Insurance Sept 19

INSURANCE | Sept 19| 1
G.R. No. 95546 November 6, 1992

MAKATI
TUSCANY
CONDOMINIUM
CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by
American International Underwriters (Phils.), Inc., respondent.
second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the
balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of
P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy
No. AH-CPP-9210651. It explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor and the receipts for the
installment payments covering the policy for 1984-85, as well as the two (2) previous
policies, stated the following reservations:
BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment of the
premiums due on an insurance policy invalidates the contract of insurance, in view of
Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which
provides:
Sec. 77. An insurer is entitled to the payment of the premium as
soon as the thing is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract
of 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 period
provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No.
AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March
1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium
was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AHCPP-9210596, which replaced and renewed the previous policy, for a term covering 1
March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again
paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September
1983, and 21 November 1983. All payments were likewise accepted by private
respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to
petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1
March 1985. On this renewed policy, petitioner made two installment payments, both
accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the
2. Acceptance of this payment shall not waive any of the company

rights to deny liability on any claim under the policy arising before
such payments or after the expiration of the credit clause of the
policy; and
3. Subject to no loss prior to premium payment. If there be any loss
such is not covered.
Petitioner further claimed that the policy was never binding and valid, and no risk
attached to the policy. It then pleaded a counterclaim for P152,000.00 for the
premiums already paid for 1984-85, and in its answer with amended counterclaim,
sought the refund of P924,206.10 representing the premium payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon
the following findings:
While it is true that the receipts issued to the defendant contained
the aforementioned reservations, it is equally true that payment of
the premiums of the three aforementioned policies (being sought to
be refunded) were made during the lifetime or term of said policies,
hence, it could not be said, inspite of the reservations, that no risk
attached under the policies. Consequently, defendant's counterclaim
for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP9210651, in view of the reservation in the receipts ordinarily issued
by the plaintiff on premium payments the only plausible conclusion is
that plaintiff has no right to demand their payment after the lapse of
the term of said policy on March 1, 1985. Therefore, the defendant
was justified in refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of
Appeals rendered a decision 2modifying that of the trial court by ordering herein
petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or
P314,103.05 plus legal interest until fully paid, and affirming the denial of the
counterclaim. The appellate court thus explained
The obligation to pay premiums when due is ordinarily as indivisible
obligation to pay the entire premium. Here, the parties herein agreed
to make the premiums payable in installments, and there is no
pretense that the parties never envisioned to make the insurance
contract binding between them. It was renewed for two succeeding
years, the second and third policies being a renewal/replacement for
the previous one. And the insured never informed the insurer that it
was terminating the policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code,
the parties may not agree to make the insurance contract valid and
binding without payment of premiums, there is nothing in said
section which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract
as valid and binding upon payment of the first premium. Otherwise,
we would allow the insurer to renege on its liability under the
contract, had a loss incurred (sic) before completion of payment of
the entire premium, despite its voluntary acceptance of partial
payments, a result eschewed by a basic considerations of fairness
and equity.
To our mind, the insurance contract became valid and binding upon
payment of the first premium, and the plaintiff could not have denied
liability on the ground that payment was not made in full, for the
reason that it agreed to accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the
insurance policies for 1982, 1983 and 1984 invalidated said policies because of the
provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions
stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before
payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only be
effective if there is an acknowledgment in the policy of the receipt of premium
pursuant to Sec. 78 of the Insurance Code. The absence of an express
acknowledgment in the policies of such receipt of the corresponding premium
payments, and petitioner's failure to pay said premiums on or before the effective
dates of said policies rendered them invalid. Petitioner thus concludes that there
cannot be a perfected contract of insurance upon mere partial payment of the
premiums because under Sec. 77 of the Insurance Code, no contract of insurance is

valid and binding unless the premium thereof has been paid, notwithstanding any
agreement to the contrary. As a consequence, petitioner seeks a refund of all premium
payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that petitioner and private respondent intended
subject insurance policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse
that the premiums were not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned
findings and conclusion of the appellate court contained in its Resolution denying the
motion to reconsider its Decision
While the import of Section 77 is that prepayment of premiums is
strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that
the policy is valid even if premiums are not paid, but does not
expressly prohibit an agreement granting credit extension, and such
an agreement is not contrary to morals, good customs, public order
or public policy (De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not
so proscribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily
accepted. 4
The
reliance
by
petitioner
on Arce
vs. Capital
Surety
and
Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in
the case at bar. In Arce, no payment was made by the insured at all despite the grace
period given. In the case before Us, petitioner paid the initial installment and
thereafter made staggered payments resulting in full payment of the 1982 and 1983

insurance policies. For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurance contracts valid, effective and binding, petitioner may not be
allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985.
Moreover, as correctly observed by the appellate court, where the risk is entire and the
contract is indivisible, the insured is not entitled to a refund of the premiums paid if the
insurer was exposed to the risk insured for any period, however brief or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is
AFFIRMED. Costs against petitioner.
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five

(5) insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its
properties [in Pasay City and Manila] . . . .
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of
22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs
properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were
razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted,
five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45
as renewal premium payments for which Official Receipt Direct Premium No.
62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14,
1992, Masagana made its formal demand for indemnification for the burned
insured properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it
was rejecting Masagana's claim on the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for
another term;
SO ORDERED.
b) Defendant had put plaintiff and its alleged broker on notice of nonrenewal earlier; and
c) The properties covered by the said policies were burned in a fire
that took place last June 13, 1992, or before tender of premium
payment."
G.R. No. 137172
April 4, 2001
UCPB
GENERAL
INSURANCE
vs.
MASAGANA TELAMART, INC., respondent.
CO.,
INC., petitioner,
(Record, p. 5)
RESOLUTION
Hence Masagana filed this case.
DAVIDE, JR., C.J.:
The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of
payment of the premiums on 13 July 1992 did not result in the renewal of the policies,
having been made beyond the effective date of renewal as provided under Policy
Condition No. 26, which states:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision 1 of the Court of Appeals, which affirmed with modification the judgment of
the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of the five insurance policies on
Respondent's properties; (b) declaring the replacement-renewal policies effective and
binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the
renewal-replacement policies. The modification consisted in the (1) deletion of the trial
court's declaration that three of the policies were in force from August 1991 to August
1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the
total amount due the Respondent.
The material operative facts upon which the appealed judgment was based are
summarized by the Court of Appeals in its assailed decision as follows:
26. Renewal Clause. Unless the company at least forty five days in advance
of the end of the policy period mails or delivers to the assured at the address
shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the
assured shall be entitled to renew the policy upon payment of the premium
due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that
Respondent, which had procured insurance coverage from Petitioner for a number of

years, had been granted a 60 to 90-day credit term for the renewal of the policies.
Such a practice had existed up to the time the claims were filed. Thus:
plaintiff's claim as shown by the letter dated July 17, 1992 (Exhibit "11",
Record, p. 254).
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was
issued on May 7, 1990 but premium was paid more than 90 days later on
August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance
Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22,
1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB
only on July 13, 1990 or more than 60 days later under O.R. No. 46487
(Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No.
34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May
7, 1990 but premium therefor was paid only on July 19, 1990 under O.R. No.
46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks
from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium
was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1").
Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to
May 22, 1991 was issued on May 7, 1990 but premium was paid only on July
19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy
No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was
issued on May 22, 1989 but premium therefor was collected only on July 25,
1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance
Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12,
1990 was issued to Intratrade Phils. (Masagana's sister company) dated
December 10, 1988 but premium therefor was paid only on February 15, 1989
under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No.
29128 was issued on May 22, 1989 but premium was paid only on July 25,
1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May
22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued
on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No.
40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs.
"DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June
15, 1989 but premium was paid only on February 13, 1990 under O.R. No.
39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE"
and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22,
1988 but premium therefor was collected only on March 15, 1989 under O.R.
NO. 38573 for insurance risks coverage from December 15, 1988 to
December 15, 1989 (Exhs. "FF" and "FF-1").
In our decision of 15 June 1999, we defined the main issue to be "whether the fire
insurance policies issued by petitioner to the respondent covering the period from May
22, 1991 to May 22, 1992 . . . had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered on a later date and
after the occurrence of the (fire) risk insured against." We resolved this issue in the
negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela
v. Court of Appeals; 2 South Sea Surety and Insurance Co., Inc. v. Court of
Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set aside the
decision of the Court of Appeals.
Moreover, according to the Court of Appeals the following circumstances constitute

