G.R. No. 150094 August 18, 2004 arrived in Manila on January 29, 1994 in Flight No.

arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored
at [Cargohaus Inc.'s] warehouse. While the second, consisting of 17 cartons, came in two (2)
FEDERAL EXPRESS CORPORATION, petitioner, days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately
vs. stored at Cargohaus' warehouse. Prior to the arrival of the cargoes, Federal Express
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., informed GETC Cargo International Corporation, the customs broker hired by the consignee
respondents. to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of
its client's cargoes.

DECISION "On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the
cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to
facilitate the release of the subject cargoes, found out, while he was about to cause the
PANGANIBAN, J.: release of the said cargoes, that the same [were] stored only in a room with two (2) air
conditioners running, to cool the place instead of a refrigerator. When he asked an employee
Basic is the requirement that before suing to recover loss of or damage to transported goods, of Cargohaus why the cargoes were stored in the 'cool room' only, the latter told him that the
the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by cartons where the vaccines were contained specifically indicated therein that it should not be
the Warsaw Convention and/or the airway bill. subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC,
did not proceed with the withdrawal of the vaccines and instead, samples of the same were
The Case taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the
Philippines by SMITHKLINE for examination wherein it was discovered that the 'ELISA
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June reading of vaccinates sera are below the positive reference serum.'
4, 2001 Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in
CA-GR CV No. 58208. The assailed Decision disposed as follows: "As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring 'total loss' for the unusable shipment, filed a claim
"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc.
merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil ('PHILAM') which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE
Case No. 95-1219, entitled 'American Home Assurance Co. and PHILAM Insurance Co., Inc. THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter,
v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U- [respondents] filed an action for damages against the [petitioner] imputing negligence on
WAREHOUSE, INC.),' is hereby AFFIRMED and REITERATED. either or both of them in the handling of the cargo.

"Costs against the [petitioner and Cargohaus, Inc.]."4 "Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held
solidarily liable for the loss as follows:
The assailed Resolution denied petitioner's Motion for Reconsideration.
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its
The Facts Co-Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the
following:
The antecedent facts are summarized by the appellate court as follows:
1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA the time of the filing of the complaint to the time the same is fully paid.
delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee 2. Attorney's fees in the amount of P50,000.00 and
SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment
was covered by Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE WHEN 3. Costs of suit.
NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. That same day, Burlington
insured the cargoes in the amount of $39,339.00 with American Home Assurance Company 'SO ORDERED.'
(AHAC). The following day, Burlington turned over the custody of said cargoes to Federal
Express which transported the same to Manila. The first shipment, consisting of 92 cartons "Aggrieved, [petitioner] appealed to [the CA]."5
Ruling of the Court of Appeals "V.

The Test Report issued by the United States Department of Agriculture (Animal and Plant Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own
Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this admission that petitioner is not liable? and
ruling, the appellate court held that the shipping Receipts were a prima facie proof that the
goods had indeed been delivered to the carrier in good condition. We quote from the ruling as "VI.
follows:
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8
"Where the plaintiff introduces evidence which shows prima facie that the goods were
delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme
delivered the goods in a damaged condition, a presumption is raised that the damage Court? (2) Is Federal Express liable for damage to or loss of the insured goods?
occurred through the fault or negligence of the carrier, and this casts upon the carrier the
burden of showing that the goods were not in good condition when delivered to the carrier, or This Court's Ruling
that the damage was occasioned by some cause excepting the carrier from absolute liability.
This the [petitioner] failed to discharge. x x x."6 The Petition has merit.

Found devoid of merit was petitioner's claim that respondents had no personality to sue. This Preliminary Issue:
argument was supposedly not raised in the Answer or during trial. Propriety of Review

Hence, this Petition.7 The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is
a question of law cognizable by the Supreme Court.9
The Issues
In the present case, the facts are undisputed. As will be shown shortly, petitioner is
In its Memorandum, petitioner raises the following issues for our consideration: questioning the conclusions drawn from such facts. Hence, this case is a proper subject for
review by this Court.
"I.
Main Issue:
Are the decision and resolution of the Honorable Court of Appeals proper subject for review Liability for Damages
by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?
Petitioner contends that respondents have no personality to sue -- thus, no cause of action
"II. against it -- because the payment made to Smithkline was erroneous.

Is the conclusion of the Honorable Court of Appeals – petitioner's claim that respondents Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing
have no personality to sue because the payment was made by the respondents to Smithkline parties cite in support of their respective positions. They differ only in their interpretation of
when the insured under the policy is Burlington Air Express is devoid of merit – correct or what their rights are under its terms. The determination of those rights involves a question of
not? law, not a question of fact. "As distinguished from a question of law which exists 'when the
doubt or difference arises as to what the law is on a certain state of facts' -- 'there is a
"III. question of fact when the doubt or difference arises as to the truth or the falsehood of alleged
facts'; or when the 'query necessarily invites calibration of the whole evidence considering
Is the conclusion of the Honorable Court of Appeals that the goods were received in good mainly the credibility of witnesses, existence and relevancy of specific surrounding
condition, correct or not? circumstance, their relation to each other and to the whole and the probabilities of the
situation.'"11
"IV.
Proper Payee
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x the damage or loss, and the details of the claim, is presented by shipper or consignee to an
upon surrender of this Certificate." Such wording conveys the right of collecting on any such office of Burlington within (14) days from the date the goods are placed at the disposal of the
damage or loss, as fully as if the property were covered by a special policy in the name of the person entitled to delivery, or in the case of total loss (including non-delivery) unless
holder itself. At the back of the Certificate appears the signature of the representative of presented within (120) days from the date of issue of the [Airway Bill]."16
Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
instrument. Relevantly, petitioner's airway bill states:

Since the Certificate was in the possession of Smithkline, the latter had the right of collecting "12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the
or of being indemnified for loss of or damage to the insured shipment, as fully as if the case:
property were covered by a special policy in the name of the holder. Hence, being the holder
of the Certificate and having an insurable interest in the goods, Smithkline was the proper 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the
payee of the insurance proceeds. latest within fourteen (14) days from receipt of the goods;

Subrogation 12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the
goods;
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation
Receipt12 in favor of respondents. The latter were thus authorized "to file claims and begin 12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal;
suit against any such carrier, vessel, person, corporation or government." Undeniably, the and
consignee had a legal right to receive the goods in the same condition it was delivered for
transport to petitioner. If that right was violated, the consignee would have a cause of action 12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date
against the person responsible therefor. of the issue of the air waybill.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured 12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air
goods, the insurer's entitlement to subrogation pro tanto -- being of the highest equity -- waybill was used, or to the first carrier or to the last carrier or to the carrier who performed the
equips it with a cause of action in case of a contractual breach or negligence.13 "Further, the transportation during which the loss, damage or delay took place."17
insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or
damage to the cargo is jurisprudentially upheld."14 Article 26 of the Warsaw Convention, on the other hand, provides:

In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To "ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without
all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, complaint shall be prima facie evidence that the same have been delivered in good condition
both the insurer and the consignee are bound by the contractual stipulations under the bill of and in accordance with the document of transportation.
lading.15
(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith
Prescription of Claim after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in
the case of baggage and 7 days from the date of receipt in the case of goods. In case of
From the initial proceedings in the trial court up to the present, petitioner has tirelessly delay the complaint must be made at the latest within 14 days from the date on which the
pointed out that respondents' claim and right of action are already barred. The latter, and baggage or goods have been placed at his disposal.
even the consignee, never filed with the carrier any written notice or complaint regarding its
claim for damage of or loss to the subject cargo within the period required by the Warsaw (3) Every complaint must be made in writing upon the document of transportation or by
Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents separate notice in writing dispatched within the times aforesaid.
and is plainly evident from the records.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: the case of fraud on his part."18

"6. No action shall be maintained in the case of damage to or partial loss of the shipment Condition Precedent
unless a written notice, sufficiently describing the goods concerned, the approximate date of
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a carrier
for loss of or damage to the goods.19 The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue G.R. No. 179446 January 10, 2011
in favor of the former. The aforementioned requirement is a reasonable condition precedent;
it does not constitute a limitation of action.20 LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
The requirement of giving notice of loss of or injury to the goods is not an empty formalism. GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION,
The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has Respondents.
been damaged, and that it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. "This protects the carrier by DECISION
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims."21 MENDOZA, J.:

When an airway bill -- or any contract of carriage for that matter -- has a stipulation that This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
requires a notice of claim for loss of or damage to goods shipped and the stipulation is not assailing the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
complied with, its enforcement can be prevented and the liability cannot be imposed on the 82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and
carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs Services,
given in accordance with the stipulation.22 Failure to comply with such a stipulation bars Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the amount
recovery for the loss or damage suffered.23 of ₱1,896,789.62 representing the insurance indemnity which R&B Insurance Corporation
(R&B Insurance) paid to the insured-consignee, Columbia Wire and Cable Corporation
Being a condition precedent, the notice must precede a suit for enforcement.24 In the present (Columbia).
case, there is neither an allegation nor a showing of respondents' compliance with this
requirement within the prescribed period. While respondents may have had a cause of action THE FACTS:
then, they cannot now enforce it for their failure to comply with the aforesaid condition
precedent. On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
In view of the foregoing, we find no more necessity to pass upon the other issues raised by On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from
petitioner. Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co- Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from
defendant in respondents' Complaint below -- has been adjudged by the trial court as liable the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
for, inter alia, "actual damages in the amount of the peso equivalent of US $39,339."25 This services of Loadmasters for the use of its delivery trucks to transport the cargoes to
judgment was affirmed by the Court of Appeals and is already final and executory.26 Columbia’s warehouses/plants in Bulacan and Valenzuela City.

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its
pertains to Petitioner Federal Express Corporation. No pronouncement as to costs. employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of
copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads
SO ORDERED. were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang
Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to
Corona, and Carpio-Morales, JJ., concur. Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with
Sandoval-Gutierrez, J., on leave. 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the
copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of ₱1,903,335.39. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount of ₱1,896,789.62 as insurance
indemnity. SO ORDERED.5

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Hence, Loadmasters filed the present petition for review on certiorari before this Court
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. presenting the following
02-103040. It sought reimbursement of the amount it had paid to Columbia for the loss of the
subject cargo. It claimed that it had been subrogated "to the right of the consignee to recover ISSUES
from the party/parties who may be held legally liable for the loss."2
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for latter respondent Glodel did not file a cross-claim against it (Loadmasters)?
the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The dispositive portion of the decision reads: 2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters
be legally considered as an Agent of respondent Glodel?6
WHEREFORE, all premises considered, the plaintiff having established by preponderance of
evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it
rendered ordering the latter: cannot be considered an agent of Glodel because it never represented the latter in its
dealings with the consignee. At any rate, it further contends that Glodel has no recourse
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual and against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2, Rule 9 of the
compensatory damages, with interest from the date of complaint until fully paid; 1997 Rules of Civil Procedure.

2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the principal Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim
amount recovered as and for attorney’s fees plus ₱1,500.00 per appearance in Court; because the latter was grossly negligent in the transportation of the subject cargo. With
respect to Loadmasters’ claim that it is already estopped from filing a cross-claim, Glodel
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation expenses. insists that it can still do so even for the first time on appeal because there is no rule that
provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of
WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages Charter wherein the transporter (Loadmasters) is only hired for the specific job of delivering
and attorney’s fees against plaintiff are hereby dismissed. the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that
of a good father of the family, not the extraordinary diligence required of common carriers.
With costs against defendant Glodel Brokerage Corporation.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
SO ORDERED.4 against Loadmasters because it was not prevented from presenting evidence to prove its
position even without amending its Answer. As to the relationship between Loadmasters and
Both R&B Insurance and Glodel appealed the RTC decision to the CA. Glodel, it contends that a contract of agency existed between the two corporations.8

On August 24, 2007, the CA rendered the assailed decision which reads in part: 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
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to debt or claim, including its remedies or securities.9 Doubtless, R&B Insurance is subrogated
appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it to the rights of the insured to the extent of the amount it paid the consignee under the marine
shall be paid by appellee Loadmasters. insurance, as provided under Article 2207 of the Civil Code, which reads:

WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the ART. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
appellee Loadmasters is likewise held liable to appellant Glodel in the amount of the insurance company for the injury or loss arising out of the wrong or breach of contract
₱1,896,789.62 representing the insurance indemnity appellant Glodel has been held liable to complained of, the insurance company shall be subrogated to the rights of the insured
appellant R&B Insurance Corporation. against the wrong-doer 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
Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED. entitled to recover the deficiency from the person causing the loss or injury.
 fault or negligence, however, may be rebutted by proof that the common carrier has observed
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek extraordinary diligence over the goods.
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the exercise of extraordinary diligence lasts from the time the goods are unconditionally
the amount of the indemnity it paid Columbia. placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common a right to receive them.18
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the
Civil Code, common carriers are persons, corporations, firms, or associations engaged in the Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly
business of carrying or transporting passenger or goods, or both by land, water or air for and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of
compensation, offering their services to the public. the New Civil Code, "the responsibility of two or more persons who are liable for a quasi-
delict is solidary."
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in
the business of transporting goods by land, through its trucking service. It is a common carrier Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the
as distinguished from a private carrier wherein the carriage is generally undertaken by special consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
agreement and it does not hold itself out to carry goods for the general public.10 The direct contractual relation with Columbia, but it is liable for tort under the provisions of Article
distinction is significant in the sense that "the rights and obligations of the parties to a contract 2176 of the Civil Code on quasi-delicts which expressly provide:
of private carriage are governed principally by their stipulations, not by the law on common
carriers."11 ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
In the present case, there is no indication that the undertaking in the contract between pre-existing contractual relation between the parties, is called a quasi-delict and is governed
Loadmasters and Glodel was private in character. There is no showing that Loadmasters by the provisions of this Chapter.
solely and exclusively rendered services to Glodel.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service,
In fact, Loadmasters admitted that it is a common carrier.12 Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc.19 where this Court held
that a tort may arise despite the absence of a contractual relationship, to wit:
In the same vein, Glodel is also considered a common carrier within the context of Article
1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
under the laws of the Republic of the Philippines and is engaged in the business of customs Mindanao Terminal, from which the present case has arisen, states a cause of action. The
brokering." It cannot be considered otherwise because as held by this Court in Schmitz present action is based on quasi-delict, arising from the negligent and careless loading and
Transport & Brokerage Corporation v. Transport Venture, Inc.,14 a customs broker is also stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix
regarded as a common carrier, the transportation of goods being an integral part of its and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party
business. to the contract of service between Mindanao Terminal and Del Monte, still the insurance
carriers may have a cause of action in light of the Court’s consistent ruling that the act that
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their breaks the contract may be also a tort. In fine, a liability for tort may arise even under a
business and for reasons of public policy, to observe the extraordinary diligence in the contract, where tort is that which breaches the contract. In the present case, Phoenix and
vigilance over the goods transported by them according to all the circumstances of such McGee are not suing for damages for injuries arising from the breach of the contract of
case, as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary service but from the alleged negligent manner by which Mindanao Terminal handled the
diligence, it is that extreme measure of care and caution which persons of unusual prudence cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship
and circumspection observe for securing and preserving their own property or rights.15 This between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part
exacting standard imposed on common carriers in a contract of carriage of goods is intended of the defendant should be sufficient to establish a cause of action arising from quasi-delict.
to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the [Emphases supplied]
goods have been lodged for shipment.16 Thus, in case of loss of the goods, the common
carrier is presumed to have been at fault or to have acted negligently.17 This presumption of In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own while on the part of the agent, there must be an intention to accept the appointment and act
acts or omissions, but also for those of persons for whom one is responsible. on it.23 Such mutual intent is not obtaining in this case.

xxxx What then is the extent of the respective liabilities of Loadmasters and Glodel? Each
wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are several
Employers shall be liable for the damages caused by their employees and household helpers causes for the resulting damages, a party is not relieved from liability, even partially. It is
acting within the scope of their assigned tasks, even though the former are not engaged in sufficient that the negligence of a party is an efficient cause without which the damage would
any business or industry. not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would
not have resulted from his negligence alone, without the negligence or wrongful acts of the
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of
employees (truck driver and helper) were instrumental in the hijacking or robbery of the Appeals,24
shipment. As employer, Loadmasters should be made answerable for the damages caused
by its employees who acted within the scope of their assigned task of delivering the goods X x x. Where several causes producing an injury are concurrent and each is an efficient
safely to the warehouse. cause without which the injury would not have happened, the injury may be attributed to all or
any of the causes and recovery may be had against any or all of the responsible persons
Whenever an employee’s negligence causes damage or injury to another, there instantly although under the circumstances of the case, it may appear that one of them was more
arises a presumption juris tantum that the employer failed to exercise diligentissimi patris culpable, and that the duty owed by them to the injured person was not the same. No actor's
families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its negligence ceases to be a proximate cause merely because it does not exceed the
employees.20 To avoid liability for a quasi-delict committed by its employee, an employer negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as
must overcome the presumption by presenting convincing proof that he exercised the care though his acts were the sole cause of the injury.
and diligence of a good father of a family in the selection and supervision of his employee.21
In this regard, Loadmasters failed. There is no contribution between joint tortfeasors whose liability is solidary since both of them
are liable for the total damage. Where the concurrent or successive negligent acts or
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to omissions of two or more persons, although acting independently, are in combination the
ensure that Loadmasters would fully comply with the undertaking to safely transport the direct and proximate cause of a single injury to a third person, it is impossible to determine in
subject cargo to the designated destination. It should have been more prudent in entrusting what proportion each contributed to the injury and either of them is responsible for the whole
the goods to Loadmasters by taking precautionary measures, such as providing escorts to injury. Where their concurring negligence resulted in injury or damage to a third party, they
accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with become joint tortfeasors and are solidarily liable for the resulting damage under Article 2194
Loadmasters. Its defense of force majeure is unavailing. of the Civil Code. [Emphasis supplied]

At this juncture, the Court clarifies that there exists no principal-agent relationship between The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code failed to file a cross-claim against the latter.1avvphi1
provides: "By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of
latter." The elements of a contract of agency are: (1) consent, express or implied, of the contract of service as the latter is primarily liable for the loss of the subject cargo. In this case,
parties to establish the relationship; (2) the object is the execution of a juridical act in relation however, it cannot succeed in seeking judicial sanction against Loadmasters because the
to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts records disclose that it did not properly interpose a cross-claim against the latter. Glodel did
within the scope of his authority.22 not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable
in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not
Accordingly, there can be no contract of agency between the parties. Loadmasters never set up shall be barred.25 Thus, a cross-claim cannot be set up for the first time on appeal.
represented Glodel. Neither was it ever authorized to make such representation. It is a settled
rule that the basis for agency is representation, that is, the agent acts for and on behalf of the For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
principal on matters within the scope of his authority and said acts have the same legal effect on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’
as if they were personally executed by the principal. On the part of the principal, there must is applied only in the absence of, and never against, statutory law or judicial rules of
be an actual intention to appoint or an intention naturally inferable from his words or actions, procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been
at fault or negligent.
 with the Nissan Bus on their right side shortly before the vehicular incident. All three (3)
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the vehicles were at a halt along EDSA facing the south direction when the Fuzo Cargo Truck
Court of Appeals is MODIFIED to read as follows: simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of
the Nissan Bus. Due to the strong impact, these two vehicles were shoved forward and the
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, front left portion of the Mitsubishi Galant rammed into the rear right portion of the Isuzu
Inc. and respondent Glodel Brokerage Corporation jointly and severally liable to respondent Tanker.5
R&B Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire &
Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance
Corporation a] the amount of ₱1,896,789.62 representing the insurance indemnity; b] the Policy No. PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the
amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of assured), insuring the aforementioned Mitsubishi Galant against third party liability, own
₱22,427.18 for litigation expenses. damage and theft, among others. Having insured the vehicle against such risks, Malayan
Insurance claimed in its Complaint dated October 18, 1999 that it paid the damages
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against sustained by the assured amounting to PhP 700,000.6
petitioner Loadmasters Customs Services, Inc. is DENIED.
Maintaining that it has been subrogated to the rights and interests of the assured by operation
SO ORDERED. of law upon its payment to the latter, Malayan Insurance sent several demand letters to
respondents Rodelio Alberto (Alberto) and Enrico Alberto Reyes (Reyes), the registered
owner and the driver, respectively, of the Fuzo Cargo Truck, requiring them to pay the
G.R. No. 194320 February 1, 2012 amount it had paid to the assured. When respondents refused to settle their liability, Malayan
Insurance was constrained to file a complaint for damages for gross negligence against
MALAYAN INSURANCE CO., INC., Petitioner, respondents.7
vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents. In their Answer, respondents asserted that they cannot be held liable for the vehicular
accident, since its proximate cause was the reckless driving of the Nissan Bus driver. They
DECISION alleged that the speeding bus, coming from the service road of EDSA, maneuvered its way
towards the middle lane without due regard to Reyes’ right of way. When the Nissan Bus
VELASCO, JR., J.: abruptly stopped, Reyes stepped hard on the brakes but the braking action could not cope
with the inertia and failed to gain sufficient traction. As a consequence, the Fuzo Cargo Truck
The Case hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front
of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing damage
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set to the latter in the amount of PhP 20,000. Respondents also controverted the results of the
aside the July 28, 2010 Decision1 of the Court of Appeals (CA) and its October 29, 2010 Police Report, asserting that it was based solely on the biased narration of the Nissan Bus
Resolution2 denying the motion for reconsideration filed by petitioner Malayan Insurance Co., driver.8
Inc. (Malayan Insurance). The July 28, 2010 CA Decision reversed and set aside the
Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in Manila. After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented
the testimony of its lone witness, a motor car claim adjuster, who attested that he processed
The Facts the insurance claim of the assured and verified the documents submitted to him.
Respondents, on the other hand, failed to present any evidence.
At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the corner
of EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in
operated by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate favor of Malayan Insurance and declared respondents liable for damages. The dispositive
number PLR 684; (3) a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi portion reads:
Galant with plate number TLM 732.4
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 and severally to pay plaintiff the following:
Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant
1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR
2. Attorney’s fees of P10,000.00 and; DEFICIENT.

