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WHAT MAY BE INSURED AGAINSTRepublic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 84628November 16, 1989

HEIRS OF ILDEFONSO COSCOLLUELA, SR., INC., petitioner, vs.RICO GENERAL INSURANCE CORPORATION, COURT OF APPEALS (11th Division), and HON. ENRIQUE T. JOCSON, Judge, Regional Trial Court of Negros Occidental Branch, respondents.

Ildefonso S. Villanueva and Rolando N. Medalla for petitioner.

Limbaga, Bana-ag, Bana-ag & Associates for private respondent.

GUTIERREZ, JR., J.:

The main issues raised in this petition for review on certiorari are whether the Court of Appeals erred in: (1) affirming the dismissal by the trial court of the complaint for damages on the ground of lack of cause of action, and in (2) denying due course to a petition for certiorari on the ground that the remedy of the petitioner to assail said order is appeal.

Petitioner, Heirs of Ildefonso Coscoluella, Inc. is a domestic corporation and the registered owner of an Isuzu KBD Pick-up truck bearing Motor No. 663296 and Plate No. LTV-FAW-189. The vehicle was insured with the private respondent Rico General Insurance Corporation for a consideration of P100,000.00 excluding third party liability under Commercial Vehicle Policy No. CV-122415 per Renewal Certificate No. 02189. The premiums and other expenses for insurance paid covered the period from October 1, 1986 to October 1, 1987.

On August 28, 1987 and within the period covered by the insurance, the insured vehicle was severely damaged and rendered unserviceable when fired upon by a group of unidentified armed persons at Hacienda Puyas, Barangay Blumentritt, Murcia, Negros Occidental. In the same incident, four persons died.

Petitioner filed its claim of P80,000.00 for the repair of the vehicle but private respondent, in a letter dated October 8, 1987, refused to grant it. As a consequence, the petitioner was prompted to file a complaint with the Regional Trial Court, 6th Judicial Region, Branch 47 at Bacolod City, docketed as Civil Case No. 4707, to recover the claim of P80,000.00 plus interest and attorney's fees.

The private respondent filed a motion to dismiss alleging that the complaint lacks a cause of action because the firing by armed men is a risk excepted under the following provisions in the insurance policy:

The Company shall not be liable under any Section of the Policy in respect of:

1.x x x x x

2.x x x x x

3.Except in respect of claims arising under Sections I and II of the policy, any accident, loss, damage or liability directly or indirectly, proximately or remotely occasioned by, contributed to by or traceable to, or arising out of, or in connection with flood, typhoon, hurricane, volcanic eruption, earthquake or other convulsion of nature, invasion, the act of foreign enemies, hostilities or warlike operations (whether war be declared or not), civil commotion, mutiny, rebellion, insurrection, military or usurped power, or by any direct or indirect consequences of any of the said occurrences and in the event of any claim hereunder, the insured shall prove that the accident, loss or damage or liability arose independently of, and was in no way connected with, or occasioned by, or contributed to, any of the said occurrences, or any consequence thereof, and in default of such proof, the Company shall not be liable to make any payment in respect of such claim. (Emphasis supplied; see Rollo, p. 33,71)

The private respondent alleged that the firing was "an indirect consequence of rebellion, insurrection or civil commotion." The petitioner opposed the motion, saying that the quoted provision does not apply in the absence of an official governmental proclamation of any of the above-enumerated conditions.

The trial court ordered the dismissal of the complaint for lack of cause of action stating that the damage arose from a civil commotion or was a direct result thereof. (Rollo, p. 37)

A motion for reconsideration filed by the petitioner was denied by the trial court which further noted that "Courts can take effective cognizance of the general civil disturbance in the country akin to civil war without any executive proclamation of the existence of such unsettling condition." (Rollo, p. 38)

A second motion for reconsideration was filed but was later withdrawn.

Petitioner filed a notice of appeal which was given due course. However, the trial court, stated in its order that "the records of the case will not be transmitted to the Court of Appeals, the appropriate remedy being (a) petition for review by way of certiorari." In that same order, the trial court took cognizance of the withdrawal of the second motion for reconsideration but noted the police blotter appended to said motion which showed that "other than M-16 Armalite Rifles (the number of which were not specified for unknown reasons), nothing else was taken by the attackers." (Rollo, p. 40)

Thereafter, the petitioner filed a petition for certiorari with the Court of Appeals. The appellate court denied the petition, affirmed the trial court's dismissal order, and also ruled that an appeal in the ordinary course of law, not a special civil action of certiorari, is the proper remedy for the petitioner in assailing the dismissal order.

Hence, this petition to review the respondent appellate court's decision.

Petitioner asserts that its complaint states a cause of action since ultimate facts were alleged as follows:

3. That, on August 28, 1987, the ISUZU KBD PICK-UP referred to in the preceding paragraph was damaged as a result of an incident at Hda. Puyas, Barangay Blumentritt, Murcia, Negros Occidental, when it was fired upon by a group of unidentified armed persons causing even the death of four (4) persons and rendering the said vehicle almost totally damaged and unserviceable;

4. That when the said incident occurred on August 28, 1987, the said ISUZU KBD PICK-UP was insured by the defendant for P100,000.00 excluding third-party liability under Commercial Vehicle Policy No. CV/122415 per Renewal Certificate No. 02189 a copy of which is herewith attached as Annex "B"; and with the premiums and other expenses thereon duly paid for under Official Receipt No. 691, dated September 8, 1986, covering the period from October 1, 1986 to October 1, 1987, a copy of the same being attached hereto as Annex "C";

5. That, the damage on said motor vehicle being a "fait accompli" and that it was insured by the defendant at the time it was damaged, it is the obligation of the defendant to restore the said vehicle to its former physical and running condition when it was insured however defendant refused and still refuses and fails, despite demands in writing made by plaintiff and its counsel to that effect, copies of said letters attached hereto as Annexes "D" & "E";

6. That, for purposes of restoring the ISUZU KBD PICK-UP insured by the defendant to its former physical and running condition when it was insured, as mentioned above, would cost P80,000.00, which will include repair, repainting, replacement of spare parts, labor, etc., the said amount having arrived at upon inspection and appraisal of the said motor vehicle by knowledgeable and technical people;

7. That, as a consequence of defendant's refusal to settle or pay the just claim of plaintiff, plaintiff has been compelled to hire the legal services of counsel for the protection of its rights and interest at the agreed fee of P15,000.00, for and as attorney's fees, which sum plaintiff is claiming from the defendant. (At pp. 29-30, Rollo)

Petitioner further maintains that the order of dismissal was erroneous in that: it overlooked the principle that a motion to dismiss a complaint on the ground of failure to state a cause of action hypothetically admits the allegations in the complaint; no trial was held for the reception of proof that the firing incident was a direct or indirect result of a civil commotion, mutiny, insurrection or rebellion; private respondent had the burden of proof to show that the cause was really an excepted risk; and in any case, the nature of the incident as a "civil disturbance" must first be officially proclaimed by the executive branch of the government. Private respondent, on the other hand, argues that the accident was really a result of a civil commotion, one of the fatalities being a military officer. (Rollo, p. 59)

After a review of the records, the Court finds that the allegations set forth in the complaint sufficiently establish a cause of action. The following are the requisites for the existence of a cause of action: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect, or not to violate such right; and (3) an act or omission on the part of the said defendant constituting a violation of the plaintiff's right or a breach of the obligation of the defendant to the plaintiff. (Cole v. Vda. de Gregoria, 116 SCRA 670 [1982]; Baliwag Transit, Inc. v. Ople, G. R. No. 57642, March 16, 1989)

The facts as alleged clearly define the existence of a right of the petitioner to a just claim against the insurer for the payment of the indemnity for a loss due to an event against which the petitioner's vehicle was insured. The insurance contract mentioned therein manifests a right to pursue a claim and a duty on the part of the insurer or private respondent to compensate the insured in case of a risk insured against. The refusal of the insurer to satisfy the claim and the consequent loss to the petitioner in incurring the cost of acquiring legal assistance on the matter constitutes a violation or an injury brought to the petitioner.

