G.R. No.

L-10305 February 28, 1961

LEE BOG & COMPANY petitioner vs. HANOVER FIRE INSURANCE Respondents

TYPE OF TRANSACTION: Issuance of fire insurance policies of several companies

PARTIES IN THE CASE: Lee Bog & Co. (Assured) , Hanover Fire Insurance Corp (Insurer), Republic of the Philippines (trustee in
behalf of the Bureau of Commerce), Crispin Fernandez and Quirino Martinez (Depositor of the appellee)

FACTS:

This case is an appeal from a decision of the Court of First Instance of Pangasinan holding appellants liable for the face value of
the fire insurance policies issued by them.

11 fire insurance policies were issued by different fire insurance companies. One of them is the respondent Hanover Fire
Insurance. The assured in these policies is the plaintiff-appellee Lee Bog & Co. The insurance covered the stock of rice and
palay, the property of the assured or held by him in trust, on commission or on joint account with others and/or for which he is
responsible in case of loss while contained during the currency of the policies in the building of the assured in Pangasinan Rice
Mill.

There was a “simple loss payable clause” in favor of the Bureau of Commerce in all the policies issued by defendants-appellants,
except for one policy issued by the Hanover Fire Insurance Company, which also contained a “simple loss payable clause” but in
favor of the People’s Surety & Insurance Co.

The Republic of the Philippines intervened in behalf of the Bureau of Commerce as trustee to receive payment in case of loss
under the first ten mentioned policies. Crispin Fernandez and Quirino Martinez also intervened as alleged depositors of the
appellee for the purpose of recovering from the latter and the appellants, jointly and severally, the value of their alleged
deposits in the sum of P8,390.

In this instant appeal, it is argued that the lower court erred in considering the claims on the bonded palay belonging to
depositors separately and independently from the claim on the unbonded palay belonging to the appellee because the policies
sued upon were concurrent and each and all of them covered, in interety, inseparably and indivisibly, the stock of rice and palay
kept in the insured’s warehouse whether belonging to the insured or to its depositors.

ISSUE:

1. Whether or not the claims for bonded palay is different from the claims for unbonded palay
2. Whether or not the appellee used fraudulent means or devices to obtain benefits under the policies

RULING:

1. Yes. Supreme Court held that as there is, however a difference between bonded and unbonded palay and one is
distinct from the other, each subject must really be treated separately. The palay insured by the appellee under the
aforesaid ten policies included no more than such of the palay as the warehouse received as deposits.

This is the object of the requirement of law that “every person licensed, under this Act, to engage in the business of
receiveing rice for storage shall insure the rice as received and stored against fire.” In other words, the law requires
that bonded palay belonging to third persons should be insured against fire, in case of loss, the value thereof is
payable to the Bureau of Commerce. This is the very reason why plaintiff appellee insured said palay. The appellants
cannot pretend that they and appellee were not aware of the fact that the subject matter of the insurance policies
upon which the intervenor-appellee is suing was solely the palay covered by the Bonded Warehouse Act.

On the other hand, the policy issued by the Hanover Fire Insurance Company, which does not contain a clause
common to the other ten policies, referred only to the unbonded deposits of the appellee. In the case at bar, the
unbonded palay was owned by the owner of the rice mill.
 In addition, the warehouse receipts (quedans) may prove the deposits of bonded palay. Meanwhile, the unbonded
palay may be determined from the records of purchases of palay and sales of milled rice.

2. Supreme Court overruled the contention that the appellee used fraudulent means or devices to obtain benefits under
the policies. The samples of the debris taken from the warehouse after the fire consisted of darak and rice husks, the
must have been contained in the sacks stored in the warehouse is untenable.

It is not usual to find such debris because their unburned material formed the protective lining of the sacks of palay.
Also, the samples were taken only from the sides of the pile and not from its core. Considering the size of the pile, and
the time it took the fire to consume the mass of palay, the samples taken are too insignificant to be representative.
Hence, the mptove for such alleged fraud is missing. Appellee company was having a thriving business at the time of
the fire.

The decision appealed from is affirmed with costs against appellants.

LEE BOG & COMPANY, plaintiff-appellee,

Angel S. Gamboa for plaintiff-appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Pangasinan holding defendants-appellants liable for the
face value of the fire insurance policies issued respectively by them, with numbers and for amounts as follows:

Policy
Issuing Company Amount
Number
1016372 Hanover Fire Insurance P55,000.00
Company
2282 Alliance Ins. & Surety Co 22,000.00
3361 Empire Insurance Co 15,000.00
6741 Phil.American Gen. Ins. Co 20,000.00
17540945 Commercial Union Ass. Co. Ltd. 5,000.00
215634 British Traders Ins. Co. Ltd 5,000.00
47/21670 South British Ins. Co.Ltd 5,000.00
10PH- Insurance Co. of North America 5,000.00
1180
F-13140 Century Ins. Co., Inc 15,000.00
5864 People's Surety & Ins. Co 18,000.00
1016373 Hanover Fire Ins. Company     65,000.00
                    Total P230,000.00

The assured in these policies is plaintiff-appellee Lee Bog & Company. The insurance covered "stock of rice and palay
(loose and/or in sacks), the property of the assured or held by him in trust, on commission or on joint account with others
and/or for which he is responsible in case of loss", while contained during the currency of the policies in the building of the
assured in Binalonan, Pangasinan, otherwise known as the Binalonan, Pangasinan Rice Mill. There was a common "simple
loss payable clause" in favor of the Bureau of Commerce in all the policies issued by defendants-appellants, except Policy
No. 1016373, issued by the Hanover Fire Insurance Company, which also contained a "simple loss payable clause" but in
favor of the People's Surety & Insurance Co., Inc. Said clause provides that "loss, if any, under this policy, is payable to the
Bureau of Commerce, Manila, as its interest may appear, subject to the terms, conditions, clauses, and warranties of this
policy." .