3. Cost of suit. On the other hand, respondents submit the following issues in its Memorandum15 dated July
7, 2011:
SO ORDERED.9
I
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In
its Decision dated July 28, 2010, the CA reversed and set aside the Decision of the trial court WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF
and ruled in favor of respondents, disposing: MALAYAN INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO
ESTABLISH THE NEGLIGENCE OF RESPONDENTS.
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the
assailed Decision dated 2 February 2009 REVERSED and SET ASIDE. The Complaint dated II
18 October 1999 is hereby DISMISSED for lack of merit. No costs.
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE
SO ORDERED.10 SUFFICIENT TO CLAIM FOR THE AMOUNT OF DAMAGES.

The CA held that the evidence on record has failed to establish not only negligence on the III
part of respondents, but also compliance with the other requisites and the consequent right of
Malayan Insurance to subrogation.11 It noted that the police report, which has been made WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED
part of the records of the trial court, was not properly identified by the police officer who COMPLIANCE AND REQUISITES AS PROVIDED UNDER PERTINENT LAWS.
conducted the on-the-spot investigation of the subject collision. It, thus, held that an appellate
court, as a reviewing body, cannot rightly appreciate firsthand the genuineness of an Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2)
unverified and unidentified document, much less accord it evidentiary value.12 the sufficiency of the evidence to support a claim for gross negligence; and (3) the validity of
subrogation in the instant case.
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police
report is a prima facie evidence of the facts stated in it. And inasmuch as they never Our Ruling
questioned the presentation of the report in evidence, respondents are deemed to have
waived their right to question its authenticity and due execution.13 The petition has merit.

In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Admissibility of the Police Report
Hence, Malayan Insurance filed the instant petition.
Malayan Insurance contends that, even without the presentation of the police investigator
The Issues who prepared the police report, said report is still admissible in evidence, especially since
respondents failed to make a timely objection to its presentation in evidence.16 Respondents
In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the following issues for counter that since the police report was never confirmed by the investigating police officer, it
Our consideration: cannot be considered as part of the evidence on record.17

I Indeed, under the rules of evidence, a witness can testify only to those facts which the
witness knows of his or her personal knowledge, that is, which are derived from the witness’
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT own perception.18 Concomitantly, a witness may not testify on matters which he or she
SINCE THE POLICE INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY merely learned from others either because said witness was told or read or heard those
TESTIFY IN COURT THEREON. matters.19 Such testimony is considered hearsay and may not be received as proof of the
truth of what the witness has learned. This is known as the hearsay rule.20
II
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or
statements; the general rule that excludes hearsay as evidence applies to written, as well as Petitioner’s contention, however, loses relevance in the face of the application of res ipsa
oral statements." loquitur by the CA. The effect of the doctrine is to warrant a presumption or inference that the
mere fall of the elevator was a result of the person having charge of the instrumentality was
There are several exceptions to the hearsay rule under the Rules of Court, among which are negligent. As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of
entries in official records.22 Section 44, Rule 130 provides: negligence which recognizes that prima facie negligence may be established without direct
proof and furnishes a substitute for specific proof of negligence.
Entries in official records made in the performance of his duty by a public officer of the
Philippines, or by a person in the performance of a duty specially enjoined by law are prima The concept of res ipsa loquitur has been explained in this wise:
facie evidence of the facts therein stated.
While negligence is not ordinarily inferred or presumed, and while the mere happening of an
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the admissibility in accident or injury will not generally give rise to an inference or presumption that it was due to
evidence, as an exception to the hearsay rule of entries in official records, thus: (a) that the negligence on defendant’s part, under the doctrine of res ipsa loquitur, which means, literally,
entry was made by a public officer or by another person specially enjoined by law to do so; the thing or transaction speaks for itself, or in one jurisdiction, that the thing or instrumentality
(b) that it was made by the public officer in the performance of his or her duties, or by such speaks for itself, the facts or circumstances accompanying an injury may be such as to raise
other person in the performance of a duty specially enjoined by law; and (c) that the public a presumption, or at least permit an inference of negligence on the part of the defendant, or
officer or other person had sufficient knowledge of the facts by him or her stated, which must some other person who is charged with negligence.
have been acquired by the public officer or other person personally or through official
information. x x x where it is shown that the thing or instrumentality which caused the injury complained of
was under the control or management of the defendant, and that the occurrence resulting in
Notably, the presentation of the police report itself is admissible as an exception to the the injury was such as in the ordinary course of things would not happen if those who had its
hearsay rule even if the police investigator who prepared it was not presented in court, as control or management used proper care, there is sufficient evidence, or, as sometimes
long as the above requisites could be adequately proved.24 stated, reasonable evidence, in the absence of explanation by the defendant, that the injury
arose from or was caused by the defendant’s want of care.
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the
report, and he did so in the performance of his duty. However, what is not clear is whether One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is
SPO1 Dungga had sufficient personal knowledge of the facts contained in his report. Thus, absent or not available.
the third requisite is lacking.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of
Respondents failed to make a timely objection to the police report’s presentation in evidence; the instrumentality which causes the injury either knows the cause of the accident or has the
thus, they are deemed to have waived their right to do so.25 As a result, the police report is best opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore
still admissible in evidence. is compelled to allege negligence in general terms and to rely upon the proof of the
happening of the accident in order to establish negligence. The inference which the doctrine
Sufficiency of Evidence permits is grounded upon the fact that the chief evidence of the true cause, whether culpable
or innocent, is practically accessible to the defendant but inaccessible to the injured person.
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped
the rear of the Mitsubishi Galant, he is presumed to be negligent unless proved otherwise. It It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff,
further contends that respondents failed to present any evidence to overturn the presumption without knowledge of the cause, reaches over to defendant who knows or should know the
of negligence.26 Contrarily, respondents claim that since Malayan Insurance did not present cause, for any explanation of care exercised by the defendant in respect of the matter of
any witness who shall affirm any negligent act of Reyes in driving the Fuzo Cargo truck which the plaintiff complains. The res ipsa loquitur doctrine, another court has said, is a rule
before and after the incident, there is no evidence which would show negligence on the part of necessity, in that it proceeds on the theory that under the peculiar circumstances in which
of respondents.27 the doctrine is applicable, it is within the power of the defendant to show that there was no
negligence on his part, and direct proof of defendant’s negligence is beyond plaintiff’s power.
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report Accordingly, some courts add to the three prerequisites for the application of the res ipsa
in evidence, still, respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. loquitur doctrine the further requirement that for the res ipsa loquitur doctrine to apply, it must
The D.M. Consunji, Inc. case is quite elucidating: appear that the injured party had no knowledge or means of knowledge as to the cause of the
accident, or that the party to be charged with negligence has superior knowledge or the rear end of the vehicle in front of it. Respondents, however, point to the reckless driving of
opportunity for explanation of the accident. the Nissan Bus driver as the proximate cause of the collision, which allegation is totally
unsupported by any evidence on record. And assuming that this allegation is, indeed, true, it
The CA held that all the requisites of res ipsa loquitur are present in the case at bar: is astonishing that respondents never even bothered to file a cross-claim against the owner or
driver of the Nissan Bus.
There is no dispute that appellee’s husband fell down from the 14th floor of a building to the
basement while he was working with appellant’s construction project, resulting to his death. What is at once evident from the instant case, however, is the presence of all the requisites
The construction site is within the exclusive control and management of appellant. It has a for the application of the rule of res ipsa loquitur. To reiterate, res ipsa loquitur is a rule of
safety engineer, a project superintendent, a carpenter leadman and others who are in necessity which applies where evidence is absent or not readily available. As explained in
complete control of the situation therein. The circumstances of any accident that would occur D.M. Consunji, Inc., it is partly based upon the theory that the defendant in charge of the
therein are peculiarly within the knowledge of the appellant or its employees. On the other instrumentality which causes the injury either knows the cause of the accident or has the best
hand, the appellee is not in a position to know what caused the accident. Res ipsa loquitur is opportunity of ascertaining it and that the plaintiff has no such knowledge, and, therefore, is
a rule of necessity and it applies where evidence is absent or not readily available, provided compelled to allege negligence in general terms and to rely upon the proof of the happening
the following requisites are present: (1) the accident was of a kind which does not ordinarily of the accident in order to establish negligence.
occur unless someone is negligent; (2) the instrumentality or agency which caused the injury
was under the exclusive control of the person charged with negligence; and (3) the injury As mentioned above, the requisites for the application of the res ipsa loquitur rule are the
suffered must not have been due to any voluntary action or contribution on the part of the following: (1) the accident was of a kind which does not ordinarily occur unless someone is
person injured. x x x. negligent; (2) the instrumentality or agency which caused the injury was under the exclusive
control of the person charged with negligence; and (3) the injury suffered must not have been
No worker is going to fall from the 14th floor of a building to the basement while performing due to any voluntary action or contribution on the part of the person injured.29
work in a construction site unless someone is negligent[;] thus, the first requisite for the
application of the rule of res ipsa loquitur is present. As explained earlier, the construction site In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the
with all its paraphernalia and human resources that likely caused the injury is under the Mitsubishi Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under the
exclusive control and management of appellant[;] thus[,] the second requisite is also present. exclusive control of its driver, Reyes. Even if respondents avert liability by putting the blame
No contributory negligence was attributed to the appellee’s deceased husband[;] thus[,] the on the Nissan Bus driver, still, this allegation was self-serving and totally unfounded. Finally,
last requisite is also present. All the requisites for the application of the rule of res ipsa no contributory negligence was attributed to the driver of the Mitsubishi Galant.
loquitur are present, thus a reasonable presumption or inference of appellant’s negligence Consequently, all the requisites for the application of the doctrine of res ipsa loquitur are
arises. x x x. present, thereby creating a reasonable presumption of negligence on the part of respondents.

Petitioner does not dispute the existence of the requisites for the application of res ipsa It is worth mentioning that just like any other disputable presumptions or inferences, the
loquitur, but argues that the presumption or inference that it was negligent did not arise since presumption of negligence may be rebutted or overcome by other evidence to the contrary. It
it "proved that it exercised due care to avoid the accident which befell respondent’s husband." is unfortunate, however, that respondents failed to present any evidence before the trial court.
Thus, the presumption of negligence remains. Consequently, the CA erred in dismissing the
Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, complaint for Malayan Insurance’s adverted failure to prove negligence on the part of
the defendant’s negligence is presumed or inferred when the plaintiff establishes the respondents.
requisites for the application of res ipsa loquitur. Once the plaintiff makes out a prima facie
case of all the elements, the burden then shifts to defendant to explain. The presumption or Validity of Subrogation
inference may be rebutted or overcome by other evidence and, under appropriate
circumstances a disputable presumption, such as that of due care or innocence, may Malayan Insurance contends that there was a valid subrogation in the instant case, as
outweigh the inference. It is not for the defendant to explain or prove its defense to prevent evidenced by the claim check voucher30 and the Release of Claim and Subrogation
the presumption or inference from arising. Evidence by the defendant of say, due care, Receipt31 presented by it before the trial court. Respondents, however, claim that the
comes into play only after the circumstances for the application of the doctrine has been documents presented by Malayan Insurance do not indicate certain important details that
established.28 would show proper subrogation.

In the case at bar, aside from the statement in the police report, none of the parties disputes As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to
the fact that the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the presentation of its evidence. Thus, and as We have mentioned earlier, respondents are
deemed to have waived their right to make an objection. As this Court held in Asian ASIDE. The Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-
Construction and Development Corporation v. COMFAC Corporation: 95885 is hereby REINSTATED.

The rule is that failure to object to the offered evidence renders it admissible, and the court No pronouncement as to cost.
cannot, on its own, disregard such evidence. We note that ASIAKONSTRUCT’s counsel of
record before the trial court, Atty. Bernard Dy, who actively participated in the initial stages of SO ORDERED.
the case stopped attending the hearings when COMFAC was about to end its presentation.
Thus, ASIAKONSTRUCT could not object to COMFAC’s offer of evidence nor present
evidence in its defense; ASIAKONSTRUCT was deemed by the trial court to have waived its
chance to do so.

Note also that when a party desires the court to reject the evidence offered, it must so state in G.R. No. 185964 June 16, 2014
the form of a timely objection and it cannot raise the objection to the evidence for the first time
on appeal. Because of a party’s failure to timely object, the evidence becomes part of the ASIAN TERMINALS, INC., Petitioner,
evidence in the case. Thereafter, all the parties are considered bound by any outcome arising vs.
from the offer of evidence properly presented.32 (Emphasis supplied.) FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent.

Bearing in mind that the claim check voucher and the Release of Claim and Subrogation DECISION
Receipt presented by Malayan Insurance are already part of the evidence on record, and
since it is not disputed that the insurance company, indeed, paid PhP 700,000 to the assured, REYES, J.:
then there is a valid subrogation in the case at bar. As explained in Keppel Cebu Shipyard,
Inc. v. Pioneer Insurance and Surety Corporation: This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated October 10, 2008 of the Court of Appeals (CA) in
Subrogation is the substitution of one person by another with reference to a lawful claim or CA-G.R. SP No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay the
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or money claims of respondent First Lepanto-Taisho Insurance Corporation (FIRST LEPANTO).
claim, including its remedies or securities. The principle covers a situation wherein an insurer
has paid a loss under an insurance policy is entitled to all the rights and remedies belonging The Undisputed Facts
to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags
creditor, and he may use all means that the creditor could employ to enforce complete and in good condition were loaded and received on board M/V "Da Feng" owned by
payment.1âwphi1 China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI).
Based on a Certificate of Insurance4 dated August 24, 1995, it appears that the shipment
We have held that payment by the insurer to the insured operates as an equitable was insured against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under Marine
assignment to the insurer of all the remedies that the insured may have against the third party Open Policy No. 0123.
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and
insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. custody of ATI, a domestic corporation engaged in arrastre business. The shipment remained
It is designed to promote and to accomplish justice; and is the mode that equity adopts to for quite some time at ATI’s storage area until it was withdrawn by broker, Proven Customs
compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, Brokerage Corporation (PROVEN), on August 8 and 9, 1996 for delivery to the consignee.
ought to pay.33 Upon receipt of the shipment,5 GASI subjected the same to inspection and found that the
delivered goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to of11,915 kg of loss/damage valued at ₱166,772.41.
the rights of the assured.
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines,
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and Inc. (SMITH BELL),6 ATI7 and PROVEN8 but was denied. Hence, it pursued indemnification
October 29, 2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET from the shipment’s insurer.9
 Rules of Civil Procedure, "when a pleading asserting a claim states a common cause of
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of action against several defending parties, some of whom answer and the other fail to do so,
₱165,772.40 as insurance indemnity.10 the Court shall try the case against all upon the answers thus filed, and render judgment upon
the evidence presented."22
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and
all liabilities pertaining to the lost/damaged shipment and subrogating it to all the rights of Ruling of the MeTC
recovery and claims the former may have against any person or corporation in relation to the
lost/damaged shipment. In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any
liability and instead found COSCO to be the party at fault and hence liable for the
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the loss/damage sustained by the subject shipment. However, the MeTC ruled it has no
Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. jurisdiction over COSCO because it is a foreign corporation. Also, it cannot enforce judgment
When FIRST LEPANTO’s demands were not heeded, it filed on May 29, 1997 a Complaint12 upon SMITH BELL because no evidence was presented establishing that it is indeed the
for sum of money before the Metropolitan Trial Court (MeTC) of Manila, Branch 3. FIRST Philippine agent of COSCO. There is also no evidence attributing any fault to SMITH BELL.
LEPANTO sought that it be reimbursed the amount of 166,772.41, twenty-five percent (25%) Consequently, the complaint was dismissed in this wise:
thereof as attorney’s fees, and costs of suit.
WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the
ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence instant case for failure of [FIRST LEPANTO] to sufficiently establish its cause o faction
and care in handling the same.13 ATI averred that upon arrival of the shipment, SMITH BELL against [ATI, COSCO, SMITH BELL, and PROVEN].
requested for its inspection14 and it was discovered that one jumbo bag thereof sustained
loss/damage while in the custody of COSCO as evidenced by Turn Over Survey of Bad Order The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.
Cargo No. 47890 dated August 6, 199615 jointly executed by the respective representatives
of ATI and COSCO. During the withdrawal of the shipment by PROVEN from ATI’s No pronouncement as to cost.
warehouse, the entire shipment was re-examined and it was found to be exactly in the same
condition as when it was turned over to ATI such that one jumbo bag was damaged. To SO ORDERED.24
bolster this claim, ATI submitted Request for Bad Order Survey No. 40622 dated August 9,
199616 jointly executed by the respective representatives of ATI and PROVEN. ATI also Ruling of the Regional Trial Court
submitted various Cargo Gate Passes17 showing that PROVEN was able to completely
withdraw all the shipment from ATI’s warehouse in good order condition except for that one On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its Decision25
damaged jumbo bag. dated January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No. 06-116237, rejected
the contentions of ATI upon its observation that the same is belied by its very own
In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of documentary evidence. The RTC remarked that, if, as alleged by ATI, one jumbo bag was
the shipment, its contract for cargo handling services limits its liability to not more than already in bad order condition upon its receipt of the shipment from COSCO on July 18,
₱5,000.00 per package. ATI interposed a counterclaim of ₱20,000.00 against FIRST 1996, then how come that the Request for Bad Order Survey and the Turn Over Survey of
LEPANTO as and for attorney’s fees. It also filed a cross-claim against its co-defendants Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996 and August 6,
COSCO and SMITH BELL in the event that it is made liable to FIRST LEPANTO.18 1996, respectively. ATI was adjudged unable to prove that it exercised due diligence while in
custody of the shipment and hence, negligent and should be held liable for the damages
PROVEN denied any liability for the lost/damaged shipment and averred that the complaint caused to GASI which, in turn, is subrogated by FIRST LEPANTO.
alleged no specific acts or omissions that makes it liable for damages. PROVEN claimed that
the damages in the shipment were sustained before they were withdrawn from ATI’s custody The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00 per package
under which the shipment was left in an open area exposed to the elements, thieves and because its Management Contract with the Philippine Ports Authority (PPA) purportedly
vandals. PROVEN contended that it exercised due diligence and prudence in handling the containing the same was not presented as evidence. More importantly, FIRST LEPANTO or
shipment. PROVEN also filed a counterclaim for attorney’s fees and damages.19 GASI cannot be deemed bound thereby because they were not parties thereto. Lastly, the
RTC did not give merit to ATI’s defense that any claim against it has already prescribed
Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL failed to file because GASI failed to file any claim within the 15-day period stated in the gate pass issued
an answer to the complaint. FIRST LEPANTO thus moved that they be declared in default21 by ATI to GASI’s broker, PROVEN. Accordingly, the RTC disposed thus:
but the motion was denied by the MeTC on the ground that under Rule 9, Section 3 of the
WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED. Ruling of the Court

[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with The Court denies the petition.
legal interest until fully paid, to pay [FIRST LEPANTO] 10% of the amount due the latter as
and for attorney’s fees plus the costs of suit. ATI failed to prove that it exercised
due care and diligence while the
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of shipment was under its custody,
evidence against them. The counterclaim and cross[-]claim of [ATI] are likewise DISMISSED control and possession as arrastre
for lack of merit. operator.

SO ORDERED.26 It must be emphasized that factual questions pertaining to ATI’s liability for the loss/damage
sustained by GASI has already been settled in the uniform factual findings of the RTC and
Ruling of the CA the CA that: ATI failed to prove by preponderance of evidence that it exercised due diligence
in handling the shipment.
ATI sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was
validly subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI Such findings are binding and conclusive upon this Court since a review thereof is proscribed
argued that there was no valid subrogation because FIRSTLEPANTO failed to present a by the nature of the present petition. Only questions of law are allowed in petitions for review
valid, existing and enforceable Marine Open Policy or insurance contract. ATI reasoned that on certiorari under Rule 45 of the Rules of Court. It is not the Court’s duty to review, examine,
the Certificate of Insurance or Marine Cover Note submitted by FIRST LEPANTO as and evaluate or weigh all over again the probative value of the evidence presented,
evidence is not the same as an actual insurance contract. especially where the findings of the RTC are affirmed by the CA, as in this case.32

In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the There are only specific instances when the Court deviates from the rule and conducts a
Release of Claim and the Certificate of Insurance presented by FIRST LEPANTO sufficiently review of the courts a quo’s factual findings, such as when: (1) the inference made is
established its relationship with the consignee and that upon proof of payment of the latter’s manifestly mistaken, absurd or impossible; (2) there is grave abuse of discretion;(3) the
claim for damages, FIRST LEPANTO was subrogated to its rights against those liable for the findings are grounded entirely on speculations, surmises or conjectures; (4) the judgment of
lost/damaged shipment. the CA is based on misapprehension of facts; (5) the CA, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of both appellant and
The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in appellee; (6) the findings of fact are conclusions without citation of specific evidence on which
the custody of ATI. Thus, the CA disposed as follows: they are based; (7) the CA manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion; and (8) the
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the findings of fact of the CA are premised on the absence of evidence and are contradicted by
instant petition is DENIED for lack of merit. the evidence on record.33

SO ORDERED.28 None of these instances, however, are present in this case. Moreover, it is unmistakable that
ATI has already conceded to the factual findings of RTC and CA adjudging it liable for the
ATI moved for reconsideration but the motion was denied in the CA Resolution29 dated shipment’s loss/damage considering the absence of arguments pertaining to such issue in
January 12, 2009. Hence, this petition arguing that: the petition at bar.

