Insurance: Mercantile Law
Insurance: Mercantile Law
RIZAL COMMERCIAL BANKING CORPORATION, petitioners, RCBC, one of GOYU's creditors, also filed with MICO its formal
vs. claim over the proceeds of the insurance policies, but said
COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & claims were also denied for the same reasons that MICO denied
SONS, INC., GO SONG HIAP, SPOUSES GO TENG KOK and GOYU's claims.
BETTY CHIU SUK YING alias BETTY GO, respondents.
3. For both defendants Malayan and RCBC: 4. And on RCBC's Counterclaim, ordering the plaintiff
Goyu & Sons, Inc. to pay its loan obligation with RCBC
a. To pay the plaintiff, jointly and severally, in the amount of P68,785,069.04 as of April 27, 1992
the following amounts: without any interest, surcharges and penalties.
1) P1,000,000.00 as exemplary The Clerk of the Court of the Regional Trial Court of
damages; Manila is hereby ordered to immediately release to
Goyu & Sons, Inc. the amount of P50,505,594.60 (per
2) P1,000,000.00 as, and for, O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests
attorney's fees;
thereon.
3) Costs of suit.
(Rollo, p. 200.)
acts, must be given due consideration in order to better serve cannot sanction. Under the peculiar circumstances obtaining in
the interest of justice and equity. this case, the Court is bound to recognize RCBC's right to the
proceeds of the insurance polices if not for the actual
It is to be noted that nine endorsement documents were endorsement of the policies, at least on the basis of the
prepared by Alchester in favor of RCBC. The Court is in a equitable principle of estoppel.
quandary how Alchester could arrive at the idea of endorsing
any specific insurance policy in favor of any particular GOYU cannot seek relief under Section 53 of the Insurance
beneficiary or payee other than the insured had not such named Code which provides that the proceeds of insurance shall
payee or beneficiary been specifically disclosed by the insured exclusively apply to the interest of the person in whose name or
itself. It is also significant that GOYU voluntarily and purposely for whose benefit it is made. The peculiarity of the
took the insurance policies from MICO, a sister company of circumstances obtaining in the instant case presents a
RCBC, and not just from any other insurance company. justification to take exception to the strict application of said
Alchester would not have found out that the subject pieces of provision, it having been sufficiently established that it was the
property were mortgaged to RCBC had not such information intention of the parties to designate RCBC as the party for
been voluntarily disclosed by GOYU itself. Had it not been for whose benefit the insurance policies were taken out. Consider
GOYU, Alchester would not have known of GOYU's intention of thus the following:
obtaining insurance coverage in compliance with its undertaking
in the mortgage contracts with RCBC, and verily, Alchester 1. It is undisputed that the insured pieces of property were the
would not have endorsed the policies to RCBC had it not been subject of mortgage contracts entered into between RCBC and
so directed by GOYU. GOYU in consideration of and for securing GOYU's credit
facilities from RCBC. The mortgage contracts contained
On equitable principles, particularly on the ground of estoppel, common provisions whereby GOYU, as mortgagor, undertook to
the Court is constrained to rule in favor of mortgagor RCBC. The have the mortgaged property properly covered against any loss
basis and purpose of the doctrine was explained in Philippine by an insurance company acceptable to RCBC.
National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to
wit: 2. GOYU voluntarily procured insurance policies to cover the
mortgaged property from MICO, no less than a sister company
The doctrine of estoppel is based upon the of RCBC and definitely an acceptable insurance company to
grounds of public, policy, fair dealing, good RCBC.
faith and justice, and its purpose is to forbid
one to speak against his own act, 3. Endorsement documents were prepared by MICO's
representations, or commitments to the injury
underwriter, Alchester Insurance Agency, Inc., and copies
of one to whom they were directed and who thereof were sent to GOYU, MICO, and RCBC. GOYU did not
reasonably relied thereon. The doctrine of
assail, until of late, the validity of said endorsements.
estoppel springs from equitable principles
and the equities in the case. It is designed to
aid the law in the administration of justice 4. GOYU continued until the occurrence of the fire, to enjoy the
where without its aid injustice might result. It benefits of the credit facilities extended by RCBC which was
has been applied by this Court wherever and conditioned upon the endorsement of the insurance policies to
whenever special circumstances of a case so be taken by GOYU to cover the mortgaged properties.
demand.
This Court can not over stress the fact that upon receiving its
(p. 368.) copies of the endorsement documents prepared by Alchester,
GOYU, despite the absence of its written conformity thereto,
obviously considered said endorsement to be sufficient
Evelyn Lozada of Alchester testified that upon instructions of Mr. compliance with its obligation under the mortgage contracts
Go, through a certain Mr. Yam, she prepared in quadruplicate on since RCBC accordingly continued to extend the benefits of its
February 11, 1992 the nine endorsement documents for GOYU's credits facilities and GOYU continued to benefit therefrom. Just
nine insurance policies in favor of RCBC. The original copies of as plain too is the intention of the parties to constitute RCBC as
each of these nine endorsement documents were sent to the beneficiary of the various insurance policies obtained by
GOYU, and the others were sent to RCBC and MICO, while the GOYU. The intention of the parties will have to be given full
fourth copies were detained for Alchester's file (tsn, February 23,
force and effect particular case. The insurance proceeds may,
pp. 7-8). GOYU has not denied having received from Alchester therefore, be exclusively applied to RCBC, which under the
the originals of these documents.
factual circumstances of the case, is truly the person or entity for
whose benefit the polices were clearly intended.
RCBC, in good faith, relied upon the endorsement documents
sent to it as this was only pursuant to the stipulation in the Moreover, the law's evident intention to protect the interests of
mortgage contracts. We find such reliance to be justified under
the mortgage upon the mortgaged property is expressed in
the circumstances of the case. GOYU failed to seasonably Article 2127 of the Civil Code which states:
repudiate the authority of the person or persons who prepared
such endorsements. Over and above this, GOYU continued, in
the meantime, to enjoy the benefits of the credit facilities Art. 2127. The mortgage extends to the
extended to it by RCBC. After the occurrence of the loss insure natural accessions, to the improvements,
against, it was too late for GOYU to disown the endorsements growing fruits, and the rents or income not
for any imagined or contrived lack of authority of Alchester to yet received when the obligation becomes
prepare and issue said endorsements. If there had not been due, and to the amount of the indemnity
actually an implied ratification of said endorsements by virtue of granted or owing to the proprietor from the
GOYU's inaction in this case, GOYU is at the very least insurers of the property mortgaged, or in
estopped from assailing their operative effects. To permit GOYU virtue of expropriation for public use, with the
to capitalize on its non-confirmation of these endorsements declarations, amplifications and limitations
while it continued to enjoy the benefits of the credit facilities of established by law, whether the estate
RCBC which believed in good faith that there was due remains in the possession of the mortgagor,
endorsement pursuant to their mortgage contracts, is to or it passes into the hands of a third person.
countenance grave contravention of public policy, fair dealing,
good faith, and justice. Such an unjust situation, the Court
Significantly, the Court notes that out of the 10 insurance Also, one of the endorsement documents, Exhibit "5-Malayan",
policies subject of this case, only 8 of them appear to have been refers to a certain insurance policy number ACIA-F-07066,
subject of the endorsements prepared and delivered by which is not among the insurance policies involved in the
Alchester for and upon instructions of GOYU as shown below: complaint.
INSURANCE POLICY PARTICULARS The proceeds of the 8 insurance policies endorsed to RCBC
ENDORSEMENT aggregate to P89,974,488.36. Being excessively payable to
RCBC by reason of the endorsement by Alchester to RCBC,
a. Policy Number F-114-07795 None which we already ruled to have the force and effect of an
Issue Date March 18, 1992 endorsement by GOYU itself, these 8 policies can not be
Expiry Date April 5, 1993 attached by GOYU's other creditors up to the extent of the
Amount P9,646,224.92 GOYU's outstanding obligation in RCBC's favor. Section 53 of
the Insurance Code ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the proper
b. Policy Number ACIA/F-174-07660 Exhibit "1- interest of the person for whose benefit it was made. In this
Malayan" case, to the extent of GOYU's obligation with RCBC, the interest
Issue Date January 18, 1992 of GOYU in the subject policies had been transferred to RCBC
Expiry Date February 9, 1993 effective as of the time of the endorsement. These policies may
Amount P4,307,217.54 no longer be attached by the other creditors of GOYU, like
Alfredo Sebastian in the present G.R. No. 128834, which may
c. Policy Number ACIA/F-114-07661 Exhibit "2- nonetheless forthwith be dismissed for being moot and
Malayan" academic in view of the results reached herein. Only the two
Issue Date January 18, 1992 other policies amounting to P19,646,224.92 may be validly
Expiry Date February 15, 1993 attached, garnished, and levied upon by GOYU's other creditors.
Amount P6,603,586.43 To the extent of GOYU's outstanding obligation with RCBC, all
the rest of the other insurance policies above-listed which were
endorsed to RCBC, are, therefore, to be released from
d. Policy Number ACIA/F-114-07662 Exhibit "3- attachment, garnishment, and levy by the other creditors of
Malayan" GOYU.
