G.R. No. 174116 September 11, 2009EASTERN SHIPPING LINES, INC.,Petitioner,vs.PRUDENTIAL GUARANTEE AND ASSURANCE, INC.,Respondent.D E C I S I O NDEL CASTILLO,J.:Before this Court is a Petition for Review onCertiorari1under Rule 45 of the Rules of Court, seeking to set aside the April 26, 2006 Decision2and August 15, 2006 Resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 68165.The facts of the case:On November 8, 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila. The shipment was consigned to Nissan Motor Philippines, Inc. (Nissan) and was covered by Bill of Lading No. NMA-1.4The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc.On November 16, 1995, the carrier arrived at the port of Manila. On November 22, 1995, the shipment was then discharged from the vessel onto the custody of thearrastreoperator, Asian Terminals, Inc. (ATI), complete and in good condition, except for four cases.5On November 24 to 28, 1995, the shipment was withdrawn by Seafront Customs and Brokerage from the pier and delivered to the warehouse of Nissan in Quezon City.6A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at Nissans warehouse. On January 16, 1996, the surveyor submitted its report7with a finding that there were "short (missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and "broken/scratched" and "broken" items in Case No. 10/A26/70K"; and that "(i)n (its) opinion, the "shortage and damage sustained by the shipment were due to pilferage and improper handling, respectively while in the custody of the vessel and/or Arrastre Contractors."8As a result, Nissan demanded the sum ofP1,047,298.349representing the cost of the damages sustained by the shipment from petitioner, the owner of the vessel, and ATI, thearrastreoperator. However, the demands were not heeded.10On August 21, 1996, as insurer of the shipment against all risks per Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95, respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum ofP1,047,298.34.On October 1, 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to Nissan before the Regional Trial Court (RTC) of Makati City, Branch 148, docketed as Civil Case No. 96-1665, entitledPrudential Guarantee and Assurance, Inc. v. Eastern Shipping Lines, Inc.Respondent claimed that it was subrogated to the rights of Nissan by virtue of said payment.11On June 21, 1999, the RTC rendered a Decision,12the dispositive portion of which reads:WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants Eastern Shipping Lines, Inc. and ATI, and said defendants are hereby ordered to pay jointly and solidarily plaintiff the following:1) The claim ofP1,047,298.34 with legal interest thereon of 6% per annum from the date of the filing of this complaint until the same is fully paid;2) [Twenty-five (25%)] percent of the principal claim, as and for attorneys fees;3) Plus costs of suit.Both the counterclaims and crossclaims are without legal basis. The counterclaims and crossclaims are based on the assumption that the other defendant is the one solely liable. However, inasmuch as the solidary liability of the defendants have been established, the counterclaims and crossclaims must be denied.Equal costs against Eastern Shipping Lines, Inc. and Asian Terminals, Inc.SO ORDERED.13Both petitioner and ATI appealed to the CA.On April 26, 2006, the CA rendered a Decision the dispositive portion of which reads:WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS, in that (i) defendant-appellant Eastern Shipping Lines, Inc. is ordered to pay appellee (a) the amount ofP904,293.75 plus interest thereon at the rate of 6% per annum from the filing of the complaint up to the finality of this judgment, when the interest shall become 12% per annum until fully paid, and (b) the costs of suit; (ii) the award of attorneys fees is DELETED; and (iii) the complaint against defendant-appellant Asian Terminals, Inc. is DISMISSED.SO ORDERED.14The CA exonerated ATI and ruled that petitioner was solely responsible for the damages caused to the cargoes. Moreover, the CA relying onDelsan Transport Lines, Inc. vs. Court of Appeals,15ruled that the right of subrogation accrues upon payment by the insurance company of the insurance claim and that the presentation of the insurance policy is not indispensable before the appellee may recover in the exercise of its subrogatory right.16Petitioner then filed a motion for reconsideration, which was, however, denied by the CA in a Resolution dated August 15, 2006.Hence, herein petition, with petitioner raising the following assignment of errors to wit:I.WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT FINDING HEREIN PETITIONER LIABLE DESPITE THE FACT THAT RESPONDENT FAILED TO SUBMIT ANY INSURANCE POLICY.II.WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT APPLYING THE US$500.00/PACKAGE/CASE PACKAGE LIMITATION OF LIABILITY IN ACCORDANCE WITH THE CARRIAGE OF GOODS BY SEA ACT.17The petition is meritorious.The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for review oncertiorari. This rule, however, is not iron-clad and admits of certain exceptions, one of which is when the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion.18In the case at bar, the records of the case contain evidence which justify the application of the exception.Anent the first error, petitioner argues that respondent was not properly subrogated because of the non-presentation of the marine insurance policy. In the case at bar, in order to prove its claim, respondent presented a marine cargo risk note and a subrogation receipt. Thus, the question to be resolved is whether the two documents, without the Marine Insurance Policy, are sufficient to prove respondents right of subrogation.Before anything else, it must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium.19In International Container Terminal Services, Inc. v. FGU Insurance Corporation (International),20the nature of a marine cargo risk note was explained, thus:x x x It is the marine open policy which is the main insurance contract. In other words, the marine open policy is the blanket insurance to be undertaken by FGU on all goods to be shipped by RAGC during the existence of the contract, while the marine risk note specifies the particular goods/shipment insured by FGU on that specific transaction, including the sum insured, the shipment particulars as well as the premium paid for such shipment. x x x.21For clarity, the pertinent portions of the Marine Cargo Risk Note,22relied upon by respondent, are hereunder reproduced, to wit:RN NO 39821/95Date: Nov. 16, 1995NISSAN MOTOR PHILS., INC.x x xGentlemen:We have this day noted a Risk in your favorsubject to all clauses and condition of the Companys printed form ofMarine Open Policy No. 86-168For PHILIPINE PESOS FOURTEEN MILLION ONE HUNDRED SEVENTY-THREE THOUSAND FORTY-TWO & 91/100 ONLY (P14, 173,042.91) xxxCARGO:56 CASES NISSAN MOTOR VEHICLE CKD (GC22)

CONDITIONS:INSTITUTE CARGO CLAUSES "A"OTHER TERMS AND CONDITIONS PERMOP-86-168