There is, therefore, a sufficient cause of action upon which the trial court can render a valid judgment. (Taedo v. Bernad, et al; G. R. No. 66520, August 30, 1988).

The Court is very much cognizant of the principle that a motion to dismiss on the ground of failure to state a cause of action stated in the complaint hypothetically admits the truth of the facts therein. The Court notes the following limitations on the hypothetical admission:

The hypothetical admission is however limited to the relevant and material facts well pleaded in the complaint and inferences fairly deducible therefrom. The admission does not extend to conclusions or interpretations of law: nor does it cover allegations of fact the falsity of which is subject to judicial notice. (U. Baez Electric Light Co. v. Abra Electric Cooperative, Inc., 119 SCRA 90 [1982])

Applying the above principle, we hold that the private respondent's motion to dismiss hypothetically admits the facts alleged in the complaint. We do not find anything in the complaint which does not deserve admission by the motion since there are no "conclusions or interpretations of law" nor "allegations of fact the falsity of which is subject to judicial notice." It is clear that the complaint does no more and no less than state simply that the van was damaged due to the firing by unidentified armed men. Since the complaint does not explicitly state nor intimate civil strife which private respondent insists to be the cause of the damage, the motion to dismiss cannot go beyond the admission of the facts stated and inferences reasonably deducible from them. Any other assertion by the private respondent is subject to proof. Meanwhile, the sufficiency of the petitioner's cause of action has been shown since, admitting the facts alleged, a valid judgment can be rendered.

The private respondent's invocation of the exceptions clause in the insurance policy as the basis for its non-liability and the consequent dismissal of the complaint is without merit. We also reiterate the established rule that when the terms of an insurance contract contain limitations on liability, the court "should construe them in such a way as to preclude the insurer from non-compliance with his obligations." (Taurus Taxi Co. Inc. v. Capital Insurance and Surety Company, Inc., 24 SCRA 454 [l968]) A policy of insurance with a narration of exceptions tending to work a forfeiture of the policy shall be interpreted liberally in favor of the insured and strictly against the insurance company or the party for whose benefit they are inserted. (Eagle Star Insurance, Ltd. v. Chia Yu, 96 Phil. 696 [1955]; Trinidad v. Orient Protective Asso., 67 Phil. 181 [1939]; Serrano v. Court of Appeals, 130 SCRA 327 [1984]; and National Power Corp. v. Court of Appeals, 145 SCRA 533 [1986]).

The facts alleged in the complaint do not give a complete scenario of the real nature of the firing incident. Hence, it was incumbent upon the trial judge to have made a deeper scrutiny into the circumstances of the case by receiving evidence instead of summarily disposing of the case. Contrary to what the respondent appellate court says, this case does not present a pure question of law but demands a factual determination of whether the incident was a result of events falling under the exceptions to the liability of private respondent contained in the policy of insurance.

We agree with the petitioner's claim that the burden of proof to show that the insured is not liable because of an excepted risk is on the private respondent. The Rules of Court in its Section 1, Rule 131 provides that "each party must prove his affirmative allegations." (Summit Guaranty and Insurance Co., Inc. vs. Court of Appeals, 110 SCRA 241 [1981]; Tai Tong Chuache & Co. v. Insurance Commissioner, 158 SCRA 366 [1988]; Paris-Manila Perfume Co. v. Phoenix Assurance Co., 49 Phil. 753 [1926]). Where the insurer denies liability for a loss alleged to be due to a risk not insured against, but fails to establish the truth of such fact by concrete proofs, the Court rules that the insurer is liable under the terms and conditions of the policy by which it has bound itself. In this case, the dismissal order without hearing and reception of evidence to prove that the firing incident was indeed a result of a civil commotion, rebellion or insurrection constitutes reversible error on the part of the trial court.

The Court stresses that it would be a grave and dangerous procedure for the courts to permit insurance companies to escape liability through a motion to dismiss without the benefit of hearing and evidence every time someone is killed, or as in this case,. property is damaged in an ambush. The question on the nature of the firing incident for the purpose of determining whether or not the insurer is liable must first be threshed out and resolved in a full-blown trial.

The evidence to be received does not even have to relate to the existence of an official government proclamation of the nature of the incident because the latter is not an explicit requirement in the exception clause resolved in a mere motion to dismiss and is, for purposes of this petition for review on certiorari, immaterial. This particular issue on when to take cognizance of a rebellion for purposes of the law on contracts and obligations should have been developed during the trial on the merits or may have to await remedial legislation in Insurance Law or a decision in a more appropriate case.

The petitioner also questions the reasoning of the Court of Appeals in denying due course to the petition for certiorari. The appellate court said that even assuming for the sake of argument that the dismissal order by the trial court was not procedurally correct for lack of hearing, there was only an "error of judgment or procedure" correctible only by appeal then available in the ordinary course of law and not by a special civil action of certiorari which cannot be a substitute for appeal.

The records show that the remedy of appeal was actually intended to be pursued by petitioner. However, the appeal was rendered unfeasible when the trial judge refused to transmit the records to the appellate court. (see Rollo, p. 40) The judge, in effect, ruled out the remedy of appeal which was supposed to be availed of as a matter of right. In filing a petition for certiorari, the petitioner was acting upon the instructions of the judge. Under a situation where there was no more plain, speedy and adequate remedy in the ordinary course of law, the only available recourse was to file a special civil action of certiorari to determine whether or not the dismissal order was issued with grave abuse of discretion.

It is apparent, moreover, that the respondent appellate court failed to appreciation the petitioner's predicament. The trial judge, aside from dismissing the complaint which we now rule to have a sufficient cause of action, likewise prevented an ordinary appeal to prosper in contravention of what is provided for by the rules of procedure.

The April 6, 1988 order of the trial judge stating that the appropriate remedy was a petition for review by way of certiorari is deplorable. The lower court cannot even distinguish between an original petition for certiorari and a petition for review by way of certiorari. A petition for review before the Court of Appeals could have been availed of if what is challenged is an adverse decision of the Regional Trial Court in its appellate capacity affirming, modifying or reversing a decision of a municipal trial court or lower tribunal. (Section 22, Batas Pambansa Blg. 129 and Section 22 (6) of the Interim Rules). In this case, the petitioner assailed the dismissal order of the Regional Trial Court of a complaint originally filed with it. This adverse order which had the effect of a judgment on the merits, may be appealed to the Court of Appeals by filing a notice of appeal within fifteen (15) days from receipt of notice of the order both on questions of law and of fact. (Section 39, Batas Pambansa Blg. 129 and Section 19 (a) of the Interim Rules). This was exactly what petitioner did after its motion for reconsideration was denied. Unfortunately, the trial judge failed to see the propriety of this recourse. And the Court of Appeals compounded the problem when it denied the petitioner any remedy arising from the Judge's wrong instructions.

The filing of the petition for certiorari was proper. Petitioner has satisfactorily shown before the respondent appellate court that the trial judge "acted whimsically in total disregard of evidence material to and even decisive of the controversy". (Pure Foods Corp. v. National Labor Relations Commission, G. R. No. 78591, March 21, 1989).

The extraordinary writ of certiorari is always available where there is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law. (Tropical Homes, Inc. v. National Housing Authority, 152 SCRA 540 [1987]; Pure Foods Corp. v. NLRC, supra)

Since the petitioner was denied the remedy of appeal, the Court deems that a certiorari petition was in order.

WHEREFORE, considering the foregoing, the petition is hereby GRANTED. The decision of the respondent Court of Appeals affirming the dismissal order by the Regional Trial Court is hereby REVERSED and SET ASIDE. Let the case be remanded to the lower court for trial on the merits.

SO ORDERED.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-31984 February 25, 1930

PRATS & COMPANY, a registered partnership, plaintiff, vs.PHOENIX INSURANCE COMPANY, HARTFORD, CONNECTICUT, a corporation, defendant. MENZI and CO., INC., and ANTONIO BRIMO, intervenors-appellants. BEN J. S. OHNICK and JOHN R. MCFIE, Jr., respondents-appellees.

