22. Clarita Quiamco vs. Capital Insurance & Surety Co., Inc.

nc., - This made the DECISION IN THE LABOR CASE final against
Sept. 12, 2008 them.

Facts: 6) Subsequently, a writ of execution was served by the sheriff of

the NLRC on Capital Insurance to collect on the supersedeas
1) Petitioner Spouses Noe and Clarita Quiamco were engaged in the
bond.  This was to fully satisfy the judgment amount in the
sea transportation business. On April 30, 1997, a decision in a
labor case.
labor case was rendered against Clarita as representative of Sto.
Niño Ferry Boat Services.  Capital Insurance PAID to the NLRC the amount
guaranteed by the bond.
2) Spouses Quiamco applied for a supersedeas bond with
respondent Capital Insurance & Surety Co, Inc. (a surety & non-  It notified Spouses Quiamco and forthwith deposited the
life insurance company)
undated check issued by the Spouses Quiamco
- This bond was required in order to perfect their appeal to
 It was, however, dishonored because the account was
the NLRC. (note: Supersedeas bond: An appellant's bond to stay execution on a judgment during the pendency of
the appeal) already closed.
3) Capital Insurance required Spouses Quiamco to do the 7) Hence, Capital Insurance filed in the RTC of Cebu City a
following: (which were all complied with) complaint for sum of money and damages with prayer for a
a) to issue an undated check in the amount equivalent writ of preliminary attachment against Spouses Quiamco.
to that of the bond which it would issue; 8) RTC: ruled in favor of respondent. (ordered Spouses Quiamco to
pay)
b) to execute a supplementary counter-guaranty with
chattel mortgage over the Sea Vessel M/L Gretchen 9) CA: affirmed the RTCs decision.
owned by Spouses Quiamco (and to surrender their original copy of certificate of  The CA agreed with the RTC that the surety agreement
ownership over the vessel)
between Spouses Quiamco and Capital Insurance had been
c) to execute an indemnity agreement wherein Spouses perfected.
Quiamco would agree to indemnify Capital Insurance
all damages it might sustain in its capacity as surety  Its perfection WAS NOT DEPENDENT on the acceptance by
and the NLRC of the appeal of Spouses Quiamco in the labor
case. Thus, Capital Insurance correctly paid the
d) to pay the premiums indebtedness of petitioners.
4) Accordingly, the bond was issued to Spouses Quiamco who Issue: W/N the surety agreement was perfected?
filed it in the NLRC on the next day. (on May 23, 1997 - issued)
5) However, NLRC dismissed the APPEAL for Spouses Quiamco
failure to post the bond w/in 10 days from receipt of the
decision (May 7, 1997).

1
 FULL REIMBURSEMENT FROM PETITIONERS FOR THE
AMOUNT PAID.

Ruling: YES
NOTES:
 Contracts are perfected by mere consent. This is manifested by
the meeting of the offer and the acceptance upon the object &  Moreover, petitioners signed an indemnity agreement which
cause which are to constitute the contract contained a stipulation on:
 Here, the object of the contract was the issuance of the bond. “INDEMNIFICATION: — To indemnify the SURETY for all damages …
The cause or consideration consisted of the premiums paid. reimburse and make good to the SURETY, its successors and
assigns, all sums or all money which it shall pay or become
 The BOND was issued AFTER Spouses Quiamco complied with
liable to pay by virtue to said bond”
the requirements. At this point, the contract of suretyship was
perfected.  One final note. It was never Capital Insurance’s obligation to
inquire about the deadline for which the bond was being issued. It
 Spouses Quiamco cannot insist that the contract was subject
was THE DUTY of Spouses Quiamco to make sure it was filed
to a suspensive condition, that is, the stay of the judgment of
on time.
the labor arbiter.
 The delay in filing the bond was purely the result of petitioners’
 THIS WAS NOT A CONDITION for the perfection of the
negligence or oversight. They should bear the consequences.
contract but merely a statement of the purpose of the bond in
its whereas clauses.

 Aside from this, there was no mention of the condition that

before the contract could become valid and binding,
perfection of the appeal was necessary.
 If the intention was to make it a suspensive condition, then
the parties should have made it clear in certain and
unambiguous terms.

 A SURETY is considered in law to be on the same footing as the

principal debtor in relation to whatever is adjudged against
the latter.
 Accordingly, as surety of Spouses Quiamco, Capital Insurance
was obliged to pay on the bond when a writ of execution was
served on it. Consequently, IT NOW HAS THE RIGHT TO SEEK

2
 - for the construction of NAIA Terminal 2’s Storm Drainage
System (SDS) for P33,007,752.00 and Sewage Treatment
Plant (STP) for P23,500,000.00, or a total contract price of
P56,507,752.00.
- The parties agreed that the construction of the Storm
Drainage System and Sewage Treatment Plant would be
completed on August 10, 1997 and May 31, 1997,
respectively.
23. Stronghold Insurance Co., Inc. vs. Tokyu Construction Co., 3) In accordance with the terms of the agreement, Tokyu
Ltd, June 5, 2009 Construction paid Manager Gabriel 15% of the contract
When Surety Released from Obligation; Doctrine: price, as advance payment, for which Manager Gabriel
obtained from petitioner Stronghold Insurance Company:
“A surety is released from its obligation when there is a material
alteration of the principal contract in connection with which the a) Surety Bonds  to guarantee its repayment to Tokyu
bond is given Construction.

- such as a change which imposes a new obligation on the b) Performance Bonds to guarantee due and timely
promising party, performance of the work for Tokyu Construction. 

- or which takes away some obligation already imposed, or - Both bonds were valid for a period of one year from date of
issue. (February 26, 1996 and April 15, 1996)
- one which changes the legal effect of the original contract
and not merely its form. 4) In defiance of the parties' agreements, Manager Remedios
Gabriel defaulted in the performance of her obligations.
However, a surety is not released by a change in the contract, which
does not have the effect of making its obligation more onerous 5) On February 10, 1997, in a letter sent to Manager Gabriel,
(burdensome).” - Tokyu Construction manifested its intention TO
Facts: TERMINATE the Subcontract Agreement .

