases and underscoring supplied)
In Pesca v. Pesca58 the Court further elaborated:
As discussed above, in an assignment of credit, the consent of the debtor is not necessary in order that the The "doctrine of stare decisis," ordained in Article 8 of the Civil Code, expresses that judicial decisions
assignment may fully produce legal effects (as notice to the debtor suffices); also, in assignment, no new applying or interpreting the law shall form part of the legal system of the Philippines. The rule follows the
contractual relation between the assignee/new creditor and debtor is created. On the other hand, in settled legal maxim - "legis interpretado legis vim obtinet" - that the interpretation placed upon the written
conventional subrogation, an agreement between all the parties concerning the substitution of the new law by a competent court has the force of law. The interpretation or construction placed by the courts
creditor is necessary. Meanwhile, legal subrogation produces the same effects as assignment and establishes the contemporaneous legislative intent of the law. The [said interpretation or construction] would
also, no new obligation is created between the subrogee/new creditor and debtor. As observed in thus constitute a part of that law as of the date the statute is enacted. It is only when a prior ruling of
commentaries on the subject: this Court finds itself later overruled, and a different view is adopted, that the new doctrine may
The effect of legal subrogation is to transfer to the new creditor the credit and all the rights and actions that have to be applied prospectively in favor of parties who have relied on the old doctrine and have
could have been exercised by the former creditor either against the debtor or against third persons, be they acted in good faith in accordance therewith under the familiar rule of "lex prospicit, non
guarantors or mortgagors. Simply stated, except only for the change in the person of the creditor, respicit."59 (Emphasis and underscoring supplied)
the obligation subsists in all respects as before the novation. 49 (Emphasis supplied)
With these in mind, the Court therefore sets the following guidelines relative to the application
Unlike assignment, however, legal subrogation, to produce effects, does not need to be agreed upon by the of Vector and this Decision vis-a-vis the prescriptive period in cases where the insurer is subrogated to the
subrogee and subrogor, unlike the need of an agreement between the assignee and assignor. As mentioned, rights of the insured against the wrongdoer based on a quasi-delict:
"[l]egal subrogation is that which takes place without agreement but by operation of law because of certain
acts,"50 as in the case of payment of the insurer under Article 2207 of the Civil Code. 1. For actions of such nature that have already been filed and are currently pending before the courts
at the time of the finality of this Decision, the rules on prescription prevailing at the time the action is
In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is created by filed would apply. Particularly:
virtue of the insurer's payment under Article 2207 of the Civil Code; also, as legal subrogation is not the
 57

(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling (i.e.,
from Vector's finality on August 15, 201360 up until the finality of this Decision), the prescriptive period is ten However, it must be recognized that the prevailing rule applicable to the pertinent events of this
(10) years from the time of payment by the insurer to the insured, which gave rise to an obligation created case is Vector. Pursuant to the guidelines stated above, specifically under guideline 1 (a),
by law. the Vector doctrine - which was even relied upon by the courts a quo - would then apply. Hence, as the
amended complaint63 impleading petitioner was filed on April 21, 2014, which is within ten (10) years from
Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription must be the time respondent indemnified Copylandia for its injury/loss, i.e., on November 2, 2006, the case cannot
resolved under Vector's parameters. be said to have prescribed under Vector. As such, the Court is constrained to deny the instant petition.

(b) For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling (i.e., WHEREFORE, the petition is DENIED. The Decision dated November 13, 2015 and the Resolution dated
before August 15, 2013), the prescriptive period is four (4) years from the time the tort is committed against February 26, 2016 of the Court of Appeals in CA-G.R. SP No. 138147 are
the insured by the wrongdoer. hereby AFFIRMED with MODIFICATION based on the guidelines stated in this Decision.

Rationale: The Vector doctrine, which espoused unique rules on legal subrogation and prescription as SO ORDERED.
aforedescribed, was not yet a binding precedent at this time; hence, issues of prescription must be resolved
under the rules prevailing before Vector, which, incidentally, are the basic principles of legal subrogation vis-
a-vis prescription of actions based on quasi-delicts.
2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:
(a) For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of this Decision, the subrogee-insurer is given a period not exceeding four (4)
years from the time of the finality of this Decision to file the action against the wrongdoer; provided, that in
all instances, the total period to file such case shall not exceed ten (10) years from the time the insurer is
subrogated to the rights of the insured.

Rationale: The erroneous reckoning and running of the period of prescription pursuant to
the Vector doctrine should not be taken against any and all persons relying thereon because the same were
based on the then-prevailing interpretation and construction of the Court. Hence, subrogees-insurers, who
are, effectively, only now notified of the abandonment of Vector, must be given the benefit of the present
doctrine on subrogation as ruled in this Decision.

However, the benefit of the additional period (i.e., not exceeding four [4] years) under this Decision must
not result in the insured being given a total of more than ten (10) years from the time the insurer is
subrogated to the rights of the insured (i.e., the old prescriptive period in Vector); otherwise, the insurer
would be able to unduly propagate its right to file the case beyond the ten (10)-year period accorded
by Vector to the prejudice of the wrongdoer.

(b) For cases where the tort was committed and the consequent loss/injury against the insured occurred
only upon or after the finality of this Decision, the Vector doctrine would hold no application. The
prescriptive period is four (4) years from the time the tort is committed against the insured by the
wrongdoer.

Rationale: Since the cause of action for quasi-delict and the consequent subrogation of the insurer would
arise after due notice of Vector's abandonment, all persons would now be bound by the present doctrine on
subrogation as ruled in this Decision.
Application to the Case at Bar

In this case, it is undisputed that the water leak damage incident, which gave rise to Copylandia's cause of
action against any possible defendants, including NASCL and petitioner, happened on May 9, 2006. As this
incident gave rise to an obligation classified as a quasi-delict, Copylandia would have only had four (4)
years, or until May 9, 2010, within which to file a suit to recover damages.61 When Copylandia's rights were
transferred to respondent by virtue of the latter's payment of the former's insurance claim on November 2,
2006, as evidenced by the Loss and Subrogation Receipt,62 respondent was likewise bound by the same
prescriptive period. Since it was only on: (a) May 20, 2010 when respondent made an extrajudicial demand
to NASCL, and thereafter, filed its complaint; (b) October 6, 2011 when respondent amended its complaint
to implead CHI as party-defendant; and (c) April 21, 2014 when respondent moved to further amend the
complaint in order to implead petitioner as party-defendant in lieu of CHI, prescription - if adjudged under
the present parameters of legal subrogation under this Decision - should have already set in.
 58

SECOND DIVISION Claiming to have paid Honda Trading's insurance claim for the loss it suffered, respondent Tokio Marine
commenced the instant suit on October 10, 2006 with the filing of its complaint for damages against
petitioner Keihin-Everett. Respondent Tokio Marine maintained that it had been subrogated to all the rights
January 28, 2019
and causes of action pertaining to Honda Trading.

G.R. No. 212107

Served with summons, petitioner Keihin-Everett denied liability for the lost shipment on the ground that the
loss thereof occurred while the same was in the possession of respondent Sunfreight Forwarders. 12 Hence,
KEIHIN-EVERETT FORWARDING CO., INC., Petitioner petitioner Keihin-Everett filed a third-party complaint against the latter, who, in turn, denied liability on the
vs. ground that it was not privy to the contract between Keihin-Everett and Honda Trading. If at all, respondent
TOKIO MARINE MALAYAN INSURANCE CO., INC.* AND SUNFREIGHT FORWARDERS & CUSTOMS Sunfreight Forwarders claimed that its liability cannot exceed the ₱500,000.00 fixed in its Accreditation
BROKERAGE, INC., Respondents Agreement with petitioner Keihin-Everett.13

DECISION Ruling of the RTC

REYES, J. JR., J.: On October 27, 2011, the RTC rendered a Decision finding petitioner Keihin-Everett and respondent
Sunfreight Forwarders jointly and severally liable to pay respondent Tokio Marine's claim in the sum of
₱1,589,556.60, together with the legal interest due thereon and attorney's fees amounting to ₱100,000.00.
The Case The RTC found the driver of Sunfreight Forwarders as the cause of the evil caused. Under Article 2180 of the
Civil Code, it provides: "Employers shall be liable for the damages caused by their employees and household
Keihin-Everett Forwarding Co., Inc. (Keihin-Everett) appealed from the April 8, 2014 Decision 1 of the Court helpers acting within the scope of their assigned tasks, even though the former are not engaged in any
of Appeals (CA) in CA-G.R. CV No. 98672 which held it liable to pay Tokio Marine Malayan Insurance Co., business or industry." Thus, Sunfreight Forwarders is hereby held liable for the loss of the subject cargoes
Inc.'s (Tokio Marine's) claim of ₱1,589,556.60 with right of reimbursement from Sunfreight Forwarders & with Keihin-Everett, being a common carrier. In case, Keihin-Everett pays for the amount, it has a right of
Customs Brokerage, Inc. (Sunfreight Forwarders). reimbursement from Sunfreight Forwarders. It ruled:

The Facts In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible,
unless they can prove that the loss, destruction or deterioration was brought about by the causes specified
in Article 1734 of the Civil Code. In all other cases, they are presumed to have been at fault or to have acted
The facts, as summarized by the CA,2 are clear and undisputed. negligently, unless they prove that they observed extraordinary diligence (Aboitiz Shipping Corporation v.
[New] India Assurance Company, Ltd., G.R. No. 156978, August 24, 2007). And, hijacking of [a] carrier's
In 2005, Honda Trading Phils. Ecozone Corporation (Honda Trading) ordered 80 bundles of Aluminum Alloy truck is not one of those included as exempting circumstance under Art. 1374 (De Guzman v. Court of
Ingots from PT Molten Aluminum Producer Indonesia (PT Molten). 3 PT Molten loaded the goods in two Appeals, 168 SCRA 612). Thus, [Keihin-Everett] and [Sunfreight Forwarders] are crystal clear liable for the
container vans with Serial Nos. TEXU 389360-5 and GATU 040516-3 which were, in turn, received in loss of the subject cargo.14
Jakarta, Indonesia by Nippon Express Co., Ltd. for shipment to Manila. 4
Keihin-Everett moved for reconsideration of the foregoing RTC Decision. However, its motion was denied for
Aside from insuring the entire shipment with Tokio Marine & Nichido Fire Insurance Co., Inc. (TMNFIC) under lack of merit by the RTC in its Order dated March 8, 2012. Hence, Keihin-Everett filed an appeal with the CA.
Policy No. 83-00143689, Honda Trading also engaged the services of petitioner Keihin-Everett to clear and
withdraw the cargo from the pier and to transport and deliver the same to its warehouse at the Laguna Ruling of the CA
Technopark in Biñan, Laguna.5 Meanwhile, petitioner Keihin-Everett had an Accreditation Agreement with
respondent Sunfreight Forwarders whereby the latter undertook to render common carrier services for the
former and to transport inland goods within the Philippines.6 In the now appealed Decision dated April 8, 2014, the CA modified the ruling of the RTC insofar as the
solidary liability of Keihin-Everett and Sunfreight Forwarders is concerned. The CA went to rule that solidarity
is never presumed. There is solidary liability when the obligation so states, or when the law or the nature of
The shipment arrived in Manila on November 3, 2005 and was, accordingly, offloaded from the ocean liner the obligation requires the same. Thus, because of the lack of privity between Honda Trading and Sunfreight
and temporarily stored at the CY Area of the Manila International Port pending release by the Customs Forwarders, the latter cannot simply be held jointly and severally liable with Keihin-Everett for Tokio
Authority.7 On November 8, 2005, the shipment was caused to be released from the pier by petitioner Marine's claim as subrogee. In view of the Accreditation Agreement between Keihin-Everett and Sunfreight
Keihin-Everett and turned over to respondent Sunfreight Forwarders for delivery to Honda Trading. 8 En route Forwarders, the former possesses a right of reimbursement against the latter for so much of what Keihin-
to the latter's warehouse, the truck carrying the containers was hijacked and the container van with Serial Everett has paid to Tokio Marine. The dispositive portion of the CA Decision reads as follows:
No. TEXU 389360-5 was reportedly taken away.9 Although said container van was subsequently found in the
vicinity of the Manila North Cemetery and later towed to the compound of the Metro Manila Development
Authority (MMDA), it appears that the contents thereof were no longer retrieved. 10 Only the container van WHEREFORE, premises considered, the appealed October 27, 2011 Decision is MODIFIED to hold Keihin-
with Serial No. GATU 040516-3 reached the warehouse. As a consequence, Honda Trading suffered losses in Everett liable for Tokio Marine's claim in the sum of ₱1,589,556.60, with right of reimbursement from
the total amount of ₱2,121,917.04, representing the value of the lost 40 bundles of Aluminum Alloy Ingots. 11 Sunfreight Forwarders. Keihin-Everett is likewise found solely liable for the attorney's fees the RTC awarded
in favor of Tokio Marine. The rest is AFFIRMED in toto.
 59

SO ORDERED.15 However, in the aforesaid case, the Court did not suggest an outright dismissal of a complaint in case of
failure to attach the insurance contract in the complaint. Promoting a reasonable construction of the rules so
as not to work injustice, the Court makes it clear that failure to comply with the rules does not preclude the
Dissatisfied with the CA Decision, petitioner Keihin-Everett filed the instant petition with this Court.
plaintiff to offer it as evidence. Thus:

The Issue
It may be that there is no specific provision in the Rules of Court which prohibits the admission in evidence
of an actionable document in the event a party fails to comply with the requirement of the rule on actionable
The main issue for consideration is whether or not the CA erred in affirming with modification the Decision of documents under Section 7, Rule 8.19
the RTC dated October 27, 2011 holding petitioner Keihin-Everett liable to respondent Tokio Marine.
Unfortunately, in the Malayan case cited by Keihin-Everett, Malayan not only failed to attach or set forth in
Petitioner Keihin-Everett ascribed errors on the part of the CA (a) in considering the documents presented at the complaint the insurance policy, it likewise did not present the same as evidence before the trial court or
the trial even if the same were not attached and made integral parts of the complaint in violation of Section even in the CA. As the Court metaphorically described, the very insurance contract emerges as the white
7, Rule 8 of the Rules of Court; (b) in upholding the RTC's failure to dismiss the complaint albeit the plaintiff elephant in the room — an obdurate presence which everybody reacts to, yet legally invisible as a matter of
is not the real party in interest and has no capacity to sue; (c) in ruling that there was legal subrogation; evidence since no attempt had been made to prove its corporeal existence in the court of law. 20 Hence, there
and (d) in affirming the petitioner's liability despite overwhelming evidence showing that the damaged was sufficient reason for the Court to dismiss the case for it has no legal basis from which to consider the
cargoes were in the custody of Sunfreight Forwarders at the time they were lost. 16 pre-existence of an insurance contract between Malayan and ABB Koppel and the former's right of
subrogation.
Ruling
The instant case cannot be dismissed just like that. Unlike in the Malayan case, Tokio Marine presented as
evidence, not only the Honda Trading Insurance Policy, but also the Subrogation Receipt evidencing that it
Keihin-Everett's arguments will be resolved in seriatim. paid Honda Trading the sum of US$38,855.83 in full settlement of the latter's claim under Policy No. 83-
00143689. During the trial, Keihin-Everett even had the opportunity to examine the said documents and
First. Keihin-Everett argued that the case should have been dismissed for failure of Tokio Marine to attach or conducted a cross-examination of the said Contract of Insurance. 21 By presenting the insurance policy
state in the Complaint the actionable document or the insurance policy between the insurer and the insured, constitutive of the insurance relationship of the parties, Tokio Marine was able to confirm its legal right to
in clear violation of Section 7, Rule 8 of the 1997 Rules of Court, which states: recover as subrogee of Honda Trading.

SEC. 7. Action or defense based on document. — Whenever an action or defense is based upon a written Second. Keihin-Everett insisted that Tokio Marine is not the insurer but TMNFIC, hence, it argued that Tokio
instrument or document, the substance of such instrument or document shall be set forth in the pleading, Marine has no right to institute the present action. As it pointed out, the Insurance Policy shows in its face
and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to that Honda Trading procured the insurance from TMNFIC and not from Tokio Marine.
be a part of the pleading, or said copy may with like effect be set forth in the pleading.
While this assertion is true, Insurance Policy No. 83-00143689 itself expressly made Tokio Marine as the
It bears to stress that failure of Tokio Marine to attach in the Complaint the contract of insurance between party liable to pay the insurance claim of Honda Trading pursuant to the Agency Agreement entered into by
the insurer (Tokio Marine) and the insured (Honda Trading) is not fatal to its cause of action. and between Tokio Marine and TMNFIC. As properly appreciated by both the RTC and the CA, the Agency
Agreement shows that TMNFIC had subsequently changed its name to that of Tokio Marine. 22 By agreeing to
this stipulation in the Insurance Policy, Honda Trading binds itself to file its claim from Tokio Marine and
True, in the case of Malayan Insurance Co., Inc. v. Regis Brokerage Corp.17 relied upon by Keihin-Everett, thereafter to accept payment from it.
the Court makes it imperative for the plaintiff (whose action is predicated upon his right as a subrogee) to
attach the insurance contract in the complaint in accordance with Section 7, Rule 8 of the 1997 Rules of
Court, just so in order to establish the legal basis of the right to subrogation. The Court ratiocinated: At any rate, even if we consider Tokio Marine as a third person who voluntarily paid the insurance claims of
Honda Trading, it is still entitled to be reimbursed of what it had paid. As held by this Court in the case
of Pan Malayan Insurance Corp. v. Court of Appeals,23 the insurer who may have no rights of subrogation
Malayan's right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the due to "voluntary" payment may nevertheless recover from the third party responsible for the damage to the
respondent to ABB Koppel, even though such liability will necessarily have to be established at the trial for insured property under Article 123624 of the Civil Code. Under this circumstance, Tokio Marine's right to sue
Malayan to recover. Because Malayan's right to recovery derives from contractual subrogation as an incident is based on the fact that it voluntarily made payment in favor of Honda Trading and it could go after the
to an insurance relationship, and not from any proximate injury to it inflicted by the respondents, it is critical third party responsible for the loss (Keihin-Everett) in the exercise of its legal right of subrogation.
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. Setting aside this assumption, Tokio Marine nonetheless was able to prove by the following documentary
evidence, such as Insurance Policy, Agency Agreement and Subrogation Receipt, their right to institute this
action as subrogee of the insured. Keihin-Everett, on the other hand, did not present any evidence to
Our procedural rules make plain how easily Malayan could have adduced the Marine Insurance Policy. contradict Tokio Marine's case.
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, Third. Since the insurance claim for the loss sustained by the insured shipment was paid by Tokio Marine as
Rule 8 of the 1997 Rules of Civil Procedure.18 proven by the Subrogation Receipt – showing the amount paid and the acceptance made by Honda Trading,
 60

it is inevitable that it is entitled, as a matter of course, to exercise its legal right to subrogation as provided We likewise agree with the CA that the liability of Keihin-Everett and Sunfreight Forwarders are not solidary.
under Article 2207 of the Civil Code as follows: 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.32 Thus, under Article 2194 of the Civil Code, liability of two or more
persons is solidary in quasi-delicts. But in this case, Keihin-Everett's liability to Honda Trading (to which
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
Tokio Marine had been subrogated as an insurer) stemmed not from quasi-delict, but from its breach of
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
contract of carriage. Sunfreight Forwarders was only impleaded in the case when Keihin-Everett filed a third-
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
party complaint against it. As mentioned earlier, there was no direct contractual relationship between
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
Sunfreight Forwarders and Honda Trading. Accordingly, there was no basis to directly hold Sunfreight
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Forwarders liable to Honda Trading for breach of contract. If at all, Honda Trading can hold Sunfreight
Forwarders for quasi-delict,33 which is not the action filed in the instant case.
It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact of payment
grants Tokio Marine subrogatory right which enables it to exercise legal remedies that would otherwise be
It is not expected however that Keihin-Everett must shoulder the entire loss. The case of Torres-Madrid
available to Honda Trading as owner of the hijacked cargoes as against the common carrier (Keihin-Everett).
Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc.34 is instructive. The said case involves a similar set
In other words, the right of subrogation accrues simply upon payment by the insurance company of the
of facts as that of the instant case such that the shipper (Sony) engaged the services of common carrier
insurance claim.25 As the Court held:
(TMBI), to facilitate the release of its shipment and deliver the goods to its warehouse, who, in turn,
subcontracted a portion of its obligation to another common carrier (BMT). The Court ruled:
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies which the insured may have against the third party whose negligence or wrongful act caused the
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT, TMBI
loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon
entered into its own contract of carriage with a fellow common carrier.
payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.26
The cargo was lost after its transfer to BMT's custody based on its contract of carriage with TMBI. Following
27 Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that it observed extraordinary
Indeed, the right of subrogation has its roots in equity.  It is designed to promote and to accomplish justice
diligence in the performance of its obligation to TMBI, it is liable to TMBI for breach of their contract of
and is the mode which equity adopts to compel the ultimate payment of a debt by one who, in justice and
carriage.
good conscience, ought to pay.28 Consequently, the payment made by Tokio Marine to Honda Trading
operates as an equitable assignment to the former of all the remedies which the latter may have against
Keihin-Everett. In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In turn,
TMBI is entitled to reimbursement from BMT due to the latter's own breach of its contract of carriage with
TMBI. x x x35
Finally. Keihin-Everett maintained that at the time when the cargoes were lost, it was already in the custody
of Sunfreight Forwarders. Notwithstanding that the cargoes were in the possession of Sunfreight Forwarders
when they were hijacked, Keihin-Everett is not absolved from its liability as a common carrier. Keihin-Everett In the same manner, Keihin-Everett has a right to be reimbursed based on its Accreditation Agreement with
seems to have overlooked that it was the one whose services were engaged by Honda Trading to clear and Sunfreight Forwarders. By accrediting Sunfreight Forwarders to render common carrier services to it, Keihin-
withdraw the cargoes from the pier and to transport and deliver the same to its warehouse. In turn, Keihin- Everett in effect entered into a contract of carriage with a fellow common carrier, Sunfreight Forwarders.
Everett accredited Sunfreight Forwarders to render common carrier service for it by transporting inland
goods. As correctly held by the CA, there was no privity of contract between Honda Trading (to whose rights
It is undisputed that the cargoes were lost when they were in the custody of Sunfreight Forwarders. Hence,
Tokio Marine was subrogated) and Sunfreight Forwarders. Hence, Keihin-Everett, as the common carrier,
under Article 173536 of the Civil Code, the presumption of fault on the part of Sunfreight Forwarders (as
remained responsible to Honda Trading for the lost cargoes.
common carrier) arose. Since Sunfreight Forwarders failed to prove that it observed extraordinary diligence
in the performance of its obligation to Keihin-Everett, it is liable to the latter for breach of contract.
In this light, Keihin-Everett, as a common carrier, is mandated to observe, under Article 1733 of the Civil Consequently, Keihin-Everett is entitled to be reimbursed by Sunfreight Forwarders due to the latter's own
Code, extraordinary diligence in the vigilance over the goods it transports according to all the circumstances breach occasioned by the loss and damage to the cargoes under its care and custody. As with the
of each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at cited Torres-Madrid Brokerage case, Sunfreight Forwarders, too, has the option to absorb the loss or to
fault or to have acted negligently, unless it proves that it observed extraordinary diligence.29 To be sure, proceed after its missing driver, the suspect in the hijacking incident.37
under Article 1736 of the Civil Code, a common carrier's extraordinary responsibility over the shipper's goods
lasts from the time these goods are unconditionally placed in the possession of, and received by, the carrier
As to the award of attorney's fees, the same is likewise in order as Tokio Marine was clearly compelled to
for transportation, until they are delivered, actually or constructively, by the carrier to the consignee, or to
litigate to protect its interest.38 Attorney's fees are allowed in the discretion of the court after considering
the person who has a right to receive them. Hence, at the time Keihin-Everett turned over the custody of the
several factors which are discernible from the facts brought out during the trial. 39 In this case, Tokio Marine
cargoes to Sunfreight Forwarders for inland transportation, it is still required to observe extraordinary
was compelled to litigate brought about by Keihin-Everett's obstinate refusal to pay the former's valid claim.
diligence in the vigilance of the goods. Failure to successfully establish this carries with it the presumption of
fault or negligence, thus, rendering Keihin-Everett liable to Honda Trading for breach of contract.
WHEREFORE, the Decision dated April 8, 2014 of the Court of Appeals in CA-G.R. No. CV No. 98672
is AFFIRMED. SO ORDERED.
It bears to stress that the hijacking of the goods is not considered a fortuitous event or a force
majeure.30 Nevertheless, a common carrier may absolve itself of liability for a resulting loss caused by
robbery or hijacked if it is proven that the robbery or hijacking was attended by grave or irresistible threat, SECOND DIVISION
violence or force.31 In this case, Keihin-Everett failed to prove the existence of the aforementioned instances.
 61

G.R. No. 194126, October 17, 2018 A Memorandum of Agreement (MOA) was executed by the said parties on February 1, 2002 [which
stipulated the various requirements for collecting claims from Country Bankers, namely:
INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC., Petitioner, v. COUNTRY BANKERS
INSURANCE CORPORATION, Respondent. B. REQUIREMENTS FOR CLAIM

DECISION Requirements are as follows:

CAGUIOA, J.: SURETY BOND:

Before this Court is a Petition for Review on Certiorari1 (Petition) under Rule 45 of the Rules of Court filed by A. 1st demand letter requiring his/her to submit complete documents.
petitioner Industrial Personnel and Management Services, Inc. (IPAMS) assailing the Decision 2 dated October B. 2nd Demand letter (follow up of above).
14, 2010 (assailed Decision) of the Court of Appeals (CA) Eleventh Division in CA-G.R. SP No. 114683, which C. Affidavit stating reason of any violation to be executed by responsible officer of
reversed and set aside the following rulings: Recruitment Agency;
D. Statement of Account (detailed expenses).
E. Transmittal Claim Letter.12 (Emphasis and underscoring in the original)]
1. the Resolution3 dated June 26, 2007 and Order4 dated December 4, 2007 issued by the Insurance
Commission (IC);
[On the basis of the MOA, IPAMS submitted its claims under the surety bonds issued by Country Bankers.
2. the Decision5 dated September 17, 2008 and Resolution6 dated April 29, 2009 issued by the For its part, Country Bankers, upon receipt of the documents enumerated under the MOA, paid the claims to
Department of Finance (DOF); and IPAMS.13 ] According to IPAMS, starting 2004, some of its claims were not anymore settled by Country
Bankers.
3. the Decision7 dated January 8, 2010 and Resolution8 dated June 1, 2010 issued by the Office of the
President (OP). [In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The claims were not denied by
Country Bankers, which instead asked for time within which to pay the claims, as it alleged to be cash
strapped at that time. Thereafter, the number of unpaid claims increased. By February 16, 2007, the total
These issuances upheld the ruling of the IC that respondent Country Bankers Corporation (Country Bankers) amount of unpaid claims was P11,309,411.56.
shall be subjected to disciplinary action pursuant to Section 241 (now Section 247) and Section 247 (now
Section 254) of the Insurance Code, as amended,9 if respondent Country Bankers does not settle the subject
claims presented by petitioner IPAMS. IPAMS took the matter up with the General Manager of Country Bankers, Mr. Ignacio Ong (Ong). In
response, Country Bankers, through its letter14 dated November 14, 2005 signed by Mr. Ong, acknowledged
the obligations of Country Bankers, apologized for the delay in the payment of claims, and proposed to
The Facts and Antecedent Proceedings amortize the settlement of claims by paying a semi-monthly amount of P850,000.00. In addition, Country
Bankers promised to pay future claims within a ninety (90)-day period. That commitment made by Country
As narrated by the CA in its assailed Decision, the essential facts and antecedent proceedings of the instant Bankers was not fulfilled and IPAMS had to deal with Country Bankers' new General Manager, Ms. Tess
case are as follows: Valeriano (Valeriano). Ms. Valeriano assured IPAMS that the obligations of Country Bankers would be paid
promptly.

