G.R. No.

124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a
decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first obtaining
the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance
thereof without the consent of the LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; . . .1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with
the United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent
CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the
Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and
United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering
therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay
P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11

January 1996, affirming the trial court decision, deleting however the awards for exemplary damages
and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
 I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE

STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF
THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO
LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE

CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR
OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF
THE RESPONDENT CORPORATION.2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the
lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any
fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the
prior written consent of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.3

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time the loss occurs.4 The basis of such requirement
of insurable interest in property insured is based on sound public policy: to prevent a person from
taking out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a
mere wager which is void under Section 25 of the Insurance Code, which provides:
 Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering,
is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:

Sec. 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This
insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract previously quoted is void
for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a
new decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo
Cha and Stella Uy-Cha.

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,

vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, respondents.

Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering
from "sinus tachycardia." The doctor prescribed the following fro him: Trazepam, a tranquilizer;
and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and
this time was found to have "acute bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary.1 Jaime Canilang was issued ordinary life insurance Policy No. 345163,
with the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."2 Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the
insurer denied on 5 December 1983 upon the ground that the insured had concealed material
information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of
the insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner
testified that she was not aware of any serious illness suffered by her late husband3 and that, as far
as she knew, her husband had died because of a kidney disorder.4 A deposition given by Dr.
Wilfredo Claudio was presented by petitioner. There Dr. Claudio stated that he was the family
physician of the deceased Jaime Canilang5 and that he had previously treated him for "sinus
tachycardia" and "acute bronchitis."6 Great Pacific for its part presented Dr. Esperanza Quismorio, a
physician
and a medical underwriter working for Great Pacific.7 She testified that the deceased's insurance
application had been approved on the basis of his medical declaration.8 She explained that as a rule,
medical examinations are required only in cases where the applicant has indicated in his application
for insurance coverage that he has previously undergone medical consultation and hospitalization.9

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great
Pacific to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:

1. the ailment of Jaime Canilang was not so serious that, even if it had been
disclosed, it would not have affected Great Pacific's decision to insure him;

2. Great Pacific had waived its right to inquire into the health condition of the
applicant by the issuance of the policy despite the lack of answers to "some of the
pertinent questions" in the insurance application;

3. there was no intentional concealment on the part of the insured Jaime Canilang as
he had thought that he was merely suffering from a minor ailment and simple
cold; 10 and

4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that
law became effective only on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the
Insurance Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of the word "intentionally" by the Insurance
Commissioner in defining and resolving the issue agreed upon by the parties at pre-trial before the
Insurance Commissioner was not supported by the evidence; that the issue agreed upon by the
parties had been whether the deceased insured, Jaime Canilang, made a material concealment as
the state of his health at the time of the filing of insurance application, justifying respondent's denial
of the claim. The Court of Appeals also found that the failure of Jaime Canilang to disclose previous
medical consultation and treatment constituted material information which should have been
communicated to Great Pacific to enable the latter to make proper inquiries. The Court of Appeals
finally held that the Ng Gan Zee case which had involved misrepresentation was not applicable in
respect of the case at bar which involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging
that:
 1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not
holding that the issue in the case agreed upon between the parties before the
Insurance Commission is whether or not Jaime Canilang "intentionally" made
material concealment in stating his state of health;

2. . . . at any rate, the non-disclosure of certain facts about his previous health
conditions does not amount to fraud and private respondent is deemed to have
waived inquiry thereto. 11

The medical declaration which was set out in the application for insurance executed by Jaime
Canilang read as follows:

MEDICAL DECLARATION

I hereby declare that:

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.

(2) I have never been treated nor consulted a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other
physical impairment.

(3) I am, to the best of my knowledge, in good health.

EXCEPTIONS:

___________________________________________________________________
_____________

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true
and correct. I hereby agree that if there be any fraud or misrepresentation in the
above statements material to the risk, the INSURANCE COMPANY upon discovery
within two (2) years from the effective date of insurance shall have the right to
declare such insurance null and void. That the liabilities of the Company under the
said Policy/TA/Certificate shall accrue and begin only from the date of
commencement of risk stated in the Policy/TA/Certificate, provided that the first
premium is paid and the Policy/TA/Certificate is delivered to, and accepted by me in
person, when I am in actual good health.

Signed at Manila his 4th day of August, 1992.

I
l
l
e
g
i
b
 l
e

—
—
—
—
—
—
—
—
—
—

S
i
g
n
a
t
u
r
e

o
f

A
p
p
l
i
c
a
n
t
.
1
2

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of
the medical declaration, he failed to disclose in the appropriate space, under the caption
"Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering
from "sinus tachycardia" and "acute bronchitis."