Issue Date January 18, 1992
Expiry Date (not legible)
Amount P6,603,586.43 This brings us to the next issue to be resolved, which is, the
extent of GOYU's outstanding obligation with RCBC which the
proceeds of the 8 insurance policies will discharge and liquidate,
e. Policy Number ACIA/F-114-07663 Exhibit "4- or put differently, the actual amount of GOYU's liability to RCBC.
Malayan"
Issue Date January 18, 1992
Expiry Date February 9, 1993 The Court of Appeals simply echoed the declaration of the trial
Amount P9,457,972.76 court finding that GOYU's total obligation to RCBC was only
P68,785,060.04 as of April 27, 1992, thus sanctioning the trial
court's exclusion of Promissory Note No. 421-92 (renewal of
f. Policy Number ACIA/F-114-07623 Exhibit "7- Promissory Note No. 908-91) and Promissory Note No. 420-92
Malayan" (renewal of Promissory Note No. 952-91) on the ground that
Issue Date January 13, 1992 their execution is highly questionable for not only are these
Expiry Date January 13, 1993 dated after the fire, but also because the signatures of either
Amount P24,750,000.00 GOYU or any its representative are conspicuously absent.
Accordingly, the Court of Appeals speculated thusly:
g. Policy Number ACIA/F-174-07223 Exhibit "6-
Malayan" . . . Hence, this Court is inclined to conclude
Issue Date May 29, 1991 that said promissory notes were pre-signed
Expiry Date June 27, 1992 by plaintiff in bank terms, as averred by
Amount P6,000,000.00 plaintiff, in contemplation of the speedy grant
of future loans, for the same practice of
h. Policy Number CI/F-128-03341 None procedure has always been adopted in its
Issue Date May 3, 1991 previous dealings with the bank.
Expiry Date May 3, 1992
Amount P10,000,000.00 (Rollo, pp. 181-182.)
i. Policy Number F-114-07402 Exhibit "8-Malayan" The fact that the promissory notes bear dates posterior to the
Issue Date September 16, 1991 fire does not necessarily mean that the documents are spurious,
Expiry Date October 19, 1992 for it is presumed that the ordinary course of business had been
Amount P32,252,125.20 followed (Metropolitan Bank and Trust Company vs. Quilts and
All, Inc., 22 SCRA 486 [1993]). The obligor and not the holder of
j. Policy Number F-114-07525 Exhibit "9-Malayan" the negotiable instrument has the burden of proof of showing
Issue Date November 20, 1991 that he no longer owes the obligee any amount (Travel-On, Inc.
Expiry Date December 5, 1992 vs. Court of Appeals, 210 SCRA 351 [1992]).
Amount P6,603,586.43
Even casting aside the presumption of regularity of private
(pp. 456-457, Record; Folder of Exhibits for transactions, receipt of the loan amounting to P121,966,058.67
MICO.) (Exhibits 1-29, RCBC) was admitted by GOYU as indicated in
the testimony of Go Song Hiap when he answered the queries of
the trial court.
Policy Number F-114-07795 [(a) above] has not been endorsed.
This fact was admitted by MICO's witness, Atty. Farolan (tsn,
February 16, 1994, p. 25). Likewise, the record shows no
endorsement for Policy Number CI/F-128-03341 [(h) above].
A. The promissory Notes they did not give to me but Regular 80,535,946.32
the amount I asked which is correct, Your Honor. FDU 27,548,025.17
____________
COURT Total 108,083,971.49 8,218,021.11 2
The two courts below erred in failing to see that the promissory Regarding defendant RCBC's commitment
notes which they ruled should be excluded for bearing dates not to charge additional interest, penalties
which are after that of the fire, are mere renewals of previous and surcharges, the same does not require
ones. The proceeds of the loan represented by these promissory that it be embodied in a document or some
The essence or rationale for the payment of interest or cost of (pp. 95-97).
money is separate and distinct from that of surcharges and
penalties. What may justify a court in not allowing the creditor to There being written stipulations as to the rate of interest owing
charge surcharges and penalties despite express stipulation
on each specific promissory note as summarized and tabulated
therefor in a valid agreement, may not equally justify non- by the trial court in its decision (pp. 470 and 471, Record) such
payment of interest. The charging of interest for loans forms a agreed interest rates must be followed. This is very clear from
very essential and fundamental element of the banking paragraph II, sub-paragraph 1 quoted above.
business, which may truly be considered to be at the very core
of its existence or being. It is inconceivable for a bank to grant
loans for which it will not charge any interest at all. We fail to find On the issue of payment of surcharges and penalties, we partly
justification for the Court of Appeal's outright deletion of the agree that GOYU's pitiful situation must be taken into account.
payment of interest as agreed upon in the respective promissory We do not agree, however, that payment of any amount as
notes. This constitutes gross error. surcharges and penalties should altogether be deleted. Even
assuming that RCBC, through its responsible officers, herein
petitioners Eli Lao and Uy Chun Bing, may have relayed its
For the computation of the interest due to be paid to RCBC, the assurance for assistance to GOYU immediately after the
following rules of thumb laid down by this Court in Eastern occurrence of the fire, we cannot accept the lower courts' finding
Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78 [1994]),
that RCBC had thereby ipso facto effectively waived collection of
shall apply, to wit: any additional interests, surcharges, and penalties from GOYU.
Assurances of assistance are one thing, but waiver of additional
I. When an obligation, regardless of its source, i.e., law, interests, surcharges, and penalties is another.
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions Surcharges and penalties agreed to be paid by the debtor in
under Title XVIII on "Damages" of the Civil Code govern in
case of default partake of the nature of liquidated damages,
determining the measure of recoverable damages. covered by Section 4, Chapter 3, Title XVIII of the Civil Code.
Article 2227 thereof provides:
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as
Art. 2227. Liquidated damages, whether
well as the actual thereof, is imposed, as follows: intended as a indemnity or penalty, shall be
equitably reduced if they are iniquitous and
1. When the obligation is breached, and it unconscionable.
consists in the payment of a sum of
money, i.e., a loan or forbearance of money, In exercising this vested power to determine what is iniquitous
the interest due should be that which may
and unconscionable, the Court must consider the circumstances
have been stipulated in writing. Furthermore, of each case. It should be stressed that the Court will not make
the interest due shall itself earn legal interest any sweeping ruling that surcharges and penalties imposed by
from the time it is judicially demanded. In the banks for non-payment of the loans extended by them are
absence of stipulation, the rate of interest generally iniquitous and unconscionable. What may be
shall be 12% per annum to be computed iniquitous and unconscionable in one case, may be totally just
from default, i.e., from judicial or extrajudicial and equitable in another. This provision of law will have to be
demand under and subject to the provisions
applied to the established facts of any given case. Given the
of Article 1169 of the Civil Code. circumstance under which GOYU found itself after the
occurrence of the fire, the Court rules the surcharges rates
2. When an obligation, not constituting a loan ranging anywhere from 9% to 27%, plus the penalty charges of
or forbearance of money, is breached, an 36%, to be definitely iniquitous and unconscionable. The Court
interest on the amount of damages awarded tempers these rates to 2% and 3%, respectively. Furthermore, in
may be imposed at the discretion of the court the light of GOYU's offer to pay the amount of P116,301,992.60
at the rate of 6% per annum. No interest, to RCBC as March 1993 (See: Exhibit "BB"), which RCBC
however, shall be adjudged on unliquidated refused, we find it more in keeping with justice and equity for
claims or damages except when or until the RCBC not to charge additional interest, surcharges, and
demand can be established with reasonable penalties from that time onward.
certainty. Accordingly, where the demand is
established with reasonable certainty, the Given the factual milieu hereover, we rule that it was error to
interest shall begin to run from the time the hold MICO liable in damages for denying or withholding the
claim is made judicially or extrajudicially (Art. proceeds of the insurance claim to GOYU.
1169, Civil Code) but when such certainty
cannot be so reasonably established at the
time the demand is made, the interest shall Firstly, by virtue of the mortgage contracts as well as the
begin to run only from the date of the endorsements of the insurance policies, RCBC has the right to
judgment of the court is made (at which time claim the insurance proceeds, in substitution of the property lost
in the fire. Having assigned its rights, GOYU lost its standing as preferential right of RCBC over the MICO insurance policies. It is
the beneficiary of the said insurance policies. basic and fundamental that the first mortgagee has superior
rights over junior mortgagees or attaching creditors (Alpha
Secondly, for an insurance company to be held liable for Insurance & Surety Co. vs. Reyes, 106 SCRA 274 [1981]; Sun
unreasonably delaying and withholding payment of insurance Life Assurance Co. of Canada vs. Gonzales Diaz, 52 Phil. 271
proceeds, the delay must be wanton, oppressive, or malevolent [1928]).