1) Respondent Tokyu Construction Company, - Tokyu Construction also demanded that Stronghold
Insurance comply with its undertaking under its bonds.
- was awarded by the Manila International Airport Authority a
contract for the construction of the NAIA Terminal 2. 6) On February 26, 1997, Tokyu Construction and Manager
Gabriel AGREED TO REVISE the scope of work:
2) On July 2, 1996, Tokyu Construction
- reducing the contract price for the Storm Drainage System
- entered into a Subcontract Agreement with Gabriel
phase from P33,007,752.00 to P1,175,175.00 and
Enterprises, owned and managed by Remedios P. Gabriel
(Gabriel), - the Sewage Treatment Plant from P23,500,000.00 to
P11,095,930.50, 

3
 - fixing the completion time on May 31, 1997. - To counter Tokyu Construction monetary demands, Gabriel
7) Manager Gabriel thereafter obtained from Tico Insurance claimed that it was, in fact, Tokyu who had an unpaid
Company for the revised SUBCONTRACT balance.

- Surety and Performance Bonds to guarantee the 12) Tico Insurance averred that it actually treated Tokyu’s demand
repayment of the advance payment given by Tokyu as a claim on the performance and surety bonds it issued
Construction to Gabriel and - but Tico could not make payment since the claim was still
- the completion of the work for the Storm Drainage System, subject to determination, findings, and recommendation of its
respectively. assigned independent adjuster.

8) Still, Gabriel failed to accomplish the works within the agreed 13) Stronghold Insurance interposed the following special and
completion period. affirmative defenses:

- Eventually, on April 26, 1997, Gabriel abandoned the project. 1) the surety and performance bonds had expired;

9) Tokyu Construction thereafter demanded from Gabriel 2) the premium on the bonds had not been paid by
Gabriel;
- the return of the balance of the advance payment.
3) the contract for which the bonds were issued was set
- the payment of the additional amount that it incurred in aside/novated;
completing the NAIA TERMINAL 2 Project . 
4) the requisite notices were not made which thus barred
- Finally, Tokyu Construction made formal demands against respondent’s claims against it; and
Stronghold Insurance and Tico Insurance to make good
their obligations under their respective performance and 5) the damages claimed were not arbitrable.
surety bonds. 14) Construction Industry Arbitration Commission (CIAC): found
10) However, Gabriel, Stronghold Insurance and Tico Insurance that with regard to Tokyu’s claim against Stronghold Insurance
of them failed to heed Tokyu Construction’s demand. on its Surety Bonds is that Stronghold is liable jointly and
severally with Gabriel for the payment of the unrecouped down
- Hence, Tokyu Construction filed a complaint against them payment but only up to the amount of P6,701,063.60.
before the Construction Industry Arbitration Commission
(CIAC). - The claim against Stronghold on its Performance Bonds was
dismissed.
11) Gabriel denied liability and argued that the delay in the
completion of the project was caused by Tokyu Construction. 15) CA: modified the CIAC decision. Stronghold is further ordered to
pay Tokyu’s from its surety bonds, jointly and severally with
- Gabriel also contended that the original subcontract GABRIEL, the total unrecouped down payments in the amount of
agreement was novated by the revised scope of work and P7,588,613.18.
completion schedule.
Issues:

4
 1. W/N the bonds were invalidated due to modification in the - a change which imposes a new obligation on the promising
subcontract agreement releasing the surety of its party,
obligation? NO. - or which takes away some obligation already imposed, or
2. W/N the bonds are null and void having executed without a - one which changes the legal effect of the original contract
valid and existing principal contract since the bond was and not merely its form
executed prior to the principal contract?
In the instant case, the revision of the subcontract agreement did
3. W/N the bond has expired? not in any way make the obligations of both the principal and the
surety more onerous.
To be sure, Stronghold Insurance due to the modification of the
terms of the contract.
- never assumed added obligations,
- nor were there any additional obligations imposed,
Failure to receive any notice of such change did not, therefore,
Ruling: exonerate Stronghold Insurance from its liabilities as surety.
1. W/N the bonds were invalidated due to modification in the 2. W/N the bonds are null and void having executed without a valid
subcontract agreement releasing the surety of its obligation? and existing principal contract since the bond was executed
NO. (MAIN ISSUE) prior to the principal contract?
No. The court said as early when Gabriel first failed to comply with No. The contention of the petitioner that the surety bond was invalid
its obligation on the due date because it was executed a head of the principal contract is not
- prior to the modification of the agreement already makes entertained since it was not raised before the lower courts, to allow
the surety (Stronghold) liable. would violate the basic rule of fair play, justice and due process. Even
assuming to merit the contention would raised questions of facts which
The consent of the surety to the agreement is not material being
the court is not trier of facts.
not a party thereto, its role only arisen when the debtor failed to
satisfy its obligation. 3. W/N the bond has expired?
The surety can only be released from the obligation when there is Yes. Since the sub contract agreement was extended for another year
a material alteration in the principal contract, in the case at bar wherein Gabriel obtained a new bond from Tico Insurance Company, the
there was none. liability of the Stronghold Insurance is limited only when Gabriel
first defaulted under Stronghold Insurance.
A surety is released from its obligation when there is a material
alteration of the principal contract in connection with which the Considering that the performance bonds issued by Stronghold
bond is given such as: Insurance were valid only for a period of one year, its liabilities

5
should further be limited to the period prior to the expiration 2) Fumitechniks, represented by Ma. Lourdes Apostol, had applied
date of said bonds. for and was issued Surety Bond FLTICG (16) No. 01012 by First
As to Performance Bond No. 43601 for the SDS project, the same was Lepanto for the amount of ₱15,700,000.00.
valid only for one year from February 26, 1996; while Performance Bond - As stated in the attached rider, the bond was in compliance
No. 13608 was valid only for one year from April 15, 1996. Logically, with the requirement for the grant of a credit line with the
Stronghold Insurance can be held SOLIDARILY LIABLE with Chevron Philippines
Gabriel only for the cost overrun and liquidated damages
"to guarantee payment/remittance of the cost of fuel products
accruing during the above periods. The assailed CA decision is,
withdrawn within the stipulated time in accordance with the terms
therefore, modified in this respect.
and conditions of the agreement."
Note: Jurisdiction of CIAC was also raised in the case.
- The surety bond was executed on October 15, 2001 and will
SC: E.O. 1008 expressly vests in the CIAC original and exclusive expire on October 15, 2002
jurisdiction over disputes arising from or connected with construction
contracts entered into by parties that have agreed to submit their 3) Fumitechniks defaulted from its obligation and the post dated
dispute to voluntary arbitration. In this case, the CIAC validly acquired check it issued to Chevron Philippines was dishonored
jurisdiction over the dispute. 4) Chevron Philippines notified First Lepanto of the

- unpaid purchases of Fumitechniks in the total amount of

24. 'First Lepanto-Taisho Ins. Corp. vs. Chevron Phils., Inc. ₱15,084,030.30 and then gave the delivery receipt as basis for
Jan. 18, 2012 such amount