From: NAGOYATo: MANILA, PHILS.ETD: NOV. 8, 1995 ETA: NOV. 17, 1995CARRIER: "APOLLO TUJUH"B/L NO: NMA-1BANK: BANK OF THE PHILLIPINE ISLANDSL/C NO: 026010051971Shipper/ Consignee: MARUBENI CORPORATIONIt is undisputed that the cargoes were already on board the carrier as early as November 8, 1995 and that the same arrived at the port of Manila on November 16, 1995. It is, however, very apparent that the Marine Cargo Risk Note was issued only on November 16, 1995. The same, therefore, should have raised a red flag, as it would be impossible to know whether said goods were actually insured while the same were in transit from Japan to Manila. On this score, this Court is guided byMalayan Insurance Co., Inc. v. Regis Brokerage Corp.,23where this Court ruled:Thus, we can only consider the Marine Risk Note in determining whether there existed a contract of insurance between ABB Koppel and Malayan at the time of the loss of the motors.However, the very terms of the Marine Risk Note itself are quite damning.It is dated 21 March 1995, or after the occurrence of the loss, and specifically states that Malayan "ha[d] this day noted the above-mentioned risk in your favor and hereby guarantee[s] that this document has all the force and effect of the terms and conditions in the Corporations printed form of the standard Marine Cargo Policy and the Companys Marine Open Policy."24Likewise, the date of the issuance of the Marine Risk Note also caught the attention of petitioner. In petitioners Comment/Opposition25to the formal offer of evidence before the RTC, petitioner made the following manifestations, to wit:Exhibit "B,"Marine Cargo Risk Note No. 39821 dated November 16, 1995 is being objected to for being irrelevant and immaterial as it was executed on November 16, 1995. The cargoes arrived in Manila on November 16, 1995.This means that the cargoes are not specifically covered by any particular insurance at the time of transit. The alleged Marine Open Policy was not presented. Marine Open Policy may be subject to Institute Cargo Clauses which may require arbitration prior to the filing of an action in court.26In addition, petitioner also contended that the Marine Cargo Risk Note referred to "Institute Cargo Clauses A and other terms and conditions per Marine Open Policy-86-168."Based on the forgoing, it is already evident why herein petition is meritorious. The Marine Risk Note relied upon by respondent as the basis for its claim for subrogation is insufficient to prove said claim.As previously stated, the Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine insurance policy, it would be impossible and simply guesswork to know whether the cargo was insured during the voyage which started on November 8, 1995. Again, without the marine insurance policy, it would be impossible for this Court to know the following: first, the specifics of the "Institute Cargo Clauses A and other terms and conditions per Marine Open Policy-86-168" as alluded to in the Marine Risk Note; second, if the said terms and conditions were actually complied with before respondent paid Nissans claim.Furthermore, a reading of the transcript of the records clearly show that, at the RTC, petitioner had already objected to the non-presentation of the marine insurance policy, to wit:Q. Are you also the one preparing the Marine Insurance Contract?A. No, sir.Q. Who is the one?A. Our Marine Cargo Underwriting Department.Q. And do you know anybody in that department?A. Yes, sir.Q. And you were aware that this particular cargo of the shipment was insured?A. Yes, sir, per policy issued.Q. And that you are referring to Exhibit?A. The Marine Cargo Risk.Q. Is this the only contract of Insurance between Prudential Guarantee and Nissan?A. Sir, there is a Marine Open Policy.Q. Do you have any copy of that?A. It is in the office.Atty. Alojado Can you produce that copy?Atty. Zapa May we know the request of counsel for producing this Marine Open Policy?Atty. Alojado The basis of the question is the answer of the witness which says that there is another contract of insurance.COURT Yes, that is a Marine Open Policy.Are you familiar with Marine Open Policy?Atty. Alojado Yes, Your Honor.But we would also like to be familiarize with that contract.COURT But you know already a Marine Open PolicyAtty. Alojado Yes, Your Honor.COURT I do not know if you work as a lawyer for several Insurance Company?Atty. Alojado No, Your Honor. Honestly, Your Honor I worked asa Maritime lawyer.COURT Then you should know what is Marine Open Policy.Atty. AlojadoI would like to know the specification of theMarine Open Policy in this regard.Atty. Zapa I think your Honor, between the plaintiff and the defendant there is no issue against the insurance.COURT Yes because this witness it not testifying on the Marine Open Policy.Atty. Alojado We submit.COURT Proceed.Atty. AlojadoQ. But there is a Marine Open PolicyA. Yes, sir.27x x x xCOURTQ. Is the policy a standing policy, a continuing policy or is it going only for only a year or for a particular shipment or what?A. For this particular consignee, they have Marine Open Policy.Atty. Alojado That was not presented.COURT Thats why Im asking. So the policy is not only for a particular shipment, but all other shipments that may come?A. Yes, Your Honor.Q. Are covered?A. Yes, Your Honor.Q. Without any specifications?A. Yes, Your Honor.28Clearly, petitioner was not remiss when it openly objected to the non-presentation of the Marine Insurance Policy. As testified to by respondents witness, they had a copy of the marine insurance policy in their office. Thus, respondent was already apprised of the possible importance of the said document to their cause.In addition, this Court takes notice that notwithstanding that the RTC may have denied the repeated manifestation of petitioner of the non-presentation of the marine insurance policy, the same by itself does not exonerate respondent. As plaintiff, it was respondents burden to present the evidence necessary to substantiate its claim.In its Complaint,29respondent alleged: "That the above-described shipment was insured forP14,173,042.91 against all risks under plaintiffs Marine Cargo Risk Note No. 39821/Marine Open Policy No. 86-168."30Therefore, other than the marine cargo risk note, respondent should have also presented the marine insurance policy, as the same also served as the basis for its complaint. Section 7, Rule 9 of the 1997 Rules of Civil Procedure, provide:SECTION 7.Action or defense based on document.Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may, with like effect, be set forth in the pleading.On this score,Malayanis instructive:Malayans right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the respondent to ABB Koppel, even though such liability will necessarily have to be established at the trial for Malayan to recover. Because Malayans right to recovery derives from contractual subrogation as an incident to an insurance relationship, and not from any proximate injury to it inflicted by the respondents, it is critical that Malayan establish the legal basis of such right to subrogation by presenting the contract constitutive of the insurance relationship between it and ABB Koppel. Without such legal basis, its cause of action cannot survive.Our procedural rules make plain how easily Malayan could have adduced the Marine Insurance Policy. Ideally, this should have been accomplished from the moment it filed the complaint.Since the Marine Insurance Policy was constitutive of the insurer-insured relationship from which Malayan draws its right to subrogation, such document should have been attached to the complaint itself, as provided for in Section 7, Rule 9 of the 1997 Rules of Civil Procedure: x x x31Therefore, since respondent alluded to an actionable document in its complaint, the contract of insurance between it and Nissan, as integral to its cause of action against petitioner, the Marine Insurance Policy should have been attached to the Complaint. Even in its formal offer of evidence, respondent alluded to the marine insurance policy which can stand independent of the Marine Cargo Risk Note, to wit:EXH "B" = Marine Cargo Risk Note No. 39821/95 Dated November 16, 1995.Purpose: As proof that the subject shipment was covered by insurance forP14,173, 042.91under Marine Open Policy No. 86-168.32It is significant that the date when the alleged insurance contract was constituted cannot be established with certainty without the contract itself. Said point is crucial because there can be no insurance on a risk that had already occurred by the time the contract was executed.33Surely, the Marine Risk Note on its face does not specify when the insurance was constituted.The importance of the presentation of the Marine Insurance Policy was also emphasized inWallem Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc.,34where this Court ruled:x x x Wallem still cannot be held liable because of the failure of Prudential to present the contract of insurance or a copy thereof. Prudential claims that it is subrogated to the rights of GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation receipt (Exh. J) and a marine cargo risk note (Exh. D). However, as the trial court pointed out, this is not sufficient. As GMCs subrogee, Prudential can exercise only those rights granted to GMC under the insurance contract. The contract of insurance must be presented in evidence to indicate the extent of its coverage. As there was no determination of rights under the insurance contract, this Courts ruling in Home Insurance Corporation v. Court of Appeals is applicable:The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be used to establish the relationship between the petitioner [Home Insurance Corporation] and the consignee [Nestl Phil.] and the amount paid to settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioners claim holding the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the engine.. . . .It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must prove fatal to this petition.35Finally, there have been cases where this Court ruled that the non-presentation of the marine insurance policy is not fatal, as can be gleaned inInternational, where this Court held:Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the appellate court. InMalayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. InWallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc.,the Court ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court inHome Insurance Corporation v. Court of Appeals.However, as in every general rule, there are admitted exceptions. InDelsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike inHome Insurancein which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo occurred, such that the insurer should be liable for it.As inDelsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.36Although the CA may have ruled that the damage to the cargo occurred while the same was in petitioners custody, this Court cannot apply the ruling inInternationalto the case at bar. In contrast, unlike in International where there was no issue as regards the provisions of the marine insurance policy, such that the presentation of the contract itself is necessary for perusal, herein petitioner had repeatedly objected to the non-presentation of the marine insurance policy and had manifested its desire to know the specific provisions thereof. Moreover, and the same is critical, the marine risk note in the case at bar is questionable because:first, it is dated on the same day the cargoes arrived at the port of Manila and not during the duration of the voyage;second, without the Marine Insurance Policy to elucidate on the specifics of the terms and conditions alluded to in the marine risk note, it would be simply guesswork to know if the same were complied with.Lastly, to cast all doubt on the merits of herein petition, this Court is guided by the ruling in Malayan, to wit:It cannot be denied from the only established facts that Malayan and ABB Koppel comported as if there was an insurance relationship between them and documents exist that evince the presence of such legal relationship. But, under these premises, the very insurance contract emerges as the white elephant in the room an obdurate presence which everybody reacts to, yet, legally invisible as a matter of evidence since no attempt had been made to prove its corporeal existence in the court of law. It may seem commonsensical to conclude anyway that there was a contract of insurance between Malayan and ABB Koppel since they obviously behaved in a manner that indicates such relationship, yet the same conclusion could be had even if, for example, those parties staged an elaborate charade to impress on the world the existence of an insurance contract when there actually was none. While there is absolutely no indication of any bad faith of such import by Malayan or ABB Koppel, the fact that the "commonsensical" conclusion can be drawn even if there was bad faith that convinces us to reject such line of thinking.1avvphi1The Court further recognizes the danger as precedent should we sustain Malayans position, and not only because such a ruling would formally violate the rule on actionable documents. Malayan would have us effectuate an insurance contract without having to consider its particular terms and conditions, and on a blind leap of faith that such contract is indeed valid and subsisting. The conclusion further works to the utter prejudice of defendants such as Regis or Paircargo since they would be deprived the opportunity to examine the document that gives rise to the plaintiffs right to recover against them, or to raise arguments or objections against the validity or admissibility of such document. If a legal claim is irrefragably sourced from an actionable document, the defendants cannot be deprived of the right to examine or utilize such document in order to intelligently raise a defense. The inability or refusal of the plaintiff to