preponderant proof that no timely notice of non-renewal was made by Petitioner:
(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p.
350) from Ultramar Reinsurance Brokers that plaintiff's reinsurance facility
had been confirmed up to 67.5% only on April 15, 1992 as indicated on
Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p.
320) was sent not earlier than said date, or within 45 days from the expiry
dates of the policies as provided under Policy Condition No. 26; (2) Defendant
insurer unconditionally accepted, and issued an official receipt for, the
premium payment on July 1[3], 1992 which indicates defendant's willingness
to assume the risk despite only a 67.5% reinsurance cover[age]; and (3)
Defendant insurer appointed Esteban Adjusters and Valuers to investigate
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It
alleges in the motion that we had made in the decision our own findings of facts, which
are not in accord with those of the trial court and the Court of Appeals. The courts
below correctly found that no notice of non-renewal was made within 45 days before
22 May 1992, or before the expiration date of the fire insurance policies. Thus, the
policies in question were renewed by operation of law and were effective and valid on
30 June 1992 when the fire occurred, since the premiums were paid within the 60- to
90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree expressly
or impliedly on the extension of credit or time to pay the premium nor consider a policy
binding before actual payment. It urges the Court to take judicial notice of the fact that
despite the express provision of Section 77 of the Insurance Code, extension of credit
terms in premium payment has been the prevalent practice in the insurance industry.
Most insurance companies, including Petitioner, extend credit terms because Section 77
of the Insurance Code is not a prohibitive injunction but is merely designed for the
protection of the parties to an insurance contract. The Code itself, in Section 78,
authorizes the validity of a policy notwithstanding non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its
awareness of Section 77 Petitioner persuaded and induced Respondent to believe that
payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it
accepted payments within 60 to 90 days after the due dates. By extending credit and
habitually accepting payments 60 to 90 days from the effective dates of the policies, it
has implicitly agreed to modify the tenor of the insurance policy and in effect waived
the provision therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.
Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues
that both the trial court and the Court of Appeals overlooked the fact that on 6 April
1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent
by personal delivery a copy thereof to Respondent's broker, Zuellig. Both courts
likewise ignored the fact that Respondent was fully aware of the notice of non-renewal.
A reading of Section 66 of the Insurance Code readily shows that in order for an
insured to be entitled to a renewal of a non-life policy, payment of the premium due on
the effective date of renewal should first be made. Respondent's argument that Section
77 is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the
motion for reconsideration and the pleadings filed thereafter by the parties, we
resolved to grant the motion for reconsideration. The following facts, as found by the
trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and
these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within
which to pay the premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as
there is no proof at all that the notice sent by ordinary mail was received by
Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of
P225,753.95 were paid by Respondent within the 60- to 90-day credit term
and were duly accepted and received by Petitioner's cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the
Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner's
advantage despite its practice of granting a 60- to 90-day credit term for the payment
of premiums.
Section 77 of the Insurance Code of 1978 provides:
SECTION 77. An insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of 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 period provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In turn, this Section has its source in Section 72
of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540,
approved on 21 June 1963, which read:
SECTION 72. An insurer is entitled to payment of premium as soon as the
thing insured is exposed to the peril insured against, unless there is clear
agreement to grant the insured credit extension of the premium due. No
policy issued by an insurance company is valid and binding unless and until
the premium thereof has been paid. (Italic supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But are
there exceptions to Section 77?
The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or
industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SECTION 78. Any acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make
the policy binding, notwithstanding any stipulation therein that it shall not be
binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court
of Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have
agreed to the payment in installments of the premium and partial payment has been
made at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those
three years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame
excuse that the premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following pronouncement
of the Court of Appeals in its Resolution denying the motion for reconsideration of its
decision:
While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared to
rule that the request to make installment payments duly approved by the
insurer would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance
policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is
valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have
voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the
insurer may grant credit extension for the payment of the premium. This simply means
that if the insurer has granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit
term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. That agreement is
not against the law, morals, good customs, public order or public policy. The
agreement binds the parties. Article 1306 of the Civil Code provides:
ARTICLE 1306. The contracting parties may establish such stipulations
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the policy
would not be permitted against Petitioner, which had consistently granted a 60- to 90day credit term for the payment of premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since Respondent relied in good
faith on such practice. Estoppel then is the fifth exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and
SET ASIDE, and a new one is hereby entered DENYING the instant petition for
failure of Petitioner to sufficiently show that a reversible error was committed
by the Court of Appeals in its challenged decision, which is hereby
AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
power. 2 The State may regulate in various respects the relations between the insurer
and the insured, including the internal affairs of an insurance company, without being
violative of due process. 3
A requirement imposed by way of State regulation upon insurers is the maintenance of
an adequate legal reserve in favor of those claiming under their policies. 4 The law
generally mandates that insurance companies should retain an amount sufficient to
guarantee the security of its policyholders in the remote future, as well as the present,
and to cover any contingencies that may arise or may be fairly anticipated. The
integrity of this legal reserve is threatened and undermined if a credit arrangement on
the payment of premium were to be sanctioned. Calculations and estimations of
liabilities under the risk insured against are predicated on the basis of the payment of
premiums, the vital element that establishes the juridical relation between the insured
and the insurer. By legislative fiat, any agreement to the contrary notwithstanding, the
payment of premium is a condition precedent to, and essential for, the efficaciousness
of the insurance contract, except (a) in case of life or industrial life insurance where a
grace period applies, or (b) in case of a written acknowledgment by the insurer of the
receipt of premium, such as by a deposit receipt, the written acknowledgment being
conclusive evidence of the premium payment so far as to make the policy binding. 5
Section 77 of the Insurance Code provides:
"SECTION 77. An insurer is entitled to payment of the premium as soon as
the thing insured is exposed to the peril insured against. Notwithstanding any
the grace period provision applies."
This provision amended Section 72 of the then Insurance Act by deleting the phrase,
"unless there is a clear agreement to grant the insured credit extension of the premium
due," and adding at the beginning of the second sentence the phrase,
"[n]otwithstanding any agreement to the contrary." Commenting on the new provision,
Dean Hernando B. Perez states:
Separate Opinions
VITUG, J .:
An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal
contract where the rights and obligations of the parties correlate and mutually
correspond. The insurer assumes the risk of loss which an insured might suffer in
consideration of premium payments under a risk-distributing device. Such assumption
of risk is a component of a general scheme to distribute actual losses among a group
of persons, bearing similar risks, who make ratable contributions to a fund from which
the losses incurred due to exposures to the peril insured against are assured and
compensated.
It is generally recognized that the business of insurance is one imbued with public
interest. 1 For the general good and mutual protection of all the parties, it is aptly
subjected to regulation and control by the State by virtue of an exercise of its police
"Under the former rule, whenever the insured was granted credit extension of
the premium due or given a period of time to pay the premium on the policy
issued, such policy was binding although premiums had not been paid
(Section 72, Insurance Act; 6 Couch 2d. 67). This rule was changed when the
present provision eliminated the portion concerning credit agreement, and
added the phrase 'notwithstanding any agreement to the contrary' which
precludes the parties from stipulating that the policy is valid even if premiums
are not paid. Hence, under the present law, the policy is not valid and binding
unless and until the premium is paid (Arce vs. Capital Insurance & Surety Co.,
Inc., 117 SCRA 63). If the insurer wants to favor the insured by making the
policy binding notwithstanding the non-payment of premium, a mere credit
agreement would not be sufficient. The remedy would be for the insurer to
acknowledge in the policy that premiums were paid although they were not, in
which case the policy becomes binding because such acknowledgment is a
conclusive evidence of payment of premium (Section 78). Thus, the Supreme
Court took note that under the present law, Section 77 of the Insurance Code

of 1978 has deleted the clause 'unless there is a clear agreement to grant the
insured credit extension of the premium due' (Velasco vs. Apostol, 173 SCRA
228)."6
By weight of authority, estoppel cannot create a contract of insurance, 7 neither can it
be successfully invoked to create a primary liability, 8 nor can it give validity to what
the law so proscribes as a matter of public policy. 9 So essential is the premium
payment to the creation of the vinculum juris between the insured and the insurer that
it would be doubtful to have that payment validly excused even for a fortuitous
event. 10
The law, however, neither requires for the establishment of the juridical tie, nor
measures the strength of such tie by, any specific amount of premium payment. A part
payment of the premium, if accepted by the insurer, can thus perfect the contract and
bring the parties into an obligatory relation. 11 Such a payment puts the contract into
full binding force, not merely pro tanto, thereby entitling and obligating the parties by
their agreement. Hence, in case of loss, full recovery less the unpaid portion of the
premium (by the operative act of legal compensation), can be had by the insured and,
correlatively, if no loss occurs the insurer can demand the payment of the unpaid
balance of the premium. 12
In the instant case, no juridical tie appears to have been established under any of the
situations hereinabove discussed.
WHEREFORE, I vote to deny the motion for reconsideration.
Melo, J ., concurs.
PARDO, J ., dissenting:
The majority resolved to grant respondent's motion for reconsideration of the Court's
decision promulgated on June 15, 1999. By this somersault, petitioner must now pay
respondent's claim for insurance proceeds amounting to P18,645,000.00, exclusive of
interests, plus 25% of the amount due as attorney's fees, P25,000.00 as litigation
expenses, and costs of suit, covering its Pasay City property razed by fire. What an
undeserved largess! Indeed, an unjust enrichment at the expense of petitioner; even
the award of attorney's fees is bloated to 25% of the amount due.
We cannot give our concurrence. We beg to dissent. We find respondent's claim to be
fraudulent:
First: Respondent Masagana surreptitiously tried to pay the overdue premiums before
giving written notice to petitioner of the occurrence of the fire that razed the subject
property. This failure to give notice of the fire immediately upon its occurrence
blatantly showed the fraudulent character of its claim. The fire totally destroyed the
property on June 13, 1992; the written notice of loss was given only more than a
month later, on July 14, 1992, the day after respondent surreptitiously paid the
overdue premiums. Respondent very well knew that the policy was not renewed on
time. Hence, the surreptitious attempt to pay overdue premiums. Such act revealed a
reprehensible disregard of the principle that insurance is a contract uberrima fides, the
most abundant good faith.1 Respondent is required by law and by express terms of the
policy to give immediate written notice of loss. This must be complied with in the
utmost good faith.
Another badge of fraud is that respondent deviated from its previous practice of
coursing its premium payments through its brokers. This time, respondent Masagana
went directly to petitioner and paid through its cashier with manager's checks.
Naturally, the cashier routinely accepted the premium payment because he had no
written notice of the occurrence of the fire. Such fact was concealed by the insured and
not revealed to petitioner at the time of payment.
Indeed, if as contended by respondent, there was a clear agreement regarding the
grant of a credit extension, respondent would have given immediate written notice of
the fire that razed the property. This clearly showed respondent's attempt
to deceive petitioner into believing that the subject property still existed and the risk
insured against had not happened.
Second: The claim for insurance benefits must fall as well because the failure to give
timely written notice of the fire was a material misrepresentation affecting the risk
insured against.
Section 1 of the policy provides:
"All benefits under the policy shall be forfeited if the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if
any false declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the insured or any one acting on his behalf to
obtain any benefit under the policy." 2
In the factual milieu, the purported practice of giving 60 to 90-day credit extension for
payment of premiums was a disputed fact. But it is a given fact that the written notice
of loss was not immediately given. It was given only the day after the attempt to pay
the delayed premiums.
At any rate, the purported credit was a mere verbal understanding of the respondent
Masagana of an agreement between the insurance company (petitioner) and the
insurance brokers of respondent Masagana. The president of respondent
Masagana admitted that the insurance policy did not contain any proviso pertaining to
the grant of credit within which to pay the premiums. Respondent Masagana merely
deduced that a credit agreement existed based on previous years' practice that they
had of delayed payments accepted by the insurer as reflected on the face of the
receipts issued by UCPB evidencing the payment of premiums.
"Q:
You also claim that you have 60 to 90 days credit arrangement with
UCPB; is that correct?,
A:
Yes, ma'am.