Doctrine: 5) Chevron Philippines sent a letter to Fumitechniks demanding

that the Fumitechniks submit to First Lepanto the following:
Sec. 176. The liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount of the (1) its comment on Chevron’s February 6, 2002 letter;
bond. (2) copy of the agreement secured by the Bond,
together with copies of documents such as delivery
It is determined strictly by the terms of the contract of
receipts; and
suretyship in relation to the principal contract between the obligor
(3) information on the particulars, including "the terms
and the obligee
and conditions, of any arrangement that Fumitechniks
Facts: might have made or any ongoing negotiation with
Chevron in connection with the settlement of the
1) Chevron Philippines, Inc., formerly Caltex Philippines, Inc.,
obligations subject of the Caltex letter
sued petitioner First Lepanto-Taisho Insurance
6) Fumitechniks informed that it cannot submit the requested
- for the payment of unpaid oil and petroleum purchases
agreement since no such agreement was executed between
made by its distributor Fumitechniks Corporation
Fumitechniks and Chevron Philippines

6
 - but it  enclosed a copy of another surety bond issued by - It also declared that First Lepanto is estopped from assailing
CICI General Insurance Corporation in favor of Chevron to the oral credit line agreement, having consented to the same
secure the obligation of Fumitechniks in the amount of upon presentation by Fumitechniks of the surety bond it issued.
₱15,000,000.00 
- Considering that such oral contract between Fumitechniks and
7) First Lepanto advised Chevron of the non-existence of the Chevron has been partially executed, the CA ruled that the
principal agreement as confirmed by Fumitechniks. provisions of the Statute of Frauds do not apply.

- First Lepanto explained that being an accessory contract, Issue: W/N a surety is liable to the creditor in the absence of a
the bond cannot exist without a principal agreement as it is written contract with the principal? NO.
essential that the copy of the basic contract be submitted
Ruling:
to the proposed surety for the appreciation of the extent of
the obligation to be covered by the bond  A surety contract is merely a COLLATERAL ONE, its basis is
the principal contract or undertaking which it secures.
8) Since its demand went unheeded, Chevron sued First Lepanto for
the payment of Fumitechniks’s obligation  Necessarily, the stipulations in such principal agreement must
be communicated or made known to the surety particularly in
this case

- where the bond expressly guarantees the payment of

9) RTC: Dismissed the complaint on the ground that the terms Chevron’s fuel products withdrawn by Fumitechniks in
and conditions of the oral credit line agreement between accordance with the terms and conditions of their agreement.
Chevron and Fumitechniks
- The bond specifically makes reference to a written
- have not been relayed to First Lepanto and agreement.
- neither were such conveyed even during trial. - It is basic that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties,
- Since the surety bond is a mere accessory contract, the RTC
the literal meaning of its stipulations shall control
concluded that the bond cannot stand in the absence of
the written agreement secured thereby.  Moreover, being an onerous undertaking, a surety agreement
is strictly construed against the creditor, and every doubt is
10) CA: REVERSED; First Lepanto cannot insist on the
resolved in favor of the solidary debtor
submission of a written agreement to be attached to the
surety bond  A reading of Surety Bond FLTICG (16) No. 01012 shows that it
secures the payment of purchases on credit by Fumitechniks in
- considering that Chevron was not aware of such requirement
accordance with the terms and conditions of the "agreement" it
and unwritten company policy.
entered into with Chevron.

7
 - The word "agreement" has reference to the distributorship - However, Chevron never made any effort to relay those
agreement, the principal contract and by implication included terms and conditions of its contract with Fumitechniks
the credit agreement mentioned in the rider. upon the commencement of its transactions with said client,
which obligations are covered by the surety bond issued by
- However, it turned out that Chevron has executed written
petitioner.
agreements only with its direct customers but not
distributors like Fumitechniks and it also never relayed the  Contrary to Chevron assertion, there is no indication in the records
terms and conditions of its distributorship agreement to that First Lepanto had actual knowledge of its alleged
the First Lepanto after the delivery of the bond. business practice of not having written contracts with
distributors; and even assuming petitioner was aware of such
- This was clearly admitted by Chevron’s Marketing Coordinator,
practice, the bond issued to Fumitechniks and accepted by
Alden Casas Fajardo
Chevron specifically referred to a "written agreement."
 Having accepted the bond, Chevron as creditor must be held
bound by the recital in the surety bond that the terms and
conditions of its distributorship contract be reduced in
writing or at the very least communicated in writing to the
surety. (IMPORTANT)
 Such non-compliance by the creditor Chevron impacts not on the
validity or legality of the surety contract but on the creditor’s
right to demand performance

 It bears stressing that the contract of suretyship imports

entire good faith and confidence between the parties in regard to
the whole transaction, although it has been said that the creditor
does not stand as a fiduciary in his relation to the surety.

- The creditor is generally held bound to a faithful

observance of the rights of the surety and to the
performance of every duty necessary for the protection of
those rights.

 Chevron is charged with notice of the specified form of the

agreement or at least the disclosure of basic terms and
conditions of its distributorship and credit agreements with
its client Fumitechniks after its acceptance of the bond
delivered by Fumitechniks.

8
 25. Perla Compania De Seguros, Inc. petitioner, vs. The Court
of Appeals May 7, 1992

Doctrine:
Where a car is unlawfully and wrongfully taken without the owner’s
consent.—Where a car is admittedly, as in this case, unlawfully and
wrongfully taken without the owner’s consent or knowledge, such taking
constitutes theft, and, therefore, it is the “THEFT” clause, and not the
“AUTHORIZED DRIVER” clause, that should apply

Facts:
1) Dec. 24 1981: Spouses Herminio and Evelyn Lim (PR) executed a
PN in favor of Supercars, Inc. payable in monthly installments and
secured by a chattel mortgage over a brand new red Ford Laser
1300 5DR Hatchback 1981 model.
 The Ford Lase is registered in the name of Herminion Lim and
insured with the Perla Compania de Seguros, Inc for
comprehensive coverage.