(a) The presentation of the insurance policy is indispensable in proving the right of FIRST These notwithstanding, the Court scrutinized the records of the case and found that indeed,
LEPANTO to be subrogated to the right of the consignee pursuant to the ruling in Wallem ATI is liable as the arrastre operator for the lost/damaged portion of the shipment.
Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.;30
The relationship between the consignee and the arrastre operator is akin to that existing
(b) ATI cannot be barred from invoking the defense of prescription as provided for in the gate between the consignee and/or the owner of the shipped goods and the common carrier, or
passes in consonance with the ruling in International Container Terminal Services, Inc. v. that between a depositor and a warehouseman. Hence, in the performance of its obligations,
Prudential Guarantee and Assurance Co, Inc.31 an arrastre operator should observe the same degree of diligence as that required of a
common carrier and a warehouseman. Being the custodian of the goods discharged from a
vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to is imperative for the parties to disclose during pre-trial all issues they intend to raise during
the party entitled to their possession.34 the trial because, they are bound by the delimitation of such issues. The determination of
issues during the pre-trial conference bars the consideration of other questions, whether
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show during trial or on appeal.38
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that A faithful adherence to the rule by litigants is ensured by the equally settled principle that a
the losses were not due to its negligence or to that of its employees. To avoid liability, the party cannot change his theory on appeal as such act violates the basic rudiments of fair play
arrastre operator must prove that it exercised diligence and due care in handling the and due process. As stressed in Jose v. Alfuerto:39
shipment.35
[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of law,
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO theories, issues and arguments not brought to the attention of the lower court will not be
on the basis of the Request for Bad Order Survey dated August 9, 1996 purportedly showing considered by the reviewing court. The defenses not pleaded in the answer cannot, on
that when ATI received the shipment, one jumbo bag thereof was already in damaged appeal, change fundamentally the nature of the issue in the case. To do so would be unfair to
condition. the adverse party, who had no opportunity to present evidence in connection with the new
theory; this would offend the basic rules of due process and fair play.40 (Citation omitted)
The RTC and CA were both correct in concluding that ATI’s contention was improbable and
illogical. As judiciously discerned by the courts a quo, the date of the document was too While the Court may adopt a liberal stance and relax the rule, no reasonable explanation,
distant from the date when the shipment was actually received by ATI from COSCO on July however, was introduced to justify ATI’s failure to timely question the basis of FIRST
18, 1996. In fact, what the document established is that when the loss/damage was LEPANTO’s rights as a subrogee.
discovered, the shipment has been in ATI’s custody for at least two weeks. This
circumstance, coupled with the undisputed declaration of PROVEN’s witnesses that while the The fact that the CA took cognizance of and resolved the said issue did not cure or ratify
shipment was in ATI’s custody, it was left in an open area exposed to the elements, thieves ATI’s faux pas. "[A] judgment that goes beyond the issues and purports to adjudicate
and vandals,36 all generate the conclusion that ATI failed to exercise due care and diligence something on which the court did not hear the parties, is not only irregular but also
while the subject shipment was under its custody, control and possession as arrastre extrajudicial and invalid."41 Thus, for resolving an issue not framed during the pre-trial and on
operator. which the parties were not heard during the trial, that portion of the CA’s judgment discussing
the necessity of presenting an insurance contract was erroneous.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must
do more than merely show the possibility that some other party could be responsible for the At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s
loss or the damage.37 It must prove that it used all reasonable means to handle and store the right to collect reimbursement as the subrogee of GASI.
shipment with due care and diligence including safeguarding it from weather elements,
thieves or vandals. "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
Non-presentation of the insurance relation to a debt or claim, including its remedies or securities."42 The right of subrogation
contract is not fatal to FIRST springs from Article 2207 of the Civil Code which states:
LEPANTO’s cause of action for
reimbursement as subrogee. Art. 2207. 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
It is conspicuous from the records that ATI put in issue the submission of the insurance complained of, the insurance company shall be subrogated to the rights of the insured
contract for the first time before the CA. Despite opportunity to study FIRST LEPANTO’s against the wrong-doer or the person who has violated the contract. If the amount paid by the
complaint before the MeTC, ATI failed to allege in its answer the necessity of the insurance insurance company does not fully cover the injury or loss, the aggrieved party shall be
contract. Neither was the same considered during pre-trial as one of the decisive matters in entitled to recover the deficiency from the person causing the loss or injury.
the case. Further, ATI never challenged the relevancy or materiality of the Certificate of
Insurance presented by FIRST LEPANTO as evidence during trial as proof of its right to be As a general rule, the marine insurance policy needs to be presented in evidence before the
subrogated in the consignee’s stead. Since it was not agreed during the pre-trial proceedings insurer may recover the insured value of the lost/damaged cargo in the exercise of its
that FIRST LEPANTO will have to prove its subrogation rights by presenting a copy of the subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage Corp.,43 the Court
insurance contract, ATI is barred from pleading the absence of such contract in its appeal. It stated that the presentation of the contract constitutive of the insurance relationship between
the consignee and insurer is critical because it is the legal basis of the latter’s right to subrogation is premised. Subrogation is designed to promote and to accomplish justice and is
subrogation.44 the mode which equity adopts to compel the ultimate payment of a debt by one who in justice,
equity and good conscience ought to pay.55
In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was
necessary to prove that it covered the hauling portion of the shipment and was not limited to The payment by the insurer to the insured operates as an equitable assignment to the insurer
the transport of the cargo while at sea. The shipment in that case passed through six stages of all the remedies which the insured may have against the third party whose negligence or
with different parties involved in each stage until it reached the consignee. The insurance wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it
contract, which was not presented in evidence, was necessary to determine the scope of the grow out of any privity of contract or upon payment by the insurance company of the
insurer’s liability, if any, since no evidence was adduced indicating at what stage in the insurance claim. It accrues simply upon payment by the insurance company of the insurance
handling process the damage to the cargo was sustained.46 claim.56

An analogous disposition was arrived at in the Wallem47 case cited by ATI wherein the Court ATI cannot invoke prescription
held that the insurance contract must be presented in evidence in order to determine the
extent of its coverage. It was further ruled therein that the liability of the carrier from whom ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking
reimbursement was demanded was not established with certainty because the alleged payment for the lost/damaged shipment because the claim letter of GASI to ATI was served
shortage incurred by the cargoes was not definitively determined.48 only on September 27, 1996 or more than one month from the date the shipment was
delivered to the consignee’s warehouse on August 9, 1996. The claim of GASI was thus filed
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted beyond the 15-day period stated in ATI’s Management Contract with PPA which in turn was
exceptions by declaring that a marine insurance policy is dispensable evidence in reproduced in the gate passes issued to the consignee’s broker, PROVEN, as follows:
reimbursement claims instituted by the insurer.
Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods as
In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues described above in good order and condition unless an accompanying x x x certificates duly
simply upon payment by the insurance company of the insurance claim. Hence, presentation issued and noted on the face of this Gate Pass appeals. [sic]
in evidence of the marine insurance policy is not indispensable before the insurer may
recover from the common carrier the insured value of the lost cargo in the exercise of its This Gate pass is subject to all terms and conditions defined in the Management Contract
subrogatory right. The subrogation receipt, by itself, was held sufficient to establish not only between the Philippine Port[s] Authority and Asian Terminals, Inc. and amendment thereto
the relationship between the insurer and consignee, but also the amount paid to settle the and alterations thereof particularly but not limited to the [A]rticle VI thereof, limiting the
insurance claim. The presentation of the insurance contract was deemed not fatal to the contractor’s liability to [P]5,000.00 per package unless the importation is otherwise specified
insurer’s cause of action because the loss of the cargo undoubtedly occurred while on board or manifested or communicated in writing together with the invoice value and supported by a
the petitioner’s vessel.50 certified packing list to the contractor by the interested party or parties before the discharge of
the goods and corresponding arrastre charges have been paid providing exception or
The same rationale was the basis of the judgment in International Container Terminal restrictions from liability releasing the contractor from liability among others unless a formal
Services, Inc. v. FGU Insurance Corporation,51 wherein the arrastre operator was found claim with the required annexes shall have been filed with the contractor within fifteen (15)
liable for the lost shipment despite the failure of the insurance company to offer in evidence days from date of issuance by the contractors or certificate of loss, damages, injury, or
the insurance contract or policy. As in Delsan, it was certain that the loss of the cargo Certificate of non-delivery.57
occurred while in the petitioner’s custody.52
The contention is bereft of merit. As clarified in Insurance Company of North America v. Asian
Based on the attendant facts of the instant case, the application of the exception is Terminals, Inc.,58 substantial compliance with the 15-day time limitation is allowed provided
warranted.1âwphi1 As discussed above, it is already settled that the loss/damage to the that the consignee has made a provisional claim thru a request for bad order survey or
GASI’s shipment occurred while they were in ATI’s custody, possession and control as examination report, viz:
arrastre operator. Verily, the Certificate of Insurance53 and the Release of Claim54
presented as evidence sufficiently established FIRST LEPANTO’s right to collect Although the formal claim was filed beyond the 15-day period from the issuance of the
reimbursement as the subrogee of the consignee, GASI. examination report on the request for bad order survey, the purpose of the time limitations for
the filing of claims had already been fully satisfied by the request of the consignee’s broker
With ATI’s liability having been positively established, to strictly require the presentation of the for a bad order survey and by the examination report of the arrastre operator on the result
insurance contract will run counter to the principle of equity upon which the doctrine of thereof, as the arrastre operator had become aware of and had verified the facts giving rise to
its liability. Hence, the arrastre operator suffered no prejudice by the lack of strict compliance Conrado R. Ayuyao for plaintiffs-appellees.
with the 15-day limitation to file the formal complaint.59 (Citations omitted)
Ponciano U. Pitargue for defendant-appellee First quezon City Insurance Co., Inc.
In the present case, ATI was notified of the loss/damage to the subject shipment as early as
August 9, 1996 thru a Request for Bad Order Survey60 jointly prepared by the consignee’s Fernando B. Zamora for defendant-appellee Jamila & Company, Inc.
broker, PROVEN, and the representatives of ATI. For having submitted a provisional claim,
GASI is thus deemed to have substantially complied with the notice requirement to the
arrastre operator notwithstanding that a formal claim was sent to the latter only on September AQUINO, J.:
27, 1996. ATI was not deprived the best opportunity to probe immediately the veracity of such
claims. Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred by filing the Fireman's Fund and Insurance Company (Fireman's Fund for short) and Firestone Tire and
herein action in court. Rubber Company of the Philippines appealed from the order dated October 18, 1966 of the
Court of First Instance of Manila, dismissing their complaint against Jamila & Co., Inc.
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no (hereinafter called Jamila) for the recovery of the sum of P11,925.00 plus interest, damages
provisional claim thru request for bad order survey and instead filed a claim for the first time and attorney's fees (Civil Case No. 65658).
after four months from receipt of the shipment.
The gist of the complaint is that Jamila or the Veterans Philippine Scouts Security Agency
Attorney's fees and interests contracted to supply security guards to Firestone; that Jamila assumed responsibility for the
acts of its security guards; that First Quezon City Insurance Co., Inc. executed a bond in the
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing sum of P20,000.00 to guarantee Jamila's obligations under that contract; that on May 18,
the insurance indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery Frames,62 1963 properties of Firestone valued at P11,925.00 were lost allegedly due to the acts of its
the said amount shall earn a legal interest at the rate of six percent (6%) per annum from the employees who connived with Jamila's security guard; that Fireman's Fund, as insurer, paid
date of finality of this judgment until its full satisfaction. to Firestone the amount of the loss; that Fireman's Fund was subrogated to Firestone's right
to get reimbursement from Jamila, and that Jamila and its surety, First Quezon City Insurance
As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is Co., Inc., failed to pay the amount of the loss in spite of repeated demands.
reasonable as and for attorney's fees considering the length of time that has passed in
prosecuting the claim.63 Upon defendants' motions, the lower court in its order of July 22, 1966 dismissed the
complaint as to Jamila on the ground that there was no allegation that it had consented to the
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated subrogation and, therefore, Fireman's Fund had no cause of action against it.
October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby AFFIRMED
insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho In the same order the lower court dismissed the complaint as to First Quezon City Insurance
Insurance Corp., the amount of ₱165,772.40, ten percent (10%) thereof as and for attorney's Co., Inc. on the ground of res judicata. It appears that the same action was previously filed in
fees, plus costs of suit. The said amount shall earn legal interest at the rate of six percent Civil Case No. 56311 which was dismiss because of the failure of the same plaintiffs and their
( 6%) per annum from the date of finality of this judgment until its full satisfaction. counsel to appear at the pre trial.

SO ORDERED. Firestone and Fireman's Fund moved for the reconsideration of the order of dismissal. The
lower court on September 3, 1966 set aside its order of dismissal. It sustained plaintiffs'
contention that there was no res judicata as to First Quezon City Insurance Co., Inc. because
G.R. No. L-27427 April 7, 1976 Civil Case No. 56311 was dismissed without prejudice. Later, First Quezon City Insurance
Co., Inc. filed its answer to the complaint.

FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER However, due to inadvertence, the lower court did not state in its order of September 3, 1966
COMPANY OF THE PHILIPPINES, plaintiffs-appellants, why it set aside its prior order dismissing the complaint with respect to Jamila.
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC., What is now to be recounted shows the lack of due care on the part of the lower court and the
defendants-appellees. opposing lawyers in their management of the case. Such lack of due care has given the case
a farcical ambiance and might partially explain the long delay in its adjudication.
 Jamila, in reply, stubbornly argues that legal subrogation under article 2207 requires the
Jamila, upon noticing that the order of September 3, 1966 had obliterated its victory without debtor's consent; that legal subrogation takes place in the cases mentioned in article 1302 of
any reason therefor, filed a motion for reconsideration. It had originally moved for the the Civil Code and the instant case is not among the three cases enumerated in that article,
dismissal of the complaint on the ground of lack of cause of action. Its contention was based and that there could be no subrogation in this case because according to the plaintiffs the
on two grounds, to wit: (1) that the complaint did not allege that Firestone, pursuant to the contract between. Jamila and Firestone was entered into on June 1, 1965 but the loss
contractual stipulation quoted in the complaint, had investigated the loss and that Jamila was complained of occurred on May 18, 1963.
represented in the investigation and (2) that Jamila did not consent to the subrogation of
Fireman's Fund to Firestone's right to get reimbursement from Jamila and its surety. The With respect to the factual point raised by Jamila, it should be stated that plaintiffs' counsel
lower court in its order of dismissal had sustained the second ground. gratuitously alleged in their brief that Firestone and Jamila entered into a "contract of guard
services" on June 1, 1965. That allegation, which was uncalled for because it is not found in
Jamila in its motion for the reconsideration of the order of September 3, 1966 invoked the first the complaint, created confusion which heretofore did not exist. No copy of the contract was
ground which had never been passed upon by the lower court. Firestone and Fireman's Fund annexed to the complaint.
in their opposition joined battle, in a manner of speaking, on that first ground.
That confusing statement was an obvious error since it was expressly alleged in the
But the lower court in its order of October 18, 1966, granting Jamila's motion for complaint that the loss occurred on May 18, 1963. The fact that such an error was committed
reconsideration, completely ignored that first ground. It reverted to the second ground which is another instance substantiating our previous observation that plaintiffs' counsel had not
was relied upon in its order of September 3, 1966. The lower court reiterated its order of July exercised due care in the presentation of his case.
22, 1966 that Fireman's Fund had no cause of action against Jamila because Jamila did not
consent to the subrogation. The court did not mention Firestone, the co-plaintiff of Fireman's The issue is whether the complaint of Firestone and Fireman's Fund states a cause of action
Fund. against Jamila.

At this juncture, it may be noted that motions for reconsideration become interminable when We hold that Firestone is really a nominal, party in this case. It had already been indemnified
the court's orders follow a seesaw pattern. That phenomenon took place in this case. for the loss which it had sustained. Obviously, it joined as a party-plaintiff in order to help
Fireman's Fund to recover the amount of the loss from Jamila and First Quezon City
Firestone and Fireman's Fund filed a motion for the reconsideration of the lower court's order Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its cause of action
of October 18, 1966 on the ground that Fireman's Fund Insurance Company was suing on against Jamila for breach of contract. Sufficient ultimate facts are alleged in the complaint to
the basis of legal subrogation whereas the lower court erroneously predicated its dismissal sustain that cause of action.
order on the theory that there was no conventional subrogation because the debtor's consent
was lacking. On the other hand, Fireman's Fund's action against Jamila is squarely sanctioned by article
2207. As the insurer, Fireman's Fund is entitled to go after the person or entity that violated
The plaintiffs cited article 2207 of the Civil Code which provides that "if the plaintiff's property its contractual commitment to answer for the loss insured against (Cf. Philippine Air Lines,
has been insured, and he has received indemnity from the insurance company for the injury Inc. vs. Heald Lumber Co., 101 Phil. 1032; Rizal Surety & Insurance Co. vs. Manila Railroad
or loss arising out of the wrong or breach of contract complained of, the insurance company Company, L-24043, April 25, 1968, 23 SCRA 205).
shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract". The trial court erred in applying to this case the rules on novation. The plaintiffs in alleging in
their complaint that Fireman's Fund "became a party in interest in this case by virtue of a
The lower court denied plaintiffs' motion. They filed a second motion for reconsideration. In subrogation right given in its favor by" Firestone, were not relying on the novation by change
that motion they sensibly called the lower court's attention to the fact that the issue of of creditors as contemplated in articles 1291 and 1300 to 1303 of the Civil Code but rather on
subrogation was of no moment because Firestone, the subrogor, is a party-plaintiff and could article 2207.
sue directly Jamila in its own right. Without resolving that contention, the lower court denied
plaintiffs' second motion for reconsideration. Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation
has been referred to as the doctrine of substitution. It "is an arm of equity that may guide or
In this appeal Firestone and Fireman's Fund contend that the trial court's dismissal of their even force one to pay a debt for which an obligation was incurred but which was in whole or
complaint is contrary to the aforementioned article 2207 which provides for legal subrogation. in part paid by another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund Indemnity Co. vs.
State Compensation Insurance Fund, 209 Pac. 2d 55).
"Subrogation is founded on principles of justice and equity, and its operation is governed by RONALDO JOMAO-AS y PADILLA and ALEXANDER SPANDONIS alias "BRUTUS",
principles of equity. It rests on the principle that substantial justice should be attained defendants, ALEXANDER SPANDONIS alias "BRUTUS", defendant-appellant.
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form"(83 C.J.S. 579- 80) The Office of the Solicitor General for plaintiff-appellee.
Dominador G. Suñga for defendant-appellant.
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses, 287
U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogated
pro tanto to any right of action which the insured may have against the third person whose. PADILLA, J.:
negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins.
Co. vs. Scottish Metropolitan Assurance Co., 283 U. S. 294, 75 L. ed. 1037). The defendant-appellant Alexander Spandonis alias "Brutus" has come to this Court seeking
the reversal of the decision rendered by Judge Milagros C. Nartatez in Criminal Case No.
The right of subrogation is of the highest equity. The loss in the first instance is that of the 12447 of the Regional Trial Court of Davao City, the dispositive portion of which reads, as
insured but after reimbursement or compensation, it becomes the loss of the insurer (44 Am. follows:
Jur. 2d 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).
WHEREFORE, finding the guilt of ALEXANDER SPANDONIS alias Brutus of Violation of
"Although many policies including policies in the standard form, now provide for subrogation, Section 4 of Republic Act No. 6425 as amended by Batas Pambansa Bilang 179, as charged,
and thus determine the rights of the insurer in this respect, the equitable right of subrogation proven beyond reasonable doubt, he is hereby sentenced to LIFE IMPRISONMENT and to
as the legal effect of payment inures to the insurer without any formal assignment or any pay a fine of TWENTY THOUSAND (P20,000.00) PESOS, and to pay a proportionate part of
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the costs. 1
the insurance company pays for the loss, such payment operates as an equitable assignment
to the insurer of the property and all remedies which the insured may have for the recovery The records of the case show that about 4:15 o'clock in the afternoon of 29 June 1985, PC
thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or NARCOM agents arrested one Ronaldo Jomao-as y Padilla while selling five (5) matchboxes
upon written assignment of claim, and payment to the insured makes the insurer an assignee of marijuana to a civilian informer posing as a buyer, at the Food Plaza situated at the corner
in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456,142 SE 2d of Claveria and San Pedro Streets in Davao City. He was brought to the PC NARCOM
18). headquarters and when questioned, he pointed to the herein appellant Alexander Spandonis
as the source of the marijuana confiscated from him. 2 As a result, Ronaldo Jomao-as and
Whether the plaintiffs would be able to prove their cause of action against Jamila is another the appellant Alexander Spandonis were charged with violation of the Dangerous Drugs Act
question. (Rep. Act No. 6425 as amended), committed, as follows:

Finding the trial court's order of dismissal to be legally untenable, the same is set aside with That on or about June 29, 1985, in the City of Davao, Philippines, and within the jurisdiction
costs against defendant-appellee Jamila & Co., Inc. of this Honorable Court, the above-named accused, conspiring and confederation together
and helping one another, did then and wilfully, unlawfully and feloniously without having been
SO ORDERED. authorized by law dealt with the sale of five (5) matchboxes of Marijuana leaves, which is
prohibited drug. 3
Barredo, Antonio, Concepcion, Jr. and Martin, JJ., concur.
When arraigned, both accused pleaded "not guilty" to the commission of the crime.1âwphi1
Fernando, J., is on leave. The accused Ronaldo Jomao-as, however, subsequently asked for a reinvestigation of the
case after which he withdrew his plea of "not guilty." After a re-arraignment, he pleaded
Martin, J., was designated to take part in this case. "guilty" to a lesser offense and was sentenced accordingly. 4

The accused, Alexander Spandonis, upon the other hand, moved to dismiss the case against
G.R. No. 77397 April 3, 1990 him on the ground that no preliminary investigation was conducted against him prior to the
filing of the information, 5 but his motion to dismiss was denied for the reason that he did not
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, file said motion to dismiss before he entered his plea so that he was deemed to have waived
vs. it. 6 Trial of the case then proceeded against Alexander Spandonis who denied that the
marijuana leaves found in the possession of his co-accused Ronaldo Jomao-as by NARCOM
agents in a "buy-bust" operation of 29 June 1985 came from him since he was not in the entered into by the appellant and a buyer, or that the buyer be arrested together with the
business of selling marijuana, and that on 29 June 1985 he was at Ecoland, painting the appellant. But it would appear that Cagas was not arrested together with the appellant. Nor
house of his sister. He further stated that his co-accused may have pointed to him as the was a report made on the transaction entered into by them. In fact, the appellant was not
source of the marijuana leaves because of the grudge Ronaldo Jomao-as had against him as included in the criminal case filed against Joseph Cagas. It is thus possible that Joseph
a result of an altercation between them a month before, in May 1985, when he refused to give Cagas was not telling the truth when he said that he got marijuana leaves from the appellant
money to Jomao-as with which to buy some drinks. 7 The trial court gave no credence to his on 9 July 1985.
defense.
The testimony of Ronaldo Jomao-as, coming from a polluted source without being
In support of his appeal, the appellant Alexander Spandonis, through counsel, claims that the corroborated in its material points by other evidence, is not, therefore, sufficient to convict the
trial court erred: (1) in giving credence to the testimony of his co-accused Ronaldo Jomao-as, appellant of the offense with which he is charged. Accordingly, the acquittal of the appellant is
and that of Joseph Cagas who had been accused of violation of the Dangerous Drugs Act in called for.
another case; and (2) in not dismissing the case for lack of preliminary investigation.
In view of the foregoing, we no longer find it necessary to discuss the procedural issue raised
While the rile is that great weight and respect should be accorded to the trial court's findings, by the appellant in his brief that the case should be dismissed for the additional ground of
the severity and harshness of the penalty imposed by law on violators of the Dangerous lack of preliminary investigation.
Drugs Act (Rep. Act No. 6425, as amended) calls for a meticulous evaluation of the evidence
whether incriminating or exculpating an accused. 8 The Court has also said that "Courts must WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and
be extra vigilant in trying drug charges lest an innocent person is made to suffer unusually another one entered acquitting the appellant Alexander Spandonis, on reasonable doubt,
severe penalties for drug offenses. 9 from the charge against him. With costs de oficio.