Q:
I'm showing to you the policy which had previously been marked in
evidence as Exhibit "A", "B", "C", "D", & "E"' for the plaintiff and likewise,
marked as exhibits "1", "2", "3", "4", & "5" for the defendant. Could you show
us, Mr. witness where in these policies does it show that you are actually
given 60 to 90 days credit arrangement with UCPB?
A:
Well, it's verbal with your company, and Ansons Insurance Brokerage.
It is not written.
Q:
It is not written in the policy?
A:
Yes.
Q:
Brokerage?
You merely have verbal agreement with Ansons Insurance
A:
Yes; as shown in our mode of payment; in our vouchers and the
receipts issued by the insurance company." 3
It must be stressed that a verbal understanding of respondent Masagana cannot
amend an insurance policy. In insurance practice, amendments or even corrections to a
policy are done by written endorsements or tickets appended to the policy.
However, the date on the face of the receipts does not refer to the date of actual
remittance by respondent Masagana to UCPB of the premium payments, but merely to
the date of remittance to UCPB of the premium payments by the insurance brokers of
respondent Masagana.
"Q: You also identified several receipts; here; official receipts issued by UCPB
General Insurance Company, Inc., which has been previously marked as
Exhibits "F", "G", "H", "I", and "J" for the plaintiff; is that correct?
A:
Yes.
Q:
And, you would agree with me that the dates indicated in these
particular Official Receipts (O. R.), merely indicated the dates when UCPB
General Insurance Company issued these receipts? Do you admit that, Mr.
Witness?
A:
That was written in the receipts.
Q:
But, you would also agree that this did not necessarily show the
dates when you actually forwarded the checks to your broker, Anson
Insurance Agency, for payment to UCPB General Insurance Co. Inc., isn't it?
A:
The actual support of this would be the cash voucher of the company,
Masagana Telamart Inc., the date when they picked up the check from the
company.
Q:
And are these cash voucher with you?
A:
I don't know if it is in the folder or in our folder, now.
Q:
So, you are not certain, whether or not you actually delivered the
checks covered by these Official Receipts to UCPB General Insurance, on the
dates indicated?
A:
I would suppose it is few days earlier, when they picked up the
payment in our office." 4
Hence, what has been established was the grant of credit to the insurance brokers, not
to the assured. The insurance company recognized the payment to the insurance
brokers as payment to itself, though the actual remittance of the premium payments
to the principal might be made later. Once payment of premiums is made to the
insurance broker, the assured would be covered by a valid and binding insurance
policy, provided the loss occurred after payment to the broker has been made.
Assuming arguendo that the 60 to 90 day-credit-term has been agreed between the
parties, respondent could not still invoke estoppel to back up its claim. "Estoppel is
unavailing in this case," 5 thus spoke the Supreme Court through the pen of Justice
Hilario G. Davide, Jr., now Chief Justice. Mutatis mutandi, he may well be speaking of
this case. He added that "[E]stoppel can not give validity to an act that is prohibited by
law or against public policy." 6 The actual payment of premiums is a condition
precedent to the validity of an insurance contract other than life insurance policy. 7 Any
agreement to the contrary is void as against the law and public policy. Section 77 of
the Insurance Code provides:
"An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any
the grace period provision applies." [Emphasis supplied]
An incisive reading of the afore-cited provision would show that the emphasis was on
the conclusiveness of the acknowledgment in the policy of the receipt of premium,
notwithstanding the absence of actual payment of premium, because of estoppel.
Under the doctrine of estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon. "A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them." 8
This is the only case of estoppel which the law considers a valid exception to the
mandatory requirement of pre-payment of premium. The law recognized that the

contracting parties, in entering a contract of insurance, are free to enter into
stipulations and make personal undertakings so long as they are not contrary to law or
public policy. However, the law is clear in providing that the acknowledgment must be
contained in the policy or contract of insurance. Anything short of it would not fall
under the exception so provided in Section 78.
Hence, because of respondent's failure to pay the premiums prior to the occurrence of
the fire insured against, no valid and binding insurance policy was created to cover the
loss and destruction of the property. The fire took place on June 13, 1992, twenty-two
(22) days after the expiration of the policy of fire insurance. The tender of payment of
premiums was made only thirty (30) days after the occurrence of the fire, or on July
13, 1992. Respondent Masagana did not give immediate notice to petitioner of the fire
as it occurred as required in the insurance policy. Respondent Masagana tried to tender
payment of the premiums overdue surreptitiously before giving notice of the
occurrence of the fire. More importantly, the parties themselves expressly stipulated
that the insurance policy would not be binding on the insurer unless the premiums
thereon had been paid in full. Section 2 of the policy provides:
"2. This policy including any renewal and/or endorsement thereon is not in
force until the premium has been fully paid and duly receipted by the
Company in the manner provided therein.
"Any supplementary agreement seeking to amend this condition prepared by
agent, broker or company official, shall be deemed invalid and of no effect.
"No payment in respect of any premium shall be deemed to be payment to
the Company unless a printed form of receipt for the same signed by an
Official or duly appointed Agent of the Company shall have been given to the
Insured, except when such printed receipt is not available at the time of
payment and the company or its representative accepts the premium in which
case a temporary receipt other than the printed form may be issued in lieu
thereof. "Except only on those specific cases where corresponding rules and
regulations which now we are or may hereafter be in force provide for the
payment of the stipulated premiums in periodic installments at fixed
percentages, it is hereby declared, agreed and warranted that this policy shall
be deemed effective valid and binding upon the Company when the premiums
thereof have actually been paid in full and duly acknowledged in a receipt
signed by any authorized official or representative/agent of the Company in
such manner as provided herein." 9 [emphasis supplied]
Thus, the insurance policy, including any renewal thereof or any endorsements
thereon shall not come in force until the premiums have been fully paid and duly
received by the insurance Company. No payment in respect of any premiums shall be
deemed to be payment to the Insurance Company unless a printed form of receipt for
the same signed by an Official or duly appointed Agent of the Company shall be given
to the insured.
The case of Tibay v. Court of Appeals 10 is in point. The issue raised therein was: "May
a fire insurance policy be valid, binding and enforceable upon mere partial payment of
premium?" In the said case, Fortune Life and General Insurance Co., Inc. issued Fire
Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo, on a
two-storey residential building located at 5855 Zobel Street, Makati City, together with
all the personal effects therein, The insurance was for P600,000.00, covering the
period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total
premium of P2,983.50, Violeta Tibay only paid P600.00, thus leaving a substantial
balance unpaid. On March 8, 1987, the insured building was completely destroyed by
fire. Two days later, or on 10 March 1987, Violeta Tibay paid the balance of the
premium. On the same day, she filed with Fortune a claim for the proceeds of the fire
insurance policy.
In denying the claim of insurance, the Court ruled that "by express agreement of the
parties, no vinculum juris or bond of law was to be established until full payment was
effected prior to the occurrence of the risk insured against. 11 As expressly stipulated in
the contract, full payment must be made before the risk occurs for the policy to be
considered effective and in force. "No vinculum juris whereby the insurer bound itself
to indemnify the assured according to law ever resulted from the fractional payment of
premium." 12
The majority cited the case of Makati Tuscany Condominium Corp. vs. Court of
Appeals 13 to support the contention that the insurance policies subject of the instant
case were valid and effective. However, the factual situation in that case was different
from the case at bar.
In Tuscany, the Court held that the insurance policies were valid and binding because
there was partial payment of the premiums and a clear understanding between the
parties that they had intended the insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. On the basis of equity and
fairness, the Court ruled that there was a perfected contract of insurance upon the
partial payment of the premiums, notwithstanding the provisions of Section 77 to the
contrary. The Court would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse
that the premiums were not prepaid in full.
There is no dispute that like in any other contract, the parties to a contract of
insurance enjoy the freedom to stipulate on the terms and conditions that will govern
their agreement so long as they are not contrary to law, morals, good customs, public
order or public policy. However, the agreement containing such terms and conditions
must be clear and definite.
In the case at bar, there was no clear and definite agreement between petitioner and
respondent on the grant of a credit extension; neither was there partial payment of
premiums for petitioner to invoke the exceptional doctrine in Tuscany.
Hence, the circumstances in the above cited case are totally different from the case at
bar, and consequently, not applicable herein.
Insurance is an aleatory contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or
contingent event. 14 The consideration is the premium, which must be paid at the time

and in the manner specified in the policy, and if not so paid, the policy will lapse and be
forfeited by its own terms. 15
With regard to the contention that the absence of notice of non-renewal of the policy
resulted to the automatic renewal of the insurance policy, we find the contention
untenable. As above discussed, the law provides that only upon payment of the
insurance premium will the insurance policy bind the insurer to the peril insured
against and hold it liable under the policy in case of loss.
Even in the absence of notice of non-renewal, the assured would be bound by the law
that a non life insurance policy takes effect only on the date payment of the premium
was made.
Verily, it is elemental law that the payment of premium is a mandatory requisite to
make the policy of insurance effective. If the premium is not paid in the manner
prescribed in the policy as intended by the parties, the policy is void and ineffective. 16
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. 17
IN VIEW WHEREOF, I vote to DENY the respondent's motion for reconsideration, for
lack of merit.