(Zenith Insurance Corporation vs. CA. 185 SCRA 403 [1990]). It
is generally agreed, however, that an insurer may in good faith WHEREFORE, the petitions are hereby GRANTED and the
and honesty entertain a difference of opinion as to its liability. decision and resolution of December 16, 1996 and April 3, 1997
Accordingly, the statutory penalty for vexatious refusal of an in CA-G.R. CV No. 46162 are hereby REVERSED and SET
insurer to pay a claim should not be inflicted unless the evidence ASIDE, and a new one entered:
and circumstances show that such refusal was willful and
without reasonable cause as the facts appear to a reasonable
1. Dismissing the Complaint of private
and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F respondent GOYU in Civil Case No. 93-
[2d] 53, 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331,
65442 before Branch 3 of the Manila Trial
28 SE 853, 65 Am St. Rep 307; Kusnetsky vs. Security Ins. Co., Court for lack of merit;
313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does
not show that MICO wantonly and in bad faith delayed the
release of the proceeds. The problem in the determination of 2. Ordering Malayan Insurance Company,
who is the actual beneficiary of the insurance policies, Inc. to deliver to Rizal Commercial Banking
aggravated by the claim of various creditors who wanted to Corporation the proceeds of the insurance
partake of the insurance proceeds, not to mention the policies in the amount of P51,862,390.94 (per
importance of the endorsement to RCBC, to our mind, and as report of adjuster Toplis & Harding (Far
now borne out by the outcome herein, justified MICO in East), Inc., Exhibits "2" and "2-1"), less the
withholding payment to GOYU. amount of P50,505,594.60 (per O.R. No.
3649285);
In adjudging RCBC liable in damages to GOYU, the Court of
Appeals said that RCBC cannot avail itself of two simultaneous 3. Ordering the Clerk of Court to release the
remedies in enforcing the claim of an unpaid creditor, one for amount of P50,505,594.60 including the
specific performance and the other for foreclosure. In doing so, interests earned to Rizal Commercial
said the appellate court, the second action is deemed barred, Banking Corporation;
RCBC having split a single cause of action (Rollo, pp. 195-199).
The Court of Appeals was too accommodating in giving due 4. Ordering Goyu & Sons, Inc. to pay its loan
consideration to this argument of GOYU, for the foreclosure suit obligation with Rizal Commercial Banking
is still pending appeal before the same Court of Appeals in CA Corporation in the principal amount of
G.R. CV No. 46247, the case having been elevated by RCBC. P107,246,887.90, with interest at the
respective rates stipulated in each
In finding that the foreclosure suit cannot prosper, the Fifteenth promissory note from January 21, 1993 until
Division of the Court of Appeals pre-empted the resolution of finality of this judgment, and surcharges at
said foreclosure case which is not before it. This is plain 2% and penalties at 3% from January 21,
reversible error if not grave abuse of discretion. 1993 to March 9, 1993, minus payments
made by Malayan Insurance Company, Inc.
and the proceeds of the amount deposited
As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]): with the trial court and its earned interest.
The total amount due RCBC at the time of
It should have been enough, nonetheless, for the finality of this judgment shall earn interest
the appellate court to merely set aside the at the legal rate of 12% in lieu of all other
questioned ordered of the trial court for stipulated interests and charges until fully
having been issued by the latter with grave paid.
abuse of discretion. In likewise enjoining
permanently herein petitioner "from entering The petition of Rizal Commercial Banking Corporation against
in and interfering with the use or occupation
the respondent Court in CA-GR CV 48376 is DISMISSED for
and enjoyment of petitioner's (now private being moot and academic in view of the results herein arrived at.
respondent) residential house and
Respondent Sebastian's right as attaching creditor must yield to
compound," the appellate court in effect, the preferential rights of Rizal Commercial Banking Corporation
precipitately resolved with finality the case for over the Malayan insurance policies as first mortgagee.
injunction that was yet to be heard on the
merits by the lower court. Elevated to the
appellate court, it might be stressed, were SO ORDERED.
mere incidents of the principal case still
pending with the trial court. In Municipality of Regalado, Puno, Mendoza and Martinez, JJ., concur.
Biñan, Laguna vs. Court of Appeals, 219
SCRA 69, we ruled that the Court of Appeals
would have "no jurisdiction in Footnotes
a certiorariproceeding involving an incident in
a case to rule on the merits of the main case 1 See: Exhibit "70-RCBC"
itself which was not on appeal before it.
2 Computed by deducting P108,083,971.49 from the
(pp. 701-702.) admitted amount of P116,301,992.60.
Anent the right of RCBC to intervene in Civil Case No. 1073, 3 To be deducted from interest payments due in
before the Zamboanga Regional Trial Court, since it has been accordance with Article 1253 of the Civil Code which
determined that RCBC has the right to the insurance proceeds, provides:
the subject matter of intervention is rendered moot and
academic. Respondent Sebastian must, however, yield to the
G.R. No. 114427 February 6, 1995 indicate that the insured was "Messrs. Discount Mart (Mr.
Armando Geagonia, Prop.)" with a mortgage clause reading:
ARMANDO GEAGONIA, petitioner,
vs. MORTGAGE: Loss, if any shall be payable to
COURT OF APPEALS and COUNTRY BANKERS Messrs. Cebu Tesing Textiles, Cebu City as
INSURANCE CORPORATION, respondents. their interest may appear subject to the terms
of this policy. CO-INSURANCE DECLARED:
P100,000. — Phils. First CEB/F 24758. 4
DAVIDE, JR., J.: The basis of the private respondent's denial was the petitioner's
alleged violation of Condition 3 of the policy.
entitled "Country Bankers Insurance Corporation versus respondent with the Insurance Commission (Case No. 3340) for
Armando Geagonia," reversing the decision of the Insurance the recovery of P100,000.00 under fire insurance policy No. F-
Commission in I.C. Case No. 3340 which awarded the claim of 14622 and for attorney's fees and costs of litigation. He attached
petitioner Armando Geagonia against private respondent as Annex "AM" thereof his letter of 18 January 1991 which
6
Country Bankers Insurance Corporation. asked for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private respondent's
fire insurance policy he knew that the two policies issued by the
The petitioner is the owner of Norman's Mart located in the PFIC were already in existence; however, he had no knowledge
public market of San Francisco, Agusan del Sur. On 22 of the provision in the private respondent's policy requiring him
December 1989, he obtained from the private respondent fire to inform it of the prior policies; this requirement was not
insurance policy No. F-14622 for P100,000.00. The period of
2
mentioned to him by the private respondent's agent; and had it
the policy was from 22 December 1989 to 22 December 1990 been mentioned, he would not have withheld such information.
and covered the following: "Stock-in-trade consisting principally He further asserted that the total of the amounts claimed under
of dry goods such as RTW's for men and women wear and other the three policies was below the actual value of his stocks at the
usual to assured's business." time of loss, which was P1,000,000.00.
The petitioner declared in the policy under the subheading In its answer, the private respondent specifically denied the
7
entitled CO-INSURANCE that Mercantile Insurance Co., Inc. allegations in the complaint and set up as its principal defense
was the co-insurer for P50,000.00. From 1989 to 1990, the the violation of Condition 3 of the policy.
petitioner had in his inventory stocks amounting to P392,130.50,
itemized as follows:
In its decision of 21 June 1993, the Insurance Commission
8
3. The insured shall give notice to the WHEREFORE, judgment is hereby rendered
Company of any insurance or insurances ordering the respondent company to pay
already affected, or which may subsequently complainant the sum of P100,000.00 with
be effected, covering any of the property or legal interest from the time the complaint was
properties consisting of stocks in trade, filed until fully satisfied plus the amount of
goods in process and/or inventories only P10,000.00 as attorney's fees. With costs.
hereby insured, and unless such notice be The compulsory counterclaim of respondent
given and the particulars of such insurance or is hereby dismissed.
insurances be stated therein or endorsed in
this policy pursuant to Section 50 of the
Its motion for the reconsideration of the decision having been
9
found that the petitioner knew of the existence of the two other His motion to reconsider the adverse decision having been
policies issued by the PFIC. It said: denied, the petitioner filed the instant petition. He contends
therein that the Court of Appeals acted with grave abuse of
It is apparent from the face of Fire Policy GA discretion amounting to lack or excess of jurisdiction:
28146/Fire Policy No. 28144 that the insurance was
taken in the name of private respondent [petitioner A — . . . WHEN IT REVERSED THE
herein]. The policy states that "DISCOUNT MART FINDINGS OF FACTS OF THE INSURANCE
(MR. ARMANDO GEAGONIA, PROP)" was the COMMISSION, A QUASI-JUDICIAL BODY
assured and that "TESING TEXTILES" [was] only the CHARGED WITH THE DUTY OF
mortgagee of the goods. DETERMINING INSURANCE CLAIM AND
WHOSE DECISION IS ACCORDED
In addition, the premiums on both policies were paid RESPECT AND EVEN FINALITY BY THE
COURTS;
for by private respondent, not by the Tesing Textiles
which is alleged to have taken out the other insurance
without the knowledge of private respondent. This is B — . . . WHEN IT CONSIDERED AS
shown by Premium Invoices nos. 46632 and 46630. EVIDENCE MATTERS WHICH WERE NOT
(Annexes M and N). In both invoices, Tesing Textiles is PRESENTED AS EVIDENCE DURING THE
indicated to be only the mortgagee of the goods HEARING OR TRIAL; AND
insured but the party to which they were issued were
the "DISCOUNT MART (MR. ARMANDO C — . . . WHEN IT DISMISSED THE CLAIM
GEAGONIA)." OF THE PETITIONER HEREIN AGAINST
THE PRIVATE RESPONDENT.
