FACTS: Private respondent Prudential Guarantee & Assurance Inc. (Prudential) brought an action for damages and attorney’s fees against Wallem Philippines Shipping, Inc. (Wallem) and Seacoast Maritime Corporation (Seacoast). Prudential sought the recovery of the sum of P995,677.00, representing the amount it had paid to its insured, General Milling Corporation (GMC), for alleged shortage incurred in the shipment of “Indian Toasted Soyabean Extraction Meal, Yellow,” with 6% legal interest thereon from the date of filing of the complaint up to and until the same is fully paid, and 25% of the claim as attorney’s fees. The trial court ruled that private respondent Prudential failed to prove by clear, convincing, and competent evidence that there was a shortage in the shipment. The trial court said that private respondent Prudential failed to establish by competent evidence the genuineness and due execution of the bill of lading and the true and exact weight of the shipment when it was loaded unto the vessel. Accordingly, the trial court dismissed both the complaint and the counterclaim. On appeal, the Court of Appeals reversed the decision of the trial court. Hence, the present petition.


HELD: NO. The Supreme Court reversed the decision and resolution of the Court of Appeals and reinstated the decision of the trial court. The appellate court erred in finding that a shortage had taken place. Josephine Suarez, Prudential’s claims processor, merely identified the papers submitted to her in connection with GMC’s claim. Ms. Suarez had no personal knowledge of the contents of the said documents and could only surmise as to the actual weight of the cargo loaded on M/V Gao Yang. She admitted that she had no participation in the preparation of the papers upon which Prudential based its cause of action against Wallem. Ms. Suarez’s testimony regarding the contents of the documents is thus hearsay, based as it is on the knowledge of another person not presented on the witness stand. Nor has the genuineness and due execution of the said documents been established. In the absence of clear, convincing, and competent evidence to prove that the shipment indeed weighed 4,415.35 metric tons at the port of origin when it was loaded on the M/V Gao Yang, it cannot be determined whether there was a shortage of the shipment upon its arrival in Batangas. The Court also ruled that even if the shortage can be definitively determined, Wallem still cannot be held liable because of the failure of Prudential to present the contract of insurance or a copy thereof. Prudential claimed that it is subrogated to the rights of GMC pursuant to their insurance contract. For the said purpose, it submitted a subrogation receipt and a marine cargo risk note. However, as the trial court pointed out, it is not sufficient. As GMC’s subrogee, Prudential can exercise only those rights granted to GMC under the insurance contract and, therefore, the contract of insurance must be presented in evidence to indicate the extent of its coverage.


FACTS: Filipro Phil., now known as Nestle Phil., was the consignee of two hydraulic engines shipped on April 25, 1979, by INREDECO from the United States on the M/S Oriental Statesman. The cargo arrived in Manila on May 17, 1979, on board the M/S Pacific Conveyor. It was turned over to E. Razon Arrastre, which retained custody until July 20, 1979. The cargo was later hauled by Mabuhay Brokerage Co. to its warehouse, where it stayed until July 26, 1979. On this date it was delivered to the consignee.

When the skidded plywood cases were opened by the consignee, one of the engines was found to be damaged. Its fan cover was broken and misaligned and its cap deformed. The consignee refused to accept the unit.

Nestle subsequently filed a claim against E. Razon, Mabuhay, the Port Authority, and its insurer, the Home Insurance Corp., for P49,170.00. When the other companies denied liability, Home Insurance paid the claim and was issued a subrogation receipt for $6,070.00.

Mabuhay alone was sued by Home Insurance for the recovery of the amount it had paid to Nestle. Mabuhay again denied liability. After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint. Judge Lorenzo B. Veneracion declared that the plaintiff failed to establish the legal and factual bases for its claim.