on appeal, and the motion for reconsideration was denied. 3 The petitioner then came
to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification
in law, and when used in an insurance contract are to be construed and considered
according to the ordinary understanding and common usage and speech of people
generally. In-substance, the courts are practically agreed that the words "accident" and
"accidental" mean that which happens by chance or fortuitously, without intention or
design, and which is unexpected, unusual, and unforeseen. The definition that has
usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known case, and therefore not expected. 4
G.R. No. 92383 July 17, 1992

SUN
INSURANCE
OFFICE,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
LTD., petitioner,
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to
value of P200,000.00. Two months later, he was dead with a
As beneficiary, his wife Nerissa Lim sought payment on the
rejected. The petitioner agreed that there was no suicide.
there was no accident either.
Felix Lim, Jr. with a face

bullet wound in his head.
policy but her claim was
It argued, however that
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on
October 6, 1982, at about 10 o'clock in the evening, after his mother's birthday party.
According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with
his handgun, from which he had previously removed the magazine. As she watched
television, he stood in front of her and pointed the gun at her. She pushed it aside and
said it might he loaded. He assured her it was not and then pointed it to his temple.
The next moment there was an explosion and Lim slumped to the floor. He was dead
before he fell. 1
An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and
not expected by the person to whom it happens. It has also been defined as an injury
which happens by reason of some violence or casualty to the injured without his
design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in
Lim's death was indeed an accident. The petitioner, invoking the case of De la Cruz v.
Capital Insurance, 6 says that "there is no accident when a deliberate act is performed
unless some additional, unexpected, independent and unforeseen happening occurs
which produces or brings about their injury or death." There was such a happening.
This was the firing of the gun, which was the additional unexpected and independent
and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the insurance
contract and contends that the private petitioner's claim is barred by such provision. It
is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the
face value of the policy, with interest at the legal rate; P10,000.00 as moral damages;
P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages;
and P5,000.00 as attorney's fees, plus the costs of the suit. This decision was affirmed
xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully
exposing himself to needless peril except in an attempt to save
human life.
agree that under the circumstances narrated, his beneficiary would not be able to
collect on the insurance policy for it is clear that when he braved the currents below,
he deliberately exposed himself to a known peril.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the
petitioner contends that the insured willfully exposed himself to needless peril and thus
removed himself from the coverage of the insurance policy.
The private respondent maintains that Lim did not. That is where she says the analogy
fails. The petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge
that the currents below were dangerous. By contrast, Lim did not know that the gun he
put to his head was loaded.
It should be noted at the outset that suicide and willful exposure to needless peril
are in pari materia because they both signify a disregard for one's life. The only
difference is in degree, as suicide imports a positive act of ending such life whereas the
second act indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above the ground and
without any safety device may not actually be intending to commit suicide, but his act
is nonetheless suicidal. He would thus be considered as "willfully exposing himself to
needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim
had willfully exposed himself to needless peril and so came under the exception. The
theory is that a gun is per se dangerous and should therefore be handled cautiously in
every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had
removed the magazine from the gun and believed it was no longer dangerous. He
expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the
insured for his tendency to show off or for his miscalculations. They
were intended to provide for contingencies. Hence, when I
miscalculate and jump from the Quezon Bridge into the Pasig River in
the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I
drown I cannot go to the insurance company to ask them to
compensate me for my failure to swim as well as I thought I could.
The insured in the case at bar deliberately put the gun to his head
and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to
ask for compensation. That might frighten the insurance people to death. We also
Lim was unquestionably negligent and that negligence cost him his own life. But it
should not prevent his widow from recovering from the insurance policy he obtained
precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to relieve the insurer
from liability, and none of these exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured. There is no reason to deviate from this rule, especially
in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner.
The basic issue raised in this case is, as the petitioner correctly observed, one of first
impression. It is evident that the petitioner was acting in good faith then it resisted the
private respondent's claim on the ground that the death of the insured was covered by
the exception. The issue was indeed debatable and was clearly not raised only for the
purpose of evading a legitimate obligation. We hold therefore that the award of moral
and exemplary damages and of attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral
damages, the law requires that his act be wrongful. The adverse
result of an action does not per se make the act wrongful and subject
the act or to the payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate; such right is so
precious that moral damages may not be charged on those who may
exercise it erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not
alone make his act in bringing the action wrongful because in most
cases one party will lose; we would be imposing an unjust condition
or limitation on the right to litigate. We hold that the award of moral
damages in the case at bar is not justified by the facts had
circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and
litigation expenses, since it is not the fact of winning alone that
entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate which should not
be so. For those expenses, the law deems the award of costs as
sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as
it holds the petitioner liable to the private respondent in the sum of P200,000.00
representing the face value of the insurance contract, with interest at the legal rate
from the date of the filing of the complaint until the full amount is paid, but MODIFIED
with the deletion of all awards for damages, including attorney's fees, except the costs
of the suit.
SO ORDERED.
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed
ANG,
and
CO
TO,Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU
INSURANCE CORP., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision 1 of the Court of
Appeals in CA-G.R. CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee
versus Estate of Ang Gui, represented by Lucio, Julian and Jaime, all surnamed Ang,
and Co To, Defendants-Appellants, ThirdParty Plaintiffs versus FGU Insurance
Corporation, Third-Party Defendant-Appellant," which affirmed in toto the decision2 of
the Regional Trial Court of Cebu City, Branch 22. The dispositive portion of the Court of
Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of
6% per annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and
an additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse
defendants the amount of P632,700.00.3
The Facts
G.R. No. 137775. March 31, 2005

FGU
INSURANCE
CORPORATION, Petitioners,
vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG
GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO, Respondents.
G.R. No. 140704. March 31, 2005
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang
Gui and Co To, was engaged in the shipping business. It owned the M/T ANCO tugboat
and the D/B Lucio barge which were operated as common carriers. Since the D/B Lucio
had no engine of its own, it could not maneuver by itself and had to be towed by a
tugboat for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City,
Cebu, on board the D/B Lucio, for towage by M/T ANCO, the following cargoes:

Bill of Lading No. Shipment Destination
Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One Million
Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).
1 25,000 cases Pale Pilsen Estancia, Iloilo

350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer
Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the
consignee for the cargoes covered by Bill of Lading No. 2 was SMCs BMD-San Jose
Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one oclock in the afternoon
of 30 September 1979. The tugboat M/T ANCO left the barge immediately after
reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30
September 1979, the clouds over the area were dark and the waves were already big.
The arrastre workers unloading the cargoes of SMC on board the D/B Lucio began to
complain about their difficulty in unloading the cargoes. SMCs District Sales
Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the barge
to a safer place because the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the
barge could withstand the waves. This, notwithstanding the fact that at that time, only
the M/T ANCO was left at the wharf of San Jose, Antique, as all other vessels already
left the wharf to seek shelter. With the waves growing bigger and bigger, only Ten
Thousand Seven Hundred Ninety (10,790) cases of beer were discharged into the
custody of the arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio
abandoned the vessel because the barges rope attached to the wharf was cut off by
the big waves. At around midnight, the barge run aground and was broken and the
cargoes of beer in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two
Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of
Cerveza Negra. The value per case of Pale Pilsen was Forty-Five Pesos and Twenty
Centavos (P45.20). The value of a case of Cerveza Negra was Forty-Seven Pesos and
As a consequence of the incident, SMC filed a complaint for Breach of Contract of

Carriage and Damages against ANCO for the amount of One Million Three Hundred
Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest,
litigation expenses and Twenty-Five Percent (25%) of the total claim as attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January
1993, SMC filed a second amended complaint which was admitted by the Court
impleading the surviving partner, Co To and the Estate of Ang Gui represented by
Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted the
original answer with counterclaim of ANCO "since the substantial allegations of the
original complaint and the amended complaint are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however
that it had an agreement with SMC that ANCO would not be liable for any losses or
damages resulting to the cargoes by reason of fortuitous event. Since the cases of beer
Pale Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous event which
battered and sunk the vessel in which they were loaded, they should not be held liable.
ANCO further asserted that there was an agreement between them and SMC to insure
the cargoes in order to recover indemnity in case of loss. Pursuant to that agreement,
the cargoes to the extent of Twenty Thousand (20,000) cases was insured with FGU
Insurance Corporation (FGU) for the total amount of Eight Hundred Fifty-Eight
Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU,
alleging that before the vessel of ANCO left for San Jose, Antique with the cargoes
owned by SMC, the cargoes, to the extent of Twenty Thousand (20,000) cases, were
insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand Five
Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO further
alleged that on or about 02 October 1979, by reason of very strong winds and heavy
waves brought about by a passing typhoon, the vessel run aground near the vicinity of
San Jose, Antique, as a result of which, the vessel was totally wrecked and its cargoes
owned by SMC were lost and/or destroyed. According to ANCO, the loss of said cargoes
occurred as a result of risks insured against in the insurance policy and during the
existence and lifetime of said insurance policy. ANCO went on to assert that in the
remote possibility that the court will order ANCO to pay SMCs claim, the third-party
defendant corporation should be held liable to indemnify or reimburse ANCO whatever
amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the
existence of the Insurance Policy under Marine Cover Note No. 29591 but maintained
that the alleged loss of the cargoes covered by the said insurance policy cannot be