submit such document into evidence constitutes an effective denial of that right of the defendant which is ultimately rooted in due process of law, to say nothing on how such failure fatally diminishes the plaintiffs substantiation of its own cause of action.37In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of the Marine Cargo Risk Note for the reasons already stated, it was incumbent on respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its claim of subrogation must necessarily fail.Because of the foregoing, it would be unnecessary to discuss the second error raised by petitioner.WHEREFORE, premises considered, the petition isGRANTED. The April 26, 2006 Decision and August 15, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 68165 are herebyREVERSEDandSET ASIDE. The Complaint in Civil Case No. 96-1665 isDISMISSED.SO ORDERED.G.R. No. 165487 July 13, 2011COUNTRY BANKERS INSURANCE CORPORATION,Petitioner,vs.ANTONIO LAGMAN,Respondent.D E C I S I O NPEREZ,J.:This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision1and Resolution2of the Court of Appeals dated 21 June 2004 and 24 September 2004, respectively.These are the undisputed facts.Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of storing not more than 30,000 sacks of palay valued atP5,250,000.00 in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act, as amended,3the approval for said license was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed by a duly authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-three and one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received.Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. 033044forP1,749,825.00 on 5 November 1989 and Warehouse Bond No. 023555forP749,925.00 on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos was the bond principal, Lagman was the surety and the Republic of the Philippines, through the NFA was the obligee. In consideration of these issuances, corresponding Indemnity Agreements6were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for any damages, prejudice, losses, costs, payments, advances and expenses of whatever kind and nature, including attorneys fees and legal costs, which it may sustain as a consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or become liable to pay thereunder; and to pay interest at the rate of 12% per annum computed and compounded monthly, as well as to pay attorneys fees of 20% of the amount due it.7Santos then secured a loan using his warehouse receipts as collateral.8When the loan matured, Santos defaulted in his payment. The sacks of palay covered by the warehouse receipts were no longer found in the bonded warehouse.9By virtue of the surety bonds, Country Bankers was compelled to payP1,166,750.37.10Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their issuance, as evidenced by receipts; that the bonds were never renewed and revived by payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990 Bond) which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the 1990 Bond supersedes, cancels, and renders no force and effect the 1989 Bonds.11The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be found.12The case was eventually dismissed against them without prejudice.13The other co-signor, Reguine, was declared in default for failure to file her answer.14On 21 September 1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to pay Country Bankers the amount ofP2,400,499.87.15The dispositive portion of the RTC Decision16reads:WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants Rhomesita [sic] Reguine and Antonio Lagman, jointly and severally liable to pay plaintiff, Country Bankers Assurance Corporation, the amount ofP2,400,499.87, with 12% interest from the date the complaint was filed until fully satisfied plus 20% of the amount due plaintiff as and for attorneys fees and to pay the costs.As the Court did not acquire jurisdiction over the persons of defendants Nelson Santos and Ban Lee Lim Santos, let the case against them be DISMISSED. Defendant Antonio Lagmans counterclaim is likewise DISMISSED, for lack of merit.17In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court relied on the express terms of the Indemnity Agreement that they jointly and severally bound themselves to indemnify and make good to Country Bankers any liability which the latter may incur on account of or arising from the execution of the bonds.18The trial court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and cannot be unilaterally cancelled by Lagman. The trial court emphasized that for the failure of Lagman to comply with his obligation under the Indemnity Agreements, he is likewise liable for damages as a consequence of the breach.Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the corresponding Indemnity Agreements was only 12 months. According to Lagman, the 1990 Bond was not pleaded in the complaint because it was not covered by an Indemnity Agreement and it superseded the two prior bonds.19On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing and setting aside the Decision of the RTC and ordering the dismissal of the complaint filed against Lagman.20The appellate court held that the 1990 Bond superseded the 1989 Bonds. The appellate court observed that the 1990 Bond covers 33.3% of the market value of the palay, thereby manifesting the intention of the parties to make the latter bond more comprehensive. Lagman was also exonerated by the appellate court from liability because he was not a signatory to the alleged Indemnity Agreement of 5 November 1990 covering the 1990 Bond. The appellate court rejected the argument of Country Bankers that the 1989 bonds were continuing, finding, as reason therefor, that the receipts issued for the bonds indicate that they were effective for only one-year.Country Bankers sought reconsideration which was denied in a Resolution dated 24 September 2004.21Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of Appeals, to wit:A.THE HONORABLE COURT OF APPEALS seriously erred in disregarding the express provisions of Section 177 of the insurance code when it held that the subject surety bonds were superseded by a subsequent bond notwithstanding the non-cancellation thereof by the bond obligee.B.The honorable court of appeals seriously erred in holding that receipts for the payment of premiums prevail over the express provision of the surety bond that fixes the term thereof.22Country Bankers maintains that by the express terms of the 1989 Bonds, they shall remain in full force until cancelled by the Administrator of the NFA. As continuing bonds, Country Bankers avers that Section 177 of the Insurance Code applies, in that the bond may only be cancelled by the obligee, by the Insurance Commissioner or by a competent court.Country Bankers questions the existence of a third bond, the 1990 Bond, which allegedly cancelled the 1989 Bonds on the following grounds: First, Lagman failed to produce the original of the 1990 Bond and no basis has been