In is clear that it was the private respondent [petitioner
herein] who took out the policies on the same property The chief issues that crop up from the first and third grounds are
subject of the insurance with petitioner. Hence, in (a) whether the petitioner had prior knowledge of the two
failing to disclose the existence of these insurances insurance policies issued by the PFIC when he obtained the fire
private respondent violated Condition No. 3 of Fire insurance policy from the private respondent, thereby, for not
Policy No. 1462. . . . disclosing such fact, violating Condition 3 of the policy, and (b) if
he had, whether he is precluded from recovering therefrom.
Indeed private respondent's allegation of lack of
knowledge of the provisions insurances is belied by his The second ground, which is based on the Court of Appeals'
letter to petitioner [of 18 January 1991. The body of the reliance on the petitioner's letter of reconsideration of 18
letter reads as follows;] January 1991, is without merit. The petitioner claims that the
said letter was not offered in evidence and thus should not have
xxx xxx xxx been considered in deciding the case. However, as correctly
pointed out by the Court of Appeals, a copy of this letter was
Please be informed that I have no knowledge of attached to the petitioner's complaint in I.C. Case No. 3440 as
the provision requiring me to inform your office Annex "M" thereof and made integral part of the complaint. It 12
about my has attained the status of a judicial admission and since its due
execution and authenticity was not denied by the other party, the
prior insurance under FGA-28146 and F-CEB-
24758. Your representative did not mention about petitioner is bound by it even if it were not introduced as an
independent evidence. 13
said requirement at the time he was convincing
me to insure with you. If he only die or even
inquired if I had other existing policies covering As to the first issue, the Insurance Commission found that the
my establishment, I would have told him so. You petitioner had no knowledge of the previous two policies. The
will note that at the time he talked to me until I Court of Appeals disagreed and found otherwise in view of the
decided to insure with your company the two explicit admission by the petitioner in his letter to the private
policies aforementioned were already in effect. respondent of 18 January 1991, which was quoted in the
Therefore I would have no reason to withhold challenged decision of the Court of Appeals. These divergent
such information and I would have desisted to part findings of fact constitute an exception to the general rule that in
with my hard earned peso to pay the insurance petitions for review under Rule 45, only questions of law are
premiums [if] I know I could not recover anything. involved and findings of fact by the Court of Appeals are
conclusive and binding upon this Court. 14
taken on the stock-in-trade and seriously puts in provides that "[a] policy may declare that a violation of specified
question his credibility. provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy." Such a condition
is a provision which invariably appears in fire insurance policies
10 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
and is intended to prevent an increase in the moral hazard. It is Corp. vs. Ng Hua or in Pioneer Insurance & Surety
26
commonly known as the additional or "other insurance" clause Corp. vs. Yap, which read:
27
insuring the property but his interest or lien thereon. His upon the whole or a portion of the objects thereby
insurable interest is prima facie the value mortgaged and assured must be declared by the insured in writing and
extends only to the amount of the debt, not exceeding the value he must cause the company to add or insert it in the
of the mortgaged property. Thus, separate insurances covering
20
policy, without which such policy shall be null and void,
different insurable interests may be obtained by the mortgagor
and the insured will not be entitled to indemnity in case
and the mortgagee. of loss," Condition 3 in the private respondent's policy
No. F-14622 does not absolutely declare void any
A mortgagor may, however, take out insurance for the benefit of violation thereof. It expressly provides that the
the mortgagee, which is the usual practice. The mortgagee may condition "shall not apply when the total insurance or
be made the beneficial payee in several ways. He may become insurances in force at the time of the loss or damage is
the assignee of the policy with the consent of the insurer; or the not more than P200,000.00."
mere pledgee without such consent; or the original policy may
contain a mortgage clause; or a rider making the policy payable
It is a cardinal rule on insurance that a policy or insurance
to the mortgagee "as his interest may appear" may be attached; contract is to be interpreted liberally in favor of the insured and
or a "standard mortgage clause," containing a collateral strictly against the company, the reason being, undoubtedly, to
independent contract between the mortgagee and insurer, may afford the greatest protection which the insured was
be attached; or the policy, though by its terms payable endeavoring to secure when he applied for insurance. It is also a
absolutely to the mortgagor, may have been procured by a cardinal principle of law that forfeitures are not favored and that
mortgagor under a contract duty to insure for the mortgagee's any construction which would result in the forfeiture of the policy
benefit, in which case the mortgagee acquires an equitable lien
benefits for the person claiming thereunder, will be avoided, if it
upon the proceeds. 21
is possible to construe the policy in a manner which would
permit recovery, as, for example, by finding a waiver for such
In the policy obtained by the mortgagor with loss payable clause forfeiture. Stated differently, provisions, conditions or
29
in favor of the mortgagee as his interest may appear, the exceptions in policies which tend to work a forfeiture of
mortgagee is only a beneficiary under the contract, and insurance policies should be construed most strictly against
recognized as such by the insurer but not made a party to the those for whose benefits they are inserted, and most favorably
contract himself. Hence, any act of the mortgagor which defeats toward those against whom they are intended to operate. The 30
his right will also defeat the right of the mortgagee. This kind of
22
reason for this is that, except for riders which may later be
policy covers only such interest as the mortgagee has at the inserted, the insured sees the contract already in its final form
issuing of the policy. 23
and has had no voice in the selection or arrangement of the
words employed therein. On the other hand, the language of the
On the other hand, a mortgagee may also procure a policy as a contract was carefully chosen and deliberated upon by experts
contracting party in accordance with the terms of an agreement and legal advisers who had acted exclusively in the interest of
by which the mortgagor is to pay the premiums upon such the insurers and the technical language employed therein is
rarely understood by ordinary laymen. 31
insurance. It has been noted, however, that although the
24
11 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
Furthermore, by stating within Condition 3 itself that such 14 Tolentino vs. De Jesus, 56 SCRA 167
condition shall not apply if the total insurance in force at the time [1974]; Remalante vs. Tibe, 158 SCRA 138
of loss does not exceed P200,000.00, the private respondent [1988].
was amenable to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to discourage 15 P.D. No. 1460.
over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a 16 MARIA CLARA L.
property owner obtains insurance policies from two or more CAMPOS, Insurance (1983 ed.) citing
insurers in a total amount that exceeds the property's value, the General Insurance & Surety Corp. vs. Ng
insured may have an inducement to destroy the property for the Hua, 106 Phil. 1117 [1960]; Petitioner
purpose of collecting the insurance. The public as well as the Insurance & Surety Corp. vs. Yap, 61 SCRA
insurer is interested in preventing a situation in which a fire 426 [1974]; Union Manufacturing Co., Inc. vs.
would be profitable to the insured. 32 Philippine Guaranty Co., Inc., 47 SCRA 271
[1972].
WHEREFORE, the instant petition is hereby GRANTED. The
decision of the Court of Appeals in CA-G.R. SP No. 31916 is 17 Id., JOHN F. DOBBYN, Insurance Law in
SET ASIDE and the decision of the Insurance Commission in a Nutshell 204 (2d ed. 1989.)
Case No. 3340 is REINSTATED.
18 COUCH on Insurance 2d § 24:68 (1960
Costs against private respondent Country Bankers Insurance ed.).
Corporation.
19 Id., § 24:69.
SO ORDERED.
20 Id., § 24:72.
Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.
21 WILLIAM R. VANCE, Handbook on the
Law on Insurance 773-774 (3rd ed.)
4 Exhibits "2" and "3"; Annexes "F" and 28 55 Phil. 329, 334 [1930].
"G," Id., 45-46.
29 2 TEODORICO C.
5 Annex "E," Id.; Rollo, 38. MARTIN, Commentaries and Jurisprudence
on the Philippine Commercial Laws,143
(1986 rev. ed.).
6 Annex "L," Id.; OR (CA-G.R. SP No.
31916), 66.
30 Trinidad vs. Orient Protective Assurance
Association, 67 Phil. 181 [1939].
7 Annex "E" of Petition; Rollo, 43.
31 CAMPOS, op cit., 12.
8 Annex "D," Id.; Id., 32.
32 Pioneer Insurance and Surety Corp. vs.
9 Annex "G," Id.; Id., 47. Yap, supra note 16.
12 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
trial, Dr. Hernando Mejia, who issued the death certificate, was
This petition for review, under Rule 45 of the Rules of Court, called to testify. Dr. Mejia's findings, based partly from the
assails the Decision dated May 17, 1993, of the Court of
1
information given by the respondent widow, stated that Dr.
Appeals and its Resolution dated January 4, 1994 in CA-G.R.
