Conflict of Laws Digest: Phil. Export and Foreign Loan Guarantee Corp. v. V.P. Eusebio Construction Inc. (2004)

G.R. No. 140047           March 31, 2003

Lessons Applicable: No conflicts rule on essential validity of contracts (conflicts of law)

FACTS:

• November 8, 1980: State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (Project) to Ajyal Trading and Contracting Company (Ajyal), a firm duly licensed with the Kuwait Chamber of Commerce for ID5,416,089/046 (or about US$18,739,668)
• March 7, 1981: 3-Plex International, Inc. represented by Spouses Eduardo and Iluminada Santos a local contractor engaged in construction business, entered into a joint venture agreement with Ajyal.   However since it was not accredited under the Philippine Overseas Construction Board (POCB), it had to assign and transfer all its right to VPECI. 
• VPECI entered into an agreement that the execution of the project will be under their joint management.
• To comply with the requirements of performance bond of ID271,808/610 and an an advance payment bond of ID541,608/901, 3-Plex and VPECI applied for the issuance of a guarantee with Philguarantee, a government financial institution empowered to issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts abroad. 
• Subsequently, letters of guarantee were issued by Philguarantee to the Rafidain Bank of Baghdad. Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from the Philguarantee
• The Surety Bond was later amended to increase the amount of coverage from P6.4 million to P6.967 million and to change the bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait
• SOB and the joint venture VPECI and Ajyal executed the service contract for the construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase II, in Baghdad, Iraq.  It commenced only on the last week of August 1981 instead of the June 2 1981
• Prior to the deadline, upon foreseeing the impossibility to meet it, the surety bond was also extended for more than 12 times until May 1987 and the Advance Payment Guarantee was extended three times more until it was cancelled for reimbursement 
• On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counter-guarantee
• VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the performance guarantee for being a drastic action in contravention of its mutual agreement that (1) the imposition of penalty would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the developments on the negotiations for a foreign loan to finance the completion of the project.
• VPECI advised the Philguarantee not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project
• VPECI  received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding reimbursement by Philguarantee
• VPECI requested the Central Bank to hold in abeyance the payment by the Philguarantee "to allow the diplomatic machinery to take its course, for otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed against a Filipino contractor
• Central Bank authorized the remittance to Al Ahli Bank
• Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the Philguarantee for the advances made on its counter-guarantee but they failed to pay so a case was filed in the RTC
• RTC and CA: Against Philguarantee since no cause of action since it was expired because VPECI. Inequity to allow the Philguarantee to pass on its losses to the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank and constantly apprised it of the developments in the Project implementation.

ISSUE: W/N the Philippine laws should be applied in determining VPECI's default in the performance of its obligations under the service contract

HELD: YES.

• No conflicts rule on essential validity of contracts is expressly provided for in our laws
• The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex contractus or "proper law of the contract." This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci intentionis) - none in this case
• In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours
• In the United States and Europe, the two rules that now seem to have emerged as "kings of the hill" are (1) the parties may choose the governing law; and (2) in the absence of such a choice, the applicable law is that of the State that "has the most significant relationship to the transaction and the parties  Another authority proposed that all matters relating to the time, place, and manner of performance and valid excuses for non-performance are determined by the law of the place of performance or lex loci solutionis, which is useful because it is undoubtedly always connected to the contract in a significant way
• In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours
• delay or the non-completion of the Project was caused by factors not imputable to the respondent contractor such as the war in Iraq
• petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor. It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI.  In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor.

Conflict of Laws Digest: Bank of America v. CA (2003)

G.R. No. 120135           March 31, 2003
Lessons Applicable: forum non conveniens (conflicts of laws)

FACTS:

• Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas) were engaged in the shipping business owning 2 vessels: Don Aurelio and El Champion
• Because their business where doing well, Bank of America (BA) offered them to take a loan for them to increase their ships.  
• BA acquired through them as borrowers four more ships: (a) El Carrier; (b) El General; (c) El Challenger; and (d) El Conqueror.  The registration, operation, income, funds, possession of the vessel belonged to the corporation.
• May 10, 1993: Litonjuas filed a complaint to the RTC Pasig claming that during its operations and the foreclosure sale, BA as trutees failed to fully render an account of the income.  They lost all their 6 vessels and 10% of their personal funds and they still have an unpaid balance of their loans.
• BA NT&SA, and BA international filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them
• RTC and CA: Dismissed

ISSUE: 
1. W/N there is grounds of forum non conveniens
2. W/N there is litis pendentia

HELD: Denied

1. NO.

• The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private international law to deter the practice of global forum shopping
• Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.
• Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court.
• Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: 
• (1) that the Philippine Court is one to which the parties may conveniently resort to; - present
• (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, - present
• (3) that the Philippine Court has or is likely to have power to enforce its decision - present
• This Court further ruled that while it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special circumstances require the court's desistance; and that the propriety of dismissing a case based on this principle of forum non conveniens requires a factual determination, hence it is more properly considered a matter of defense

2. NO.

• litis pendentia to be a ground for the dismissal of an action there must be:
• (a) identity of the parties or at least such as to represent the same interest in both actions -present
• (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts - not shown
• (c) the identity in the two cases should be such that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other - not shown
• It merely mentioned that civil cases were filed in Hongkong and England 

Jurisprudence: G.R. No. 120135

SECOND DIVISION

G.R. No. 120135            March 31, 2003

BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners,

vs.

COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.

AUSTRIA-MARTINEZ, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994 decision of the Court of Appeals1 and the April 28, 1995 resolution denying petitioners' motion for reconsideration.

The factual background of the case is as follows:

On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint2 before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they deposited their revenues from said business together with other funds with the branches of said banks in the United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them to increase the number of their ships in operation, offering them easy loans to acquire said vessels;3 thereafter, the defendant banks acquired, through their (Litonjuas') corporations as the borrowers: (a) El Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7; the vessels were registered in the names of their corporations; the operation and the funds derived therefrom were placed under the complete and exclusive control and disposition of the petitioners;8 and the possession the vessels was also placed by defendant banks in the hands of persons selected and designated by them (defendant banks).9

The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure sale;10 because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons designated by them in the operation of private respondents' six vessels, the revenues derived from the operation of all the vessels declined drastically; the loans acquired for the purchase of the four additional vessels then matured and remained unpaid, prompting defendant banks to have all the six vessels, including the two vessels originally owned by the private respondents, foreclosed and sold at public auction to answer for the obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance of their loans with defendant banks.11 The Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages for breach of trust; exemplary damages and attorney's fees.12

Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them.13

On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:

"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The defendant is therefore, given a period of ten (10) days to file its Answer to the complaint.

"SO ORDERED."14

Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for Review on Certiorari"15 which was aptly treated by the appellate court as a petition for certiorari. They assailed the above-quoted order as well as the subsequent denial of their Motion for Reconsideration.16 The appellate court dismissed the petition and denied petitioners' Motion for Reconsideration.17

Hence, herein petition anchored on the following grounds:

"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE.

"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE OF FORUM NON CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANT CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE APPROPRIATE AND PROPER.

"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18

As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels are the foreign corporations and not private respondents Litonjuas who are mere stockholders; and that the revenues derived from the operations of all the vessels are deposited in the accounts of the corporations. Hence, petitioners maintain that these foreign corporations are the legal entities that have the personalities to sue and not herein private respondents; that private respondents, being mere shareholders, have no claim on the vessels as owners since they merely have an inchoate right to whatever may remain upon the dissolution of the said foreign corporations and after all creditors have been fully paid and satisfied;19 and that while private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of the vessels in question, their 10% however represents their investments as stockholders in the foreign corporations.20

Anent the second assigned error, petitioners posit that while the application of the principle of forum non conveniens is discretionary on the part of the Court, said discretion is limited by the guidelines pertaining to the private as well as public interest factors in determining whether plaintiffs' choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit:

"Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of compulsory process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of willing witnesses; or (d) all other practical problems that make trial of a case easy, expeditious and inexpensive. Public interest factors include: (a) the administrative difficulties flowing from court congestion; (b) the local interest in having localized controversies decided at home; (c) the avoidance of unnecessary problems in conflict of laws or in the application of foreign law; or (d) the unfairness of burdening citizens in an unrelated forum with jury duty."23

In support of their claim that the local court is not the proper forum, petitioners allege the following:

"i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong and England. As such, the evidence and the witnesses are not readily available in the Philippines;

"ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the Philippines;

"iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part of an offshore fleet, not based in the Philippines;

"iv) All the loans involved were granted to the Private Respondents' foreign CORPORATIONS;

"v) The Restructuring Agreements were ALL governed by the laws of England;

"vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made outside the Philippines;

"vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and

"viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the Philippines."24

Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring agreements uniformly, unconditionally and expressly provided that they will be governed by the laws of England;25 that Philippine Courts would then have to apply English law in resolving whatever issues may be presented to it in the event it recognizes and accepts herein case; that it would then be imposing a significant and unnecessary expense and burden not only upon the parties to the transaction but also to the local court. Petitioners insist that the inconvenience and difficulty of applying English law with respect to a wholly foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the ground of forum non conveniens. 26

Finally, petitioners claim that private respondents have already waived their alleged causes of action in the case at bar for their refusal to contest the foreign civil cases earlier filed by the petitioners against them in Hongkong and England, to wit:

"1.) Civil action in England in its High Court of Justice, Queen's Bench Division Commercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA.

"2.) Civil action in England in its High Court of Justice, Queen's Bench Division, Commercial Court (1992-Folio No. 2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.

"3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA.

