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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-16138 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,vs.

FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.

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G.R. No. L-16139 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,vs.ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.

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G.R. No. L-16140 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,vs.UNITED INSURANCE CO., INC., defendant-appellee.

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G.R. No. L-16141 April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant,vs.PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.

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G.R. No. L-16142 April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,vs.RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.

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G.R. No. L-16143 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,vs.FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.

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G.R. No. L-16144 April 29, 1961

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DIOSDADO C. TY, plaintiff-appellant,vs.CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

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G.R. No. L-16145 April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,vs.

CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

V. B. Gesunundo for plaintiff-appellant.M. Perez Cardenas for defendant-appellee.

LABRADOR, J.:

Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa,presiding, dismissing the actions filed in the above-entitled cases.

The facts found by the trial court, which are not disputed in this appeal, are as follows:

At different times within a period of two months prior to December 24, 1953, the plaintiffherein Diosdado C. Ty, employed as operator mechanic foreman in the Broadway CottonFactory, in Grace Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself in18 local insurance companies, among which being the eight above named defendants, whichissued to him personal accident policies, upon payment of the premium of P8.12 for eachpolicy. Plaintiff's beneficiary was his employer, Broadway Cotton Factory, which paid theinsurance premiums.

On December 24, 1953, a fire broke out which totally destroyed the Broadway CottonFactory. Fighting his way out of the factory, plaintiff was injured on the left hand by a heavyobject. He was brought to the Manila Central University hospital, and after receiving first aidthere, he went to the National Orthopedic Hospital for treatment of his injuries which were as

follows:

1. Fracture, simple, proximal phalanx index finger, left;

2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx,simple;

3. Fracture, compound, comminute phalanx, 4th finger, left;

4. Fracture, simple, middle phalanx, middle finger, left;

5. Lacerated wound, sutured, volar aspect, small finger, left;

6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment inthe Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above-describedphysical injuries have caused temporary total disability of plaintiff's left hand. Plaintiff filed thecorresponding notice of accident and notice of claim with all of the abovenamed defendantsto recover indemnity under Part II of the policy, which is similarly worded in all of the policies,and which reads pertinently as follows:

INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

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If the Insured sustains any Bodily Injury which is effected solely through violent, external,visible and accidental means, and which shall not prove fatal but shall result, independentlyof all other causes and within sixty (60) days from the occurrence thereof, in Total or PartialDisability of the Insured, the Company shall pay, subject to the exceptions as provided forhereinafter, the amount set opposite such injury:

PARTIAL DISABILITY

LOSS OF:

x x x x x x x x x

Either hand ............................................................................ P650.00

x x x x x x x x x

... The loss of a hand shall mean the loss by amputation through the bones of the wrist....

Defendants rejected plaintiff's claim for indemnity for the reason that there being noseverance of amputation of the left hand, the disability suffered by him was not covered byhis policy. Hence, plaintiff sued the defendants in the Municipal Court of this City, and fromthe decision of said Court dismissing his complaints, plaintiff appealed to this Court.

(Decision of the Court of First Instance of Manila, pp. 223-226, Records).

In view of its finding, the court absolved the defendants from the complaints. Hence this appeal.

The main contention of appellant in these cases is that in order that he may recover on theinsurance policies issued him for the loss of his left hand, it is not necessary that there should be anamputation thereof, but that it is sufficient if the injuries prevent him from performing his work orlabor necessary in the pursuance of his occupation or business. Authorities are cited to the effectthat "total disability" in relation to one's occupation means that the condition of the insurance is suchthat common prudence requires him to desist from transacting his business or renders him incapableof working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should beinterpreted against the person who caused the obscurity, and the ones which caused the obscurity in

the cases at bar are the defendant insurance companies.

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued,we can not go beyond the clear and express conditions of the insurance policies, all of which definepartial disability as loss of either hand by amputation through the bones of the wrist." There was nosuch amputation in the case at bar. All that was found by the trial court, which is not disputed onappeal, was that the physical injuries "caused temporary total disability of plaintiff's left hand." Notethat the disability of plaintiff's hand was merely temporary, having been caused by fracture of theindex, the middle and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the law between the parties.As the terms of the policies are clear, express and specific that only amputation of the left handshould be considered as a loss thereof, an interpretation that would include the mere fracture orother temporary disability not covered by the policies would certainly be unwarranted.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiff-appellant.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon,JJ., concur.

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Manila

EN BANC

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,vs.

THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.Agustin M. Gramata for plaintiff and appellee.

BARRERA, J .:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court ofFirst Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simonde la Cruz for the death of the latter's son, to pay the burial expenses, and attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the

holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance &Surety Co., Inc., for the period beginning November 13, 1956 to November 12, 1957. On January 1,1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored aboxing contest for general entertainment wherein the insured Eduardo de la Cruz, a non-professional boxer participated. In the course of his bout with another person, likewise a non-professional, of the same height, weight, and size, Eduardo slipped and was hit by his opponent onthe left part of the back of the head, causing Eduardo to fall, with his head hitting the rope of the ring.He was brought to the Baguio General Hospital the following day. The cause of death was reportedas hemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the policy,thereupon filed a claim with the insurance company for payment of the indemnity under the

insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of FirstInstance of Pangasinan for specific performance. Defendant insurer set up the defense that thedeath of the insured, caused by his participation in a boxing contest, was not accidental and,therefore, not covered by insurance. After due hearing the court rendered the decision in favor of theplaintiff which is the subject of the present appeal.

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped,which was unintentional. At this opportunity, his opponent landed on Eduardo's head a blow, whichsent the latter to the ropes. That must have caused the cranial injury that led to his death. Eduardowas insured "against death or disability caused by accidental means". Appellant insurer nowcontends that while the death of the insured was due to head injury, said injury was sustainedbecause of his voluntary participation in the contest. It is claimed that the participation in the boxingcontest was the "means" that produced the injury which, in turn, caused the death of the insured.

And, since his inclusion in the boxing card was voluntary on the part of the insured, he cannot beconsidered to have met his death by "accidental means". 1wph1.t

The terms "accident" and "accidental", as used in insurance contracts, have not acquired anytechnical meaning, and are construed by the courts in their ordinary and common acceptation. Thus,the terms have been taken to mean that which happen by chance or fortuitously, without intentionand design, and which is unexpected, unusual, and unforeseen. An accident is an event that takesplace without one's foresight or expectation an event that proceeds from an unknown cause, or isan unusual effect of a known cause and, therefore, not expected. 1

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Appellant however, would like to make a distinction between "accident or accidental" and "accidentalmeans", which is the term used in the insurance policy involved here. It is argued that to beconsidered within the protection of the policy, what is required to be accidental is the means thatcaused or brought the death and not the death itself. It may be mentioned in this connection, that thetendency of court decisions in the United States in recent years is to eliminate the fine distinctionbetween the terms "accidental" and "accidental means" and to consider them as legallysynonymous.2 But, even if we take appellant's theory, the death of the insured in the case at barwould still be entitled to indemnification under the policy. The generally accepted rule is that, deathor injury does not result from accident or accidental means within the terms of anaccident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything

unforeseen except the death or injury.3

There is no accident when a deliberate act is performedunless some additional, unexpected, independent, and unforeseen happening occurs whichproduces or brings about the result of injury or death.4 In other words, where the death or injury isnot the natural or probable result of the insured's voluntary act, or if something unforeseen occurs inthe doing of the act which produces the injury, the resulting death is within the protection of policiesinsuring against death or injury from accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injurywas sustained when he slid, giving occasion to the infliction by his opponent of the blow that threwhim to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of thedeceased, perhaps he could not have received that blow in the head and would not have died. Thefact that boxing is attended with some risks of external injuries does not make any injuries receivedin the course of the game not accidental. In boxing as in other equally physically rigorous sports,

such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does,the injury or death can only be accidental or produced by some unforeseen happening or event aswhat occurred in this case.