attributed directly or indirectly to any of the risks insured against in the said insurance
policy. According to FGU, it is only liable under the policy to Third-party Plaintiff ANCO
and/or Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care
and supervision of the cargoes insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and
asked for actual, moral, and exemplary damages and attorneys fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event,
there was failure on ANCOs part, through their representatives, to observe the degree
of diligence required that would exonerate them from liability. The trial court thus held
the Estate of Ang Gui and Co To liable to SMC for the amount of the lost shipment.
With respect to the Third-Party complaint, the court a quo found FGU liable to bear
Fifty-Three Percent (53%) of the amount of the lost cargoes. According to the trial
court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, runaground and was broken and the beer cargoes on the said barge were swept away. It
is the sense of this Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and
the amount of the policy was only for P858,500.00, defendants as assured, therefore,
were considered co-insurers of third-party defendant FGU Insurance Corporation to the
extent of 975,405.00 value of the cargo. Consequently, inasmuch as there was partial
loss of only P1,346,197.00, the assured shall bear 53% of the loss4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the
motion for reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be
summarized into two: 1) Whether or not respondent Court of Appeals committed grave
abuse of discretion in holding FGU liable under the insurance contract considering the
circumstances surrounding the loss of the cargoes; and 2) Whether or not the Court of
Appeals committed an error of law in holding that the doctrine of res judicata applies in
the instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the
appellate court based on the following assignments of error: 1) The Court of Appeals
committed grave abuse of discretion in affirming the findings of the lower court that
the negligence of the crewmembers of the D/B Lucio was the proximate cause of the
loss of the cargoes; and 2) The respondent court acted with grave abuse of discretion
when it ruled that the appeal was without merit despite the fact that said court had
accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals
and the Supreme Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in
their respective petitions for review, that is, whether or not the doctrine of res
judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341, 5 which was decided
in its favor, constitutesres judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No.
R-19341 and the case at bar. In order for res judicata to be made applicable in a case,
the following essential requisites must be present: 1) the former judgment must be
final; 2) the former judgment must have been rendered by a court having jurisdiction
over the subject matter and the parties; 3) the former judgment must be a judgment
or order on the merits; and 4) there must be between the first and second action
identity of parties, identity of subject matter, and identity of causes of action. 6
There is no question that the first three elements of res judicata as enumerated above
are indeed satisfied by the decision in Civil Case No. R-19341. However, the doctrine is
still inapplicable due to the absence of the last essential requisite of identity of parties,
subject matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant
while in the instant case, SMC is the plaintiff and the Estate of Ang Gui represented by
Lucio, Julian and Jaime, all surnamed Ang and Co To as defendants, with the latter
merely impleading FGU as third-party defendant.

The subject matter of Civil Case No. R-19341 was the insurance contract entered into
by ANCO, the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the
instant case, the subject matter of litigation is the loss of the cargoes of SMC, as
shipper, loaded in the D/B Lucio and the resulting failure of ANCO to deliver to SMCs
consignees the lost cargo. Otherwise stated, the controversy in the first case involved
the rights and liabilities of the shipowner vis--vis that of the insurer, while the present
case involves the rights and liabilities of the shippervis--vis that of the shipowner.
Specifically, Civil Case No. R-19341 was an action for Specific Performance and
Damages based on FGU Marine Hull Insurance Policy No. VMF-MH-13519 covering the
vessel D/B Lucio, while the instant case is an action for Breach of Contract of Carriage
and Damages filed by SMC against ANCO based on Bill of Lading No. 1 and No. 2, with
defendant ANCO seeking reimbursement from FGU under Insurance Policy No. MA58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is
different from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for
the insurance contract over the vessel while in the former, the third-party complaint
arose from the insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue
already passed upon by a court of competent jurisdiction in a former judgment, in
another action between the same parties based on a different claim or cause of action.
The judgment in the prior action operates as estoppel only as to those matters in issue
or points controverted, upon the determination of which the finding or judgment was
rendered.7 If a particular point or question is in issue in the second action, and the
judgment will depend on the determination of that particular point or question, a
former judgment between the same parties or their privies will be final and conclusive
in the second if that same point or question was in issue and adjudicated in the first
suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R19341, only findings with respect to matters passed upon by the court in the former
judgment are conclusive in the disposition of the instant case. A careful perusal of the
decision in Civil Case No. R-19341 will reveal that the pivotal issues resolved by the
lower court, as affirmed by both the Court of Appeals and the Supreme Court, can be
summarized into three legal conclusions: 1) that the D/B Lucio before and during the
voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within
the reglementary period; and 3) that the vessel D/B Lucio was a constructive total
loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent
therein was any discussion regarding the liability of ANCO for the loss of the cargoes.
Neither did the lower court pass upon the issue of the alleged negligence of the
crewmembers of the D/B Lucio being the cause of the loss of the cargoes owned by
SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the
Court of Appeals that there isres judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in
concluding that the negligence of ANCOs representatives was the proximate cause of
the loss, said issue is a question of fact assailing the lower courts appreciation of
evidence on the negligence or lack thereof of the crewmembers of the D/B Lucio. As a
rule, findings of fact of lower courts, particularly when affirmed by the appellate court,
are deemed final and conclusive. The Supreme Court cannot review such findings on
appeal, especially when they are borne out by the records or are based on substantial
evidence.9 As held in the case of Donato v. Court of Appeals,10 in this jurisdiction, it is a
fundamental and settled rule that findings of fact by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent reasons
because the trial court is in a better position to examine real evidence, as well as to
observe the demeanor of the witnesses while testifying in the case. 11
It is not the function of this Court to analyze or weigh evidence all over again, unless
there is a showing that the findings of the lower court are totally devoid of support or
are glaringly erroneous as to constitute palpable error or grave abuse of discretion. 12
A careful study of the records shows no cogent reason to fault the findings of the lower
court, as sustained by the appellate court, that ANCOs representatives failed to
exercise the extraordinary degree of diligence required by the law to exculpate them
from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty
Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty
(550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B
Lucio had no engine of its own and could not maneuver by itself. Yet, the patron of
ANCOs tugboat M/T ANCO left it to fend for itself notwithstanding the fact that as the
two vessels arrived at the port of San Jose, Antique, signs of the impending storm
were already manifest. As stated by the lower court, witness Mr. Anastacio Manilag
testified that the captain or patron of the tugboat M/T ANCO left the barge D/B Lucio
immediately after it reached San Jose, Antique, despite the fact that there were
already big waves and the area was already dark. This is corroborated by defendants
own witness, Mr. Fernando Macabueg.13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or
captain of M/T ANCO, representing the defendant could have placed D/B Lucio in a

very safe location before they left knowing or sensing at that time the coming of a
typhoon. The presence of big waves and dark clouds could have warned the patron or
captain of M/T ANCO to insure the safety of D/B Lucio including its cargo. D/B Lucio
being a barge, without its engine, as the patron or captain of M/T ANCO knew, could
not possibly maneuver by itself. Had the patron or captain of M/T ANCO, the
representative of the defendants observed extraordinary diligence in placing the D/B
Lucio in a safe place, the loss to the cargo of the plaintiff could not have occurred. In
short, therefore, defendants through their representatives, failed to observe the degree
of diligence required of them under the provision of Art. 1733 of the Civil Code of the
Philippines.14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the
contention of respondents SMC and FGU that "the crewmembers of D/B Lucio should
have left port at the onset of the typhoon is like advising the fish to jump from the
frying pan into the fire and an advice that borders on madness." 15
The argument does not persuade. The records show that the D/B Lucio was the only
vessel left at San Jose, Antique, during the time in question. The other vessels were
transferred and temporarily moved to Malandong, 5 kilometers from wharf where the
barge remained.16 Clearly, the transferred vessels were definitely safer in Malandong
than at the port of San Jose, Antique, at that particular time, a fact which petitioners
failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by
the typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or
negligence on their part. In fact, ANCO claims that their crewmembers exercised due
diligence to prevent or minimize the loss of the cargoes but their efforts proved no
match to the forces unleashed by the typhoon which, in petitioners own words was, by
any yardstick, a natural calamity, a fortuitous event, an act of God, the consequences
of which petitioners could not be held liable for.17
The Civil Code provides:
Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles
1734, 1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration
of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

...
Art. 1739. In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the proximate and only
cause of the loss. However, the common carrier must exercise due diligence to
prevent or minimize loss before, during and after the occurrence of flood, storm, or
other natural disaster in order that the common carrier may be exempted from liability
for the loss, destruction, or deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an
obligor from liability)18 by definition, are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which though foreseen, were
inevitable. It is therefore not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to
avoid.19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor
was it unavoidable. In fact, the other vessels in the port of San Jose, Antique,
managed to transfer to another place, a circumstance which prompted SMCs District
Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail.
The D/B Lucio had no engine and could not maneuver by itself. Even if ANCOs
representatives wanted to transfer it, they no longer had any means to do so as the
tugboat M/T ANCO had already departed, leaving the barge to its own devices. The
captain of the tugboat should have had the foresight not to leave the barge alone
considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural
disaster, ANCO could not escape liability to respondent SMC. The records clearly show
the failure of petitioners representatives to exercise the extraordinary degree of
diligence mandated by law. To be exempted from responsibility, the natural disaster
should have been the proximate and only cause of the loss. 20 There must have been no
contributory negligence on the part of the common carrier. As held in the case
of Limpangco Sons v. Yangco Steamship Co.:21
. . . To be exempt from liability because of an act of God, the tug must be free from
any previous negligence or misconduct by which that loss or damage may have been
occasioned. For, although the immediate or proximate cause of the loss in any given
instance may have been what is termed an act of God, yet, if the tug unnecessarily
exposed the two to such accident by any culpable act or omission of its own, it is not
excused.22