We have gone over the records of the case and find that the evidence presented by the SO ORDERED.
prosecution is not sufficient to support a conviction. It would appear that the trial court relied
mainly, if not entirely, on the uncorroborated testimony of the co-accused Ronaldo Jomao-as Melencio-Herrera, Paras, Sarmiento and Regalado, JJ., concur.
in finding the appellant Alexander Spandonis guilty of the offense charged. In fact, without the
testimony of the said Ronaldo Jomao-as implicating the appellant, the latter would have been
acquitted, as there is no other evidence that would link the appellant to the marijuana leaves G.R. No. 207277
found in the possession of the said Ronaldo Jomao-as during the "buy-bust" operation
conducted by NARCOM agents on 29 June 1985. While there may be no law which requires MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G.
that the testimony of a witness has to be corroborated, except in treason where the testimony VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO MONDELO, and MICHAEL
of at least two (2) witnesses is needed to prove the same overt act, it has been held that the REQUIJO,2 Petitioners.
testimony of a self-confessed accomplice or co-conspirator imputing the blame to or vs.
implicating his co-accused cannot, by itself and without corroboration, be considered as proof EMMA CONCEPCION L. LIN,3 Respondent.
to a moral certainty that the latter committed or participated in the commission of the crime; it
is required that the testimony be substantially corroborated by other evidence in all its DECISION
material points. 10
DEL CASTILLO, J.:
We cannot consider the testimony of Joseph Cagas that he got from the appellant the
marijuana leaves confiscated from him by NARCOM agents in a "buy-bust" operation Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 Decision5 of
conducted on 9 July 1985, to be corroborative of the testimony of Ronaldo Jomao-as the Court of Appeals (CA) and its May 22, 2013 Resolution6 in CA-GR. SP No. 118894, both
because it appears to be incompatible with the testimony of another prosecution witness on a of which found no grave abuse of discretion in the twin Orders issued by the Regional Trial
material point and, therefore, unreliable. Sgt. Adilhaman Asnawi, a member of the NARCOM Court (RTC) of Manila, Branch 52, on September 29, 20107 and on January 25, 20118 in
team which arrested Ronaldo Jomao-as during the "buy-bust" operation on 29 June 1985, Civil Case No. 10-122738.
declared that his commanding officer decided to have a close surveillance on the appellant
Alexander Spandonis after Ronaldo Jomao-as had told them that he (Jomao-as) got the Factual Antecedents
marijuana leaves from the appellant. 11 There being a "close surveillance" on the appellant, it
was to be expected that, at least, a report be made on every transaction subsequently
On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for Collection of Sum
of Money with Damages against Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on
(Yvonne), Atty. Emmanuel Villanueva, Sonny Rubin, Engr. Francisco Mondelo, Michael forum shopping. It argued that the administrative case was instituted to prompt or incite IC
Angelo Requijo (collectively, the petitioners), and the Rizal Commercial and Banking into ordering Malayan to pay her insurance claim; that the elements of forum shopping are
Corporation (RCBC). This was docketed as Civil Case No. 10-122738 of Branch 52 of the present in these two cases because there exists identity of parties since Malayan's individual
Manila RTC. officers who were impleaded in the civil case are also involved in the administrative case; that
the same interests are shared and represented in both the civil and administrative cases; that
Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses there is identity of causes of action and reliefs sought in the two cases since the
located at Plaridel, Bulacan; that the five warehouses were insured with Malayan against fire administrative case is merely disguised as an unfair claim settlement charge, although its real
for ₱56 million while the remaining warehouse was insured for ₱2 million; that on February purpose is to allow Lin to recover her insurance claim from Malayan; that Lin sought to obtain
24, 2008, the five warehouses were gutted by fire; that on April 8, 2008 the Bureau of Fire the same reliefs in the administrative case as in the civil case; that Lin did not comply with her
Protection (BFP) issued a Fire Clearance Certification to her (April 8, 2008 FCC) after having sworn undertaking in the Certification on Non-Forum Shopping which she attached to the civil
determined that the cause of fire was accidental; that despite the foregoing, her demand for case, because she deliberately failed to notify the RTC about the pending administrative case
payment of her insurance claim was denied since the forensic investigators hired by Malayan within five days from the filing thereof.
claimed that the cause of the fire was arson and not accidental; that she sought assistance
from the Insurance Commission (IC) which, after a meeting among the parties and a conduct This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.
of reinvestigation into the cause/s of the fire, recommended that Malayan pay Lin's insurance
claim and/or accord great weight to the BFP's findings; that in defiance thereof, Malayan still Ruling of the Regional Trial Court
denied or refused to pay her insurance claim; and that for these reasons, Malayan's
corporate officers should also be held liable for acquiescing to Malayan's unjustified refusal to In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:
pay her insurance claim.
WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of
As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the merit.
bank refused to go after Malayan and instead insisted that she herself must pay the loans to
RCBC, otherwise, foreclosure proceedings would ensue; and that to add insult to injury, Furnish the parties through their respective [counsels] with a copy each [of] the Order.
RCBC has been compounding the interest on her loans, despite RCBC's failure or refusal to
go after Malayan. SO ORDERED.13

Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from
to pay her insurance claim plus interest on the amounts due or owing her; that her loans and that sought in the civil case; that while in the administrative case Lin prayed for the
mortgage to RCBC be deemed extinguished as of February 2008; that RCBC be enjoined suspension or revocation of Malayan's license to operate as a non-life insurance company, in
from foreclosing the mortgage on the properties put up as collaterals; and that petitioners he the civil case Lin prayed for the collection of a sum of money with damages; that it is
ordered to pay her ₱l,217,928.88 in the concept of filing foes, costs of suit,₱l million as abundantly clear that any judgment that would be obtained in either case would not be res
exemplary damages, and ₱500,000.00 as attorney’s fees. judicata to the other, hence, there is no forum shopping to speak of.

Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, petitioners'
against Malayan, represented this time by Yvonne. This was docketed as Administrative Motion for Reconsideration.
Case No. 431.
Ruling of the Court of Appeals
In this administrative case, Lin claimed that since it had been conclusively found that the
cause of the fire was "accidental," the only issue left to be resolved is whether Malayan Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA.
should be held liable for unfair claim settlement practice under Section 241 in relation to However, in a Decision 16 dated December 21, 2012, the CA upheld the RTC, and disposed
Section 247 of the Insurance Code due to its unjustified refusal to settle her claim; and that in as follows:
consequence of the foregoing failings, Malayan's license to operate as a non-life insurance
company should be revoked or suspended, until such time that it fully complies with the IC
Resolution ordering it to accord more weight to the BFP's findings.
WHEREFORE absent grave abuse of discretion on the part of respondent Judge, the Petition The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum
for Certiorari and Prohibition (with Temporary Restraining Order and Preliminary Injunction) is shopping] despite the fact that the civil case and the administrative case both seek the
DISMISSED. payment of the same fire insurance claim.

SO ORDERED.17 B.

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her
that the issues raised and the reliefs prayed for in the civil case were essentially different from undertaking in her verification and certification of non-forum shopping appended to the civil
those in the administrative case, hence Lin had no duty at all to inform the RTC about the complaint.21
institution or pendency of the administrative case.
Petitioners' Arguments
The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and
where a final judgment in one case will amount to res judicata in the other. The CA held that In praying for the reversal of the CA Decision, petitioners argue that regardless of
of the three elements of forum shopping viz., (l) identity of parties, or at least such parties as nomenclature, it is Lin and no one else who filed the administrative case, and that she is not a
would represent the same interest in both actions, (2) identity of rights asserted and reliefs mere complaining witness therein; that it is settled that only substantial identity of parties is
prayed for, the relief being founded on the same facts, and (3) identity of the two proceedings required for res judicata to apply; that the sharing of the same interest is sufficient to
such that any judgment rendered in one action will, regardless of which party is successful, constitute identity of parties; that Lin has not denied that the subject of both the administrative
amount to res judicata in the other action under consideration, only the first element may be case and the civil case involved the same fire insurance claim; that there is here identity of
deemed present in the instant case. The CA held that there is here identity of parties in the causes of action, too, because the ultimate objective of both the civil case and the
civil and administrative cases because Lin is the complainant in both the civil and administrative case is to compel Malayan to pay Lin's fire insurance claim; that although the
administrative cases, and these actions were filed against the same petitioners, the same reliefs sought in the civil case and those in the administrative case are worded differently, Lin
RCBC and the same Malayan, represented by Yvonne, respectively. It held that there is was actually asking for the payment of her insurance claim in both cases; that it is well-
however no identity of rights asserted and reliefs prayed for because in the civil case, it was entrenched that a party cannot escape the operation of the principle in res judicata that a
Lin's assertion that petitioners had violated her rights to recover the full amount of her cause of action cannot be litigated twice just by varying the form of action or the method of
insurance claim, which is why she prayed/demanded that petitioners pay her insurance claim presenting the case; that Go v. Office of the Ombudsman22is inapplicable because the issue
plus damages; whereas in the administrative case, Lin's assertion was that petitioners were in that case was whether there was unreasonable delay in withholding the insured's claims,
guilty of unfair claim settlement practice, for which reason she prayed that Malayan's license which would warrant the revocation or suspension of the insurers' licenses, and not whether
to operate as an insurance company be revoked or suspended; that the judgment in the civil the insurers should pay the insured's insurance claim; that Almendras Mining Corporation v.
case, regardless of which party is successful, would not amount to res judicata in the Office of the Insurance Commission23does not apply to this case either, because the parties
administrative case in view of the different issues involved, the dissimilarity in the quantum of in said case agreed to submit the case for resolution on the sole issue of whether the
evidence required, and the distinct mode or procedure to be observed in each case. revocation or suspension of the insurer's license was justified; and that petitioners will suffer
irreparable injury as a consequence of having to defend themselves in a case which should
Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was denied by have been dismissed on the ground of forum shopping.
the CA in its Resolution of May 22, 2013.19
Respondents Arguments
Issues
Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case
Before this Court, petitioners instituted the present Petition,20 which raises the following for unfair claim settlement practice may proceed simultaneously with, or independently of, the
issues: civil case for collection of the insurance proceeds filed by the same claimant since a judgment
in one will not amount to res judicata to the other, and vice versa, due to the variance or
The [CA] not only decided questions of substance contrary to law and the applicable differences in the issues, in the quantum of evidence, and in the procedure to be followed in
decisions of this Honorable Court, it also sanctioned a flagrant departure from the accepted prosecuting the cases; that in this case the CA cited the teaching in Go v. Office of the
and usual course of judicial proceedings. Ombudsman that there was no grave abuse of discretion in the RTC's dismissal of
petitioners' motion to dismiss; that the CA correctly held that the RTC did not commit grave
A. abuse of discretion in denying petitioners' motion to dismiss because the elements of forum
shopping were absent; that there is here no identity of parties because while she
(respondent) is the plaintiff in the civil case, she is only a complaining witness in the civil case was Lin's failure to notify the RTC about the pendency of the administrative case
administrative case since it is the IC that is the real party in interest in the administrative case; within five days from the filing thereof.
that the cause of action in the civil case consists of Malayan's failure or refusal to pay her
insurance claim, whereas in the administrative case, it consists of Malayan's unfair claim These arguments will not avail. The proscription against forum shopping is found in Section 5,
settlement practice; that the issue in the civil case is whether Malayan is liable to pay Lin's Rule 7 of the Rules of Court, which provides:
insurance claim, while the issue in the administrative case is whether Malayan's license to
operate should be revoked or suspended for engaging in unfair claim settlement practice; and SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify
that the relief sought in the civil case consists in the payment of a sum of money plus under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a
damages, while the relief in the administrative case consists of the revocation or suspension sworn certification annexed thereto and simultaneously filed therewith; (a) that he has not
of Malayan's license to operate as an insurance company. According to Lin, although in the theretofore commenced any action or filed any claim involving the same issues in any court,
administrative case she prayed that the IC Resolution ordering Malayan to accord weight to tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or
the BFP's findings be declared final, this did not mean that she was therein seeking payment claim is pending therein; (b) if there is such other pending action or claim, a complete
of her insurance claim, but rather that the IC can now impose the appropriate administrative statement of the present status thereof; and (c) if he should thereafter learn that the same or
sanctions upon Malayan; that if Malayan felt compelled to pay Lin's insurance claim for fear similar action or claim has been filed or is pending, he shall report that fact within five (5) days
that its license to operate as an insurance firm might be suspended or revoked, then this is therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
just a logical result of its failure or refusal to pay the insurance claim; that the judgment in the
civil case will not amount to res judicata in the administrative case, and vice versa, pursuant Failure to comply with the foregoing requirements shall not be curable by mere amendment of
to the case law ruling in Go v. Office of the Ombudsman25and in Almendras v. Office of the the complaint or other initiatory pleading but shall be cause for the dismissal of the case
Insurance Commission, 26 both of which categorically allowed the insurance clain1ants without prejudice, unless otherwise provided, upon motion and after hearing. The submission
therein to file both a civil and an administrative case against insurers; that the rule against of a false certification or non-compliance with any of the undertakings therein shall constitute
forum shopping was designed to serve a noble purpose, viz., to be an instrument of justice, indirect contempt of court, without prejudice to the corresponding administrative and criminal
hence, it can in no way be interpreted to subvert such a noble purpose. actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary dismissal with prejudice and shall constitute
Our Ruling direct contempt, as well as a cause for administrative sanctions. (n)

We deny this Petition. We hold that the case law rulings in the Go and Almendras cases27 The above-stated rule covers the very essence of forum shopping itself, and the constitutive
control and govern the case at bench. elements thereof viz., the cognate concepts of litis pendentia and res judicata -

First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory x x x [T]he essence of forum shopping is the filing of multiple suits involving the same parties
and, therefore, not appealable, x x x to x x x avoid undue inconvenience to the appealing for the same cause of action, either simultaneously or successively, for the purpose of
party by having to assail orders as they are promulgated by the court, when all such orders obtaining a favorable judgment. It exists where the elements of litis pendentia are present or
may be contested in a single appeal."28 where a final judgment in one case will amount to res judicata in another. On the other hand,
for litis pendentia to be a ground for the dismissal of an action, the following requisites must
Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed concur: (a) identity of parties, or at least such parties who represent the same interests in
Orders, acted with grave abuse of discretion amounting to lack or excess of jurisdiction. "It is both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on
well-settled that an act of a court or tribunal may only be considered to have been done in the same facts; and (c) the identity with respect to the two preceding particulars in the two
grave abuse of discretion when the same was performed in a capricious or whimsical cases is such that any judgment that may be rendered in the pending case, regardless of
exercise of judgment which is equivalent to lack or excess of jurisdiction."29 "[F]or grave which party is successful, would amount to res judicata in the other case.31
abuse of discretion to exist, the abuse of discretion must be patent and gross so as to amount
to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law, or to act Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it
at all in contemplation of law."30 must have been rendered by a court having jurisdiction over the subject matter and over the
parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and
In the present case, petitioners basically insist that Lin committed willful and deliberate forum second actions, (a) identity of parties, (b) identity of subject matter, and (c) identity of cause
shopping which warrants the dismissal of her civil case because it is not much different from of action."32
the administrative case in terms of the parties involved, the causes of action pleaded, and the
reliefs prayed for. Petitioners also posit that another ground warranting the dismissal of the
"The settled rule is that criminal and civil cases are altogether different from administrative any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed
matters, such that the disposition in the first two will not inevitably govern the third and vice in any single claim one hundred thousand pesos.
versa."33In the context of the case at bar, matters handled by the IC are delineated as either
regulatory or adjudicatory, both of which have distinct characteristics, as postulated in xxxx
Almendras Mining Corporation v. Office of the Insurance Commission:34
The authority to adjudicate granted to the Commissioner under this section shall be
The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, concurrent with that of the civil courts, but the filing of a complaint with the Commissioner
clearly indicate that the Office of the [IC] is an administrative agency vested with regulatory shall preclude the civil courts from taking cognizance of a suit involving the same subject
power as well as with adjudicatory authority. Among the several regulatory or non-quasi- matter.' (Italics supplied)
judicial duties of the Insurance Commissioner under the Insurance Code is the authority to
issue, or refuse issuance of, a Certificate of Authority to a person or entity desirous of Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the
engaging in insurance business in the Philippines, and to revoke or suspend such Certificate authority to which appeal may be taken from a final order or decision of the Commissioner
of Authority upon a finding of the existence of statutory grounds for such revocation or given in the exercise of his adjudicatory or quasi-judicial power:
suspension. The grounds for revocation or suspension of an insurer's Certificate of Authority
are set out in Section 241 and in Section 247 of the Insurance Code as amended. The 'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the
general regulatory authority of the Insurance Commissioner is described in Section 414 of the force and effect of a judgment. Any party may appeal from a final order, ruling or decision of
Insurance Code, as amended, in the following terms: the Commissioner by filing with the Commissioner within thirty days from receipt of copy of
such order, ruling or decision a notice of appeal to the Intermediate Appellate Court (now the
'Section 414. The Insurance Commissioner shall have the duty to see that all laws relating to Court of Appeals) in the manner provided for in the Rules of Court for appeals from the
insurance, insurance companies and other insurance matters, mutual benefit associations, Regional Trial Court to the Intermediate Appellate Court (now the Court of Appeals)
and trusts for charitable uses are faithfully executed and to perform the duties imposed upon
him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and x x x x'
exclusive authority to regulate the issuance and sale of variable contracts as defined in
section two hundred thirty-two and to provide for the licensing of persons selling such It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final decision of the
contracts, and to issue such reasonable rules and regulations governing the same. Insurance Commissioner rendered in the exercise of his adjudicatory authority now fall within
the exclusive appellate jurisdiction of the Court of Appeals.35
The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as
he may deem necessary to secure the enforcement of the provisions of this Code, subject to Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the
the approval of the Secretary of Finance [DOF Secretary]. Except as otherwise specified, principles enunciating that a civil case before the trial court involving recovery of payment of
decisions made by the Commissioner shall be appealable to the [DOF Secretary].' (Italics the insured's insurance claim plus damages, can proceed simultaneously with an
supplied) administrative case before the IC.37 Expounding on the foregoing points, this Court said -

which Section also specifies the authority to which a decision of the Insurance Commissioner **The findings of the trial court will not necessarily foreclose the administrative case before
rendered in the exercise of its regulatory function may be appealed. the [IC], or [vice versa]. True, the parties are the same, and both actions are predicated on
the same set of facts, and will require identical evidence. But the issues to be resolved, the
The adjudicatory authority of the Insurance Commissioner is generally described in Section quantum of evidence, the procedure to be followed[,] and the reliefs to be adjudged by these
416 of the Insurance Code, as amended, which reads as follows: two bodies are different.