Harvey and O'Brien for intervenors and appellants.Benj. S. Ohnick and John R. McFie, jr., in their own behalf.No appearance for plaintiff, and defendant.

STATEMENT

In the original action, Prats & Company, a partnership, sought to recover judgment against the defendant, Phoenix Insurance Company, for and on account of a fire insurance policy which it issued to the plaintiff on its property, goods, wares, and merchandise, which was defended by the insurance company on the ground of incendiarism and a fraudulent claim. The lower court decided the case in favor of the insurance company, and on appeal the decision was affirmed by this court.1 That was a test case against a number of insurance companies by the plaintiff to recover on account of fire losses a total amount of P241,491. In this court the Phoenix Insurance Company was ordered to pay plaintiff P11,731.93, with legal interest from the filing of the complaint, for and on account of money which it received from salvage sales of the remnants of the insured stock. In the inception of this litigation, the plaintiff was legally represented by the original firm of Schwarzkopf and Ohnick as its attorneys, and later by the legal firm of Ohnick and McFie. The final decision of this court was rendered on February 21, 1921. On or about February 21, 1929, and after the decision of this court became final, Ohnick and McFie filed an attorney's lien, claiming the sum of P11,109.56 for and on account of their fees and disbursements in prosecuting the action against the insurance company, and on March 20, 1929, with the approval of Prats & Company, the lower court issued an order confirming the attorney's claim for the amount claimed, and on March 22, 1929, it directed the defendant to pay that amount to Ohnick and McFie. In this situation and on May 6, 1929, and before the money was paid, Menzi & Company, Inc., and Antonio Brimo filed a motion to intervene for the purpose of asserting and establishing a superior lien and preference as against the parties to the action, including attorneys Ohnick and McFie, for the sum of P11,731.93, with legal interest thereon at 6 per cent per annum, making a total of P14,802.14, which amount was deposited by the insurance company with the clerk of the court, and to set aside and vacate the order of the court of March 22, 1929, in favor of Ohnick and McFie, claiming and asserting that hey had a legal right to the money in question as against all persons, in which they alleged that on December 10, 1924, the intervenors commenced their respective actions against Prats & Company in the Court of First Instance of Manila, known as civil case No. 27315, to recover from Prats & Company P9,336.97, with legal interest from the filing of the complaint, and in civil case No. 27316, to recover P21,146.56, with interest and costs, in both of which cases it was alleged that a writ of attachment was duly issued out of and under the seal of the court at the instance of the plaintiffs against the property of Prats & Company, to secure any judgment that might be rendered in the actions, and that said attachment was placed in the hands of the sheriff of the City of Manila, with instructions to make the corresponding levy. That on December 11, 1924, the sheriff notified the defendant, Phoenix Insurance Company, and all of the other insurance companies, by means of process of garnishment. That by virtue of the order of attachment, copies of which were attached to the notice, the levy was thereby made upon all of the goods, effects, credits, and moneys which either of the insurance companies might owe to Prats & Company, and that any personal property which either of them had in their possession was levied upon under and by virtue of said writ, and at the same time the sheriff advised the insurance companies not to deliver any property in their possession, to any person, except to the sheriff, under the penalties provided by law. That at the time of the service of the process of garnishment, the insurance companies had in their possession the sum of P11,731.93, which was received and held by them under the provisions of certain insurance policies issued by the companies to and in favor of Prats & Company on merchandise, all of which were duly levied upon and attached by the sheriff. That on September 10, 1925, judgment was rendered in favor of Menzi & Company, Inc. for P9,663.97, with legal interest and costs, and on August 19, 1925, judgment was rendered in favor of Antonio Brimo against Prats & Company for P21,146.56, with legal interest and costs, and that in each of the judgments, the attachments, as alleged, were upheld and confirmed by the court. It is then alleged that on October 2, 1924, Prats & Company entered into a written contract with attorneys Schwarzkopf and Ohnick in substance and to the effect that, if Prats & Company should recover on its insurance policies, the attorneys should receive P18,000 for their services, but that in the event that no recovery was made, the attorneys would not receive anything for their services. That the later agreement between Prats & Company and Ohnick and McFie, to the effect that they should have and receive P10,000 for their legal services was fraudulent and collusive, and that it was made with the full knowledge that writs of attachment had been issued out of the court in the actions of Menzi & Company, Inc. and Antonio Brimo, and that on December 11, 1924, based thereon, garnishee notices were duly served upon all of the insurance companies. The intervenors then alleged that they have a preferential right to the sum of P14,802.14, now on deposit with the clerk of this court, as the proceeds of the sales of salvage of the damaged merchandise of Prats & Company, which is superior in right to the claim of attorneys Ohnick and McFie or any one else, and for an order that the money should be paid to the intervenors, and for costs.

Vigorous objections were filed to the motion of the intervenors, and after a hearing and arguments on the motion, the lower court denied the right of the petitioners to intervene, and ordered the clerk to pay Ohnick and McFie P11,109.56. The intervenors then filed a motion for a reconsideration, which was also denied, to which the intervenors duly excepted, and on appeal assign the following errors:

I. The lower court erred in denying the motion of Menzi and Co., Inc., and Antonio Brimo of May 6, 1929, to intervene in this case for the purposes stated therein,

II. The lower court erred in denying the motion of Menzi & Co., Inc., and Antonio Brimo for a reconsideration of its said order, refusing to permit their intervention in this case.

JOHNS, J.:

In the final analysis, the real question presented is whether or not the bill of intervention stated facts sufficient to give the intevenors the relief for which they pray. Many and different legal questions have been ably presented by oppossing counsel. As we analyze the record, the dates are important and decisive. The intervenors alleged that their respective action were commenced against Prats & Company on December 10, 1924, and that the writs of attachment were issued on December 11, 1924, when the process of garnishment was served on the respective insurance companies. It is also alleged that final judgment was rendered in case No. 27315 on September 10, 1925, and in case No. 27316 on August 19, 1925. There are no allegations anywhere in the petition as to what was done after the service of the garnishee process. Neither is there any allegation that the insurance companies made default in the service, or that any interrogatories or cross-interrogatories were ever filed or that any hearing was ever had before any court on the garnishment proceedings, or that any judgment was ever rendered against the garnishee. In truth and in fact it does not appear that anything whatever was done by the intervenors after the service of the garnishee process or that the intervenors at any time ever claimed or asserted any right, title or interest in the money in question until they filed their motion to intervene on May 6, 1929. That is to say, it does not appear from the bill of intervention that, beyond serving of the garnishee notices on the insurance companies, the intervenors ever did anything to prosecute or perfect their garnishee proceedings or that they ever claimed or asserted any right, title or interest in the money in dispute until the 6th day of May, 1929.

In that situation, the law laid down in Corpus Juris, vol 28, p. 359, is square in point.