Furthermore, the policy involved herein specifically excluded from its coverage

(e) Death or disablement consequent upon the Insured engaging in football, hunting,pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, ormotorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of theprotection of the insurance contract. Failure of the defendant insurance company to include death

resulting from a boxing match or other sports among the prohibitive risks leads inevitably to theconclusion that it did not intend to limit or exempt itself from liability for such death.5

Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed,with costs against appellant. so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez,JJ., concur.

Footnotes

129A Am. Jur. pp. 308-309, and cases cited therein.2Traveler's Protective Association v. Stephens, 185 Ark. 660, 49 S.W. (2d) 364; EquitableLife Assur. v. Hemenover, 100 Colo. 231, 67 P. (2d) 80, 110 ALR 1270; see cases cited in29A Am. Jur. sec. 1166.3Landress v. Phoenix Mut. Life Ins. Co., 291 U.S. 291, 78 L. ed. 934, 54 S. Ct. 461, 90 ALR1382; Davis v. Jefferson Standard Life Ins. Co., 73 F (2d) 330, 96 ALR 599, and others.4Evans v. Metropolitan Life Ins. Co., 26 Wash. (2d) 594, 174 P. (2d) 961.5Brams v. New York Life Ins. 299 Pa. 11 148 Atl. 855; Jolley v. Jefferson Standard Life Ins.Co., 95 Wash, 683, 294 Pac. 585.

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Manila

EN BANC

G.R. No. L-4611 December 17, 1955

QUA CHEE GAN, plaintiff-appellee,vs.

LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, BARNESAND CO., LTD., defendant-appellant.

Delgado, Flores & Macapagal for appellant.Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, Ponce Enrile & Contrerasfor appellee.

REYES, J. B. L., J .:

Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance of

said province, seeking to recover the proceeds of certain fire insurance policies totalling P370,000,issued by the Law Union & Rock Insurance Co., Ltd., upon certain bodegas and merchandise of theinsured that were burned on June 21, 1940. The records of the original case were destroyed duringthe liberation of the region, and were reconstituted in 1946. After a trial that lasted several years, theCourt of First Instance rendered a decision in favor of the plaintiff, the dispositive part whereof readsas follows:

Wherefore, judgment is rendered for the plaintiff and against the defendant condemning thelatter to pay the former

(a) Under the first cause of action, the sum of P146,394.48;

(b) Under the second cause of action, the sum of P150,000;

(c) Under the third cause of action, the sum of P5,000;

(d) Under the fourth cause of action, the sum of P15,000; and

(e) Under the fifth cause of action, the sum of P40,000;

all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of theInsurance Act from September 26, 1940, until each is paid, with costs against the defendant.

The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on

Appeal, 166-167.)

From the decision, the defendant Insurance Company appealed directly to this Court.

The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas(designated as Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage ofstocks of copra and of hemp, baled and loose, in which the appellee dealth extensively. They hadbeen, with their contents, insured with the defendant Company since 1937, and the lose madepayable to the Philippine National Bank as mortgage of the hemp and crops, to the extent of itsinterest. On June, 1940, the insurance stood as follows:

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Policy No. Property Insured Amount

2637164 (Exhibit"LL")

Bodega No. 1 (Building) P15,000.00

2637165 (Exhibit"JJ")

Bodega No. 2 (Building) 10,000.00



Hemp Press

moved by steam engine 5,000.00

2637345 (Exhibit"X")

Merchandise contents (copra and empty sacks ofBodega No. 1)

150,000.00

2637346 (Exhibit"Y")

Merchandise contents (hemp) of Bodega No. 3 150,000.00

2637067 (Exhibit"GG")

Merchandise contents (loose hemp) of Bodega No. 4 5,000.00

Total P370,000.00

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almostone week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise storedtheren. Plaintiff-appellee informed the insurer by telegram on the same date; and on the next day,the fire adjusters engaged by appellant insurance company arrived and proceeded to examine andphotograph the premises, pored over the books of the insured and conducted an extensiveinvestigation. The plaintiff having submitted the corresponding fire claims, totalling P398,562.81 (butreduced to the full amount of the insurance, P370,000), the Insurance Company resisted payment,claiming violation of warranties and conditions, filing of fraudulent claims, and that the fire had beendeliberately caused by the insured or by other persons in connivance with him.

With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with hisbrother, Qua Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime ofarson, it being claimed that they had set fire to the destroyed warehouses to collect the insurance.They were, however, acquitted by the trial court in a final decision dated July 9, 1941 (Exhibit WW).Thereafter, the civil suit to collect the insurance money proceeded to its trial and termination in theCourt below, with the result noted at the start of this opinion. The Philippine National Bank'scomplaint in intervention was dismissed because the appellee had managed to pay his indebtednessto the Bank during the pendecy of the suit, and despite the fire losses.

In its first assignment of error, the insurance company alleges that the trial Court should have heldthat the policies were avoided for breach of warranty, specifically the one appearing on a riderpasted (with other similar riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riderswere attached for the first time in 1939, and the pertinent portions read as follows:

Memo. of Warranty.

The undernoted Appliances for the extinction of fire being kept on thepremises insured hereby, and it being declared and understood that there is an ample andconstant water supply with sufficient pressure available at all seasons for the same, it ishereby warranted that the said appliances shall be maintained in efficient working orderduring the currency of this policy, by reason whereof a discount of 2 1/2 per cent is allowedon the premium chargeable under this policy.

Hydrants in the compound, not less in number than one for each 150 feet of external wallmeasurement of building, protected, with not less than 100 feet of hose piping and nozzlesfor every two hydrants kept under cover in convenient places, the hydrants being supplied

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with water pressure by a pumping engine, or from some other source, capable of dischargingat the rate of not less than 200 gallons of water per minute into the upper story of the highestbuilding protected, and a trained brigade of not less than 20 men to work the same.'

It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640feet, the appellee should have eleven (11) fire hydrants in the compound, and that he actually hadonly two (2), with a further pair nearby, belonging to the municipality of Tabaco.

We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) toclaim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the

number of hydrants demanded therein never existed from the very beginning, the appellantneverthless issued the policies in question subject to such warranty, and received the correspondingpremiums. It would be perilously close to conniving at fraud upon the insured to allow appellant toclaims now as void ab initio the policies that it had issued to the plaintiff without warning of their fataldefect, of which it was informed, and after it had misled the defendant into believing that the policieswere effective.