The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read as follows:

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

Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and as
to which he makes no warranty, and which the other has not the means of
ascertaining. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
the contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which
reads:

Sec. 31. Materially is to be determined not by the event, but solely by the probable
and reasonable influence of the facts upon the party to whom the communication is
due, in forming his estimate of the disadvantages of the proposed contract, or in
making his inquiries. (Emphasis supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per
minute." 13 The symptoms of this condition include pounding in the chest and sometimes faintness
and weakness of the person affected. The following elaboration was offered by Great Pacific and set
out by the Court of Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is,
among others, a common reaction to heart disease, including myocardial
infarction, and heart failure per se. (Henry J.L. Marriot, M.D., Electrocardiography,
6th ed., [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of
Canilang's ailment on June 18, 1982, indicates the condition that said physician was
trying to manage. Thus, he prescribed Trazepam, (Philippine Index of Medical
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-
convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations
and nervous heart. Such treatment could have been a very material information to
the insurer in determining the action to be take on Canilang's application for life
insurance coverage. 14

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines
prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have probably refused to issue a non-medical
insurance policy or, at the very least, required a higher premium for the same coverage. 15 The
materiality of the information withheld by Great Pacific did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have been made, in assessing the risk
involved in making or omitting to make further inquiries and in accepting the application for
insurance; that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v.
Philippine-American Life Insurance Company, 16 this Court held that:

. . . if anything, the waiver of medical examination [in a non-medical insurance

contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . . 17 (Emphasis supplied)

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 of the Insurance Code of
1978 as it existed from 1974 up to 1985, that is, throughout the time range material for present
purposes, provided that:

Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured

party to rescind a contract of insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to
read as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part of
the injured party to "intentional concealments." This argument is not persuasive. As a simple matter
of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net
result therefore of the phrase "whether intentional or unitentional" is precisely to leave unqualified the
term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly read as referring to
"any concealment" without regard to whether such concealment is intentional or unintentional. The
phrase "whether intentional or unintentional" was in fact superfluous. The deletion of the phrase
"whether intentional or unintentional" could not have had the effect of imposing an affirmative
requirement that a concealment must be intentional if it is to entitle the injured party to rescind a
contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or
unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute
did not require proof that concealment must be "intentional" in order to authorize rescission by the
injured party.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime
Canilang could not have been unaware that his heart beat would at times rise to high and alarming
levels and that he had consulted a doctor twice in the two (2) months before applying for non-
medical insurance. Indeed, the last medical consultation took place just the day before the insurance
application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of
the discomfort and concern brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from
the Insurance Code of 1978.

It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang
had intentionally concealed material information from the insurer, was supported by the evidence of
record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial
Conference dated 15 October 1984, which "readily shows that the word "intentional" does not
appear in the statement or definition of the issue in the said Order and Minutes." 18

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No
pronouncement as to the costs.

SO ORDERED.

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy.
The facts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing

herein petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P
80,000.00.

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).

On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
 However, in a letter dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.

After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's
decision for lack of merit

Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allowed
to avoid the policy on grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of applicable legal provisions
and established jurisprudence.

C. The inference of respondent Court that respondent insurer was misled in issuing
the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind the contract
of insurance as rescission must allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.

The contention is without merit.

The pertinent section in the Insurance Code provides:

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

After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section
48 added to prevent the insurance company from exercising a right to rescind after the death of the
insured.

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

As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or misrepresentation by their
late father because Tan Lee Siong did not have to buy insurance. He was only pressured by
insistent salesmen to do so. The petitioners state:

Here then is a case of an assured whose application was submitted because of

repeated visits and solicitations by the insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was the object of solicitations and visits.

Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did
not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most of us
have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
 application, submitting the application to their companies, concluding the
transactions and otherwise smoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:

It is of common knowledge that the selling of insurance today is subjected to the

whirlwind pressure of modern salesmanship.

Insurance companies send detailed instructions to their agents to solicit and procure
applications.

These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered by
the other rival insurance companies.

They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth out
all difficulties.

The agents in short do what the company set them out to do.

The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population of
this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140-
142, Rollo)

xxx xxx xxx

In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long denounced,
the assured who dies within the two-year period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestability clause"
added by the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They state that the insurer should have presented
its two medical field examiners as witnesses. Moreover, the petitioners allege that the policy intends
that the medical examination must be conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."

We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary consequence
of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule
131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6)
Because of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent company was
thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles
and print the amount of benefits they agree to pay in large black-faced type, following
such undertakings by fine print conditions which destroy the substance of the
promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)

There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such
a way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection
against high pressure insurance salesmanship. We are limited in this petition to ascertaining whether
or not the respondent Court of Appeals committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are not based on substantial evidence or that
its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge that
burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court
of Appeals is AFFIRMED.

SO ORDERED.

G.R. No. 151890 June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,

vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - x

G.R. No. 151991 June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner,

vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.