The decision noted that the insurance contract between the corporation and the consignee was not presented and that the other supporting documents were all only photocopies. No explanation was given for the failure of the plaintiffs to submit the originals. The trial court also observed that the crates of the shipment did not comply with the accepted international standards, taking into consideration the length of the voyage and the transshipment of the cargo. Its conclusion was that whatever damage was sustained by the engine must have occurred while it was at sea, for which Mabuhay could not be held liable.

The judgment was affirmed on appeal. In addition, the respondent court held that the appellant had failed to establish a valid subrogation, which could not be presumed, and to prove the amount Home had paid to Nestle. There was no evidence either of what happened to the damaged engine, which still retained a residual value despite its defects.

The Court of Appeals stressed that the petitioner could be excused from presenting the original of the insurance contract only if there was proof that this had been lost. The unrebutted claim, however, is that the original was in its possession all the time. The respondent court added that even if a valid subrogation could be established, Mabuhay was nevertheless not an absolute insurer against all risks of the transport of the goods. In any case, it appeared that Mabuhay had exercised extraordinary diligence for the safe delivery of the cargo.

The challenged decision, however, deleted the award of P8,000.00 for litigation expenses for lack of legal or equitable justification.

In the present petition, it is argued that: (1) the subrogation receipt proves the existence of the insurance contract between Nestle and Home Insurance and the amount paid by the latter to the former; and (2) the law or presumption of negligence operates against the carrier.


HELD: NO. The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be used to establish the relationship between the petitioner and the consignee and the amount paid to settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioner’s claim holding the respondent liable for the damage to the engine.

The shipment of the cargo passed through several stages: first, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third; from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler; and lastly, from the hauler to the consignee. In the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. It cannot be held responsible for the handling of the cargo before it actually received it, particularly since there was no indication from the external appearance of the crates, which Mabuhay did not open, that the engine was damaged. As a mere subrogee of Nestle, Home can exercise only such rights against the parties handling the cargo as were granted to Nestle under the insurance contract. The insurance contract would have clearly indicated the scope of the coverage but there is no evidence of this. It cannot simply be supposed that the hauling was included in the coverage; it is possible that the coverage ended with the arrastre. In other words, the rights transferred to Home by Nestle — still assuming there was a valid subrogation — might not include the right to sue Mabuhay. The insurance contract might have proved that it covered the hauling portion of the shipment and was not limited to the transport of the cargo while at sea, if that were really the case. It could have shown that the agreement was not only marine transportation insurance but covered all phases of the cargo’s shipment, from the time the cargo was loaded on the vessel in the United States until it was delivered to the consignee in the Philippines. But there is no acceptable evidence of these stipulations because the original contract of insurance has not been presented. Rule 130, Section 3, of the Rules of Court is quite clear. It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must prove fatal to this petition.


FACTS: On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. 3 ICNA issued an “all-risk” open marine policy, 4 stating:

                          This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: — Loss, if any, payable to the Assured or order.

The cargo, packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading 6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.

The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading 7 issued by Aboitiz contained the notation “grounded outside warehouse”. The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report. 8 On August 1, 1993, the container van was loaded on board petitioner’s vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report 9 dated August 5, 1993, petitioner’s checker noted that the crates were slightly broken or cracked at the bottom. On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness.

Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the “grounded outside warehouse” notation in the bill of lading referred only to the container van bearing the cargo. In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. 12 The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee. On September 21, 1993, the consignee filed a formal claim 14 with Aboitiz in the amount of P276,540.00. In a Supplemental Report dated October 20, 1993, 15 CAC reported to ICNA that based on official weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation “grounded outside warehouse”. It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz.


(a) Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? 

(b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? 

(c) If so, can petitioner be held liable on the claim for damages?


A. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will a license be necessary before it can institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts. 

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said company’s authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign company’s agents.

As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide. MSAS accepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.

Likewise, the Open Policy expressly provides that:

The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: — Loss, if any, payable to the Assured or Order.

The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:

A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the owner of the interest insured.

Respondent’s cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:

Article 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 complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis added)

As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals, payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.