'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers'
involving any loss, damage or liability for which an insurer may be answerable under any kind refusal to pay her fire insurance claims despite notice, proofs of losses and other supporting
of policy or contract of insurance, or for which such insurer may be liable under a contract of documents. Thus, petitioner prays in her complaint that the insurers be ordered to pay the
suretyship, or for which a reinsurer may be sued under any contract or reinsurance it may full-insured value of the losses, as embodied in their respective policies. Petitioner also
have entered into, or for which a mutual benefit association may be held liable under the sought payment of interests and damages in her favor caused by the alleged delay and
membership certificates it has issued to its members, where the amount of any such loss, refusal of the insurers to pay her claims. The principal issue then that must be resolved by the
damage or liability, excluding interests, cost and attorney’s fees, being claimed or sued upon trial court is whether or not petitioner is entitled to the payment of her insurance claims and
damages. The matter of whether or not there is unreasonable delay or denial of the claims is
merely an incident to be resolved by the trial court, necessary to ascertain petitioner's right to All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that
claim damages, as prescribed by Section 244 of the Insurance Code. the RTC exhibited grave abuse of discretion, amounting to lack or excess of jurisdiction,
which would justify the issuance of the extraordinary writ of certiorari.39
On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is
the issue of whether or not there was unreasonable delay or denial of the claims of petitioner, WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the May 22,
and if in the affirmative, whether or not that would justify the suspension or revocation of the 2013 Resolution of the Court of Appeals in CA-GR. SP No. 118894 are hereby AFFIRMED.
insurers' licenses.
Costs against petitioners.
Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a
preponderance of evidence, or simply put, such evidence that is of greater weight, or more SO ORDERED.
convincing than that which is offered in opposition to it. In Adm. Case No. RD-156, the degree
of proof required of petitioner to establish her claim is substantial evidence, which has been
defined as that amount of relevant evidence that a reasonable mind might accept as G.R. No. 112360 July 18, 2000
adequate to justify the conclusion.
RIZAL SURETY & INSURANCE COMPANY, petitioner,
In addition, the procedure to be followed by the trial court is governed by the Rules of Court, vs.
while the [IC] has its own set of rules and it is not bound by the rigidities of technical rules of COURT OF APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents.
procedure. These two bodies conduct independent means of ascertaining the ultimate facts
of their respective cases that will serve as basis for their respective decisions.1âwphi1 DECISION

If, for example, the trial court finds that there was no unreasonable delay or denial of her PURISIMA, J.:
claims, it does not automatically mean that there was in fact no such unreasonable delay or
denial that would justify the revocation or suspension of the licenses of the concerned At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to
insurance companies. It only means that petitioner failed to prove by preponderance of annul and set aside the July 15, 1993 Decision1 and October 22, 1993 Resolution2 of the
evidence that she is entitled to damages. Such finding would not restrain the [IC], in the Court of Appeals3 in CA-G.R. CV NO. 28779, which modified the Ruling4 of the Regional
exercise of its regulatory power, from making its own finding of unreasonable delay or denial Trial Court of Pasig, Branch 161, in Civil Case No. 46106.
as long as it is supported by substantial evidence.
The antecedent facts that matter are as follows:
While the possibility that these two bodies will come up with conflicting resolutions on the
same issue is not far-fetched, the finding or conclusion of one would not necessarily be On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
binding on the other given the difference in the issues involved, the quantum of evidence Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for
required and the procedure to be followed. One Million (₱1,000,000.00) Pesos and eventually increased to One Million Five Hundred
Thousand (₱1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13,
Moreover, public interest and public policy demand the speedy and inexpensive disposition of 1981.
administrative cases.
Pertinent portions of subject policy on the buildings insured, and location thereof, read:
Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38
"‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind
As the aforecited cases are analogous in many aspects to the present case, both in respect and description, the properties of the Insureds and/or held by them in trust, on commission or
to their factual backdrop and in their jurisprudential teachings, the case law ruling in the on joint account with others and/or for which they (sic) responsible in case of loss whilst
Almendras and in the Go cases must apply with implacable force to the present case. contained and/or stored during the currency of this Policy in the premises occupied by them
Consistency alone demands - because justice cannot be inconsistent - that the final forming part of the buildings situate (sic) within own Compound at MAGDALO STREET,
authoritative mandate in the cited cases must produce an end result not much different from BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.’
the present case.
xxx xxx xxx
‘Said building of four-span lofty one storey in height with mezzanine portions is constructed of SO ORDERED."8
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting
offices, warehouse and caretaker's quarters. Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993
under attack, the decretal portion of which reads:
'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as
canteen and guardhouse, partly by building of two and partly one storey constructed of "WHEREFORE, and upon all the foregoing, the decision of the court below is MODIFIED in
concrete below, timber above undergalvanized iron roof occupied as garage and quarters that defendant New India Assurance Company has and is hereby required to pay plaintiff-
and partly by open space and/or tracking/ packing, beyond which is the aforementioned appellant the amount of P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by appellant P470,328.67, based on the actual losses sustained by plaintiff Transworld in the
open spaces.'"5 fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively
extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance
The same pieces of property insured with the petitioner were also insured with New India Company in the amount of P1,500,000.00.
Assurance Company, Ltd., (New India).
No costs.
On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion
of its four-span building and partly gutting the left and right sections thereof. A two-storey SO ORDERED."9
building (behind said four-span building) where fun and amusement machines and spare
parts were stored, was also destroyed by the fire. On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India
appealed to this Court theorizing inter alia that the private respondent could not be
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India compensated for the loss of the fun and amusement machines and spare parts stored at the
Assurance Company but to no avail. two-storey building because it (Transworld) had no insurable interest in said goods or items.

On May 26, 1982, private respondent brought against the said insurance companies an On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New
action for collection of sum of money and damages, docketed as Civil Case No. 46106 before India Assurance Company Ltd. vs. Court of Appeals).
Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal
Insurance and New India to pay the amount of ₱2,747, 867.00 plus legal interest, Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
₱400,000.00 as attorney's fees, exemplary damages, expenses of litigation of ₱50,000.00 Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of Appeals
and costs of suit.6 reconsidered its decision of July 15, 1993, as regards the imposition of interest, ruling thus:

Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the "WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the imposition
contents of the four-span building, which was partly burned, and not the damage caused by of legal interest is concerned, that, on the assessment against New India Assurance
the fire on the two-storey annex building.7 Company on the amount of P1,818,604.19 and that against Rizal Surety & Insurance
Company on the amount of P470,328.67, from May 26, 1982 when the complaint was filed
On January 4, 1990, the trial court rendered its decision; disposing as follows: until payment is made. The rest of the said decision is retained in all other respects.

"ACCORDINGLY, judgment is hereby rendered as follows: SO ORDERED."10

(1)Dismissing the case as against The New India Assurance Co., Ltd.; Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the
present Petition, contending that:
(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting
Mills, Inc. the amount of P826, 500.00 representing the actual value of the losses suffered by I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING
it; and WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN
THE COVERAGE OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO
(3) Cost against defendant Rizal Surety and Insurance Company. TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT In the case under consideration, both the trial court and the Court of Appeals found that the
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN so called "annex " was not an annex building but an integral and inseparable part of the four-
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE PREMISES span building described in the policy and consequently, the machines and spare parts stored
OCCUPIED BY TRANSWORLD, WHERE THE INSURED PROPERTIES WERE LOCATED, therein were covered by the fire insurance in dispute. The letter-report of the Manila Adjusters
SUSTAINED PARTIAL DAMAGE ONLY. and Surveyor's Company, which petitioner itself cited and invoked, describes the "annex"
building as follows:
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD
ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY "Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i.
UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL roof which is adjoining and intercommunicating with the repair of the first right span of the
SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS lofty storey building and thence by property fence wall."16
ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).11 Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building",17 formed part
The Petition is not impressed with merit. thereof, and meets the requisites for compensability under the fire insurance policy sued
upon.
It is petitioner's submission that the fire insurance policy litigated upon protected only the
contents of the main building (four-span),12 and did not include those stored in the two-storey So also, considering that the two-storey building aforementioned was already existing when
annex building. On the other hand, the private respondent theorized that the so called subject fire insurance policy contract was entered into on January 12, 1981, having been
"annex" was not an annex but was actually an integral part of the four-span building13 and constructed sometime in 1978,18 petitioner should have specifically excluded the said two-
therefore, the goods and items stored therein were covered by the same fire insurance policy. storey building from the coverage of the fire insurance if minded to exclude the same but if
did not, and instead, went on to provide that such fire insurance policy covers the products,
Resolution of the issues posited here hinges on the proper interpretation of the stipulation in raw materials and supplies stored within the premises of respondent Transworld which was
subject fire insurance policy regarding its coverage, which reads: an integral part of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the right section of the four-
"xxx contained and/or stored during the currency of this Policy in the premises occupied by span building.
them forming part of the buildings situate (sic) within own Compound xxx"
After a careful study, the Court does not find any basis for disturbing what the lower courts
Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit found and arrived at.
its coverage to what were stored in the four-span building. As opined by the trial court of
origin, two requirements must concur in order that the said fun and amusement machines and Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has
spare parts would be deemed protected by the fire insurance policy under scrutiny, to wit: created a doubt regarding the portions of the building insured thereby. Article 1377 of the
New Civil Code provides:
"First, said properties must be contained and/or stored in the areas occupied by Transworld
and second, said areas must form part of the building described in the policy xxx"14 "Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity"
'Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and Conformably, it stands to reason that the doubt should be resolved against the petitioner,
occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy
offices, ware house and caretaker's quarter.' contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho
vs. Government Service Insurance System,19 ruled:
The Court is mindful of the well-entrenched doctrine that factual findings by the Court of
Appeals are conclusive on the parties and not reviewable by this Court, and the same carry "This is particularly true as regards insurance policies, in respect of which it is settled that the
even more weight when the Court of Appeals has affirmed the findings of fact arrived at by 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be
the lower court.15 construed strictly and most strongly against the insurer, and liberally in favor of the insured so
as to effect the dominant purpose of indemnity or payment to the insured, especially where
forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually
has no voice in the selection or arrangement of the words employed and that the language of affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1987. The
the contract is selected with great care and deliberation by experts and legal advisers Reyes Decision thus became final and executory approximately two (2) years before the
employed by, and acting exclusively in the interest of, the insurance company.' (44 C.J.S., p. Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of
1174).""20 conclusiveness of judgment, the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court and could no longer be
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly bound by
Inc. vs. Vda. De Songco,21 to wit: the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into
clear and reversible error when it disregarded the Decision of this Court affirming the Reyes
"'This rigid application of the rule on ambiguities has become necessary in view of current Decision."25
business practices.1âwphi1 The courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming economic power, manage to impose The controversy at bar is on all fours with the aforecited case. Considering that private
upon parties dealing with them cunningly prepared 'agreements' that the weaker party may respondent's insurable interest in, and compensability for the loss of subject fun and
not change one whit, his participation in the 'agreement' being reduced to the alternative to amusement machines and spare parts, had been adjudicated, settled and sustained by the
'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a
d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon
contracts (of which policies of insurance and international bills of lading are prime example) in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by
obviously call for greater strictness and vigilance on the part of courts of justice with a view to the ruling of the Court of Appeals and of this Court that the private respondent has an
protecting the weaker party from abuses and imposition, and prevent their becoming traps for insurable interest in the aforesaid fun and amusement machines and spare parts; and should
the unwary (New Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 be indemnified for the loss of the same.
February 1942.)'"22
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
The issue of whether or not Transworld has an insurable interest in the fun and amusement P470,328.67, it being the total loss and damage suffered by Transworld for which petitioner
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been Rizal Insurance is liable.26
settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of
Appeals, where the appeal of New India from the decision of the Court of Appeals under All things studiedly considered and viewed in proper perspective, the Court is of the
review, was denied with finality by this Court on February 2, 1994. irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured
The rule on conclusiveness of judgment, which obtains under the premises, precludes the buildings and articles of the private respondent.
relitigation of a particular fact or issue in another action between the same parties based on a
different claim or cause of action. "xxx the judgment in the prior action operates as estoppel WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22,
only as to those matters in issue or points controverted, upon the determination of which the 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
finding or judgment was rendered. In fine, the previous judgment is conclusive in the second pronouncement as to costs.
case, only as those matters actually and directly controverted and determined and not as to
matters merely involved therein."23 SO ORDERED.

Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc. Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.
vs. Court of Appeals,24 held that the issue of negligence of the shipping line, which issue had
already been passed upon in a case filed by one of the insurers, is conclusive and can no
longer be relitigated in a similar case filed by another insurer against the same shipping line G.R. No. L-16215 June 29, 1963
on the basis of the same factual circumstances. Ratiocinating further, the Court opined:
SIMEON DEL ROSARIO, plaintiff-appellee,
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been vs.
negligent, or so negligent as to have proximately caused the collision between them, was an THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.
issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R.
No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos' to Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.
have been negligent rather than the 'Yotai Maru' and, as already noted, that Decision was K. V. Faylona for defendant-appellant.
PAREDES, J.: IV. DROWNING

On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the
Personal Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, policy is hereby waived by the company, and to form a part of the provision covered by the
son of herein plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as policy.
indemnity for the death of the insured. The pertinent provisions of the Policy, recite:
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on
Part I. Indemnity For Death board the motor launch "ISLAMA" together with 33 others, including his beneficiary in the
Policy, Remedios Jayme, were forced to jump off said launch on account of fire which broke
If the insured sustains any bodily injury which is effected solely through violent, external, out on said vessel, resulting in the death of drowning, of the insured and beneficiary in the
visible and accidental means, and which shall result, independently of all other causes and waters of Jolo. 1äwphï1.ñët
within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company
shall pay the amount set opposite such injury: On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a
claim for payment with defendant company, and on September 13, 1957, defendant company
Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . paid to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The
... receipt signed by plaintiff reads —

P1,000.00 RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS —
Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or ONE THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and
street railway car in or on which the Insured is travelling as a farepaying passenger. . . . . . . . demands against said Company as a result of an accident which occurred on February 26,
1957, insured under out ACCIDENT Policy No. 7136, causing the death of the Assured.
P1,500.00
Section 3. Injury sustained by the burning of a church, theatre, public library or municipal In view of the foregoing, this policy is hereby surrendered and CANCELLED.
administration building while the Insured is therein at the commencement of the fire. . . . . . . .
LOSS COMPUTATION
P2,000.00
Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator Amount of Insurance P1,000.00
car in which the Insured is being conveyed as a passenger (Elevator in mines excluded) __________
P2,500.00 vvvvv

Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . . On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant
company acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing
P3,000.00 said company that said amount was not the correct one. Atty. Francisco claimed —
xxx xxx xxx
The amount payable under the policy, I believe should be P1,500.00 under the provision of
Part VI. Exceptions Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured
occurred under the circumstances similar to that provided under the aforecited section.
This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability,
Hospital fees, or Loss of Time, caused to the insured: Defendant company, upon receipt of the letter, referred the matter to the Insurance
Commissioner, who rendered an opinion that the liability of the company was only P1,000.00,
. . . (h) By drowning except as a consequence of the wrecking or disablement in the pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the
Philippine waters of a passenger steam or motor vessel in which the Insured is travelling as a above opinion, defendant insurance company refused to pay more than P1,000.00. In the
farepaying passenger; . . . . meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked
for P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the
A rider to the Policy contained the following: balance of P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay
City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees, expenses of positively state any definite amount that may be recovered in case of death by drowning,
litigation and costs. there is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor
of the insured and strictly against the insurer so as to allow greater indemnity.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or
claim is set forth in the complaint had already been released, plaintiff having received the full xxx xxx xxx
amount due as appearing in policy and as per opinion of the Insurance Commissioner. An
opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were . . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the
subsequently file by the parties. On December 28, 1957, the trial court deferred action on the amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the
motion to dismiss until termination of the trial of the case, it appearing that the ground thereof amount to which plaintiff is entitled to recover under the policy Exhibit "A".
was not indubitable. In the Answer to the complaint, defendant company practically admitted
all the allegations therein, denying only those which stated that under the policy its liability The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation.
was P3,000.00. However, since it is evident that the defendant had not acted in bad faith in refusing to pay
plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent litigation.
portions of which read —
IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision
xxx xxx xxx dated July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the
sum of Two Thousand (P2,000.00) Pesos and to pay the costs.
Since the contemporaneous and subsequent acts of the parties show that it was not their
intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in
exhibit "1" would be considered as releasing the defendant completely from its liability on the a Resolution dated September 29, 1959, elevated the case to this Court, stating that the
policy in question, said intention of the parties should prevail over the contents of the loss genuine issue is purely legal in nature.
receipt "1" (Articles 1370 and 1371, New Civil Code).
All the parties agree that indemnity has to be paid. The conflict centers on how much should
". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to the indemnity be. We believe that under the proven facts and circumstances, the findings and
P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death by conclusions of the trial court, are well taken, for they are supported by the generally accepted
drowning is covered by the policy the pertinent provisions of which reads as follows: principles or rulings on insurance, which enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the same will be resolved against the one
xxx xxx xxx responsible thereof. It should be recalled in this connection, that generally, the insured, has
little, if any, participation in the preparation of the policy, together with the drafting of its terms
"Part I of the policy fixes specific amounts as indemnities in case of death resulting from and Conditions. The interpretation of obscure stipulations in a contract should not favor the
"bodily injury which is effected solely thru violence, external, visible and accidental means" party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance
but, Part I of the Policy is not applicable in case of death by drowning because death by company.
drowning is not one resulting from "bodily injury which is affected solely thru violent, external,
visible and accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and . . . . And so it has been generally held that the "terms in an insurance policy, which are
drowning is death due to suffocation and not to any cut, bruise or wound." ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and
liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment
xxx xxx xxx to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reason for
this rule is that the "insured usually has no voice in the selection or arrangement of the words
Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for employed and that the language of the contract is selected with great care and deliberation
recovery apart from the bodily injury because death by bodily injury is covered by Part I of the by expert and legal advisers employed by, and acting exclusively in the interest of, the
policy while death by drowning is covered by Part VI thereof. But while the policy mentions insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151,
specific amounts that may be recovered for death for bodily injury, yet, there is not specific Dec. 16, 1955.
amount mentioned in the policy for death thru drowning although the latter is, under Part VI of
the policy, a ground for recovery thereunder. Since the defendant has bound itself to pay
P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not
. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be effect of the monthly premiums stated above, due from and payable by the Insured, and the
made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. like payments on the last day of every month during the lifetime of the Insured until maturity of
Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749). this Policy or until prior death of the Insured.

At any event, the policy under consideration, covers death or disability by accidental means, On page 2 of said policy, condition No. 1 provides, in part: .
and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for
death of the insured. 1. PAYMENT OF PREMIUMS: — .

In view of the conclusions reached, it would seem unnecessary to discuss the other issues ... . Premiums are due and payable at the Office of the System in Manila or at any of its
raised in the appeal. branches. When any premium or installment thereof remains unpaid after its due date, such
due date is the date of default in payment of premiums. The mere possession of this Policy
The judgment appealed from is hereby affirmed. Without costs. does not imply that it is in force unless the premiums due thereon are paid on time or the
policy has sufficient cash value to keep it in force.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon and Regala,
JJ., concur. Condition No. 18, on page 8 of the policy, is of the following tenor: .
Makalintal, J., reserves his vote.
18. ENTIRE CONTRACT IN THIS POLICY: — .