Therefore, as correctly pointed out by the appellate court, there was blatant negligence
on the part of M/T ANCOs crewmembers, first in leaving the engine-less barge D/B
Lucio at the mercy of the storm without the assistance of the tugboat, and again in
failing to heed the request of SMCs representatives to have the barge transferred to a
safer place, as was done by the other vessels in the port; thus, making said blatant
negligence the proximate cause of the loss of the cargoes.
We now come to the issue of whether or not FGU can be held liable under the
insurance policy to reimburse ANCO for the loss of the cargoes despite the findings of
the respondent court that such loss was occasioned by the blatant negligence of the
latters employees.
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or his agents constitute
no defense on the part of the insurer.23 This rule however presupposes that the loss
has occurred due to causes which could not have been prevented by the insured,
despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the
insured or his agents that will deprive him the right to recover under the insurance
contract. We say there is. However, to what extent such negligence must go in order to
exonerate the insurer from liability must be evaluated in light of the circumstances
surrounding each case. When evidence show that the insureds negligence or
recklessness is so gross as to be sufficient to constitute a willful act, the insurer must
be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States
Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part of
the risk which the insurer takes upon himself, and the existence of which, where it is
the proximate cause of the loss, does not absolve the insurer from liability. But willful
exposure, gross negligence, negligence amounting to misconduct, etc., have often
been held to release the insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No.
17,731, the owners of an insured vessel attempted to put her across the bar at
Hatteras Inlet. She struck on the bar and was wrecked. The master knew that the
depth of water on the bar was such as to make the attempted passage dangerous.
Judge Clifford held that, under the circumstances, the loss was not within the
protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their
own wrongful acts are hardly necessary, as the proposition involves an elementary
principle of universal application. Losses may be recovered by the insured, though
remotely occasioned by the negligence or misconduct of the master or crew, if
proximately caused by the perils insured against, because such mistakes and
negligence are incident to navigation and constitute a part of the perils which those
who engage in such adventures are obliged to incur; but it was never supposed that
the insured could recover indemnity for a loss occasioned by his own wrongful act or
by that of any agent for whose conduct he was responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a
distinction between ordinary negligence and gross negligence or negligence amounting
to misconduct and its effect on the insureds right to recover under the insurance
contract. According to the Court, while mistake and negligence of the master or crew
are incident to navigation and constitute a part of the perils that the insurer is obliged
to incur, such negligence or recklessness must not be of such gross character as to
amount to misconduct or wrongful acts; otherwise, such negligence shall release the
insurer from liability under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were
blatantly negligent. To wit:
There was blatant negligence on the part of the employees of defendants-appellants
when the patron (operator) of the tug boat immediately left the barge at the San Jose,
Antique wharf despite the looming bad weather. Negligence was likewise exhibited by
the defendants-appellants representative who did not heed Macabuags request that
the barge be moved to a more secure place. The prudent thing to do, as was done by
the other sea vessels at San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf. The negligence of the defendants-appellants is proved by
the fact that on 01 October 1979, the only simple vessel left at the wharf in San Jose
was the D/B Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion
drawn by the lower court, as sustained by the Court of Appeals, that ANCOs
representatives had failed to exercise extraordinary diligence required of common
carriers in the shipment of SMCs cargoes. Such blatant negligence being the proximate
cause of the loss of the cargoes amounting to One Million Three Hundred Forty-Six
Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case,
concludes that the blatant negligence of ANCOs employees is of such gross character
that it amounts to a wrongful act which must exonerate FGU from liability under the
insurance contract.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24
February 1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party
complaint.
SO ORDERED.

G.R. No. 147724
June 8, 2004
LORENZO
SHIPPING
CORP., petitioner,
vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE
CARRIERS, INC., respondents.
DECISION
PUNO, J.:
On appeal is the Court of Appeals August 14, 2000 Decision 1 in CA-G.R. CV No. 61334
and March 28, 2001 Resolution2 affirming the March 19, 1998 Decision3 of the Regional
Trial Court of Manila which found petitioner liable to pay respondent Chubb and Sons,
Inc. attorney's fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic
corporation engaged in coastwise shipping, was the carrier of 581 bundles of black
steel pipes, the subject shipment, from Manila to Davao City. From Davao City,
respondent Gearbulk, Ltd., a foreign corporation licensed as a common carrier under
the laws of Norway and doing business in the Philippines through its agent, respondent
Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic
corporation, carried the goods on board its vessel M/V San Mateo Victory to the United
States, for the account of Sumitomo Corporation. The latter, the consignee, is a foreign
corporation organized under the laws of the United States of America. It insured the
shipment with respondent Chubb and Sons, Inc., a foreign corporation organized and
licensed to engage in insurance business under the laws of the United States of
America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila,
loaded 581 bundles of ERW black steel pipes worth US$137,912.84 4 on board
the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment
to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading
designated as Bill of Lading No. T-35 for the account of the consignee,
Sumitomo Corporation of San Francisco, California, USA, which in turn,
insured the goods with respondent Chubb and Sons, Inc.6
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987.
Respondent Transmarine Carriers received the subject shipment which was discharged
on December 4, 1987, evidenced by Delivery Cargo Receipt No. 115090. 7 It discovered
seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The
consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the
shipment prior to and subsequent to discharge. Del Pans Survey Report 8 dated
December 4, 1987 showed that the subject shipment was no longer in good condition,
as in fact, the pipes were found with rust formation on top and/or at the sides.
Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded
with seawater, and the tank top was "rusty, thinning, and with several holes at
different places." The rusty condition of the cargo was noted on the mates receipts
and the checker of M/V Lorcon IV signed his conforme thereon.9
After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V
San Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos.
DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be discharged at Oakland,
U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6, 11 covering 217 bundles of steel pipes
to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked "ALL
UNITS HEAVILY RUSTED."
While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent
a letter12 of intent dated December 7, 1987, to petitioner Lorenzo Shipping, which the
latter received on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping
that it will be filing a claim based on the damaged cargo once such damage had been
ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been landed
in bad order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at
the port of Davao City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined but apparently all
bundles are corroded. We reserve the right to claim as soon as the amount of claim is
determined and the necessary supporting documents are available.
Please find herewith a copy of the survey report which we had arranged for after
unloading of our cargo from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A.,
where it unloaded 364 bundles of the subject steel pipes. It then sailed to Vancouver,
Washington on January 23, 1988 where it unloaded the remaining 217 bundles. Toplis
and Harding, Inc. of San Franciso, California, surveyed the steel pipes, and also
discovered the latter heavily rusted. When the steel pipes were tested with a silver
nitrate solution, Toplis and Harding found that they had come in contact with salt
water. The survey report,13 dated January 28, 1988 states:
xxx

We entered the hold for a close examination of the pipe, which revealed
moderate to heavy amounts of patchy and streaked dark red/orange rust on
all lifts which were visible. Samples of the shipment were tested with a
solution of silver nitrate revealing both positive and occasional negative
chloride reactions, indicating pipe had come in contact with salt water. In
addition, all tension applied metal straps were very heavily rusted, and also
exhibited chloride reactions on testing with silver nitrate.
xxx
It should be noted that subject bills of lading bore the following remarks as to
conditions of goods: "ALL UNITS HEAVILY RUSTED." Attached herein is a copy
of a survey report issued by Del Pan Surveyors of Davao City, Philippines
dated, December 4, 1987 at Davao City, Philippines, which describes
conditions of the cargo as sighted aboard the vessel "LORCON IV," prior to and
subsequent to discharge at Davao City. Evidently, the aforementioned rust
damages were apparently sustained while the shipment was in the custody of
the vessel "LORCON IV," prior to being laden on board the vessel "SAN MATEO
VICTORY" in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose they were
intended.14 It then filed a marine insurance claim with respondent Chubb and
Sons, Inc. which the latter settled in the amount of US$104,151.00. 15
On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint 16 for
collection of a sum of money, docketed as Civil Case No. 88-47096, against
respondents Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and
Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing
under an isolated transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed their answer 17 with
counterclaim and cross-claim against petitioner Lorenzo Shipping denying liability on
the following grounds: (a) respondent Chubb and Sons, Inc. has no capacity to sue
before Philippine courts; (b) the action should be dismissed on the ground of forum non
conveniens; (c) damage to the steel pipes was due to the inherent nature of the goods
or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to
their fault or negligence; and, (e) the law of the country of destination, U.S.A., governs
the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989,
and amended it on May 24, 1989. It denied liability, alleging, among others: (a) that
rust easily forms on steel by mere exposure to air, moisture and other marine
elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods were
improperly packed; and, (d) prescription, laches, and extinguishment of obligations

and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding
that: (1) respondent Chubb and Sons, Inc. has the right to institute this action; and,
(2) petitioner Lorenzo Shipping was negligent in the performance of its obligations as a
carrier. The dispositive portion of its Decision states:
WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo
Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its
equivalent in Philippine peso at the current rate of exchange with interest
thereon at the legal rate from the date of the institution of this case until fully
paid, the attorneys fees in the sum of P50,000.00, plus the costs of the suit,
and dismissing the plaintiffs complaint against defendants Gearbulk, Ltd. and
Philippine Transmarine Carriers, Inc., for lack of merit, and the two
defendants counterclaim, there being no showing that the plaintiff had filed
this case against said defendants in bad faith, as well as the two defendants
cross-claim against Defendant Lorenzo Shipping Corporation, for lack of
factual basis.18
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a)
respondent Chubb and Sons does not have capacity to sue before Philippine courts;
and, (b) petitioner Lorenzo Shipping was not negligent in the performance of its
obligations as carrier of the goods. The appellate court denied the petition and affirmed
the decision of the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shippings Motion for
Reconsideration19 dated September 3, 2000, in a Resolution 20 promulgated on March
28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for
resolution:
(1) Whether or not the prohibition provided under Art. 133 of the Corporation
Code applies to respondent Chubb, it being a mere subrogee or assignee of
the rights of Sumitomo Corporation, likewise a foreign corporation admittedly
doing business in the Philippines without a license;
(2) Whether or not Sumitomo, Chubbs predecessor-in-interest, validly made
a claim for damages against Lorenzo Shipping within the period prescribed by
the Code of Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of
damages or defects in the shipment, which created a prima facie presumption