In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting registered nurses for
work deployment in the United States of America (U.S.). It takes eighteen (18) to twenty four (24) months However, the counsel of Country Bankers, Atty. Marisol Caleja, started to oppose the payment of claims and
for the entire immigration process to complete. As the process requires huge amounts of money, such insisted on the production of official receipts of IPAMS on the expenses it incurred for the application of
amounts are advanced [to] the nurse applicants. nurses. IPAMS opposed this, saying that the Country Bankers' insistence on the production of official receipts
was contrary to, and not contemplated in, the MOA and was an impossible condition considering that the
U.S. authorities did not issue official receipts. In lieu of official receipts, IPAMS submitted statements of
By reason of the advances made to the nurse applicants, the latter were required to post surety bond. The accounts, as provided in the MOA.15 ]
purpose of the bond is to guarantee the following during its validity period: (a) that they will comply with the
entire immigration process, (b) that they will complete the documents required, and (c) that they will pass
all the qualifying examinations for the issuance of immigration visa. The Country Bankers Insurance Then, [in a letter16 dated August 22, 2006,] Country Bankers limited the authority of its agent [assigned to
Corporation (Country Bankers for brevity) and IPAMS agreed to provide bonds for the said nurses. [Under the accounts of IPAMS,] Mr. Jaime C. Lacaba [(Lacaba),] to transact business with IPAMS.
the agreement of IPAMS and Country Bankers, the latter will provide surety bonds and the premiums
therefor were paid by IPAMS on behalf of the nurse applicants. 10 ] [Due to the unwillingness of Country Bankers to settle the claims of IPAMS, the latter sought the
intervention of the IC, through a letter-complaint dated February 9, 2007.17 ]
[The surety bonds issued specifically state that the liability of the surety company,  i.e., respondent Country
Bankers, "shall be limited only to actual damages arising from Breach of Contract by the applicant." 11 ] Country Bankers on the other hand alleged that until the third quarter of 2006, it never received any
complaint from IPAMS. Due to remarkable high loss ratio of IPAMS, the latter's accounts were evaluated and
 62

audited by the Country Bankers. The IPAMS was informed of the same problem. Instead of complying with 1. June 1, 2010 decision of the Office of the President in O.P. Case No. 09-E-190;
the requirements for claim processes, IPAMS insisted that the supporting documents cannot be produced. 2. January 8, 2010 decision of the Office of the President in O.P. Case No. 09-E-190;
3. Department of Finance resolution dated April 29, 2009;
4. Department of Finance decision dated September 17, 2008;
[The] [c]ontending parties went to a series of conferences to settle the differences but to no avail. The [IC]
5. Insurance Commission order dated December 4, 2007; and the
therefore ordered the parties to submit [their] respective Position Papers. 18 On June 26, 2007, the Claims
6. Insurance Commission resolution dated June 26, 2007.
Division of the [IC] [issued] a [R]esolution19 declaring the following:

SO ORDERED.27 (Emphasis in the original)

"IN VIEW OF THE FOREGOING, this Commission believes and so holds that there is no ground for the refusal
of CBIC to pay the claims of IPAMS. Its failure to settle the claim after having entered into an Agreement
with the complainant, IPAMS, demonstrates respondent's bad faith in the fulfillment of their obligation, to The CA held that respondent Country Bankers was justified in delaying the payment of the claims to
the prejudice of the complainant. petitioner IPAMS because of the purported lack of submission by petitioner IPAMS of official receipts and
other "competent proof28 on the expenses incurred by petitioner IPAMS in its recruitment of nurse applicants.
The CA held that Section 241 (now Section 247) of the Insurance Code, which defines an unfair claim
Accordingly, we find the insurance company liable to settle the subject claim otherwise, this Commission
settlement practice, and Section 247 (now Section 254), which provides for the suspension or revocation of
shall be constrained to take disciplinary action pursuant to Sections 241 and 247 of the Insurance Code, as
the insurer's authority to conduct business, should not be made to apply to respondent Country Bankers
amended." (Underscoring supplied)
because of the failure of petitioner IPAMS to provide competent proof of its claims.

The move by Country Bankers to reconsider the above resolution was denied by the [IC] in an
Instead of filing a motion for reconsideration, petitioner IPAMS decided to directly file the instant
[O]rder20 dated December 4, 2007.
Petition29 dated November 2, 2010 on November 4, 2010 before the Court.

Country Bankers made an appeal before the [DOF]. The [DOF] decided to affirm the assailed orders of the
On April 4, 2011, respondent Country Bankers filed its Comment (To Petition for Review on Certiorari dated
[IC]. The dispositive portion of the said [D]ecision21 [dated September 30, 2008] reads:
November 2, 2010).30 On August 18, 2011, petitioner IPAMS filed its Reply. 31

"WHEREFORE, foregoing premises considered, the questioned Resolution of the Commission dated June 26,
Issue
2007, as reiterated in its Order dated December 7, 2007, is hereby AFFIRMED and that the same be
implemented in accordance with Sec. 241, in relation to Sec. 247 of the Insurance Code and other pertinent
rules and regulations on the matter." Stripped to its core, the present Petition asks the Court to resolve whether the CA erred in issuing its
assailed Decision which reversed and set aside the rulings of the IC, DOF, and OP, which found that
respondent Country Bankers has no ground to refuse the payment of petitioner IPAMS' claims and shall
A motion to reconsider the x x x aforementioned decision was filed but was denied [by the DOF in its
accordingly be subjected to disciplinary action pursuant to Sections 241 (now Section 247) and 247 (now
Resolution22 dated] April 29, 2009.
Section 254) of the Insurance Code if the latter does not settle the subject claims of petitioner IPAMS.

On appeal to the [OP], the ruling of the [DOF] was affirmed in a [D]ecision23 docketed as O.P. Case No. 09-
The Court's Ruling
E-190 and dated January 8, 2010[:

The appeal is partly meritorious.

WHEREFORE, herein appeal is DISMISSED for lack of merit. The Decision of the Secretary of Finance dated
September 17, 2008 and its Resolution dated April 29, 2009 are hereby AFFIRMED.] 24
In reversing and setting aside the rulings of the IC, DOF, and OP, the CA, in the main, found that as
provisions of applicable law are deemed written into contracts, Article 2199 of the Civil Code 32 should be
A subsequent motion to reconsider the same was denied by the said office in its [R]esolution 25 dated June 1,
applied regarding the MOA between petitioner IPAMS and respondent Country Bankers. The CA reasoned
2010.
that since "[c]ompetent proof x x x must be presented to justify award for actual damages," 33 respondent
Country Bankers was correct in not paying the subject claims of petitioner IPAMS because the latter failed to
Hence, [the] instant [P]etition [for Review filed by respondent Country Bankers before the CA under Rule 43 present official receipts and other "competent" evidence establishing the actual costs and expenses incurred
of the Rules of Court.]26 by petitioner IPAMS.

The Ruling of the CA Apparently, the CA concurred with the reason posited by respondent Country Bankers for not paying the
claims presented by petitioner IPAMS, i.e., the failure of petitioner IPAMS to present official receipts of
expenses it incurred. Consequently, the CA found that mere Statements of Accounts with detailed expenses,
In its assailed Decision, the CA granted the Rule 43 Petition filed by respondent Country Bankers, reversing without accompanying official receipts or any other "competent" evidence, cannot prove actual expenses.
and setting aside the rulings of the IC, DOF, and OP, the dispositive portion of which states: Hence, respondent Country Bankers was supposedly justified in not paying the claims of petitioner IPAMS.

WHEREFORE, premises considered, the petition is GRANTED and the following issuances are Autonomy of Contracts
hereby REVERSED and SET ASIDE:
 63

At the onset, it is important to note that according to the autonomy characteristic of contracts, the actual damages are not limited to the actual losses incurred or that actual damages are to be proven by
contracting parties may establish such stipulations, clauses, terms and conditions as they may specific documents agreed upon.
deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.34
The submission of official receipts and other pieces of evidence as a prerequisite for the payment of claims
is  excused  by stipulation of the parties; and in lieu thereof, the presentation of statement of accounts with
The stipulation of the MOA at issue is the provision enumerating requirements (Requirements for Claim detailed expenses, demand letters, and affidavits is, by express stipulation, sufficient evidence for the
Clause) that must be presented by petitioner IPAMS in order to make a valid claim against the surety bond. payment of claims.
To reiterate, the Requirements for Claim Clause provides:

B. REQUIREMENTS FOR CLAIM To reiterate, Article 2199 of the Civil Code explicitly provides that the prerequisite of proof for the recovery
of actual damages is not absolute. This was illustrated in  People of the Philippines v. Jonjie Eso y Hungoy, et
al.,38 wherein this Court held that the requirement of providing actual proof found under Article 2199 for the
Requirements are as follows: recovery of actual and compensatory damages (in that case, funeral expenses) may. be dispensed with,
considering that there was a stipulation to that effect made by the parties.
SURETY BOND:
In the instant case, it is not disputed by any party that in the MOA entered into by the petitioner IPAMS and
st respondent Country Bankers, the parties expressly agreed upon a list of requirements to be fulfilled by the
F. 1  demand letter requiring his/her to submit complete documents.
petitioner in order to claim from respondent Country Bankers under the surety bond.
G. 2nd Demand letter (follow up of above).
H. Affidavit stating reason of any violation to be executed by responsible office of Recruitment Agency;
I. Statement of Account (detailed expenses). Hence, it is crystal clear that the petitioner IPAMS and respondent Country Bankers, by express
J. Transmittal Claim Letter.35 (Emphasis and underscoring in the original) stipulation, agreed that in order for the former to have a valid claim under the surety bond, the only
requirements that need to be submitted are the two demand letters, an Affidavit stating reason of any
violation to be executed by responsible officer of the Recruitment Agency, a Statement of Account detailing
Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to the effect that mere
the expenses incurred, and the Transmittal Claim Letter. Evidently, the parties did not include as
demand letters, affidavits, and statements of accounts are enough proof of actual damages — that more
preconditions for the payment of claims the submission of official receipts or any other more
direct and concrete proofs of expenditures by the petitioner such as official receipts have been dispensed
direct or concrete piece of evidence to substantiate the expenditures of petitioner IPAMS. If the
with in order to prove actual losses.
parties truly had the intention of treating the submission of official receipts as a requirement for the
payment of claims, they would have included such requirement in the MOA. But they did not.
As to why the parties agreed on the sufficiency of the listed requirements under the MOA goes into the
motives of the parties, which is not hard to understand, considering that the covered transactions, i.e., the
It is elementary that when the terms of an agreement have been reduced to writing, it is considered as
processing of applications of nurses in the U.S., are generally not subject to the issuance of official receipts
containing all the terms agreed upon and there can be no evidence on such terms other than the contents of
by the U.S. government and its agencies.36
the written agreement.39 Further, when the terms of the contract are clear and leave no doubt upon the
intention of the contracting parties, the stipulations of the parties are controlling. 40
Considering the foregoing, the question is crystallized: Can the parties stipulate on the requirements that
must be presented in order to claim against a surety bond? And the answer is a definite YES, pursuant to the
In the case at hand, respondent Country Banker failed to present any compelling evidence that convinces
autonomy characteristic of contracts, they can. In an insurance contract, founded on the autonomy of
the Court that the parties had the intention of adding requirements other than the five requirements for
contracts, the parties are generally not prevented from imposing the terms and conditions that determine
payment of claims enumerated in the Requirements for Claim Clause. On the contrary, several
the contract's obligatory force.37
circumstances show that the submission of official receipts was really NOT intended by the parties to be a
precondition for the payment of claims.
Thus, the view posited by the CA that the Requirements for Claim Clause is contrary to law because it is
incongruent with Article 2199 of the Civil Code and, therefore, an exception to the rule on autonomy of
As found by the OP in its Decision dated January 8, 2010, respondent Country Bankers "knew as a matter of
contracts is erroneous. A more thorough examination of Article 2199 does not support the CA's view.
IPAMS' regular course of business that these covered transactions are generally not issued official receipts
by US government and its agencies and the US based professional organizations and institutions involved to
Article 2199 of the Civil Code states: complete the requirements for the issuance of an immigrant visa." 41

Article 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation Further, as found by the IC in its Resolution dated June 26, 2007, which the CA did not controvert in its
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as assailed Decision, respondent Country Bankers had previously admitted liability and promised to make
actual or compensatory damages. (Emphasis and underscoring supplied) payment on similar claims under the surety agreement even without the submission of official receipts. 42 In
fact, respondent Country Bankers had previously paid similar claims made by petitioner IPAMS on the basis
of the same set of documents, even without the submission of official receipts and other pieces of evidence.
The law is clear and unequivocal when it states that one is entitled to adequate compensation for pecuniary
loss only for such losses as he has duly proved EXCEPT: (1) when the law provides otherwise, or (2) by
stipulation of the parties. Otherwise stated, the amount of actual damages is limited to losses that were As the contemporaneous and subsequent acts of the contracting parties shall be principally considered in
actually incurred and proven, except when the law provides otherwise, or when the parties stipulate that determining the intention of the parties,43 and that, by virtue of estoppel, an admission or representation is
 64

rendered conclusive upon the person making it and cannot be denied or disproved as against the person In this regard, we wish to propose to amortize the settlement of the said amount by paying you the semi-
relying thereon,44 the prior actuations of respondent Country Bankers clearly establish that it did not intend monthly amount of P850,000.00 until the entire amount of P20,575,492.25 is fully paid. With respect to
the submission of official receipts to be a prerequisite for the payment of claims. Respondent Country future claims (after the cut-off date, October 28, 2005), we shall see to it that they are settled within the 90
Bankers is therefore estopped from claiming that the submission of official receipts and other "competent days time frame allowed us.54
proof” is a further requirement for the payment of claims.
It bears stressing that respondent Country Bankers, after undergoing an evaluation of the total number of
Hence, the Court finds that, by stipulation of petitioner IPAMS and respondent Country Bankers in their MOA, claims of petitioner IPAMS, undertook the settlement of such claims even WITHOUT the submission of
the parties waived the requirement of actually proving the expenses incurred by petitioner IPAMS through official receipts.
the submission of official receipts and other documentary evidence. Thus, respondent Country Bankers was
not justified in denying the payment of claims presented by petitioner IPAMS based on the lack of official
In fact, respondent Country Bankers raised up the issue on the missing official receipts and other evidence
receipts.
to prove the expenses incurred by petitioner IPAMS only when the latter requested the intervention of the IC
in 2007. If respondent Country Bankers truly believed that the submission of official receipts was critical in
Under the Insurance Code, all defects in the proof of loss, which the insured might remedy, are waived as providing proof as to petitioner IPAMS' claims, then it would have raised the issue on the lack of official
grounds for objection when the insurer omits to specify to him without unnecessary delay. receipts at the earliest possible opportunity. This only shows that the argument of respondent Country
Bankers on the lack of official receipts was a mere afterthought to evade its obligation to pay the claims
presented by petitioner IPAMS.
While placing utmost concentration on Article 2199 of the Civil Code in ruling that competent proof is
required for the payment of the subject claims, the assailed Decision of the CA failed to take into While not denying the existence of the said letter, respondent Country Bankers attempts to downplay it by
consideration the applicable provisions of the Insurance Code. arguing that the claims covered by the letter and the claims raised by petitioner IPAMS before the IC are
different and distinct from each other. Such argument deserves scant consideration.
The subject agreement of the parties indubitably contemplates a surety agreement, 45 which is governed
mainly by the Insurance Code, considering that a contract of suretyship shall be deemed an insurance While the claims in the said letter may be different from the specific claims presented before the
contract within the contemplation of the Insurance Code if made by a surety which is doing an insurance IC, both sets of claims were similarly made under the same suretyship agreement between the
business.46 In this case, the surety, i.e., respondent Country Bankers, is admittedly an insurance company parties. Thus, the fact still remains that respondent Country Bankers had previously acknowledged the
engaged in the business of insurance. In fact, the CA itself in its assailed Decision mentioned that a contract validity of a set of claims under a surety bond within the purview of the Requirements for Claim Clause
of suretyship is defined and covered by the Insurance Code.47 despite the lack of official receipts and other pieces of evidence aside from the required documents
enumerated in the MOA. To be sure, it must also be pointed out that the representations of respondent
Moreover, the Insurance Code48 specifically provides applicable provisions on suretyship, stating that Country Bankers in the said letter likewise refer to future and similar claims of petitioner IPAMS. Hence,
pertinent provisions of the Civil Code shall only apply suppletorily whenever necessary in interpreting the respondent Country Bankers' attempt to downplay the ramifications of its letter dated November 14, 2005 is
provisions of a contract of suretyship.49 Jurisprudence also holds that a specific law should prevail over a law puerile.
of general character.50
Also, it must be emphasized that the IC, after holding a series of conferences between the parties and after
Hence, in the resolution of the instant case, the CA erred in not considering the applicable provisions under the assessment of the respective position papers and evidence from both parties, made the factual finding in
the Insurance Code on the required proof of loss and when such requirement is waivable. its Resolution dated June 26, 2007 that respondent Country Bankers committed certain acts constituting a
waiver of its right to require the presentation of additional documents to prove the expenses incurred by
petitioner IPAMS, such as the issuance of the letter dated November 14, 2005 and the acceptance by
Therefore, Section 9251 of the Insurance Code must be taken into consideration. The said provision states respondent Country Bankers of reimbursement from the nurse applicants of petitioner IPAMS on the basis of
that all defects in the proof of loss, which the insured might remedy, are waived as grounds for the Statements of Accounts presented, even without any official receipt attached. 55In fact, the records
objection when the insurer omits to specify to him without unnecessary delay. It is the duty of the insurer show that respondent Country Bankers does not deny the fact that it accepted the
to indicate the defects on the proofs of loss given, so that the deficiencies may be supplied by the insured. reimbursements from the nurse applicants based on the Statements of Accounts of petitioner
When the insurer recognizes his liability to pay the claim, there is waiver by the insurer of any defect in the IPAMS.56
proof of loss.52

Furthermore, the DOF likewise factually determined that respondent Country Bankers, through its new
In the instant case, it must be emphasized that respondent Country Bankers, through its General Manager, General Manager, Ms. Valeriano, had assured IPAMS that the obligations of Country Bankers would be paid
Mr. Ong, issued a letter dated November 14, 2005 which readily acknowledged the obligations of Country promptly, again, even without the submission of official receipts and other pieces of evidence. 57 The DOF
Bankers under the surety agreement, apologized for the delay in the payment of claims, and proposed to similarly found that the proposal by respondent Country Bankers to amortize the settlement of petitioner
amortize the settlement of claims by paying a semi-monthly amount of P850,000.00. 53 In addition, Country IPAMS' claims by paying the latter the semi-monthly amount of P850,000.00 and respondent Country
Bankers promised to pay future claims within a 90-day period: Bankers' acceptance of reimbursements from the nurse applicants based on the mere Statements of
Accounts submitted by petitioner IPAMS are tantamount to an acknowledgment on the part of respondent
First of all, allow us to apologize for the delay in our response to you considering that we still had to do some Country Bankers of its liability for claims under the surety bonds.
reconciliation of our records with that of Mr. Lacaba. After evaluating the total number of claims filed by
IPAMS, we have come up with the final figure of P20,575,492.25.
 65

Moreover, the OP also factually found that respondent Country Bankers "knew as a matter of IPAMS' regular Commission, the Decision dated September 17, 2008 and Resolution dated April 29, 2009 issued by the
course of business that these covered transactions are generally not issued official receipts by US Department of Finance, and the Decision dated January 8, 2010 and Resolution dated June 1, 2010 issued
government and its agencies and the US based professional organizations and institutions involved to by the Office of the President are REINSTATED and AFFIRMED.
complete the requirements for the issuance of an immigrant visa." 58
SO ORDERED.
These factual findings of three separate administrative agencies, which were not at all reversed or
refuted by the CA in its assailed Decision, should not be perturbed by the Court without any compelling
countervailing reason. The Court has continuously adopted the policy of respecting the findings of facts of
specialized administrative agencies.

In Villafor v. Court of Appeals,59 the Court held that the findings of fact of an administrative agency must be
respected as long as they are supported by substantial evidence, even if such evidence might not be
overwhelming or even preponderant, because it is not the task of an appellate court to weigh once more the
evidence submitted before the administrative body and to substitute its own judgment for that of the
administrative agency in respect of sufficiency of evidence. 60

Hence, considering that the IC, through the Insurance Commissioner, is particularly tasked by the Insurance
Code to issue such rulings, instructions, circulars, orders and decisions as may be deemed necessary to
secure the enforcement of the provisions of the law, to ensure the efficient regulation of the insurance
industry, and considering that there are no compelling reasons provided by respondent Country Bankers to
overthrow the IC's factual findings, the Court upholds the findings of the IC, as concurred in by both the DOF
and OP, that respondent Country Bankers committed certain acts constituting a waiver of its right to require
the presentation of additional documents to prove the expenses incurred by petitioner IPAMS.

Accordingly, under Section 92 of the Insurance Code, the failure to attach official receipts and other
documents evidencing the expenses incurred by petitioner IPAMS, even assuming that it can be considered a
defect on the required proof of loss, is therefore considered waived as ground for objecting the claims of
petitioner IPAMS.

For the foregoing reasons, the ruling of the CA, which sets aside the rulings of the IC, DOF, and OP, which
found that respondent Country Bankers has no ground to refuse the payment of petitioner IPAMS' claims and
shall accordingly be subjected to disciplinary action pursuant to Sections 241 (now Section 247) and 247
(now Section 254) of the Insurance Code if the latter does not settle the subject claims of petitioner IPAMS,
should be reversed.

Be that as it may, despite the reversal of the CA's assailed Decision, petitioner IPAMS' prayers for (1) the
suspension/revocation of the license of respondent Country Bankers due to its commission of an unfair claim
settlement practice for unreasonable delay in paying petitioner IPAMS' claim for the total amount of
P21,230,643.19; (2) awarding of a total amount of P21,230,643.19 and 20% thereof; and (3) awarding of
moral and exemplary damages, as well as attorney's fees and judicial costs, are denied.

It must be stressed that the instant case resolved by the Court is not a claims adjudication case. The subject
Resolution and Order of the IC that was concurred in by the DOF and OP, which the Court now reinstates,
were issued in the IC's capacity as a regulator and not as an adjudicator of claims, as admitted by the IC
itself.61 Hence, while the Court herein reinstates the IC's Resolution finding that disciplinary action is
warranted in the eventuality that respondent Country Bankers continues to delay settling the claims of
petitioner IPAMS, the matter should be referred back to the IC so that it could determine the remaining
amount and extent of the liability that should be settled by respondent Country Bankers in order to avoid the
IC's disciplinary action.

WHEREFORE, in view of the foregoing, the appeal is hereby PARTIALLY GRANTED. The Decision dated
October 14, 2010 issued by the Court of Appeals in CA-G.R. SP No. 114683 is REVERSED AND SET ASIDE.
The Resolution dated June 26, 2007 and Order dated December 4, 2007 issued by the Insurance
 66

THIRD DIVISION Alvarez's birth, marriage, and death certificates; (2) the attending physician's statement; (3) the claimant's
statement; and (4) Alvarez's statement of account.14
G.R. No. 207526, October 03, 2018
Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was
supposedly more than 60 years old at the time of his loan's approval.15
THE INSULAR ASSURANCE CO., LTD., Petitioner, v. THE HEIRS OF JOSE H. ALVAREZ, Respondents.

G.R. No. 210156, October 3, 2018 With the claim's denial, the monthly amortizations of the loan stood unpaid. UnionBank sent the Heirs of
Alvarez a demand letter,16 giving them 10 days to vacate the lot. Subsequently, on October 4, 1999, the lot
UNION BANK OF THE PHILIPPINES, Petitioner, v. HEIRS OF JOSE H. ALVAREZ, Respondents. was foreclosed and sold at a public auction with UnionBank as the highest bidder.17

DECISION On February 14, 2001, the Heirs of Alvarez filed a Complaint18 for Declaration of Nullity of Contract and
Damages against UnionBank, a certain Alfonso P. Miranda (Miranda), who supposedly benefitted from the
loan, and the insurer which was identified only as John Doe. 19 The Heirs of Alvarez denied knowledge of any
LEONEN, J.:
loan obtained by Alvarez.20

The Insurance Code dispenses with proof of fraudulent intent in cases of rescission due to concealment, but
The Heirs of Alvarez claimed that after Alvarez's death, they came upon a document captioned "Letter of
not so in cases of rescission due to false representations. When an abundance of available documentary
Undertaking," which appeared to have been sent by UnionBank to Miranda. In this document, UnionBank
evidence can be referenced to demonstrate a design to defraud, presenting a singular document with an
bound itself to deliver to Miranda P466,000.00 of the approved P648,000.00 housing loan, provided that
erroneous entry does not qualify as clear and convincing proof of fraudulent intent. Neither does belatedly
Miranda would deliver to it TCT No. C-315023, "free from any liens and/or encumbrances." 21
invoking just one other document, which was not even authored by the alleged miscreant.