G.R. No. L-28866 March 17, 1972 This Policy together with the "Information" sheet signed by the Insured, a copy of which is
attached hereto, is issued under the provisions of Commonwealth Act No. 186, as amended,
FE DE JOYA LANDICHO, in her own behalf and as judicial guardian of her minor and constitutes the entire contract.
children, RAFAEL J. LANDICHO and MA. LOURDES EUGENIA LANDICHO,plaintiffs-
appellees, All statements made by the Insured shall, in the absence of fraud, be deemed
vs. representations and no warranties, and no statement shall void the Policy or be used as a
GOVERNMENT SERVICE INSURANCE SYSTEM,defendant-appellant. . defense to claim hereunder unless it be contained in written information and a copy of such
information be endorsed upon or attached to the Policy when issued.
Vedasto J. Hernandez for plaintiffs-appellees.Government Corporate Counsel
Leopoldo M. Abellera and Trial Attorney Arsenio J. Magpale defendant-appellant. Before the issuance of said policy, the insured had filed an application, by filing and signing a
printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said
application States:
CONCEPCION, C.J.:p
7. I hereby declare that all the above statements and answers as well as those I may make to
Appeal of the Government Service Insurance System — hereinafter referred to as GSIS, for the System's Medical Examiner in continuation of this application, to be true and co direct to
the sake of brevity — from a decision of the Court of First Instance of Manila directing said the best of my knowledge and belief, and I hereby agree as follows: .
defendant to pay to the plaintiffs-appellees, Fe de Joya Landicho and her minor children,
Rafael J. and Maria Lourdes Eugenia, both surnamed Landicho, the sum of P15,800, with a. That this declaration, with the answers to be given by me to the Medical Officer, shall be
interest thereon, at the legal rate, from September 26, 1967, until fully paid, in addition to the made the basis the policy and form part of the same; .
sum of P1,000, as and for attorney's fees, and the costs.
b. That acceptance of my policy issued on this application will constitute a ratification by me
The facts are not in dispute. On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, of any correction or addition to this application made by the System; .
a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental,
optional additional life insurance policy No. OG-136107 in the sum of P7,900. The policy c. That this application serves as a letter of authority to the Collecting Officer of our Office
states on its face: thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36,
beginning the month of May, 1964, and every month thereafter until notice of its
This insurance is granted subject to the terms and conditions hereinafter set forth and in discontinuance shall have beenreceived from the System; .
consideration of the "Information" therefor and of the payment on the day this Policy takes
d. That the failure to deduct from my salary the month premiums shall not make the policy salary of the insured — "the monthly premiums shall not" — in the language of subdivision (d)
lapse, however, the premium account shall be considered as indebtedness which, I bind — "make the policy lapse" and that "the premiums account shall be considered as
myself to pay the System; . indebtedness," to be paid or deducted later, because, after all, the so called "payment" of
premiums is nothing but a "paper" or "accounting" process, whereby funds are merely
e. That my policy shall be made effective on the first day of the month next following the transferred, not physically, but constructively, from one office of the government to another. In
month the first premium is paid; provided, that it is not more ninety (90) days before or after other words, the language, of subdivisions (c), (d) and (e) is such as to create an ambiguity
the date of the medical examination,was conducted if required." . that should be resolved against the party responsible therefor — defendant GSIS, as the
party who prepared and furnished the application form — and in favor of the party misled
While still under the employment of the Bureau of Public Works, Mr. Landicho met his death, thereby, the insured employee.
on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho, in her own
behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia, Indeed, our Civil Code provides:
filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG-
136107, because of the untimely death of the insured owing to said accident. The GSIS The interpretation of obscure words or stipulations in a contract shall not favor the party who
denied the claim, upon the ground that the policy had never been in force because, pursuant caused the obscurity.2
to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ...
effective on the first day of the month next following the month the first premium is paid," and This is particularly true as regards insurance policies, in respect of which it is settled that the "
no premium had ever been paid on said policy. Upon refusal of the GSIS to reconsider its "terms in an insurance policy, which are ambiguous, equivocal, or uncertain ... are to be
stand, this action was filed, September 22, 1967, in the Court of First Instance of Manila, in construed strictly and most strongly against the insurer, and liberally in favor of the insured so
which the GSIS reiterated its aforementioned defense. Thereafter submitted by both parties as to effect the dominant purpose of indemnity or payment to the insured, especially where a
for judgment on the pleadings, upon the ground thatthe case involve purely questions of law, forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is the "insured usually
said court rendered, in due course, its abovementioned decision, from which the GSIS has has no voice in the selection or arrangement of the words employed and that the language of
taken the present appeal. the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44 C.J.S., p.
The main issue therein is whether or not the insurance policy in question has ever been in 1174.)3 .
force, not a single premium having been paid thereon. In support of the affirmative, plaintiffs
invoke the stipulation in the policy to the effect that the information contained in the The equitable and ethical considerations justifying the foregoing view are bolstered up by two
application filed by the insured shall form part of the contract between him and the GSIS, and, (2) factors, namely:
especially, subdivisions (c) and (d) of paragraph 7 of said application stating that the same
shall serve "as a letter of authority to the Collecting Officer of our Office" — the Bureau of (a) The aforementioned subdivision (c) states "that this application serves as a letter of
Public Works — "thru the GSIS to deduct from my salary the monthly premium in the amount authority to the Collecting Officer of our Office" — the Bureau of Public Works — "thru the
of P33.36 beginning the month of May, 1964, and every month thereafter," and that "failure to GSIS to deduct from my salary the monthly premium in the amount of P33.36." No such
deduct from my salary the monthly premiums shall not make the policy lapse, however, the deduction was made — and, consequently, not even the first premium "paid" — because the
premium account shall be considered as indebtedness which, I" — the insured — "bind collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the
myself to pay the System."1 The GSIS maintains, however, the negative, relying upon deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to its
subdivision (e) of the same paragraph No. 7, which provides that the "policy shall be made benefit. .
effective on the first day of the month next following the month the first premium is paid."
Under this theory, subdivisions (c) and (d) of said paragraph 7 would not apply unless and (b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in
until the first premium shall have been actually paid, pursuant to subdivision (e) of the same force, he having been paid by the GSIS the dividends corresponding to said policy. Had the
paragraph. insured had the slightest inkling that the latter was not, as yet, effective for non-payment of
the first premium, he would have, in all probability, caused the same to be forthwith satisfied.
Although it may not be entirely farfetched, this view is not likely to be in accord with the
understanding of many, if not most, government employees who obtain an optional additional WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against
life insurance policy. As a consequence, the actual receipt by them of their full pay — without the defendant-appellant, Government Service Insurance System. It is so ordered. .
any deduction for premiums on their optional additional life insurance policies — may not
impart to them the warning — which, otherwise, it would necessarily convey — that said Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Villamor, Barredo and
policy is not, as yet, in force, for they are liable to believe "that failure to deduct" — from the Makasiar, JJ., concur.
 (a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at
the legal rate;
G.R. No. 138941 October 8, 2001
(b) P80,000.00 for litigation expenses;
AMERICAN HOME ASSURANCE COMPANY, petitioner,
vs. (c) P300,000.00 for and as attorney's fees; and
TANTUCO ENTERPRISES, INC., respondent.
(d) Pay the costs.
PUNO, J.:
SO ORDERED."6
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals
in CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the
Decision of the Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated same in a Decision promulgated on January 14, 1999, the pertinent portion of which states:
October 16, 1995.
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial court's
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining Decision dated October 16, 1995 is hereby AFFIRMED in toto.
industry. It owns two oil mills. Both are located at factory compound at Iyam, Lucena City. It
appears that respondent commenced its business operations with only one oil mill. In 1988, it SO ORDERED."7
started operating its second oil mill. The latter came to be commonly referred to as the new
oil mill. Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a
Resolution promulgated on June 10, 1999.
The two oil mills were separately covered by fire insurance policies issued by petitioner
American Home Assurance Co., Philippine Branch.1 The first oil mill was insured for three Hence, the present course of action, where petitioner ascribes to the appellate court the
million pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 following errors:
to 1992.2 The new oil mill was insured for six million pesos (P6,000,000.00) under Policy No.
306-7432321-9 for the same term.3 Official receipts indicating payment for the full amount of "(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the
the premium were issued by the petitioner's agent.4 premium was beyond its jurisdiction because it was raised for the first time on appeal."8

A fire that broke out in the early morning of September 30,1991 gutted and consumed the "(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances
new oil mill. Respondent immediately notified the petitioner of the incident. The latter then Warranty' of the policy."9
sent its appraisers who inspected the burned premises and the properties destroyed.
Thereafter, in a letter dated October 15, 1991, petitioner rejected respondent's claim for the "(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole
insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. evidence rule and the principle of estoppel is erroneous."10
It stated that the description of the insured establishment referred to another building thus:
"Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance The petition is devoid of merit.
coverage to your oil mill under Building No. 5, whilst the affected oil mill was under Building
No. 14. "5 The primary reason advanced by the petitioner in resisting the claim of the respondent is that
the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured
A complaint for specific performance and damages was consequently instituted by the is specifically described in the policy by its boundaries in the following manner:
respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the
lower court rendered a Decision finding the petitioner liable on the insurance policy thus: "Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay Right: by an open space thence by Bldg. No. 4.
plaintiff:
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance."
The imperfection in the description of the insured oil mill's boundaries can be attributed to a
However, it argues that this specific boundary description clearly pertains, not to the burned misunderstanding between the petitioner's general agent, Mr. Alfredo Borja, and its policy
oil mill, but to the other mill. In other words, the oil mill gutted by fire was not the one issuing clerk, who made the error of copying the boundaries of the first oil mill when typing
described by the specific boundaries in the contested policy. the policy to be issued for the new one. As testified to by Mr. Borja:

What exacerbates respondent's predicament, petitioner posits, is that it did not have the "Atty. G. Camaligan:
supposed wrong description or mistake corrected. Despite the fact that the policy in question
was issued way back in 1988, or about three years before the fire, and despite the "Important Q: What did you do when you received the report?
Notice" in the policy that "Please read and examine the policy and if incorrect, return it
immediately for alteration," respondent apparently did not call petitioner's attention with A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is
respect to the misdescription. to cover the new oil mill that is why when I presented the existing policy of the old policy, the
policy issuing clerk just merely (sic) copied the wording from the old policy and what she
By way of conclusion, petitioner argues that respondent is "barred by the parole evidence rule typed is that the description of the boundaries from the old policy was copied but she inserted
from presenting evidence (other than the policy in question) of its self-serving intention (sic) covering the new oil mill and to me at that time the important thing is that it covered the new
that it intended really to insure the burned oil mill," just as it is "barred by estoppel from oil mill because it is just within one compound and there are only two oil mill[s] and so just
claiming that the description of the insured oil mill in the policy was wrong, because it retained enough, I had the policy prepared. In fact, two policies were prepared having the same date
the policy without having the same corrected before the fire by an endorsement in one for the old one and the other for the new oil mill and exactly the same policy period,
accordance with its Condition No. 28." sir."14 (emphasis supplied)

These contentions can not pass judicial muster. It is thus clear that the source of the discrepancy happened during the preparation of the
written contract.
In construing the words used descriptive of a building insured, the greatest liberality is shown
by the courts in giving effect to the insurance.11 In view of the custom of insurance agents to These facts lead us to hold that the present case falls within one of the recognized exceptions
examine buildings before writing policies upon them, and since a mistake as to the identity to the parole evidence rule. Under the Rules of Court, a party may present evidence to
and character of the building is extremely unlikely, the courts are inclined to consider that the modify, explain or add to the terms of the written agreement if he puts in issue in his pleading,
policy of insurance covers any building which the parties manifestly intended to insure, among others, its failure to express the true intent and agreement of the parties thereto.15
however inaccurate the description may be.12 Here, the contractual intention of the parties cannot be understood from a mere reading of the
instrument. Thus, while the contract explicitly stipulated that it was for the insurance of the
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, new oil mill, the boundary description written on the policy concededly pertains to the first oil
that what the parties manifestly intended to insure was the new oil mill. This is obvious from mill. This irreconcilable difference can only be clarified by admitting evidence aliunde, which
the categorical statement embodied in the policy, extending its protection: will explain the imperfection and clarify the intent of the parties.

"On machineries and equipment with complete accessories usual to a coconut oil mill Anent petitioner's argument that the respondent is barred by estoppel from claiming that the
including stocks of copra, copra cake and copra mills whilst contained in the new oil mill description of the insured oil mill in the policy was wrong, we find that the same proceeds
building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY from a wrong assumption. Evidence on record reveals that respondent's operating manager,
UNBLOCKED.''13 (emphasis supplied.) Mr. Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent
negotiated for the contract) about the inaccurate description in the policy. However, Mr. Borja
If the parties really intended to protect the first oil mill, then there is no need to specify it as assured Mr. Tantuco that the use of the adjective new will distinguish the insured property.
new. The assurance convinced respondent, despite the impreciseness in the specification of the
boundaries, the insurance will cover the new oil mill. This can be seen from the testimony on
Indeed, it would be absurd to assume that respondent would protect its first oil mill for cross of Mr. Tantuco:
different amounts and leave uncovered its second one. As mentioned earlier, the first oil mill
is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable "ATTY. SALONGA:
for respondent to obtain the other policy from the very same company. The latter ought to
know that a second agreement over that same realty results in its over insurance.
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what premium on time and respondent's non-compliance with it. Yet, it did not contain any specific
the policy contents. (sic) and definite allegation that respondent did not pay the premium, or that it did not pay the full
amount, or that it did not pay the amount on time.
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the
boundaries of the property insured by the insurance policy Exhibit A, will you tell us as the Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial
manager of the company whether the boundaries stated in Exhibit A-2 are the boundaries of proceedings, the question of the supposed inadequate payment was never raised. Most
the old (sic) mill that was burned or not. significant to point, petitioner fatally neglected to present, during the whole course of the trial,
any witness to testify that respondent indeed failed to pay the full amount of the premium.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is The thrust of the cross-examination of Mr. Borja, on the other hand, was not for the purpose
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured of proving this fact. Though it briefly touched on the alleged deficiency, such was made in the
(sic) one property with two (2) policies, you will only do that if you will make to increase the course of discussing a discount or rebate, which the agent apparently gave the respondent.
amount and it is by indorsement not by another policy, sir.,16 Certainly, the whole tenor of Mr. Borja's testimony, both during direct and cross examinations,
implicitly assumed a valid and subsisting insurance policy. It must be remembered that he
We again stress that the object of the court in construing a contract is to ascertain the intent was called to the stand basically to demonstrate that an existing policy issued by the
of the parties to the contract and to enforce the agreement which the parties have entered petitioner covers the burned building.
into. In determining what the parties intended, the courts will read and construe the policy as
a whole and if possible, give effect to all the parts of the contract, keeping in mind always, Finally, petitioner contends that respondent violated the express terms of the Fire
however, the prime rule that in the event of doubt, this doubt is to be resolved against the Extinguishing Appliances Warranty. The said warranty provides:
insurer. In determining the intent of the parties to the contract, the courts will consider the
purpose and object of the contract.17 "WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as
mentioned below shall be maintained in efficient working order on the premises to which
In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal insurance applies:
policy for its failure to pay the full amount of the premium and breach of the Fire Extinguishing
Appliances Warranty. - PORTABLE EXTINGUISHERS

The amount of the premium stated on the face of the policy was P89,770.20. From the - INTERNAL HYDRANTS
admission of respondent's own witness, Mr. Borja, which the petitioner cited, the former only
paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues, - EXTERNAL HYDRANTS
suffices to invalidate the policy, in accordance with Section 77 of the Insurance Code.18
- FIRE PUMP
The Court of Appeals refused to consider this contention of the petitioner. It held that this
issue was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, - 24-HOUR SECURITY SERVICES
pursuant to Rule 46, Section 18 of the Rules of Court.19
BREACH of this warranty shall render this policy null and void and the Company shall no
Petitioner, however, contests this finding of the appellate court. It insists that the issue was longer be liable for any loss which may occur."20
raised in paragraph 24 of its Answer, viz.:
Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
"24. Plaintiff has not complied with the condition of the policy and renewal certificate that the specified therein. The breach occurred when the respondent failed to install internal fire
renewal premium should be paid on or before renewal date." hydrants inside the burned building as warranted. This fact was admitted by the oil mill's
expeller operator, Gerardo Zarsuela.
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or Again, the argument lacks merit. We agree with the appellate court's conclusion that the
rebate, which rebate under Sec. 361 of the Insurance Code is illegal. aforementioned warranty did not require respondent to provide for all the fire extinguishing
appliances enumerated therein. Additionally, we find that neither did it require that the
The argument fails to impress. It is true that the asseverations petitioner made in paragraph appliances are restricted to those mentioned in the warranty. In other words, what the
24 of its Answer ostensibly spoke of the policy's condition for payment of the renewal warranty mandates is that respondent should maintain in efficient working condition within the
premises of the insured property, fire fighting equipments such as, but not limited to, those During the duration of the contract or on November 12, 1995, the fishing vessel boarded by
identified in the list, which will serve as the oil mill's first line of defense in case any part of it Wilfredo Tagle in Taiwan collided with another and thereafter sank. Despite efforts to look for
bursts into flame. Tagle’s corpus, the same proved futile. He was, therefore, presumed dead.

To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil His widow, herein petitioner, thus filed a claim for death benefits with respondent FIC. The
mill can be found the following devices: numerous portable fire extinguishers, two fire claim was approved and Philippine Prudential Life Insurance Co., Inc., the local insurer of
hoses,21 fire hydrant,22 and an emergency fire engine.23 All of these equipments were in FIC, issued a check in the amount of ₱650,000.00. Upon receipt by petitioner of the check,
efficient working order when the fire occurred. she accomplished on March 8, 1996 a Release, Waiver and Quitclaim2 reading:

It ought to be remembered that not only are warranties strictly construed against the insurer, For and in consideration of the payment of the sum of PESOS: SIX HUNDRED FIFTY
but they should, likewise, by themselves be reasonably interpreted.24 That reasonableness is THOUSAND PESOS (P650,000.00) representing
to be ascertained in light of the factual conditions prevailing in each case. Here, we find that
there is no more need for an internal hydrant considering that inside the burned building Philippine Prudential Life Inc. Co., Inc.
were: (1) numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire
hose which has a connection to one of the external hydrants. Cert./Policy No. GART-743

IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition receipt of which is hereby acknowledged, I, ROSALINA C. TAGLE of legal age, Filipino and a
is hereby DISMISSED. resident of Sariaya, Quezon, for myself and on behalf of my legitimate
children/grandchildren/relatives/husband/wife, my heirs, assigns and successors in interest,
SO ORDERED. do hereby release and discharge the Philippine Prudential Life Ins. Co., Inc., and all other
persons having interest therein and thereby from all claims, demands, causes of action, etc.,
Davide Jr., C. J., Pardo, and Ynares-Santiago, JJ., concur. and all such other claims, demands, causes of action, etc., that may arise therefrom and/or
Kapunan, J., on official leave. incidentally connected therewith.

I hereby warrant that this Quitclaim may be pleaded as an absolute bar to any suit that either
G. R. No. 148235. August 11, 2005 is now pending or may be henceforth prosecuted concerning matters referred to in the
preceding paragraph. And in connection herewith, I promise to defend the right and to answer
ROSALINA TAGLE, Petitioners, all costs of suits, of the Philippine Prudential Life Insurance Co., Inc., and all other persons
vs. having interest therein or thereby.
COURT OF APPEALS, FAST INTERNATIONAL CORPORATION and/or KUO TUNG YU
HUANG, Respondents. I further hereby warrant that I fully understand the terms and conditions of this Quitclaim, that
the effects hereof had been explained to me in the language/dialect I understand, and that I
DECISION have executed this document voluntarily and of my free will and that I was not under fraud,
mistake, undue influence, intimidation, violence or any other vice or consent." (Emphasis and
CARPIO MORALES, J.: underscoring supplied)

Wilfredo P. Tagle, husband of petitioner Rosalina Tagle, was recruited by respondent Fast Petitioner, however, subsequently filed before the National Labor Relations Commission
International Corporation (FIC), a corporation organized under the laws of the Republic of the (NLRC), National Capital Region, a complaint for additional "labor insurance" in the amount of
Philippines, to work as fisherman at Taiwan for its principal, respondent Kuo Tung Yu Huang. NT$300,000.00, invoking Article II, Section 10 of the employment contract reading:

On May 9, 1995, Wilfredo Tagle and respondent Kuo Tung Yu Huang concluded an 10. Compensation and Benefits: If after repatriation, the FISHERMAN still requires medical
employment contract1 for one (1) year, extendible for another year upon mutual agreement of attention for work connected illness, he shall be so provided at cost to the EMPLOYER. The
the parties. Employer shall pay the FISHERMAN 100% of his basic wages from the time he leaves the
vessel for medical treatment until he is declared fit to work or the degree of permanent
disability has been assessed by company-physician, but in no case shall this period exceed
120 days.
 quo that this release and quitclaim forever barred the filing of any subsequent action against
Benefits for the FISHERMAN include compensation for service connected illness/injuries or respondent.
death in accordance with social insurance laws and other pertinent provisions of the Taiwan
Labor Law. Additional insurance coverage are in accordance with the POEA Standards for x x x6 (Emphasis and underscoring supplied)
overseas fishermen. Additional Labor Insurance shall be provided to the FISHERMAN by the
EMPLOYER with a limit of NT$300,000.00 per person (or its equivalent) for accident Petitioner’s Motion for Reconsideration of the NLRC Resolution having been denied by
insurance covering fishermen regardless of whether accident occurred within and/or beyond Resolution of September 11, 1998,7 she elevated the case to this Court via Petition for
work hours. Certiorari filed on December 15, 1998, docketed as G.R. No. 136416.8

In case of permanent total or partial disability of the FISHERMAN during the term of By Resolution of February 3, 1999,9 this Court, consistent with its pronouncement in St.
employment caused by either injury or illness, the FISHERMAN shall be compensated Martin Funeral Home v. NLRC et al.,10 referred petitioner’s petition bearing docket G.R. No.
according to POEA Standard. The computation of the total permanent/partial disability of the 136416 to the Court of Appeals (CA) for appropriate action and disposition.
FISHERMAN caused by injury sustained within a war zone area shall be based in the
computation rate payable for death within the war zone area per POEA Standard.3 In her original Petition for Certiorari, petitioner proffered as sole issue
(Underscoring supplied)
WHETHER OR NOT THE RELEASE, WAIVER AND QUITCLAIM EXECUTED BY THE
On motion of FIC, the Labor Arbiter, by Order of September 19, 1996,4 dismissed the PETITIONER INCLUDED THE ADDITIONAL LABOR INSURANCE SHE IS ENTITLED TO
complaint of petitioner on the ground that by her prior execution of the Release, Waiver and AS PROVIDED FOR IN SECTION 10, ARTICLE II OF HER DECEASED HUSBAND’S
Quitclaim she is barred from filing any subsequent action against FIC. EMPLOYMENT CONTRACT.

Petitioner appealed to the National Labor Relations Commission (NLRC). By Decision promulgated on October 17, 2000,11 the CA, quoting with approval the earlier-
quoted portion of the NLRC resolution, dismissed petitioner’s petition, it finding "no shred of
By Resolution promulgated on July 20, 1998,5 the NLRC dismissed petitioner’s appeal and capriciousness or arbitrariness on the part of the respondent [NLRC]" in dismissing her
affirmed the Labor Arbiter’s decision. appeal.