that the carrier received the shipment in good condition, has been overcome
by convincing evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting
the steel pipes, whether or not Gearbulk and Transmarine, as common
carriers, are to share liability for their separate negligence in handling the
cargo.21
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before the
Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject
cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed
to do business in the Philippines, and is not suing on an isolated transaction. It
contends that because the respondent Chubb and Sons is an insurance company, it
was merely subrogated to the rights of its insured, the consignee Sumitomo, after
paying the latters policy claim. Sumitomo, however, is a foreign corporation doing
business in the Philippines without a license and does not have capacity to sue before
Philippine courts. Since Sumitomo does not have capacity to sue, petitioner then
concludes that, neither the subrogee-respondent Chubb and Sons could sue before
Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a foreign
corporation doing business in the Philippines without a license. It is therefore estopped
from litigating the issue on appeal especially because it involves a question of fact
which this Court cannot resolve. Secondly, assuming arguendo that Sumitomo cannot
sue in the Philippines, it does not follow that respondent, as subrogee, has also no
capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another with reference to
a lawful claim or right, so that he who is substituted succeeds to the rights of the other
in relation to a debt or claim, including its remedies or securities. 22 The principle covers
the situation under which an insurer that has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party
with respect to any loss covered by the policy.23 It contemplates full substitution such
that it places the party subrogated in the shoes of the creditor, and he may use all
means which the creditor could employ to enforce payment. 24
The rights to which the subrogee succeeds are the same as, but not greater than,
those of the person for whom he is substituted he cannot acquire any claim, security,
or remedy the subrogor did not have. 25 In other words, a subrogee cannot succeed to a
right not possessed by the subrogor.26 A subrogee in effect steps into the shoes of the
insured and can recover only if insured likewise could have recovered.
However, when the insurer succeeds to the rights of the insured, he does so only in
relation to the debt. The person substituted (the insurer) will succeed to all the rights
of the creditor (the insured), having reference to the debt due the latter.27 In the
instant case, the rights inherited by the insurer, respondent Chubb and Sons, pertain
only to the payment it made to the insured Sumitomo as stipulated in the insurance
contract between them, and which amount it now seeks to recover from petitioner
Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The
capacity to sue of respondent Chubb and Sons could not perchance belong to the
group of rights, remedies or securities pertaining to the payment respondent insurer
made for the loss which was sustained by the insured Sumitomo and covered by the
contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by
law and not by the parties. Lack of legal capacity to sue means that the plaintiff is not
in the exercise of his civil rights, or does not have the necessary qualification to appear
in the case, or does not have the character or representation he claims. It refers to a
plaintiffs general disability to sue, such as on account of minority, insanity,
incompetence, lack of juridical personality, or any other disqualifications of a
party.28Respondent Chubb and Sons who was plaintiff in the trial court does not
possess any of these disabilities. On the contrary, respondent Chubb and Sons has
satisfactorily proven its capacity to sue, after having shown that it is not doing
business in the Philippines, but is suing only under an isolated transaction, i.e., under
the one (1) marine insurance policy issued in favor of the consignee Sumitomo
covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which are doing
business in the Philippines without a license from bringing or maintaining actions
before, or intervening in Philippine courts. Art. 133 of the Corporation Code states:
Doing business without a license. No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single acts of business.
A foreign corporation needs no license to sue before Philippine courts on an isolated
transaction.29 As held by this Court in the case ofMarshall-Wells Company vs. Elser
& Company:30

The object of the statute (Secs. 68 and 69, Corporation Law) was not to
prevent the foreign corporation from performing single acts, but to prevent it
from acquiring a domicile for the purpose of business without taking the steps
necessary to render it amenable to suit in the local courts . . . the implication
of the law (being) that it was never the purpose of the legislature to exclude a
foreign corporation which happens to obtain an isolated order for business for
the Philippines, from seeking redress in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate
Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the marine
insurance policies issued by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this
country, for it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without such license, which bars a foreign
corporation from access to our courts.
We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is
not suing under an isolated transaction because the steel pipes, subject of this case,
are covered by two (2) bills of lading; hence, two transactions. The stubborn fact
remains that these two (2) bills of lading spawned from the single marine insurance
policy that respondent Chubb and Sons issued in favor of the consignee Sumitomo,
covering the damaged steel pipes. The execution of the policy is a single act, an
isolated transaction. This Court has not construed the term "isolated transaction" to
literally mean "one" or a mere single act. In Eriks Pte. Ltd. vs. Court of Appeals,
this Court held that:32
. . . What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an entity
to continue the body of its business in the country. The number and quantity
are merely evidence of such intention. The phrase "isolated transaction" has a
definite and fixed meaning, i.e. a transaction or series of transactions set
apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and
object of the business organization. Whether a foreign corporation is "doing
business" does not necessarily depend upon the frequency of its transactions,
but more upon the nature and character of the transactions. [Emphasis
supplied.]
In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three
transactions were challenged as void on the ground that the three American
corporations which are parties to the contracts are not licensed to do business in the
Philippines. This Court held that "one single or isolated business transaction does not
constitutedoing business within the meaning of the law. Transactions which are
occasional, incidental, and casual not of a character to indicate a purpose to engage

in business do not constitute the doing or engaging in business as contemplated by
law. Where the three transactions indicate no intent by the foreign corporation to
engage in a continuity of transactions, they do not constitute doing business in the
Philippines."
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation
provided for in the policy of insurance, 34 is the real party in interest in the action for
damages before the court a quo against the carrier Lorenzo Shipping to recover for the
loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure
defines a real party in interest as one who is entitled to the avails of any judgment
rendered in a suit, or who stands to be benefited or injured by it. Where an insurance
company as subrogee pays the insured of the entire loss it suffered, the insurersubrogee is the only real party in interest and must sue in its own name 35 to enforce its
right of subrogation against the third party which caused the loss. This is because the
insurer in such case having fully compensated its insured, which payment covers the
loss in full, is subrogated to the insureds claims arising from such loss. The subrogated
insurer becomes the owner of the claim and, thus entitled to the entire fruits of the
action.36 It then, thus possesses the right to enforce the claim and the significant
interest in the litigation.37 In the case at bar, it is clear that respondent insurer was
suing on its own behalf in order to enforce its right of subrogation.
On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo
Shipping was negligent in its care and custody of the consignees goods.
The steel pipes, subject of this case, were in good condition when they were loaded at
the port of origin (Manila) on board petitioner Lorenzo Shippings M/V Lorcon IV en
route to Davao City. Petitioner Lorenzo Shipping issued clean bills of lading covering
the subject shipment. A bill of lading, aside from being a contract 38 and a receipt,39is
also a symbol40 of the goods covered by it. A bill of lading which has no notation of any
defect or damage in the goods is called a "clean bill of lading." 41 A clean bill of lading
constitutes prima facie evidence of the receipt by the carrier of the goods as therein
described.42
The case law teaches us that mere proof of delivery of goods in good order to a carrier
and the subsequent arrival in damaged condition at the place of destination raises a
prima facie case against the carrier.43 In the case at bar, M/V Lorcon IV of petitioner
Lorenzo Shipping received the steel pipes in good order and condition, evidenced by
the clean bills of lading it issued. When the cargo was unloaded from petitioner Lorenzo
Shippings vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all over.
M/V San Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued
Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the entire
shipment, all of which were marked "ALL UNITS HEAVILY RUSTED." R.J. Del Pan
Surveyors found that the cargo hold of the M/V Lorcon IV was flooded with seawater,
and the tank top was rusty, thinning and perforated, thereby exposing the cargo to sea

water. There can be no other conclusion than that the cargo was damaged while on
board the vessel of petitioner Lorenzo Shipping, and that the damage was due to the
latters negligence. In the case at bar, not only did the legal presumption of negligence
attach to petitioner Lorenzo Shipping upon the occurrence of damage to the
cargo.44 More so, the negligence of petitioner was sufficiently established. Petitioner
Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J. Del Pan
Surveyors found the tank top of M/V Lorcon IV to be "rusty, thinning, and with several
holes at different places." Witness Captain Pablo Fernan, Operations Manager of
respondent Transmarine Carriers, likewise observed the presence of holes at the deck
of M/V Lorcon IV.45 The unpatched holes allowed seawater, reaching up to three (3)
inches deep, to enter the flooring of the hatch of the vessel where the steel pipes were
stowed, submerging the latter in sea water.46 The contact with sea water caused the
steel pipes to rust. The silver nitrate test, which Toplis and Harding employed, further
verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not even
attempt to present any contrary evidence. Neither did it offer any proof to establish
any of the causes that would exempt it from liability for such damage. 48 It merely
alleged that the: (1) packaging of the goods was defective; and (2) claim for damages
has prescribed.
To be sure, there is evidence that the goods were packed in a superior condition. John
M. Graff, marine surveyor of Toplis and Harding, examined the condition of the cargo
on board the vessel San Mateo Victory. He testified that the shipment had superior
packing "because the ends were covered with plastic, woven plastic. Whereas typically
they would not go to that bother ... Typically, they come in with no plastic on the ends.
They might just be banded, no plastic on the ends ..." 49
On the issue of prescription of respondent Chubb and Sons claim for damages, we rule
that it has not yet prescribed at the time it was made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise, the
claim against the carrier for damage or average, which may be found therein
upon the opening of the packages, may be made, provided that the
indications of the damage or average which gives rise to the claim cannot be
ascertained from the outside part of such package, in which case the claim
shall be admitted only at the time of the receipt.
After the periods mentioned have elapsed, or transportation charges have
been paid, no claim shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads: 50
NOTE: No claim for damage or loss shall be honored twenty-four (24) hours
after delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within
which claims must be presented does not begin to run until the consignee has received
such possession of the merchandise that he may exercise over it the ordinary control
pertinent to ownership.51 In other words, there must be delivery of the cargo by the
carrier to the consignee at the place of destination. 52 In the case at bar, consignee
Sumitomo has not received possession of the cargo, and has not physically inspected
the same at the time the shipment was discharged from M/V Lorcon IV in Davao City.
Petitioner Lorenzo Shipping failed to establish that an authorized agent of the
consignee Sumitomo received the cargo at Sasa Wharf in Davao City. Respondent
Transmarine Carriers as agent of respondent Gearbulk, Ltd., which carried the goods
from Davao City to the United States, and the principal, respondent Gearbulk, Ltd.
itself, are not the authorized agents as contemplated by law. What is clear from the
evidence is that the consignee received and took possession of the entire shipment
only when the latter reached the United States shore. Only then was delivery made
and completed. And only then did the 24-hour prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk and Transmarine
that American law governs the contract of carriage because the U.S.A. is the country of
destination. Petitioner Lorenzo Shipping, through its M/V Lorcon IV, carried the goods
from Manila to Davao City. Thus, as against petitioner Lorenzo Shipping, the place of
destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution dated March 28, 2001
are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. L-52756 October 12, 1987