 On same date, Supercars, Inc., with notice to PRs spouses,

assigned to FCP Credit Corporation (petitioner) its rights, title
and interest on said PN and chattel mortgage.
2) Nov. 9 1982: the Ford Laser was carnapped while parked at the
back of Broadway Centrum.
 PR Evelyn Lim, who was driving said car before it was carnapped,
immediately informed the authorities regarding the incident.
3) Nov. 11 1982: PR filed a claim for loss with the Perla (petitioner)

4) Nov. 17 1982: PRs requested from FCP for a suspension of payment

on the monthly amortization agreed upon due to the loss of the
vehicle and, since the carnapped vehicle was insured with Perla,
said insurance company should be made to pay the remaining
balance of the PN and the chattel mortgage contract.
On Motor Vehicle Insurance

9
5) Perla denied the insurance claim of PRs on the ground that Evelyn  Where a car is admittedly, as in this case, unlawfully and
Lim, who was using the vehicle before it was carnapped, was in wrongfully taken without the owner’s consent or knowledge, such
possession of an expired driver’s license at the time of the loss of taking constitutes theft, and, therefore, it is the “THEFT” clause,
said vehicle which is in violation of the authorized driver clause of and not the “AUTHORIZED DRIVER” clause, that should apply.
the insurance policy. Also, Perla denied that it is liable to pay the
 The SC cited the CA ruling, to wit: “the risk against accident is
remaining balance of the PN and the chattel mortgage contract.
distinct from the risk against theft. The ‘authorized driver clause’
6) FCP filed a complaint against PRs, who in turn filed an amended in a typical insurance policy is in contemplation or anticipation of
third party complaint against Perla. accident in the legal sense in which it should be understood, and
not in contemplation or anticipation of an event such as theft.
7) RTC: Ruled in favor of FCP Credit Corporation. PRs were ordered to
pay FCP. The third-party complaint was dismissed.  The distinction—often seized upon by insurance companies in
resisting claims from their assureds—between death occurring as
8) CA: Reversed the TC decision. Perla was ordered to indemnify PRs
a result of accident and death occurring as a result of intent
and said PRs were ordered to pay FCP all the unpaid installments.
may, by analogy, apply to the case at bar.
 Petitioner Perla alleged that there was grave abuse of discretion
 Thus, if the insured vehicle had figured in an accident at the time
on the part of the CA in holding that PRs did not violate the
she drove it with an expired license, then, appellee Perla
insurance contract.
Compania could properly resist appellants’ claim for
 Petitioner FCP raised the issue of whether or not the loss of the indemnification for the loss or destruction of the vehicle resulting
collateral exempted the debtor from his admitted obligations from the accident. But in the present case.
under the PN particularly the payment of interest, litigation
 The loss of the insured vehicle did not result from an accident
expenses and attorney’s fees.
where intent was involved; the loss in the present case was
Issue: caused by theft, the commission of which was attended by
(1) W/N the insurance claim of PRs should be denied on the ground of intent.”
violation of the authorized driver clause of the insurance policy. NO  There is no causal connection between the possession of a valid
Ruling: driver’s license and the loss of a vehicle. To rule otherwise would
render car insurance practically a sham since an insurance
(1) No violation of the authorized driver clause of the insurance policy. company can easily escape liability by citing restrictions which
 The comprehensive motor car insurance policy issued by are not applicable or germane to the claim, thereby reducing
petitioner Perla undertook to indemnify the private respondents indemnity to a shadow.
against loss or damage to the car (a) by accidental collision or
overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear; (b) by
fire, external explosion, selfignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.
10
(2) W/N PRs were justified in asking FCP to demand the unpaid installment
from Perla. YES

PRs were justified in asking petitioner FCP to demand the unpaid installments
Theft Clause
from petitioner Perla.
26. Paramount Ins. Corp. vs. Sps. Yves and Maria Teresa
 Because of the peculiar relationship between the three contracts in this
case, i.e., the promissory note, the chattel mortgage contract and the Remondeulaz, Nov. 28, 2012
insurance policy, this Court is compelled to construe all three contracts Doctrine:
as intimately interrelated to each other, despite the fact that at first
glance there is no relationship whatsoever between the parties thereto. “The taking of a vehicle by another person w/o the permission or
authority from the owner constitutes theft as contemplated in the theft
 Under the promissory note, private respondents are obliged to pay
clause of a policy, and is therefore, compensable
Supercars, Inc. the amount stated therein in accordance with the
schedule provided for. To secure said promissory note, private Facts:
respondents constituted a chattel mortgage in favor of Supercars, Inc.
over the automobile the former purchased from the latter. The chattel 1) The present case for petition for review on certiorari stemmed from
mortgage, in turn, required private respondents to insure the a complaint filed by the Sps Remondeulaz against Paramount
automobile and to make the proceeds thereof payable to Supercars, Inc. Insurance Corp for the payment as reimbursement for their car that
The promissory note and chattel mortgage were assigned by Supercars, was allegedly stolen
Inc. to petitioner FCP, with the knowledge of private respondents.
Private respondents were able to secure an insurance policy from 2) Sps. Remondeulaz insured with Paramount their 1994 Toyota
petitioner Perla, and the same was made specifically payable to Corolla under a comprehensive motor vehicle insurance policy for 1
petitioner FCP. year.
 The insurance policy was therefore meant to be an additional security to o Insured for Own Damage, Theft, Third-Party Property Damage and
the principal contract, that is, to insure that the promissory note will still Third-Party Personal Injury
be paid in case the automobile is lost through accident or theft.
3) During the covered period, the car was unlawfully taken. They
 Further, in accordance with the Chattel Mortgage Contract, upon the
reported the theft to the PNP who made them accomplish a
loss of the insured vehicle, the insurance company Perla undertakes to
complaint sheet.
pay directly to the mortgagor or to their assignee, FCP, the outstanding
balance of the mortgage at the time of said loss under the mortgage 4) In the complaint sheet, Sps. Remondeulaz alleged that Ricardo
contract. If the claim on the insurance policy had been approved by Sales took the car to add accessories and improvements thereon,
petitioner Perla, it would have paid the proceeds thereof directly to but Sales failed to return the car within the agreed 3-day period.
petitioner FCP, and this would have had the effect of extinguishing
private respondents’ obligation to petitioner FCP. 5) Sps. Remondeulaz demanded from Paramount P409k as
reimbursement of their lost vehicle, claiming it to be covered by
 Therefore, private respondents were justified in asking petitioner FCP to
demand the unpaid installments from petitioner Perla. "Theft."