In affirming the Labor Arbiter’s decision, the NLRC held Respecting petitioner’s reliance on Principe v. Philippine-Singapore Transport Services,
Inc.12 in support of her submission that "it is apparent that the Release, Waiver and
xxx Quitclaim signed by the petitioner in favor of Prudential Life was not intended to foreclose her
right over the death benefits of her husband as against the principal employer, Kuo Tung,
Records of this case show that respondent recruitment agency (FAST) is the Policy Holder of represented by its local agent, Fast International," the CA correctly held that Principe stands
the aforesaid Insurance Policy of the deceased fisherman (Annex "A" of Complainants’ on a factual milieu different from the case at bar. Held the CA:
Manifestation and Comment/Opposition). Its purpose therefore of insuring the decedent is not
hard to discern i.e., to insulate itself from any eventuality which may arise during the One. In Principe, the Motion to Dismiss filed by petitioner with POEA stated that the dismissal
effectivity of the employment contract for which the services of the deceased fisherman was of the case would be without prejudice as regards private respondents. That situation did not
contracted. Nothing on record would indicate that the P650,000.00 paid by Philippine take place in the case at bench.
Prudential Life Insurance Co. Inc. under Cert./Policy No. GART-743 is separate and distinct
from the obligation of the respondent FAST and its principal (Huo Tung Yu Huang) arising Two. In Principe, the release paper signed by petitioner was only with regard to her claims
from the employment contract. A careful reading and scrutiny of the particular provision of the against PSTSI. The second claim of Principe is against Chuan Hup who was not a party to
employment contract now at issue simply provides that in addition to the benefits already the release document. The second claim was based upon the joint and solidary undertaking
mentioned, the Employer is mandated to provide the fisherman insurance coverage for of PSTSI and Chuan Hup. No such circumstance existed in the case at bench.
accident in an amount not to exceed NT$300,000.00 per person. Considering that the risk
insured against had happened, the insurance proceeds which was even more than double Three. In Principe, in the release document, what was paid to petitioner for the death of her
the amount of the policy was paid to herein complainant-appellant. On the basis of the husband was only P7,000.00 which was an unconscionable amount while in the case at
complainant’s-appellant’s receipt of said insurance proceeds. Release Waiver and Quitclaim bench, the petitioner received P650,000.00.13 (Emphasis in the original, underscoring
was executed in respondent’s favor. We are therefore in full accord with the Labor Arbiter a supplied)
Petitioner’s Motion for Reconsideration of the CA decision having been denied by Resolution To uphold petitioner’s claim for additional insurance for accident, assuming that one for the
of March 16, 2001,14 she filed the present Petition for Certiorari under Rule 65 of the Rules purpose was secured, after receiving insurance benefits for death arising from accident,
of Civil Procedure, instead of a Petition for Review on Certiorari under Rule 45, hence, a would violate the clear provision of Article II, Section 10 of the employment contract, the law
wrong remedy. On this score alone, the petition is dismissible. between the parties. And it would trifle with the Release, Waiver and Quitclaim, another
contract between the parties, barring petitioner from claiming other or additional benefits
Why petitioner filed a Petition for Certiorari and cited cases decided in 1996 and earlier as arising from petitioner’s husband’s death-basis of the release of the insurance proceeds to
"judicial precedents," to assail a decision of the CA, given her awareness, as she alleged in her.
the present petition, of the referral of her original petition to the CA consistent with the 1998
pronouncement of this Court in St. Martin, can only mean two things: Either her counsel is not Petitioner’s argument that the Release, Waiver and Quitclaim was executed in favor only of
versed on the Rules, or he is resorting to certiorari because the remedy of appeal had been the insurance company does not lie, for it is therein clearly stated that she was releasing and
lost. For, when her counsel received the CA Resolution denying her Motion for discharging the insurance company "and all other persons having interest therein or thereby"
Reconsideration, she had fifteen (15) days or up to April 26, 2001 to file the same. She filed – which therefore includes agent and policy holder respondent FIC18 – from all claims,
her present petition, however, on the 61st day, June 11, 2001, a Monday. demands, causes of action and the like "aris[ing] therefrom and/or incidentally connected
therewith."
Technicality aside, on the merits, the petition just the same must be dismissed.
WHEREFORE, in light of the foregoing discussions, the Petition for Certiorari is hereby
The present Petition for Certiorari filed by petitioner is an almost verbatim reproduction of the DISMISSED.
original Petition for Certiorari she filed. Petitioner merely dropped NLRC as one of the
respondents and impleaded in its stead the CA, and she accordingly amended the petition to Costs against petitioner.
reflect that it is the decision of the CA which is being assailed.
SO ORDERED.
Raising the same issue she raised in her original petition,
Panganiban, (Chairman), Sandoval-Gutierrez, and Garcia, JJ., concur.
WHETHER OR NOT THE RELEASE, WAIVER AND QUITCLAIM EXECUTED BY THE
PETITIONER INCLUDED THE ADDITIONAL LABOR INSURANCE SHE IS ENTITLED TO Corona, J., on leave.
AS PROVIDED FOR IN SECTION 10, ARTICLE II OF HER DECEASED HUSBAND’S
EMPLOYMENT CONTRACT,
G.R. No. 167330 September 18, 2009
she likewise reiterates the position she proffered in arguing in the negative.
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
The second paragraph of the earlier-quoted Article II, Section 10 of the employment vs.
contract15 explicitly states that "Benefits . . . include compensation for . . . death in COMMISSIONER OF INTERNAL REVENUE, Respondent.
accordance with social insurance laws and other pertinent provisions of the Taiwan Labor
Law. . . Additional Labor Insurance shall be provided to the Fisherman with a limit of RESOLUTION
NT$300,000.00 per person (or its equivalent) for accident insurance covering fisherman
regardless of whether accident occurs within and/or beyond work hours." CORONA, J.:

Death is defined as "loss of life resulting from injury or sickness."16 ARTICLE II

Declaration of Principles and State Policies
Death could be a result of accident, but accident does not necessarily result to death.
Section 15. The State shall protect and promote the right to health of the people and instill
Compensation benefits for illness, death, accident which does not result to death, and partial health consciousness among them.
or total disability are treated separately and differently in the 3-paragraph provision of Article
II, Section 10 of the employment contract. The said provision in the employment contract ARTICLE XIII
being clear and unambiguous, its literal meaning controls.17 Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997
development which shall endeavor to make essential goods, health and other social services deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE.
available to all the people at affordable cost. There shall be priority for the needs of the Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1 SO ORDERED.

For resolution are a motion for reconsideration and supplemental motion for reconsideration Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled
dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care the DST assessment. He claimed that petitioner’s health care agreement was a contract of
Providers, Inc.2 insurance subject to DST under Section 185 of the 1997 Tax Code.

We recall the facts of this case, as follows: On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care
agreement was in the nature of a non-life insurance contract subject to DST.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain,
conduct and operate a prepaid group practice health care delivery system or a health WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax
maintenance organization to take care of the sick and disabled persons enrolled in the health Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary
care plan and to provide for the administrative, legal, and financial responsibilities of the stamp tax assessment and ordered petitioner to desist from collecting the same is
organization." Individuals enrolled in its health care programs pay an annual membership fee REVERSED and SET ASIDE.
and are entitled to various preventive, diagnostic and curative medical services provided by
its duly licensed physicians, specialists and other professional technical staff participating in Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as
the group practice health delivery system at a hospital or clinic owned, operated or accredited deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for
by it. late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
xxx xxx xxx
SO ORDERED.
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment of Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in
the total amount of ₱224,702,641.18. xxxx xxx xxx xxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s
health care agreement with the members of its health care program pursuant to Section 185 decision. We held that petitioner’s health care agreement during the pertinent period was in
of the 1997 Tax Code xxxx the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare,
Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner’s
xxx xxx xxx contention that it is a health maintenance organization (HMO) and not an insurance company
is irrelevant because contracts between companies like petitioner and the beneficiaries under
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did their plans are treated as insurance contracts. Moreover, DST is not a tax on the business
not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) transacted but an excise on the privilege, opportunity or facility offered at exchanges for the
seeking the cancellation of the deficiency VAT and DST assessments. transaction of the business.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read: Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to (a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on
₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until a company engaged in the business of fidelity bonds and other insurance policies. Petitioner,
fully paid for the 1996 VAT deficiency and ₱31,094,163.87 inclusive of 25% surcharge plus as an HMO, is a service provider, not an insurance company.
20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect
the CA’s disposition that health care services are not in the nature of an insurance business. Individuals enrolled in its health care program pay an annual membership fee. Membership is
on a year-to-year basis. The medical services are dispensed to enrolled members in a
(c) Section 185 should be strictly construed. hospital or clinic owned, operated or accredited by petitioner, through physicians, medical
and dental practitioners under contract with it. It negotiates with such health care practitioners
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, regarding payment schemes, financing and other procedures for the delivery of health
especially in the light of the amendments made in the DST law in 2002. services. Except in cases of emergency, the professional services are to be provided only by
petitioner's physicians, i.e. those directly employed by it11 or whose services are contracted
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not by it.12 Petitioner also provides hospital services such as room and board accommodation,
those contemplated under Section 185. laboratory services, operating rooms, x-ray facilities and general nursing care.13 If and when
a member avails of the benefits under the agreement, petitioner pays the participating
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health physicians and other health care providers for the services rendered, at pre-agreed rates.14
insurance is not covered by Section 185.
To avail of petitioner’s health care programs, the individual members are required to sign and
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in execute a standard health care agreement embodying the terms and conditions for the
Section 185. provision of the health care services. The same agreement contains the various health care
services that can be engaged by the enrolled member, i.e., preventive, diagnostic and
(h) The June 12, 2008 decision should only apply prospectively. curative medical services. Except for the curative aspect of the medical service offered, the
enrolled member may actually make use of the health care services being offered by
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 petitioner at any time.
and all prior years. Therefore, the questioned assessments on the DST are now rendered
moot and academic.6 Health Maintenance Organizations Are Not Engaged In The Insurance Business

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
memoranda on June 8, 2009. insurer because its agreements are treated as insurance contracts and the DST is not a tax
on the business but an excise on the privilege, opportunity or facility used in the transaction of
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax the business.15
amnesty under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully paying the
amount of ₱5,127,149.08 representing 5% of its net worth as of the year ending December Petitioner, however, submits that it is of critical importance to characterize the business it is
31, 2005.8 engaged in, that is, to determine whether it is an HMO or an insurance company, as this
distinction is indispensable in turn to the issue of whether or not it is liable for DST on its
We find merit in petitioner’s motion for reconsideration. health care agreements.16

Petitioner was formally registered and incorporated with the Securities and Exchange A second hard look at the relevant law and jurisprudence convinces the Court that the
Commission on June 30, 1987.9 It is engaged in the dispensation of the following medical arguments of petitioner are meritorious.
services to individuals who enter into health care agreements with it:
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
immunization; insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting the
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator,
fecalysis, complete blood count, and the like and automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of
Curative medical services which pertain to the performing of other remedial and therapeutic the duties of any office or position, for the doing or not doing of anything therein specified,
processes in the event of an injury or sickness on the part of the enrolled member.10 and on all obligations guaranteeing the validity or legality of any bond or other obligations
issued by any province, city, municipality, or other public body or organization, and on all Various courts in the United States, whose jurisprudence has a persuasive effect on our
obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, decisions,21 have determined that HMOs are not in the insurance business. One test that
which may be made or renewed by any such person, company or corporation, there shall be they have applied is whether the assumption of risk and indemnification of loss (which are
collected a documentary stamp tax of fifty centavos (₱0.50) on each four pesos (₱4.00), or elements of an insurance business) are the principal object and purpose of the organization
fractional part thereof, of the premium charged. (Emphasis supplied) or whether they are merely incidental to its business. If these are the principal objectives, the
business is that of insurance. But if they are merely incidental and service is the principal
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part purpose, then the business is not insurance.
of a statute shall be considered surplusage or superfluous, meaningless, void and
insignificant. To this end, a construction which renders every word operative is preferred over Applying the "principal object and purpose test,"22 there is significant American case law
that which makes some words idle and nugatory.17 This principle is expressed in the maxim supporting the argument that a corporation (such as an HMO, whether or not organized for
Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the profit), whose main object is to provide the members of a group with health services, is not
whole of the statute – its every word.18 engaged in the insurance business.

From the language of Section 185, it is evident that two requisites must concur before the The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of
DST can apply, namely: (1) the document must be a policy of insurance or an obligation in Appeals of the District of Columbia Circuit held that Group Health Association should not be
the nature of indemnity and (2) the maker should be transacting the business of accident, considered as engaged in insurance activities since it was created primarily for the
fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or distribution of health care services rather than the assumption of insurance risk.
other branch of insurance (except life, marine, inland, and fire insurance).
xxx Although Group Health’s activities may be considered in one aspect as creating security
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of against loss from illness or accident more truly they constitute the quantity purchase of well-
1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated rounded, continuous medical service by its members. xxx The functions of such an
health services needed by plan members for a fixed prepaid premium."19 The payments do organization are not identical with those of insurance or indemnity companies. The latter are
not vary with the extent, frequency or type of services provided. concerned primarily, if not exclusively, with risk and the consequences of its descent, not with
service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the
The question is: was petitioner, as an HMO, engaged in the business of insurance during the daily routine of living. Hazard is predominant. On the other hand, the cooperative is
pertinent taxable years? We rule that it was not. concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation. Its primary purpose
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what is to reduce the cost rather than the risk of medical care; to broaden the service to the
constitutes "doing an insurance business" or "transacting an insurance business:" individual in kind and quantity; to enlarge the number receiving it; to regularize it as an
everyday incident of living, like purchasing food and clothing or oil and gas, rather than
a) making or proposing to make, as insurer, any insurance contract; merely protecting against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as
as merely incidental to any other legitimate business or activity of the surety; well as the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and patient
c) doing any kind of business, including a reinsurance business, specifically recognized as together, the preventive features, the regularization of service as well as payment, the
constituting the doing of an insurance business within the meaning of this Code; substantial reduction in cost by quantity purchasing in short, getting the medical job done and
paid for; not, except incidentally to these features, the indemnification for cost after the
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a services is rendered. Except the last, these are not distinctive or generally characteristic of
manner designed to evade the provisions of this Code. the insurance arrangement. There is, therefore, a substantial difference between contracting
in this way for the rendering of service, even on the contingency that it be needed, and
In the application of the provisions of this Code, the fact that no profit is derived from the contracting merely to stand its cost when or after it is rendered.
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive to show that the making That an incidental element of risk distribution or assumption may be present should not
thereof does not constitute the doing or transacting of an insurance business. outweigh all other factors. If attention is focused only on that feature, the line between
insurance or indemnity and other types of legal arrangement and economic function becomes
faint, if not extinct. This is especially true when the contract is for the sale of goods or A participating provider of health care services is one who agrees in writing to render health
services on contingency. But obviously it was not the purpose of the insurance statutes to care services to or for persons covered by a contract issued by health service corporation in
regulate all arrangements for assumption or distribution of risk. That view would cause them return for which the health service corporation agrees to make payment directly to the
to engulf practically all contracts, particularly conditional sales and contingent service participating provider.28 (Emphasis supplied)
agreements. The fallacy is in looking only at the risk element, to the exclusion of all others
present or their subordination to it. The question turns, not on whether risk is involved or Consequently, the mere presence of risk would be insufficient to override the primary purpose
assumed, but on whether that or something else to which it is related in the particular plan is of the business to provide medical services as needed, with payment made directly to the
its principal object purpose.24 (Emphasis supplied) provider of these services.29 In short, even if petitioner assumes the risk of paying the cost of
these services even if significantly more than what the member has prepaid, it nevertheless
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing cannot be considered as being engaged in the insurance business.
the plan of operation as a whole of the corporation, it was service rather than indemnity which
stood as its principal purpose. By the same token, any indemnification resulting from the payment for services rendered in
case of emergency by non-participating health providers would still be incidental to
There is another and more compelling reason for holding that the service is not engaged in petitioner’s purpose of providing and arranging for health care services and does not
the insurance business. Absence or presence of assumption of risk or peril is not the sole test transform it into an insurer. To fulfill its obligations to its members under the agreements,
to be applied in determining its status. The question, more broadly, is whether, looking at the petitioner is required to set up a system and the facilities for the delivery of such medical
plan of operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and services. This indubitably shows that indemnification is not its sole object.
purpose. Certainly the objects and purposes of the corporation organized and maintained by
the California physicians have a wide scope in the field of social service. Probably there is no In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical
more impelling need than that of adequate medical care on a voluntary, low-cost basis for services intended to keep members from developing medical conditions or diseases.30 As an
persons of small income. The medical profession unitedly is endeavoring to meet that need. HMO, it is its obligation to maintain the good health of its members. Accordingly, its health
Unquestionably this is ‘service’ of a high order and not ‘indemnity.’26 (Emphasis supplied) care programs are designed to prevent or to minimize the possibility of any assumption of risk
on its part. Thus, its undertaking under its agreements is not to indemnify its members
American courts have pointed out that the main difference between an HMO and an against any loss or damage arising from a medical condition but, on the contrary, to provide
insurance company is that HMOs undertake to provide or arrange for the provision of medical the health and medical services needed to prevent such loss or damage.31
services through participating physicians while insurance companies simply undertake to
indemnify the insured for medical expenses incurred up to a pre-agreed limit. Somerset Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear its curative medical services), but these are incidental to the principal activity of providing
on this point: them medical care. The "insurance-like" aspect of petitioner’s business is miniscule
compared to its noninsurance activities. Therefore, since it substantially provides health care
The basic distinction between medical service corporations and ordinary health and accident services rather than insurance services, it cannot be considered as being in the insurance
insurers is that the former undertake to provide prepaid medical services through participating business.
physicians, thus relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule It is important to emphasize that, in adopting the "principal purpose test" used in the above-
of rates contained in the policy. quoted U.S. cases, we are not saying that petitioner’s operations are identical in every
respect to those of the HMOs or health providers which were parties to those cases. What we
xxx xxx xxx are stating is that, for the purpose of determining what "doing an insurance business" means,
we have to scrutinize the operations of the business as a whole and not its mere
The primary purpose of a medical service corporation, however, is an undertaking to provide components. This is of course only prudent and appropriate, taking into account the
physicians who will render services to subscribers on a prepaid basis. Hence, if there are no burdensome and strict laws, rules and regulations applicable to insurers and other entities
physicians participating in the medical service corporation’s plan, not only will the subscribers engaged in the insurance business. Moreover, we are also not unmindful that there are other
be deprived of the protection which they might reasonably have expected would be provided, American authorities who have found particular HMOs to be actually engaged in insurance
but the corporation will, in effect, be doing business solely as a health and accident indemnity activities.32
insurer without having qualified as such and rendering itself subject to the more stringent
financial requirements of the General Insurance Laws…. Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.33 In fact, in a letter dated September 3, 2000, the Insurance group of persons bearing a similar risk, that is, among all the other members of the health
Commissioner confirmed that petitioner is not engaged in the insurance business. This care program. This is insurance.37
determination of the commissioner must be accorded great weight. It is well-settled that the
interpretation of an administrative agency which is tasked to implement a statute is accorded We reconsider. We shall quote once again the pertinent portion of Section 185:
great respect and ordinarily controls the interpretation of laws by the courts. The reason
behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34 Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
The rationale for this rule relates not only to the emergence of the multifarious needs of a made or renewed by any person, association or company or corporation transacting the
modern or modernizing society and the establishment of diverse administrative agencies for business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator,
addressing and satisfying those needs; it also relates to the accumulation of experience and automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
growth of specialized capabilities by the administrative agency charged with implementing a insurance), xxxx (Emphasis supplied)
particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court
stressed that executive officials are presumed to have familiarized themselves with all the In construing this provision, we should be guided by the principle that tax statutes are strictly
considerations pertinent to the meaning and purpose of the law, and to have formed an construed against the taxing authority.38 This is because taxation is a destructive power
independent, conscientious and competent expert opinion thereon. The courts give much which interferes with the personal and property rights of the people and takes from them a
weight to the government agency officials charged with the implementation of the law, their portion of their property for the support of the government.39 Hence, tax laws may not be
competence, expertness, experience and informed judgment, and the fact that they frequently extended by implication beyond the clear import of their language, nor their operation
are the drafters of the law they interpret.36 enlarged so as to embrace matters not specifically provided.40

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care
The NIRC of 1997 agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
However, those cases did not involve the interpretation of a tax provision. Instead, they dealt
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the with the liability of a health service provider to a member under the terms of their health care
nature of indemnity for loss, damage, or liability…." In our decision dated June 12, 2008, we agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the
ruled that petitioner’s health care agreements are contracts of indemnity and are therefore member and strictly against the HMO. For this reason, we reconsider our ruling that Blue
insurance contracts: Cross and Philamcare are applicable here.