(2) Abandonment or Delay in Prosecution. It is good ground for dismissal of the garnishment proceedings or discharge of the garnishee that plaintiff does not at all undertake to maintain the garnishment, or fails to prosecute his remedy with due diligence, thus in effect abandoning the proceeding, for the garnishment statute contemplate speedy proceedings and the cause cannot be kept open for a considerable period of time without either a continuance in form or consent or acquiescence by the garnishee. However, laches of or delay by plaintiff may be waived, and it has been held that the right to have the summons set aside or dismissed for delay in prosecution is in the court's discretion. There is also some authority that plaintiff's laches in prosecuting the garnishment is not ground for dissolution, particularly where the garnishee is not prejudiced. But under the rules of some lower courts in the same jurisdiction, it is held otherwise, unless a sufficient cause for the delay is shown. Among acts or omissions on the part of plaintiff which have been held an abandonment or discontinuance of the proceedings are: Extraordinary delay in bringing in defendant, failure to exhibit interrogatories or to take the deposition, answer, or examination of the garnishees as required by statute, failure or refusal to proceed as required by statute where the garnishee disputes his liability, failure to appear on the return day of a summons to the garnishee to show cause why judgment should not be entered against him, failure to set the case for trial at the term to which it was continued, failure for two years to prosecute the proceedings or to bring it to hearing, taking out an alias or pluries execution against defendant, and suffering several terms to elapse, without taking proper steps to bring into court to contest the validity of the transfer, the transferee disclosed by the garnishee's answer. It has, however, been held that the garnishee is not entitled to dismissal because neither party moves for trial at the next term after judgment against defendant, as permitted by statute. Among matters which have been held not an abandonment or discontinuance of the proceedings are: Return by the sheriff of the fieri facias without retaining copy thereof after service on the garnishees but before they had answered, the mere pendency of the cause for fifteen months, defendant not having raised the question of laches, and the rendition of judgment against defendant before examining the garnishee. However, under the statutes and practice of some jurisdictions the taking of judgment against defendant without having had the trustee or garnishee charged operated as an abandonment and discontinuance of the proceedings against the trustee or garnishee. In these jurisdictions vacation of the judgment pursuant to statute eliminated the discontinuance as to the garnishee. Of course the garnishee cannot complaint of a delay caused by his own act, as where he procured a continuance, nor can he urge that such delay constitutes an abandonment by plaintiff.

That rule of law is well sustained by the authorities cited in the notes, and particular, the case of Wooding vs. Puget Sound Nat. Bank (11 Wash., 527, 535; 40 Pac., 223), in which that court says:

Waiting for two years after the service before citing the garnishees to appear and answer should be held equivalent to an abandonment of said proceedings, regardless of the fact as to whether such final action was barred by the statute of limitation. A creditor should diligently prosecute his proceedings against garnishees. The services of the writs upon the garnishees was not the commencement of an action against them. No issue was formed which they could force to trial, and they were not put in a position where they could take any action in the premises to have the question of their liability put at rest. Such action rested with the plaintiff creditor, the moving party, and he should be required to prosecute the same with reasonable diligence.

In the instant case, after service of the garnishee notices on the insurance companies on December 11, 1924, it is not claimed or alleged that the intervenors ever did anything to enforce or protect their legal rights under the garnishment until they filed the motion to intervene on May 6, 1929, covering a period of four years, four months, and twenty-five days. In this situation, we are clearly of the opinion that the intervenors lost any legal rights which they may have had under the garnishee notice of December 11, 1924. Hence, it is unnecessary to discuss or decide the numerous other legal questions presented by opposing counsel in their respective briefs.

The judgment of the court is affirmed, with costs, So ordered.

Johnson, Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-35848 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant, vs.THE GLOBE & RUTGERS FIRE INSURANCE CO. OF NEW YORK, defendant-appellee.

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G.R. No. L-35849 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant, vs.COMMERCIAL UNION ASSURANCE COMPANY, LTD., defendant-appellee.

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G.R. No. L-35850 November 22, 1932

THE EAST FURNITURE INC., plaintiff-appellant, vs.THE CONTINENTAL INSURANCE CO. OF NEW YORK, defendant-appellee.

Juan Ortega for appellant.Gibbs & McDonough and Roman Ozaeta for appellees.

OSTRAND, J.:

The three above entitled actions were instituted in the Court of First Instance of Manila on March 25, 1929, to recover the full amount of three fire insurance police aggregating P20,000. The complaints in each of these cases alleged in substance that the plaintiff is a duly registered partnership engaged in the sale of furniture; that the defendant is a company engaged in the insurance business and duly constituted in accordance with the laws of the Philippine Islands; that the plaintiff insured against fire the articles existing in its establishment situated at Nos. 626 and 628 Rizal Avenue, Manila; that the insurance policies issued by the defendants, respectively, were: Globe & Rutgers, P5,000, in force from July 12, 1928, to July 12, 1929; Commercial Union, P5,000, in force during the same period; and The Continental, P10,000, in force from August 16, 1928, to August 16, 1929; that on March 2, 1929, a fire broke out in plaintiff's establishment, as a result of which the insured articles therein found were destroyed by the fire; that within the period marked in the policies the plaintiff presented to the insurance companies an inventory of the insured furniture which was destroyed by the fire, the value of which, before or at the time of the fire, amounted to P52,061.99; and that of the furniture destroyed by the fire some was saved, of the value of P5,000, more or less.

The defendants in their respective answers interposed a general denial and as special defenses alleged in substance (1) that the fire in question was of intentional origin; (2) that the claims of loss presented by the plaintiff were false and fraudulent; (3) that the furniture in question had been mortgaged by the plaintiff to the Manila Finance and Discount Corporation, so that at the time of the fire the plaintiff was not the only party interested therein, contrary to the representations made in its claims of loss; and (4) that the plaintiff violated one of the conditions of the policies by refusing to furnish the defendants with a physical inventory of the contents of its store at the time of the fire.

By agreement of the parties the three cases were tried jointly before Judge Concepcion, who after the trial found that the claims presented by the plaintiff were notoriously fraudulent, and, accordingly, sustained defendant's second special defense and dismissed the complaint in each of the three cases, with costs against the plaintiff. As to the first special defense, referring to the origin of the fire, the trial judge merely said that "altho much might be said against the manager of the plaintiff corporation it is not necessary to make a detailed analysis of the proofs with respect to the fire, inasmuch as for the purposes of this decision a consideration of the second special defense is sufficient." The trial court overruled the third and fourth special defenses. From that judgment the plaintiff appealed.

The appellant contends that the trial court erred (1) in finding that the claims presented by the plaintiff to the insurance companies were fraudulent; (2) in giving weight to the testimony of Captain Lorenzo, deputy chief of the Manila Fire Department, and Isidro Guevara, a furniture manufacturer, as to the value of the articles found in the premises after the fire; and (3) in dismissing plaintiff's complaints.

The appellees sustain the finding of the trial court that appellant's claims of loss were "notoriously fraudulent", and further urge before this court their first special defense, i. e., that the fire in question was of intentional origin.

1. With reference to the origin of the fire, the evidence shows that it started at about 9.55 p. m. in the second floor of the building which was occupied by the plaintiff as office and workshop. That floor was constructed of wood, with a galvanized iron roof. Immediately after the fire was extinguished Captain Lorenzo, the deputy chief of the fire department, investigated its origin and found in the second floor three cans containing gasoline and kapok saturated with gasoline. For this reason, in his official report of that fire (Exhibit 3), he stated the cause to be: "Suspected incendiary. Intentional. Preventable."

Filoteo Miranda, the proprietor and manager of the East Furniture Store, while testifying as a witness for the plaintiff, made no attempt to deny the presence of three cans of gasoline and kapok saturated with gasoline. His only explanation was that "inasmuch as on that occasion I had an automobile, I ordered them to buy gasoline, petroleum, and other combustibles". When further asked to explain the presence of those cans of gasoline in the upper story on the night of the fire, he replied: "How can I explain it, since, as I have said, I paid no attention to those cans? The laborers were the ones in charge of that." With regard to the kapok saturated with gasoline, his only explanation was that "in my store mattresses and pillows are sold, and it is possible that someone had taken kapok and saturated it with gasoline".

It also appears from the record that in connection with the fire in question the said Filoteo Miranda caused one Eugenio Lim Pineda to be prosecuted for calumny, alleging that the latter had imputed to the former the commission of a crime, namely, that Miranda had caused his store to be burned or ordered a certain person to set it on fire. Pineda was acquitted by the Court of First Instance of Manila on the ground that it was proven that the imputation made by him against Miranda was true.

The said Eugenio Lim Pineda testified at the trial of these cases that he had known Miranda for about fifteen years; that about six months before the fire in question, Miranda intimated to him that he (Miranda) intended to burn the East Furniture Store because it was on the verge of bankruptcy; that he communicated this information to attorney Eriberto de Silva, who in turn communicated it to his friend Aurelio Periquet, an insurance agent, and the latter thereupon caused one of the policies issued by Smith, Bell & Co. to be cancelled; that on the night of the fire he saw Garcia, the cashier of the plaintiff enter the back door of the building in question, and that ten minutes later the building burned; that witness called Garcia when he came out of the building and said to him: "You have set fire to the building."