The insurance company was aware, even before the policies were issued, that in the premisesinsured there were only two fire hydrants installed by Qua Chee Gan and two others nearby, ownedby the municipality of TAbaco, contrary to the requirements of the warranty in question. Such factappears from positive testimony for the insured that appellant's agents inspected the premises; andthe simple denials of appellant's representative (Jamiczon) can not overcome that proof. That such

inspection was made is moreover rendered probable by its being a prerequisite for the fixing of thediscount on the premium to which the insured was entitled, since the discount depended on thenumber of hydrants, and the fire fighting equipment available (See "Scale of Allowances" to whichthe policies were expressly made subject). The law, supported by a long line of cases, is expressedby American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of a policy of insurance,has knowledge of existing facts which, if insisted on, would invalidate the contract from itsvery inception, such knowledge constitutes a waiver of conditions in the contract inconsistentwith the facts, and the insurer is stopped thereafter from asserting the breach of suchconditions. The law is charitable enough to assume, in the absence of any showing to thecontrary, that an insurance company intends to executed a valid contract in return for thepremium received; and when the policy contains a condition which renders it voidable at its

inception, and this result is known to the insurer, it will be presumed to have intended towaive the conditions and to execute a binding contract, rather than to have deceived theinsured into thinking he is insured when in fact he is not, and to have taken his moneywithout consideration. (29 Am. Jur., Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to acceptone's money for a policy of insurance which it then knows to be void and of no effect, thoughit knows as it must, that the assured believes it to be valid and binding, is so contrary to thedictates of honesty and fair dealing, and so closely related to positive fraud, as to theabhorent to fairminded men. It would be to allow the company to treat the policy as valid long

enough to get the preium on it, and leave it at liberty to repudiate it the next moment. Thiscannot be deemed to be the real intention of the parties. To hold that a literal construction ofthe policy expressed the true intention of the company would be to indict it, for fraudulentpurposes and designs which we cannot believe it to be guilty of (Wilson vs. CommercialUnion Assurance Co., 96 Atl. 540, 543-544).

The inequitableness of the conduct observed by the insurance company in this case is heightenedby the fact that after the insured had incurred the expense of installing the two hydrants, thecompany collected the premiums and issued him a policy so worded that it gave the insured adiscount much smaller than that he was normaly entitledto. According to the "Scale of Allowances," apolicy subject to a warranty of the existence of one fire hydrant for every 150 feet of external wall

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entitled the insured to a discount of 7 1/2 per cent of the premium; while the existence of "hydrants,in compund" (regardless of number) reduced the allowance on the premium to a mere 2 1/2 percent. This schedule was logical, since a greater number of hydrants and fire fighting appliancesreduced the risk of loss. But the appellant company, in the particular case now before us, so wordedthe policies that while exacting the greater number of fire hydrants and appliances, it kept thepremium discount at the minimum of 2 1/2 per cent, thereby giving the insurance company a doublebenefit. No reason is shown why appellant's premises, that had been insured with appellant forseveral years past, suddenly should be regarded in 1939 as so hazardous as to be accorded atreatment beyond the limits of appellant's own scale of allowances. Such abnormal treatment of theinsured strongly points at an abuse of the insurance company's selection of the words and terms of

the contract, over which it had absolute control.

These considerations lead us to regard the parol evidence rule, invoked by the appellant as notapplicable to the present case. It is not a question here whether or not the parties may vary a writtencontract by oral evidence; but whether testimony is receivable so that a party may be, by reason ofinequitable conduct shown, estopped from enforcing forfeitures in its favor, in order to forestall fraudor imposition on the insured.

Receipt of Premiums or Assessments afte Cause for Forfeiture Other than Nonpayment. Itis a well settled rule of law that an insurer which with knowledge of facts entitling it to treat apolicy as no longer in force, receives and accepts a preium on the policy, estopped to takeadvantage of the forfeiture. It cannot treat the policy as void for the purpose of defense to anaction to recover for a loss thereafter occurring and at the same time treat it as valid for thepurpose of earning and collecting further premiums." (29 Am. Jur., 653, p. 657.)

It would be unconscionable to permit a company to issue a policy under circumstances whichit knew rendered the policy void and then to accept and retain premiums under such a voidpolicy. Neither law nor good morals would justify such conduct and the doctrine of equitableestoppel is peculiarly applicable to the situation. (McGuire vs. Home Life Ins. Co. 94 Pa.Super Ct. 457.)

Moreover, taking into account the well known rule that ambiguities or obscurities must be strictlyinterpreted aganst the prty that caused them, 1the "memo of warranty" invoked by appellant bars thelatter from questioning the existence of the appliances called for in the insured premises, since itsinitial expression, "the undernoted appliances for the extinction of fire being kept on the premises

insured hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of theexistence of such appliances which appellant cannot now contradict, should the parol evidence ruleapply.

The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equallyrejected, since the appellant's argument thereon is based on the assumption that the insured wasbound to maintain no less than eleven hydrants (one per 150 feet of wall), which requirementappellant is estopped from enforcing. The supposed breach of the wter pressure condition is madeto rest on the testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds;appellant thereupon inferring that the maximum quantity obtainable from the hydrants was 100gallons a minute, when the warranty called for 200 gallons a minute. The transcript shows, however,that Serra repeatedly refused and professed inability to estimate the rate of discharge of the water,

and only gave the "5-gallon per 3-second" rate because the insistence of appellant's counsel forcedthe witness to hazard a guess. Obviously, the testimony is worthless and insufficient to establish theviolation claimed, specially since the burden of its proof lay on appellant.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same wasorganized, and drilled, from time to give, altho not maintained as a permanently separate unit, whichthe warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain forhis compound alone a fire fighting force that many municipalities in the Islands do not even possess.There is no merit in appellant's claim that subordinate membership of the business manager (CoCuan) in the fire brigade, while its direction was entrusted to a minor employee unders the testimony

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improbable. A business manager is not necessarily adept at fire fighting, the qualities required beingdifferent for both activities.

Under the second assignment of error, appellant insurance company avers, that the insured violatedthe "Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline,since appellee admitted that there were 36 cans (latas) of gasoline in the building designed as"Bodega No. 2" that was a separate structure not affected by the fire. It is well to note that gasoline isnot specifically mentioned among the prohibited articles listed in the so-called "hemp warranty." Thecause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or mineral and/or theirliquid products having a flash point below 300o Fahrenheit", and is decidedly ambiguous and

uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And howmany insured, it may well be wondered, are in a position to understand or determine "flash pointbelow 003o Fahrenheit. Here, again, by reason of the exclusive control of the insurance companyover the terms and phraseology of the contract, the ambiguity must be held strictly against theinsurer and liberraly in favor of the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175;29 Am. Jur. 180).

Insurance is, in its nature, complex and difficult for the layman to understand. Policies areprepared by experts who know and can anticipate the hearing and possible complications ofevery contingency. So long as insurance companies insist upon the use of ambiguous,intricate and technical provisions, which conceal rather than frankly disclose, their ownintentions, the courts must, in fairness to those who purchase insurance, construe everyambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA1917A, 1237.)

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeatthe very purpose for which the policy was procured (Moore vs. Aetna Life Insurance Co.,LRA 1915D, 264).

We see no reason why the prohibition of keeping gasoline in the premises could not be expressedclearly and unmistakably, in the language and terms that the general public can readily understand,without resort to obscure esoteric expression (now derisively termed "gobbledygook"). We reiteratethe rule stated in Bachrach vs. British American Assurance Co. (17 Phil. 555, 561):

If the company intended to rely upon a condition of that character, it ought to have been

plainly expressed in the policy.

This rigid application of the rule on ambiguities has become necessary in view of current businesspractices. The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital,endowed with overwhelming economic power, manage to impose upon parties dealing with themcunningly prepared "agreements" that the weaker party may not change one whit, his participation inthe "agreement" being reduced to the alternative to take it or leave it" labelled since RaymondBaloilles" contracts by adherence" (con tracts d'adhesion), in contrast to these entered into byparties bargaining on an equal footing, such contracts (of which policies of insurance andinternational bills of lading are prime examples) obviously call for greater strictness and vigilance onthe part of courts of justice with a view to protecting the weaker party from abuses and imposition,and prevent their becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of Supreme

Court of Spain, 13 Dec. 1934, 27 February 1942).

Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad,habra de ser tenido en cuenta que al seguro es, practicamente un contrato de los llamadosde adhesion y por consiguiente en caso de duda sobre la significacion de las clausulasgenerales de una poliza redactada por las compafijas sin la intervencion alguna de susclientes se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil, lainterpretacion mas favorable al asegurado, ya que la obscuridad es imputable a la empresaaseguradora, que debia haberse explicado mas claramante. (Dec. Trib. Sup. of Spain 13Dec. 1934)

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The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, butequally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining positioncarries with it stricter responsibility.

Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was onlyincidental to his business, being no more than a customary 2 day's supply for the five or six motorvehicles used for transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well settledthat the keeping of inflammable oils on the premises though prohibited by the policy does not void itif such keeping is incidental to the business." Bachrach vs. British American Ass. Co., 17 Phil. 555,560); and "according to the weight of authority, even though there are printed prohibitions against

keeping certain articles on the insured premises the policy will not be avoided by a violation of theseprohibitions, if the prohibited articles are necessary or in customary use in carrying on the trade orbusiness conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section966b). It should also be noted that the "Hemp Warranty" forbade storage only "in the building towhich this insurance applies and/or in any building communicating therewith", and it is undisputedthat no gasoline was stored in the burned bodegas, and that "Bodega No. 2" which was not burnedand where the gasoline was found, stood isolated from the other insured bodegas.

The charge that the insured failed or refused to submit to the examiners of the insurer the books,vouchers, etc. demanded by them was found unsubstantiated by the trial Court, and no reason hasbeen shown to alter this finding. The insured gave the insurance examiner all the date he asked for(Exhibits AA, BB, CCC and Z), and the examiner even kept and photographed some of theexamined books in his possession. What does appear to have been rejected by the insured was thedemand that he should submit "a listofallbooks, vouchers, receipts and other records" (Age 4,Exhibit 9-c); but the refusal of the insured in this instance was well justified, since the demand for alist of all the vouchers (which were not in use by the insured) and receipts was positivelyunreasonable, considering that such listing was superfluous because the insurer was not deniedaccess to the records, that the volume of Qua Chee Gan's business ran into millions, and that thedemand was made just after the fire when everything was in turmoil. That the representatives of theinsurance company were able to secure all the date they needed is proved by the fact that theadjuster Alexander Stewart was able to prepare his own balance sheet (Exhibit L of the criminalcase) that did not differ from that submitted by the insured (Exhibit J) except for the valuation of themerchandise, as expressly found by the Court in the criminal case for arson. (Decision, Exhibit WW).

How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the

decision of the arson case (Exhibit WW) acquiting Qua Choc Gan, appellee in the presentproceedings. The decision states (Exhibit WW, p. 11):

Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asicomo su existencia de copra y abaca en las bodega al tiempo del incendio durante elperiodo comprendido desde el 1.o de enero al 21 de junio de 1940 y ha encontrado que QuaChoc Gan ha sufrico una perdida de P1,750.76 en su negocio en Tabaco. Segun Steward alllegar a este conclusion el ha tenidoen cuenta el balance de comprobacion Exhibit 'J' que leha entregado el mismo acusado Que Choc Gan en relacion con sus libros y lo haencontrado correcto a excepcion de los precios de abaca y copra que alli aparecen que noestan de acuerdo con los precios en el mercado. Esta comprobacion aparece en el balancemercado exhibit J que fue preparado por el mismo testigo.

In view of the discrepancy in the valuations between the insured and the adjuster Stewart for theinsurer, the Court referred the controversy to a government auditor, Apolonio Ramos; but the latterreached a different result from the other two. Not only that, but Ramos reported two differentvaluations that could be reached according to the methods employed (Exhibit WW, p. 35):

La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos parapromovar el comercio y la finanza, pero en el caso presente ha resultado un tantocumplicada y acomodaticia, como lo prueba el resultado del examen hecho por loscontadores Stewart y Ramos, pues el juzgado no alcanza a ver como habiendo examinadolas mismas partidas y los mismos libros dichos contadores hayan de llegara dos

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conclusiones que difieron sustancialmente entre si. En otras palabras, no solamente lacomprobacion hecha por Stewart difiere de la comprobacion hecha por Ramos sino que,segun este ultimo, su comprobacion ha dado lugar a dos resultados diferentes dependiendodel metodo que se emplea.

Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurerattempted to bolster its case with alleged photographs of certain pages of the insurance book(destroyed by the war) of insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showingabnormal purchases of hemp and copra from June 11 to June 20, 1940. The Court below remainedunconvinced of the authenticity of those photographs, and rejected them, because they were not

mentioned not introduced in the criminal case; and considering the evident importance of saidexhibits in establishing the motive of the insured in committing the arson charged, and the absenceof adequate explanation for their omission in the criminal case, we cannot say that their rejection inthe civil case constituted reversible error.

The next two defenses pleaded by the insurer, that the insured connived at the loss and that thefraudulently inflated the quantity of the insured stock in the burnt bodegas, are closely related toeach other. Both defenses are predicted on the assumption that the insured was in financialdifficulties and set the fire to defraud the insurance company, presumably in order to pay off thePhilippine National Bank, to which most of the insured hemp and copra was pledged. Both defensesare fatally undermined by the established fact that, notwithstanding the insurer's refusal to pay thevalue of the policies the extensive resources of the insured (Exhibit WW) enabled him to pay off theNational Bank in a short time; and if he was able to do so, no motive appears for attempt to defraudthe insurer. While the acquittal of the insured in the arson case is not res judicata on the present civilaction, the insurer's evidence, to judge from the decision in the criminal case, is practically identicalin both cases and must lead to the same result, since the proof to establish the defense ofconnivance at the fire in order to defraud the insurer "cannot be materially less convincing than thatrequired in order to convict the insured of the crime of arson"(Bachrach vs. British American

Assurance Co., 17 Phil. 536).

As to the defense that the burned bodegas could not possibly have contained the quantities of copraand hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates,inferences and conclusionsAs to the defense that the burned bodegas could not possibly havecontained the quantities of copra and hemp stated in the fire claims, the insurer's case rests almostexclusively on the estimates, inferences and conclusions of its adjuster investigator, Alexander D.

Stewart, who examined the premises during and after the fire. His testimony, however, was basedon inferences from the photographs and traces found after the fire, and must yield to thecontradictory testimony of engineer Andres Bolinas, and specially of the then Chief of the LoanDepartment of the National Bank's Legaspi branch, Porfirio Barrios, and of Bank Appraiser LoretoSamson, who actually saw the contents of the bodegas shortly before the fire, while inspecting themfor the mortgagee Bank. The lower Court was satisfied of the veracity and accuracy of thesewitnesses, and the appellant insurer has failed to substantiate its charges aganst their character. Infact, the insurer's repeated accusations that these witnesses were later "suspended for fraudulenttransactions" without giving any details, is a plain attempt to create prejudice against them, withoutthe least support in fact.

Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hempburned (t. s. n., pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below toaccept its inferences from the remains shown in the photographs of the burned premises. It appears,likewise, that the adjuster's calculations of the maximum contents of the destroyed warehousesrested on the assumption that all the copra and hemp were in sacks, and on the result of hisexperiments to determine the space occupied by definite amounts of sacked copra. The error in theestimates thus arrived at proceeds from the fact that a large amount of the insured's stock were inloose form, occupying less space than when kept in sacks; and from Stewart's obvious failure to givedue allowance for the compression of the material at the bottom of the piles (t. s. n., pp. 1964, 1967)due to the weight of the overlying stock, as shown by engineer Bolinas. It is probable that the errorswere due to inexperience (Stewart himself admitted that this was the first copra fire he hadinvestigated); but it is clear that such errors render valueles Stewart's computations. These were in

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fact twice passed upon and twice rejected by different judges (in the criminal and civil cases) andtheir concordant opinion is practically conclusive.

The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, sincethe opinions stated therein were based on ex parte investigations made at the back of the insured;and the appellant did not present at the trial the original testimony and documents from which theconclusions in the report were drawn.lawphi1.net

Appellant insurance company also contends that the claims filed by the insured contained false andfraudulent statements that avoided the insurance policy. But the trial Court found that the

discrepancies were a result of the insured's erroneous interpretation of the provisions of theinsurance policies and claim forms, caused by his imperfect knowledge of English, and that themisstatements were innocently made and without intent to defraud. Our review of the lengthy recordfails to disclose reasons for rejecting these conclusions of the Court below. For example, theoccurrence of previous fires in the premises insured in 1939, altho omitted in the claims, Exhibits EEand FF, were nevertheless revealed by the insured in his claims Exhibits Q (filed simultaneously withthem), KK and WW. Considering that all these claims were submitted to the smae agent, and thatthis same agent had paid the loss caused by the 1939 fire, we find no error in the trial Court'sacceptance of the insured's explanation that the omission in Exhibits EE and FF was due toinadvertance, for the insured could hardly expect under such circumstances, that the 1939 wouldpass unnoticed by the insurance agents. Similarly, the 20 per cent overclaim on 70 per cent of thehemo stock, was explained by the insured as caused by his belief that he was entitled to include inthe claim his expected profit on the 70 per cent of the hemp, because the same was alreadycontracted for and sold to other parties before the fire occurred. Compared with other cases of over-valuation recorded in our judicial annals, the 20 per cent excess in the case of the insured is not byitself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134,the claim was fourteen (14) times (1,400 per cent) bigger than the actual loss; in Go Lu vs. YorkshireInsurance Co., 43 Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co., 47Phil. 14, six (6) times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalledP31,860.85 while the goods insured were inventoried at O13,113. Certainly, the insured's overclaimof 20 per cent in the case at bar, duly explained by him to the Court a quo, appears puny bycomparison, and can not be regarded as "more than misstatement, more than inadvertence ofmistake, more than a mere error in opinion, more than a slight exaggeration" (Tan It vs. SunInsurance Office, ante) that would entitle the insurer to avoid the policy. It is well to note that theoverchange of 20 per cent was claimed only on a part(70 per cent) of the hemp stock; had the

insured acted with fraudulent intent, nothing prevented him from increasing the value of all of hiscopra, hemp and buildings in the same proportion. This also applies to the alleged fraudulent claimfor burned empty sacks, that was likewise explained to our satisfaction and that of the trial Court.The rule is that to avoid a policy, the false swearing must be wilful and with intent to defraud (29 Am.Jur., pp. 849-851) which was not the cause. Of course, the lack of fraudulent intent would notauthorize the collection of the expected profit under the terms of the polices, and the trial Courtcorrectly deducte the same from its award.

We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed.Costs against the appellant. So ordered.

Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and Concepcion, JJ., concur.

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Manila

FIRST DIVISION

G.R. No. L-34382 July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,vs.

EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A.MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, BranchXVII, respondents.

G.R. No. L-34383 July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,vs.N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON.A. MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, BranchXVII, respondents.

No. L-34382.

Zapa Law Office for petitioner.

Bito, Misa & Lozada Law Office for respondents.

No. L-34383.

Zapa Law Office for petitioner.

Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J .:

Questioned in these consolidated petitions for review on certiorari are the decisions of the Court ofFirst Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in CivilCase No. 71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity tosue.

There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, thefacts are found in the decision of the respondent court which stated:

On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas ConsolidatedMining & Development Corporation, shipped on board the SS "Eastern Jupiter' fromOsaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire Rods." The saidVESSEL is owned and operated by defendant Eastern Shipping Lines (CARRIER).The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to PhelpsDodge Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. Theshipment was insured with plaintiff against all risks in the amount of P1,580,105.06under its Insurance Policy No. AS-73633.

xxx xxx xxx

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The coils discharged from the VESSEL numbered 2,361, of which 53 were in badorder. What the CONSIGNEE ultimately received at its warehouse was the samenumber of 2,361 coils with 73 coils loose and partly cut, and 28 coils entangled,partly cut, and which had to be considered as scrap. Upon weighing atCONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos asagainst its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos,according to Exhibit "A", or 1,209,56 lbs., according to the claims presented by theconsignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J-1"), and theTRANSPORTATION COMPANY (Exhibit "K- l").

For the loss/damage suffered by the cargo, plaintiff paid the consignee under itsinsurance policy the amount of P3,260.44, by virtue of which plaintiff becamesubrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands forpayment against the CARRIER and the TRANSPORTATION COMPANY forreimbursement of the aforesaid amount but each refused to pay the same. ...

The facts of L-34383 are found in the decision of the lower court as follows:

On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen,Germany, 30 packages of Service Parts of Farm Equipment and Implements onboard the VESSEL, SS "NEDER RIJN" owned by the defendant, N. V. NedlloydLijnen, and represented in the Philippines by its local agent, the defendant

Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of LadingNo. 22 for transportation to, and delivery at, Manila, in favor of the consignee,international Harvester Macleod, Inc. (CONSIGNEE). The shipment was insured withplaintiff company under its Cargo Policy No. AS-73735 "with average terms" forP98,567.79.

xxx xxx xxx

The packages discharged from the VESSEL numbered 29, of which seven packageswere found to be in bad order. What the CONSIGNEE ultimately received at itswarehouse was the same number of 29 packages with 9 packages in bad order. Outof these 9 packages, 1 package was accepted by the CONSIGNEE in good orderdue to the negligible damages sustained. Upon inspection at the consignee's

warehouse, the contents of 3 out of the 8 cases were also found to be complete andintact, leaving 5 cases in bad order. The contents of these 5 packages showedseveral items missing in the total amount of $131.14; while the contents of theundelivered 1 package were valued at $394.66, or a total of $525.80 or P2,426.98.

For the short-delivery of 1 package and the missing items in 5 other packages,plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the amount ofP2,426.98, by virtue of which plaintiff became subrogated to the rights and actions ofthe CONSIGNEE. Demands were made on defendants CARRIER and CONSIGNEEfor reimbursement thereof but they failed and refused to pay the same.

In both cases, the petitioner-appellant made the following averment regarding its capacity to sue:

The plaintiff is a foreign insurance company duly authorized to do business in the Philippinesthrough its agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building,

Ayala Avenue, Makati, Rizal.

In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it:

Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledgeor information sufficient to form a belief as to the truth thereof.

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Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting theallegations of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph ofthis answer reads as follows:

Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties.

In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. andGuacods, Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack ofknowledge or information sufficient to form a belief as to the truth thereof.

As earlier stated, the respondent court dismissed the complaints in the two cases on the sameground, that the plaintiff failed to prove its capacity to sue. The court reasoned as follows:

In the opinion of the Court, if plaintiff had the capacity to sue, the Court should holdthat a) defendant Eastern Shipping Lines should pay plaintiff the sum of P1,630.22with interest at the legal rate from January 5, 1968, the date of the institution of theComplaint, until fully paid; b) defendant Angel Jose Transportation, Inc. should payplaintiff the sum of P1,630.22 also with interest at the legal rate from January 5, 1968until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc.should be ordered dismissed; and d) each defendant to pay one-half of the costs.