Upon payment to the consignee of indemnity for damage to the insured goods, ICNA’s entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence. This right of subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.

B. YES. Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied)

The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading issued by petitioner for the goods.

Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction. We give due consideration to the fact that the final destination of the damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the institution to the claims department of the shipping company. 

The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.

To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.

C. YES. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law. Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property rights. This standard is intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment.

To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used “all reasonable means to ascertain the nature and characteristic of the goods tendered for transport and that it exercised due care in handling them. Extraordinary diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall.

Aside from denying that the “grounded outside warehouse” notation referred not to the crate for shipment but only to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu.


FACTS: 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. On August 28, 2001, the cargoes were shipped on board the vessel “Richard Rey” from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its 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 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 Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 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 P1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of P1,896,789.62 as insurance indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 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 from the party/parties who may be held legally liable for the loss.”


HELD: YES. At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common 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 business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public.

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 as distinguished from a private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public. The distinction is significant in the sense that “the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers.”

In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered services to Glodel.

In fact, Loadmasters admitted that it is a common carrier.

In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its Memorandum, it states that it “is a corporation duly organized and existing under the laws of the Republic of the Philippines and is engaged in the business of customs brokering.” It cannot be considered otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc., a customs broker is also regarded as a common carrier, the transportation of goods being an integral part of its business. 

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code.When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights. This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary diligence lasts from the time the goods are unconditionally 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 a right to receive them.

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, “the responsibility of two or more persons who are liable for a quasi-delict is solidary.”

At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code 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 latter.” The elements of a contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts within the scope of his authority.

Accordingly, there can be no contract of agency between the parties. Loadmasters never 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 principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. Such mutual intent is not obtaining in this case. HSaCcE

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 causes for the resulting damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a party is an efficient cause without which the damage would 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 other concurrent tortfeasor.

SUN INSURANCE OFFICE, LTD. V. COURT OF APPEALS, G.R. NO. 89741, [MARCH 13, 1991], 272-A PHIL 155-161

FACTS: On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00 property insurance policy to cover his interest in the electrical supply store of his brother housed in a building in Iloilo City. Four (4) days after the issuance of the policy, the building was burned including the insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February 29, 1984, petitioner wrote Tan denying the latter’s claim. On April 3, 1984, Tan wrote petitioner, seeking reconsideration of the denial of his claim. On September 3, 1985, Tan’s counsel wrote the Insurer inquiring about the status of his April 3, 1984 request for reconsideration. Petitioner answered the letter on October 11, 1985, advising Tan’s counsel that the Insurer’s denial of Tan’s claim remained unchanged, enclosing copies of petitioners’ letters of February 29, 1984 and May 17, 1985 (response to petition for reconsideration). On November 20, 1985, Tan filed Civil Case No. 16817 with the Regional Trial Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the alleged ground that the action had already prescribed. Said motion was denied in an order dated November 3, 1987; and petitioner’s motion for reconsideration was also denied in an order dated January 14, 1988.

Petitioner went to the Court of Appeals and sought the nullification of the said Nov. 3, 1987 and January 14, 1988 orders, but the Court of Appeals, in its June 20, 1989 decision denied the petition and held that the court a quo may continue until its final termination.


HELD: YES. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (Pacific Banking Corp. v. Court of Appeals, 168 SCRA 1[1988]).

Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties, reads:

“27. Action or suit clause — If a claim be made and rejected and an action or suit be not commenced either in the Insurance Commission or in any court of competent jurisdiction within twelve (12) months from receipt of notice of such rejection, or in case of arbitration taking place as provided herein, within twelve (12) months after due notice of the award made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.”

As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and understood in its plain, ordinary and popular sense pursuant to the above-cited principle laid down by this Court.

Respondent Tan, in his letter addressed to the petitioner insurance company dated April 3, 1984 (Rollo, pp. 50-52), admitted that he received a copy of the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period started to run from the said date of April 2, 1984, for such is the plain meaning and intention of Section 27 of the insurance policy.