laid for the presentation of secondary evidence; Second, the issuance of the 1990 Bond was not approved and processed by Country Bankers; Third, the NFA as bond obligee was not in possession of the 1990 Bond. Country Bankers stresses that the cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo, the bonds remain subsisting until cancelled by the bond obligee. Country Bankers further assert that Lagman also failed to prove that the NFA accepted the 1990 Bond in replacement of the 1989 Bonds.Country Bankers notes that the receipts issued for the 1989 Bonds are mere evidence of premium payments and should not be relied on to determine the period of effectivity of the bonds. Country Bankers explains that the receipts only represent the transactions between the bond principal and the surety, and does not involve the NFA as bond obligee.Country Bankers calls this Courts attention to the incontestability clause contained in the Indemnity Agreements which prohibits Lagman from questioning his liability therein.In his Comment, Lagman raises the issue of novation by asserting that the 1989 Bonds were superseded by the 1990 Bond, which did not include Lagman as party. Therefore, Lagman argues, Country Bankers has no cause of action against him. Lagman also reiterates that because of novation, the 1989 bonds are neither perpetual nor continuing.Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates the 1989 Bonds.The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the payment of premiums.We do not agree.The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code expresses:Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid,except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety:Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond:Provided, however,That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. (Emphasis supplied)The 1989 Bonds have identical provisions and they state in very clear terms the effectivity of these bonds, viz:NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the depositors PALAY received by him for STORAGE at any time that demand therefore is made, or shall pay the market value therefore in case he is unable to return the same, then this obligation shall be null and void; otherwise it shall remain in full force and effect and may be enforced in the manner provided by said Act No. 3893 as amended by Republic Act No. 247 and P.D. No. 4. This bond shall remain in force until cancelled by the Administrator of National Food Authority.23This provision in the bonds is but in compliance with the second paragraph of Section 177 of the Insurance Code, which specifies that a continuing bond, as in this case where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by the court. Thus:In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business of receiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA. From beginning to end, the Administrators brief is the enabling or disabling document.The clear import of these provisions is that the surety bonds in question cannot be unilaterally cancelled by Lagman. The same conclusion was reached by the trial court and we quote:As there appears no record of cancellation of the Warehouse Bonds No. 03304 and No. 02355 either by the administrator of the NFA or by the Insurance Commissioner or by the Court, the Warehouse Bonds are valid and binding and cannot be unilaterally cancelled by defendant Lagman as general agent of the plaintiff.24While the trial court did not directly rule on the existence and validity of the 1990 Bond, it upheld the 1989 Bonds as valid and binding, which could not be unilaterally cancelled by Lagman. The Court of Appeals, on the other hand, acknowledged the 1990 Bond as having cancelled the two previous bonds by novation. Both courts however failed to discuss their basis for rejecting or admitting the 1990 Bond, which, as we indicated, is bone to pick in this case.Lagmans insistence on novation depends on the validity, nay, existence of the allegedly novating 1990 Bond. Country Bankers understandably impugns both. We see the point. Lagman presented a mere photocopy of the 1990 Bond. We rule as inadmissible such copy.Under the best evidence rule, the original document must be produced whenever its contents are the subject of inquiry.25The rule is encapsulated in Section 3, Rule 130 of the Rules of Court, as follow:Sec. 3. Original document must be produced; exceptions. When the subject of inquiry is the contents of a documents, no evidence shall be admissible other than the original document itself, except in the following cases:(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice;(c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole; and(d) When the original is a public record in the custody of a public officer or is recorded in a public office.26A photocopy, being a mere secondary evidence, is not admissible unless it is shown that the original is unavailable.27Section 5, Rule 130 of the Rules of Court states:SEC.5 When original document is unavailable. When the original document has been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or by the testimony of witnesses in the order stated.Before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror must prove the following: (1) the existence or due execution of the original; (2) the loss and destruction of the original or the reason for its non-production in court; and (3) on the part of the offeror, the absence of bad faith to which the unavailability of the original can be attributed. The correct order of proof is as follows: existence, execution, loss, and contents.28In the case at bar, Lagman mentioned during the direct examination that there are actually four (4) duplicate originals of the 1990 Bond: the first is kept by the NFA, the second is with the Loan Officer of the NFA in Tarlac, the third is with Country Bankers and the fourth was in his possession.29A party must first present to the court proof of loss or other satisfactory explanation for the non-production of the original instrument.30When more than one original copy exists, it must appear that all of them have been lost, destroyed, or cannot be produced in court before secondary evidence can be given of any one. A photocopy may not be used without accounting for the other originals.31Despite knowledge of the existence and whereabouts of these duplicate originals, Lagman merely presented a photocopy. He admitted that he kept a copy of the 1990 Bond but he could no longer produce it because he had already severed his ties with Country Bankers. However, he did not explain why severance of ties is by itself reason enough for the non-availability of his copy of the bond considering that, as it appears from the 1989 Bonds, Lagman himself is a bondsman. Neither did Lagman explain why he failed to secure the original from any of the three other custodians he mentioned in his testimony. While he apparently was able to find the original with the NFA Loan Officer, he was merely