The Court is of the opinion that Section 68 of the Corporation Law reflects a policy

designed to protect the public interest. Hence, although defendants have not raisedthe question of plaintiff's compliance with that provision of law, the Court hasresolved to take the matter into account.

A suing foreign corporation, like plaintiff, has to plead affirmatively and prove eitherthat the transaction upon which it bases its complaint is an isolated one, or that it islicensed to transact business in this country, failing which, it will be deemed that ithas no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu Stevedoring Co., Inc.,17 SCRA 1037). In view of the number of cases filed by plaintiff before this Court, ofwhich judicial cognizance can be taken, and under the ruling in Far East InternationalImport and Export Corporation vs. Hankai Koayo Co ., 6 SCRA 725, it has to be heldthat plaintiff is doing business in the Philippines. Consequently, it must have alicense under Section 68 of the Corporation Law before it can be allowed to sue.

The situation of plaintiff under said Section 68 has been described as follows in CivilCase No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V. NedlloydLijnen, of which judicial cognizance can also be taken:

Exhibit "R",presented by plaintiff is a certified copy of a license, datedJuly 1, 1967, issued by the Office of the Insurance Commissionerauthorizing plaintiff to transact insurance business in this country. Byvirtue of Section 176 of the Insurance Law, it has to be presumed thata license to transact business under Section 68 of the CorporationLaw had previously been issued to plaintiff. No copy thereof,however, was submitted for a reason unknown. The date of that

license must not have been much anterior to July 1, 1967. Thepreponderance of the evidence would therefore call for the findingthat the insurance contract involved in this case, which was executedat Makati, Rizal, on February 8, 1967, was contracted before plaintiffwas licensed to transact business in the Philippines.

This Court views Section 68 of the Corporation Law as reflective of abasic public policy. Hence, it is of the opinion that, in the eyes ofPhilippine law, the insurance contract involved in this case must beheld void under the provisions of Article 1409 (1) of the Civil Code,

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and could not be validated by subsequent procurement of the license.That view of the Court finds support in the following citation:

According to many authorities, a constitutional orstatutory prohibition against a foreign corporationdoing business in the state, unless such corporationhas complied with conditions prescribed, is effectiveto make the contracts of such corporation void, or atleast unenforceable, and prevents the maintenanceby the corporation of any action on such contracts.

Although the usual construction is to the contrary, andto the effect that only the remedy for enforcement isaffected thereby, a statute prohibiting a non-complying corporation from suing in the state courtson any contract has been held by some courts torender the contract void and unenforceable by thecorporation, even after its has complied with thestatute." (36 Am. Jur. 2d 299-300).

xxx xxx xxx

The said Civil Case No. 71923 was dismissed by this Court. As the insurance

contract involved herein was executed on January 20, 1967, the instant case shouldalso be dismissed.

We resolved to consolidate the two cases when we gave due course to the petition.

The petitioner raised the following assignments of errors:

First Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THELEGAL EXISTENCE OR CAPACITY OF PLAINTIFF-APPELLANT.

Second Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ONTHE FINDING THAT PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE.

On the basis of factual and equitable considerations, there is no question that the privaterespondents should pay the obligations found by the trial court as owing to the petitioner. Only thequestion of validity of the contracts in relation to lack of capacity to sue stands in the way of thepetitioner being given the affirmative relief it seeks. Whether or not the petitioner was engaged insingle acts or solitary transactions and not engaged in business is likewise not in issue. Thepetitioner was engaged in business without a license. The private respondents' obligation to payunder the terms of the contracts has been proved.

When the complaints in these two cases were filed, the petitioner had already secured thenecessary license to conduct its insurance business in the Philippines. It could already filed suits.

Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreigninsurance company duly authorized to do business in the Philippines through its agent Mr. Victor H.Bello. However, when the insurance contracts which formed the basis of these cases wereexecuted, the petitioner had not yet secured the necessary licenses and authority. The lower court,therefore, declared that pursuant to the basic public policy reflected in the Corporation Law, theinsurance contracts executed before a license was secured must be held null and void. The courtruled that the contracts could not be validated by the subsequent procurement of the license.

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The applicable provisions of the old Corporation Law, Act 1459, as amended are:

Sec. 68. No foreign corporation or corporations formed, organized, or existing underany laws other than those of the Philippine Islands shall be permitted to transactbusiness in the Philippine Islands until after it shall have obtained a license for thatpurpose from the chief of the Mercantile Register of the Bureau of Commerce andIndustry, (Now Securities and Exchange Commission. See RA 5455) upon order ofthe Secretary of Finance (Now Monetary Board) in case of banks, savings, and loanbanks, trust corporations, and banking institutions of all kinds, and upon order of theSecretary of Commerce and Communications (Now Secretary of Trade. See 5455,

section 4 for other requirements) in case of all other foreign corporations. ...

xxx xxx xxx

Sec. 69. No foreign corporation or corporation formed, organized, or existing underany laws other than those of the Philippine Islands shall be permitted to transactbusiness in the Philippine Islands or maintain by itself or assignee any suit for therecovery of any debt, claim, or demand whatever, unless it shall have the licenseprescribed in the section immediately preceding. Any officer, director, or agent of thecorporation or any person transacting business for any foreign corporation not havingthe license prescribed shag be punished by imprisonment for not less than sixmonths nor more than two years or by a fine of not less than two hundred pesos nor

more than one thousand pesos, or by both such imprisonment and fine, in thediscretion of the court.

As early as 1924, this Court ruled in the leading case ofMarshall Wells Co. v. Henry W. Elser &Co. (46 Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject theforeign corporation doing business in the Philippines to the jurisdiction of our courts. The MarshallWells Co. decision referred to a litigation over an isolated act for the unpaid balance on a bill ofgoods but the philosophy behind the law applies to the factual circumstances of these cases. TheCourt stated:

xxx xxx xxx

Defendant isolates a portion of one sentence of section 69 of the Corporation Lawand asks the court to give it a literal meaning Counsel would have the law read thus:"No foreign corporation shall be permitted to maintain by itself or assignee any suitfor the recovery of any debt, claim, or demand whatever, unless it shall have thelicense prescribed in section 68 of the law." Plaintiff, on the contrary, desires for thecourt to consider the particular point under discussion with reference to all the law,and thereafter to give the law a common sense interpretation.

The object of the statute was to subject the foreign corporation doing business in thePhilippines to the jurisdiction of its courts. The object of the statute was not toprevent the foreign corporation from performing single acts, but to prevent it fromacquiring a domicile for the purpose of business without taking the steps necessaryto render it amenable to suit in the local courts. The implication of the law is that it

was never the purpose of the Legislature to exclude a foreign corporation whichhappens to obtain an isolated order for business from the Philippines, from securingredress in the Philippine courts, and thus, in effect, to permit persons to avoid theircontracts made with such foreign corporations. The effect of the statute preventingforeign corporations from doing business and from bringing actions in the localcourts, except on compliance with elaborate requirements, must not be undulyextended or improperly applied. It should not be construed to extend beyond theplain meaning of its terms, considered in connection with its object, and in connectionwith the spirit of the entire law. (State vs.American Book Co. [1904], 69 Kan, 1;

American De Forest Wireless Telegraph Co. vs. Superior Court of City & Country of

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San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2ded., chap. 184.)