The Complaint was later amended and converted into one for specific performance 22 to include a demand
This resolves the consolidated Petitions for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil
against Insular Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance. 23
Procedure. The first, docketed as G.R. No. 207526,1 was brought by The Insular Life Assurance Co., Ltd.
(Insular Life). The second, docketed as G.R. No. 210156,2 was brought by Union Bank of the Philippines
(UnionBank). These consolidated petitions seek the reversal of the assailed Court of Appeals May 21, 2013 In its defense, UnionBank asserted that the Heirs of Alvarez could not feign ignorance over the existence of
Decision3 and November 6, 2013 Resolution4 in CA-G.R. CV No. 91820. the loan and mortgage considering the Special Power of Attorney24 executed by Adelina in favor of her late
husband, which authorized him to apply for a housing loan with UnionBank. 25
The assailed Court of Appeals May 21, 2013 Decision denied Insular Life's and UnionBank's separate appeals
and affirmed the January 29, 2007 Decision5 of Branch 148, Regional Trial Court, Makati City. The Regional For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no
Trial Court ruled in favor of Jose H. Alvarez's (Alvarez) heirs6 (the Heirs of Alvarez) in their action for specific longer eligible under the Group Mortgage Redemption Insurance since he was more than 60 years old when
performance against Insular Life and UnionBank. It ordered compliance with the insurance undertaking on his loan was approved.26
the Group Mortgage Redemption Insurance covering a loan obtained by Alvarez from UnionBank by applying
its proceeds as payment for that loan. It also nullified the extrajudicial foreclosure ensuing from the non-
In its January 29, 2007 Decision,27 the Regional Trial Court ruled in favor of the Heirs of Alvarez. It found no
payment of Alvarez's loan, and required UnionBank to reconvey title and ownership over the foreclosed
indication that Alvarez had any fraudulent intent when he gave UnionBank information about his age and
property to Alvarez's estate. Lastly, it ordered Insular Life's and UnionBank's payment of attorney's fees and
date of birth. It explained that UnionBank initiated and negotiated the Group Mortgage Redemption
costs of suit.7
Insurance with Insular Life, and that "ordinary customers will not know about [insurance policies such as
this] unless it is brought to their knowledge by the bank." 28 It noted that if UnionBank's personnel were
The assailed Court of Appeals November 6, 2013 Resolution denied UnionBank's Motion for Reconsideration. 8 mindful of their duties and if Alvarez appeared to be disqualified for the insurance, they should have
immediately informed him of his disqualification. It emphasized that in evaluating Alvarez's worthiness for
the loan, UnionBank had been in possession of materials sufficient to inform itself of Alvarez's personal
Alvarez and his wife, Adelina, owned a residential lot with improvements covered by Transfer Certificate of
circumstances. It added that if Insular Life had any doubt on the information that UnionBank had provided, it
Title (TCT) No. C-315023 and registered in the Caloocan City Registry of Deeds. 9
should have inquired further instead of relying solely on the information readily available to it and
immediately refusing to pay.29
On June 18, 1997, Alvarez applied for and was granted a housing loan by UnionBank in the amount of
P648,000.00. This loan was secured by a promissory note,10 a real estate mortgage over the lot,11 and a
The dispositive portion of the Regional Trial Court's January 29, 2007 Decision read:
mortgage redemption insurance taken on the life of Alvarez with UnionBank as beneficiary. Alvarez was
among the mortgagors included in the list of qualified debtors covered by the Group Mortgage Redemption
Insurance that UnionBank had with Insular Life.12 WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against
defendants order (sic):
Alvarez passed away on April 17, 1998.13 In May 1998, UnionBank filed with Insular Life a death claim under
Alvarez's name pursuant to the Group Mortgage Redemption Insurance. In line with Insular Life's standard
procedures, UnionBank was required to submit documents to support the claim. These included: (1)
 67

1. Defendants to comply with the insurance undertaking under Mortgage Redemption Insurance Policy No. In response to the Court of Appeals' reasoning that intent to defraud must be established, Insular Life
G-098496 by paying its proceeds to be applied as payment of the outstanding loan obligation of deceased pinpoints concealment, rather than fraudulent misrepresentation, as the key to the validity of its rescission.
Jose H. Alvarez with defendant Union Bank; It asserts that Alvarez's concealment of his age, whether intentional or unintentional, entitles it to rescind
the insurance contract.42 It claims that proof of fraudulent intent is not necessary for the insurer to rescind
the contract on account of concealment.43 It adds that it did not rely solely on Alvarez's Health Statement
2. The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 a
Form but also on his representations during the background check conducted by UnionBank where he said
nullity and without legal force and effect and to release the mortgage encumbrance thereon;
that he was only 55 years old at the time of application. As an insurance contract is a contract uberrima
fides, it claims that it has every right to rely on Alvarez's good faith in its dealing with him. 44
3. Defendant Union Bank to reconvey the title and ownership over TCT No. C-315023 to the Estate of the
deceased Jose H. Alvarez for the benefit of his heirs and successors-in-interest;
UnionBank claims that the real estate mortgage is not affected by the status of the Group Mortgage
Redemption Insurance as they are two (2) different contracts. Thus, any concealment made by Alvarez
4. Defendants jointly and severally to pay the plaintiffs the sum of P50,000.00 as and for attorney's fees; should not result in the invalidation of the foreclosure.45

5. Defendants jointly and severally to pay the costs of the suit. For this Court's resolution are the following issues:

SO ORDERED.30 First, whether or not petitioner The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the
Philippines the balance of Jose H. Alvarez's loan given the claim that he lied about his age at the time of the
approval of his loan; and
UnionBank31 and Insular Life32 filed separate appeals before the Court of Appeals.

Second, whether or not petitioner Union Bank of the Philippines was correct in proceeding with the
In its assailed May 21, 2013 Decision,33 the Court of Appeals affirmed the Regional Trial Court's ruling. It foreclosure following Insular Life Assurance Co., Ltd.'s refusal to pay.
noted that the errors assigned by Insular Life and UnionBank to the Regional Trial Court boiled down to the
issue of whether or not Alvarez was guilty of fraudulent misrepresentation as to warrant the rescission of the
Group Mortgage Redemption Insurance obtained by UnionBank on Alvarez's life. It explained that fraud is I.A
never presumed and fraudulent misrepresentation as a defense of the insurer to avoid liability must be
established by convincing evidence. Insular Life, in this case, failed to establish this defense. It only relied on
Fraud is not to be presumed, for "otherwise, courts would be indulging in speculations and
Alvarez's Health Statement Form where he wrote "1942" as his birth year. However, this form alone was
surmises."46 Moreover, it is not to be established lightly. Rather, "[i]t must be established by clear and
insufficient to prove that he fraudulently intended to misrepresent his age. It noted that aside from the
convincing evidence . . . [; a] mere preponderance of evidence is not even adequate to prove fraud." 47 These
Health Statement Form, Alvarez had to fill out an application for insurance. This application would have
precepts hold true when allegations of fraud are raised as grounds justifying the invalidation of contracts, as
supported the conclusion that he consistently wrote "1942" in all the documents that he had submitted to
the fraud committed by a party tends to vitiate the other party's consent. 48
UnionBank. However, the records made no reference to this document. 34

Citing Section 27 of the Insurance Code, however, Insular Life asserts that in cases of rescission due to
The Court of Appeals added that assuming that fraudulent misrepresentation entitled Insular Life to rescind
concealment, i.e., when a party "neglect[s] to communicate that which [he or she] knows and ought to
the contract, it should have first complied with certain conditions before it could exercise its right to rescind.
communicate,"49 proof of fraudulent intent is not necessary.50
The conditions were:

Section 27 reads:
(1) prior notice of cancellation to [the] insured; (2) notice must be based on the occurrence after effective
date of the policy of one or more grounds mentioned; (3) must be in writing, mailed or delivered to the
insured at the address shown in the policy; and (4) must state the grounds relied upon provided in Section Section 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
64 of the Insurance Code and upon [the] request of [the] insured, to furnish facts on which cancellation is contract of insurance. (Emphasis supplied)
based.35
The statutory text is unequivocal. Insular Life correctly notes that proof of fraudulent intent is unnecessary
None of these conditions were fulfilled. Finally, the letter of denial dated April 8, 1999 was furnished only to for the rescission of an insurance contract on account of concealment.
UnionBank.36
This is neither because intent to defraud is intrinsically irrelevant in concealment, nor because concealment
Insular Life opted to directly appeal before this Court. Its appeal was docketed as G.R. No. has nothing to do with fraud. To the contrary, it is because in insurance contracts, concealing material
207526.37 UnionBank, on the other hand, filed its Motion for Reconsideration (of the Decision dated May 21, facts51 is inherently fraudulent: "if a material fact is actually known to the [insured], its concealment must of
2013),38 which the Court of Appeals denied in its November 6, 2013 Resolution.39 UnionBank then filed itself necessarily be a fraud."52 When one knows a material fact and conceals it, "it is difficult to see how the
before this Court its Petition, docketed as G.R. No. 210156.40 inference of a fraudulent intent or intentional concealment can be avoided."53 Thus, a concealment,
regardless of actual intent to defraud, "is equivalent to a false representation." 54
In its March 12, 2014 Resolution, this Court consolidated Insular Life's and UnionBank's Petitions. 41
This Court has long settled this equivalence. Argente v. West Coast Life Insurance,55 quoting heavily from
Joyce's The Law of Insurance, explained how concealment of material facts in insurance contracts is
 68

tantamount to causal fraud,56 deceptively inducing an insurer into "accepting the risk, or accepting it at the It therefore follows that the assurer in assuming a risk is entitled to know every material fact of which the
rate of premium agreed upon."57Argente explained: assured has exclusive or peculiar knowledge, as well as all material facts which directly tend to increase the
hazard or risk which are known by the assured, or which ought to be or are presumed to be known by him.
And a concealment of such facts vitiates the policy. "It does not seem to be necessary . . . that the . . .
One ground for the rescission of a contract of insurance under the Insurance Act is "a concealment," which in
suppression of the truth should have been willful." If it were but an inadvertent omission, yet if it were
section 25 is defined as "A neglect to communicate that which a party knows and ought to communicate."
material to the risk and such as the plaintiff should have known to be so, it would render the policy void. But
Appellant argues that the alleged concealment was immaterial and insufficient to avoid the policy. We cannot
it is held that if untrue or false answers are given in response to inquiries and they relate to material facts
agree. . . . If the policy was procured by fraudulent representations, the contract of insurance apparently set
the policy is avoided without regard to the knowledge or fraud of assured, although under the statute
forth therein was never legally existent. It can fairly be assumed that had the true facts been disclosed by
statements are representations which must be fraudulent to avoid the policy. So under certain codes the
the assured, the insurance would never have been granted.
important inquiries are whether the concealment was willful and related to a matter material to the
risk.58 (Emphasis supplied)
In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is found the following:
Echoing Argente, Saturnino v. Philippine American Life Insurance Co.59 stated:
Concealment exists where the assured has knowledge of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally
In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to rescind the
withholds the same.
contract of insurance, concealment being defined as "negligence to communicate that which a party knows
and ought to communicate" (Sections 25 & 26, Act No. 2427). In the case of Argente vs. West Coast Life
Another rule is that if the assured undertakes to state all the circumstances affecting the risk, a full and fair Insurance Co., 51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed. Vol. 3:
statement of all is required.
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer
It is also held that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the
the fact must have been intentionally withheld; so it is held under English law that if no inquiries are made belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled
and no fraud or design to conceal enters into the concealment the contract is not avoided. And it is into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk
determined that even though silence may constitute misrepresentation or concealment it is not of itself upon a false basis that it does not exist.60
necessarily so as it is a question of fact. Nor is there a concealment justifying a forfeiture where the fact of
insanity is not disclosed no questions being asked concerning the same. . . .
In Vda. de Canilang v. Court of Appeals,61 this Court considered an alternative version of Section 27, i.e.,
prior to the Insurance Code's amendment by Batas Pambansa Blg. 874, which omitted the qualifier "whether
But it would seem that if a material fact is actually known to the assured, its concealment must of itself intentional or unintentional." Vda. de Canilang clarified that even without this qualifier, Section 27 still
necessarily be a fraud, and if the fact is one which the assured ought to know, or is presumed to know, the covers '"any concealment' without regard to whether such concealment is intentional or
presumption of knowledge ought to place the assured in the same position as in the former case with unintentional,"62 thus:
relation to material facts; and if the jury in such cases find the fact material, and one tending to increase the
risk, it is difficult to see how the inference of a fraudulent intent or intentional concealment can be avoided.
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to
And it is declared that if a material fact is concealed by assured it is equivalent to a false representation that
the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was suffering
it does not exist and that the essentials are the truth of the representations whether they were intended to
from minor ailment like a common cold. Section 27 of the Insurance Code of 1978 as it existed from 1974 up
mislead and did insurer accept them as true and act upon them to his prejudice. So it is decided that under a
to 1985, that is, throughout the time range material for present purposes, provided that:
stipulation voiding the policy for concealment or misrepresentation of any material fact or if his interest is
not truly stated or is other than the sole and unconditional ownership the facts are unimportant that insured
did not intend to deceive or withhold information as to encumbrances even though no questions were asked. Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
And if insured while being examined for life insurance and knowing that she had heart disease, falsely stated
that she was in good health, and though she could not read the application, it was explained to her and the
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
questions asked through an interpreter, and the application like the policy contained a provision that no
liability should be incurred unless the policy was delivered while the insured was in good health, the court
properly directed a verdict for the insurer, though a witness who was present at the examination testified Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract
that the insured was not asked whether she had heart disease. of insurance.

.... Upon the other hand, in 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This subsequent
statute modified Section 27 of the Insurance Code of 1978 so as to read as follows:
The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at the rate of premium agreed upon; The insurer, relying upon the Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract
belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled of insurance.
into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk
upon a false basis that it does not exist. The principal question, therefore, must be, Was the assurer misled
or deceived into entering a contract obligation or in fixing the premium of insurance by a withholding of The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase
material information or facts within the assured's knowledge or presumed knowledge? "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874)
 69

intended to limit the kinds of concealment which generate a right to rescind on the part of the injured party Ng Gan Zee's fourth footnote purports that the phrase quoted in the italicized paragraph was
to "intentional concealments." This argument is not persuasive. As a simple matter of grammar, it may be from Argente.70 While the phrase indeed appears in Argente, it is not Argente itself which stated the quoted
noted that "intentional" and "unintentional" cancel each other out. The net result therefore of the phrase phrase; rather, it was Joyce's The Law of Insurance.
"whether intentional or unintentional" is precisely to leave unqualified the term "concealment." Thus, Section
27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to
In any case, Ng Gan Zee limited itself to a brief quote from Joyce. It discarded much of the discussion
whether such concealment is intentional or unintentional. The phrase "whether intentional or unintentional"
that Argente lifted from Joyce. Most notably, it discarded the portion where Joyce explained that
was in fact superfluous. The deletion of the phrase "whether intentional or unintentional" could not have had
concealment is necessarily fraudulent when the matter that was concealed is "a material fact . . . actually
the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the
known to the [insured]."71 Thus, Ng Gan Zee omitted the discussion explaining and accounting for why proof
injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase
of actual fraudulent intent may be dispensed with in cases of concealment, i.e., that concealment of material
"whether intentional or unintentional" merely underscored the fact that all throughout (from 1914 to 1985),
facts is fraudulent in and of itself. Contrast this with Saturnino  which, though also quoting only briefly
the statute did not require proof that concealment must be "intentional" in order to authorize rescission by
from Argente and Joyce, did not cursorily focus on the equivalence between concealment and false
the injured party.63 (Emphasis supplied)
representations, but rather on the underlying reason for this equivalence. Ng Gan Zee focused on the result,
i.e., equivalence, without accounting for the cause.
Following Vda. de Canilang, this Court was categorical in Sunlife Assurance Co. of Canada v. Court of
Appeals:64 '"good faith' is no defense in concealment."65
In like manner as Ng Gan Zee, Great Pacific Life v. Court of Appeals72 stated:

I.B
The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to
annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had
It does not escape this Court's attention that there have been decisions that maintained that in cases of hypertension, which might have caused his death. Concealment exists where the assured had knowledge of
concealment, "fraudulent intent on the part of the insured must be established to entitle the insurer to a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it
rescind the contract."66 However, these decisions proceed from an inordinately segregated reading to the assured, but he designedly and intentionally withholds the same.
of Argente and have not been heedful of plain statutory text. While focusing on the equivalence between
concealment and false representation, they fail to account for the manifest textual peculiarity whereby the
....
negation of distinctions between intentional and unintentional acts is found only in Section 27, the provision
concerning rescission due to concealment, but not in the counterpart provision concerning false
representations.67 The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at
Ng Gan Zee v. Asian Crusader Life,68 decided in 1983, stated:
bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance. 73 (Emphasis supplied)
Section 27 of the Insurance Law [Act 2427] provides:
So too, Philamcare Health Systems, Inc. v. Court of Appeals74 stated:
Sec. 27. Such party to a contract of insurance must communicate to the other, in good faith, all facts within
his knowledge which are material to the contract, and which the other has not the means of ascertaining,
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
and as to which he makes no warranty.
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and honesty, provider or insurer.75 (Emphasis supplied)
good faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same."
Great Pacific Life and Philamcare perpetuate Ng Gan Zee's unfortunate error.

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but
Of the two (2) paragraphs this Court quoted from Great Pacific Life, the first cites Argente.76 Much like Ng
fraudulent, or the fact must have been intentionally withheld."
Gan Zee, it quotes an isolated portion of Joyce but fails to account for that part of Joyce's discussion that
explains how fraud inheres in concealment. The last sentence in this first quoted paragraph merely
Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of the reproduces the first paragraph that Argente lifted from Joyce. The second quoted paragraph cites Ng Gan
Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the part of the insured be Zee77 and confounds concealment with misrepresentation.
established to entitle the insurer to rescind the contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty to
The first sentence of the quoted paragraph from Philamcare cites Great Pacific Life and Ng Gan Zee.78 At this
establish such a defense by satisfactory and convincing evidence rests upon the defendant. The evidence
juncture, a contagion of Ng Gan Zee's error can be observed.
before the Court does not clearly and satisfactorily establish that defense." 69 (Emphasis supplied)

More than misreading Argente and Joyce, Ng Gan Zee, Great Pacific Life, and Philamcare contradict Section
Ng Gan Zee makes a fundamental error in interpretation.
27's plain text. The statute's clear and unmistakable text must prevail. For purposes of rescission, Section 27
 70

of the Insurance Code unequivocally negates any distinction between intentional and unintentional Concealment applies only with respect to material facts. That is, those facts which by their nature would
concealments. Pronouncements in jurisprudence cannot undermine this explicit legislative intent. clearly, unequivocally, and logically be known by the insured as necessary for the insurer to calculate the
proper risks.
I.C
The absence of the requirement of intention definitely increases the onus on the insured. Between the
insured and the insurer, it is true that the latter may have more resources to evaluate risks. Insurance
While Insular Life correctly reads Section 27 as making no distinction between intentional and unintentional
companies are imbued with public trust in the sense that they have the obligation to ensure that they will be
concealment, it erroneously pleads Section 27 as the proper statutory anchor of this case.
able to provide succor to those that enter into contracts with them by being both frugal and, at the same
time, diligent in their assessment of the risk which they take with every insurance contract. However, even
The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments. with their tremendous resources, a material fact concealed by the insured cannot simply be considered by
It spans Sections 26 to 35 of the Insurance Code;79 it is where Section 27 is found. Chapter 1, Title 5 is on the insurance company. The insurance company may have huge resources, but the law does not require it to
representations. It spans Sections 36 to 48 of the Insurance Code.80 be omniscient.

Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to On the other hand, when the insured makes a representation, it is incumbent on them to assure themselves
communicate." However, Alvarez did not withhold information on or neglect to state his age. He made an that a representation on a material fact is not false; and if it is false, that it is not a fraudulent
actual declaration and assertion about it. misrepresentation of a material fact. This returns the burden to insurance companies, which, in general,
have more resources than the insured to check the veracity of the insured's beliefs as to a statement of fact.
Consciousness in defraudation is imperative and it is for the insurer to show this.
What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance Code
states, "A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations." If indeed Alvarez misdeclared his age such that his assertion fails to correspond with his factual There may be a mistaken impression, on the part of the insured, on the extent to which precision on one's
age, he made a false representation, not a concealment. age may alter the calculation of risks with definitiveness. Deliberation attendant to an apparently inaccurate
declaration is vital to ascertaining fraud.
At no point does Chapter 1, Title 5 of the Insurance Code replicate Section 27's language negating the
distinction between intentional and unintentional concealment. Section 45 is Chapter 1, Title 5's counterpart I.D
provision to Section 27, and concerns rescission due to false representations. It reads:
Spouses Manalo v. Roldan-Confesor85 explained what qualifies as clear and convincing proof:
Section 45. If a representation is false in a material point, whether affirmative or promissory, the injured
party is entitled to rescind the contract from the time when the representation becomes false.
Clear and convincing proof is ". . . more than mere preponderance, but not to extent of such certainty as is
required beyond reasonable doubt as in criminal cases . . ."while substantial evidence ". . . consists of more
Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains subject to than a mere scintilla of evidence but may be somewhat less than a preponderance . . ." Consequently, in the
the basic precept of fraud having to be proven by clear and convincing evidence. In this respect, Ng Gan hierarchy of evidentiary values, We find proof beyond reasonable doubt at the highest level, followed by
Zee's and similar cases' pronouncements on the need for proof of fraudulent intent in cases of clear and convincing evidence, preponderance of evidence, and substantial evidence, in that order. 86
misrepresentation are logically sound, albeit the specific reference to Argente as ultimate authority is
misplaced. Thus, while Great Pacific Life confounded concealment with misrepresentation by its citation
The assailed Court of Appeals May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's
of Ng Gan Zee, it nevertheless acceptably stated that:
cause, i.e., how it relied on nothing but a single piece of evidence to prove fraudulent intent:

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
At bar, Insular Life basically relied on the Health Statement form personally accomplished by Jose Alvarez
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
wherein he wrote that his birth year was 1942. However, such form alone is not sufficient absent any other
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. 81
indications that he purposely wrote 1942 as his birth year. It should be pointed out that, apart from a health
statement form, an application for insurance is required first and foremost to be answered and filled-up.
Conformably, subsequent fraud cases citing Great Pacific Life which do not exclusively concern concealment However, the records are deficient of this application which would eventually depict to Us Jose Alvarez's
rightly maintain that "[f]raudulent intent on the part of the insured must be established to entitle the insurer fraudulent intent to misrepresent his age. For, if he continually written (sic) 1942 in all the documents he
to rescind the contract."82 To illustrate, Manila Bankers Life Insurance Corp. v. Aban83 was correct in submitted with UBP and Insular Life then there is really a clear precursor of his fraudulent intent. Otherwise,
explaining: a mere Health Statement form bearing a wrong birth year should not be relied at.

With the above crucial finding of fact — that it was Sotero who obtained the insurance for herself — As aptly pointed out by the court a quo:
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.
If the defendant Insular Life had any doubt about the information, particularly the data which are material to
"Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
the risk, such as the age of the insured, which defendant Union Bank provided, it is not justified for the
contract." In the absence of proof of such fraudulent intent, no right to rescind arises. 84
insurer to rely solely therefrom, but it is obligated under the circumstances to make further inquiry. . . . 87
 71

The Court of Appeals' observations are well-taken. Consistent with the requirement of clear and convincing to inventory the documents submitted by Alvarez and note the statements he made concerning his age. This
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against was not a cumbersome task, yet it failed at it. Its failure to discharge its burden of proving must thwart its
respondents' evidence does not suffice. plea for relief from this Court.

A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have II
been an isolated mistake.
Having settled Insular Life's continuing liability under the Group Mortgage Redemption Insurance, this Court
Alvarez must have accomplished and submitted many other documents when he applied for the housing loan proceeds to the matter of the propriety of UnionBank's foreclosure.
and executed supporting instruments like the promissory note, real estate mortgage, and Group Mortgage
Redemption Insurance. A design to defraud would have demanded his consistency. He needed to maintain
UnionBank insists that the real estate mortgage is a contract separate and distinct from the Group Mortgage
appearances across all documents. Otherwise, he would doom his own ruse.
Redemption Insurance; thus, it should not be affected by the validity or invalidity of Insular Life's
rescission.91 It also cites Great Pacific Life, which it claims involves a similar set of facts as this case, and
He needed to have been consistent, not only before Insular Life, but even before UnionBank. Even as it was underscores how this Court in that case did not nullify the foreclosure despite a finding that the rescission
only Insular Life's approval that was at stake with the Group Mortgage Redemption Insurance, Alvarez must was improper, but instead considered the foreclosure as a supervening event. 92
have realized that as it was an accessory agreement to his housing loan with UnionBank. Insular Life was
well in a position to verify information, whether through simple cross referencing or through concerted
Great Pacific Life similarly involved an insurer's rescission of a mortgage redemption insurance on account of
queries with UnionBank.
a supposed concealment. This Court sustained the lower courts' conclusions holding the rescission invalid
and maintaining the insurer's liability to pay the mortgage. However, this Court considered the foreclosure,
Despite these circumstances, the best that Insular Life could come up with before the Regional Trial Court which in the interim had been completed, as a supervening event. Ruling on the basis of equity, this Court
and the Court of Appeals was a single document. The Court of Appeals was straightforward, i.e., the most concluded that the insurance proceeds, which should have been paid to the mortgagee, were now due to the
basic document that Alvarez accomplished in relation to Insular Life must have been an insurance application heirs of the insured:
form. Strangely, Insular Life failed to adduce even this document—a piece of evidence that was not only
commonsensical, but also one which has always been in its possession and disposal.
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
Even now, before this Court, Insular Life has been unable to address the importuning for it to account for mortgagor's outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the
Alvarez's insurance application form. Given the basic presumption under our rules on evidence "[t]hat benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
evidence willfully suppressed would be adverse if produced,"88 this raises doubts, perhaps not entirely on enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the
Insular Life's good faith, but, at the very least, on the certainty and confidence it has in its own evidence. insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr.
Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio. 93
Rather than demonstrate Alvarez's consistent fraudulent design, Insular Life comes before this Court
pleading nothing but just one other instance when Alvarez supposedly declared himself to have been 55 Maglaque v. Planters Development Bank94 sustained a mortgagor's right to foreclose in the event of a
years old. It claims that it did not rely solely on Alvarez's Health Statement Form but also on his Background mortgagee's death:
Checking Report.89
[T]he rule is that a secured creditor holding a real estate mortgage has three (3) options in case of death of
Reliance on this report is problematic. It was not prepared by Alvarez himself. Rather, it was accomplished the debtor. These are:
by a UnionBank employee following the conduct of credit investigation. Insular Life notes a statement by
UnionBank's Josefina Barte that all information in the Background Checking Report was supplied by
Alvarez.90 But this is a self-serving statement, wholly reliant on the assumption of that employee's flawless (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary
performance of her duty to record findings. Precisely, it is a claim that needed to be vetted. It had to be claim;
tested under the crucible of a court trial, that is, through the rigors of presentation and authentication of
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
evidence, cross-examination, and personal perusal by a judge. Yet, Insular Life would now have this Court
sustain its appreciation, solely on the strength of its own representations. (3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by
prescription, without right to file a claim for any deficiency. 95
An erroneous statement's dual occurrence in the Health Statement Form and the Background Checking
Report concededly reduces the likelihood of honest mistakes or overlooked inaccuracies. However, in the
This is in keeping with Rule 86, Section 7 of the Rules of Court, which states:
context of so many other documents being available to ascertain the error, a mere dual occurrence does not
definitively establish a fraudulent scheme. This is especially so when the errors could not be directly and
exclusively attributed to a single author. Section 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by
mortgage or other collateral security, may abandon the security and prosecute his claim in the manner
provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose
Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was
his mortgage or realize upon his security, by action in court, making the executor or administrator a party
Insular Life's burden to prove by clear and convincing evidence. Insular Life had all the opportunity to
defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the
demonstrate Alvarez's pattern of consistently indicating erroneous entries for his age. All it needed to do was
property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his
 72

deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or This is not to say that UnionBank was the consummate guardian of the veracity and accuracy of Alvarez's
other security alone, and foreclose the same at any time within the period of the statute of limitations, and representations. It is merely to say that given the circumstances, considering Insular Life's protestation over
in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other supposedly false declarations, UnionBank was in a position to facilitate the inquiry on whether or not a
assets of the estate; but nothing herein contained shall prohibit the executor or administrator from fraudulent design had been effected. However, rather than actively engaging in an effort to verify, it appears
redeeming the property mortgaged or pledged, by paying the debt for which it is held as security, under the that UnionBank stood idly by, hardly bothering to ascertain if other pieces of evidence in its custody would
direction of the court, if the court shall adjudge it to be for the best interest of the estate that such attest to or belie a fraudulent scheme.
redemption shall be made.
UnionBank approved Alvarez's loan and real estate mortgage, and endorsed the mortgage redemption
While the mortgagee's right to proceed with foreclosure is settled, this Court finds the debacle at the heart of insurance to Insular Life. Fully aware of considerations that could have disqualified Alvarez, it nevertheless
this case to have been borne in large, if not equal measure, by UnionBank's oversight. UnionBank acted as though nothing was irregular. It itself acted as if, and therefore represented that, Alvarez was
contributed to setting in motion a course of events that culminated in the unjust foreclosure of Alvarez's qualified. Yet, when confronted with Insular Life's challenge, it readily abandoned the stance that it had
mortgaged lot. As such a contributor, its profiting from the wrongful foreclosure cannot be condoned. earlier maintained and capitulated to Insular Life's assertion of fraud.