contented with producing its photocopy. Clearly, Lagman failed to exert diligent efforts to produce the original.Fueling further suspicion regarding the existence of the 1990 Bond is the absence of an Indemnity Agreement. While Lagman argued that a 1990 Bond novates the 1989 Bonds, he raises the defense of "non-existence of an indemnity agreement" which would conveniently exempt him from liability. The trial court deemed this defense as indicia of bad faith, thus:To the observation of the Court, defendant Lagman contended that being a general agent (which requires a much higher qualification than an ordinary agent), he is expected to have attended seminars and workshops on general insurance wherein he is supposed to have acquired sufficient knowledge of the general principles of insurance which he had fully practised or implemented from experience. It somehow appears to the Courts assessment of his reneging liability of the bonds in question, that he is still short of having really understood the principle of suretyship with reference to the transaction of indemnity in which he is a signatory. If, as he alleged, that he is well-versed in insurance, the Court finds no excuse for him to stand firm in denying his liability over the claim against the bonds with indemnity provision. If he insists in not recognizing that liability, the more that this Court is convinced that his knowledge that insurance operates under the principle of good faith is inadequate. He missed the exception provided by Section 177 of the Insurance Code, as amended, wherein non-payment of premium would not have the same essence in his mind that the agreements entered into would not have full force or effect. It could be glimpsed, therefore, that the mere fact of cancelling bonds with indemnity agreements and replacing them (absence of the same) to escape liability clearly manifests bad faith on his part.32(Emphasis supplied.)Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract.33In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989 Bonds. There is however neither a valid new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered dubious. Without the new contract, the old contract is not extinguished.Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by the new one.34Quite obviously, neither can there be implied novation. In this case, there is no new obligation.The liability of Lagman is expressed in Indemnity Agreements executed in consideration of the 1989 Bonds which we have considered as continuing contracts. Under both Indemnity Agreements, Lagman, as co-signor, together with Santos, Ban Lee Lim and Reguine, bound themselves jointly and severally to Country Bankers to indemnify it for any damage or loss sustained on the account of the execution of the bond, among others. The pertinent identical stipulations of the Indemnity Agreements state:INDEMNITY: To indemnify and make good to the COMPANY jointly and severally, any damages, prejudice, loss, costs, payments advances and expenses of whatever kind and nature, including attorneys fees and legal costs, which the COMPANY may, at any time, sustain or incur, as well as to reimburse to said COMPANY all sums and amounts of money which the COMPANY or its representatives shall or may pay or cause to be paid or become liable to pay, on account of or arising from the execution of the above-mentioned BOND or any extension, renewal, alteration or substitution thereof made at the instance of the undersigned or anyone of them.35Moreover, the Indemnity Agreements also contained identical Incontestability Clauses which provide:INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: Any payment or disbursement made by the COMPANY on account of the above-mentioned Bond, its renewals, extensions, alterations or substitutions either in the belief that the COMPANY was obligated to make such payment or in the belief that said payment was necessary or expedient in order to avoid greater losses or obligations for which the COMPANY might be liable by virtue of the terms of the above-mentioned Bond, its renewals, extensions, alterations, or substitutions, shall be final and shall not be disputed by the undersigned, who hereby jointly and severally bind themselves to indemnify [Country Bankers] of any and all such payments, as stated in the preceding clauses.In case the COMPANY shall have paid[,] settled or compromised any liability, loss, costs, damages, attorneys fees, expenses, claims[,] demands, suits, or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of the COMPANY and other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as the liability of the undersigned in any and all suits and claims against the undersigned arising out of said bond or this bond application.361awphilLagman is bound by these Indemnity Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds gave rise to Lagmans obligation to reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is liable for the entire obligation.WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE and the Decision dated 21 September 1998 of the RTC is hereby REINSTATED.SO ORDERED.ilipinas Cia de Seguros vs Christern 89 Phil 54Fact:On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after payment of corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire policy covering merchandise contained in a building located at Binondo, Manila. On February 27, 1942 or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent that ceased to be a force on the date the United States declared war against Germany, the respondent corporation (through organized under and by virtue of the laws of Philippines) being controlled by German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The theory of the petitioner is that the insured merchandise was burned after the policy issued in 1941 had ceased to be effective because the outbreak of the war between United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure.

Issue:W/N a public enemy can be insured.

Ruling:Since the majority of stockholders of the respondent corporation were German subjects, the respondent became an enemy of the state upon the outbreak of the war between US and Germany. The English and American cases relied upon by the Court of Appeals lost in force upon the latest decision of the Supreme Court of US in which the control test has adopted.Since World War I, the determination of enemy nationality of corporations has been discussed in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations themselves considered as enemies...The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that "anyone except a public enemy may be insured". It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

The respondent having an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and since the insured good were burned during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rule of justice (in the absence of specific provisions in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.