MANILA
MAHOGANY
MANUFACTURING
CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.
PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642,
dated 21 March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation
to pay private respondent Zenith Insurance Corporation the sum of Five Thousand
Pesos (P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in
the sum of five hundred pesos (P500.00), and costs of suit, and the resolution of the
same Court, dated 8 February 1980, denying petitioner's motion for reconsideration of
it's decision.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door
sedan with respondent insurance company. On 4 May 1970 the insured vehicle was
bumped and damaged by a truck owned by San Miguel Corporation. For the damage
caused, respondent company paid petitioner five thousand pesos (P5,000.00) in
amicable settlement. Petitioner's general manager executed a Release of Claim,
subrogating respondent company to all its right to action against San Miguel
Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to
demand reimbursement from San Miguel Corporation of the amount it had paid
petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San Miguel
Corporation had already paid petitioner P4,500.00 for the damages to petitioner's
motor vehicle, as evidenced by a cash voucher and a Release of Claim executed by the
General Manager of petitioner discharging San Miguel Corporation from "all actions,
claims, demands the rights of action that now exist or hereafter [sic] develop arising
out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the
sum of P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence,
respondent company filed suit in the City Court of Manila for the recovery of
P4,500.00. The City Court ordered petitioner to pay respondent P4,500.00. On appeal
the Court of First Instance of Manila affirmed the City Court's decision in toto, which

CFI decision was affirmed by the Court of Appeals, with the modification that petitioner
was to pay respondent the total amount of P5,000.00 that it had earlier received from
the respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00
to respondent company as the subrogation in the Release of Claim it executed in favor
of respondent was conditioned on recovery of the total amount of damages petitioner
had sustained. Since total damages were valued by petitioner at P9,486.43 and only
P5,000.00 was received by petitioner from respondent, petitioner argues that it was
entitled to go after San Miguel Corporation to claim the additional P4,500.00 eventually
paid to it by the latter, without having to turn over said amount to respondent.
Respondent of course disputes this allegation and states that there was no qualification
to its right of subrogation under the Release of Claim executed by petitioner, the
contents of said deed having expressed all the intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel
Corporation, petitioner cites Art. 2207 of the Civil Code, which states:
If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of the insurance
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 the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may exercise
his right for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of the partial payment
of the same credit.
We find petitioners arguments to be untenable and without merit. In the absence of
any other evidence to support its allegation that a gentlemen's agreement existed
between it and respondent, not embodied in the Release of Claim, such ease of Claim
must be taken as the best evidence of the intent and purpose of the parties. Thus, the
Court of Appeals rightly stated:
Petitioner argues that the release claim it executed subrogating
Private respondent to any right of action it had against San Miguel
Corporation did not preclude Manila Mahogany from filing a deficiency
claim against the wrongdoer. Citing Article 2207, New Civil Code, to
the effect that if the amount paid by an insurance company does not
fully cover the loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss, petitioner claims a
preferred right to retain the amount coming from San Miguel
Corporation, despite the subrogation in favor of Private respondent.
Although petitioners right to file a deficiency claim against San Miguel
Corporation is with legal basis, without prejudice to the insurer's
right of subrogation, nevertheless when Manila Mahogany executed
another release claim (Exhibit K) discharging San Miguel Corporation
from "all actions, claims, demands and rights of action that now exist
or hereafter arising out of or as a consequence of the accident" after
the insurer had paid the proceeds of the policy- the compromise
agreement of P5,000.00 being based on the insurance policy-the
insurer is entitled to recover from the insured the amount of
insurance money paid (Metropolitan Casualty Insurance Company of
New York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance
Code and Insolvency Law with comments and annotations, H.B. Perez
1976, p. 151). Since petitioner by its own acts released San Miguel
Corporation, thereby defeating private respondents, the right of
subrogation, the right of action of petitioner against the insurer was
also nullified. (Sy Keng & Co. vs. Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private respondent may recover the sum
of P5,000.00 it had earlier paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co.,
If a property is insured and the owner receives the indemnity from

the insurer, it is provided in [Article 2207 of the New Civil Code] that
the insurer is deemed subrogated to the rights of the insured against
the wrongdoer and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. ... Under this legal provision, the real party in interest
with regard to the portion of the indemnity paid is the insurer and
not the insured 3(Emphasis supplied)
The decision of the respondent court ordering petitioner to pay respondent company,
not the P4,500.00 as originally asked for, but P5,000.00, the amount respondent
company paid petitioner as insurance, is also in accord with law and jurisprudence. In
disposing of this issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid by San
Miguel Corporation under its clear right to file a deficiency claim for
damages incurred, against the wrongdoer, should the insurance
company not fully pay for the injury caused (Article 2207, New Civil

Code). However, when petitioner released San Miguel Corporation
from any liability, petitioner's right to retain the sum of P5,000.00 no
longer existed, thereby entitling private respondent to recover the
same. (Emphasis supplied)
And even if the specific amount asked for in the complaint is P4,500.00 only and not
P5,000.00, still, the respondent Court acted well within its discretion in awarding
P5,000.00, the total amount paid by the insurer. The Court of Appeals rightly reasoned
as follows:
As has been observed:
It is to be noted that private respondent, in its companies, prays for

the recovery, not of P5,000.00 it had paid under the insurance policy
but P4,500.00 San Miguel Corporation had paid to petitioner. On this
score, We believe the City Court and Court of First Instance erred in
not awarding the proper relief. Although private respondent prays for
the reimbursement of P4,500.00 paid by San Miguel Corporation,
instead of P5,000.00 paid under the insurance policy, the trial court
should have awarded the latter, although not prayed for, under the
general prayer in the complaint "for such further or other relief as
may be deemed just or equitable, (Rule 6, Sec. 3, Revised Rules of
Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim,
50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).
... The right of subrogation can only exist after the insurer has paid
the otherwise the insured will be deprived of his right to full
indemnity. If the insurance proceeds are not sufficient to cover the
damages suffered by the insured, then he may sue the party
responsible for the damage for the the [sic] remainder. To the extent
of the amount he has already received from the insurer enjoy's [sic]
the right of subrogation.
Since the insurer can be subrogated to only such rights as the
insured may have, should the insured, after receiving payment from
the insurer, release the wrongdoer who caused the loss, the insurer
loses his rights against the latter. But in such a case, the insurer will
be entitled to recover from the insured whatever it has paid to the
latter, unless the release was made with the consent of the
insurer. 4 (Emphasis supplied.)
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed

from is hereby AFFIRMED with costs against petitioner.
SO ORDERED.

Insurance Sept 19

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INSURANCE | Sept 19| 1

G.R. No. 95546 November 6, 1992

2. Acceptance of this payment shall not waive any of the company

INSURANCE | Sept 19| 2

premiums because under Sec. 77 of the Insurance Code, no contract of insurance is

INSURANCE | Sept 19| 3

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five

Hence Masagana filed this case.

DAVIDE, JR., C.J.:

INSURANCE | Sept 19| 4

Moreover, according to the Court of Appeals the following circumstances constitute

INSURANCE | Sept 19| 5

The answer is in the affirmative.

INSURANCE | Sept 19| 6

INSURANCE | Sept 19| 7

INSURANCE | Sept 19| 8

It is not written in the policy?

You merely have verbal agreement with Ansons Insurance

That was written in the receipts.

And are these cash voucher with you?

I don't know if it is in the folder or in our folder, now.

INSURANCE | Sept 19| 9

INSURANCE | Sept 19| 10

INSURANCE | Sept 19| 11

G.R. No. 92383 July 17, 1992

Felix Lim, Jr. with a face

xxx xxx xxx

INSURANCE | Sept 19| 12

INSURANCE | Sept 19| 13

G.R. No. 137775. March 31, 2005

INSURANCE | Sept 19| 14

1 25,000 cases Pale Pilsen Estancia, Iloilo

As a consequence of the incident, SMC filed a complaint for Breach of Contract of

INSURANCE | Sept 19| 15

INSURANCE | Sept 19| 16

INSURANCE | Sept 19| 17

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

INSURANCE | Sept 19| 18

INSURANCE | Sept 19| 19

INSURANCE | Sept 19| 20

INSURANCE | Sept 19| 21

improperly packed; and, (d) prescription, laches, and extinguishment of obligations

INSURANCE | Sept 19| 22

INSURANCE | Sept 19| 23

occasional, incidental, and casual not of a character to indicate a purpose to engage

INSURANCE | Sept 19| 24

INSURANCE | Sept 19| 25

G.R. No. L-52756 October 12, 1987

INSURANCE | Sept 19| 26

If a property is insured and the owner receives the indemnity from

INSURANCE | Sept 19| 27

As has been observed:

It is to be noted that private respondent, in its companies, prays for

WHEREFORE, premises considered, the petition is DENIED. The judgment appealed

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