Confronted with the option of giving to the Corporation Law a harsh interpretation,which would disastrously embarrass trade, or of giving to the law a reasonableinterpretation, which would markedly help in the development of trade; confrontedwith the option of barring from the courts foreign litigants with good causes of actionor of assuming jurisdiction of their cases; confronted with the option of construing thelaw to mean that any corporation in the United States, which might want to sell to aperson in the Philippines must send some representative to the Islands before the

sale, and go through the complicated formulae provided by the Corporation Law withregard to the obtaining of the license, before the sale was made, in order to avoidbeing swindled by Philippine citizens, or of construing the law to mean that no foreigncorporation doing business in the Philippines can maintain any suit until it shallpossess the necessary license;-confronted with these options, can anyone doubtwhat our decision will be? The law simply means that no foreign corporation shall bepermitted "to transact business in the Philippine Islands," as this phrase is known incorporation law, unless it shall have the license required by law, and, until it complieswith the law, shall not be permitted to maintain any suit in the local courts. A contraryholding would bring the law to the verge of unconstitutionality, a result which shouldbe and can be easily avoided. (Sioux Remedy Co. vs. Cope andCope, supra;Perkins, Philippine Business Law, p. 264.)

To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of ourcourts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation whichdoes not hamper the development of trade relations and which fosters friendly commercialintercourse among countries.

The objectives enunciated in the 1924 decision are even more relevant today when we viewcommercial relations in terms of a world economy, when the tendency is to re-examine the politicalboundaries separating one nation from another insofar as they define business requirements orrestrict marketing conditions.

We distinguish between the denial of a right to take remedial action and the penal sanction for non-registration.

Insofar as transacting business without a license is concerned, Section 69 of the Corporation Lawimposed a penal sanction-imprisonment for not less than six months nor more than two years orpayment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of thecourt. There is a penalty for transacting business without registration.

And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain anysuit for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent onwhether or not the contract executed by a foreign corporation with no capacity to sue is null and voidab initio.

We are not unaware of the conflicting schools of thought both here and abroad which are divided on

whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in hisbook Corporation Law(Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites anIllinois decision which holds the contracts void and a Michigan statute and decision declaring themmerely voidable:

xxx xxx xxx

Where a contract which is entered into by a foreign corporation without complyingwith the local requirements of doing business is rendered void either by the expressterms of a statute or by statutory construction, a subsequent compliance with the

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statute by the corporation will not enable it to maintain an action on the contract.(Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond Glue Co.v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits themaintenance of a suit on such contract (without expressly declaring the contract"void"), it was held that a failure to comply with the statute rendered thecontract voidable and not void, and compliance at any time before suit was sufficient.(Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision,the Illinois statute provides, among other things that a foreign corporation that fails tocomply with the conditions of doing business in that state cannot maintain a suit oraction, etc. The court said: 'The contract upon which this suit was brought, having

been entered into in this state when appellant was not permitted to transact businessin this state, is in violation of the plain provisions of the statute, and is therefore nulland void, and no action can be maintained thereon at any time, even if thecorporation shall, at some time after the making of the contract, qualify itself totransact business in this state by a compliance with our laws in reference to foreigncorporations that desire to engage in business here. (United Lead Co. v. J.M. ReadyElevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].)

A Michigan statute provides: "No foreign corporation subject to the provisions of thisAct, shall maintain any action in this state upon any contract made by it in this stateafter the taking effect of this Act, untilit shall have fully complied with the requirementof this Act, and procured a certificate to that effect from the Secretary of State," Itwas held that the above statute does not render contracts of a foreign corporation

that fails to comply with the statute void, but they may be enforced only aftercompliance therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706[1906]; Kuennan v. U.S. Fidelity & G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres,Bridges & Noel v. Zierleyn, 163 Mich. 399, 128 N.W. 769 [1910]).

It has also been held that where the law provided that a corporation which has notcomplied with the statutory requirements "shall not maintain an action until suchcompliance". "At the commencement of this action the plaintiff had not filed thecertified copy with the country clerk of Madera County, but it did file with the officerseveral months before the defendant filed his amended answer, setting up thisdefense, as that at the time this defense was pleaded by the defendant the plaintiffhad complied with the statute. The defense pleaded by the defendant was therefore

unavailable to him to prevent the plaintiff from thereafter maintaining the action.Section 299 does not declare that the plaintiff shall not commence an action in anycounty unless it has filed a certified copy in the office of the county clerk, but merelydeclares that it shall not maintain an action until it has filled it. To maintain an actionis not the same as to commence an action, but implies that the action has alreadybeen commenced." (See also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md.47, 72 A. 461 [1909]).

In another case, the court said: "The very fact that the prohibition against maintainingan action in the courts of the state was inserted in the statute ought to be conclusiveproof that the legislature did not intend or understand that contracts made withoutcompliance with the law were void. The statute does not fix any time within whichforeign corporations shall comply with the Act. If such contracts were void, no suits

could be prosecuted on them in any court. ... The primary purpose of our statute is tocompel a foreign corporation desiring to do business within the state to submit itselfto the jurisdiction of the courts of this state. The statute was not intended to excludeforeign corporations from the state. It does not, in terms, render invalid contractsmade in this state by non-complying corporations. The better reason, the wiser andfairer policy, and the greater weight lie with those decisions which hold that where, ashere, there is a prohibition with a penalty, with no express or implied declarationsrespecting the validity of enforceability of contracts made by qualified foreigncorporations, the contracts ... are enforceable ... upon compliance with the law."(Peter & Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

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Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from MarshallWells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporationactually doing business in the Philippines without license to do so may be sued in our courts. Thedefendant American corporation in General Corporation of the Philippines v. Union InsuranceSociety of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts without the necessarylicense or authority. When summons was served on the agent, the defendant had not yet beenregistered and authorized to do business. The registration and authority came a little less than twomonths later. This Court ruled:

Counsel for appellant contends that at the time of the service of summons, the

appellant had not yet been authorized to do business. But, as already stated, section14, Rule 7 of the Rules of Court makes no distinction as to corporations with orwithout authority to do business in the Philippines. The test is whether a foreigncorporation was actually doing business here. Otherwise, a foreign corporationillegally doing business here because of its refusal or neglect to obtain thecorresponding license and authority to do business may successfully though unfairlyplead such neglect or illegal act so as to avoid service and thereby impugn the

jurisdiction of the local courts. It would indeed be anomalous and quite prejudicial,even disastrous, to the citizens in this jurisdiction who in all good faith and in theregular course of business accept and pay for shipments of goods from America,relying for their protection on duly executed foreign marine insurance policies madepayable in Manila and duly endorsed and delivered to them, that when they go tocourt to enforce said policies, the insurer who all along has been engaging in this

business of issuing similar marine policies, serenely pleads immunity to localjurisdiction because of its refusal or neglect to obtain the corresponding license to dobusiness here thereby compelling the consignees or purchasers of the goods insuredto go to America and sue in its courts for redress.

There is no question that the contracts are enforceable. The requirement of registration affects onlythe remedy.

Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected theambiguity caused by the wording of Section 69 of the old Corporation Law.

Section 133 of the present Corporation Code provides:

SEC. 133. Doing business without a license.-No foreign corporation transactingbusiness in the Philippines without a license, or its successors or assigns, shag bepermitted to maintain or intervene in any action, suit or proceeding in any court oradministrative agency in the Philippines; but such corporation may be sued orproceeded against before Philippine courts or administrative tribunals on any validcause of action recognized under Philippine laws.