The Regional Trial Court explained how UnionBank was remiss: UnionBank's headlong succumbing casts doubt on its own confidence in the information in its possession.
This, in turn, raises questions on the soundness of the credit investigation and background checks it had
conducted prior to approving Alvarez' loan.
If at the time of the application, Jose H. Alvarez appears disqualified, and the personnel of the bank is
mindful of his duties, then the personnel of the bank will immediately tell the late Jose H. Alvarez [that] he is
not qualified. As it would appear in this case, there is nothing to show nor indicate that the late Jose H. In Poole-Blunden v. Union Bank of the Philippines,99 this Court emphasized that the high degree of diligence
Alvarez exhibited any fraudulent intent when the bank was given certain data such as his age and date of required of banks "equally holds true in their dealing with mortgaged real properties, and subsequently
birth. The bank is already in its possession sufficient materials to inform itself regarding the true and actual acquired through foreclosure."100 It specifically drew attention to this requisite high degree of diligence in
age, civil status and other personal circumstances of Jose Alvarez to merit approval of the loan applied for. It relation to "[c]redit investigations [which] are standard practice for banks before approving loans." 101
was the same informative materials from which the defendant Union Bank lifted the data it provided the
defendant Insular Life for the consummation of the insurance contract, without which, the bank would not
The foreclosure here may well be a completed intervening occurrence, but Great Pacific Life's leaning to an
have favorably approved the loan.96
irremediable supervening event cannot avail. What is involved here is not the mortgagor's medical history,
as in Great Pacific Life, which the mortgagee bank was otherwise incapable of perfectly ascertaining. Rather,
These observations are well-taken. it is merely the mortgagor's age. This information was easily available from and verifiable on several
documents. UnionBank's passivity and indifference, even when it was in a prime position to enable a more
conscientious consideration, were not just a cause of Insular Life's rescission bereft of clear and convincing
Great Pacific Life, in considering the insurable interest involved in a mortgage redemption insurance,
proof of a design to defraud, but also, ultimately, of the unjust seizure of Alvarez's property. By this
discussed:
complicity, UnionBank cannot be allowed to profit. Its foreclosure must be annulled.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this
WHEREFORE, the Petitions are DENIED. The assailed Court of Appeals May 21, 2013 Decision and
type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
November 6, 2013 Resolution in CA G.R. CV No. 91820 are AFFIRMED.
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part
of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of
the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to comply with
applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the the insurance undertaking under Mortgage Redemption Insurance Policy No. G-098496 by applying its
obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the proceeds as payment of the outstanding loan obligation of deceased Jose H. Alvarez with respondent Union
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to Bank of the Philippines;
the mortgage indebtedness.97 (Emphasis supplied)
The extrajudicial foreclosure of the real estate mortgage over Jose H. Alvarez's TCT No. C-315023 is
The Regional Trial Court was correct in emphasizing that Alvarez entered into the Group Mortgage declared null and without legal force and effect;
Redemption Insurance entirely upon UnionBank's prodding. Bank clients are generally unaware of insurance
policies such as a mortgage redemption insurance unless brought to their knowledge by a bank. The
Petitioner Union Bank of the Philippines is ordered to reconvey the title and ownership over the lot covered
processing of a mortgage redemption insurance was within UnionBank's regular course of business. It knew
by TCT No. C-315023 to the Estate of the deceased Jose H. Alvarez for the benefit of his heirs and
the import of truthfully and carefully accomplished applications. To facilitate the principal contract of the loan
successors-in-interest; and
and its accessory obligations such as the real estate mortgage and the mortgage redemption insurance,
UnionBank completed credit appraisals and background checks. Thus, the Regional Trial Court was correct in
noting that UnionBank had been in possession of materials sufficient to inform itself of Alvarez's personal Petitioners Union Bank of the Philippines and The Insular Life Assurance Co., Ltd. are ordered to jointly and
circumstances.98 severally pay respondents the Heirs of Jose H. Alvarez attorney's fees and the costs of suit.

UnionBank was the indispensable nexus between Alvarez and Insular Life. Not only was it well in a position SO ORDERED.
to address any erroneous information transmitted to Insular Life, it was also in its best interest to do so.
After all, payments by the insurer relieve it of the otherwise burdensome ordeal of foreclosing a mortgage.
 73

HIRD DIVISION In its July 23, 2010 Decision,20 the Regional Trial Court ruled in favor of Mercantile Insurance. It found that
non-payment of the premiums did not cause the replevin bond to expire. Thus, Enriquez was still liable for
the reimbursement made by the surety on the bond. The Regional Trial Court likewise pointed out that
G.R. No. 210950, August 15, 2018
Enriquez made "conflicting claims" of having applied for the bond and then later claiming that her daughter-
in-law was the one who applied for it.21 The dispositive portion of the Regional Trial Court July 23, 2010
MILAGROS P. ENRIQUEZ, Petitioner, v. THE MERCANTILE INSURANCE CO., INC., Respondent. Decision read:

DECISION WHEREFORE, judgment is hereby rendered in favor of plaintiff The Mercantile Insurance Co., Inc. and
against defendant Milagros P. Enriquez, as follows:

LEONEN, J.: (i) Ordering defendant Milagros P. Enriquez to pay plaintiff the claim of P600,000.00 enforced under the
Indemnity Agreement plus legal interest at the rate of 12% per annum from date of judicial demand on
A surety bond remains effective until the action or proceeding is finally decided, resolved, or terminated, October 22, 2004, until fully paid;
regardless of whether the applicant fails to renew the bond. The applicant will be liable to the surety for any
payment the surety makes on the bond, but only up to the amount of this bond. (ii) Ordering defendant Milagros P. Enriquez to pay attorney's fees fixed in the reasonable amount of
P50,000.00;
This is a Petition for Review on Certiorari1 assailing the August 13, 2013 Decision2 and January 14, 2014
Resolution3 of the Court of Appeals in CA-G.R. CV No. 95955, which affirmed the Regional Trial Court's (iii) Ordering defendant Milagros P. Enriquez to pay the costs of
finding that Milagros P. Enriquez (Enriquez) was liable for the full amount of the replevin bond issued by The
Mercantile Insurance Company, Inc. (Mercantile Insurance). SO ORDERED.22

Sometime in 2003, Enriquez filed a Complaint for Replevin 4 against Wilfred Asuten (Asuten) before the
Regional Trial Court of Angeles City, Pampanga. This Complaint, docketed as Civil Case No. 10846, 5 was for Enriquez appealed23 with the Court of Appeals, arguing that the replevin bond had already expired;
the recovery of her Toyota Hi-Ace van valued at P300,000.00.6 Asuten allegedly refused to return her van, therefore, she could not have been liable under the indemnity agreement. She also averred that even
claiming that it was given by Enriquez's son as a consequence of a gambling deal.7 assuming that she was still liable under the indemnity agreement, she should not pay the full amount
considering that the value of the van was only P300,000.00. 24
Enriquez applied for a replevin bond from Mercantile Insurance. On February 24, 2003, Mercantile Insurance
issued Bond No. 138 for P600,000.00,8 which had a period of one (1) year or until February 24, 2004. On August 13, 2013, the Court of Appeals rendered a Decision 25 affirming the Regional Trial Court's July 23,
Enriquez also executed an indemnity agreement with Mercantile Insurance, where she agreed to indemnify 2010 Decision.
the latter "for all damages, payments, advances, losses, costs, taxes, penalties, charges, attorney's fees and
expenses of whatever kind and nature"9 that it would incur as surety of the replevin bond.10 The Court of Appeals held that under the Guidelines on Corporate Surety Bonds,26 the lifetime of any bond
issued in any court proceeding shall be from court approval until the case is finally terminated. Thus, it found
On May 24, 2004, the Regional Trial Court issued an Order11 dismissing the Complaint without prejudice due that the replevin bond and indemnity agreement were still in force and effect when Mercantile Insurance
to Enriquez's continued failure to present evidence. paid P600,000.00 to Asuten.27

The Regional Trial Court found that Enriquez surrendered the van to the Bank of the Philippine Islands, San The Court of Appeals likewise found that Enriquez was "bound by the incontestability of payments clause" in
Fernando Branch but did not comply when ordered to return it to the sheriff within 24 hours from receipt of the indemnity agreement, which stated that she would be held liable for any payment made by the surety
the Regional Trial Court March 15, 2004 Order.12 She also did not comply with prior court orders to prove under the bond, regardless of the actual cost of the van.28 It held that the issue of whether Enriquez was
payment of her premiums on the replevin bond or to post a new bond. Thus, the Regional Trial Court liable for the full amount of the replevin bond should have been raised before the Regional Trial Court in the
declared Bond No. 138 forfeited. Mercantile Insurance was given 10 days to produce the van or to show Complaint for Replevin, and not in her appeal.29
cause why judgment should not be rendered against it for the amount of the bond.13
Enriquez moved for reconsideration30 but was denied by the Court of Appeals in its January 14, 2014
On July 12, 2004, the Regional Trial Court held a hearing on the final forfeiture of the bond where it was Resolution.31 Hence, this Petition32 was filed before this Court.
found that Mercantile Insurance failed to produce the van, and that Bond No. 138 had already expired.14 In
an Order15 issued on the same day, the Regional Trial Court directed Mercantile Insurance to pay Asuten the Petitioner argues that when respondent paid Asuten on September 3, 2004, the indemnity agreement was
amount of P600,000.00. no longer in force and effect since the bond expired on February 24, 2004.33 She claims that the indemnity
agreement was a contract of adhesion, and that respondent "intended the agreement to be so
Mercantile Insurance wrote to Enriquez requesting the remittance of P600,000.00 to be paid on the replevin comprehensive and all-encompassing to the point of being ambiguous." 34
bond.16 Due to Enriquez's failure to remit the amount, Mercantile Insurance paid Asuten P600,000.00 on
September 3, 2004, in compliance with the Regional Trial Court July 12, 2004 Order. 17 It was also Petitioner contends that even assuming that the indemnity agreement could be enforced, she should not
constrained to file a collection suit against Enriquez with the Regional Trial Court of Manila. 18 have been held liable for the full amount of the bond. Citing Rule 60, Section 2 of the Rules of Court, she
argues that a judgment on replevin is only "either for the delivery of the property or for its value in case
In her defense, Enriquez claimed that her daughter-in-law, Asela, filed the Complaint for Replevin in her delivery cannot be made and for such damages as either party may prove, with costs." 35
name and that Asela forged her signature in the indemnity agreement. She also argued that she could not
be held liable since the replevin bond had already expired.19 Respondent, on the other hand, contends that the present action has already prescribed, considering that
Rule 60, Section 10, in relation to Rule 57, Section 20 of the Rules of Court, mandates that any objection on
 74

the award should be raised in the trial court where the complaint for replevin is filed. It argues that since As a provisional remedy, a party may apply for an order for the delivery of the property before the
petitioner only raised the objection before the Court of Appeals, her action should have been barred. 36 commencement of the action or at any time before an answer is filed.44 Rule 60 of the Rules of Court
outlines the procedure for the application of a writ of replevin. Rule 60, Section 2 requires that the party
Respondent likewise points out that the forfeiture of the bond was due to petitioner's own negligence. It seeking the issuance of the writ must first file the required affidavit and a bond in an amount that is double
asserts that in the proceedings before the Regional Trial Court, Enriquez failed to present her evidence, and the value of the property:
it was only when she filed an appeal that she raised her objections.37 It argues that the Guidelines on
Corporate Surety Bonds specify that the expiry of the bond shall be after the court proceeding is finally Section 2. Affidavit and bond. — The applicant must show by his own affidavit or that of some other person
decided; hence, the bond was still in effect when respondent paid Asuten. 38 who personally knows the facts:

The sole issue for this Court's resolution is whether or not petitioner Milagros P. Enriquez should be made (a) That the applicant is the owner of the property claimed, particularly describing it, or is entitled to the
liable for the full amount of the bond paid by respondent The Mercantile Insurance Co., Inc. as surety, in possession thereof;
relation to a previous case for replevin filed by petitioner.
(b) That the property is wrongfully detained by the adverse party, alleging the cause of detention thereof
I according to the best of his knowledge, information, and belief;

Replevin is an action for the recovery of personal property.39 It is both a principal remedy and a provisional (c) That the property has not been distrained or taken for a tax assessment or a fine pursuant to law, or
relief. When utilized as a principal remedy, the objective is to recover possession of personal property that seized under a writ of execution or preliminary attachment, or otherwise placed under custodia legis, or if so
may have been wrongfully detained by another. When sought as a provisional relief, it allows a plaintiff to seized, that it is exempt from such seizure or custody; and
retain the contested property during the pendency of the action. In Tillson v. Court of Appeals:40
(d) The actual market value of the property.
The term replevin is popularly understood as "the return to or recovery by a person of goods or chattels
claimed to be wrongfully taken or detained upon the person's giving security to try the matter in court and The applicant must also give a bond, executed to the adverse party in double the value of the property as
return the goods if defeated in the action;" "the writ by or the common-law action in which goods and stated in the affidavit aforementioned, for the return of the property to the adverse party if such return be
chattels are replevied," i.e., taken or gotten back by a writ for replevin;" and to replevy, means to recover adjudged, and for the payment to the adverse party of such sum as he may recover from the applicant in
possession by an action of replevin; to take possession of goods or chattels under a replevin order. Bouvier's the action.45
Law Dictionary defines replevin as "a form of action which lies to regain the possession of personal chattels
which have been taken from the plaintiff unlawfully . . ., (or as) the writ by virtue of which the sheriff
proceeds at once to take possession of the property therein described and transfer it to the plaintiff upon his Once the affidavit is filed and the bond is approved by the court, the court issues an order and a writ of
giving pledges which are satisfactory to the sheriff to prove his title, or return the chattels taken if he fail so seizure requiring the sheriff to take the property into his or her custody. 46 If there is no further objection to
to do;" the same authority states that the term, "to replevy" means "to re-deliver goods which have been the bond filed within five (5) days from the taking of the property, the sheriff shall deliver it to the
distrained to the original possessor of them, on his giving pledges in an action of replevin." The term applicant.47 The contested property remains in the applicant's custody until the court determines, after a trial
therefore may refer either to the action itself, for the recovery of personality, or the provisional remedy on the Issues, which among the parties has the right of possession. 48
traditionally associated with it, by which possession of the property may be obtained by the plaintiff and
retained during the pendency of the action. In this jurisdiction, the provisional remedy is identified in Rule 60 In Civil Case No. 10846, petitioner Enriquez filed a replevin case against Asuten for the recovery of the
of the Rules of Court as an order for delivery of personal property. 41 Toyota Hi-Ace van valued at P300,000.00.49 She applied for a bond in the amount of P600,000.00 with
respondent in Asuten's favor. The Regional Trial Court approved the bond and ordered the sheriff to recover
the van from Asuten and to deliver it to petitioner. While the van was in petitioner's custody, the Regional
Similarly, in BA Finance Corporation v. Court of Appeals:42 Trial Court dismissed the case without prejudice for failure to prosecute. Thus, it ordered the sheriff to
restore the van to Asuten. When petitioner failed to produce the van, the Regional Trial Court directed
respondent to pay Asuten the amount of the bond.
Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may refer
either to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained from There was no trial on the merits. The Regional Trial Court's dismissal for failure to prosecute was a dismissal
the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the thing during without prejudice to re-filing. In this particular instance, any writ of seizure, being merely ancillary to the
the pendency of the action and hold it pendente lite. The action is primarily possessory in nature and main action, becomes functus oficio.  The parties returned to the status quo as if no case for replevin had
generally determines nothing more than the right of possession. Replevin is so usually described as a mixed been filed. Thus, upon the dismissal of the case, it was imperative for petitioner to return the van to Asuten.
action, being partly in rem and partly in personam-in rem insofar as the recovery of specific property is In Advent Capital and Finance Corporation v. Young:50
concerned, and in personam  as regards to damages involved. As an "action in rem," the gist of the replevin
action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the
owner or of his having a special interest therein. Consequently, the person in possession of the property We agree with the Court of Appeals in directing the trial court to return the seized car to Young since this is
sought to be replevied is ordinarily the proper and only necessary party defendant, and the plaintiff is not the necessary consequence of the dismissal of the replevin case for failure to prosecute without prejudice.
required to so join as defendants other persons claiming a right on the property but not in possession Upon the dismissal of the replevin case for failure to prosecute, the writ of seizure, which is merely ancillary
thereof. Rule 60 of the Rules of Court allows an application for the immediate possession of the property but in nature, became functus officio  and should have been lifted. There was no adjudication on the merits,
the plaintiff must show that he has a good legal basis, i.e., a clear title thereto, for seeking such interim which means that there was no determination of the issue who has the better right to possess the subject
possession.43 car. Advent ca mot therefore retain possession of the subject car considering that it was not adjudged as the
prevailing party entitled to the remedy of replevin.

Contrary to Advent's view, Olympia International Inc. v. Court of Appeals  applies to this case. The dismissal
 75

of the replevin case for failure to prosecute results in the restoration of the parties' status prior to litigation,
as if no complaint was filed at all. To let the writ of seizure stand after the dismissal of the complaint would
be adjudging Advent as the prevailing party, when precisely no decision on the merits had been rendered. ....
Accordingly, the parties must be reverted to their status quo ante.  Since Young possessed the subject car
before the filing of the replevin case, the same must be returned to him, as if no complaint was filed at all. 51 Section 4. Condition of applicant's bond. — The party applying for the order must thereafter give a bond
executed to the adverse party in the amount fixed by the court in its order granting the issuance of the
writ,  conditioned that the latter will pay all the costs which may be adjudged to the adverse party and all
damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the
Petitioner argues that she should not have been made liable for the bond despite her failure to return the
applicant was not entitled thereto.
van, considering that it was effective only until February 24, 2004, and that she did not renew or post
....
another bond.
Section 12. Discharge of attachment upon giving counter-bond. — After a writ of attachment has been
De Guia v. Alto Surety & Insurance, Co.52 requires that any application on the bond be made after hearing
enforced, the party whose property has been attached, or the person appearing on his behalf, may move for
but before the entry of judgment. Otherwise, the surety can no longer be made liable under the bond:
the discharge of the attachment wholly or in part on the security given. The court shall, after due notice and
hearing, order the discharge of the attachment if the movant makes a cash deposit, or files a counter-bond
Construing and applying these provisions of the Rules, we have held in a long line of cases that said executed to the attaching party with the clerk of the court where the application is made, in an amount
provisions are mandatory and require the application upon the bond against the surety or bondsmen and the equal to that fixed by the court in the order of attachment, exclusive of costs.  But if the attachment is
award thereof to be made after hearing and before the entry of final judgment in the case; that if the sought to be discharged with respect to a particular property, the counter-bond shall be equal to the value
judgment under execution contains no directive for the surety to pay, and the proper party fails to make any of that property as determined by the court.  In either case, the cash deposit or the counter-bond shall
claim for such directive before such judgment had become final and executory, the surety or bondsman secure the payment of any judgment that the attaching party may recover in the action. A notice of the
cannot be later made liable under the bond. The purpose of the aforementioned rules is to avoid multiplicity deposit shall forthwith be served on the attaching party. Upon the discharge of an attachment in accordance
of suits.53 with the provisions of this section, the property attached, or the proceeds of any sale thereof, shall be
delivered to the party making the deposit or giving the counter-bond, or to the person appearing on his
behalf, the deposit or counter-bond aforesaid standing in place of the property so released. Should such
counter-bond for any reason be found to be or become insufficient, and the party furnishing the same fail to
For this reason, a surety bond remains effective until the action or proceeding is finally decided, resolved, or
file an additional counter-bond, the attaching party may apply for a new order of attachment.
terminated. This condition is deemed incorporated in the contract between the applicant and the surety,
....
regardless of whether they failed to expressly state it. Under the Guidelines on Corporate Surety Bonds: 54
Section 14. Proceedings where property claimed by third person. — If the property attached is claimed by
VII. LIFETIME OF BONDS IN CRIMINAL AND CIVIL ACTIONS/SPECIAL PROCEEDINGS any person other than the party against whom attachment had been issued or his agent, and such person
makes an affidavit of his title thereto, or right to the possession thereof, stating the grounds of such right or
Unless and until the Supreme Court directs otherwise,55 the lifetime or duration of the effectivity of any bond title, and serves such affidavit upon the sheriff while the latter has possession of the attached property, and
issued in criminal and civil actions/special proceedings, or in any proceeding or incident therein shall be from a copy thereof upon the attaching party, the sheriff shall not be bound to keep the property under
its approval by the court, until the action or proceeding is finally decided, resolved or terminated. This attachment, unless the attaching party or his agent, on demand of the sheriff, shall file a bond approved by
condition must be incorporated in the terms and condition of the bonding contract and shall bind the parties the court to indemnify the third-party claimant in a sum not less than the value of the property levied
notwithstanding their failure to expressly state the same in the said contract or agreement.  (Emphasis upon.  In case of disagreement as to such value, the same shall be decided by the court issuing the writ of
supplied) attachment. No claim for damages for the taking or keeping of the property may be enforced against the
bond unless the action therefor is filed within one hundred twenty (120) days from the date of the filing of
the bond.
Civil Case No. 10846 is a rare instance where the writ of seizure is dissolved due to the dismissal without ....
prejudice, but the bond stands because the case has yet to be finally terminated by the Regional Trial Court.
Rule 58
The peculiar circumstances in this case arose when petitioner failed to return the van to Asuten, despite the Preliminary Injunction
dismissal of her action. This is an instance not covered by the Rules of Court or jurisprudence. In its
discretion, the Regional Trial Court proceeded to rule on the forfeiture of the bond. As a result, respondent ....
paid Asuten twice the value of the van withheld by petitioner. Respondent, thus, seeks to
recover this  amount from petitioner, despite the van only being worth half the amount of the bond. Section 4. Verified application and bond for preliminary injunction or temporary restraining order. — A
preliminary injunction or temporary restraining order may be granted only when:
56
Of all the provisional remedies provided in the Rules of Court, only Rule 60, Section 2  requires that the
amount of the bond be double  the value of the property. The other provisional remedies provide that the ....
amount be fixed by court or be merely equal to the value of the property:
(b) Unless exempted by the court, the applicant files with the court where the action or proceeding is
Provisional Remedies pending, a bond executed to the party or person enjoined, in an amount to be fixed by the court,  to the
effect that the applicant will pay to such party or person all damages which he may sustain by reason of the
Rule 57 injunction or temporary restraining order if the court should finally decide that the applicant was not entitled
Preliminary Attachment thereto. Upon approval of the requisite bond, a writ of preliminary injunction shall be issued.
....
 76

It should be noted that a replevin bond is intended to indemnify the defendant against any loss that he may
Section 6. Grounds for objection to, or for motion of dissolution of, injunction or restraining order. — The suffer by reason of its being compelled to surrender the possession of the disputed property pending trial of
application for injunction or restraining order may be denied, upon a showing of its insufficiency. The the action. The same may also be answerable for damages if any when judgment is rendered in favor of the
injunction or restraining order may also be denied, or, if granted, may be dissolved, on other grounds upon defendant or the party against whom a writ of replevin was issued and such judgment includes the return of
affidavits of the party or person enjoined, which may be opposed by the applicant also by affidavits. It may the property to him. Thus, the requirement that the bond be double the actual value of the properties
further be denied, or, if granted, may be dissolved, if it appears after hearing that although the applicant is litigated upon. Such is the case because the bond will answer for the actual loss to the plaintiff, which
entitled to the injunction or restraining order, the issuance or continuance thereof, as the case may be, corresponds to the value of the properties sought to be recovered and for damages, if any. 59
would cause irreparable damage to the party or person enjoined while the applicant can be fully
compensated for such damages as he may suffer, and the former files a bond in an amount fixed by the
court conditioned that he will pay all damages which the applicant may suffer by the denial or the dissolution
Any application of the bond in a replevin case, therefore, is premised on the judgment rendered in favor of
of the injunction or restraining order. If it appears that the extent of the preliminary injunction or restraining
the defendant. Thus, the Rules of Court imply that there must be a prior judgment on the merits before
order granted is too great, it may be modified.
there can be any application on the bond:
....

Rule 60
Rule 59
Replevin
Receivership
....
....
Section 9. Judgment. — After trial of the issues, the court shall determine who has the right of possession to
Section 2. Bond on appointment of receiver. — Before issuing the order appointing a receiver the court shall
and the value of the property and shall render judgment in the alternative for the delivery thereof to the
require the applicant to file a bond executed to the party against whom the application is presented, in an
party entitled to the same, or for its value in case delivery cannot be made, and also for such damages as
amount to be fixed by the court,  to the effect that the applicant will pay such party all damages he may
either party may prove, with costs.
sustain by reason of the appointment of such receiver in case the applicant shall have procured such
appointment without sufficient cause; and the court may, in its discretion, at any time after the
Section 10. Judgment to include recovery against sureties. — The amount, if any, to be awarded to any
appointment, require an additional bond as further security for such damages.
party upon any bond filed in accordance with the provisions of this Rule, shall be claimed, ascertained, and
granted under the same procedure as prescribed in section 20 of Rule 57.
Section 3. Denial of application or discharge of receiver. — The application may be denied, or the receiver
discharged, when the adverse party files a bond executed to the applicant, in an amount to be fixed by the
court,  to the effect that such party will pay the applicant all damages he may suffer by reason of the acts,
omissions, or other matters specified in the application as ground for such appointment. The receiver may The Rules of Court likewise require that for the defendant to be granted the full  amount of the bond, he or
also be discharged if it is shown that his appointment was obtained without sufficient cause. she must first apply to the court for damages. These damages will be awarded only after a proper hearing:
....
Rule 57
Rule 60 Preliminary Attachment
Replevin
....
....
Section 20. Claim for damages on account of improper, irregular or excessive attachment. — An application
Section 7. Proceedings where property claimed by third person. — If the property taken is claimed by any for damages on account of improper, irregular or excessive attachment must be filed before the trial or
person other than the party against whom the writ of replevin had been issued or his agent, and such person before appeal is perfected or before the judgment becomes executory, with due notice to the attaching party
makes an affidavit of his title thereto, or right to the possession thereof, stating the grounds therefor, and and his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such
serves such affidavit upon the sheriff while the latter has possession of the property and a copy thereof upon damages may be awarded only after proper hearing and shall be included in the judgment on the main case.
the applicant, the sheriff shall not be bound to keep the property under replevin or deliver it to the applicant
unless the applicant or his agent, on demand of said sheriff, shall file a bond approved by the court to If the judgment on the appellate court be favorable to the party against whom the attachment was issued,
indemnify the third-party claimant in a sum not less than the value of the property under replevin  as he must claim damages sustained during the pendency of the appeal by filing an application in the appellate
provided in section 2 hereof. In case of disagreement as to such value, the court shall determine the same. court, with notice to the party in whose favor the attachment was issued or his surety or sureties, before the
No claim for damages for the taking or keeping of the property may be enforced against the bond unless the judgment of the appellate court becomes executory. The appellate court may allow the application to be
action therefor is filed within one hundred twenty (120) days from the date of the filing of the heard and decided by the trial court.
bond.57 (Emphasis supplied)
Nothing herein contained shall prevent the party against whom the attachment was issued from recovering
in the same action the damages awarded to him from any property of the attaching party not exempt from
execution should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
However, there is a rationale to the requirement that the bond for a writ of seizure in a replevin be double
the value of the property. The bond functions not only to indemnify the defendant in case the property is
lost, but also to answer for any damages that may be awarded by the court if the judgment is rendered in
defendant's favor. In Citibank, N.A. v. Court of Appeals:58 Forfeiture of the replevin bond, therefore, requires first,  a judgment on the merits in the defendant's favor,
and second,  an application by the defendant for damages. Neither circumstance appears in this case. When
 77

petitioner failed to produce the van, equity demanded that Asuten be awarded only an amount equal to the petitioner could have appealed this. Petitioner, however, chose to let Civil Case No. 10846 lapse into finality.
value of the van. The Regional Trial Court would have erred in ordering the forfeiture of the entire  bond in This case cannot now be used as a substitute for her lost appeal.
Asuten's favor, considering that there was no trial on the merits or an application by Asuten for damages.
This judgment could have been reversed had petitioner appealed the Regional Trial Court's May 24, 2004 It is clear from the antecedents that any losses which petitioner has suffered were due to the consequences
Order in Civil Case No. 10846. Unfortunately, she did not. Respondent  was, thus, constrained to follow the of her actions, or more accurately, her inactions. Civil Case No. 10846, which she filed, was dismissed due to
Regional Trial Court's directive to pay Asuten the full amount of the bond. her failure to prosecute. The Regional Trial Court forfeited the replevin bond which she had filed because she
refused to return the property. She is now made liable for the replevin bond because she failed to appeal its
II forfeiture.