DECISION

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential
Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines,
Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court
of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the
Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January
2002 Resolution3 of the Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and
TRANS-ASIA’s Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise
sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as
follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of
premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning
[from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No.
MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke
out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff
[TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a
letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to
subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey
and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained
by reason of fire. An adjuster’s report on the fire in question was submitted by Richard Hogg
International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust
receipt", a portion of which read (sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION
ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only
in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation,
from any person or persons, corporation or corporations, or other parties, on account of loss by any
casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit
"4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The
letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has
been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not
compensable and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the
P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money
against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein
TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same
represents the balance of the indemnity due upon the insurance policy in the total amount of
P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of
Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the
defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts
and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action;
and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the
same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly
advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final
evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00,
representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL.
It ruled that a determination of the parties’ liabilities hinged on whether TRANS-ASIA violated and
breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It
interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain
class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA
failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL,
the insured party, to rescind the contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the
concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its
class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to
rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there was
nothing in the adjustment of the particular average submitted by the adjuster that would show that
TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the
court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-
ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so
clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey
fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorney’s fees
on the rationalization that the instant case does not fall under the exceptions stated in Article
220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim stating that
there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of
loan without interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a
cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the
loan extended to it by the defendant, within a period of ten (10) days from and after this judgment
shall have become final and executory.12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001,
reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND
CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-
compensability of the loss had the burden of proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to
the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for
reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack
of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA.
Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance
contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a
classification society recognized by the industry. The Court of Appeals similarly gave weight to the
fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster
hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere
absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance
policy.

In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-
ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the
intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d’adhesion which should
be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the
Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1 July 1994 to noon
of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL
of any breach of warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction
between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of
Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to
PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial payment to
TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA’s prayer
for attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of
the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED
and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee
Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and
Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by
appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is
hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the
balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg
International (Philippines) in its Report, with double interest starting from the time Richard Hogg’s
Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration
and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the
Court of Appeals in the Resolution dated 29 January 2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No.
151890, relying on the following grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-
ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE
INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE
BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL
WARRANTY.
 IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN
THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE
POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE
WARRANTY BY TRANS-ASIA.

VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT"
EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING
PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF

THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF
PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT
PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING
PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13
AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review
docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO

PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE
CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD
FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER
TRANS-ASIA’S INSURANCE CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001

SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST
OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation17 of G.R.
Nos. 151890 and 151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising
from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising
from the transaction between the parties as evidenced by a document denominated as "Loan and
Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if
any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not
questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the
Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported
by the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact
of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are
constrained to assess the evidence adduced by the parties to make appropriate findings of facts as
are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in
the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express
and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No.
MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel,
"M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA"
was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL
submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA
under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec.
7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s
Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his
testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was
taken?

A It was eventually determined that there was a breach of the policy condition, and basically there is
a breach of policy warranty condition and on that basis the claim was denied.

Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as
Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or
violated by the plaintiff which constituted your basis for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy
below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this
are several typewritten clauses and the witness pointed out in particular the clause reading:
"Warranted Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.

COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain in
order to maintain their membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their class on that classification society. And it
is not sufficient that the member of this classification society at the time of a loss, their membership
must be continuous for the whole length of the policy such that during the effectivity of the policy,
their classification is suspended, and then thereafter, they get reinstated, that again still a breach of
the warranty that they maintained their class (sic). Our maintaining team membership in the
classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM

Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society,
The Philippine Registration of Ships Society, China Classification, NKK and Company Classification
Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has
the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA
breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on
the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing
to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of
TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in
claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the
fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to
show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course
of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden
of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be
returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of
the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to
PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and affirmative defense that
TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging
the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND
CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio
Fernandez, made a categorical admission that at the time of the procurement of the insurance
contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau
Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia
Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that
Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification
society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly
classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon
PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by
Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support
the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in
PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more
reason must we sustain the findings of the Court of Appeals on the ground that as admitted by
PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International
(Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot
be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V
Asia Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that,
"the violation of a material warranty, or other material provision of a policy on the part of either party
thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or
promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of
which in any respect, and without reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment, renders the policy voidable by the insurer."25However, it is similarly
indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the
party alleging the same. We cannot sustain an allegation that is unfounded. Consequently,
PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED
AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful
claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached
the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL
can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged,
ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive
years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996.
This renewal is deemed a waiver of any breach of warranty.26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies
are deemed a waiver of TRANS-ASIA’s alleged breach, averring herein that the subsequent policies,
designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3
July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a
copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of
the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a
letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would
have this Court believe that the issuance of the renewal policies cannot be a waiver because they
were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that
PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss
covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the
subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the
option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere
expression of an intention so to do. In that event his liability under the policy continues as
before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of
the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788,
issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support
its allegation that the renewals of the policies were taken only after a request was made to TRANS-
ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification was issued to that
effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA’s alleged
breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was
to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as
raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter
the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence
to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission
of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL.
 II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction

between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The
same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29
May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995