11
6) Paramount refused to pay, prompting the Sps to file a complaint  In theft, the thing is taken, while in estafa, the accused receives
before the RTC, for payment of the insured value plus damages. the property and converts it to his own use or benefit.
7) Paramount filed a Demurrer.  However, there may be theft even if the accused has possession
of the property. If he was entrusted only with the material or
8) RTC dismissed due to double recovery:
physical (natural) or de facto possession of the thing, his
o Sps. had successfully prosecuted and were awarded the amount misappropriation of the same constitutes theft, but if he has the
claimed in another action against Standard Insurance, juridical possession of the thing his conversion of the same
involving the loss of the same vehicle under the same constitutes embezzlement or estafa.
circumstances
 In this case, Sales did not have juridical possession over the
o An insured may NOT recover more than its interest in any property vehicle. Hence, the taking of Sps. Remondeulaz’s vehicle by
subject of an insurance. Sales is w/o any consent or authority from the Sps.
9) CA: Reversed. The car insured w/ Paramount is different from the  The Sps. entrusted possession of their vehicle only to the extent
one insured w/ Standard. Paramount denied the reimbursement that Sales will introduce repairs and improvements thereon, not
because loss did not fall w/in the "theft clause" under the insurance to permanently deprive them of possession.
policy
 The fact that Sales failed to return the subject vehicle constitutes
10) MR denied. Hence, the instant case Qualified Theft. Hence, since the car is covered by a
Comprehensive Motor Vehicle Insurance Policy that allows for
11) Paramount argues that the loss not a peril covered by the policy.
recovery in cases of theft, Paramount is liable for the loss under
The car cannot be classified as stolen as the Sps. entrusted
the "theft clause."
its possession to another person.
 Petition was denied.
Issue: W/N the loss of the vehicle falls within the concept of the “Theft
Clause” under the insurance policy YES.

Ruling:
 When one takes the motor vehicle of another w/o the latters
consent even if the motor vehicle is later returned, there is
theft there being intent to gain as the use of the thing unlawfully
taken constitutes gain.
 The taking of a vehicle by another person w/o the permission or
authority from the owner constitutes theft as contemplated in
the policy, and is therefore, compensable.

 Court discussed the principal distinction between estafa and

theft:
12
 Hence, presented the provision of the Policy under Exceptions to
Section-III, which is quoted below

The Company shall not be liable for:

Any malicious damage caused by the Insured, any member
of his family or by "A PERSON IN THE INSURED’S SERVICE."
27. Alpha Insurance and Surety Co. vs. Arsenia Sonia Castor,
4) In letters dated July 12, 2007 and August 3, 2007, respondent
Sept. 2, 2013
reiterated her claim and argued that the exception refers to damage
Doctrine: of the motor vehicle and not to its loss. However, petitioner’s denial
Jurisprudence has it that the marine insurance policy needs to be of respondent’s insured claim remains firm.
presented in evidence before the trial court or even belatedly before the 5) Accordingly, respondent filed a Complaint for Sum of Money with
appellate court Damages against petitioner before the Regional Trial Court (RTC) of
Facts: Quezon City on September 10, 2007.

1) On February 21, 2007, respondent entered into a contract of 6) RTC of Quezon City ruled in favor of respondent.
insurance, Motor Car Policy No. MAND/CV-00186, with petitioner, 7) CA rendered a Decision affirming in toto the RTC of Quezon City’s
involving her motor vehicle, a Toyota Revo DLX DSL. The contract decision. Hence, the present petition.
of insurance obligates the petitioner to pay the respondent the
Issue: W/N the loss of respondent’s vehicle is excluded under the
amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in
insurance policy.
case of loss or damage to said vehicle during the period covered,
which is from February 26, 2007 to February 26, 2008. Ruling: No, the loss of respondent’s vehicle is not excluded under the
insurance policy.
2) On April 16, 2007, at about 9:00 a.m., respondent instructed her
driver, Jose Joel Salazar Lanuza, to bring the above-described Significant portions of Section III of the Insurance Policy states:
vehicle to a nearby auto-shop for a tune-up. However, Lanuza no
SECTION III – LOSS OR DAMAGE
longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, The Company will, subject to the Limits of Liability, indemnify the
respondent promptly reported the incident to the police and Insured against loss of or damage to the Schedule Vehicle and its
concomitantly notified petitioner of the said loss and demanded accessories and spare parts whilst thereon:
payment of the insurance proceeds in the total sum of ₱630,000.00. (b) by fire, external explosion, self-ignition or lightning or burglary,
3) In a letter dated July 5, 2007, petitioner denied the insurance claim housebreaking or theft;
of respondent, stating that upon verification of the documents (c) by malicious act;
submitted, particularly the Police Report and the Affidavit, the
culprit, who stole the Insure[d] unit, is employed the respondent.