It is … incorrect to say that the health care agreement is not based on loss or damage Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
because, under the said agreement, petitioner assumes the liability and indemnifies its whereby one undertakes for a consideration to indemnify another against loss, damage or
member for hospital, medical and related expenses (such as professional fees of physicians). liability arising from an unknown or contingent event. An insurance contract exists where the
The term "loss or damage" is broad enough to cover the monetary expense or liability a following elements concur:
member will incur in case of illness or injury.
1. The insured has an insurable interest;
Under the health care agreement, the rendition of hospital, medical and professional services
to the member in case of sickness, injury or emergency or his availment of so-called "out- 2. The insured is subject to a risk of loss by the happening of the designed peril;
patient services" (including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling) is the contingent event 3. The insurer assumes the risk;
which gives rise to liability on the part of the member. In case of exposure of the member to
liability, he would be entitled to indemnification by petitioner. 4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk and
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are 5. In consideration of the insurer’s promise, the insured pays a premium.41
prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if
they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services Do the agreements between petitioner and its members possess all these elements? They do
even if they are significantly and substantially more than what the member has "prepaid." not.
Petitioner does not bear the costs alone but distributes or spreads them out among a large
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a treatment received from a non-designated doctor, this did not make defendant an insurer.
contract contains all the elements of an insurance contract, if its primary purpose is the Citing Jordan, the Court determined that "the primary activity of the defendant (was) the
rendering of service, it is not a contract of insurance: provision of podiatric services to subscribers in consideration of prepayment for such
services."44 Since indemnity of the insured was not the focal point of the agreement but the
It does not necessarily follow however, that a contract containing all the four elements extension of medical services to the member at an affordable cost, it did not partake of the
mentioned above would be an insurance contract. The primary purpose of the parties in nature of a contract of insurance.
making the contract may negate the existence of an insurance contract. For example, a law
firm which enters into contracts with clients whereby in consideration of periodical payments, Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true
it promises to represent such clients in all suits for or against them, is not engaged in the that risk alone is sufficient to establish it. Almost anyone who undertakes a contractual
insurance business. Its contracts are simply for the purpose of rendering personal services. obligation always bears a certain degree of financial risk. Consequently, there is a need to
On the other hand, a contract by which a corporation, in consideration of a stipulated amount, distinguish prepaid service contracts (like those of petitioner) from the usual insurance
agrees at its own expense to defend a physician against all suits for damages for malpractice contracts.
is one of insurance, and the corporation will be deemed as engaged in the business of
insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
not to render personal services, but to indemnify against loss and damage resulting from the services: the risk that it might fail to earn a reasonable return on its investment. But it is not
defense of actions for malpractice.42 (Emphasis supplied) the risk of the type peculiar only to insurance companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s paid. The amount of premium is calculated on the basis of assumptions made relative to the
agreements. To begin with, there is no loss, damage or liability on the part of the member that insured.45
should be indemnified by petitioner as an HMO. Under the agreement, the member pays
petitioner a predetermined consideration in exchange for the hospital, medical and However, assuming that petitioner’s commitment to provide medical services to its members
professional services rendered by the petitioner’s physician or affiliated physician to him. In can be construed as an acceptance of the risk that it will shell out more than the prepaid fees,
case of availment by a member of the benefits under the agreement, petitioner does not it still will not qualify as an insurance contract because petitioner’s objective is to provide
reimburse or indemnify the member as the latter does not pay any third party. Instead, it is medical services at reduced cost, not to distribute risk like an insurer.
the petitioner who pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any such payment. In sum, an examination of petitioner’s agreements with its members leads us to conclude that
it is not an insurance contract within the context of our Insurance Code.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary
liability on the part of the member to any third party-provider of medical services which might There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity"
presuppose that a liability or claim has already been incurred. There is no indemnity precisely Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s
because the member merely avails of medical services to be paid or already paid in advance health care agreements under Section 185 of the NIRC of 1997 is the provision’s legislative
at a pre-agreed price under the agreements. history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health
care agreements were not even in existence in this jurisdiction. It was imposed under Section
Third. According to the agreement, a member can take advantage of the bulk of the benefits 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")46
anytime, e.g. laboratory services, x-ray, routine annual physical examination and enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax,
consultations, vaccine administration as well as family planning counseling, even in the Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section
absence of any peril, loss or damage on his or her part. 116, to wit:

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives ARTICLE XI
care from a non-participating physician or hospital. However, this is only a very minor part of Stamp Taxes on Specified Objects
the list of services available. The assumption of the expense by petitioner is not confined to
the happening of a contingency but includes incidents even in the absence of illness or injury. Section 116. There shall be levied, collected, and paid for and in respect to the several
bonds, debentures, or certificates of stock and indebtedness, and other documents,
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although instruments, matters, and things mentioned and described in this section, or for or in respect
the health care contracts called for the defendant to partially reimburse a subscriber for to the vellum, parchment, or paper upon which such instrument, matters, or things or any of
them shall be written or printed by any person or persons who shall make, sign, or issue the there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having
same, on and after January first, nineteen hundred and five, the several taxes following: set foot in the Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a
xxx xxx xxx total enrollment of more than 2 million.49

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for We can clearly see from these two histories (of the DST on the one hand and HMOs on the
loss, damage, or liability made or renewed by any person, association, company, or other) that when the law imposing the DST was first passed, HMOs were yet unknown in the
corporation transacting the business of accident, fidelity, employer’s liability, plate glass, Philippines. However, when the various amendments to the DST law were enacted, they
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life, were already in existence in the Philippines and the term had in fact already been defined by
marine, inland, and fire insurance) xxxx (Emphasis supplied) RA 7875. If it had been the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It had many opportunities
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted to do so. But it did not. The fact that the NIRC contained no specific provision on the DST
revising and consolidating the laws relating to internal revenue. The aforecited pertinent liability of health care agreements of HMOs at a time they were already known as such,
portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed
(l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to its DST liability only on January 27, 2000, after more than a decade in the business as an
DST was thus retained. HMO.50

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Considering that Section 185 did not change since 1904 (except for the rate of tax), it would
Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on be safe to say that health care agreements were never, at any time, recognized as insurance
March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, contracts or deemed engaged in the business of insurance within the context of the provision.
otherwise known as the Administrative Code of 1917.
The Power To Tax Is Not The Power To Destroy
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision acknowledging in its very nature no limits, so that security against its abuse is to be found
remained substantially the same. only in the responsibility of the legislature which imposes the tax on the constituency who is
to pay it.51 So potent indeed is the power that it was once opined that "the power to tax
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in involves the power to destroy."52
PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11,
1978 and October 10, 1984 respectively, the DST rate was again increased.1avvphi1 Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way
beyond its net worth of ₱259 million.54 Respondent never disputed these assertions. Given
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is
1977 was renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, not the purpose of the government to throttle private business. On the contrary, the
1987, it was again renumbered and became Section 185. government ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate business.56 As
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with aptly held in Roxas, et al. v. CTA, et al.:57
respect to the rate of tax.
The power of taxation is sometimes called also the power to destroy. Therefore it should be
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
NIRC of 1997), the subject legal provision was retained as the present Section 185. In 2004, exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
amendments to the DST provisions were introduced by RA 924348 but Section 185 was egg."58
untouched.
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
On the other hand, the concept of an HMO was introduced in the Philippines with the Incurring losses because of a tax imposition may be an acceptable consequence but killing
formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later the business of an entity is another matter and should not be allowed. It is counter-productive
reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However,
and ultimately subversive of the nation’s thrust towards a better economy which will ultimately It is true that, although contained in a minute resolution, our dismissal of the petition was a
benefit the majority of our people.59 disposition of the merits of the case. When we dismissed the petition, we effectively affirmed
the CA ruling being questioned. As a result, our ruling in that case has already become
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840 final.67 When a minute resolution denies or dismisses a petition for failure to comply with
formal and substantive requirements, the challenged decision, together with its findings of
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years fact and legal conclusions, are deemed sustained.68 But what is its effect on other cases?
1996 and 1997 became moot and academic60 when it availed of the tax amnesty under RA
9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the With respect to the same subject matter and the same issues concerning the same parties, it
year ended December 31, 2005 and complied with all requirements of the tax amnesty. constitutes res judicata.69 However, if other parties or another subject matter (even with the
Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in
additions thereto, and the appurtenant civil, criminal or administrative penalties under the CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving
1997 NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for the same parties and the same issues, was previously disposed of by the Court thru a minute
taxable year 2005 and prior years.61 resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court
ruled that the previous case "ha(d) no bearing" on the latter case because the two cases
Far from disagreeing with petitioner, respondent manifested in its memorandum: involved different subject matters as they were concerned with the taxable income of different
taxable years.72
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity
from payment of the tax involved, including the civil, criminal, or administrative penalties Besides, there are substantial, not simply formal, distinctions between a minute resolution
provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years. and a decision. The constitutional requirement under the first paragraph of Section 14, Article
VIII of the Constitution that the facts and the law on which the judgment is based must be
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute
merits of this case as discussed above, respondent concedes that such tax amnesty resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It
extinguishes the tax liabilities of petitioner. This admission, however, is not meant to preclude does not require the certification of the Chief Justice. Moreover, unlike decisions, minute
a revocation of the amnesty granted in case it is found to have been granted under resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of
circumstances amounting to tax fraud under Section 10 of said amnesty law.62 (Emphasis Article VIII speaks of a decision.73 Indeed, as a rule, this Court lays down doctrines or
supplied) principles of law which constitute binding precedent in a decision duly signed by the members
of the Court and certified by the Chief Justice.
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax
amnesty program under RA 9480.63 There is no other conclusion to draw than that Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability
petitioner’s liability for DST for the taxable years 1996 and 1997 was totally extinguished by for DST on its health care agreement was not the subject matter of G.R. No. 148680,
its availment of the tax amnesty under RA 9480. petitioner cannot successfully invoke the minute resolution in that case (which is not even
binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this
Is The Court Bound By A Minute Resolution In Another Case? does not detract in any way from the fact that petitioner’s health care agreements are not
subject to DST.
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court
is bound by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care A Final Note
agreement of Philamcare Health Systems is not an insurance contract for purposes of the
DST. Taking into account that health care agreements are clearly not within the ambit of Section
185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court petitioner, the same should not be arbitrarily and unjustly included in its coverage.
dismissing the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that
the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, It is a matter of common knowledge that there is a great social need for adequate medical
the Court should apply the CA ruling there that a health care agreement is not an insurance services at a cost which the average wage earner can afford. HMOs arrange, organize and
contract. manage health care treatment in the furtherance of the goal of providing a more efficient and
inexpensive health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system (wherein
individuals are charged a fee each time they receive medical services), including the ability to purchased burial lots. The policy was to be effective for a period of one year, renewable on a
control costs. They protect their members from exposure to the high cost of hospitalization yearly basis.
and other medical expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its constitutional mandate of The relevant provisions of the policy are:
providing its citizens with affordable health services.
ELIGIBILITY.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its
imposition will elevate the cost of health care services. This will in turn necessitate an Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is
increase in the membership fees, resulting in either placing health services beyond the reach indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted
of the ordinary wage earner or driving the industry to the ground. At the end of the day, for Life Insurance coverage by the Company on its effective date is eligible for insurance
neither side wins, considering the indispensability of the services offered by HMOs. under the Policy.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of EVIDENCE OF INSURABILITY.
the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996
and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET No medical examination shall be required for amounts of insurance up to P50,000.00.
ASIDE. Respondent is ordered to desist from collecting the said tax. However, a declaration of good health shall be required for all Lot Purchasers as part of the
application. The Company reserves the right to require further evidence of insurability
No costs. satisfactory to the Company in respect of the following:

SO ORDERED. 1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

G.R. No. 166245 April 9, 2008
LIFE INSURANCE BENEFIT.
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs. The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent. unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported
by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such
DECISION benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.

VELASCO, JR., J.: EFFECTIVE DATE OF BENEFIT.

The Case The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot Purchaser
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set is not approved by the Company.3
aside the November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
57810 is the query: May the inaction of the insurer on the insurance application be Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
considered as approval of the application? together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal
The Facts complied by submitting a letter dated December 29, 1982,4 containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list as "new
On December 10, 1980, respondent Philippine American Life Insurance Company business" was a certain John Chuang. His balance of payments was PhP 100,000. On
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P- August 2, 1984, Chuang died.
19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy,
the clients of Eternal who purchased burial lots from it on installment basis would be insured Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance
by Philamlife. The amount of insurance coverage depended upon the existing balance of the claim for Chuang’s death. Attached to the claim were the following documents: (1) Chuang’s
Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal
Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s fees.
Certificate.
SO ORDERED.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit
the following documents relative to its insurance claim for Chuang’s death: (1) Certificate of The RTC found that Eternal submitted Chuang’s application for insurance which he
Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3) Application accomplished before his death, as testified to by Eternal’s witness and evidenced by the letter
for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application
Statement of Account showing the unpaid balance of Chuang before his death. Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang’s death on August 2,
Eternal transmitted the required documents through a letter dated November 14, 1984,7 1984, as well as Philamlife’s acceptance of the premiums during the same period, Philamlife
which was received by Philamlife on November 15, 1984. was deemed to have approved Chuang’s application. The RTC said that since the contract is
a group life insurance, once proof of death is submitted, payment must follow.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim Philamlife appealed to the CA, which ruled, thus:
for PhP 100,000 on April 25, 1986.8
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
May 20, 1986,9 a portion of which reads:
SO ORDERED.11
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of The CA based its Decision on the factual finding that Chuang’s application was not enclosed
P100,000.00 each. No application for Group Insurance was submitted in our office prior to his in Eternal’s letter dated December 29, 1982. It further ruled that the non-accomplishment of
death on August 2, 1984. the submitted application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by Philamlife’s
In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of insurance.
Insurability provision, "a declaration of good health shall be required for all Lot Purchasers as
party of the application." We cite further the provision on Effective Date of Coverage under Hence, we have this petition with the following grounds:
the policy which states that "there shall be no insurance if the application is not approved by
the Company." Since no application had been submitted by the Insured/Assured, prior to his The Honorable Court of Appeals has decided a question of substance, not therefore
death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. determined by this Honorable Court, or has decided it in a way not in accord with law or with
John Uy Chuang was not covered under the Policy. We wish to point out that Eternal the applicable jurisprudence, in holding that:
Gardens being the Assured was a party to the Contract and was therefore aware of these
pertinent provisions. I. The application for insurance was not duly submitted to respondent PhilamLife before the
death of John Chuang;
With regard to our acceptance of premiums, these do not connote our approval per se of the
insurance coverage but are held by us in trust for the payor until the prerequisites for II. There was no valid insurance coverage; and
insurance coverage shall have been met. We will however, return all the premiums which
have been paid in behalf of John Uy Chuang. III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a The Court’s Ruling
sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided
in favor of Eternal, the dispositive portion of which reads: As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
before the CA and first level courts, considering their findings of facts are conclusive and
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff binding on this Court. However, such rule is subject to exceptions, as enunciated in
ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the Sampayan v. Court of Appeals:
 witnesses’ demeanor, conduct, and attitude. Findings of the trial court on such matters are
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when binding and conclusive on the appellate court, unless some facts or circumstances of weight
the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave and substance have been overlooked, misapprehended, or misinterpreted,14 that, if
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when considered, might affect the result of the case.15
the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the An examination of the testimonies of the witnesses mentioned by Philamlife, however,
appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings reveals no overlooked facts of substance and value.
are conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s main and reply briefs are not Philamlife primarily claims that Eternal did not even know where the original insurance
disputed by the respondent; (10) when the findings of fact are premised on the supposed application of Chuang was, as shown by the testimony of Edilberto Mendoza:
absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if Atty. Arevalo:
properly considered, would justify a different conclusion.12 (Emphasis supplied.)
Q Where is the original of the application form which is required in case of new coverage?
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court
may review them. [Mendoza:]

Eternal claims that the evidence that it presented before the trial court supports its contention A It is [a] standard operating procedure for the new client to fill up two copies of this form and
that it submitted a copy of the insurance application of Chuang before his death. In Eternal’s the original of this is submitted to Philamlife together with the monthly remittances and the
letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was second copy is remained or retained with the marketing department of Eternal Gardens.
attached, including Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Atty. Miranda:
Cert." were enclosed in the letter that was apparently received by Philamlife on January 15,
1983. Finally, Eternal alleged that it provided a copy of the insurance application which was We move to strike out the answer as it is not responsive as counsel is merely asking for the
signed by Chuang himself and executed before his death. location and does not [ask] for the number of copy.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, Atty. Arevalo:
arguing that Eternal must present evidence showing that Philamlife received a copy of
Chuang’s insurance application. Q Where is the original?

The evidence on record supports Eternal’s position. [Mendoza:]

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as A As far as I remember I do not know where the original but when I submitted with that
received, states that the insurance forms for the attached list of burial lot buyers were payment together with the new clients all the originals I see to it before I sign the transmittal
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter the originals are attached therein.16
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the In other words, the witness admitted not knowing where the original insurance application
letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; was, but believed that the application was transmitted to Philamlife as an attachment to a
thus, Philamlife is deemed to have received Chuang’s insurance application. transmittal letter.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one
stamped as received, the contents of the letter are correct and accounted for. or two insurance application forms were accomplished and the testimony of Mendoza on who
actually filled out the application form, these are minor inconsistencies that do not affect the
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
inconsistencies is groundless. The trial court is in the best position to determine the reliability are too trivial to affect the credibility of witnesses, and these may even serve to strengthen
and credibility of the witnesses, because it has the opportunity to observe firsthand the their credibility as these negate any suspicion that the testimonies have been rehearsed.17
 In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we
We reiterated the above ruling in Merencillo v. People: reiterated the above ruling, stating that:

Minor discrepancies or inconsistencies do not impair the essential integrity of the When the terms of insurance contract contain limitations on liability, courts should construe
prosecution’s evidence as a whole or reflect on the witnesses’ honesty. The test is whether them in such a way as to preclude the insurer from non-compliance with his obligation. Being
the testimonies agree on essential facts and whether the respective versions corroborate and a contract of adhesion, the terms of an insurance contract are to be construed strictly against
substantially coincide with each other so as to make a consistent and coherent whole.18 the party which prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity
In the present case, the number of copies of the insurance application that Chuang executed must be strictly interpreted against the insurer and liberally in favor of the insured, especially
is not at issue, neither is whether the insurance application presented by Eternal has been to avoid forfeiture.20
falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses. Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated
December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of
However, the question arises as to whether Philamlife assumed the risk of loss without the insurance contract.
approving the application.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that
This question must be answered in the affirmative. upon a party’s purchase of a memorial lot on installment from Eternal, an insurance contract
covering the lot purchaser is created and the same is effective, valid, and binding until
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor terminated by Philamlife by disapproving the insurance application. The second sentence of
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that: Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of the insurance contract. Moreover,
EFFECTIVE DATE OF BENEFIT. the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan the insurance contract by the insurer must be explicit and unambiguous.
with the Assured. However, there shall be no insurance if the application of the Lot Purchaser
is not approved by the Company. As a final note, to characterize the insurer and the insured as contracting parties on equal
footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast
An examination of the above provision would show ambiguity between its two sentences. The amounts of experience in the industry purposefully used to its advantage. More often than
first sentence appears to state that the insurance coverage of the clients of Eternal already not, insurance contracts are contracts of adhesion containing technical terms and conditions
became effective upon contracting a loan with Eternal while the second sentence appears to of the industry, confusing if at all understandable to laypersons, that are imposed on those
require Philamlife to approve the insurance contract before the same can become effective. who wish to avail of insurance. As such, insurance contracts are imbued with public interest
that must be considered whenever the rights and obligations of the insurer and the insured
It must be remembered that an insurance contract is a contract of adhesion which must be are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance
construed liberally in favor of the insured and strictly against the insurer in order to safeguard companies must be obligated to act with haste upon insurance applications, to either deny or
the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court approve the same, or otherwise be bound to honor the application as a valid, binding, and
held that: effective insurance contract.21

Indemnity and liability insurance policies are construed in accordance with the general rule of WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV
resolving any ambiguity therein in favor of the insured, where the contract or policy is No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City
prepared by the insurer. A contract of insurance, being a contract of adhesion, par RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer. (1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
Limitations of liability should be regarded with extreme jealousy and must be construed in Insurance Policy of Chuang;
such a way as to preclude the insurer from noncompliance with its obligations.19 (Emphasis
supplied.)
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 of the Insurance Code, while Pioneer violated Sections 299,6 3007 and 3018 in relation to
from the time of extra-judicial demand by Eternal until Philamlife’s receipt of the May 29, 1996 Sections 302 and 303, thereof.
RTC Decision on June 17, 1996;
The Insurance Commission dismissed the complaint. It said that there was no need for
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP Steamship Mutual to secure a license because it was not engaged in the insurance business.
100,000 from June 17, 1996 until full payment of this award; and It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).
Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000. Steamship Mutual because Steamship Mutual was not engaged in the insurance business.
Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
No costs. Steamship Mutual was already superfluous.

SO ORDERED. The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision,
the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The
Carpio-Morales, Acting Chairperson, Tinga, Brion, Chico-Nazario*, JJ., concur. appellate court also held that Pioneer merely acted as a collection agent of Steamship
Mutual.

G.R. No. 154514. July 28, 2005 In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs. FIRST ASSIGNMENT OF ERROR
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents. THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT
DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS
DECISION TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
QUISUMBING, J.: PHILIPPINES.

This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in SECOND ASSIGNMENT OF ERROR
CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
the Insurance Code and the respondents do not need license as insurer and insurance EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
agent/broker.
THIRD ASSIGNMENT OF ERROR
The facts are undisputed.
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited RESPONDENT STEAMSHIP.
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer also FOURTH ASSIGNMENT OF ERROR
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage. THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to RESPONDENT PIONEER.9
recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before
the Insurance Commission claiming that Steamship Mutual violated Sections 1864 and 1875
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the The test to determine if a contract is an insurance contract or not, depends on the nature of
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance the promise, the act required to be performed, and the exact nature of the agreement in the
agent/broker for Steamship Mutual? light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
relationship is reflected in the certifications issued by the Insurance Commission. consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event.14
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime In particular, a marine insurance undertakes to indemnify the assured against marine losses,
Co., Ltd. v. Court of Appeals10 as "an association composed of shipowners in general who such as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code
band together for the specific purpose of providing insurance cover on a mutual basis against enumerates the coverage of marine insurance.
liabilities incidental to shipowning that the members incur in favor of third parties." It stresses
that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide protection Relatedly, a mutual insurance company is a cooperative enterprise where the members are
and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as both the insurer and insured. In it, the members all contribute, by a system of premiums or
its agent. assessments, to the creation of a fund from which all losses and liabilities are paid, and
where the profits are divided among themselves, in proportion to their interest.17 Additionally,
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the mutual insurance associations, or clubs, provide three types of coverage, namely, protection
insurance business in the Philippines. It is merely an association of vessel owners who have and indemnity, war risks, and defense costs.18
come together to provide mutual protection against liabilities incidental to shipowning.11
Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was A P & I Club is "a form of insurance against third party liability, where the third party is anyone
the jurisdiction of the court over Hyopsung. other than the P & I Club and the members."19 By definition then, Steamship Mutual as a P &
I Club is a mutual insurance association engaged in the marine insurance business.
Is Steamship Mutual engaged in the insurance business?
The records reveal Steamship Mutual is doing business in the country albeit without the
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance requisite certificate of authority mandated by Section 18720 of the Insurance Code. It
business" or "transacting an insurance business". These are: maintains a resident agent in the Philippines to solicit insurance and to collect payments in its
behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was
(a) making or proposing to make, as insurer, any insurance contract; cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety; Since a contract of insurance involves public interest, regulation by the State is necessary.
Thus, no insurer or insurance company is allowed to engage in the insurance business
(c) doing any kind of business, including a reinsurance business, specifically recognized as without a license or a certificate of authority from the Insurance Commission.21
constituting the doing of an insurance business within the meaning of this Code;
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact
... insurance business by virtue of the certificate of authority23 issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a separate
The same provision also provides, the fact that no profit is derived from the making of license to be an agent/broker of Steamship Mutual.24
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business.12 Although Pioneer is already licensed as an insurance company, it needs a separate license to
act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly
states:
SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission
is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.