P3,000,000.00
Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE
MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable
only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING
CORP., from any person or persons, corporation or corporations, or other parties, on account of loss
by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND

ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to
prove our interest in said property. We also hereby agree to promptly prosecute suit against such
persons, corporation or corporations through whose negligence the aforesaid loss was caused or
who may otherwise be responsible therefore, with all due diligence, in our own name, but at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced
a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the
policy or a partial payment for the loss. It further submits that it is a customary practice for insurance
companies in this country to extend loans gratuitously as part of good business dealing with their
assured, in order to afford their assured the chance to continue business without embarrassment
while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust
and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have
against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was
granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely
with the latter.

The Court of Appeals held that the real character of the transaction between the parties as
evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of
TRANS-ASIA’s claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act
No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted
verbatim from the law of California, except Chapter V thereof, which was taken largely from the
insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in
interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute
should correspond in fundamental points with the application in its country of origin x x x.

xxxx

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that
the money was intended as a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of
forgery of drafts by an employee where no provision or repayment of the money was made except
upon condition that it be recovered from other parties and neither interest nor security for the
asserted debts was provided for, the money constituted the payment of a liability and not a mere
loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that
appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and
deliver to (Prudential) all documents necessary to prove its interest in the said property." For all
intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties
resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer
of all remedies which the insured may have against third person whose negligence or wrongful act
caused the loss covered by the insurance policy, which is created as the legal effect of payment by
the insurer as an assignee in equity. The loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the insurer. It has been referred to as the
doctrine of substitution and rests on the principle that substantial justice should be attained
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between
all the parties without regard to form.31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that
the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not
intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same
was a partial payment or an advance on the policy of the claims due to TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by

PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA
SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993:
Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly
prosecute suit against such persons, corporation or corporations through whose negligence the
aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in
its name, the prosecution of the claims against such third persons are to be carried on "at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive
direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the
power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against
parties who may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any
net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of
25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no
recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not
think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in
favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an
advance payment on TRANS-ASIA’s claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the

balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims
covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees
equivalent to 10% of P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be
awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s
claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals,
attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which
finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and
other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court,
as the case may be, of an unreasonable denial or withholding of the payment of the claims due.
Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the
amount of the claim due the insured from the date following the time prescribed in Section 24235 or in
Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the
failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima
facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s
fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay
in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in
both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the
delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay
damages which shall consist of attorney’s fees and other expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty
of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment
of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and
other expenses incurred by the insured person by reason of such unreasonable denial or withholding
of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the
claim due the insured, from the date following the time prescribed in section two hundred forty-two or
in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided,
That the failure to pay any such claim within the time prescribed in said sections shall be considered
prima facie evidence of unreasonable delay in payment.
Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or
refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V
Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg
International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26
as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a
letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26
representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second
letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997,
TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying,
inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance
claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims,
from the time proof of loss was shown and the ascertainment of the loss was made by the insurance
adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims
compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as
attorney’s fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten
percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of
Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was
made by this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed
by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or
in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find
Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other
than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy
other than life insurance policy, shall be paid within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured
and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety
days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal
to pay is based on the ground that the claim is fraudulent.
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the
insurer to pay was founded on the ground that the claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to
mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-
ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIAL’s stance that the award is
extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to
TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought, "interest
double the prevailing rate of interest of 21% per annum now obtaining in the banking business or
plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42

The contention fails to persuade. It is settled that an award of double interest is lawful and justified
under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v.
Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the
Insurance Code.45 There is no gainsaying that the term "double interest" as used in Sections 243
and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per
centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to
P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance
Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the
Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the
insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the
unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when
the amount is fully paid. Although not raised by the parties, we find the computation of the duration
of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay
at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243
mandates the payment of any loss or damage for which an insurer may be liable, under any policy
other than life insurance policy, within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the
insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after
proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and
only after such time can the insurer be held to be in delay, thereby necessitating the imposition of
double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996.
PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA
under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to
run from 13 September 1996 only.

IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in
section III herein, computed from the time of finality of judgment until the full satisfaction thereof in
conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the
application of interest to be imposed on obligations, regardless of their source. Eastern emphasized
beyond cavil that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, regardless of whether the obligation involves a loan or
forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability
adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the
satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the
aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No.
151991 is GRANTED, thus, we award the grant of attorney’s fees and make a clarification that the
term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR
CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further
clarification, that the same should be computed from 13 September 1996 until fully paid. The
Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001
and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26,

representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy
No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of

attorney’s fees equivalent to 10% of the amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13 September
1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of
finality of judgment until the full satisfaction thereof