13
 (d) whilst in transit (including the processes of loading and Said provision does not qualify as to who would commit the theft. Thus,
unloading) incidental to such transit by road, rail, inland waterway, even if the same is committed by the driver of the insured, there being
lift or elevator. no categorical declaration of exception, the same must be covered.
As correctly pointed out by the plaintiff, "(A)n insurance contract should
be interpreted as to carry out the purpose for which the parties entered
into the contract which is to insure against risks of loss or damage to
the goods.
Such interpretation should result from the natural and reasonable
meaning of language in the policy. Where restrictive provisions are
open to two interpretations, that which is most favorable to the insured
EXCEPTIONS TO SECTION III is adopted."
The Company shall not be liable to pay for: The defendant would argue that if the person employed by the insured
Any malicious damage caused by the Insured, any member of his would commit the theft and the insurer would be held liable, then this
family or by a person in the Insured’s service. would result to an absurd situation where the insurer would also be
held liable if the insured would commit the theft. This argument is
 In denying respondent’s claim, petitioner takes exception by certainly flawed.
arguing that the word "damage," under paragraph 4 of "Exceptions
to Section III," means loss due to injury or harm to person, Of course, if the theft would be committed by the insured himself, the
property or reputation, and should be construed to cover malicious same would be an exception to the coverage since in that case there
"loss" as in "theft." Thus, it asserts that the loss of respondent’s would be fraud on the part of the insured or breach of material
vehicle as a result of it being stolen by the latter’s driver is excluded warranty under Section 69 of the Insurance Code.
from the policy.  Moreover, contracts of insurance, like other contracts, are to be
The Court does not agree. construed according to the sense and meaning of the terms which
the parties themselves have used. If such terms are clear and
 Ruling in favor of respondent, the RTC of Quezon City scrupulously unambiguous, they must be taken and understood in their plain,
elaborated that theft perpetrated by the driver of the insured is not ordinary and popular sense. Accordingly, in interpreting the
an exception to the coverage from the insurance policy, since exclusions in an insurance contract, the terms used specifying the
Section III thereof did not qualify as to who would commit the theft. excluded classes therein are to be given their meaning as
Thus: understood in common speech.
Theft perpetrated by a driver of the insured is not an exception to the  Adverse to petitioner’s claim, the words "loss" and "damage" mean
coverage from the insurance policy subject of this case. This is evident different things in common ordinary usage. The word "loss" refers
from the very provision of Section III – "Loss or Damage." The to the act or fact of losing, or failure to keep possession, while the
insurance company, subject to the limits of liability, is obligated to word "damage" means deterioration or injury to property.1âwphi1
indemnify the insured against theft.
14
 Therefore, petitioner cannot exclude the loss of respondent’s vehicle  True, it is a basic rule in the interpretation of contracts that the
under the insurance policy under paragraph 4 of "Exceptions to terms of a contract are to be construed according to the sense and
Section III," since the same refers only to "malicious damage," or meaning of the terms which the parties thereto have used.
more specifically, "injury" to the motor vehicle caused by a person
 In the case of property insurance policies, the evident intention of
under the insured’s service. Paragraph 4 clearly does not
the contracting parties, i.e., the insurer and the assured, determine
contemplate "loss of property," as what happened in the instant
the import of the various terms and provisions embodied in the
case.
policy.
 Further, the CA aptly ruled that "malicious damage," as provided for
 However, when the terms of the insurance policy are ambiguous,
in the subject policy as one of the exceptions from coverage, is the
equivocal or uncertain, such that the parties themselves disagree
damage that is the direct result from the deliberate or willful act of
about the meaning of particular provisions, the policy will be
the insured, members of his family, and any person in the insured’s
construed by the courts liberally in favor of the assured and strictly
service, whose clear plan or purpose was to cause damage to the
against the insurer.
insured vehicle for purposes of defrauding the insurer, viz.:
 Lastly, a contract of insurance is a contract of adhesion. So, when
This interpretation by the Court is bolstered by the observation that the
the terms of the insurance contract contain limitations on liability,
subject policy appears to clearly delineate between the terms "loss"
courts should construe them in such a way as to preclude the
and "damage" by using both terms throughout the said policy.
insurer from non-compliance with his obligation. Thus, in Eternal
 If the intention of the defendant-appellant was to include the term Gardens Memorial Park Corporation v. Philippine American Life
"loss" within the term "damage" then logic dictates that it should Insurance Company, this Court ruled –
have used the term "damage" alone in the entire policy or otherwise
It must be remembered that an insurance contract is a contract of
included a clear definition of the said term as part of the provisions
adhesion which must be construed liberally in favor of the insured and
of the said insurance contract.
strictly against the insurer in order to safeguard the latter’s interest.
 Which is why the Court finds it puzzling that in the said policy’s
CASTOR WINS.
provision detailing the exceptions to the policy’s coverage in Section
III thereof, which is one of the crucial parts in the insurance
contract, the insurer, after liberally using the words "loss" and
"damage" in the entire policy, suddenly went specific by using the
word "damage" only in the policy’s exception regarding "malicious
damage." Now, the defendant-appellant would like this Court to
believe that it really intended the word "damage" in the term
"malicious damage" to include the theft of the insured vehicle.

 The Court does not find the particular contention to be well taken.

15
 2) Nov. 18 1993: Wyeth procured a marine policy from Philippines
First Insurance Co., Inc. (respondent) to secure its interest
over its own products. (1st policy)
o Philippines First insured Wyeth’s nutritional,
pharmaceutical and other products usual or incidental
to the insured’s business while the same were being
transported or shipped in the Philippines.
o The marine policy covers all risk of direct physical
loss or damage from any external cause, if by land,
and provides a limit of 6M per any one land vehicle.

3) Dec. 1 1993: Wyeth executed its ANNUAL CONTRACT OF

CARRIAGE with Reputable

 It turned out that the contract was not signed by Wyeth’s

representative/s.

 Nevertheless, it was admittedly signed by Reputable’s representatives, the

Other Insurance Clause terms thereof faithfully observed by the parties and, is previously stated, the
same contract of carriage had been annually executed by the parties every
28. Malayan Insurance Co., Inc. vs. Phils. First Insurance Co., year since 1989.
Inc. July 11, 2012 4) Under the contract, Reputable undertook to answer for
Doctrine:  “all risks with respect to the goods and shall be liable to
“Other insurance clause presupposes the existence of a double Wyeth, for the loss, destruction, or damage of the
insurance. Thus, if there is no double insurance, the other insurance goods/products due to any force majeure while the
clause cannot be applied.” goods/products are in transit and until actual delivery”

Facts:  The contract further required Reputable to secure an

insurance policy on Wyeth’s goods.
1) Wyeth Philippines, Inc. and Reputable Forwarders Services
(respondent)  Thus, on Feb. 11 1994, Reputable signed a Special Risk
Insurance Policy (SR Policy) with Petitioner MALAYAN for
- had been annually executing a contract of carriage,
the amount of 1M. (2nd policy)
- whereby the Reputable undertook to transport and
5) Oct. 6 1994: The truck carrying Wyeth’s (1st policy) (1K boxes of
deliver Wyeth’s products to its customers, dealers or
Promil infant formula worth around 2.35M), to be delivered by
salesmen.
Reputable to Mercury Drug Corp. in Libis,

16
  WAS HIJACKED by about 10 armed men. (The hijacked truck Malayan invoked the following provisions of the Special Risk
was recovered 2 weeks later without its cargo) Insurance Policy

6) March 8 1995: Philippines First, after due investigation and SR POLICY Section 5. INSURANCE WITH OTHER COMPANIES. The
adjustment, and pursuant to the Marine Policy, insurance does not cover any loss or damage to property which at the
time of the happening of such loss or damage is insured by or would
 paid Wyeth around 2.1M as indemnity.
but for the existence of this policy, be insured by any Fire or Marine
7) Philippines First then demanded reimbursement from policy or policies except in respect of any excess beyond the
Reputable amount which would have been payable under the Fire or Marine
 having been subrogated to the rights of Wyeth by virtue of policy or policies had this insurance not been effected.
the payment. = Reputable ignored the demand. SR POLICY SECTION 12. OTHER INSURANCE CLAUSE. If at the
8) Aug. 12 1996: Philippines First instituted an action for sum of time of any loss or damage happening to any property hereby
money against Reputable claiming that insured, there be any other subsisting insurance or insurances,
whether effected by the insured or by any other person or persons,
 Phil First cannot be made liable under the contract of covering the same property, the company shall not be liable to
carriage with Wyeth since the contract was not signed by pay or contribute more than its ratable proportion of such loss or
Wyeth’s representative/s. damage. (over)
 and that the cause of loss was force majeure, i.e., the 11) CA: sustained the RTC ruling.
hijacking incident.
 Reputable is estopped from assailing the validity of the
9) RTC: contract of carriage with Wyeth on the ground of lack of
 Reputable is liable to Philippines First for the amount of signature of Wyeth’s representative/s.
indemnity it paid to Wyeth, among others.  Reputable is liable under the contract for the value of the
 Malayan liable to indemnify Reputable goods even if the same was lost due to fortuitous event;
and
10) MALAYAN: argued that inasmuch as there was already a
marine policy issued by Philippines First securing the same  Sec. 12 "modified other insurance clause". of the Special
subject matter against loss and that since the monetary Risk Insurance Policy prevails over Sec. 5 “other insurance
coverage/value of the marine policy is more than enough to clause”, it being the latter provision of the same SR
indemnify the hijacked cargo, Policy;

 Philippines First alone must bear the loss.  however, since the ratable proportion provision of Sec. 12
APPLIED ONLY IN CASE OF DOUBLE INSURANCE, which is
 Malayan sought the dismissal of the third-party complaint
not present, then it should not be applied and Malayan
against it.
should be held liable for the full amount of the policy
coverage, that is, 1M.