Attorney Eriberto de Silva, testifying in these cases, corroborated the testimony of Pineda regarding the cancellation of the Smith-Bell policy through his instrumentality, and further testified that sometime after the cancellation of said policy he called on Miranda in connection with the latter's account with the Philippine Finance Corporation, on which occasion Miranda asked him why the insurance he (Miranda) had procured from Periquet was cancelled, whereupon he replied: "Look here, Miranda, why should we not cancel that policy when we heard from Mr. Lim Pineda that you people were going to burn this establishment." That Miranda then replied: "That is confidential, please don't repeat to anybody." (Pp. 143-146, trans.)

It further appears from the record that at the time of the fire the plaintiff was heavily indebted to the Manila Finance & Discount Corporation, to the Bank of the Philippine Islands, and to Attorney Alfonso E. Mendoza.

We are thus led to the conclusion that defendants' first special defense is well founded that the fire in question was of intentional origin and was caused with the connivance of the plaintiff. Neither the interest of the justice nor public policy would be promoted by an omission of the courts to expose and condemn incendiarism once the same is established by competent evidence. It would tend to encourage rather than suppress that great public menace if the courts do not expose the crime to public condemnation when the evidence in a case like the present shows that it has really been committed.

2. We may also consider the damage caused by the fire in relation with defendant's second special defense that plaintiff's claims of loss were false and fraudulent.

To each of the proofs of loss which the plaintiff presented to the respective insurance companies four days after the fire was attached an inventory of the furniture claimed to have been in the building at the time of the fire. This inventory contains 506 pieces of furniture and 3,700 board feet of lumber of the alleged total value of P52,061.99. This amount was the total loss claimed to have been suffered by the plaintiff, although we note that in its complaints in these cases amended it is conceded that some furniture of the value of about P5,000 was saved.

The same inventory above referred to was offered by the plaintiff and admitted in evidence, having been marked Exhibits F-1, F-2, F-3, and F-4. To support the validity of this inventory Filoteo Miranda testified that he had taken the date appearing therein from his books of account. Neither he nor any other witness testified as to the correctness of the prices therein set forth, and it was not even shown whether they were costs prices or selling prices. But a comparison between the prices listed in Exhibit F-1 (the inventory of all of plaintiff's stock, supposed, to have been taken on or as of December 31, 1928), and those listed in Exhibit F-3 (the list of furniture sold by the plaintiff from January 4, 1929, to the date of the fire) tends to show that the value claimed against the insurance companies is much higher than the selling price. For instance, Exhibit F-3 (2nd item) shows that during the period from January 4 to March 2, 1929, the plaintiff sold 8 settees for P160 or at P20 each. These 8 settees must have been taken from the stock listed in Exhibit F-1, and an examination of this document reveals that the settees therein listed are valued by the plaintiff at from P32.50 to P110 each.

The only book the plaintiff produced and offered in evidence to support Miranda's testimony as to the validity of the inventory in question is Exhibit J. This appears to be a new book, only the first six pages of which contain entries, the first page consisting of a testament of assets and liabilities as of December 31, 1928, and the second to the sixth pages consisting of a list of furniture and its price, from which list the inventory in question appears to have been copied. The remaining 194 pages of said book are entirely blank. This seems to us significant in view of Miranda's testimony that at the end of the two preceding years, 1927 and 1926, he took a physical inventory similar to that found in Exhibit J, and in view of his inability to account for the whereabouts of those alleged previous inventories. The appellees contend that Exhibit J is not genuine but was evidently prepared by the plaintiff for the purpose of bolstering up its claim against the insurance companies; and we believe such a conclusion is warranted by the facts and circumstances which appear in the record.

Turning now to the evidence for the defense, we find from the uncontradicted testimony of Captain Lorenzo, who had directed the task of extinguishing the fire, that it lasted only twelve minutes and caused no damage to the first floor of the building were most of the insured furniture was located. Said witness also testified that he found but few pieces of furniture in the second floor and that he believed none had been completely burned.

The record shows that from March 2, 1929, the date of the fire, to April 20, 1929, when the sheriff sold the furniture left in the building at the instance of plaintiff's mortgages, the Manila Finance & Discount Corporation, the premises in question were guarded by an Indian watchman whom the insurance companies placed thereto to prevent anybody from taking away any part of its contents. It appears from the evidence for the defense that on April 4, 1929, at the request of the insurance companies, a furniture manufacturer named Isidro Guevara, with the assistance of Julian Dacanay, an employee of the adjusters, made an inventory of all the damaged and undamaged furniture found in the building after the fire. That inventory, which was offered in evidence as Exhibit 5, contains 202 pieces of furniture, the cost price of which according to Guevara's appraisal is the total sum of P4,184.60. It will be recalled that the plaintiff claimed that at the time of the fire there were 506 pieces of furniture in the building of the total value of P52,061.99.

No contention is advanced on behalf of the appellant to the effect that Guevara's inventory is not a complete list of all the damaged and undamaged furniture found in the building after the fire. The contention on its behalf in this regard is that said inventory is not reliable (a) because Guevara was not a competent appraiser of furniture, and (b) because some of the furniture found in the building at the time of the fire may have been completely consumed by the fire.

With regard to the competency of the witness Guevara to appraise the furniture in question, he testified, and the trial court found, that he had been engaged in the manufacture of furniture in Manila for eighteen years. His testimony that the cost price of all the furniture found in the building after the fire was P4,184.60 appears to be reasonable, as the same furniture was subsequently sold by the sheriff at public auction and brought only, the sum of P2,650.

With reference to appellant's contention that Guevara's inventory is not reliable because some of the furniture found in the building at the time of the fire may have been completely consumed by the fire, we think the question may be narrowed down to this: Was it possible that the plaintiff had 506 pieces of furniture in the building at the time of the fire when after the fire only 202 pieces were found in the premises? Considering the undisputed fact that most of the insured furniture was located in the ground floor of the building, which was not damaged by the fire, and that the fire lasted only twelve minutes and damaged only the second floor where comparatively few pieces of furniture were found at the time of the fire; and considering the testimony of Captain Lorenzo and Isidro Guevara to the effect that, judging from the condition of the remains of the fire, they believed not a single piece of furniture was completely consumed by the fire, we do not hesitate to answer that question in the negative. During the twelve minutes the fire lasted, an enormous quantity of water was being pumped in by the firemen to extinguish it. Judging, then, from the duration and intensity of the fire in question, we cannot bring ourselves to believe it possible for some 304 pieces of wooden furniture to have been entirely consumed without leaving any vestige.

Regardless of any difference of opinion as to the value of the insured furniture and the extent of the damage caused thereto by the fire in question, the fact that the insured only had approximately 202 pieces of furniture in the building at the time of the fire and sought to compel the insurance companies to pay for 506 pieces conclusively shows that its claim was not honestly conceived. The trial court's conclusion that said claim is notoriously fraudulent, is correct.

Condition 12 of each of the insurance policies sued upon provides that "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this policy; or, if the loss or damage be occasioned by the wilful act, or with the connivance of the Insured, all benefit under this policy shall be forfeited." This case is governed by the decisions of this court in Yu Cua vs. South British Insurance Co. (41 Phil., 134); Go Lu vs. Yorkshire Insurance Co. (43 Phil., 633); Tuason vs. North China Insurance Co. (47 Phil., 14); Tan It vs. Sun Insurance Office (51 Phil., 212); Prats & Co. vs. Phoenix Insurance Co. (52 Phil., 807); and Philippine National Bank and J. M. Po Pauco vs. Guardian Assurance Co., Ltd. (G. R. Nos. 28763, 28765, and 28766). 1

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

Street, J., concurs.

Separate Opinions

MALCOLM, HULL, and VICKERS, JJ., concurring:

We agree on the ground that it has been established that the plaintiff's claims of loss were false and fraudulent. This was the finding of the trial judge, and a clear preponderance of the evidence supports that conclusion. This result influenced the trial judge to refrain from expressing any opinion regarding the other special defense of incendiarism, and in this view we fully concur.