This is a simple case for collection of a sum of money. Petitioner cannot substitute this case for her lost WHEREFORE, the Petition is DENIED. The August 13, 2013 Decision and January 14, 2014 Resolution of
appeal in Civil Case No. 10846. the Court of Appeals in CA-G.R. CV No. 95955 are AFFIRMED.

In applying for the replevin bond, petitioner voluntarily undertook with respondent an Indemnity Agreement, SO ORDERED.
which provided:

INDEMNIFICATION – to indemnify the SURETY for all damages, payments, advances, losses, costs, taxes,
penalties, charges, attorney's fees and expenses of whatever kind and nature that the SURETY may at any
time sustain or incur as a consequence of having become a surety upon the above-mentioned bond, and to
pay, reimburse and make good to the SURETY, its successors and assigns, all sums or all money which it
shall pay or become liable to pay by virtue of said bond even if said payment/s or liability exceeds the
amount of the bond. . . .

INCONTESTABILITY OF PAYMENTS MADE BY THE SURETY – any payment or disbursement made by the
surety on account of the above-mentioned bond, either in the belief that the SURETY was obligated to make
such payment or in the belief that said payment was necessary in order to avoid a greater loss or obligation
for which the SURETY might be liable by virtue of the . . . above-mentioned bond, shall be final, and will not
be contested by the undersigned, who jointly and severally bind themselves to indemnify the SURETY for
any of such payment or disbursement.60

Basic is the principle that "a contract is law between the parties" 61 for as long as it is "not contrary to law,
morals, good customs, public order, or public policy." 62 Under their Indemnity Agreement, petitioner held
herself liable for any payment made by respondent by virtue of the replevin bond.

Petitioner contends that the Indemnity Agreement was a contract of adhesion since respondent made the
extent of liability "so comprehensive and all-encompassing to the point of being ambiguous." 63

A contract of insurance is, by default, a contract of adhesion. It is prepared by the insurance company and
might contain terms and conditions too vague for a layperson to understand; hence, they are construed
liberally in favor of the insured. In Verendia v. Court of Appeals:64

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent
to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an insurance contract
should be liberally construed in favor of the insured and strictly against the insurer company which usually
prepares it.65

Respondent, however, does not seek to recover an amount which exceeds the amount of the bond or any
"damages, payments, advances, losses, costs, taxes, penalties, charges, attorney's fees and expenses of
whatever kind and nature,"66 all of which it could have sought under the Indemnity Agreement. It only seeks
to recover from petitioner the amount of the bond, or P600,000.00.

Respondent paid P600,000.00 to Asuten pursuant to a lawful order of the Regional Trial Court in Civil Case
No. 10846. If there were any errors in the judgment of the Regional Trial Court, as discussed above,
 78

HIRD DIVISION
Your name has been entered in the Register of Members of the Club as a  Member.
GR. No. 196072, September 20, 2017
FOR CERTIFICATE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LIMITED, Petitioner, v. SULPICIO ACCOUNT OF NUMBER
LINES, INC., Respondent.       Sulpicio
Lines Inc.,
155,534
G.R. NO. 208603       1st Floor,
Reclamation
SULPICIO LINES, INC., Petitioner, v. STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION Area,
(BERMUDA) LIMITED, Respondent.       P.O. Box
No. 137
      Cebu
DECISION City,
Philippines.
LEONEN, J.:
NAM BUI ENTERE C PORT
E OF LT D L OF
An insured member may be compelled to arbitration pursuant to the Rules of the Protection and Indemnity SHI GROSS A REGI
Club, which were incorporated in the insurance policy by reference. Where there are multiple parties, the P 197 TONNA S STRY
court must refer to arbitration the parties covered by the agreement while proceeding with the civil action 5 GE S
against those who were not bound by the arbitration agreement. "PRI 6,150
NCE 198
Cebu B
G.R. No. 196072 is a Petition for Review1 seeking to set aside the November 26, 2010 Decision2 and March SS 3 13,52
City .
10, 2011 Resolution3 of the Court of Appeals in CA-GR. SP No. 106103. OF V 6
197
THE 9 Cebu .
OCE 3,768
GR. No. 208603 is a Petition for Indirect Contempt4 filed by Sulpicio Lines, Inc. (Sulpicio) against City
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship). It prays, among others, that AN" 197 B 9,627
Steamship be (a) declared guilty of indirect contempt; (b) imposed a fine of P30,000.00; and (c) ordered to 2 Cebu .
restitute to Sulpicio the amount of US$69,570.99 or its equivalent in Philippine currency plus interest, "PRI V
City 19,32
NCE 198 .
computed from December 3, 2012 until fully restituted. 5 9
SS 4 Cebu
OF (Re City B
Steamship was a Bermuda-based Protection and Indemnity Club, managed outside London, England. 6 It
THE buil .
insures its members-shipowners against "third party risks and liabilities" for claims arising from (a) death or
UNI t Cebu V
injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage from collisions. 7
VER 199 City .
SE" 0)
Sulpicio insured its fleet of inter-island vessels with Steamship for Protection & Indemnity risks through local
B
insurance agents, Pioneer Insurance and Surety Corporation (Pioneer Insurance) or Seaboard-Eastern "PRI .
Insurance Co., Inc. (Seaboard-Eastern).8 One (1) of these vessels was the M/V Princess of the World, NCE V
evidenced by a Certificate of Entry and Acceptance issued by Steamship, which provided: SS .
OF
CERTIFICATE OF ENTRY AND ACCEPTANCE  THE X
by the Club of your proposal for entering the ship(s) specified below, and of CAR .
the tonnage set out against each, in: IBB X
EAN .
Class 1 PROTECTION AND INDEMNITY "
of the Club from
Noon 20th February 2005 to Noon 20th February 2006 "PRI
NCE
SS
OF
THE
or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent specified WO
and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the special terms RLD
specified overleaf.
 79

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BEI PRE
NG VIO
CAN US On July 7, 2005, M/V Princess of the World was gutted by fire while on voyage from Iloilo to Zamboanga
CEL ALT City, resulting in total loss of its cargoes. The fire incident was found by the Department of Interior and Local
LED ERA Government to be "accidental" in nature.10
AND TIO
AS NS Sulpicio claimed indemnity from Steamship under the Protection & Indemnity insurance policy. Steamship
TO AND denied the claim and subsequently rescinded the insurance coverage of Sulpicio's other vessels on the
THE A ground that "Sulpicio was grossly negligent in conducting its business regarding safety, maintaining the
CIR COP seaworthiness of its vessels as well as proper training of its crew." 11
CUM Y IS
STA SEN On June 28, 2007, Sulpicio filed a Complaint12 with the Regional Trial Court of Makati City against
NCE T Steamship; one (1) of its directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and
S OF TO Seaboard-Eastern for specific performance and damages. This Complaint was docketed as Civil Case No. 07-
AN EAC 577, was amended on August 10, 2007,13 and further amended on September 11, 2007.14
ALT H
ERA ME Steamship filed its Motion to Dismiss and/or to Refer Case to Arbitration15 pursuant to Republic Act No.
TIO MBE 9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 47 16 of the 2005/2006 Club
N IN R. Rules, which supposedly provided for arbitration in London of disputes between Steamship and its
THE ALT members.17 The other defendants filed separate motions to dismiss. 18
RUL ERA
ES TIO Branch 149, Regional Trial Court, Makati City denied the motions to dismiss. In its July 11, 2008
Order,19 denying Steamship's motion and supplemental motion to dismiss and citing20European Resources
 80

and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft Gmbh 21 the Regional Trial Underwriting (Bermuda) Limited and Sulpicio Lines, Inc.;
Court held that "arbitration [did] not appear to be the most prudent action, . . . considering that the other
defendants . . . ha[d] already filed their [respective] [a]nswers." 22 Steamship filed its Motion for Third, whether or not the Court of Appeals gravely erred in affirming the Regional Trial Court Order denying
Reconsideration,23 but it was likewise denied in the Order24 dated September 24, 2008. referral of Sulpicio Lines, Inc.'s complaint to arbitration in London in accordance with the 2005/2006 Club
Rules; and
Steamship assailed trial court orders before the Court of Appeals through a Rule 65 Petition, docketed as CA-
G.R. SP No. 106103.25 The Court  of Appeals dismissed the petition in its November 26, 2010 Decision. 26 It Finally, whether or not Steamship Mutual Underwriting (Bermuda) Limited is guilty of indirect contempt.
found no grave abuse of discretion on the part of the trial court in denying Steamship's Motion to Dismiss
and/or to Refer Case to Arbitration27 or any convincing evidence to show that a valid arbitration agreement This Court addresses first the procedural issue raised by Sulpicio.
existed between the parties.28 Steamship's Motion for Reconsideration of this Decision was likewise denied in
the Resolution29 dated March 10, 2011. I.A

On April 29, 2011, Steamship filed before this Court this Petition for Review, docketed as G.R. No.
196072. In compliance with this Court's June 13, 2011 Resolution, 30 Sulpicio filed its Comment31 on August Sulpicio contends that Steamship's Petition for Review should be dismissed outright on procedural grounds. 42
31, 2011 and Steamship filed its Reply32 on October 20, 2011.
First, this Petition, couched as a Rule 45 Petition, is actually a Rule 65 Petition because it contained
On September 6, 2013, Sulpicio filed with this Court a Petition for Indirect Contempt 33 under Rule 71 of the arguments dealing with "grave abuse of discretion" allegedly committed by the Court of Appeals. 43
Rules of Court against Steamship. This Petition was docketed as GR. No. 208603.
Second, the Petition's Verification and Certification Against Forum Shopping is defective because it was
Sulpicio alleges that sometime in September 2012, it settled its judgment liability of P4,121,600.00 in Civil signed and executed by Steamship's lawyer. Additionally, the Power of Attorney appended to the Petition did
Case No. CEB-24783, entitled Verna Unabia v. Sulpicio Lines, Inc.34 However, the actual amount reimbursed not indicate its signatory's name and authority.44
by Steamship was not P4,121,600.00, equivalent to US$96,958.47, but only US$27,387.48. 35 Steamship
deducted US$69,570.99, which allegedly represented Sulpicio's share in the arbitration costs for the Third, the issue of whether or not Sulpicio has been furnished with the Club's Rulebook, which contained the
arbitration in London of the dispute in Civil Case No. 07-577.36 arbitration clause, is factual and beyond the realm of a Rule 45 petition. 45

Sulpicio accuses Steamship of indirect contempt for its "improper conduct tending directly, or indirectly, to In its Reply, Steamship avers that its counsel's law firm was duly authorized to sign its Verification and
impede, obstruct, or degrade the administration of justice"37 consisting of the following acts: Certification against Forum Shopping. Moreover, Sulpicio never assailed this law firm's authority to represent
Steamship before the Regional Trial Court, and therefore, is estopped to deny its authority before this
(a) Without Sulpicio's knowledge or consent, Steamship initiated and "concluded" during the pendency of Court.46 Together with its Reply, Steamship submitted a copy of the Secretary's Certificate 47 to the July 24,
this case an alleged "arbitration proceeding" in London for the "Arbitrator" there to "resolve" the very 2007 Board of Directors' resolution authorizing Scott Davis (Davis) or his Assistant Secretaries to sign a
dispute involved in this case; Power of Attorney on behalf of Steamship. It also appended a Secretary's Certificate 48 to the Jvly 26, 2011
Board of Directors' resolution re appointing Davis and John Charles Ross Collis 49 to their current positions as
(b) Without Sulpicio's knowledge or consent, Steamship proclaimed itself the "victor" entitled to arbitration Secretary and Assistant Secretary, respectively.
costs from Sulpicio;
Steamship further contends that the basic issues raised in the petition are questions of law that are
(c) Without Sulpicio's knowledge or consent, Steamship unceremoniously deducted from the refund due to cognizable by this Court.50 It adds that a reversal of some factual findings is warranted because the Court of
Sulpicio in the separate "Unabia Case" the huge amount of U.S.$69,570.99 despite the fact that: (a) Said Appeals committed a grave abuse of discretion in concluding that Sulpicio was ignorant of the 2005/2006
"Unabia Case" is unrelated to the instant case; (b) The propriety of a London arbitration is still to be Club Rules and its arbitration clause, when Steamship had presented ample evidence to establish
resolved in this case by this Honorable Court; (c) Steamship "enforced" by itself said "arbitration costs" otherwise.51 Steamship submits that this Court may exercise its power of review to reverse errors committed
against Sulpicio without the courtesy of even informing this Honorable Court about it[; and] by the lower courts including grave abuse of discretion of the Court of Appeals.52

(d) Without Sulpicio's knowledge or consent, and more importantly, without the prior approval of this This Court finds for Steamship.
Honorable Court, Steamship initiated and "concluded" said London "arbitration" during the pendency of this
G.R. No. 196072 and before this Honorable Court could render its ruling or decision. 38 (Emphasis in the The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a
original) special civil action under Rule 65.53 Rule 45, Section 1 is clear that:

Steamship filed its Comment/Opposition39on January 30, 2014, to which Sulpicio filed its Reply40 on July 2, Section 1. Filing of petition with Supreme Court. A patty desiring to appeal by certiorari  from a judgment or
2014. 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
In its Resolution41 dated January 15, 2014, this Court resolved to consolidate G.R. Nos. 208603 and 196072. petition shall raise only questions of law which must be distinctly set forth.

The issues for this Court's resolution are:

A Rule 45 petition is the proper remedy to reverse a decision or resolution of the Court of Appeals even if the
First, whether or not the petition in G.R. No. 196072 is proper under the Rules of Court; error assigned is grave abuse of discretion in the findings of fact or of law. "The existence and availability of
the right of appeal prohibits the resort to certiorari  because one of the requirements for the latter remedy is
Second, whether or not there is a valid and binding arbitration agreement between Steamship Mutual that there should be no appeal."54
 81

Allegations in the petition of grave abuse of discretion on the part of the Court of Appeals do not ipso
facto  render the intended remedy that of certiorari  under Rule 65 of the Rules of Court. In Microsoft A factual question on whether or not Sulpicio was given a copy of the Club Rulebook must be resolved
Corporation v. Best Deal Computer Center Corporation,55 this Court discussed the distinction between a because it has a bearing on the legal issue of whether or not a binding arbitration agreement existed
Petition for Certiorari under Rule 65 and a Petition for Review on Certiorari under Rule 45: between the parties. Factual review, nonetheless, may be justified: (1) when there is a grave abuse of
discretion in the appreciation of facts;62 (2) when the judgment of the Court of Appeals is premised on a
Significantly, even assuming that the orders were erroneous, such error would merely be deemed as an misapprehension of facts;63 and (3) when the Court of Appeals' findings of fact are premised on the absence
error of judgment that cannot be remedied by certiorari. As long as the respondent acted with jurisdiction, of evidence but such findings are contradicted by the evidence on record. 64
any error committed by him or it in the exercise thereof will amount to nothing more than an error of
judgment which may be reviewed or corrected only by appeal. The distinction is clear: A petition for Here, this Court finds grave abuse of discretion by the Court of Appeals in its appreciation of facts. As will be
certiorari seeks to correct errors of jurisdiction while a petition for review seeks to correct errors of judgment discussed later, the evidence on record shows that Sulpicio was furnished a copy of the Club Rulebook and
committed by the court. Errors of judgment include errors of procedure or mistakes in the court's findings. was aware of its provisions. Other pieces of evidence were Sulpicio's letters 65 to Steamship and the affidavits
Where a court has jurisdiction over the person and subject matter, the decision on all other questions arising of Director and Head of Underwriting of the Club and In-Charge of Far East membership including the
in the case an exercise of that jurisdiction. Consequently, all errors committed in the exercise of such Philippines, Jonathan Andrews;66 Vice-President of Pioneer Insurance who was in charge of Sulpicio's
jurisdiction are merely errors of judgment. Certiorari under Rule 65 is a remedy designed for the correction account, Roderick Gil Narvacan; 67 and Manager of Seaboard-Eastern's Marine Department who was in charge
of errors of jurisdiction and not errors of judgment.56 (Citations omitted) of Sulpicio's account, Elmer Felipe.68

I.B
In this case, what Steamship seeks to rectify may be construed as errors of judgment of the Court of
Appeals. These errors pertain to Steamship's allegations of the Court of Appeals' failure to rule that a valid
The Verification and Certification against Forum Shopping signed by Steamship's counsel substantially
arbitration agreement existed between the parties and to refer the case to arbitration. It does not impute
complied with the  requirements of the Rules of Court.
any error with respect to the Court of Appeals' exercise of jurisdiction, As such, the Petition is simply a
continuation of the appellate process where a case is elevated from the trial court of origin, to the Court of
Under Rule 45 of the Rules of Court, a petition for review must be verified 69 and must contain a sworn
Appeals, and to this Court via Rule 45.
certification against forum shopping.70
The basic issues raised in the Petition for Review are: (1) whether or not an arbitration agreement may be
"A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations therein
validly incorporated by reference to a contract; and (2) how the trial court should proceed to trial upon its
are true and correct of his [or her] personal knowledge or based on authentic records." 71
finding "that only some and not all of the defendants are bound by an arbitration agreement[.]" 57 These are
questions of law properly cognizable in a Rule 45 petition.
On the other hand, a certification against forum shopping is a petitioner's, statement "under oath that he [or
she] has not . . . commenced any other action involving the same issues in the Supreme Court, the Court of
In BCDA v. DMCI Project Developers, Inc..58 citing Villamor v. Balmores59:
Appeals or different divisions, or any other tribunal or agency[.] 72 In this certification, the petitioner must
state the status of any other action or proceeding, if there is any, and undertakes to report to the courts and
[T]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set] of other tribunal within five (5) days from learning of any similar action or proceeding. 73
facts." The test is "whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence." Meanwhile, there is a question of fact when there is "doubt . . . as to the truth or Failure to comply with the foregoing mandates constitutes a sufficient ground for the denial of the petition. 74
falsehood of facts." The question must involve the examination of probative value of the evidence
presented.60 In case the petitioner is a private corporation, the verification and certification may be signed, for and on
behalf of this corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents. 75 The reason is that:
Sulpicio denies being bound by the arbitration clause in the Club Rules since neither the Certificate of Entry
and Acceptance, which covers M/V Princess of the World, mentioned this arbitration agreement, nor was it A corporation, such as the petitioner, has no powers except those expressly conferred on it by the
given a copy of the Club Rulebook. Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly authorized officers and agents. Physical
In sustaining the denial of Steamship's Motion to Dismiss and/or to Refer Case to Arbitration, the Court of acts, like the signing of documents, can be performed only by natural persons duly authorized for the
Appeals ruled: purpose by corporate bylaws or by a specific act of the board of directors. "All acts within the powers of a
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions
which may be imposed by special charter, by-law, or statutory provisions, the same general principles of law
Unfortunately, the Court is not convinced that a valid and binding arbitration agreement exists between the
which govern the relation of agency for a natural person govern the officer or agent of a corporation, of
Steamship and Sulpicio. And even assuming that there is such an agreement, it does not comply with
whatever status or rank, in respect to his power to act for the corporation; and agents once appointed, or
Section 4 of the Arbitration Law which provides that "a contract to arbitrate a controversy thereafter arising
members acting in their stead, are subject to the same rules, liabilities and incapacities as are agents of
between the parties, as well as a submission to arbitrate an existing controversy shall be in writing and
individuals and private persons."
subscribed by the party sought to be charged, or by his lawful agent."
....
For who else knows of the circumstances required in the Certificate but its own retained counsel. Its regular
As correctly pointed out by Sulpicio, there is no proof that it was served a copy of the Club Rules in question
officers, like its board chairman and president may not even know the details required therein. 76
and that it signed therein.61 (Emphasis supplied)
 82

justice." They are not to be interpreted with "absolute literalness" as to subvert the procedural rules'
ultimate objective of achieving substantial justice as expeditiously as possible.93 These goals would not be
In this case, Steamship's Petition's Verification and Certification against forum shopping was signed by its circumvented by this Court's recognition of the authorized counsel's signature in the verification and
counsel. A Power of Attorney77 dated August 1, 2007 was appended to the Petition, which purportedly certification of non-forum shopping.
authorized "Atty. Charles Jay D. Dela Cruz or any of the partners of Del Rosario & Del Rosario . . . to sign the
verification or certification"78 against forum shopping of petitions and appeals in appellate courts necessary This Court now proceeds to the substantive issues of whether or not there was a valid arbitration agreement
in representing and defending Steamship. It was notarized, apostilled in accordance with the law of Bermuda between the parties and whether or not referral to arbitration was imperative.
and authenticated by the Philippine consulate in London, United Kingdom. However, a closer look into the
Power of Attorney reveals that the signatory of the document was not identified. This was pointed out by II
Sulpicio in its Comment.79

Nonetheless, Steamship subsequent filed its Reply,80 to which it attached two (2) Secretary's Steamship contends that the arbitration agreement set forth in its Club Rules, which in turn is incorporated
Certificates81 signed by Davis containing excerpts of the July 24, 2007 and July 26, 2011 board resolutions by reference in the Certificate of Entry and Acceptance of M/V  Princess of the World,94 is valid and binding
showing Davis' authority to execute the Power of Attorney on its behalf, and Davis' reappointment as upon Sulpicio,95 pursuant to this Court's ruling in BF Corporation v. Court of Appeals.96
Corporate Secretary, respectively. The signature in the Power of Attorney was similar in form and
appearance to Davis' signature in the Secretary's Certificates, which lends credence to Steamship's Steamship further avers that the Court of Appeals' finding that there was no proof that Sulpicio was given a
submission that the Power of Attorney was executed and signed by Davis.82 copy of the Club Rules was incorrect and contradicted by the evidence on record. 97 Steamship adds that by
Sulpicio's own declarations in its letter-application98 for membership of its vessels, Sulpicio acknowledged
The rule on verification of a pleading is a formal, not jurisdictional, requirement. 83 This Court has held that: that it had received a copy of the Club Rules and that its membership in Steamship is subject to them. 99  It
contends that Sulpicio was "provided with copies of the Club's Rule books on an annual basis by Pioneer
Non compliance with the verification requirement does not necessarily render the pleading fatally defective, Insurance and Seaboard-Eastern who acted as brokers [for Sulpicio's] entry." 100 Moreover, throughout
and is substantially complied with when signed by one who has ample knowledge of the truth of the Sulpicio's almost 20 years of membership,101 it has been aware of, and relied upon, the terms of the Club
allegations in the complaint or petition, and when matters alleged in the petition have been made in good Rules, as revealed in its various correspondences through its brokers with Steamship. 102 Thus, Sulpicio is
faith or are true and correct.84 (Citation omitted) estopped to deny that it was aware of, and agreed to be bound by, the Club Rules and their provisions. 103

Steamship argues that a referral of the case to arbitration is imperative pursuant to the mandates of
Republic Act No. 9285 or the ADR Law.104 It adds that the trial court's reliance on the ruling in European
On the other hand, a certification not signed by a duly authorized person renders the petition subject to
Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft Gmbh105 was
dismissal.85 Moreover, the lack of or defect in the certification is not generally curable by its subsequent
misplaced. That case was decided on the basis of Republic Act 876 or the Old Arbitration Law, which did not
submission or correction.86 However, there are cases where this Court exercised leniency due to the
provide for instances where some of the multiple impleaded parties were not covered by an arbitration
presence of special circumstances or compelling reasons, such as the prima facie  merits of the petition.87 In
agreement.106 It adds that now, Section 25 of the ADR Law specifically provides that "the court shall refer to
some cases, the subsequent submission of proof of authority of the party signing the certification on behalf
arbitration those parties who are bound by the arbitration agreement although the civil action may continue
of the corporation was considered as substantial compliance with the rules and the petition was given due
as to those who are not bound by such arbitration agreement." 107 Even from a procedural standpoint,
course.88
Steamship contends that the claim against it may be separated from Pioneer Insurance and Seaboard-
Eastern as these local insurance companies were impleaded as solidary obligors/debtors. 108
In Shipside Incorporated v. Court of Appeals,89 this Court held:
Steamship further submits that "a Philippine court is an inconvenient forum to thresh out the issues involved
Moreover, in Loyola, Roadway,  and Uy,  the Court excused non-compliance with the requirement as to the in Sulpicio's claim."109 First, Sulpicio's claim is governed by the English Law, as expressly stated in the
certificate of non-forum shopping. With more, reason should we allow the instant petition since petitioner 2005/2006 Club Rules.110 Second, a Philippine court would be "an ineffective venue" to enforce any judgment
herein did submit a certification on non-forum shopping, failing only to show proof that the signatory was that may be obtained against Steamship, a foreign corporation. 111 Thus, on the basis of the doctrine
authorized to do so. That petitioner subsequently submitted a secretary's certificate attesting that Balbin was of forum non conveniens alone, Steamship contends that the claim against it should be referred to
authorized to file an action on behalf of petitioner likewise mitigates this oversight. 90 arbitration in London.112

Finally, Steamship holds that "Sulpicio should participate in the London Arbitration as [it] is already
progressing . . . [i]nstead of wasting its time on prosecuting its claim before a Philippine court that is devoid
Likewise, this Court ho1ds that there is substantial compliance with the rules on verification and certification
of jurisdiction[.]113
against forum shopping. Steamship's subsequent submission of the Secretary's Certificates showing Davis'
authority to execute the Power of Attorney in favor of Del Rosario & Del Rosario cured the defect in the
Sulpicio counters that the Court of Appeals was correct in ruling that there was no arbitration agreement
verification and certification appended to the petition. Under the circumstances of this case, Steamship's
between the parties.114 The arbitration clause in the 2005/2006 Club Rules is not valid and binding for failure
counsel would be in the best position to determine the truthfulness of the allegations in the petition and
to comply with Section 4 of the ADR Law, which requires that an arbitration agreement be in writing and
certify on non-forum shopping considering that "it has handled the case for . . . Steamship since its
subscribed by the parties or their lawful agent.115 Sulpicio adds that "[i]n White Gold Marine Services, Inc.
inception."91 This Court also considers Steamship's allegations that the same Power of Attorney was used in
vs. Pioneer Insurance and Surety Corporation, . . . Steamship did not invoke arbitration but filed suit before
its Answer Ad Cautelam filed on August 12, 2008 before the Regional Trial Court and in its Petition for
a Philippine court, which . . . proves that [the 2005/2006 Club Rules' arbitration clause] is neither mandatory
Certiorari before the Court of Appeals on November 12, 2008. Significantly, Sulpicio never questioned the
nor binding" upon the parties.116
authority of Del Rosario & Del Rosario to represent Steamship in the proceedings before the lower courts. 92
Sulpicio further contends that the Certificate of Entry and Acceptance did not provide for arbitration as a
The rules on forum-shopping are "designed . . . to promote and facilitate the orderly administration of
mode of dispute resolution, that the rules referred to was not particularly identified or described, and that it
 83

never received a copy of the Club Rules.117 II.B

Assuming there was valid arbitration agreement between them, Sulpicio submits that the trial court correctly
relied on the ruling in European Resources in denying the referral of the case to arbitration.118 Arbitration in Sulpicio contends that there was no valid arbitration agreement between them, and if there were, it was not
London would not be the "most prudent action" because the arbitral decision will not be binding on Pioneer aware of it.
Insurance and Seaboard-Eastern and it would result in a "split jurisdiction." 119 Sulpicio further contends that
the exception laid down in European Resources still applies because the ADR Law was already in effect when This Court rules against Sulpicio's submission.
the case was decided by this Court.120
The contract between Sulpicio and Steamship is more than a contract of insurance between a marine insurer
In its Reply, Steamship maintains that there is a valid arbitration clause between them and that Sulpicio was and a shipowner. By entering its vessels in Steamship, Sulpicio not only obtains insurance coverage for its
well aware of its Club Rules. It adds that Sulpicio is merely feigning ignorance of the Club Rules to escape vessels but also becomes a member of Steamship.
the obligatory nature of the arbitration agreement. Steamship further reiterates that Section 25 of the ADR
Law is plain and clear that when there are multiple parties in an action, the court must "refer to arbitration A protection and indemnity club, like Steamship, is an association composed of shipowners generally formed
those parties bound by the arbitration agreement and let the action remain as to those who are not for the specific purpose of providing insurance cover against third-party liabilities of its members. 135 A
bound."121 "Moreover, as the relationship between . . . Steamship and . . . Sulpicio are governed by English protection and indemnity club is a mutual insurance association, described in White Gold Marine Services,
Law[,] it may be more prudent to refer the disgute to arbitration in London under the doctrine of forum non Inc. v. Pioneer Insurance and Surety Corp.136 as follows:
conveniens."122
[A] mutual insurance company is a cooperative enterprise where the members are both the insurer and
Finally, Steamship avers that under Rule 47 of the 2005/2006 Club Rules, it has "the right to pursue legal insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a
action against a [m]ember before any jurisdiction at its sole discretion." 123 Even if there is no such provision, fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in
Steamship contends that it may waive its rights to compel arbitration in individual cases. 124 It adds that the proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types of
waiver of such right in White Gold has no effect to this case because Sulpicio is not a party in that case.125 coverage, namely, protection and indemnity, war risks, and defense costs.137