The Republic of the Philippines intervened in behalf of the Bureau of Commerce as trustee to receive payment in case of
loss under the first ten above-mentioned policies. Crispin A. Fernandez and Quirino C. Martinez also intervened as alleged
depositors of the appellee for the purpose of recovering from the latter and the appellants, jointly and severally, the value of
their alleged deposits in the aggregate sum of P8,390.00.

In this instant appeal, it is argued that the lower court erred in considering the claims on the bonded palay belonging to
depositors separately and independently from the claim on the unbonded palay belonging to the appellee because the
policies sued upon were concurrent and each and all of them covered, in their entirety, inseparably and indivisibly, the stock
of rice and palay kept in the insured's warehouse, whether belonging to the insured or to its depositors. As there is, however,
a difference between bonded and unbonded palay and one is distinct from the other, each subject must really be treated
separately. The palay insured by the appellee under the aforesaid ten policies included no more than such of the palay as
the warehouse received as deposits. The palay insured by the appellee payable to the Bureau of Commerce in case of loss
covered only the palay that was received as deposits. This is the object of the requirement of law that "every person
licensed, under this Act, to engage in the business of receiving rice for storage shall insure the rice as received and stored
against fire." This is the very reason why plaintiff-appellee insured said palay. The appellants cannot pretend that they and
appellee were not aware of the fact that the subject matter of the insurance policies upon which the intervenor-appellee is
suing was solely the palay covered by the Bonded Warehouse Act. Upon the other hand, policy No. 1016373 issued by the
Hanover Fire Insurance Company, which does not contain a clause common to the aforementioned ten policies, referred
only to the unbonded deposits of the appellee.

Under the second assignment of error, appellants contend that appellee has failed to establish its loss; that the claims were
for about three times the actual loss and therefore fraudulent; that appellee employed fraudulent means and devices to
obtain undue benefits under the policies by combining and commingling with sacks of rice and palay approximately the
same quantity of rice bran and/or rice husk; and that appellee had presented false supporting declarations.

Appellee's evidence of loss (Lee Bog's testimony, Exhibits M, M-1 to M-110, Exhibit R column C-19, the testimony found on
pp. 147-150, 204-207, 350, 549-550, t.s.n., Exhibits N, N-1) has satisfactorily established the amounts claimed. The quantity
of bonded palay lost and destroyed has been proved by the corresponding quedans (negotiable warehouse receipts),
Exhibits M, M-1 to M-110 and AQ. As shown by these receipts, the outstanding deposits as of May 3, 1953, after deducting
the withdrawals, amounted to 659,513.5 kilos, which at 44 kilos a cavan, would be equivalent to 14,989 cavanes of palay.
These figures tally with the quantity of palay stated in the proof of loss covering the bonded palay.

As regards the unbonded palay or that belonging to the appellee, the amount of loss may verily be determined from the
purchase of palay and sales of milled rice that had been regularly recorded in the columnar cash book (Exhibit R) at the
place of transaction by a certified public accountant. After simple arithmetical processes, the remaining palay at the time of
the fire would be 14,514.7 cavanes Appellants' argument that fraud is manifested by the fact that the quantity of palay is still
short by 68.3 cavanes on the basis of 14,583 cavanes stated in the proof of loss involves an insignificant error if due
consideration is taken of the circumstance that it does not exactly and necessarily take two cavanes of palay to mill a cavan
of rice. The type of palay and the dryness of husks affect the process.

Moreover, the testimony of the managing partner of the appellee company and of Agustin de Vera and Segismundo Millan,
both commercial agents of the Bureau of Commerce at the time assigned in Pangasinan, confirms the physical existence of
the claimed quantity of palay, as their estimates more or less approximate the actual loss. Naturally, numerical Precision
may not be expected, because those estimates were based merely on a physical observation of the big pile existing before
the fire. It is sufficient that they show little discrepancy with the figures recorded in the books of the appellee.

The mathematical computations of witnesses Filomeno and Magpili are "rough estimates" and therefore some allowance for
such technical factors as "staggering," "shrinkage" and "angle of repose" should be duly taken into account; and where said
estimates do not show too wide a difference, there would be no justification in discrediting appellee's claims.

We also overrule the contention that the appellee used fraudulent means or devices to obtain benefits under the policies.
The conclusion that, because the samples of the debris taken from the warehouse after the fire consisted of darak and rice
husks, the must have been contained in the sacks stored in the warehouse, is untenable. In the first place, it is not unusual
to find such debris because their unburned material formed the protective lining of the sacks of palay. Secondly, the samples
were taken only from the sides of the pile and not from its core. Thirdly, considering (as appellee argues) the size of the pile,
1,411.84 cubic meters, and the time it took the fire to consume the mass of palay, the samples taken are too insignificant to
be representative. Lastly, the motive for such alleged fraud is missing. Appellee company was having a thriving business at
the time of the fire.

In the light of the foregoing considerations, the decision appealed from is hereby affirmed with costs against appellants. So
ordered.