BUTTE, J., dissenting:

The conclusion that the claim presented by the plaintiff and appellant to the insurance companies was fraudulent because it was excessive and the conclusion that the fire in question was of an intentional origin and caused with the connivance of the plaintiff seem to be entirely warranted by the resume of the evidence made in the foregoing opinion. I have made a careful examination of the entire record and I am convinced that said resume of the evidence gives very scant and inadequate consideration to the case of the other side as actually presented in the record. Moreover, evidence is relied upon which is clearly incompetent and improper; for example, the ex parte report of the Chief of the Fire Department from which the following was quoted: "Suspected incendiary. Intentional. Preventable." The acquittal of Lim Pineda in the criminal prosecution for slander is not competent evidence and indeed it was not admitted by the court below. Furthermore, Lim Pineda's testimony that he saw Garcia enter the building ten minutes before the fire was refuted by Garcia's testimony, corroborated by an impartial witness, that he was at the stadium at the time of the fire and had no connection with it. This evidence is not mentioned nor are the facts mentioned which impeach the credibility of the witness conclusively. The first extract of Attorney Silva's testimony quoted and relied upon was ordered stricken by the court below and was clearly improper because no predicate had been laid for it. The second extract was so meaningless that when he was asked what was to be kept "confidential" he testified that he did not know.

There is no direct evidence whatever that the plaintiff and appellant set his building on fire to collect the insurance. Nor can I reconcile the suspicion that gasoline was put in the building in open cans to start the fire, with the finding that the same gasoline was found unconsumed after the conflagration.

As to the second special defense of the insurance companies that the plaintiff's claim of loss was fraudulent, I confess that I have more doubt with regard to the facts on this point. Again I think the foregoing opinion has not adequately stated the evidence of both sides. The claim of P52,061.99 was undoubtedly unreasonably high. The policies aggregated P20,000. It is a matter of common knowledge and borne out by many insurance cases which have been considered by this court, that the insured expects insurance companies to beat down his claim; and the respective claims of the insurer and the insured then become a matter of negotiation and adjustment. Under these circumstances, it is not surprising that the insured puffs the amount of his loss. If the amount claimed exceeds the limit of the ordinary puffing, it may also be so disproportionate to the fair value of the property lost as to give ground for an inference of an attempt to defraud. I think the present case was very close to that line. But in view of the facts that one of the defendant's own witnesses estimated the loss at P20,000, and that the plaintiff's inventory which appears to have been kept due in course of business shows a value of P42,501.49 two months before the fire, I feel disposed to give the benefit of the doubt to the insured. Suspicion of fraud is not enough for, I daresay, there never was a fire where some circumstance could not be found that could be alleged as a ground for an inference of fraud.lawphil.net

Avancea, Villa-Real and Abad Santos, JJ., concur.

INSURABLE INTERESTRepublic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-9401 March 30, 1915

ANTONINA LAMPANO, plaintiff-appellee, vs.PLACIDA A. JOSE, ET AL., defendants-appellants.

D. R. Williams for appellants.C. W. O'Brien for appellee.

TRENT, J.:

The defendant, Mariano R. Barretto, constructed a house for the other defendant, Placida A. Jose, on land described as No. 72, plot F. Estate of Nagtahan, district of Sampaloc, city of Manila, for the agreed price of P6,000. Subsequent thereto and on November 12, 1912, Placida A. Jose sold the house to the plaintiff, Antonina Lampano, for the sum of P6,000. On March 22, 1913, the house was destroyed by fire. At the time of the fire Antonina Lampano still owed Placida A. Jose the sum of P2,000, evidenced by a promissory note, and Placida A. Jose still owed Mariano R. Barretto on the cost of the construction the sum of P2,000. After the completion of the house and sometime before it was destroyed, Mariano R. Barretto took out an insurance policy upon it in his own name, with the consent of Placida A. Jose, for the sum of P4,000. After its destruction, he collected P3,600 from the insurance company, having paid in premiums the sum of P301.50.

The plaintiff alleged in her complaint that there was a verbal agreement between her and Placida A. Jose, at the time of the purchase and sale of the house, to the effect that the latter agreed to deliver to her the insurance policy on the building; that she did not learn that the policy was in the name of Barretto until after the fire; and the neither Placida A. Jose nor Mariano R. Barretto has any right to the insurance or to the money received therefrom. She prayed for judgment against each of them for the sum of P3,600, the amount of the insurance collected.

To this complaint the defendant, Placida A. Jose, answered, denying that she agreed to transfer the policy of insurance to the plaintiff and alleging (a) that the insurance was taken out and paid for by Barretto before the sale of the house to the plaintiff; (b) that Barretto did this because he had constructed the house and she was owing him therefor; and (c) that the insurance was entirely for the personal account and in the exclusive interest of Barretto. In her cross-complaint she asked for judgment against the plaintiff for the sum of P2,000, the balance due on the purchase price. Barretto answered, reciting the facts giving rise to his taking out the insurance on the house and denying any obligation to the plaintiff in connection therewith.

Judgment was entered against Barretto and in favor of Placida A. Jose for the sum of P1,298.50, being the difference between the amount collected by Barretto on the insurance and the amount yet due him for the construction of the house, including the premiums paid. Judgment was also entered in favor of the defendant, Placida A. Jose, against the plaintiff for the sum of P2,000, being the balance of the purchase price of the house. The plaintiff was authorized to offset this judgment against her for P2,000 by the P2,000 which the court declared had been paid the defendant, Placida A. Jose, by Barretto out of the insurance money. A final judgment was entered in favor of the plaintiff against the defendant, Placida A. Jose, for the sum of P1,298.50, being the amount of the judgment against Barretto. From this judgment Barretto alone appealed.

The court found that there was no privity of contract between the plaintiff and the defendant Barretto. In consequence, no judgment was entered in favor of the plaintiff against the defendant. The court decided the respective rights of the two defendants to the insurance money and entered judgment against Barretto and in favor of Placida A. Jose for the sum of P1,298.50. This was done upon the theory that the insurance policy was held in trust for Placida A. Jose, and that any balance, resulting after deducting the amount owing upon the construction contract and paid for premiums, belonged to her. Neither by the pleading nor upon the trial was there any claim made by Placida A. Jose against Barretto for the insurance money, nor for any participation therein. Placida A. Jose's answer specifically alleged that such insurance was for Barretto's personal account and in his exclusive rights. Her testimony is equally positive upon this point. She says:

Q. Was the house insured when you sold it to Antonina Lampano?

A. It was insured by Mariano Barretto because he is the one constructed that house.

Q. Did you have any interest in that insurance?

A. I was indebted to him and he insured the house in his own name from 1911.

Q. Did you have any right, interest or participation in that insurance?

A. I have none.

Q. Who was paying the premiums on that insurance?

A. M. Barretto.

The result is that there was no controversy between the defendants concerning this insurance, nor was any issue presented which required an adjudication of their respective rights thereto. So far as Barretto was concerned, the only issue raised, either by the pleadings or at the trial, was, Has the plaintiff any right to recover from Barretto any portion of the insurance money?

The plaintiff sought to recover from Barretto all of the P3,600, but she is now contented with a judgment against Placida A. Jose for P1,298.50. Her right to recover this amount of the insurance rests upon an alleged verbal agreement between herself and Placida A. Jose to the effect that the latter agreed, at the time of the purchase and sale of the house, to transfer to her the insurance policy, the policy being held in trust by Barretto for the benefit of the Jose woman. The plaintiff does not contend that Barretto participated in this sale, or even had any knowledge of it, until sometime after it was consummated. Placida A. Jose denies that she agreed to transfer the policy to the plaintiff, and the deed of purchase and sale makes no mention of such an agreement. The policy is not mentioned in this document, although it was agreed that the vendor would transfer to the vendee all of the former's right, title, and interest in the leasehold to the land upon which the house was built. It would seem that if the vendor agreed to transfer the policy, this agreement would have been inserted in the document of purchase and sale, the same as that with reference to the lease. The trial court did not find that such an agreement existed and we think the plaintiff has failed to establish this verbal agreement.