It is also important to note the principle laid down by this Court in the case of Ang v. Fulton Fire Insurance Co., (2 SCRA 945 [1961]), to wit:

“The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of destruction have not yet disappeared.”

In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity of bringing suits against the Insurer within one year from the rejection of the claim. The contention of the respondents that the one-year prescriptive period does not start to run until the petition for reconsideration had been resolved by the insurer, runs counter to the declared purpose for requiring that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the denial of the claim. To uphold respondents’ contention would contradict and defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence which may be considered against them is destroyed.

It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the Insurance Code, which states that:

“Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.”

The crucial issue in this case is: When does the cause of action accrue?

In support of private respondent’s view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696 [1955]), where the Court held:

“The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for bringing suit.”

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:

“Since ’cause of action’ requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the defendant in violation of the said legal right, the cause of action does not accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this case to pay the amount of the bond).”

Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured’s cause of action or his right to file a claim either in the Insurance Commission or in a court of competent jurisdiction commences from the time of the denial of his claim by the Insurer, either expressly or impliedly.

FLORENDO V. PHILAM PLANS, INC., G.R. NO. 186983, [FEBRUARY 22, 2012], 682 PHIL 582-592)

FACTS: On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years. Manuel signed the application and left to Perla the task of supplying the information needed in the application. Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales counselor.

Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. This was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. Under the master policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive pension plan. If the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan.

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her husband’s plan. Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.

On May 3, 1999 Philam Plans wrote Lourdes a letter, declining her claim. Philam Life found that Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under the plan but Philam Plans rejected it, prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC) of Quezon City.

On March 30, 2006 the RTC rendered judgment, ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husband’s pension plan, namely: P997,050.00, the proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00 as moral damages, and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, holding that insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material facts that he knew or ought to know.


HELD: YES. One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning it.

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel’s health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after all, he knew more than anyone that he had been under treatment for heart condition and diabetes for more than five years preceding his submission of that application. But he kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans.

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans’ instruction.

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not make her his agent and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perla’s fault must be considered solely her own and cannot prejudice Manuel. But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his direction. The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected to know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in his twilight years.|

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the information provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued, and the premiums have been collected.

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:


After this Agreement has remained in force for one ( 1) year, we can no longer contest for health reasons any claim for insurance under this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request for reinstatement.

The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan, the one year incontestability period has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.

MANILA BANKERS LIFE INSURANCE CORP. V. ABAN, G.R. NO. 175666, [JULY 29, 2013], 715 PHIL 404-419

FACTS: On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her niece, as her beneficiary.

Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of P100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical examination and payment of the insurance premium.

On April 10, 1996, when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent filed a claim for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, and came out with the following findings:

1. Sotero did not personally apply for insurance coverage, as she was illiterate;

2. Sotero was sickly since 1990;

3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;

4. Sotero did not sign the July 3, 1993 application for insurance; [and]

5. Respondent was the one who filed the insurance application, and . . . designated herself as the beneficiary.

For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy.

On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case No. 97-867 and assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by fraud, concealment and/or misrepresentation under theInsurance Code, which thus renders it voidable under Article 1390 of the Civil Code.

Respondent filed a Motion to Dismiss  claiming that petitioner’s cause of action was barred by prescription pursuant to Section 48 of the Insurance Code.


HELD: YES. The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance for herself, designating respondent as her beneficiary. Both courts are in accord in this respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is no longer feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court. SHaIDE

With the above crucial finding of fact — that it was Sotero who obtained the insurance for herself — petitioner’s case is severely weakened, if not totally disproved. Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero and forgery of her signature in the insurance application, are at once belied by the trial and appellate courts’ finding that Sotero herself took out the insurance for herself. “[F]raudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.”  In the absence of proof of such fraudulent intent, no right to rescind arises.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely uncovered — thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.

Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the assurance that any dishonest scheme to obtain life insurance would be exposed, and attempts at unduly denying a claim would be struck down. Life insurance policies that pass the statutory two-year period are essentially treated as legitimate and beyond question, and the individuals who wield them are made secure by the thought that they will be paid promptly upon claim. In this manner, Section 48 contributes to the stability of the insurance industry.

Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life insurance, only to later on deny a claim on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains in the instant case. Thus, instead of conducting at the first instance an investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411 which would have timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have turned a blind eye and opted instead to continue collecting the premiums on the policy. For nearly three years, petitioner collected the premiums and devoted the same to its own profit. It cannot now deny the claim when it is called to account. Section 48 must be applied to it with full force and effect.

TAN V. COURT OF APPEALS, G.R. NO. L-48049, [JUNE 29, 1989], 256 PHIL 158-166)

FACTS: Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners’ complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P80,000.00.

“On September 23, 1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80,000.00 with respondent company. Said application was approved and Policy No. 1082467 was issued effective November 6, 1973, with petitioners the beneficiaries thereof (Exhibit A).

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

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

“After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August 3, 1977, dismissing petitioners’ complaint.”

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


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

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

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

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


FACTS: On the next day, 4 August 1982, Jaime Canilang applied for a “non-medical” insurance policy with respondent Great Pacific Life Assurance Company (“Great Pacific”) naming his wife, petitioner Thelma Canilang, as his beneficiary. Jaime Canilang was issued ordinary life insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang died of “congestive heart failure,” “anemia,” and “chronic anemia.” Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied on 5 December 1983 upon the ground that the insured had concealed material information from it.

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


HELD: YES. CONCEALMENT; MATERIALITY; DEFINED. — The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read as follows: “Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.” . . . Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all factors within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.” Under the foregoing provisions, the information concealed must be information which the concealing party knew and “ought to [have] communicate[d],” that is to say, information which was “material to the contract.” The test of materiality is contained in Section 31 of the Insurance Code of 1978 which reads: “Sec. 31. Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.”

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

REMEDY, WHEN AVAILABLE. — In 1985, the Insurance Code of 1978 was amended by B.P. Blg. 874. This subsequent statute modified Section 27 of theInsurance Code of 1978 so as to read as follows: “Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.” Section 27 of the Insurance Code of 1978 is properly read as referring to “any concealment” without regard to whether such concealment is intentional or unintentional. The phrase “whether intentional or unintentional” was in fact superfluous. The deletion of the phrase “whether intentional or unintentional” could nothave had the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase “whether intentional or unintentional” merely underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be “intentional” in order to authorize rescission by the injured party. In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang could not have been unaware that his hear beat would at times rise to high and alarming levels and that he had consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last medical consultation took place just the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern brought about by his experiencing “sinus tachycardia.”


FACTS: >  Celestino Henson was insured by Philamlife in 1954 upon his application or a 20-yr endowment life policy.

>  In 1955, the policy lapsed due to non-payment of the premiums.

>  Upon payment of the premiums due, the policy was reinstated, but in the application for reinstatement, Henson did not disclose the fact that he had been previously diagnosed for pyelonephritis, enlarged liver and hernia.  He also did not disclose that he had been examined by a physician.

>  In 1956, Henson died, and his beneficiaries’ claim was rejected by Philamlife on the ground of concealment.

>  The company then filed for rescission.  Beneficiaries’ contend that the intent to conceal must be proven to warrant rescission.

ISSUE: Whether or not there is need to prove intent to conceal to warrant rescission.

HELD: NO. Sec. 26 provides that “a concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance”.  And aside from this, intent, being a state of the mind is hard to prove. According to Sec. 30 of the Insurance Code: Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries. In essence therefore, the insured need not have died of the very diseases he had failed to reveal to the insurance company.  It is sufficient that his non-revelation had misled the insurer in forming its estimate of the disadvantages of the proposed policy reinstatement or in making its inquiries, in order to entitle the latter to rescind the contract.