G.R. No. L-2294 May 25, 1951FILIPINAS COMPAIA DE SEGUROS,petitioner,vs.CHRISTERN, HUENEFELD and CO., INC.,respondent.Ramirez and Ortigas for petitioner.Ewald Huenefeld for respondent.PARAS,C.J.:On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal bycertiorarifrom the decision of the Court of Appeals.The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character or citizenship of its controlling stockholders.There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in Clarkvs.Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of individuals or corporations, themselves considered as enemies. It was the English courts which first theDaimlercase applied this new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War.The United States of America did not adopt the control test during the First World War. Courts refused to recognized the concept whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and administrative measures regarding enemy property.World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the management of the corporation but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in various countries during World War II adopted by statutory provisions to the control test and determined, to various degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic corporation.The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders.Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory. In Clarkvs.Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could become a Trojan horse."It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that, inHaw Pia vs. China Banking Corporation,*45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was controlled by enemies.The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of the parties,so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military Administration, andfollowing the instruction of said authority,you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.G.R. No. 167622 June 29, 2010GREGORIO V. TONGKO,Petitioner,vs.THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS,Respondents.R E S O L U T I O NBRION,J.:This resolves the Motion for Reconsideration1dated December 3, 2008 filed by respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and separation pay for illegal dismissal.The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are repeated, simply for purposes of clarity.The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July 1, 1977, under a Career Agents Agreement (Agreement) that provided:It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent.x x x xa) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt issued by the Company directly to the policyholder.x x x xThe Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous failure to exercise its right under any provision of this Agreement.Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party fifteen (15) days notice in writing.2Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard of knowledge and competency in the sale of Manulifes products, satisfactory to Manulife and sufficient to meet the volume of the new business, required by his Production Club membership.3The second phase started in 1983 when Tongko was named Unit Manager in Manulifes Sales Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4Tongkos gross earnings consisted of commissions, persistency income, and management overrides. Since the beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross business income and deducted his business expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on Tongkos earnings.5In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote:The first step to transforming Manulife into a big league player has been very clear to increase the number of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined the organization. Since then, however, substantial changes have taken place in the organization, as these have been influenced by developments both from within and without the company.x x x xThe issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers meeting earlier last month when Kevin OConnor, SVP-Agency, took to the floor to determine from our senior agency leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had presented information where evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.While discussions, in general, were positive other than for certain comments from your end which were perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-on-one), it was not clear that we were proceeding in the same direction.Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no basis.With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your management team, including you, to clear the air, so to speak.This note is intended to confirm the items that were discussed at the said Metro North Regions Sales Managers meeting held at the 7/F Conference room last 18 October.x x x xIssue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents."This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table before the rest of your Regions Sales Managers to verify its validity. As you must have noted, no Sales Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a source of the same, an allegation that Malou herself denied at our meeting and in your very presence.This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency development objectives!Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."x x x xAll the above notwithstanding, we had your own records checked and we found that you made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about making "less money" did not refer to you but the way you argued this point had us almost believing that you were spouting the gospel of truth when you were not. x x xx x x xAll of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction that we have been discussing these past few weeks, i.e., Manulifes goal to become a major agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency growth.x x x xI cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the following changes in the interim:1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you feel "may not be your cup of tea."You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The above could solve this problem.x x x x2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in autonomous fashion. x x xI have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely responsible for meeting the objectives of these remaining groups.x x x xThe above changes can end at this point and they need not go any further. This, however, is entirely dependent upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.6Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongkos services:It would appear, however, that despite the series of meetings and communications, both one-on-one meetings between yourself and SVP Kevin OConnor, some of them with me, as well as group meetings with your Sales Managers, all these efforts have failed in helping you align your directions with Managements avowed agency growth policy.x x x xOn account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.7Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC) Arbitration Branch. He essentially alleged despite the clear terms of the letter terminating his Agency Agreement that he was Manulifes employee before he was illegally dismissed.8Thus, thethreshold issueis the existence of an employment relationship. A finding that none exists renders the question of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the need to determine the validity of the termination of the relationship.A. Tongkos Case for Employment RelationshipTongko asserted that as Unit Manager, he was paid an annual over-rider not exceedingP50,000.00, regardless of production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager, he was given a travel and entertainment allowance ofP36,000.00 per year in addition to his overriding commissions; he was tasked with numerous administrative functions and supervisory authority over Manulifes employees, aside from merely selling policies and recruiting agents for Manulife; and he recommended and recruited insurance agents subject to vetting and approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices when he was not in the field at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City for which he never paid any rental. Manulife provided the office equipment he used, including tables, chairs, computers and printers (and even office stationery), and paid for the electricity, water and telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three codes of conduct.9B. Manulifes Case Agency Relationship with TongkoManulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales made by agents under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from all commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as suchi.