II.A
A shipowner wishing to enter its fleet of vessels to Steamship must fill in an application for entry form, which
states:
It is the State's policy to promote party autonomy in the mode of resolving disputes. 126 Under the freedom of
contract principle, parties to a contract may stipulate on a particular method of settling any conflict between
them.127  Arbitration and other alternative dispute resolution methods like mediation, negotiation, and PLEASE ENTER IN THE ASSOCIATION, SUBJECT TO THE RULES, RECEIPT OF WHICH WE ACKNOWLEDGE,
conciliation are favored over court action. Republic Act No. 9285128 expresses this policy: THE UNDERMENTIONED VESSEL(S).138

Section 2. Declaration of Policy. — It is hereby declared the policy of the State to actively promote party
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to The application form is signed by the shipowner or its authorized representative.
resolve their disputes. Towards this end, the State shall encourage and actively promote the use of
Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and Steamship then issues a Certificate of Entry and Acceptance of the vessels, showing its acceptance of the
declog court dockets.  As such, the State shall provide means for the use of ADR as an efficient tool and an entry. The Certificate of Entry and Acceptance for M/V Princess of the World states:
alternative procedure for the resolution of appropriate cases. Likewise, the State shall enlist active private
sector participation in the settlement of disputes through ADR. This Act shall be without prejudice to the
CERTIFICATE OF ENTRY AND ACCEPTANCE
adoption by the Supreme Court of any ADR system, such as mediation, conciliation, arbitration, or any
combination thereof as a means of achieving speedy and efficient means of resolving cases pending before
by the Club of your proposal for entering the ship(s) specified below, and of the tonnage set out against
all courts in the Philippines which shall be governed by such rules as the Supreme Court may approve from
each, in:
time to time. (Emphasis supplied)
Class 1 PROTECTION AND INDEMNITY
of the Club from
Arbitration, as a mode of settling disputes, was already recognized in the Civil Code. 129 In 1953, Republic Act Noon 20th February 2005 to Noon 20th February 2006
No. 876 was passed, which reinforced domestic arbitration as a process of dispute resolution. Foreign
arbitration was likewise recognized through the Philippines' adherence to the United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards of 1958, otherwise known as the New York
Convention.130 Republic Act No. 9285 sets the basic principles in the enforcement of foreign arbitral awards or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent specified
in the Philippines.131 and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the special terms
specified overleaf.
Consistent with State policy, "arbitration agreements are liberally construed in favor of proceeding to
arbitration."132 Every reasonable interpretation is indulged to give effect to arbitration agreements. Thus, Your name has been entered in the Register of Members of the Club as a Member.
courts must give effect to the arbitration clause as much as the terms of the agreement would allow. 133 "Any
doubt should be resolved in favor of arbitration." 134
 84

FOR ACCOUNT OF CERTIFICATE NUMBER [A] contract of insurance, like other contracts, must be assented to by both parties either in person or by
      Sulpicio Lines Inc., their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an
      1st Floor, Reclamation offer or proposal to make a contract. The contract, to be binding from the date of application, must have
155,534 been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be
Area,
      P.O. Box No. 137 passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the
      Cebu City, Philippines. minds of the parties have met in agreement. 140

NAME OF BUILT ENTER CLA PORT

SHIP ED SS OF Title VI, Section 49 of Presidential Decree No. 612141 or the Insurance Code defines an insurance policy as
1975 GROSS REGI "the written instrument in which a contract of insurance is set forth." Section 50 of this Code provides that
"PRINCES TONNA B.V STRY
1983 the policy, which is required to be in printed form, "may contain blank spaces; and any word, phrase, clause,
S OF THE GE .
mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be
OCEAN" 1979 6,15
B.V written on the blank spaces." Any rider, clause, warranty, or endorsement attached and referred to in the
Cebu 0
"PRINCES 1972 . policy by its descriptive title or name is considered part of this policy or contract of insurance and binds the
City
S OF THE 13,5 insured.
UNIVERSE 1984 Cebu B.V 26
" (Rebuilt City . Section 51 of the Insurance Code prescribes the information that must be stated in the policy, namely: the
1990) 3,76 parties in the insurance contract, amount insured, premium, property or life insured, risks insured against,
"PRINCES Cebu B.V 8
. and period of insurance. However, there is nothing in the law that prohibits the parties from agreeing to
S OF THE City other terms and conditions that would govern their relationship, in which case the general rules of the Civil
CARIBBEA 9,62
Cebu X.X 7 Code regulating contracts will apply.142
N" .
City
"PRINCES 19,3 The Certificate of Entry and Acceptance plainly provides that the Class 1 protection and indemnity coverage
S OF THE Cebu 29 would be to the extent specified and in accordance with the Act, the By-Laws, and the Rules of the Club in
WORLD" City force at the time of the coverage. The "Notes" in the bottom portion of the Certificate states that these Rules
"are printed annually in book form" and disseminated to all members. M/V Princess of the World was insured
"PRINCES from February 20, 2005 to February 20, 2006. Hence, the 2005/2006 Club Rules apply.
S OF THE
STARS" Moreover, attached to the Certificate of Entry and Acceptance is a War Risk Extension clause and Bio-Chem
clause which refer to Rule 21 of the 2005/2006 Club Rules relating to war risk insurance.
....

NOTES   WAR RISK EXTENSION

1. REFERENCE IS 2. THE RULES ARE

REQUESTED TO THE PRINTED ANNUALLY Cover excluded under Rule 21 is hereby reinstated subject to the terms set out in this Certificate of Entry
RULES AS TO THE IN BOOK FORM, and any Endorsement thereto, and to the following conditions.
CIRCUMSTANCES INCORPORATING ALL ....
OF ENTRY BEING PREVIOUS
CANCELLED AND AS ALTERATIONS AND A At any time or times before, or at the commencement of, or during the currency of any Policy Year of the
TO COPY IS SENT TO Club, the Directors may in their discretion determine that any ports, places, countries, zones or areas
THE EACH MEMBER. (whether of land or sea) be excluded from the insurance provided by this [Protection and Indemnity] war
CIRCUMSTANCES ALTERATIONS CAN BE risks cover. Save as otherwise provided by the Directors, this [Protection and Indemnity] war risks cover
OF AN ALTERATION MADE BY ORDINARY shall cease in respect of such ports, places, countries, zones or areas at midnight on the seventh day
IN THE RULES OR RESOLUTION following the issue to the Members of notice of such detem1ination in accordance with the terms of the cover
BY(E)-LAWS. FOLLOWING A provided pursuant to Rule 21 of the Club's Rules
GENERAL MEETING ....
NOTIFIED TO ALL
MEMBERS.[139 Notwithstanding any other term or condition of this insurance, the Directors may in their discretion cancel
this special cover giving 7 days' notice to the Members (such cancellation becoming effective on the expiry of
7 days from midnight of the day on which notice of cancellation is issued by the Club and the Directors may
at any time after the issue of notice of such cancellation resolve to reinstate special cover pursuant to the
proviso to the terms of the cover issued pursuant to Rule 21 on such terms and conditions and subject to
Thus, a contract of insurance is perfected between the parties upon Steamship's issuance of the Certificate such limit as the Directors in their discretion may determine.
of Entry and Acceptance.
When either a Demise, Time, Voyage, Space or Slot Charterer and/or the Owner of the Entered Ship are
separately insured for losses, liabilities, or the costs and expenses incidental thereto covered under Rule 21
 85

of the Club and/or the equivalent Rule of any other Association which participates in the Pooling Agreement iv. All contracts of insurance with the Club shall be deemed to be subject to and incorporate
and General Excess Loss Reinsurance Contract, the aggregate of claims in respect of such losses, liabilities, all the provisions of these Rules except to the extent otherwise expressly agreed in
or the costs and expenses incidental thereto covered under Rule 21 of the Club and/or the equivalent Rule of writing with the Managers.
such other Association(s), shall be limited to the amount set out in the Certificate of Entry in respect of any
one ship, any one incident or occurrence.143
v. Each Member or other person whose application for insurance or reinsurance is accepted
shall be deemed to have agreed both for itself and its successors and each of them that
both it and they and each and all of them will be subject to and bound by and will
Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests its acquiescence to all its perform their obligations under the Rules, Act and By(e)-Laws of the Club and any
provisions. There is no showing in the records or in Sulpicio's contentions that it objected to any of the terms contract of insurance with the Club.
in this Certificate. Its acceptance, likewise, operated as an acceptance of the entire provisions of the Club
Rules.
....
When a contract is embodied in two (2) or more writings, the writings of the parties should be read and
45 Amendments to Rules
interpreted together in such a way as to render their intention effective.144

With the exception of the War Risk Extension clause, the Bio-chem clause, and a succinct statement of the The Rules of this Class may be altered or added to by Ordinary Resolution passed at a separate meeting of
limits of liability, warranties, exclusion, and deductibles, the Certificate of Entry and Acceptance does not the Members of this Class provided that no such alterations shall be effective unless and until the same shall
contain the details of the insurance coverage. A person would have to refer to the Club Rules to have a be sanctioned by the Directors.146
complete understanding of the contract between the parties.

The Club Rules contain the terms and conditions of the relationship between the Steamship and its members
including the scope, nature, and extent of insurance coverage of its members' vessels. The 2005/2006 Club The 2005/2006 Club Rules also provide the nature of Steamship's Protection and Indemnity cover and the
Rules145 of Class 1, which cover protection and indemnity risks provide, insofar as relevant: terms on which it is provided. In particular, Rule 25(i) to (xxi) identify a member's liabilities, costs, and
expenses covered by the insurance, Rules 18 to 24 set out the general exclusions and limitations, Rule 26
provides the requirements for classification and condition surveys, and Rule 28 addresses general terms and
3 Scope of Cover conditions for recovery of claims. The 2005/2006 Club Rules also contain provisions on double insurance
(Rule 23), claims handling (Rules 30 and 31), cessation of membership (Rule 35), cessation of insurance of
i. The terms upon which a Member is entered in the Club are set out in the Rules and any individual vessels (Rule 36) deduction and set-off (Rule 40), and assignment and subrogation (Rules 41 and
Certificate of Entry for that Member. 42).

The arbitration clause is found in Rule 47 of the 2005/2006 Club Rules:

ii. The risks against which a Member is insured by entry in the Club are set out in Rule 25
and are always subject to the conditions, exceptions, limitations and other terms set out
in the remainder of these Rules and any Certificate of Entry for that Member. 47 dispute resolution, Adjudication

.... i. in the event of any difference or dispute whatsoever, between or affecting a Member and
the Club and concerning the insurance afforded by the Club under these rules or any
6 Entry amounts due from the Club to the Member or the Member to the Club, such difference or
.... dispute shall in the first instance be referred to adjudication by the Directors. That
adjudication shall be on the basis of documents and written submissions alone.
Notwithstanding the terms of this Rule 47i, the Managers shall be entitled to refer any
iv. The provisions of this Rule apply throughout the period of entry of the Ship in the difference or dispute to arbitration in accordance with sub-paragraph ii below without
Club . . . prior adjudication by the Directors.

.... ii. If the Member does not accept the decision of the Directors, or if the Managers, in their
absolute discretion, so decide, the difference or dispute shall be referred to the arbitration
8 Members of three arbitrators, one to be appointed by each of the parties and the third by the two
arbitrators so chosen, in London. The submission to arbitration and all the proceedings
therein shall be subject to the provisions of the English Arbitration Act, 1996 and the
i. Every Owner who enters any ship in the Club shall (if not already a Member) be and
schedules thereto or any statutory modifications or re-enactment thereof.
become a Member of the Club as from the date of the commencement of such entry. Each
Member is bound by the Act and By(e)-Laws of the Club and by these Rules.
iii. No Member shall be entitled to maintain any action, suit or other legal proceedings
against the Club upon any such difference or dispute unless and until the same has been
.... submitted to the Directors and they shall have given their decision thereon, or shall have
made default for three months in so doing; and, if such decision be not accepted by the
Member or such default be made, unless and until the difference or dispute shall have
 86

been referred to arbitration in the manner provided in this Rule, and the Award shall have arbitration,152 it is likewise required that the arbitration agreement must be in writing.
been published; and then only for such sum as the Award may direct to be paid by the
Club. And the sole obligation of the Club to the Member under these Rules or otherwise An arbitration agreement is in writing if it is contained (1) in a document signed by the parties, (2) in an
howsoever in respect of any disputed claim made by the Member shall be to pay such exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the
sum as may be directed by such an Award. agreement, or (3) in an exchange of statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The reference in a contract to a document
iv. In any event no request for adjudication by the Member shall be made to the Directors in containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing
respect of any difference or dispute between, or matter affecting, the Member and the and the reference is such as to make that clause part of the contract.153
Club more than two years from the date when that dispute, difference or matter arose
unless, prior to the expiry of this limitation period, the Managers have agreed in writing to In BF Corp. v. Court of Appeals,154 one (1) of the parties denied the existence of the arbitration cause on the
extend the same. ground that it did not sign the Conditions of Contract that contained the clause. This Court held that the
arbitration clause was nonetheless binding because the Conditions of Contract were expressly made an
integral part of the principal contract between the parties. The formal requirements of the law were deemed
v. Nothing in this Rule 47 including paragraph i, or in any other Rule or otherwise shall complied with because "the subscription of the principal agreement effectively covered the other documents
preclude the Club from taking any legal action of whatsoever nature in any jurisdiction at incorporated by reference [to them]."155 In, arriving at this ruling, this Court explained:
its absolute discretion in order to pursue or enforce any of its rights whatsoever and
howsoever arising including but not limited to: -
A contract need not be contained in a single writing. It may be collected from several different writings which
do not conflict with each other and which, when connected, show the parties, subject matter, terms and
a. Recovering sums it considers to be due from the Member to the Club; consideration, as in contracts entered into by correspondence. A contract may be encompassed in
b. Obtaining security for such sums; and/or several instruments even though every instrument is not signed by the parties, since it is
c. Enforcement of its right of lien whether arising by law or under these rules. sufficient if the unsigned instruments are clearly identified or referred to and made part of the
signed instrument or instruments. Similarly, a written agreement of which there are two copies, one
signed by each of the parties, is binding on both to the same extent as though there had been only one copy
of the agreement and both had signed it.156 (Emphasis supplied)

vi. These rules and any contract of insurance between the Club and the Member shall be
governed by and construed in accordance with English law.147 (Emphasis in the original)
Thus, an arbitration agreement that was not embodied in the main agreement but set forth in another
document is binding upon the parties, where the document was incorporated by reference to the main
agreement. The arbitration agreement contained in the Club Rules, which in turn was referred to in the
Certificate of Entry and Acceptance, is binding upon Sulpicio even though there was no specific stipulation on
Under Rule 47, any dispute concerning the insurance afforded by Steamship must first be brought by a dispute resolution in this Certificate.
claiming member to the Directors for adjudication. If this member disagrees with the decision of the
Director, the dispute must be referred to arbitration in London. Despite the member's disagreement, the Furthermore, as stated earlier, Sulpicio became a member of Steamship by the very act of making a contract
Managers of Steamship may refer the dispute to arbitration without adjudication of the Directors. This of insurance with it. The Certificate of Entry and Acceptance issued by Steamship states that "[its] name has
procedure must be complied with before the member can pursue legal proceedings against Steamship. been entered in the Register of Members of the Club as a Member." 157 Sulpicio admits its membership and
the entry of its vessels to Steamship.
There is no ambiguity in the terms and clauses of the Certificate of Entry Acceptance. Contrary to the ruling
of the Court of Appeals, the Certificate clearly incorporates the entire Club Rules—not only those provisions Rule 8(v) of the 2005/2006 Club Rules provides that:
relating to cancellation and alteration of the policy. 148

"[W]hen the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into Each Member or other person whose application for insurance or reinsurance is accepted shall be deemed to
it any other intention that would contradict its plain import." 149 have agreed both for itself and its successors and each of them that both it and they and each and all of
them will be subject to and bound by and will perform their obligations under the Rules, Act and By(e)-Laws
The incorporation of the Club Rules in the insurance policy is without any qualification. This includes the of the Club and any contract of insurance with the Club.
arbitration clause even if not particularly stipulated. A basic rule in construction is that the entire contract,
and each and all of its parts, must be read together and given effect, with all its clauses and provisions Sulpicio's agreement to abide by Steamship's Club Rules, including its arbitration clause, can be reasonably
harmomonized with one another.150 inferred from its submission of an application for entry of its vessels to Steamship "subject to the Rules,
receipt of which we acknowledge."158
II.C
The ruling of this Court in Associated Bank v. Court of Appeals159 is applicable by analogy to this case.

The Court of Appeals ruled that the arbitration agreement in the 2005/2006 Club Rules is not valid because In that case, plaintiffs sought to recover the amount of 16 checks that were honored by Associated Bank
it was not signed by the parties. despite the apparent alterations in the name of the payee. Associated Bank filed a Third-Party Complaint
against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and Trust
In domestic arbitration, the formal requirements of an arbitration agreement are that it must "be in writing Company, and Citytrust Banking Corporation for reimbursement, contribution, and indemnity. This
and subscribed by the party sought to be charged, or by his lawful agent." 151 In international commercial Complaint was based on their being the collecting banks and by virtue of their bank guarantee for all checks
 87

sent for clearing to the Philippine Clearing House Corporation (PCHC). The trial court dismissed the Third- Sulpicio cannot feign ignorance of the arbitration clause since it was already charged with notice of the Club
Party Complaint for lack of jurisdiction, citing Section 36 of the Clearing House Rules and Regulations of the Rules due to an appropriate reference to it in the Certificate of Entry and Acceptance. Assuming its
PCHC, which provides for arbitration. This Court, in affirming the dismissal, held: contentions were true that it was not furnished a copy of the 2005/2006 Club Rules, by the exercise of
ordinary diligence, it could have easily obtained a copy of them from Pioneer Insurance or Seaboard-Eastern.
Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in effect amounts to a manifestation of agreement by In any case, Sulpicio's bare denials cannot succeed in light of the preponderance of evidence submitted by
the parties to abide by its rules and regulations. As a consequence of such participation, a party cannot Steamship.
invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC Rules and
Regulations without first going through the arbitration processes laid out by the  body.  Since claims relating The Affidavit163 dated August 29, 2007 of Jonathan Andrews, Director and Head of Underwriting of the
to the regularity of checks cleared by banking institutions are among those claims which should first be Eastern Syndicate of the Managers of Steamship and in charge of Steamship's Far East membership,
submitted for resolution by the PCHC's Arbitration Committee, petitioner Associated Bank, having voluntarily including the Philippines, stated:
bound itself to abide by such rules and regulations, is estopped from seeking relief from the Regional Trial
Court on the coattails of a private claim and in the guise of a third party complaint without first having 4. The contract of insurance between the Club and a Member is contained in, and evidenced
obtained a decision adverse to its claim from the said body. lt cannot bypass the arbitration process on the by:
basis of its averment that its third party complaint is inextricably linked to the original complaint in the
Regional Trial Court.
a) The Rules of the Club for whichever Class or Classes the vessel is entered, for the time being in force;
.... and

b) A Certificate of Entry.
Section 36.6 is even more emphatic:

36.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and 5.
subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with
Section 4 of the Republic Act No. 876 otherwise known as the Arbitration Law.
    . . . .

Thus, not only do the parties manifest by mere participation their consent to these rules, but such
participation is deemed (their) written and subscribed consent to the binding effect of arbitration agreements 5. The Club's policy year runs from noon on 20th February of each year until noon on
under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and Regulations of the 20th February of the year following . . . The Rule book is published on an annual basis
PCHC may go on appeal to any of the Regional Trial Courts in the National Capital Region where the head prior to the commencement of the Policy year to which it applies. Although the Rules can
office of any of the parties is located only after a decision or award has been rendered by the arbitration be amended pursuant to Rule 45, the dispute resolution provisions of the Rules have
committee or arbitrator on questions of law. 160 (Emphasis supplied, citation omitted) provided for arbitration in London since well before the Plaintiff's entry in the Club.

    . . . .
This Court held that mere participation by the banks in the clearing operations of the PCHC manifest their
consent to the PCHC Rules, including the binding effect of the arbitration agreements under these Rules. 10. In addition, it is quite clear that throughout their lengthy membership of the Club, the
Plaintiffs were aware of, and relied upon, the terms of the Club's Rules. Produced and
In this case, by its act of entering its fleet of vessels to Steamship and accepting without objection the shown to me, marked "JHDA 4", is a copy of a letter164 from the Plaintiffs, dated 4th June,
Certificate of Entry and Acceptance covering its vessels, Sulpicio manifests its consent to be bound by the 1993, seeking a refund of premium for the "SURIGAO PRINCESS" on the grounds that the
Club Rules. The contract between Sulpicio and Steamship gives rise to reciprocal rights and obligations. vessel was laid up. That letter's enclosures consist of:
Steamship undertakes to provide protection and indemnity cover to Sulpicio's fleet. On the other hand,
Sulpicio, as a member, agrees to observe Steamship's rules and regulations, including its provisions on
arbitration. (a) The Club's printed form for returns of premium when a vessel is laid-up . . . signed by Mr. Carlos S.
Go on behalf of the Plaintiffs;
III.A (b) A photocopy of the relevant provision in the Club's Rules dealing with laid-up returns, Rule 29; and

(c) A Certificate from the Philippines Port Authority . . .

The Court of Appeals' finding that there was no proof that Sulpicio was given a copy of the 2005/2006 Club
Rules is contradicted by the evidence on record.
11.
In its Comment, Sulpicio contends that it "was never given or sent a copy" of the Rulebook as stated in the
affidavits of its Executive Vice President, Atty. Eusebio S. Go and its Safety and Quality Assurance Manager, The fact that Sulpicio's application for a laid up return attached a photocopy of the Club's
Engr. Ernelson P. Morales.161 It also quoted a portion of the Affidavit of its Executive Vice President and Chief Rule book demonstrates both that this was physically in their possession and that they
Executive Officer, Carlos S. Go, who declared that "[Sulpicio] and Steamship have not signed any arbitration were familiar with its contents.
agreement" and "[n]o such agreement exists."162
 88

11. Throughout the lengthy period of this entry, as might be anticipated, there was a  Letter-request170 for refund of lay-up premiums for the vessel M/V Surigao Princess dated
considerable volume of correspondence between the Plaintiffs and the Club via the 4 June 1993 as Annex "5";
former's brokers. Examples of that correspondence are produced and shown to me,
marked "JHDA 5". As the Court will note from that correspondence, it contains numerous  Letter-request171 for refund of lay-up premiums for the vessel M/V Manila Princess dated
and frequent references to various of the Club's Rules, e.g.: 10 June 1998 as Annex '"6";
 Letter request172 for refund of lay-up premiums for the vessel M/V Filipina Princess dated
21 June 1999 as Annex  "7";
 Rule 22, dealing with double insurance
 Letter-request173 for refund of lay-up premiums for the vessel M/V Manila Princess dated
 Rule 25 xix, dealing with towage 17 May 2001 as Annex "8"; and
 Rule 23 i, dealing with classification  Letter-request174 for refund of lay-up premiums for the vessel M/V Nasipit Princess dated
 Rule 23 v b and c, dealing with defect warranties 16 August 2002 as Annex "9";
 Rule 23 iv, dealing with safety audits.

In each of the above letters, Sulpicio declared to both the Company and the Club that "(w)e shall therefore
12. The fact that Plaintiffs possessed and were fully conversant with the Club's Rules is most
be glad to receive a credit note for the return of premium under the Rules of the Association."175 (Emphasis
clearly demonstrated by the correspondence provided and shown to me, marked "JHDA
in the original)
6". After the grounding of the "PRINCESS OF THE PACIFIC", due to the concerns arising
out of this casualty, the Club initially reserved cover pending further investigation and
required an independent audit of the Plaintiffs Safety Management System. When this
decision was conveyed to the Plaintiffs via their brokers, Seaboard-Eastern, they replied: Finally, Elmer Felipe, Manager of Marine Department of Seaboard-Eastern in charge of Sulpicio's account,
also narrated:
As expected, Carlos Go was so upset and expressed disappointment when the undersigned spoke to him
about the report of Noble Denton and the club's decision to suspend any action on the claim especially so 11. As insurers for the Hull & Machinery of Sulpicio's Fleet, the Company, through my department, assisted
since owners believe the findings of the surveyors to the club are inaccurate and after relating such findings Sulpicio in regard to its [Protection and Indemnity] cover by sending copy of the Club's Rulebook while it
to the club rules owners find no basis for club's decision to suspend action on the claim. 165 was an active Member of the Club.

12. By way of example, in the year 2002, the Company sent five (5) copies of the Club's Rulebook to Mr.
Carlos S. Go, Executive Vice-President and CEO of Sulpicio as evidenced by a transmittal letter dated 11
Roderick Gil Narvacan, Vice-President of the Hull Unit of Pioneer Insurance which handled Sulpicio's account, April 2002 duly signed by the Company's First Vice-President Joli Co-Wu. A copy of said transmittal
also narrated in his Affidavit[166 dated September 4, 2007: letter176 dated 11 April 2002 is hereto attached as Annex "1."

7. I know for a fact that Sulpicio received a copy of the Club's Rule Book and had full knowledge of the 13. The other transmittal letters proving distribution of the Club's Rulebook to Sulpicio in its other years of
Club's Rules during the length of time that it was a member of the Club. membership with the Club were among those discarded by the Company when it moved . . . to a smaller
office . . .
8. [I]n all Entry Forms signed and submitted by Sulpicio to the Club throughout its years of membership in
the Club, Sulpicio always acknowledged that it received a copy of Club's Rule Book. A sample of Sulpicio's 14. [Sulpicio is presumed to] know the Club's Rules as it was provided with copies of the Rulebook on an
duly signed Entry Form submitted to the Club on 6 February 1997 is hereto attached as Annex "1." annual basis.