If Barretto had an insurable interest in the house, he could insure this interest for his sole protection. The policy was in the name of Barretto alone. It was, therefore, a personal contract between him and the company and not a contract which ran with the property. According to this personal contract the insurance policy was payable to the insured without regard to the nature and extent of his interest in the property, provided that he had, as we have said, an insurable interest at the time of the making of the contract, and also at the time of the fire. Where different persons have different interests in the same property, the insurance taken by one in his own right and in his own interest does not in any way insure to the benefit of another. This is the general rule prevailing in the United States and we find nothing different in this jurisdiction. (19 Cyc., 883.)

In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L. R. A., 461, Mrs. Shagett received a piano as a gift from her husband and insured it. She knew that it was the obligation of her husband to insure he piano for the benefit of the vendor. The court held, however, that the vendor (mortgagee) was not entitled to the proceeds of the insurance as "there was no undertaking on the part of Mrs. Shadgett to either insure for complainant's benefit, or to assume her husband's obligation to so insure, and mere knowledge of that obligation did not impose it upon her."

The court further said: "The contract of insurance was wholly between the defendant and the insurance company, and was personal, in the sense that the money agreed to be paid in case of loss was not to stand in the place of the piano itself, but was a mere indemnity against the loss of defendant's interest therein. If her interest was small, on account of incumbrances existing in favor of the complainant, that fact was for the consideration only of the insurer and defendant, for complaint has no concern with the adjustment of the loss between them. We know of no principle, either of law or equity, which would bind defendant to carry out her donor's contract to insure, in the absence of any agreement on her part to do so, even though the property in her hands was subject to complainant's rights therein as a conditional vendor."

The court further says: "A contract of insurance made for the insurer's (insured) indemnity only, as where there is no agreement, express or implied, that it shall be for the benefit of a third person, does not attach to or run with the title to the insured property on a transfer thereof personal as between the insurer and the insured. In such case strangers to the contract cannot require in their own right any interest in the insurance money, except through an assignment or some contract with which they are connected."

In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was held that the mortgage is not entitled to the proceeds of an insurance policy procured by the mortgages, there being no agreement that such insurance should be effected by the latter for the benefit of the former. The court says: "It is well settled that a policy of insurance is a distinct independent contract between the insured and insurers, and third person have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract or trust, expressed or implied, between the insured and third persons."

In Burlingane vs. Goodspeed (10 L. R. A., 495), the court says that where a mortgage at his own expense and without any agreement or understanding with he mortgagor obtains insurance upon his interest as a mortgage and collects the money from the insurer after a loss, he is not bound to account for it to the mortgagor.

In the case at bar Barretto assumed the responsibility for the insurance. The premiums, as we have indicated, were paid by him without any agreement or right to recoup the amount paid therefor should no loss result to the property. It would not, therefore, be in accordance with t he law and his contractual obligations to compel him to account for the insurance money, or any par thereof, to the plaintiff, who assumed no risk whatever.

That Barretto had an insurable interest in the house, we think there can be no question. He construed the building, furnishing all the materials and supplies, and insured it after it had been completed (pars. 3 and 5, art. 1923, Civil Code; Manresa, Vol. 12, pp. 692-695; citing decision of the supreme court of Spain of December 30, 1896).

For the foregoing reasons the judgment appealed from, in so far as it affects the appellant, is reversed and he is absolved. Without costs. So ordered.

Arellano, C.J., Torres, Johnson, Moreland and Araullo, JJ., concur.

TRADERS INSURANCE AND SURETY CO. V. GOLANGCO- INSURANCE PROCEEDS95 PHIL 826Facts:> A decision was rendred in Civil Case No. 6306 granting Golangco the right to collect rentals from a building in Sta. Cruz, Manila.> Golangco then sought fire insurance from Traders. Before the policy was issued, Golangco made a full and clear exposal of his interests in the premises, i.e. that he was not the owner.> The fire policy that defendant issued covered only all of Golangcos interest in the premises and his right to collect the rentals.> The building burned down in a fire and Golangco sought to collect from Traders. Traders denied any liability on the ground that since Golangco was not the owner of the premises then he had no insurable interest in the same and consequently, he could not collect the insurance proceeds.

Issue:

Whether or not plaintiff can claim the insurance proceeds.

Held.YES.Both at the time of the issuance of the policy and at the time of the fire, plaintiff Golangco was in legal possession of the premises, collecting rentals from its occupant. It seems plain that if the premises were destroyed as they were, by fire, Golangco would be, as he was, directly damnified thereby; and hence he had an insurable interest therein.

FILIPINO MERCHANTS V. CA- INSURABLE INTEREST179 SCRA 638Facts:> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages to said shipment which has been insured by Filipino.> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against it.> It appears from the evidence presented that Chao insured said shipment with Filipino for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms.> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and Filipinos surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor.> Based on said computation the Chao made a formal claim against the Filipino for P51,568.62. A formal claim statement was also presented by the plaintiff against the vessel, but the Filipino refused to pay the claim.Issues & Resolutions:Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy

Filipino contends that Chao does not have insurable interest, being only a consignee of the goods.

Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance

CHA V. CHA - INSURABLE INTEREST277 SCRA 690 (1997)Facts:> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor.> One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ."> Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent CKS.> On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.> United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United.

Issue:Whether or not CKS can claim the proceeds of the fire insurance.Held:NO. CKS has no insurable interest.Sec. 18 of the Insurance Code provides:"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured."

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide:"Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof."

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

GARCIA V. HONGKONG FIRE AND MARINE INSURANCE CO. - WRONG POLICY45 PHIL 122

Facts:> Garcia had his merchandise insured by Hongkong Fire and Marine Insurance Co.> The insurance company however made a mistake and issued a policy covering the building where the merchandise was stored. (The building was not owned by Garcia)> The policy was written in English, of which Garcia was ignorant, so he could not have noticed the error of the insurance company.> Said policy was later on assigned by Garcia to PNB to secure a loan. PNB acknowledged receipt of said policy, referring to it as a policy covering the merchandise.> The insurance company made the necessary endorsements to PNB.> The building which housed the merchandise was later razed by fire. The insurance company refused to pay due to the fact that the policy indicates insurance on the building and not on the merchandise.

Issue:Whether or not Garcia can collect.

Held:YES.The defense of the insurer is purely technical. The mistake was obviously on the part of the insurer when it issued a wrong policy. It cannot deny such allegation due to the fact that it even confirmed with PNB the nature of said policy when it was endorsed. Garcia could not have noticed the mistake due to his ignorance of the English language.

G.R. No. 31952, Lim Cuan Sy v. Northern Assurance Co., 55 Phil. 248Republic of the PhilippinesSUPREME COURTManila

EN BANC

November 13, 1930

G.R. No. 31952LIM CUAN SY, plaintiff-appellee, vs.THE NORTHERN ASSURANCE COMPANY, LIMITED, defendant-appellant.

Gibbs and McDonough for appellant.M. H. de Joya and Jose P. Laurel for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of the City of Manila, on May 5, 1927, by Lim Cuan Sy, for the purpose of recovering from the Northern Assurance Company, Limited, the sum of P10,000 upon a policy of insurance issued through its Manila agency upon a stock of textiles stored in a bodega located at No. 62, Calle Urbiztondo, San Nicolas, Manila, which goods, it was alleged in the complaint, had been destroyed by fire on December 28, 1926. In its answer the defendant company set up a general denial and several special defenses directed to the following points: false representation by the insured with respect to the ownership of the insured property, incendiarism on the part of the insured, and the submission of false and fraudulent proof with respect to the amount and value of the destroyed merchandise. Upon hearing the cause the trial court gave judgment for the plaintiff to recover of the defendant the sum of P10,000, the full amount of the policy, with lawful interest from the date of the filing of the complaint, and with costs. From this judgment the defendant appealed.