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a business is entitled.Manulife asserts that the labor tribunals have no jurisdiction over Tongkos claim as he was not its employee as characterized in the four-fold test and our ruling inCarungcong v. National Labor Relations Commission.10The Conflicting Rulings of the Lower TribunalsThe labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC reversed the labor arbiters decision on appeal; it found the existence of an employer-employee relationship and concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiters decision that no employer-employee relationship existed between Tongko and Manulife.Our Decision of November 7, 2008In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed between Tongko and Manulife. We concluded that Tongko is Manulifes employee for the following reasons:1. Our ruling in the first Insular11case did not foreclose the possibility of an insurance agent becoming an employee of an insurance company; if evidence exists showing that the company promulgated rules or regulations that effectively controlled or restricted an insurance agents choice of methods or the methods themselves in selling insurance, an employer-employee relationship would be present. The determination of the existence of an employer-employee relationship is thus on a case-to-case basis depending on the evidence on record.2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the following indicators:2.1 Tongko undertook to comply with Manulifes rules, regulations and other requirements, i.e., the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and the Financial Code of Conduct Agreement;2.2 The various affidavits of Manulifes insurance agents and managers, who occupied similar positions as Tongko, showed that they performed administrative duties that established employment with Manulife;12and2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary means to sell more policies; Tongkos alleged failure to follow this directive led to the termination of his employment with Manulife.The Motion for ReconsiderationManulife disagreed with our Decision and filed the present motion for reconsideration on the followingGROUNDS:1. The November 7[, 2008] Decision violates Manulifes right to due process by: (a) confining the review only to the issue of "control" and utterly disregarding all the other issues that had been joined in this case; (b) mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that on "control"; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material evidence, especially [Tongkos] declaration in his income tax returns that he was a "business person" or "self-employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the legal relationships of agencies to sell but also distributorship and franchising, and ignores the constitutional and policy context of contract law vis--vis labor law.3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test other than the "control" test, reverses well-settled doctrines of law on employer-employee relationships, and grossly misapplies the "control test," by selecting, without basis, a few items of evidence to the exclusion of more material evidence to support its conclusion that there is "control."4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and contravenes through judicial legislation, the constitutional prohibition against impairment of contracts under Article III, Section 10 of the Constitution.5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and attorneys fees.13THE COURTS RULINGA. The Insurance and the Civil Codes;the Parties Intent and EstablishedIndustry PracticesWe cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers" and specifically defines the agents and brokers relationship with the insurance company and how they are governed by the Code and regulated by the Insurance Commission.The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws namely, the Insurance Code, the Labor Code and the Civil Code have to be considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship for purposes of selling the insurance the company offers. To forget these other laws is to take a myopic view of the present case and to add to the uncertainties that now exist in considering the legal relationship between the insurance company and its "agents."The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship. The Labor Code concept of "control" has to be compared and distinguished with the "control" that must necessarily exist in a principal-agent relationship. The principal cannot but also have his or her say in directing the course of the principal-agent relationship, especially in cases where the company-representative relationship in the insurance industry is an agency.a.The laws on insurance and agencyThe business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the insurance business. Section 186 of the Insurance Code provides that "No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents and Brokers, among other provisions, provide:Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided.No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act from the Commissioner x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion.1avvphi1.netSection 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.The application for an insurance agents license requires a written examination, and the applicant must be of good moral character and must not have been convicted of a crime involving moral turpitude.14The insurance agent who collects premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity, and an insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have authorized the agent to receive payment on the companys behalf.15Section 361 further prohibits the offer, negotiation, or collection of any amount other than that specified in the policy and this covers any rebate from the premium or any special favor or advantage in the dividends or benefit accruing from the policy.Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the parameters of the authority granted under the license and under the contract with the principal. Other than the need for a license, the agent is limited in the way he offers and negotiates for the sale of the companys insurance products, in his collection activities, and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g., the required volume to continue to qualify as a company agent, rules to check on the parameters on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control specific to an insurance agency and should not and cannot be read as elements of control that attend an employment relationship governed by the Labor Code.On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter."16While this is a very broad definition that on its face may even encompass an employment relationship, the distinctions between agency and employment are sufficiently established by law and jurisprudence.Generally, the determinative element is the control exercised over the one rendering service. The employer controls the employee both in the results and in the means and manner of achieving this result. The principal in an agency relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned task based on the parameters outlined in the pertinent laws.Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the designation by the insurance company. In the present case, the Agreement fully serves as grant of authority to Tongko as Manulifes insurance agent.17This agreement is supplemented by the companys agency practices and usages, duly accepted by the agent in carrying out the agency.18By authority of the Insurance Code, an insurance agency is for compensation,19a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary.20Other than the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed sums necessary for the execution of the agency.21By implication at least under Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same assigned tasks,22based necessarily on the specific instructions and directives given to them.With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act in accordance with the instructions of the principal."23This provision is pertinent for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil Code which binds the agent to render an account of his transactions to the principal.B. The Cited CaseThe Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and regulations that an agent has to comply with are indicative of an employer-employee relationship.24The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations Commission (second Insular case)25to support the view that Tongko is Manulifes employee. On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission (AFPMBAI case)26to support its allegation that Tongko was not its employee.A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all fours with the present case; the uniqueness of the factual situation of the present case prevents it from being directly and readily cast in the mold of the cited cases. These cited cases are themselves different from one another; this difference underscores the need to read and quote them in the context of their own factual situations.The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal characterization of a subsequent management contract that superseded the original agency contract between the insurance company and its agent. Carungcong dealt with a subsequent Agreement making Carungcong a New Business Manager that clearly superseded the Agreement designating Carungcong as an agent empowered to solicit applications for insurance. The Grepalife case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents. Thus, after analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that the company practically dictated the manner by which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a determination of the presence of the Labor Code element of control wa