The old Section 69 has been reworded in terms of non-access to courts and administrative agenciesin order to maintain or intervene in any action or proceeding.

The prohibition against doing business without first securing a license is now given penal sanction

which is also applicable to other violations of the Corporation Code under the general provisions ofSection 144 of the Code.

It is, therefore, not necessary to declare the contract nun and void even as against the erring foreigncorporation. The penal sanction for the violation and the denial of access to our courts andadministrative bodies are sufficient from the viewpoint of legislative policy.

Our ruling that the lack of capacity at the time of the execution of the contracts was cured by thesubsequent registration is also strengthened by the procedural aspects of these cases.

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The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized todo business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is theOledan Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8of the Rules of Court. The petitioner sufficiently alleged its capacity to sue. The private respondentscountered either with an admission of the plaintiff's jurisdictional averments or with a general denialbased on lack of knowledge or information sufficient to form a belief as to the truth of the averments.

We find the general denials inadequate to attack the foreign corporations lack of capacity to sue inthe light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a partydesiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or

be sued in a representative capacity shall do so by specific denial, which shag include suchsupporting particulars as are particularly within the pleader's knowledge. At the very least, the privaterespondents should have stated particulars in their answers upon which a specific denial of thepetitioner's capacity to sue could have been based or which could have supported its denial for lackof knowledge. And yet, even if the plaintiff's lack of capacity to sue was not properly raised as anissue by the answers, the petitioner introduced documentary evidence that it had the authority toengage in the insurance business at the time it filed the complaints.

WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversedand set aside.

In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22

with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel JoseTransportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at thelegal rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. Thecounterclaim of Angel Jose Transportation Inc. is dismissed.

In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay thepetitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid,the sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed.

SO ORDERED.

Teehankee (Chairman), Plana, Escolin and Relova, JJ., concur.

Melencio-Herrera and Vasquez, JJ., are on leave.

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Manila

EN BANC

G.R. No. L-12150 May 26, 1960

BENJAMIN CO, petitioner-appellee,vs.

REPUBLIC OF THE PHILIPPINES, oppositor-appellant.

Ernesto P. Parel, Daniel Z. Velasco and Herculano C. Beronilla for appellee.Assistant Solicitor General Antonio A. Torres and Solicitor Pacifico P. de Castro for appellant.

BAUTISTA ANGELO, J.:

This is a petition for naturalization which, after hearing was granted, the court ordering that after thelapse of two years from the date the decision becomes final and all the requisites provided for inRepublic Act No. 503 have been complied with, a certificate of naturalization be issued to petitioner.

Petitioner was born on March 13, 1931 in Bangued, Abra. He is the son of Go Cham and Yu Suan,

both Chinese. He owes his allegiance to the Nacionalist Government of China. He is married toLeonor Go, the marriage having been celebrated in the Catholic church of Bangued, Abra. Hespeaks and writes English as well as the Ilocano and Tagalog dialects. He graduated from the AbraValley College, and finished his primary studies in the "Colegio" in Bangued, Abra, both schoolsbeing recognized by the government. He has a child two months old. He has never been accused ofany crime involving moral turpitude. He is not opposed to organized government, nor is he amember of any subversive organization. He does not believe in, nor practice, polygamy. Since hisbirth, he has never gone abroad. He mingles with the Filipinos. He prefers a democratic form ofgovernment and stated that if his petition is granted he would serve the government either in themilitary or civil department.

He is a merchant dealing in the buy and sell of tobacco. He also is part owner of a store known as

"Go Tian Store" in Bangued, Abra. In his tobacco business, he has a working capital of P10,000.00which he claims to have been accumulated thru savings. He contributes to civic and charitableorganizations like the Jaycees, Rotary, Red Cross and to town fiestas. He likes the customs of theFilipinos because he has resided in the Philippines for a long time. During the year 1956, he claimsto have earned P1,000.00 in his tobacco business. He expects to make P2,000.00 more from thesame business without however specifying to what years said income would correspond. Withrespect to the store of which he claims to be a part owner, he stated that his father gave him a sumof less than P3,000.00 representing one-fourth of the sales. Aside from being a co-owner of saidstore, he receives a monthly salary of P120.00 as a salesman therein.

He took a course in radio mechanics and completed the same in 1955. He has no vice of any kind.He claims that he has never been deliquent in the payment of taxes. But he admitted that he did notfile his income tax return when he allegedly received an amount of not less than P3,000 from his

father which he claims to have invested in his tobacco business. On cross-examination, when thefiscal asked him if he believed in the principle underlying the Philippine constitution, he answeredthat "he believes in the laws of the Philippines." However, he did not state what principles of theConstitution he knew, although when asked what laws of the Philippines he believes in, he answered"democracy". Asked why he did not file his income tax return, he stated that his father had alreadyfiled his income tax return. He merely promised, that he would file his. He presented his aliencertificate of registration, but did not present the alien certificates of registration of his wife and child.

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The government is now appealing the decision of the trial court on the ground that it erred in findingthat petitioner has all the qualifications for naturalization and none of the disqualifications mentionedin the law.

The government contends that from the evidence itself introduced by petitioner it would appear thathe failed to comply with some of the requirements prescribed by law in order to qualify him tobecome a Filipino citizen. Thus, it is claimed, he has not stated that he believes in the principlesunderlying the constitution and that it was only on cross-examination, when the fiscal asked himwhether he believed in the principles underlying the constitution, that he answered that "He believesin the laws of the Philippines", and that when he was asked what those laws he believes in, he gave

an answer which conveys the meaning that he believes in democracy or in a democratic form ofgovernment. It is contended that such belief is not sufficient to comply with the requirement of thelaw that one must believe in the principles underlying our constitution.

There is merit in this claim. Indeed, the scope of the word lawin ordinary legal parlance does notnecessarily include the constitution which is the fundamental law of the land, nor does it cover all theprinciples underlying our constitution. Thus, our constitution expressly declares as one of itsfundamental policies that the Philippines renounces war as an instrument of national policy, that thedefense of the State is the prime duty of the government, that the duty and right of the parents torear their children for civic efficiency shall receive the support of the State, and that the promotion ofsocial justice shall be its main concern. In so stating that he believes merely in our laws, he did notnecessarily refer to those principles embodied in our constitution which are referred to in the law.

Our law also requires that petitioner must have conducted himself in a proper and irreproachablemanner during the entire period of his residence in the Philippines in his relation with the constitutedgovernment as well as with the community in which he is living. It is contended that petitioner hasalso failed to comply with this legal requirement for he failed to register his wife and child with theBureau of Immigration as required by the Alien Registration Act. He has, therefore, failed to conducthimself in a proper and irreproachable manner in his relation with our government.

It furthermore appears that he failed to file his income tax return despite the fact that he has a fixedsalary of P1,440.00 a year and made a profit of P1,000.00 in his tobacco business, and received anamount less than P3,000 from his father as one-fourth of the proceeds of the sale of the store, thetotal of which is more than what is required by law for one to file an income tax return, a fact whichindicates that he has not also conducted himself properly in his relation with our government. His

reasoning that he made that earning during the year in which this case was being heard is notconvincing.

Considering that "naturalization laws should be rigidly enforced and strictly construed in favor of thegovernment and against the applicant" (Co Quing Reyes vs. Republic, 104 Phil., 889), we areconstrained to hold that the trial court erred in granting the petition for naturalization.

Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

Paras, Bengzon, C.J., Labrador, Concepcion, Barrera, and Gutierrez David, JJ., concur.

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