17
  Section 93 of the Insurance Code, double insurance exists
where the same person is insured by several insurers
Issue: W/N Sections 5 and 12 of the SR Policy can be applied in favor
separately in respect to the same subject and interest.
of Malayan?
 In this case, even though the two concerned insurance policies
Ruling:
were issued over the same goods and cover the same risk, there
 Section 5 is actually the other insurance clause, not Section arises no double insurance since they were issued to two
12 as contended by Malayan. different persons/entities having distinct insurable
o Section 5.INSURANCE WITH OTHER COMPANIES. — interests.
The insurance does not cover any loss or damage to  Thus, over insurance by double insurance cannot likewise exist.
property which at the time of the happening of such loss
 Hence, as correctly ruled by the RTC and CA, neither Section 5
or damage is insured by or would but for the existence of
nor Section 12 of the SR Policy can be applied.
this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the  Malayan is liable to Reputable under the SR Policy.
amount which would have been payable under the Fire or
On Mortgage Redemption Insurance
Marine policy or policies had this insurance not been
effected. 29. Great Pacific Life Ass. Corp. vs. Court of Appeals, et. al.,
Oct. 13, 1999
o Section 12.OTHER INSURANCE CLAUSE. If at the time
of any loss or damage happening to any property hereby Doctrine: “The rationale of a group insurance policy of mortgagors,
insured, there be any other subsisting insurance or otherwise known as the mortgage redemption insurance, is a device for
insurances, whether effected by the insured or by any the protection of both the mortgagee and the mortgagor. On the part of
other person or persons, covering the same property, the the mortgagee, it has to enter into such form of contract so that in the
company shall not be liable to pay or contribute more event of the unexpected demise of the mortgagor during the
than its ratable proportion of such loss or damage. subsistence of the mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt, thereby relieving
 Section 5 does not provide for the nullity of the SR Policy but the heirs of the mortgagor from paying the obligation. In a similar vein,
simply limits the liability of Malayan only up to the excess of the ample protection is given to the mortgagor under such a concept so that
amount that was not covered by the other insurance policy. in the event of death; the mortgage obligation will be extinguished by
However, the prohibition only applies in case of double the application of the insurance proceeds to the mortgage indebtedness.
insurance. Consequently, where the mortgagor pays the insurance premium under
 The Court held that there is no double insurance in this case. the group insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagors interest, and the mortgagor
 The Court ruled that in order to constitute a violation of the
continues to be a party to the contract. In this type of policy insurance,
clause, the other insurance must be upon same subject matter,
the mortgagee is simply an appointee of the insurance fund, such loss-
the same interest therein, and the same risk.
payable clause does not make the mortgagee a party to the contract”

18
Facts: 6) Grepalife alleged that the complaint was instituted by Medarda
1) A CONTRACT of group life insurance was executed between who was not a real party in interest
Great Pacific Life Assurance (Grepalife) and DBP
 hence, the RTC has no jurisdiction over the case. Moreover,
 where Grepalife agreed to insure the lives of eligible the indispensable party, DBP was not joined in the suit.
housing loan mortgagors of DBP.
Issue: W/N petitioner is liable to DBP as a beneficiary in a group life
2) Dr. Wilfredo Leuterio, a housing debtor of DBP, applied for insurance from a complaint filed by the decedent/mortgagor?
membership in the group life insurance plan wherein he stated
Ruling:
in the application that he is in good health.
 Yes. The rationale of a group insurance policy of mortgagors,
 Grepalife thereafter issued a certificate as insurance
otherwise known as the mortgage redemption insurance, is a
coverage of Wilfredo to the extent of his DBP mortgage
device for the protection of both the mortgagee and the
indebtedness.
mortgagor.
3) Wilfredo died due to massive cerebral hemorrhage and
 On the part of the mortgagee, it has to enter into such form of
consequently, DBP submitted a death claim to Grepalife.
contract so that in the event of the unexpected demise of the
 Grepalife denied the claim alleging: mortgagor during the subsistence of the mortgage contract, the
a) Wilfredo was not physically healthy when he applied for proceeds from such insurance will be applied to the payment of
an insurance coverage the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation.
b) Wilfredo did not disclose that he was suffering from
hypertension which caused his death  In a similar vein, ample protection is given to the mortgagor
under such a concept so that in the event of death; the
o The NON-DISCLOSURE constituted concealment that mortgage obligation will be extinguished by the application of the
justified the denial of the claim insurance proceeds to the mortgage indebtedness. Consequently,
4) The widow of Wilfredo, Medarda, filed a complaint with the where the mortgagor pays the insurance premium under the
RTC against Grepalife. "Specific Performance with Damages." group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagors interest, and the
Note: during the trial, Dr. Hernando Mejia, who issued the mortgagor continues to be a party to the contract. In this type of
death certificate, was called to testify. Dr. Mejia's findings, policy insurance, the mortgagee is simply an appointee of the
based partly from the information given by the respondent insurance fund, such loss-payable clause does not make the
widow, stated that WILFREDO complained of headaches mortgagee a party to the contract.
presumably due to high blood pressure. The inference
was not conclusive because WILFREDO was not autopsied,  Section 8 of the Insurance Code provides:
hence, other causes were not ruled out Unless the policy provides, where a mortgagor of property effects
5) RTC and CA: Grepalife is liable insurance in his own name providing that the loss shall be payable to
the mortgagee, or assigns a policy of insurance to a mortgagee, the
19
insurance is deemed to be upon the interest of the mortgagor, who does 30. FGU Insurance Corp. vs. The Court of Appeals, et. al.,
not cease to be a party to the original contract, and any act of his, prior March 31, 2005
to the loss, which would otherwise avoid the insurance, will have the
Facts:
same effect, although the property is in the hands of the mortgagee,
but any act which, under the contract of insurance, is to be performed 1) Anco Enterprises Company (ANCO), a partnership between
by the mortgagor, may be performed by the mortgagee therein named, Ang Gui and Co To, was engaged in the shipping business
with the same effect as if it had been performed by the mortgagor. operating 2 common carriers