9. The Company, through my department, also makes it a point to remind all the Club's Members including 15. In fact, in a 8 May 2004 letter addressed to the Company, Sulpicio claimed for refund of lay-up
Sulpicio to familiarize themselves with the Club's Rulebook as the rules therein provided are applied to all premiums from the Club in connection with the vessel M/V Princess of the World and in Sulpicio's letter to
Club related matters including claims procedures. A copy of Ms. May Valles' email 167 to Sulpicio dated 27 the Club attached to the said 8 May 2004 letter, Sulpicio declared that "(w)e shall therefore be glad to
August 2002 is hereto attached as Annex "2" and her letter168 to Sulpicio dated 17 October 2002 is hereto receive a credit note for the return of premium under the Rules of the Association." This was followed by
attached as Annex "3." Ms. Valles was a former member of the Company's Hull Department and in both December 2004 letter for refund of lay-up returns for the vessel M/V Princess of the World where Sulpicio
written communications, she reminded Sulpicio through its Executive Vice-President and CFO Mr. Carlos S. also invoked the Club Rules. A copy of the 8 May 2004 letter177 with attachment is hereto attached as Annex
Go of certain Club Rules such as the prescriptive period to claim for lay-up premium refund. "2" and a copy of the 8 December 2004 letter178 is hereto attached as Annex "3."
....
10. In reply to the 27 August 2002 email, Mr. Carlos S. Go, by a 28 August 2002 email 169 to Ms. Valles,
explained his understanding of the provision on the prescriptive period to claim for lay-up premium refund 18. More importantly, after the Club denied cover for the vessel M/V Princess of the World and prior to the
under the Club's Rules, thereby clearly showing that Sulpicio was  aware of the Club's Rules. A copy of the date when the termination of Sulpicio's entry in the Club took effect, our EVP, Mr. Jose G. Banzon, Jr. sent
28 August 2002 email of Mr. Go is hereto attached as Annex "4." an emai1179 dated 30 November 2005 to Mr. Carlos Go reminding Sulpicio of the remedy of voluntary
arbitration under Rule 47 of the Club's Rulebook and attaching a copy of Rule 47. Copies of these documents
11. To further prove Sulpicio's knowledge of Club's Rules, I hereto attach the following copies of letters from are attached as Annex "4."180
Sulpicio addressed to the Company with attached letter by Sulpicio to the Club:
These foregoing affidavits and the attached supporting documents consistently declared that Sulpicio was
given copies of the Rulebook on an annual basis and had even invoked its provisions in making a claim from
 89

Steamship. Sulpicio's previous letters to Steamship referring to provisions of the Club Rules show its
knowledge. Sulpicio was also reminded of the arbitration clause during the negotiations preceding the
institution of the present case. Rule 4.7 of the Special Rules on Alternative Dispute Resolution 187 (2009 Special ADR Rules) further
expresses:
"[A] party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in
relation to other contracts. The conformity of the insured to the terms of the policy is implied from [its] The court shall not decline to refer some or all of the parties to arbitration for any of the following reasons:
failure to express any disagreement with what is provided for."181 The agreement to submit all disputes to
arbitration is a long standing provision in the Club Rules. It was incumbent upon Sulpicio to familiarize itself
with the Club Rules, under the presumption that a person takes due care of its concerns. Being a member of a. Not all of the disputes subject of the civil action may be referred to arbitration;
Steamship for 20 years,182 it has been bound by its Rules and has been expected to abide by them in good
faith. b. Not all of the parties to the civil action are bound by the arbitration agreement and
referral to arbitration would result in multiplicity of suits;
In Development Bank of the Philippines v. National Merchandising Corp.,183 the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents with full knowledge:
c. The issues raised in the civil action could be speedily and efficiently resolved in its
entirety by the court rather than in arbitration;
The principal stockholders and officers of NAMERCO, particularly the Sycips who co-signed the promissory
notes in question, were, as the lower court found, businessmen of experience and intelligence . . . We might
d. Referral to arbitration does not appear to be the most prudent action; or
say — paraphrasing Tin Tua Sia vs. Yu Biao Sontua,  56 Phil. 707 — that they being of age and businessmen
of experience, it must be presumed that they had acted with due care and to have signed the documents in
question with full knowledge of their import and the obligations they were assuming thereby; that this e. The stay of the action would prejudice the rights of the parties to the civil action who are
presumption of law may not be overcome by the mere testimony of the obligor or obligors; that, to permit a not bound by the arbitration agreement.
party, when, sued upon a contract, to admit that he signed it but to deny that it expresses the agreement he
had made, or to allow him to admit that he signed it solely on the verbal assurance given by one party,
however high his station may be, that he would not be held liable thereon, would destroy the value of all
contracts. Indeed, it would be disastrous to give more weight and reliability to the self-serving testimony of The present rule on multiple parties manifests due regard to the policy of the law in favor of arbitration. In
a party bound by the contract than to the contents thereof. Verba volant, scripta manent.184 light of the express mandate of Republic Act No. 9285 and the subsequent 2009 Special ADR Rules, this
Court's ruling in European Resources and Technologies, Inc.  v. Ingenieuburo Birkhann + Nolte,
Ingeniurgesellschaft Gmbh188 is deemed abrogated.
Sulpicio is estopped from denying knowledge of the Rulebook by its own acts and representations, as
evidenced by its various letters to Steamship, showing its familiarity with the Rulebook and its provisions. Notably, the Regional Trial Court did not rule on whether or not a valid and existing arbitration .agreement
existed between the parties. It merely stated in its Order. citing European Resources,  that:
"In estoppel, a person, who by his [or her] deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes ["]Even if there is an arbitration clause, there are instances when referral to arbitration does not appear to
loss or injury to another."185 It further bars a party from denying or disproving a fact, which has become be the most prudent action. The object of arbitration is to allow the expeditious determination of a dispute.
settled by its acts.186 Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration."
Hence, this Court finds a preponderance of evidence showing that Sulpicio was given a copy and had
knowledge of the 2005/2006 Club Rules. Moreover, the 2005/2006 Club Rules' provision on arbitration is Moreover, it is noted that defendants Seaboard-Eastern Insurance Co. Inc. and Pioneer Insurance and
valid and binding upon Sulpicio. Surety Corporation already filed their respective Answers to the second amended complaint. 189

III.B
On this basis, the Regional Trial Court denied Steamship's Motion to  Dismiss and/or to Refer Case to
The Regional Trial Court should suspend proceedings to give way to arbitration. Even if there are other Arbitration and directed it to file an answer.
defendants who are not parties to the arbitration agreement, arbitration is still proper.
This Court finds that the Regional Trial Court acted in excess of its jurisdiction.
Republic Act No. 9285 was approved on April 2, 2004 and was the controlling law at the time the original
and amended complaints were filed. Where a motion is filed in court for the referral of a dispute to arbitration, Section 24 of Republic Act No.
9285 ordains that the dispute shall be referred "to arbitration unless it finds that the arbitration agreement is
Section 25 of Republic Act No. 9285 is explicit that: null and void, inoperative or incapable of being performed."

[W]here action is commenced by or against multiple parties, one or more of whom are parties to an Thus, the Regional Trial Court went beyond its authority of determining only the issue of whether or not
arbitration agreement, the court shall refer to arbitration those parties who are bound by the arbitration there was a valid arbitration agreement between the parties when it denied Steamship's Motion to Dismiss
agreement although the civil action may continue as to those who are not bound by such arbitration and/or to Refer Case to Arbitration solely on the ground that it would not be the most prudent action under
agreement. the circumstances of the case. The Regional Trial Court went against the express mandate of Republic Act
No. 9285. Consequently, the Court of Appeals erred in finding no grave abuse of discretion on the part of the
trial court in denying referral to arbitration.
 90

IV Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority, justice
and dignity. It signifies not only a willful disregard or disobedience of the court's orders, but such conduct as
tends to bring the authority of the court and the administration of law into disrepute or in some manner to
In G.R. No. 208603, Sulpicio contends that Steamship's acts were contumacious because they were intended impede the due administration of justice . . .
to defeat Civil Case No. 07-577 and oust the Regional Trial Court of its jurisdiction, without the approval of
this Court. This Court has thus repeatedly declared that the power to punish for contempt is inherent in all courts and is
essential to the preservation of order in judicial proceedings and to the enforcement of judgments, orders,
Sulpicio further contends that there was no valid off-setting of the amount of US$69,570.99 from the refund and mandates of the court, and consequently, to the due administration of justice . . .211
payable to it in the Unabia case because the issue on the propriety of the referral to arbitration had yet to be
resolved by this Court.190 It adds that the "arbitration – anti-suit injuction" cost was not a debt of Sulpicio
but a unilateral charge arising from an arbitration that it had not participated in, or was enforceable in the
The court's contempt power should be exercised with restraint and for a preservative, and not a vindictive,
Philippines.191
purpose. "Only in cases of clear and contumacious refusal to obey should the power be exercised." 212
In its Comment/Opposition192 to the Petition for Indirect Contempt, Steamship contends that it "exercised its
In Lorenzo Shipping Corporation v. Distribution Management Association of the Philippines, 213 this Court held
right to set-off in good faith"193 and that the amount set-off represents costs of obtaining the Anti-Suit
that:
Injunction awarded to it by the English Commercial Court and are not arbitration costs as contended by
Sulpicio.194 It also holds that Sulpicio's prayer for restitution of the offset amount was improper in a petition
for indirect contempt.195
There is no question that in contempt the intent goes to the gravamen of the offense. Thus, the good faith,
Steamship emphasizes that even before the denial of its Motion to Dismiss in Civil Case No. 07-577 on July or lack of it, of the alleged contemnor should be considered. Where the act complained of is ambiguous or
11, 2008, it already commenced arbitration in London 196 on July 31, 2007.197 It had also "obtained a does not clearly show on its face that it is contempt, and is one which, if the party is acting in good faith, is
permanent Anti-Suit Injunction [with interim award for costs] 198 from the English Commercial Court on within his rights, the presence or absence of a contumacious intent is, in some instances, held to be
4th April 2008[.]"199 The April 4, 2008 Order enjoined Sulpicio from proceeding with Civil Case No. 07-577 determinative of its character. A person should not be condemned for contempt where he contends for what
and to refer the dispute to arbitration in London.200 he believes to be right and in good faith institutes proceedings for the purpose, however erroneous may be
his conclusion as to his rights. To constitute contempt, the act must be done willfully and for an illegitimate
Steamship further avers that "Sulpicio was served a copy of an Order to file Claims Submissions in the or improper purpose.214 (Citations omitted)
London arbitration and a copy of the Anti-Suit Injunction but it refused to participate in the London
Arbitration."201 It also did not pay the costs of the Anti-Suit Injunction. Sulpicio refused "service of all orders,
notices, pleadings and documents related to the London arbitration and the Commercial Court
proceedings."202 In Lim Lua v. Lua,215 the father's deferral in giving monthly support pendente lite granted by the trial court
was held not contumacious, considering that "he had not been remiss in actually providing for the needs of
Steamship adds that in 2012, Sulpicio filed a claim for reimbursement of US$96,958.47 representing his children." It was also taken into account that he "believed in good faith that the trial and appellate
passenger liabilities arising from the capsizing of one (1) of Sulpicio's fleet in 1998. 203 Pursuant to Rule 32 of courts, upon equitable grounds, would allow him to offset the substantial amounts he had spent or paid
the Club Rules for the 1998 policy, which gave Steamship "the right to make deduction 'from any claims . . . directly to his children." This Court explained:
due to a Member' of 'any liabilities of such Member to the Club,'"204 Steamship set-off the costs awarded by
the English Commercial Court from the amount reimbursed to Sulpicio. Sulpicio's brokers and lawyers were Contempt of court is defined as a disobedience to the court by acting in opposition to its authority, justice,
informed of the set-off through an email dated December 3, 2012.205 and dignity. It signifies not only a willful disregard or disobedience of the court's order, but such conduct
which tends to bring the authority of the court and the administration of law into disrepute or, in some
Steamship contends that there was no legal impediment when it initiated arbitration proceedings in manner, to impede the due administration of justice. To constitute contempt, the act must be done willfully
London.206 The action was taken in good faith to preserve its rights while defending its position that Sulpicio's and for an illegitimate or improper purpose. The good faith, or lack of it, of the alleged contemnor should be
filing of Civil Case No. 07-577 constituted a breach of the Club Rules.207 On the other hand, Sulpicio's acts considered.216
were far from desirable for it did not only fail to participate in the London arbitration proceedings but also
evaded service of all notices so that it could feign ignorance of the existence of arbitration proceedings." 208

This Court finds Sulpicio's arguments to be untenable. This Court finds no dear and contumacious conduct on the part of Steamship. It does not appear that
Steamship was motivated by bad faith in initiating the arbitration proceedings. Rather, its act of commencing
Steamship's commencement of arbitration even before the Regional Trial Court had ruled on its motion to arbitration in London is but a bona fide attempt to preserve and enforce its rights under the Club Rules.
dismiss and suspend proceedings does not constitute an "improper conduct" that "impede[s], obstruct[s] or
degrade[s] the administration of justice."209 There was no legal impediment at the time Steamship initiated London arbitration proceedings. Steamship
commenced arbitration on July 31, 2007 even before the Regional Trial Court denied its Motion to Dismiss
In Heirs of Trinidad de Leon vda. de Roxas v. Court of Appeals,210 this Court explained the concept of and/or Refer Case to Arbitration on July 11, 2008. There was no order from the Regional Trial Court
contempt of court: enjoining Steamship from initiating arbitration proceedings in London. Besides, the 2009 Special ADR Rules
specifically provided that arbitration proceedings may be commenced or continued and an award may be
made, while the motion for the stay of civil action and for referral to arbitration is pending resolution by the
Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends to
court.217
bring the authority and administration of the law into disrespect or to interfere with or prejudice parties
litigant or their witnesses during litigation . . .
This Court notes that while the arbitration proceeding was commenced as early as July 31, 2007, it is only
 91

six (6) years later that Sulpicio filed its Petition218 to cite Steamship for indirect contempt. Sulpicio cannot
invoke lack of knowledge of the London arbitration proceedings due to several reasons. First, it received and
replied219 to the notice of commencement of arbitration proceedings220 dated July 31, 2007. Second,
Steamship presented evidence showing Sulpicio's refusal to receive any notices, orders, or communications
related to the arbitration proceedings. Lastly, the pendency of the London arbitration was made known to
the Court of Appeals and this Court through Steamship's petitions. Sulpicio's belated filing of its Petition,
only after Steamship has deducted from the refund due it the alleged "arbitration costs," indicates its lack of
sincerity and good faith.

Finally, this Court finds Sulpicio's claim for damages to be improperly raised. It should be addressed in an
ordinary civil action. Its petition for indirect contempt is not the proper action to determine the validity of the
set-off and to make a factual determination relating to the propriety of ordering restitution.

WHEREFORE, the Petition for Review in G.R. No. 196072 is GRANTED. The Decision dated November 26,
2010 of the Court of Appeals in CA-G.R. SP No. 106103 and the Order dated July 11, 2008 of the Regional
Trial Court, Branch 149, Makati City in Civil Case No. 07-577 are SET ASIDE. The dispute between Sulpicio
Lines, Inc. and Steamship Mutual Underwriting (Bermuda) Limited is referred to arbitration in London in
accordance with Rule 47 of the 2005/2006 Club Rules.

The Petition for Indirect Contempt in G.R. No. 208603 is DISMISSED for lack of merit.

SO ORDERED
 92

SECOND DIVISION 2004. Respondent Transmodal also questioned the timeliness of Sytengco's formal claim for payment which
was allegedly made more than 14 days from the time the cargoes were placed at its disposal in
contravention of the stipulations in the delivery receipts.
G.R. No. 223592, August 07, 2017
The RTC, in its Decision dated June 18, 2013, found in favor of petitioner Equitable Insurance, thus, the
EQUITABLE INSURANCE CORPORATION, Petitioner, v. TRANSMODAL INTERNATIONAL, following dispositive portion of said decision:
INC., Respondent.
WHEREFORE, based on the foregoing, judgment is hereby rendered in favor of the plaintiff and against the
DECISION defendant, ordering the latter to pay the following:chanRoblesvirtualLawlibrary
(1) Actual damages in the amount of Php728,712.00 plus 6% interest from judicial demand until full
payment;
PERALTA, J.:
(2) Attorney's fees in the amount equivalent to 10% of the amount claimed;
This is to resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May 11,
2016, of petitioner Equitable Insurance Corporation that seeks to reverse and set aside the Decision 1 dated (3) Costs of suit. SO ORDERED.4
September 15, 2015 and Resolution2 dated March 17, 2016 of the Court of Appeals (CA) reversing the According to the RTC, petitioner Equitable Insurance was able to prove by substantial evidence its right to
Decision3 dated June 18, 2013 of the Regional Trial Court (RTC), Branch 26, Manila in a civil case for actual institute an action as subrogee of Sytengco. It also ruled that petitioner Equitable Insurance's non-
damages. presentation of the insurance policy and non-compliance with Section 7, Rule 8 of the Rules of Court on
actionable document were raised for the first time in respondent Transmodal's memorandum and also noted
The facts follow. that petitioner Equitable Insurance had, in fact, submitted a copy of the insurance contract.
Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International, Inc. (Transmodal) Respondent Transmodal appealed the RTC's decision to the CA. The CA, on September 15, 2015,
to clear from the customs authorities and withdraw, transport, and deliver to its warehouse, cargoes promulgated its decision reversing the RTC's decision. It disposed of the appeal as
consisting of 200 cartons of gum Arabic with a total weight of 5,000 kilograms valued at US21,750.00. follows:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The June 18,2013 Decision of the Regional Trial Court, Branch
The said cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container Terminal 26, Manila in Civil Case No. 06-114861 is REVERSED and SET ASIDE. Accordingly, Equitable Insurance
Center, Inc. pending their release by the Bureau of Customs (BOC) and on September 2, 2004, respondent Corp.'s complaint is DISMISSED for failure to prove cause of action.
Transmodal withdrew the same cargoes and delivered them to Sytengco's warehouse. It was noted in the
delivery receipt that all the containers were wet. SO ORDERED.5
In a preliminary survey conducted by Elite Adjusters and Surveyors, Inc. (Elite Surveyors), it was found that The CA ruled that there was no proof of insurance of the cargoes at the time of the loss and that the
187 cartons had water marks and the contents of the 13 wet cartons were partly hardened. On October 13, subrogation was improper. According to the CA, the insurance contract was neither attached in the complaint
2004, a re-inspection was conducted and it was found that the contents of the randomly opened 20 cartons nor offered in evidence for the perusal and appreciation of the RTC, and what was presented was just the
were about 40% to 60% hardened, while 8 cartons had marks of previous wetting. In its final report dated marine risk note.
October 27, 2004, Elite Surveyor fixed the computed loss payable at P728,712.00 after adjustment of 50%
loss allowance. Hence, the present petition after the CA denied petitioner Equitable Insurance's motion for reconsideration.

Thus, on November 2, 2004, Sytengco demanded from respondent Transmodal the payment of Petitioner Equitable Insurance enumerates the following assignment of errors:chanRoblesvirtualLawlibrary
P1,457,424.00 as compensation for total loss of shipment. On that same date, petitioner Equitable 1. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE CASE OF MALAYAN
Insurance, as insurer of the cargoes per Marine Open Policy No. MN-MRN-HO-000549 paid Sytengco's claim INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS NOT
for P728,712.00. On October 4, 2004, Sytengco then signed a subrogation receipt and loss receipt in favor APPLICABLE IN THE INSTANT CASE;
of petitioner Equitable Insurance. As such, petitioner Equitable Insurance demanded from respondent
Transmodal reimbursement of the payment given to Sytengco. 2. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE FACTS SURROUNDING THE
CASE OF MALAYAN INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23,
Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee after 2007) IS DIFFERENT FROM THE FACTS ATTENDING THE INSTANT CASE;
paying Sytengco's insurance claim and averred that respondent Transmodal's fault and gross negligence
were the causes of the damages sustained by Sytengco's shipment. Petitioner Equitable Insurance prayed 3. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF TISON V. COURT OF
for the payment of P728,712.00 actual damages with 6% interest from the date of the filing of the complaint APPEALS, 276 SCRA 582;
until full payment, plus attorney's fees and cost of suit.
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF COMPAÑA MARITIMA V.
Respondent Transmodal denied knowledge of an insurance policy and claimed that petitioner Equitable INSURANCE COMPANY OF NORTH AMERICA, 12 SCRA 213;
Insurance has no cause of action against it because the damages to the cargoes were not due to its fault or
gross negligence. According to the same respondent, the cargoes arrived at Sytengco's warehouse around 5. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF DELSAN TRANSPORT
11:30 in the morning of September 1, 2004, however, Sytengco did not immediately receive the said LINES, INC. V. COURT OF APPEALS, 273 SCRA 262;
cargoes and as a result, the cargoes got wet due to the rain that occurred on the night of September 1,
 93

6. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE STATUTORY PRESUMPTION OF
FAULT AND NEGLIGENCE.6 L/C AMOUNT: USD 21,750.00            MARK-UP: 20%
SUM INSURED: PHP 1,457,424.00      EXCHANGE RATE: 55.8400
It is the contention of petitioner Equitable Insurance that the CA erred in not applying certain jurisprudence
on this case which it deemed applicable. It also argues that the present case is not a suit between the
CARGO: 200 CTNS. GUM ARABIC POWDER KB-120
insured Sytengco and the insurer but one between the consignee Sytengco and the respondent common
carrier since petitioner Equitable Insurance merely stepped into the shoes of the said insured who has a
Supplier: JUMBO TRADING CO., LTD.
direct cause of action against respondent Transmodal on account of the damage sustained by the subject
Vessel: ASIAN ZEPHYR   VOYAGE No.: 062N
cargo, thus, the carrier cannot set up as defense any defect in the insurance policy because it cannot avoid
BL#:MNL04086310
its liability to the consignee under the contract of carriage which binds it to pay any loss or damage that may
ETD: 09-AUG-04       ETA: 13-AUG-04
be caused to the cargo involved therein.
From: THAILAND       To: Manila, Philippines9
In its Comment7 dated July 25, 2016, respondent Transmodal avers that the CA did not err in not applying As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential Guarantee and
certain jurisprudence in the latter's decision. Respondent Transmodal further refutes all the assigned errors Assurance, Inc.10 is applicable, wherein this Court held that a marine risk note is not an insurance policy. The
that petitioner Equitable Insurance enumerated in its petition. CA also found applicable this Court's ruling in Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,11 stating
that a marine policy is constitutive of the insurer-insured relationship, thus, such document should have
A closer look at the arguments raised in the petition would show that petitioner is indeed asking this Court to been attached to the complaint as mandated by Section 7,12 Rule 8 of the Rules of Court.
review the factual findings of the CA which is not within the scope of a petition for review under Rule 45 of
the Rules of Court. However, this Court has recognized exceptions to the rule that the findings of fact of the Petitioner, however, insists that the CA erred in applying the case of Malayan because the plaintiff therein
CA are conclusive and binding in the following instances: (1) when the findings are grounded entirely on did not present the marine insurance policy whereas in the present case, petitioner has presented not only
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or the marine risk note but also Marine Open Policy No. MN-MOP-HO-0000099 13 which were all admitted in
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a evidence.
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the
CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant Indeed, a perusal of the records would show that petitioner is correct in its claim that the marine insurance
and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions policy was offered as evidence. In fact, in the questioned decision of the CA, the latter, mentioned such
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as policy, thus:chanRoblesvirtualLawlibrary
well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings Contrary to the ruling of the RTC, the marine policy was not at all presented. As borne by the records,
of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and only the marine risk note and EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-
(11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly HO-0000099 were offered in evidence. These pieces of evidence are immaterial to Equitable Insurance's
considered, would justify a different conclusion.8 Considering that the findings of facts of the RTC and the CA cause of action. We have earlier pointed out that a marine risk note is insufficient to prove the insurer's
are glaringly in contrast, this Court deems it proper to review the present case. claim. Although the marine risk note provided that it "has all the force and effect of the terms and conditions
of EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-MOP-HO-0000099," there is nothing in the
In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof of insurance of records showing that the said policy is related to Policy No. MN-MRN-HO-005479 which was the basis of
the cargoes at the time of their loss. It also found that what was presented in court was the marine risk note Equitable Insurance's complaint. It did not escape our attention that the second page of the marine risk note
and not the insurance contract or policy, thus: explicitly stated that it was "attached to and forming part of the Policy No. MN-MRN-005479." Thus, without
A perusal of the complaint and the other documentary evidence submitted by Equitable Insurance such as the presentation of Policy No. MN-MRN-005479, We cannot simply assume that the terms and conditions,
the preliminary and final report clearly shows that the claims for damages and subrogation were based on including the period of coverage, of such policy are similar to Marine Policy No. MN-MOP-HO-0000099. 14
Policy No. MN-MRN-HO-0005479. However, said insurance contract was neither attached in the complaint
As such, respondent had the opportunity to examine the said documents or to object to its presentation as
nor offered in evidence for the perusal and
pieces of evidence. The records also show that respondent was able to cross-examine petitioner's witness
appreciation of the court a quo. Instead, Equitable Insurance presented the marine risk note. For clarity, We regarding the said documents. Thus, it was well established that petitioner has the right to step into the
quote the pertinent portions of the marine risk note, viz.:chanRoblesvirtualLawlibrary shoes of the insured who has a direct cause of action against herein respondent on account of the damages
Line & Subline sustained by the cargoes. "Subrogation is the substitution of one person in the place of another with
           MARINE CARGO reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in
           RISK NOTE relation to a debt or claim, including its remedies or securities."15 The right of subrogation springs from
Policy No.: Article 2207 of the Civil Code which states:chanRoblesvirtualLawlibrary
           MN-MRN-HO-0005479 Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
Issue date Sep. 08, 2004 company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
Invoice No. 59298 V company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
Assured: SYTENGCO ENTERPRISES CORPORATION the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Address: 10RESTHAVEN ST.
The records further show that petitioner was able to accomplish its obligation under the insurance policy as it
              SAN FRANCISCO DEL MONTE SUBDIVISION,
has paid the assured of its insurance claim in the amount of P728,712,00 as evidenced by, among others,
              QUEZON CITY, METRO MANILA
the Subrogation Receipt,16 Loss Receipt,17 Check Voucher,18 and Equitable PCI Bank Check No.
0000013925.19 The payment by the insurer to the insured operates as an equitable assignment to the
We have this day noted the undermentioned risk in your favor and hereby guarantee that this document has
insurer of all the remedies which the insured may have against the third party whose negligence or wrongful
all the force and effect of the terms and conditions of EQUITABLE INSURANCE CORPORATION Marine Policy
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
No. MN-MOP-HO-0000099.
contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment
 94

by the insurance company of the insurance claim.20 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.
This Court's ruling in Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation 21 is highly
Perusal of the records likewise show that the defendant failed to raise the issue of non-compliance with
instructive, thus:chanRoblesvirtualLawlibrary
Section 7, Rule 8 of the 1997 Rules of Procedure and the non-presentation of insurance policy during the
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
pre-trial. In the same case, it was held:chanRoblesvirtualLawlibrary
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan
Petitioner claims that respondent's non-presentation of the insurance contract or policy between the
Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the contract
respondent and the consignee is fatal to its cause of action.
constitutive of the insurance relationship between the consignee and insurer is critical because it is the legal
basis of the latter's right to subrogation.
We do not agree.
In Home Insurance Corporation v. CA, the Court also held that the insurance contract was necessary to
First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon
prove that it covered the hauling portion of the shipment and was not limited to the transport of the cargo
by the parties to be resolved during the pre-trial. As we have said, the determination of issues during the
while at sea. The shipment in that case passed through six stages with different parties involved in each
pre-trial conference bars the consideration of other questions, whether during trial or on appeal. Thus, [t]he
stage until it reached the consignee. The insurance contract, which was not presented in evidence, was
parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving
necessary to determine the scope of the insurer's liability, if any, since no evidence was adduced indicating
privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners are bound by the
at what stage in the handling process the damage to the cargo was sustained.
delimitation of the issues during the pre-trial because they themselves agreed to the same.
An analogous disposition was arrived at in the Wallem case cited by ATI wherein the Court held that the Plaintiff was able to prove by substantial evidence their right to institute this action as subrogee of the
insurance contract must be presented in evidence in order to determine the extent of its coverage. It was insured. The defendant did not present any evidence or witness to bolster their defense and to contradict
further ruled therein that the liability of the carrier from whom reimbursement was demanded was not plaintiffs allegation.23
established with certainty because the alleged shortage incurred by the cargoes was not definitively
determined. To reiterate, in this case, petitioner was able to present as evidence the marine open policy that vested upon
it, its rights as a subrogee. Subrogation is designed to promote and to accomplish justice and is the mode
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring which equity adopts to compel the ultimate payment of a debt by one who injustice, equity and good
that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer. conscience ought to pay.24

In Delsan Transport Lines, Inc. v. CA, the Court ruled that the right of subrogation accrues simply upon WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May 11,
payment by the insurance company of the insurance claim. Hence, presentation in evidence of the marine 2016, of petitioner Equitable Insurance Corporation is GRANTED. Consequently, the Decision dated
insurance policy is not indispensable before the insurer may recover from the common carrier the insured September 15, 2015 and Resolution dated March 17, 2016 of the Court of Appeals in CA-G.R. CV No.
value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was held 101296 are REVERSED and SET ASIDE, and the Decision dated June 18, 2013 of the Regional Trial Court,
sufficient to establish not only the relationship between the insurer and consignee, but also the amount paid Branch 26, Manila is AFFIRMED and REINSTATED.
to settle the insurance claim. The presentation of the insurance contract was deemed not fatal to the
insurer's cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner's SO ORDERED.
vessel.