2
Leuterio complained of headaches presumably due to high
CV No. 18341. The appellate court affirmed in toto the judgment blood pressure. The inference was not conclusive because Dr.
of the Misamis Oriental Regional Trial Court, Branch 18, in an Leuterio was not autopsied, hence, other causes were not ruled
insurance claim filed by private respondent against Great Pacific out.
Life Assurance Co. The dispositive portion of the trial court's
decision reads:
On February 22, 1988, the trial court rendered a decision in
favor of respondent widow and against Grepalife. On May 17,
WHEREFORE, judgment is rendered 1993, the Court of Appeals sustained the trial court's decision.
adjudging the defendant GREAT PACIFIC Hence, the present petition. Petitioners interposed the following
LIFE ASSURANCE CORPORATION as assigned errors:
insurer under its Group policy No. G-1907, in
relation to Certification B-18558 liable and
ordered to pay to the DEVELOPMENT BANK 1. THE LOWER COURT ERRED IN HOLDING
OF THE PHILIPPINES as creditor of the DEFENDANT-APPELLANT LIABLE TO THE
insured Dr. Wilfredo Leuterio, the amount of DEVELOPMENT BANK OF THE PHILIPPINES (DBP)
EIGHTY SIX THOUSAND TWO HUNDRED WHICH IS NOT A PARTY TO THE CASE FOR
PESOS (P86,200.00); dismissing the claims PAYMENT OF THE PROCEEDS OF A MORTGAGE
for damages, attorney's fees and litigation REDEMPTION INSURANCE ON THE LIFE OF
expenses in the complaint and counterclaim, PLAINTIFF'S HUSBAND WILFREDO LEUTERIO ONE
with costs against the defendant and OF ITS LOAN BORROWERS, INSTEAD OF
dismissing the complaint in respect to the DISMISSING THE CASE AGAINST DEFENDANT-
plaintiffs, other than the widow-beneficiary, APPELLANT [Petitioner Grepalife] FOR LACK OF
for lack of cause of action.
3 CAUSE OF ACTION.
The facts, as found by the Court of Appeals, are as follows: 2. THE LOWER COURT ERRED IN NOT
DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE
A contract of group life insurance was executed between OF THE ACTION AND OVER THE PERSON OF THE
petitioner Great Pacific Life Assurance Corporation (hereinafter DEFENDANT.
Grepalife) and Development Bank of the Philippines (hereinafter
DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP. 3. THE LOWER COURT ERRED IN ORDERING
DEFENDANT-APPELLANT TO PAY TO DBP THE
AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a EVIDENCE TO SHOW HOW MUCH WAS THE
housing debtor of DBP applied for membership in the group life ACTUAL AMOUNT PAYABLE TO DBP IN
insurance plan. In an application form, Dr. Leuterio answered ACCORDANCE WITH ITS GROUP INSURANCE
questions concerning his health condition as follows: CONTRACT WITH DEFENDANT-APPELLANT.
7. Have you ever had, or consulted, a physician for a 4. THE LOWER COURT ERRED IN HOLDING THAT
heart condition, high blood pressure, cancer, diabetes, THERE WAS NO CONCEALMENT OF MATERIAL
lung; kidney or stomach disorder or any other physical INFORMATION ON THE PART OF WILFREDO
impairment? LEUTERIO IN HIS APPLICATION FOR
MEMBERSHIP IN THE GROUP LIFE INSURANCE
Answer: No. If so give details _____________. PLAN BETWEEN DEFENDANT-APPELLANT OF THE
INSURANCE CLAIM ARISING FROM THE DEATH
OF WILFREDO LEUTERIO. 6
13 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
insurance contract from a complaint filed by the widow from the mortgagor and took the necessary action of foreclosure
of the decedent/mortgagor? on the residential lot of private respondent. In Gonzales La O
11
vs. Yek Tong Lin Fire & Marine Ins. Co. we held:
12
that in the event of death; the mortgage obligation will be decedent Dr. Leuterio may file the suit against the insurer,
extinguished by the application of the insurance proceeds to the Grepalife.
mortgage indebtedness. Consequently, where the mortgagor
8
pays the insurance premium under the group insurance policy, The second assigned error refers to an alleged concealment that
making the loss payable to the mortgagee, the insurance is on
the petitioner interposed as its defense to annul the insurance
the mortgagor's interest, and the mortgagor continues to be a contract. Petitioner contends that Dr. Leuterio failed to disclose
party to the contract. In this type of policy insurance, the that he had hypertension, which might have caused his death.
mortgagee is simply an appointee of the insurance fund, such Concealment exists where the assured had knowledge of a fact
loss-payable clause does not make the mortgagee a party to the material to the risk, and honesty, good faith, and fair dealing
contract. 9
requires that he should communicate it to the assured, but he
designedly and intentionally withholds the same. 15
the mortgagor, may be performed by the hypertension was only "the possible cause of death." The private
mortgagee therein named, with the same respondent's statement, as to the medical history of her
effect as if it had been performed by the husband, was due to her unreliable recollection of events.
mortgagor. Hence, the statement of the physician was properly considered
by the trial court as hearsay.
The insured private respondent did not cede to the mortgagee
all his rights or interests in the insurance, the policy stating that: The question of whether there was concealment was aptly
"In the event of the debtor's death before his indebtedness with answered by the appellate court, thus:
the Creditor [DBP] shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the creditor
and the balance of sum assured, if there is any, shall then be The insured, Dr. Leuterio, had answered in
paid to the beneficiary/ies designated by the debtor." When
10 his insurance application that he was in good
DBP submitted the insurance claim against petitioner, the latter health and that he had not consulted a doctor
denied payment thereof, interposing the defense of concealment or any of the enumerated ailments, including
committed by the insured. Thereafter, DBP collected the debt hypertension; when he died the attending
14 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
physician had certified in the death certificate WHEREFORE, the petition is hereby DENIED. The Decision
that the former died of cerebral hemorrhage, and Resolution of the Court of Appeals in CA-G.R. CV 18341 is
probably secondary to hypertension. From AFFIRMED with MODIFICATION that the petitioner is
this report, the appellant insurance company ORDERED to pay the insurance proceeds amounting to Eighty-
refused to pay the insurance claim. Appellant six thousand, two hundred (P86,200.00) pesos to the heirs of
alleged that the insured had concealed the the insured, Dr. Wilfredo Leuterio (deceased), upon presentation
fact that he had hypertension. of proof of prior settlement of mortgagor's indebtedness to
Development Bank of the Philippines. Costs against petitioner. 1âw phi 1.nêt
4 Id. at 37.
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
18 5 Civil Case 10788.
liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the 6 Rollo, pp. 18-19.
insurer. In the case at bar, the petitioner failed to clearly and
19
And that brings us to the last point in the review of the case at
bar. Petitioner claims that there was no evidence as to the 8 Ibid.
amount of Dr. Leuterio's outstanding indebtedness to DBP at the
time of the mortgagor's death. Hence, for private respondent's 9 43 Am Jur 2d, Insurance Section
failure to establish the same, the action for specific performance 766; citing Hill vs. International Indem. Co.
should be dismissed. Petitioner's claim is without merit. A life 116 Kan 109, 225 P 1056, 38 ALR 362.
insurance policy is a valued policy. Unless the interest of a
20
In the event of the debtor's death before his 14 Sec. 181, Philippine Insurance Code.
indebtedness with the creditor shall have
been fully paid, an amount to pay the
outstanding indebtedness shall first be paid 15 Argente vs. West Coast Life Insurance
to the Creditor and the balance of the Sum Co., 51 Phil. 725, 731 (1928). Section 26,
Assured, if there is any shall then be paid to Philippine Insurance Code. — A neglect to
the beneficiary/ies designated by the communicate that which a party knows and
debtor." (Emphasis omitted)
22 ought to communicate is called a
concealment.
However, we noted that the Court of Appeals' decision was
promulgated on May 17, 1993. In private respondent's 16 Rollo, p. 40.
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's outstanding loan. 17 Id. at 39-40.
Considering this supervening event, the insurance proceeds
shall inure to the benefit of the heirs of the deceased person or
his beneficiaries. Equity dictates that DBP should not unjustly 18 Ng Gan Zee vs. Asian Crusader Life
enrich itself at the expense of another (Nemo cum alterius Assurance Corp, 122 SCRA 461, 466 (1983).
detrimenio protest). Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The 19 Ibid.
proceeds now rightly belong to Dr. Leuterio's heirs represented
by his widow, herein private respondent Medarda Leuterio.
15 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
22 Rollo, p. 12.
16 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
FIRST DIVISION I
G.R. No. 124520 August 18, 1997 THE HONORABLE COURT OF APPEALS ERRED IN
FAILING TO DECLARE THAT THE STIPULATION IN
Spouses NILO CHA and STELLA UY CHA, and UNITED THE CONTRACT OF LEASE TRANSFERRING THE
INSURANCE CO., INC., petitioners, PROCEEDS OF THE INSURANCE TO
vs. RESPONDENT IS NULL AND VOID FOR BEING
COURT OF APPEALS and CKS DEVELOPMENT CONTRARY TO LAW, MORALS AND PUBLIC
CORPORATION, respondents. POLICY
II
8. On appeal, respondent Court of Appeals in CA GR CV No. interest in property insured is based on sound public policy: to
39328 rendered a decision ** dated 11 January 1996, affirming prevent a person from taking out an insurance policy on property
17 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
The liability of the Cha spouses to CKS for violating their lease
contract in that the Cha spouses obtained a fire insurance policy
over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.