At the time of the fire which gave rise to this lawsuit there was a Chinese firm engaged in the business of selling textiles at 174 Rosario Street, in the City of Manila. This business was conducted indifferently, in Chinese fashion, under the names of "Hong Liong," "Lim Cuan Sy," and "Lim Cuan Sy & Co.," though it was organized and registered as a mercantile partnership under the designation last above given. The name "Lim Cuan Sy," one of the designations of the business, is the name of one of the partners in the business, who actually owned, at the time this action arose, about one-third of the business. At the time of the incident with which we are concerned, the partner Lim Cuan Sy was in China, and his son, one Lim Tec Suan, was acting as his agent and as manager of the business at 174 Rosario Street. Owing to the cramped quarters of the place where the concern did business, it was necessary for the firm to store a large part of its stock, such as was not necessary for actual exhibition to purchasers, in places apart from its store. One of these places of storage was an interior compartment in the Poizant Bodega located on Urbiztondo and Barraca Streets in the District of San Nicolas, Manila. This bodega was of considerable size with exterior parts of cement. In the center there was originally an open patio, but in response apparently to demands for space, this interior area had been converted into compartments for the storage of goods. In the autumn of 1926 the plaintiff acquired possession of the interior compartment of the bodega designated as A-1, No. 62, Urbiztondo Street. This compartment was 10 or 12 meters long, with a breadth of 5 meters and height of 5 meters. Here the plaintiff stored a a large quantity of textiles prior to November 23, 1926, upon which date he produced the policy of insurance, which is the basis of this action, to be issued by the local agent of the defendant insurance company in the amount of P10,000, insuring the effects stored in said bodega from loss by fire. At or about the same time additional policies of insurance, aggregating P60,000 and underwrittten by other companies, were taken out, making all together P70,00 of insurance on the same stock of textiles. All of these policies were written in the name of the plaintiff Lim Cuan Sy, as the insured.

At the hour of about 1.45 a. m. on the morning of December 28, 1926, a destructive fire occurred in the Poizat Bodega, which burned with fury for perhaps a couple of hours and destroyed most of the contents of the buildings, leaving only the exterior walls standing. This fire appears to have originated in the northeastern corner of the bodega, at a point somewhat removed from the compartment where the plaintiff's good were stored. A breeze happened, at the time, to be blowing from the northeast, with the result that the flames were carried in a southwestwardly direction, giving the fire the full sweep of the bodega. The plaintiff's compartment was directly in the course of the progress of the fire; and although some remnants of the textiles were found in the debris, the destruction was so complete that even the places occupied by the rows of boxes are not discernible in the photographs taken of the ruins.

After the fire occurred the plaintiff, in due time, put in claim of loss against the various insurance companies concerned for 155 boxes of textiles, with as alleged value of P91,425.46. The claim was disallowed by the insurer, upon the advice of its adjuster and its attorneys, and as a consequence this action was instituted.

It is not questioned that at the time the insurance policies were written the plaintiff had goods stored in his compartment in the Poizat Bodega of the value claimed; and no serious attempt has been made to fasten upon the plaintiff the charge of having set fire to the bodega. The defenses urged in this instance by the appellant revolve mainly around two propositions, namely, first, that there was a misrepresentation by the insured as to the nature and extent of his interest in the insured goods, and secondly, that immediately prior to the fire, the plaintiff caused a large of the goods to be removed surreptitiously from the bodega and that the goods so removed were included in the claim of loss, thereby rendering the claim fraudulent. These defenses will be dealt with in turn.

In connection with the first of these defenses the appellant calls attention to the fact that the true owner of the insured goods was the mercantile entity Lim Cuan Sy & Co., whereas the policies were written in the name of Lim Cuan Sy only , without any revelation having been made Lim Cuan Sy only, without any revelation having been made to the insurer of the fact that Lim Cuan Sy was only one of several partners in the business and that he was not the sole owner. The proof, however, shows that the agent who wrote the policy made no inquiry as to the interest of Lim Cuan Sy in the insured goods, and he merely asked in what name the insurance should be written. The proof further shows that, in accordance with the Chinese genius for mixing names, the name Lim Cuan Sy was commonly used to indicate the business pertaining to the mercantile entity Lim Cuan Sy & Co. Thus, the store at 174 Rosario Street was rented in the name of Lim Cuan Sy; the goods in the same store are insured in the name of Lim Cuan Sy; and the obligations contracted by the concern with the Philippine National Bank for goods bought on credit were contracted in the name of Lim Cuan Sy. There is no question but that when this policy of insurance was written, the agent of the company knew that he was insuring a stock of goods the identity of which was not in doubt, and which pertained to a business commonly known as the business of Lim Cuan Sy; and inasmuch as the defendant was content to take the premium corresponding to the insurance on goods of the value of those then contained in the bodega, the company should not now be permitted to escaped responsibility merely upon the lack of conformity between the name used in the policy and the true name of the legal entity existing under our law. If questions had been put to the agent of the insured at the time the policies were written and misrepresentation had been deliberately made with respect to the ownership, a different problem would have been presented.

A point somewhat similar to that here presented was raised by the defendant in the case of Acriche vs. Law Union & Rock Insurance Co., (48 Phil., 592), and although the point was not necessary to the decision in the case, it was suggested that "if the claim had been in all other respects fair and honest, the objection with respect to the ownership of the insured goods would probably not have been a fatal obstacle to a recovery." The very strict doctrine built up on this point in the courts of America has resulted from the effort of the courts to protect insurance companies by withdrawing the cases so far as possible from the jury, it being notorious that juries are very prone to see matters of this kind in the light of the insured. As the jury system is not in vogue in this country, this idea should not here control. The defendant, we think, should be considered estopped from defeating its policy on the ground stated. In arriving at this view we are not unmindful of the practices of the mercantile community, including both bankers and merchants, in dealing with Chinese firms. We are of the opinion, therefore, that the contract of insurance cannot be avoided upon the ground suggested. It is evident that the misrepresentation complained of was not fraudulently made, and it could only have resulted from ignorance on the part of the insured. I considered material, the error would no doubt have given rise to an equity on the part of the insured to have the contract reformed in conformity with the intention of both insurer and insured, but we consider such a course unnecessary.

The difficult question in the case, and the one upon which the defense has mainly concentrated its force, is, whether the plaintiff, after having surreptitiously removed a great part of the insured goods from the bodega already mentioned, falsified its claim and proof of loss by including the goods so removed, with intent to defraud the insurer. Upon this question the defendant introduced two witnesses, Gabriel Ykal and Fernando Bayan, who testified that, as laborers, they assisted in removing some 65 cases of goods from the bodega on December 23, 24, and 27, 1926, immediately preceding the fire. These witnesses state that a truck was used to effect the removal of the boxes mentioned, and they further state that a carretela was used to transport some goods which were taken from boxes in the bodega, the boxes being left in the place. The boxes and goods thus removed form the bodega were taken, so the witnesses say, to the store at 174 Rosario Street, where they were unladen and carried in through the front door. They were then taken, so these witnesses say, through the back yard No. 174 and stored in No. 176. A certain verisimilitude was imparted to this narrative by the circumstance that the defendant first obtained from the witness Ykal information concerning the use of No. 176 as a place of storage for the occupant of No. 174. But of course his ability to reveal this circumstance might have originated from a single visit to the place upon some other occasion. The antecedents of the witness Ykal appear to be bad, if repeated enforced visits to Bilibid Prison may be taken as suggestive; and the other witness was procured by him. Upon the whole the trial judge was so unfavorably impressed by the story told by these two that he refused to give credence to it.

The defense insists, however, that the testimony of these two witnesses is corroborated by the circumstance that when the attorneys for the respective parties, in company with the clerk of court, visited No. 176 Rosario Street, for purposes of inspection on March 19, 1928, they found in that compartment an empty box bearing the same number as one of the cases included in the claim of loss, that is to say, the number "3790." This certainly looks suspicious. But the defendant produced and exhibited in court shipping documents showing that in the early part of the year 1928, that is to say, more than a year after the fire occurred