The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v. FGU
Insurance Corporation, wherein the arrastre operator was found liable for the lost shipment despite the
failure of the insurance company to offer in evidence the insurance contract or policy. As in Delsan, it was
certain that the loss of the cargo occurred while in the petitioner's custody. 22
In view thereof, the RTC did not err in its ruling, thus:chanRoblesvirtualLawlibrary
Defendant in its memorandum, raised the issue that plaintiff failed to attach in its complaint a copy of the
Marine Open Insurance Policy, thus, it failed to establish its cause of action as subrogee of the consignee
quoting the case of Malayan Insurance Co., Inc. v. Regis Brokerage Corp.

The above-mentioned case is not applicable in the instant case. In Malayan Insurance Co. v. Regis
Brokerage, Malayan did not submit the copy of the insurance contract or policy. In the instant case, plaintiff
submitted the copy of the insurance contract. In fact, the non-presentation of the insurance contract is not
fatal to its cause of action.

In the more recent case of Asian Terminals, Inc. v. Malayan Insurance Co., Inc., it was
held:chanRoblesvirtualLawlibrary
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, a perusal of
petitioner's Answer and Pre-trial Brief 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
 95

THIRD DIVISION provide medical and/or hospital services, but merely arranges for the same, its services are not VAT
exempt.13
April 5, 2017
MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision of
medical and/or hospital services by hospitals and/or clinics but include actual and direct rendition of medical
G.R. No. 222743
and laboratory services; in fact, its 2006 audited balance sheet shows that it owns x-ray and laboratory
facilities which it used in providing medical and laboratory services to its members; (2) out of the ₱l .9 Billion
MEDICARD PHILIPPINES, INC., Petitioner, membership fees, ₱319 Million was received from clients that are registered with the Philippine Export Zone
vs. Authority (PEZA) and/or Bureau of Investments; (3) the processing fees amounting to ₱l 1.5 Million should
COMMISSIONER OF INTERNAL REVENUE, Respondent. be excluded from gross receipts because P5.6 Million of which represent advances for professional fees due
from clients which were paid by MEDICARD while the remainder was already previously subjected to VAT;
(4) the professional fees in the amount of Pl 1 Million should also be excluded because it represents the
DECISION amount of medical services actually and directly rendered by MEDICARD and/or its subsidiary company; and
(5) even assuming that it is liable to pay for the VAT, the 12% VAT rate should not be applied on the entire
REYES,, J.: amount but only for the period when the 12% VAT rate was already in effect, i.e.,  on February 1, 2006. It
should not also be held liable for surcharge and deficiency interest because it did not pass on the VAT to its
members.14
This appeal by Petition for Review1 seeks to reverse and set aside the Decision2 dated September 2, 2015
and Resolution3 dated January 29, 2016 of the Court of Tax Appeals (CTA) en bane in CTA EB No. 1224,
affirming with modification the Decision4 dated June 5, 2014 and the Resolution5 dated September 15, On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer Romualdo Plocios
2014.in CTA Case No. 7948 of the CTA Third Division, ordering petitioner Medicard Philippines, Inc. to verify the supporting documents of MEDICARD's Protest. MEDICARD also submitted additional supporting
(MEDICARD), to pay respondent Commissioner of Internal Revenue (CIR) the deficiency documentary evidence in aid of its Protest thru a letter dated March 18, 2008.15

Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20% interest per On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May 15, 2009,
annum  starting January 25, 2007, until fully paid, pursuant to Section 249(c) 6 of the National Internal denying MEDICARD's protest, to wit:
Revenue Code (NIRC) of 1997.
IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of deficiency [VAT]
The Facts in total sum of ₱196,614,476.99. It is requested that you pay said deficiency taxes immediately. Should
payment be made later, adjustment has to be made to impose interest until date of payment. This is olir
final decision. If you disagree, you may take an appeal to the [CTA] within the period provided by law,
MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance otherwise, said assessment shall become final, executory and demandable. 16
coverage to its clients. 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 duly licensed
physicians, specialists and other professional technical staff participating in the group practice health On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating its position
delivery system at a hospital or clinic owned, operated or accredited by it.7 before the tax authorities. 17

MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and Payment On June 5, 2014, the CTA Division rendered a Decision 18 affirming with modifications the CIR's deficiency
System (EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006, respectively, and its Fourth Quarterly VAT assessment covering taxable year 2006, viz.:
VAT Return on January 25, 2007.8
WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against [MEDICARD]
Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR covering taxable year 2006 ·is hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD] is
informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020 dated ordered to pay [CIR] the amount of P223,l 73,208.35, inclusive of the twenty-five percent (25%) surcharge
imposed under -Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was likewise issued recommending Basic Deficiency VAT ₱l78,538,566.68
the issuance of a Formal Assessment Notice (FAN) against MEDICARD. 9 On. January 4, 2008, MEDICARD
received CIR's FAN dated December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total Add: 25% Surcharge 44,634,641.67
amount of Pl 96,614,476.69,10 inclusive of penalties. 11
Total ₱223.173.208.35
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any deduction
under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner of Internal
Revenue v. Philippine Health Care Providers, Inc., 12 the CIR argued that since MEDICARD. does not actually
In addition, [MEDICARD] is ordered to pay:
 96

a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis deficiency VAT In addition, [MEDICARD] is ordered to pay:
of Pl 78,538,566.68 computed from January 25, 2007 until full payment thereof pursuant to
Section 249(B) of the NIRC of 1997, as amended; and
(a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l
76,187,687.58 computed from January 25, 2007 until full payment thereof pursuant to Section
b. Delinquency interest at the rate of twenty percent (20%) per annum on the total amount of 249(B) of the NIRC of 1997, as amended; and
₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and· 25% surcharge of
₱44,634,64 l .67 and on the 20% deficiency interest which have accrued as afore-stated in (a),
(b) Delinquency interest at the rate of 20% per annum on the total amount of ₱220,234,609.48
computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of the NIRC of
(representing basic deficiency VAT of ₱l76,187,687.58 and 25% surcharge of ₱44,046,921.90) and
1997.
on the deficiency interest which have accrued as afore-stated in (a), computed from June 19, 2009
until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended."
SO ORDERED.19
SO ORDERED.22
The CTA Division held that: (1) the determination of deficiency VAT is not limited to the issuance of Letter of
Authority (LOA) alone as the CIR is granted vast powers to perform examination and assessment functions;
Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but it was
(2) in lieu of an LOA, an LN was issued to MEDICARD informing it· of the discrepancies between its ITRs and
denied.23 Hence, MEDICARD now seeks recourse to this Court via a petition for review on certiorari.
VAT Returns and this procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and
42-2003; (3) MEDICARD is estopped from questioning the validity of the assessment on the ground of lack
of LOA since the assessment issued against MEDICARD contained the requisite legal and factual bases that The Issues
put MEDICARD on notice of the deficiencies and it in fact availed of the remedies provided by law without
questioning the nullity of the assessment; (4) the amounts that MEDICARD earmarked , and eventually paid
to doctors, hospitals and clinics cannot be excluded from · the computation of its gross receipts under the l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and
provisions of RR No. 4-2007 because the act of earmarking or allocation is by itself an act of ownership and
management over the funds by MEDICARD which is beyond the contemplation of RR No. 4-2007; (5) 2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY PAID TO THE
MEDICARD's earnings from its clinics and laboratory facilities cannot be excluded from its gross receipts MEDICAL SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS GROSS RECEIPTS FOR VAT
because the operation of these clinics and laboratory is merely an incident to MEDICARD's main line of PURPOSES.24
business as HMO and there is no evidence that MEDICARD segregated the amounts pertaining to this at the
time it received the premium from its members; and (6) MEDICARD was not able to substantiate the amount
pertaining to its January 2006 income and therefore has no basis to impose a 10% VAT rate. 20 Ruling of the Court

Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD elevated the The petition is meritorious.
matter to the CTA en banc.
The absence of an LOA violated
In a Decision21 dated September 2, 2015, the CTA en banc partially granted the petition only insofar as the MEDICARD's right to due process
10% VAT rate for January 2006 is concerned but sustained the findings of the CTA Division in all other
matters, thus: An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions.
It empowers or enables said revenue officer to examine the books of account and other accounting records
WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY of a taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA is premised on the fact that
GRANTED. Accordingly, the Decision date June 5, 2014 is hereby MODIFIED, as follows: the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only
to the CIR himself or his duly authorized representatives. Section 6 of the NIRC clearly provides as follows:

"WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. –
[MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH MODIFICATIONS. Accordingly,
[MEDICARD] is ordered to pay [CIR] the amount of ₱220,234,609.48, inclusive of the 25% surcharge
imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows: (A) Examination of Return and Determination of Tax Due.- After a return has been filed as required
under the provisions of this Code, the Commissioner or his duly authorized representative may
authorize the examinationof any taxpayer and the assessment of the correct amount of tax: Provided,
Basic Deficiency VAT ₱76,187,687.58 however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of
any taxpayer.
Add: 25% Surcharge 44,046,921.90
x x x x (Emphasis and underlining ours)
Total ₱220,234.609.48
 97

Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as supplemented by RMO No.
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. 42-2003, was amended by RMO No. 32-2005 to fine tune existing procedures in handing assessments
The circumstances contemplated under Section 6 where the taxpayer may be assessed through best- against taxpayers'· issued LNs by reconciling various revenue issuances which conflict with the NIRC. Among
evidence obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These the objectives in the issuance of RMO No. 32-2005 is to prescribe procedure in the resolution of LN
are simply methods of examining the taxpayer in order to arrive at .the correct amount of taxes. Hence, discrepancies, conversion of LNs to LOAs and assessment and collection of deficiency taxes.
unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not
validly conduct any of these kinds of examinations without prior authority.
IV. POLICIES AND GUIDELINES

With the advances in information and communication technology, the Bureau of Internal Revenue (BIR)
xxxx
promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient centralized
Data Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of Listing for
Enforcement System (RELIEF System).26 This system can detect tax leaks by matching the data available 8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in the LN,
under the BIR's Integrated Tax System (ITS) with data gathered from third-party sources. Through the the concerned taxpayer will be given an opportunity to reconcile its records with those of the BIR within
consolidation and cross-referencing of third-party information, discrepancy reports on sales and purchases
can be generated to uncover under declared income and over claimed purchases of Goods and services.
One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the subject taxpayer
shall no longer be entitled to the abatement of interest and penalties after the lapse of the sixty (60)-day
Under this RMO, several offices of the BIR are tasked with specific functions relative to the RELIEF System, period from the LN issuance.
particularly with regard to LNs. Thus, the Systems Operations Division (SOD) under the Information Systems
Group (ISG) is responsible for: (1) coming up with the List of Taxpayers with discrepancies within the
threshold amount set by management for the issuance of LN and for the system-generated LNs; and (2) 9. In case the above discrepancies remained unresolved at the end of the One Hundred and
sending the same to the taxpayer and to the Audit Information, Tax Exemption and Incentives Division Twenty (120)-day period, the revenue officer (RO) assigned to handle the LN shall recommend
(AITEID). After receiving the LNs, the AITEID under the Assessment the issuance of [LOA) to replace the LN. The head of the concerned investigating office shall submit a
summary list of LNs for conversion to LAs (using the herein prescribed format in Annex "E" hereof) to the
OACIR-LTS I ORD for the preparation of the corresponding LAs with the notation "This LA cancels
Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for transmitting LN_________ No. "
the LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers District Office
(LTDO)/Large Taxpayers Audit and Investigation Division (LTAID)]. At the level of these investigating offices,
the appropriate action on the LN s issued to taxpayers with RELIEF data discrepancy would be determined. xxxx

RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit V. PROCEDURES
approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer arid the assessment
of the correct amount of tax. The no-contact-audit approach  includes the process of computerized matching xxxx
of sales and purchases data contained in the Schedules of Sales and Domestic Purchases and Schedule of
Importation submitted by VAT taxpayers under the RELIEF System pursuant to RR No. 7-95, as amended by
RR Nos. 13-97, 7-99 and 8-2002. This may also include the matching of data from other information or B. At the Regional Office/Large Taxpayers Service
returns filed by the taxpayers with the BIR such as Alphalist of Payees subject to Final or Creditable
Withholding Taxes. xxxx

Under this policy, even without conducting a detailed examination of taxpayer's books and records, if the 7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to approval.
computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the same
shall be communicated to the concerned taxpayer through the issuance of LN. The LN shall serve as a
discrepancy notice to taxpayer similar to a Notice for Informal Conference to the concerned taxpayer. Thus, 8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs.
under the RELIEF System, a revenue officer may begin an examination of the taxpayer even prior to the
issuance of an LN or even in the absence of an LOA with the aid of a computerized/manual matching of xxxx
taxpayers': documents/records. Accordingly, under the RELIEF System, the presumption that the tax returns
are in accordance with law and are presumed correct since these are filed under the penalty of perjury 27 are
easily rebutted and the taxpayer becomes instantly burdened to explain a purported discrepancy. Decision 11 G.R. No. 222743

Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory requirement of an LOA xxxx
before any investigation or examination of the taxpayer may be conducted. As provided in the RMO No. 42-
2003, the LN is merely similar to a Notice for Informal Conference. However, for a Notice of Informal 10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary List of LNs
Conference, which generally precedes the issuance of an assessment notice to be valid, the same for conversion to LAs, to the concerned investigating offices for the encoding of the required information x x
presupposes that the revenue officer who issued the same is properly authorized in the first place. x and for service to the concerned taxpayers.
 98

xxxx "of a taxpayer" may be made. The requirement of authorization is therefore not dependent on whether the
taxpayer may be required to physically open his books and financial records but only on whether a taxpayer
is being subject to examination.
C. At the RDO x x x

The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and
xxxx
faster. The ease by which the BIR's revenue generating objectives is achieved is no excuse however for its
non-compliance with the statutory requirement under Section 6 and with its own administrative issuance. In
11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days from issuance fact, apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF
thereof, prepare a summary list of said LN s for conversion to LAs x x x. System because the rationale of requirement is the same whether or not the CIR conducts a physical
examination of the taxpayer's records: to prevent undue harassment of a taxpayer and level the playing field
between the government' s vast resources for tax assessment, collection and enforcement, on one hand,
xxxx and the solitary taxpayer's dual need to prosecute its business while at the same time responding to the BIR
exercise of its statutory powers. The balance between these is achieved by ensuring that any examination of
16. Effect the service of the above LAs to the concerned taxpayers.28 the taxpayer by the BIR' s revenue officers is properly authorized in the first place by those to whom the
discretion to exercise the power of examination is given by the statute.

In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against MED
ICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was also not That the BIR officials herein were not shown to have acted unreasonably is beside the point because the
converted into an LOA contrary to the above quoted provision. Surprisingly, the CIR did not even dispute the issue of their lack of authority was only brought up during the trial of the case. What is crucial is whether the
applicability of the above provision of RMO 32-2005 in the present case which is clear and unequivocal on proceedings that led to the issuance of VAT deficiency assessment against MEDICARD had the prior approval
the necessity of an LOA for the· assessment proceeding to be valid. Hence, the CTA's disregard of and authorization from the CIR or her duly authorized representatives. Not having authority to examine
MEDICARD's right to due process warrant the reversal of the assailed decision and resolution. MEDICARD in the first place, the assessment issued by the CIR is inescapably void.

In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc.  ,29 the Court said that: At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially finds merit
in MEDICARD's substantive arguments.

Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority The amounts earmarked and
given. In the absence of such an authority, the assessment or examination is a nullity.30 (Emphasis eventually paid by MEDICARD to
and underlining ours) the medical service providers do not
form part of gross receipts.for VAT
purposes
The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR
himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per
data generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR's MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division that the
Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, gross receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent actually
the BIR may avail of administrative and criminal .remedies, particularly closure, criminal action, or audit and received from members undiminished by any amount paid or payable to the owners/operators of hospitals,
investigation. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the clinics and medical and dental practitioners. MEDICARD explains that its business as an HMO involves two
previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would different although interrelated contracts. One is between a corporate client and MEDICARD, with the
have it. In fact Revenue Memorandum Circular No. 40-2003 considers an LN as a notice of audit or corporate client's employees being considered as MEDICARD members; and the other is between the health
investigation only for the purpose of disqualifying the taxpayer from amending his returns. care institutions/healthcare professionals and MED ICARD.

The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue officer is Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare
specifically required under the NIRC before an examination of a taxpayer may be had while an LN is not professionals for the coverage of MEDICARD members under specific health related services for a specified
found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on period of time in exchange for payment of a more or less fixed membership fee. Under its contract with its
the BIR's RELIEF System. Second, an LOA is valid only for 30 days from date of issue while an LN has no corporate clients, MEDICARD expressly provides that 20% of the membership fees per individual, regardless
such limitation. Third, an LOA gives the revenue officer only a period of 10days from receipt of LOA to of the amount involved, already includes the VAT of 10%/20% excluding the remaining 80o/o because MED
conduct his examination of the taxpayer whereas an LN does not contain such a limitation.31 Simply put, LN ICARD would earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also
is entirely different and serves a different purpose than an LOA. Due process demands, as recognized under assails CIR's inclusion in its gross receipts of its earnings from medical services which it actually and directly
RMO No. 32-2005, that after an LN has serve its purpose, the revenue officer should have properly secured rendered to its members.
an LOA before proceeding with the further examination and assessment of the petitioner. Unfortunarely, this
was not done in this case. Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated managed care
services that are needed by plan holders/members for fixed prepaid membership fees and for a specified
Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of the period of time, then MEDICARD is principally engaged in the sale of services. Its VAT base and corresponding
financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the liability is, thus, determined under Section 108(A)32 of the Tax Code, as amended by Republic Act No. 9337.
NIRC requires an authority from the CIR or from his duly authorized representatives before an examination
 99

Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in deposits prior to being attended to or admitted to hospitals or clinics, especially during emergencies, at any
securities whose gross receipts is the amount actually received as contract price without allowing any given time. Apart from this, MEDICARD may also directly provide medical, hospital and laboratory services,
deduction from the gross receipts.33 This restrictive tenor changed under RR No. 16-2005. Under this RR, an which depends upon its member's choice.
HMO's gross receipts and gross receipts in general were defined, thus:
Thus, in the course of its business as such, MED ICARD members can either avail of medical services from
Section 4.108-3. xxx MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former, MEDICARD
members obviously knew that beyond the agreement to pre-arrange the healthcare needs of its ·members,
MEDICARD would not actually be providing the actual healthcare service. Thus, based on industry practice,
xxxx
MEDICARD informs its would-be member beforehand that 80% of the amount would be earmarked for
medical utilization and only the remaining 20% comprises its service fee. In the latter case, MEDICARD's
HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee sale of its services is exempt from VAT under Section 109(G).
actually or constructively received during the taxable period for the services performed or to be performed
for another person, excluding the value-added tax. The compensation for their services representing
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that would
their service fee, is presumed to be the total amount received as enrollment fee from their
extend the definition of gross receipts even to amounts that do not only pertain to the services to be
members plus other charges received.
performed: by another person, other than the taxpayer, but even to amounts that were indisputably utilized
not by MED ICARD itself but by the medical service providers.
Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing
the contract price, compensation, service fee, rental or royalty, including the amount charged for materials
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute
supplied with the services and deposits applied as payments for services rendered, and advance
shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a
payments actually or constructively received during the taxable period for the services performed or to
construction which renders every word operative is preferred over that which makes some words idle and
be performed for another person, excluding the VAT. 34
nugatory. This principle is expressed in the maxim Ut magisvaleat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute – it’s every word.
In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the definition of
gross receipts in general.35
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, 38the Court adopted the
principal object and purpose object in determining whether the MEDICARD therein is engaged in the
According to the CTA en banc, the entire amount of membership fees should form part of MEDICARD's gross business of insurance and therefore liable for documentary stamp tax. The Court held therein that an HMO
receipts because the exclusions to the gross receipts under RR No. 4-2007 does not apply to MEDICARD. engaged in preventive, diagnostic and curative medical services is not engaged in the business of an
What applies to MEDICARD is the definition of gross receipts of an HMO under RR No. 16-2005 and not the insurance, thus:
modified definition of gross receipts in general under the RR No. 4-2007.
To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the
The CTA en banc  overlooked that the definition of gross receipts under. RR No. 16-2005 merely presumed bringing of physician and patient together, the preventive features, the regularization of service
that the amount received by an HMO as membership fee is the HMO's compensation for their services. As a as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the
mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as medical job done and paid for; not, except incidentally to these features, the indemnification for
membership fee does NOT actually compensate it but some other person, which in this case are the medical cost after .the services is rendered. Except the last, these are not distinctive or generally
service providers themselves. It is a well-settled principle of legal hermeneutics that words of a statute will characteristic of the insurance arrangement. There is, therefore, a substantial difference between
be interpreted in their natural, plain and ordinary acceptation and signification, unless it is evident that the contracting in this way for the rendering of service, even on the contingency that it be needed, and
legislature intended a technical or special legal meaning to those words. The Court cannot read the word contracting merely to stand its cost when or after it is rendered.39 (Emphasis ours)
"presumed" in any other way.
In sum, the Court said that the main difference between an HMO arid an insurance company is that HMOs
It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base under the undertake to provide or arrange for the provision of medical services through participating physicians while
NIRC does not contain any specific definition.36 Therefore, absent a statutory definition, this Court has insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-
construed the term gross receipts in its plain and ordinary meaning, that is, gross receipts is understood as agreed limit. In the present case, the VAT is a tax on the value added by the performance of the service by
comprising the entire receipts without any deduction. 37 Congress, under Section 108, could have simply left the taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is taxable under the
the term gross receipts similarly undefined and its interpretation subjected to ordinary acceptation,. Instead NIRC.
of doing so, Congress limited the scope of the term gross receipts for VAT purposes only to the amount that
the taxpayer received for the services it performed or to the amount it received as advance payment for the
To be sure, there are pros and cons in subjecting the entire amount of membership fees to VAT. 40 But the
services it will render in the future for another person.
Court's task however is not to weigh these policy considerations but to determine if these considerations in
favor of taxation can even be implied from the statute where the CIR purports to derive her authority. This
In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it rendered are Court rules that they cannot because the language of the NIRC is pretty straightforward and clear. As this
not seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of Court previously ruled:
healthcare services (its members) and the healthcare providers (the doctors, hospitals and clinics) for a fee.
By enrolling membership with MED ICARD, its members will be able to avail of the pre-arranged medical
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes,
services from its accredited healthcare providers without the necessary protocol of posting cash bonds or
not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a
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statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A Regulations Nos. 16-2005 and 4-2007, in relation to Section 108(A) of the National Internal Revenue Code,
tax cannot be imposed without clear and express words for that purpose. Accordingly, the as amended by Republic Act No. 9337, for purposes of determining its Value-Added Tax liability, is hereby
general rule of requiring adherence to the letter in construing statutes applies with peculiar declared to EXCLUDE the eighty percent (80%) of the amount of the contract price earmarked as fiduciary
strictness to tax laws and the provisions of a taxing act are not to be extended by implication. In funds for the medical utilization of its members. Further, the Value-Added Tax deficiency assessment issued
answering the question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are against Medicard Philippines, Inc. is hereby declared unauthorized for having been issued without a Letter of
to be construed most strongly against the government and in favor of the subjects or citizens because Authority by the Commissioner of Internal Revenue or his duly authorized representatives.
burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly
import. As burdens, taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax
SO ORDERED.
laws. 41 (Citation omitted and emphasis and underlining ours)

For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the authority
should have been reasonably founded from the language of the statute. That language is wanting in this
case. In the scheme of judicial tax administration, the need for certainty and predictability in the
implementation of tax laws is crucial. Our tax authorities fill in the details that Congress may not have the
opportunity or competence to provide. The regulations these authorities issue are relied upon by taxpayers,
who are certain that these will be followed by the courts. Courts, however, will not uphold these authorities'
interpretations when dearly absurd, erroneous or improper.42 The CIR's interpretation of gross receipts in the
present case is patently erroneous for lack of both textual and non-textual support.

As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and
management over the funds, the Court does not agree.1âwphi1 On the contrary, it is MEDICARD's act of
earmarking or allocating 80% of the amount it received as membership fee at the time of payment that
weakens the ownership imputed to it. By earmarking or allocating 80% of the amount, MEDICARD
unequivocally recognizes that its possession of the funds is not in the concept of owner but as a mere
administrator of the same. For this reason, at most, MEDICARD's right in relation to these amounts is a mere
inchoate owner which would ripen into actual ownership if, and only if, there is underutilization of the
membership fees at the end of the fiscal year. Prior to that, MEDI CARD is bound to pay from the amounts it
had allocated as an administrator once its members avail of the medical services of MEDICARD's healthcare
providers.

Before the Court, the parties were one in submitting the legal issue of whether the amounts MEDICARD
earmarked, corresponding to 80% of its enrollment fees, and paid to the medical service providers should
form part of its gross receipt for VAT purposes, after having paid the VAT on the amount comprising the
20%. It is significant to note in this regard that MEDICARD established that upon receipt of payment of
membership fee it actually issued two official receipts, one pertaining to the VAT able portion, representing
compensation for its services, and the other represents the non-vatable portion pertaining to the amount
earmarked for medical utilization.: Therefore, the absence of an actual and physical segregation of the
amounts pertaining to two different kinds · of fees cannot arbitrarily disqualify MEDICARD from rebutting the
presumption under the law and from proving that indeed services were rendered by its healthcare providers
for which it paid the amount it sought to be excluded from its gross receipts.

With the foregoing discussions on the nullity of the assessment on due process grounds and violation of the
NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the computation of MEDICARD's
gross receipts, the Court finds it unnecessary, nay useless, to discuss the rest of the parties' arguments and
counter-arguments.

In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of the
CTA en banc  grounded as it is on due process violation. The Court likewise rules that for purposes of
determining the VAT liability of an HMO, the amounts earmarked and actually spent for medical utilization of
its members should not be included in the computation of its gross receipts.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED. The Decision

dated September 2, 2015 and Resolution dated January 29, 2016 issued by the Court of Tax Appeals en
bane  in CTA EB No. 1224 are REVERSED and SET ASIDE. The definition of gross receipts under Revenue