SO ORDERED.
Footnotes
1 Rollo, p. 50.
2 Rollo, p. 18.
18 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
After due trial, on March 10, 1993, the Regional Trial Court,
Branch 58, Makati, rendered decision, the dispositive portion of
FIRST DIVISION which reads:
In March 1992, petitioner evaluated the policies and decided not (4) Ordering the defendant to pay plaintiff the
to renew them upon expiration of their terms on May 22, 1992. sums of: (a) P18,645,000.00 representing the
Petitioner advised respondent's broker, Zuellig Insurance latter's claim for indemnity under Exhibits A,
Brokers, Inc. of its intention not to renew the policies. B & C and/or its replacement-renewal
policies; (b) 25% of the total amount due as
On April 6, 1992, petitioner gave written notice to respondent of and for attorney's fees; (c) P25,000.00 as
the non-renewal of the policies at the address stated in the necessary litigation expenses; and, (d) the
policies. costs of suit.
On June 13, 1992, fire razed respondent's property covered by All other claims and counterclaims asserted
three of the insurance policies petitioner issued. by the parties are denied and/or dismissed,
including plaintiff's claim for interests.
On July 13, 1992, respondent presented to petitioner's cashier at
its head office five (5) manager's checks in the total amount of SO ORDERED.
P225,753.95, representing premium for the renewal of the
policies from May 22, 1992 to May 22, 1993. No notice of loss Makati, Metro-Manila, March 10, 1993.
was filed by respondent under the policies prior to July 14, 1992.
ZOSIMO Z. ANGELES.
On July 14, 1992, respondent filed with petitioner its formal claim
for indemnification of the insured property razed by fire.
Judge. 4
the same time rejected respondent's claim for the reasons (a)
that the policies had expired and were not renewed, and (b) that On September 7, 1998, the Court of Appeals promulgated its
the fire occurred on June 13, 1992, before respondent's tender decision affirming that of the Regional Trial Court with the
6
of premium payment. modification that item No. 3 of the dispositive portion was
deleted, and the award of attorney's fees was reduced to 10% of
On July 21, 1992, respondent filed with the Regional Trial Court, the total amount due. 7
19 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
SO ORDERED.
Footnotes
20 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
by private respondent.
21 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
While it may be true that under Section 77 of despite payment and acceptance of the initial
the Insurance Code, the parties may not premium or first installment. Section 78 of the
agree to make the insurance contract valid Insurance Code in effect allows waiver by the
and binding without payment of premiums, insurer of the condition of prepayment by
there is nothing in said section which making an acknowledgment in the insurance
suggests that the parties may not agree to policy of receipt of premium as conclusive
allow payment of the premiums in evidence of payment so far as to make the
installment, or to consider the contract as policy binding despite the fact that premium
valid and binding upon payment of the first is actually unpaid. Section 77 merely
premium. Otherwise, we would allow the precludes the parties from stipulating that the
insurer to renege on its liability under the policy is valid even if premiums are not paid,
contract, had a loss incurred (sic) before but does not expressly prohibit an agreement
completion of payment of the entire premium, granting credit extension, and such an
despite its voluntary acceptance of partial agreement is not contrary to morals, good
payments, a result eschewed by a basic customs, public order or public policy (De
considerations of fairness and equity. Leon, the Insurance Code, at p. 175). So is
an understanding to allow insured to pay
premiums in installments not so proscribed.
To our mind, the insurance contract became
valid and binding upon payment of the first At the very least, both parties should be
deemed in estoppel to question the
premium, and the plaintiff could not have
denied liability on the ground that payment arrangement they have voluntarily accepted. 4
We therefore sustain the Court of Appeals. We quote with 2 Penned by Mme. Justice Minerva P.
approval the well-reasoned findings and conclusion of the Gonzaga-Reyes, concurred by Mr. Justice
appellate court contained in its Resolution denying the motion to Ricardo J. Francisco and Mme. Justice
reconsider its Decision — Salome A. Montoya.
While the import of Section 77 is that 3 Decision, pp. 6-7; Rollo, pp. 36-37.
prepayment of premiums is strictly required
as a condition to the validity of the contract,
We are not prepared to rule that the request 4 Rollo, pp. 41-42.
to make installment payments duly approved
by the insurer, would prevent the entire 5 No. L-28501, September 30, 1982, 117
contract of insurance from going into effect SCRA 63.
22 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
SECOND DIVISION
On scheduled conference in December, petitioner and its
G.R. No. 107062 February 21, 1994 counsel did not appear notwithstanding their notice in open
court. The pre-trial was nevertheless re-set to February 1,
5
PHILIPPINE PRYCE ASSURANCE 1989. However, when the case was called for pre-trial
CORPORATION, petitioner, conference on February 1, 1989, petitioner was again nor
vs. presented by its officer or its counsel, despite being duly notified.
THE COURT OF APPEALS, (Fourteenth Division) and Hence, upon motion of respondent, petitioner was considered as
GEGROCO, INC., respondents. in default and respondent was allowed to present evidence ex-
parte, which was calendared on February 24, 1989. Petitioner
6
A.M. Sison, Jr. & Associates for private respondent. On March 6, 1989, a decision was rendered by the trial court,
the dispositive portion reads:
23 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
initiated the service of summons on the third party defendant. It is really irrelevant in the instant case whether the ruling in Sun
The court further said: Insurance Office, Ltd. (SIOL) v. Asuncion or that in Manchester
14
. . . Defendant's claim that it was not aware of the Manchester are mere reiteration of old jurisprudential
Order admitting the third-party complaint is pronouncements on the effect of non-payment of docket
preposterous. Sec. 8, Rule 13 of the Rules, provides: fees. In previous cases, we have consistently ruled that the
16
Records show that even at the very start, petitioner could have
been declared as in default since it was not properly presented
during the first scheduled pre-trial on September 29, 1988. Thus, we laid down the rules as follows:
Nothing in the record is attached which would show that
petitioner's counsel had a special authority to act in behalf of his 1. It is not simply the filing of the complaint or
client other than as its lawyer. appropriate initiatory pleading, but the
payment of the prescribed docket fee, that
We have said that in those instances where a party may not vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where
himself be present at the pre-trial, and another person
substitutes for him, or his lawyer undertakes to appear not only the filing of the initiatory pleading is not
accompanied by payment of the docket fee,
as an attorney but in substitution of the client's person, it is
imperative for that representative or the lawyer to have "special the court may allow payment of the fee within
a reasonable time, but in no case beyond the
authority" to enter into agreements which otherwise only the
client has the capacity to make. 12
applicable prescriptive or reglamentary
period.
24 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
It should be remembered that both in Manchester and Sun Merchandise proving that parts were purchased, delivered and
Insurance plaintiffs therein paid docket fees upon filing of their received.
respective pleadings, although the amount tendered were found
to be insufficient considering the amounts of the reliefs sought in On the other hand, petitioner's defense that it did not have
their complaints. In the present case, petitioner did not and authority to issue a Surety Bond when it did is an admission of
never attempted to pay the requisite docket fee. Neither is there fraud committed against respondent. No person can claim
any showing that petitioner even manifested to be given time to benefit from the wrong he himself committed. A representation
pay the requisite docket fee, as in fact it was not present during made is rendered conclusive upon the person making it and
the scheduled pre-trial on December 1, 1988 and then again on
cannot be denied or disproved as against the person relying
February 1, 1989. Perforce, it is as if the third-party complaint thereon. 22
13 Rollo, p. 27.
A. Interworld Assurance Corp. Surety Bond No. 0029
for P500,000 dated July 24, 1987 and Interworld
Assurance Corp. Surety Bond No. 0037 for P1,000.000 14 G.R. No. 79937, 170 SCRA 274 (1989).
dated October 7, 1987. 20
25 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
19 Rollo, p. 68.
26 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
Due to the loss, the respondent filed an insurance claim with the
petitioner under its Fire Insurance Policy No. F-1397, submitting: 3. To pay as and in the concept of exemplary
(a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, damages in the total sum of ₱50,000.00;
dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso;
and (c) the Sworn Statement of Ernesto Urbiztondo. 4. To pay in the concept of litigation
expenses the sum of ₱5,000.00;
The petitioner, however, denied the insurance claim on the
ground that, based on the submitted documents, the building 5. To pay by way of reimbursement the
was set on fire by two (2) NPA rebels who wanted to obtain attorney’s fees in the sum of ₱10,000.00; and
canned goods, rice and medicines as provisions for their
comrades in the forest, and that such loss was an excepted risk
27 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
6. To pay the costs of the suit. xxx investigation revealed by Jose Lomocso that those
armed men wanted to get can goods and rice for their
For being unsubstantiated with credible and positive consumption in the forest PD investigation further
evidence, the "counterclaim" is dismissed. disclosed that the perpetrator are member (sic) of the
NPA PD end… x x x
IT IS SO ORDERED.