 The insured private respondent did not cede to the mortgagee all o M/T ANCO tugboat
his rights or interests in the insurance, the policy stating that: In o D/B Lucio barge - no engine of its own, it could not
the event of the debtors death before his indebtedness with the
maneuver by itself and had to be towed by a tugboat for
Creditor [DBP] shall have been fully paid, an amount to pay the
it to move from one place to another.
outstanding indebtedness shall first be paid to the creditor and
the balance of sum assured, if there is any, shall then be paid to 2) September 23 1979: San Miguel Corporation (SMC) shipped
the beneficiary/ies designated by the debtor.[10] When DBP from Mandaue City, Cebu, on board the D/B Lucio, for towage
submitted the insurance claim against petitioner, the latter by M/T ANCO:
denied payment thereof, interposing the defense of concealment o 25,000 cases Pale Pilsen and 350 cases Cerveza Negra -
committed by the insured. Thereafter, DBP collected the debt consignee  SMC’s Beer Marketing Division (BMD)-
from the mortgagor and took the necessary action of foreclosure Estancia Beer Sales Office, Estancia, ILOILO
on the residential lot of private respondent.
o 15,000 cases Pale Pilsen and 200 cases Cerveza Negra –
 Insured may be regarded as the real party in interest, although
consignee  SMC’s BMD-San Jose Beer Sales Office, San
he has assigned the policy for the purpose of collection, or has
Jose, ANTIQUE
assigned as collateral security any judgment he may obtain.
3) September 30, 1979 (a week later): D/B Lucio was towed by
 And since a policy of insurance upon life or health may pass by
the M/T ANCO from Mandaue City to  San Jose, Antique &
transfer, will or succession to any person, whether he has an
when they arrived M/T ANCO left the barge immediately
insurable interest or not, and such person may recover it
whatever the insured might have recovered, the widow of the o The clouds were dark and the waves were big so SMC’s
decedent Dr. Leuterio may file the suit against the insurer, District Sales Supervisor, Fernando Macabuag,
Grepalife. requested ANCO’s representative to transfer the barge
to a safer place BUT HE REFUSED (note: because he was
 Petition DENIED. confident that the barge could withstand the waves) (this withstanding
the fact that only the M/T ANCO was left at the wharf of San Jose, Antique, as
all other vessels already left the wharf to seek shelter)
On the Liability of Insurer for Loss Due to Negligence

20
 o so around midnight, the barge sunk along with 29,210 7) Furthermore, FGU alleged that ANCO and SMC failed to
CASES of Pale Pilsen and 500 CASES of Cerveza Negra exercise ordinary diligence or the diligence of a good father
totalling to P1,346,197 of the family in the care and supervision of THE CARGOES

4) As a consequence of the incident, SMC filed a complaint for 8) RTC: ANCO liable to  SMC and  FGU liable for 53% of the lost
Breach of Contract of Carriage and Damages against ANCO for cargoes
the amount of said cardo (cases of beer - 1,346,197.00M) o Note: while the cargoes were indeed lost due to fortuitous
o Note: Upon Ang Gui's death, ANCO, as a partnership, was dissolved hence, event, there was failure on ANCO’s part, through their
on 26 January 1993, SMC filed a second amended complaint which was representatives, to observe the degree of diligence required that
admitted by the Court impleading the surviving partner, Co To and the
would exonerate them from liability
Estate of Ang Gui

5) Upon SMC’s claim, ANCO stated that: 9) CA affirmed

o they had an agreement to the effect that it (ANCO) would Issue: W/N FGU should be exempted from liability to ANCO for the lost
cargoes because of a fortuitous event and negligence of ANCO
not be liable for any losses or damages resulting to the
cargoes by reason of fortuitous event Ruling: YES
o that there was another agreement between them and  3rd-party complainant is dismissed.
SMC to insure the cargoes in order to recover indemnity
o Art. 1733. Common carriers, from the nature of their
in case of loss
business and for reasons of public policy are bound to
o Pursuant to that agreement ^ the cargoes to the extent of observe extraordinary diligence in the vigilance over the
20K cases was insured with FGU Insurance (FGU) for the goods and for the safety of the passengers transported by
total amount P858,500.00 per Marine Insurance Policy No. them, according to all the circumstances of each case.
29591
o Art. 1734. Common carriers are responsible for the loss,
o Thus, ANCO filed a 3rd party complaint against FGU destruction, or deterioration of the goods, UNLESS the
same is due to any of the following causes only:
6) FGU: it is only liable under the policy to ANCO and/or SMC in
case of any of the ff: (1) Flood, storm, earthquake, lightning, or other natural disaster
or calamity;
a) total loss of the entire shipment;
 Art. 1739. In order that the common carrier may be exempted
b) loss of any case as a result of the sinking of the vessel;
from responsibility, the natural disaster must have been the
or
PROXIMATE AND ONLY CAUSE OF THE LOSS.
c) loss as a result of the vessel being on fire.
 However, the common carrier must exercise due diligence
to prevent or minimize loss BEFORE, DURING and AFTER
the occurrence of flood, storm, or other natural disaster in

21
 order that the common carrier may be exempted from
liability for the loss, destruction, or deterioration of the goods . .
.
 NOTE  IN SUM: To be exempted from responsibility, the
natural disaster should have been the proximate and only
cause of the loss. There must have been no contributory
negligence on the part of the common carrier.
 IN THIS CASE: There was blatant negligence on the part of
M/T ANCO’s crewmembers:
o 1st: when the patron (operator) of the tug boat who
immediately left the engine-less barge at the San
Jose, Antique wharf despite the looming bad
weather.
o 2nd: by ANCO’s representative who DID NOT HEED the
request of SMC that the barge be moved to a more
secure place.

o The prudent thing to do, as was done by the other sea

vessels during the time in question, was to transfer the
vessel to a safer wharf and that at that time, THE ONLY
SIMPLE VESSEL LEFT at the wharf in San Jose was the
D/B Lucio
o When evidence show that the insured’s negligence or
recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be
exonerated.
 ANCO’s employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under
the insurance contract both the D/B Lucio and the M/T
ANCO were blatantly negligent.

22