A witness can testify only to those facts which he knows of his
personal knowledge, which means those facts which are derived
Petitioner interposed an appeal to the Court of Appeals. On from his perception. Consequently, a witness may not testify as
8
December 29, 1998, the appellate court affirmed the challenged to what he merely learned from others either because he was
decision of the trial court in its entirety. Petitioner now comes told or read or heard the same. Such testimony is considered
before us via the instant petition anchored on three (3) assigned hearsay and may not be received as proof of the truth of what he
errors, to wit:
4
has learned. Such is the hearsay rule which applies not only to
oral testimony or statements but also to written evidence as
1. THE HONORABLE COURT OF APPEALS FAILED well.
9
LITIGATION EXPENSES, ATTORNEYS FEES AND however, three (3) requisites must concur, to wit:
COST OF SUIT.
(a) that the entry was made by a public officer, or by
A party is bound by his own affirmative allegations. This is a another person specially enjoined by law to do so;
well-known postulate echoed in Section 1 of Rule 131 of the
Revised Rules of Court. Each party must prove his own
affirmative allegations by the amount of evidence required by (b) that it was made by the public officer in the
law which in civil cases, as in this case, is preponderance of performance of his duties, or by such other person in
evidence, to obtain a favorable judgment. 5
the performance of a duty specially enjoined by law;
and
In the instant case, the petitioner does not dispute that the
respondent’s stocks-in-trade were insured against fire loss, (c) that the public officer or other person had sufficient
damage or liability under Fire Insurance Policy No. F- 1397 and knowledge of the facts by him stated, which must have
that the respondent lost its stocks-in-trade in a fire that occurred been acquired by him personally or through official
on July 1, 1989, within the duration of said fire insurance. The information. 12
petitioner, however, posits the view that the cause of the loss
was an excepted risk under the terms of the fire insurance The third requisite was not met in this case since no
policy. investigation, independent of the statements gathered from Jose
Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as
Where a risk is excepted by the terms of a policy which insures the petitioner itself pointed out, citing the testimony of Pfc. Arturo
against other perils or hazards, loss from such a risk constitutes Juarbal, the latter’s Spot Report "was based on the personal
13
a defense which the insurer may urge, since it has not assumed knowledge of the caretaker Jose Lomocso who witnessed every
single incident surrounding the facts and circumstances of the
that risk, and from this it follows that an insurer seeking to defeat
a claim because of an exception or limitation in the policy has case." This argument undeniably weakens the petitioner’s
defense, for the Spot Report of Pfc. Arturo Juarbal relative to the
the burden of proving that the loss comes within the purview of
the exception or limitation set up. If a proof is made of a loss statement of Jose Lomocso to the effect that NPA rebels
apparently within a contract of insurance, the burden is upon the allegedly set fire to the respondent’s building is inadmissible in
insurer to prove that the loss arose from a cause of loss which is evidence, for the purpose of proving the truth of the statements
excepted or for which it is not liable, or from a cause which limits contained in the said report, for being hearsay.
its liability. Stated else wise, since the petitioner in this case is
6
defending on the ground of non-coverage and relying upon an The said Spot Report is admissible only insofar as it constitutes
exemption or exception clause in the fire insurance policy, it has part of the testimony of Pfc. Arturo V. Juarbal since he himself
the burden of proving the facts upon which such excepted risk is took the witness stand and was available for cross-examination.
based, by a preponderance of evidence. But petitioner failed to
7
The portions of his Spot Report which were of his personal
do so. knowledge or which consisted of his perceptions and
conclusions are not hearsay. The rest of the said report relative
The petitioner relies on the Sworn Statements of Jose Lomocso to the statement of Jose Lomocso may be considered as
independently relevant statements gathered in the course of
and Ernesto Urbiztondo as well as on the Spot Report of Pfc.
Arturo V. Juarbal dated July 1, 1989, more particularly the Juarbal’s investigation and may be admitted as such but not
necessarily to prove the truth thereof. 14
following statement therein:
28 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
The petitioner’s evidence to prove its defense is sadly wanting Considering the foregoing, the insurance claim in this case is
and thus, gives rise to its liability to the respondent under Fire evidently not a forbearance of money, goods or credit, and thus
Insurance Policy No. F-1397. Nonetheless, we do not sustain the interest rate should be as it is hereby fixed at six percent
the trial court’s imposition of twelve percent (12%) interest on (6%) computed from the date of filing of the complaint.
the insurance claim as well as the monetary award for actual
and exemplary damages, litigation expenses and attorney’s fees We find no justification for the award of actual damages of Fifty
for lack of legal and valid basis. Thousand Pesos (₱50,000.00). Well-entrenched is the doctrine
that actual, compensatory and consequential damages must be
Concerning the application of the proper interest rates, the proved, and cannot be presumed. That part of the dispositive
16
following guidelines were set in Eastern Shipping Lines, Inc. v. portion of the Decision of the trial court ordering the petitioner to
Court of Appeals and Mercantile Insurance Co., Inc.: 15
pay actual damages of Fifty Thousand Pesos (₱50,000.00) has
no basis at all. The justification, if any, for such an award of
actual damages does not appear in the body of the decision of
I. When an obligation, regardless of its source, i.e.,
law, contracts, quasi-contracts, delicts or quasi-delicts, the trial court. Neither is there any testimonial and documentary
evidence on the alleged actual damages of Fifty Thousand
is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Pesos (₱50,000.00) to warrant such an award. Thus, the same
"Damages" of the Civil Code govern in determining the must be deleted.
measure of recoverable damages.
Concerning the award of exemplary damages for Fifty Thousand
II. With regard particularly to an award of interest in the Pesos (₱50,000.00), we likewise find no legal and valid basis for
concept of actual and compensatory damages, the rate granting the same. Article 2229 of the New Civil Code provides
of interest, as well as the accrual thereof, is imposed, that exemplary damages may be imposed by way of example or
as follows: correction for the public good. Exemplary damages are imposed
not to enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb socially
1. When the obligation is breached, and it deleterious actions. They are designed to permit the courts to
consists in the payment of a sum of money, mould behavior that has socially deleterious consequences, and
i.e., a loan or forbearance of money, the its imposition is required by public policy to suppress the wanton
interest due should be that which may have acts of an offender. However, it cannot be recovered as a matter
been stipulated in writing. Furthermore, the of right. It is based entirely on the discretion of the court. We find
interest due shall itself earn legal interest no cogent and valid reason to award the same in the case at
from the time it is judicially demanded. In the bar.
absence of stipulation, the rate of interest
shall be 12% per annum to be computed
With respect to the award of litigation expenses and attorney’s
from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions fees, Article 2208 of the New Civil Code enumerates the
17
of Article 1169 of the Civil Code. instances where such may be awarded and, in all cases, it must
be reasonable, just and equitable if the same were to be
granted. Attorney’s fees as part of damages are not meant to
2. When an obligation, not constituting a loan enrich the winning party at the expense of the losing litigant.
or forbearance of money, is breached, an They are not awarded every time a party prevails in a suit
interest on the amount of damages awarded because of the policy that no premium should be placed on the
may be imposed at the discretion of the court right to litigate. The award of attorney’s fees is the exception
18
at the rate of 6% per annum. No interest, rather than the general rule. As such, it is necessary for the
however, shall be adjudged on unliquidated court to make findings of facts and law that would bring the case
claims or damages except when or until the within the exception and justify the grant of such award. We find
demand can be established with reasonable none in this case to warrant the award by the trial court of
certainty. Accordingly, where the demand is litigation expenses and attorney’s fees in the amounts of Five
established with reasonable certainty, the Thousand Pesos (₱5,000.00) and Ten Thousand Pesos
interest shall begin to run from the time the (₱10,000.00), respectively, and therefore, the same must also
claim is made judicially or extrajudicially (Art. be deleted.
1169, Civil Code) but when such certainty
cannot be so reasonably established at the
time the demand is made, the interest shall WHEREFORE, the appealed Decision is MODIFIED. The rate of
begin to run only from the date the judgment interest on the adjudged principal amount of Two Hundred
of the court is made (at which time the Thousand Pesos (₱200,000.00) shall be six percent (6%) per
quantification of damages may be deemed to annum computed from the date of filing of the Complaint in the
trial court. The awards in the amounts of Fifty Thousand Pesos
have been reasonably ascertained). The
actual base for the computation of legal (₱50,000.00) as actual damages, Fifty Thousand Pesos
(₱50,000.00) as exemplary damages, Five Thousand Pesos
interest shall, in any case, be on the amount
finally adjudged. (₱5,000.00) as litigation expenses, and Ten Thousand Pesos
(₱10,000.00) as attorney’s fees are hereby DELETED. Costs
against the petitioner.
3. When the judgment of the court awarding
a sum of money becomes final and
executory, the rate of legal interest, whether SO ORDERED.
the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena,
from such finality until its satisfaction, this JJ., concur.
interim period being deemed to be by then an
equivalent to a forbearance of credit.
Footnotes
29 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
2
Fourth Division. 3) In criminal cases of malicious prosecution
against the plaintiff;
3
Penned by Judge Bernardo V. Saludares, Rollo, pp.
31-52. 4) In case of a clearly unfounded civil action
or proceeding against the plaintiff;
4
Rollo, p. 12.
5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the
5
Tai Tong Chuache & Co. v. Insurance Commission,
158 SCRA 366, 372 [1988]; Summit Guaranty & plaintiff’s plainly valid, just and demandable
claim;
Insurance Co., Inc. v. Court of Appeals, 110 SCRA
241, 249 [1981] citing 20 Am. Jur. 142; Paris-Manila
Perfume Co. v. Phoenix Assurance Co., 49 Phil. 753 6) In actions for legal support;
[1926].
7) In actions for the recovery of wages of
6
44 Am Jur 2d Insurance § 1938. household helpers, laborers and skilled
workers;
7
44 Am Jur 2d Insurance § 2021.
8) In actions for indemnity under workmen’s
8
Section 36 of Rule 130 of the Revised Rules of Court. compensation and employer’s liability laws;
9
D.M. Consunji, Inc. v. Court of Appeals and Maria J. 9) In a separate civil action to recover civil
Juego, G.R. No. 137873, April 20, 2001, pp. 3-4 citing liability arising from a crime;
31A C.J.S. Evidence § 194 and Philippine Home
Assurance Corp. v. Court of Appeals, 257 SCRA 468, 10) When at least double judicial costs are
479 [1996]. awarded;
[1966].
13
Rollo, pp. 16-17.
[1997].
15
234 SCRA 78, 95-97 [1994].
30 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
THIRD DIVISION
4. Batas Pambansa Blg. 847 which voids an
G.R. No. 92492 June 17, 1993 insurance contract, whether or not
concealment was intentionally made, was not
applicable to Canilang's case as that law
THELMA VDA. DE CANILANG, petitioner, became effective only on 1 June 1985.
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents. On appeal by Great Pacific, the Court of Appeals reversed and
set aside the decision of the Insurance Commissioner and
dismissed Thelma Canilang's complaint and Great Pacific's
Simeon C. Sato for petitioner. counterclaim. The Court of Appealed found that the use of the
word "intentionally" by the Insurance Commissioner in defining
FELICIANO, J.: and resolving the issue agreed upon by the parties at pre-trial
before the Insurance Commissioner was not supported by the
evidence; that the issue agreed upon by the parties had been
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. whether the deceased insured, Jaime Canilang, made a material
Claudio and was diagnosed as suffering from "sinus concealment as the state of his health at the time of the filing of
tachycardia." The doctor prescribed the following fro insurance application, justifying respondent's denial of the claim.
him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. The Court of Appeals also found that the failure of Jaime
Mr. Canilang consulted the same doctor again on 3 August 1982 Canilang to disclose previous medical consultation and
and this time was found to have "acute bronchitis." treatment constituted material information which should have
been communicated to Great Pacific to enable the latter to make
On next day, 4 August 1982, Jaime Canilang applied for a "non- proper inquiries. The Court of Appeals finally held that the Ng
medical" insurance policy with respondent Great Pacific Life Gan Zee case which had involved misrepresentation was not
Assurance Company ("Great Pacific") naming his wife, Thelma applicable in respect of the case at bar which
Canilang, as his beneficiary. Jaime Canilang was issued
1 involves concealment.
ordinary life insurance Policy No. 345163, with the face value of
P19,700, effective as of 9 August 1982. Petitioner Thelma Canilang is now before this Court on a
Petition for Review on Certiorari alleging that:
On 5 August 1983, Jaime Canilang died of "congestive heart
failure," "anemia," and "chronic anemia." Petitioner, widow and
2
1. . . . the Honorable Court of Appeals,
beneficiary of the insured, filed a claim with Great Pacific which speaking with due respect, erred in not
the insurer denied on 5 December 1983 upon the ground that holding that the issue in the case agreed
the insured had concealed material information from it. upon between the parties before the
Insurance Commission is whether or not
Petitioner then filed a complaint against Great Pacific with the Jaime Canilang "intentionally" made material
Insurance Commission for recovery of the insurance proceeds. concealment in stating his state of health;
During the hearing called by the Insurance Commissioner,
petitioner testified that she was not aware of any serious illness 2. . . . at any rate, the non-disclosure of
suffered by her late husband and that, as far as she knew, her
3
certain facts about his previous health
husband had died because of a kidney disorder. A deposition
4
conditions does not amount to fraud and
given by Dr. Wilfredo Claudio was presented by petitioner. There private respondent is deemed to have waived
Dr. Claudio stated that he was the family physician of the inquiry thereto. 11
for its part presented Dr. Esperanza Quismorio, a physician The medical declaration which was set out in the application for
and a medical underwriter working for Great Pacific. She 7 insurance executed by Jaime Canilang read as follows:
testified that the deceased's insurance application had been
approved on the basis of his medical declaration. She explained
8
MEDICAL DECLARATION
that as a rule, medical examinations are required only in cases
where the applicant has indicated in his application for insurance
coverage that he has previously undergone medical consultation I hereby declare that:
and hospitalization.9
31 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
___________________________________________ The relevant statutory provisions as they stood at the time Great
_____________________________________ Pacific issued the contract of insurance and at the time Jaime
Canilang died, are set out in P.D. No. 1460, also known as the
GENERAL DECLARATION Insurance Code of 1978, which went into effect on 11 June
1978. These provisions read as follows:
32 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
The Insurance Commissioner had also ruled that the failure of It remains only to note that the Court of Appeals finding that the
Great Pacific to convey certain information to the insurer was not parties had not agreed in the pretrial before the Insurance
"intentional" in nature, for the reason that Jaime Canilang Commission that the relevant issue was whether or not Jaime
believed that he was suffering from minor ailment like a common Canilang had intentionally concealed material information from
cold. Section 27 of the Insurance Code of 1978 as it existed the insurer, was supported by the evidence of record, i.e., the
from 1974 up to 1985, that is, throughout the time range material Pre-trial Order itself dated 17 October 1984 and the Minutes of
for present purposes, provided that: the Pre-trial Conference dated 15 October 1984, which "readily
shows that the word "intentional" does not appear in the
Sec. 27. A concealment entitles the injured statement or definition of the issue in the said Order and
party to rescind a contract of insurance. Minutes." 18
The preceding statute, Act No. 2427, as it stood from WHEREFORE, the Petition for Review is DENIED for lack of
1914 up to 1974, had provided: merit and the Decision of the Court of Appeals dated 16 October
1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.
Sec. 26. A concealment, whether intentional
or unintentional, entitles the injured party to
rescind a contract of insurance. (Emphasis SO ORDERED.
supplied)
Bidin, Davide, Jr., Romero and Melo, JJ., concur.
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: # Footnotes
33 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
8 Id., p. 10.
9 Id., p. 19.
11 Petition p. 5; Rollo, p. 1.
17 7 SCRA at 318.
34 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
35 | P a g e #SJBL Part 2
MERCANTILE LAW | I n s u r a n c e
Petitioner's motion for reconsideration was denied; hence, this Moreover, such argument of private respondents would make
petition. Section 27 of the Insurance Code, which allows the injured party
to rescind a contract of insurance where there is concealment,
II ineffective (See Vda. de Canilang v. Court of Appeals, supra).
We reverse the decision of the Court of Appeals. Anent the finding that the facts concealed had no bearing to the
cause of death of the insured, it is well settled that the insured
need not die of the disease he had failed to disclose to the
The rule that factual findings of the lower court and the appellate insurer. It is sufficient that his non-disclosure misled the insurer
court are binding on this Court is not absolute and admits of in forming his estimates of the risks of the proposed insurance
exceptions, such as when the judgment is based on a policy or in making inquiries (Henson v. The Philippine American
misappreciation of the facts (Geronimo v. Court of Appeals, 224 Life Insurance Co., 56 O.G. No. 48 [1960]).
SCRA 494 [1993]).
We, therefore, rule that petitioner properly exercised its right to
In weighing the evidence presented, the trial court concluded rescind the contract of insurance by reason of the concealment
that indeed there was concealment and misrepresentation, employed by the insured. It must be emphasized that rescission
however, the same was made in "good faith" and the facts was exercised within the two-year contestability period as
concealed or misrepresented were irrelevant since the policy recognized in Section 48 of The Insurance Code.
was "non-medical". We disagree.
WHEREFORE, the petition is GRANTED and the Decision of the
Section 26 of The Insurance Code is explicit in requiring a party Court of Appeals is REVERSED and SET ASIDE.
to a contract of insurance to communicate to the other, in good
faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the SO ORDERED.
other has no means of ascertaining. Said Section provides:
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.
A neglect to communicate that which a party
knows and ought to communicate, is called
concealment.
36 | P a g e #SJBL Part 2