"4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA."

and that private respondents' alleged cause of action is already barred by the pendency of another action or by litis pendentia as shown above.27

On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or misrepresented in the present petition for certiorari; that the prefatory statement failed to state that part of the security of the foreign loans were mortgages on a 39-hectare piece of real estate located in the Philippines;28 that while the complaint was filed only by the stockholders of the corporate borrowers, the latter are wholly-owned by the private respondents who are Filipinos and therefore under Philippine laws, aside from the said corporate borrowers being but their alter-egos, they have interests of their own in the vessels.29 Private respondents also argue that the dismissal by the Court of Appeals of the petition for certiorari was justified because there was neither allegation nor any showing whatsoever by the petitioners that they had no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law from the Order of the trial judge denying their Motion to Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied was to file an Answer to the complaint;30 that as upheld by the Court of Appeals, the decision of the trial court in not applying the principle of forum non conveniens is in the lawful exercise of its discretion.31 Finally, private respondents aver that the statement of petitioners that the doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by them and not based on a categorical ruling of this Court;32 and that herein private respondents did not actually participate in the proceedings in the foreign courts.33

We deny the petition for lack of merit.

It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for certiorari. Petitioners should have filed an answer to the complaint, proceed to trial and await judgment before making an appeal. As repeatedly held by this Court:

"An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire case by appeal in due course. xxx Under certain situations, recourse to certiorari or mandamus is considered appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction; (b) where there is patent grave abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and compelling the defendant needlessly to go through a protracted trial and clogging the court dockets by another futile case."34

Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying petitioners' motion to dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of discretion? Would appeal, under the circumstances, not prove to be a speedy and adequate remedy? We will resolve said questions in conjunction with the issues raised by the parties.

First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the ground that plaintiffs have no cause of action against defendants since plaintiffs are merely stockholders of the corporations which are the registered owners of the vessels and the borrowers of petitioners?

No. Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action.35 In San Lorenzo Village Association, Inc. vs. Court of Appeals,36 this Court clarified that a complaint states a cause of action where it contains three essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.37 To emphasize, it is not the lack or absence of cause of action that is a ground for dismissal of the complaint but rather the fact that the complaint states no cause of action.38 "Failure to state a cause of action" refers to the insufficiency of allegation in the pleading, unlike "lack of cause of action" which refers to the insufficiency of factual basis for the action. "Failure to state a cause of action" may be raised at the earliest stages of an action through a motion to dismiss the complaint, while "lack of cause of action" may be raised any time after the questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.39

In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.

Petitioners insist that they do not have any obligation to the private respondents as they are mere stockholders of the corporation; that the corporate entities have juridical personalities separate and distinct from those of the private respondents. Private respondents maintain that the corporations are wholly owned by them and prior to the incorporation of such entities, they were clients of petitioners which induced them to acquire loans from said petitioners to invest on the additional ships.

We agree with private respondents. As held in the San Lorenzo case,40

"xxx assuming that the allegation of facts constituting plaintiffs' cause of action is not as clear and categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into the merits of the action."

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which the law abhors, and conduce to the definitive determination and termination of the dispute. To do otherwise, that is, to abort the action on account of the alleged fatal flaws of the complaint would obviously be indecisive and would not end the controversy, since the institution of another action upon a revised complaint would not be foreclosed.41

Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?

No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private international law to deter the practice of global forum shopping,42 that is to prevent non-resident litigants from choosing the forum or place wherein to bring their suit for malicious reasons, such as to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.43

Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court.44 In the case of Communication Materials and Design, Inc. vs. Court of Appeals,45 this Court held that "xxx [a Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely to have power to enforce its decision."46 Evidently, all these requisites are present in the instant case.

Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,47 that the doctrine of forum non conveniens should not be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as a ground. This Court further ruled that while it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special circumstances require the court's desistance; and that the propriety of dismissing a case based on this principle of forum non conveniens requires a factual determination, hence it is more properly considered a matter of defense.48

Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action?

No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in one case will amount to res judicata in the other.49 Parenthetically, for litis pendentia to be a ground for the dismissal of an action there must be: (a) identity of the parties or at least such as to represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should be such that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other.50

In case at bar, not all the requirements for litis pendentia are present. While there may be identity of parties, notwithstanding the presence of other respondents,51 as well as the reversal in positions of plaintiffs and defendants52, still the other requirements necessary for litis pendentia were not shown by petitioner. It merely mentioned that civil cases were filed in Hongkong and England without however showing the identity of rights asserted and the reliefs sought for as well as the presence of the elements of res judicata should one of the cases be adjudged.

As the Court of Appeals aptly observed:

"xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties herein xxx, failed to provide this Court with relevant and clear specifications that would show the presence of the above-quoted elements or requisites for res judicata. While it is true that the petitioners in their motion for reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver that "Copies of the foreign judgments are hereto attached and made integral parts hereof as Annexes 'B', 'C', 'D' and 'E'", they failed, wittingly or inadvertently, to include a single foreign judgment in their pleadings submitted to this Court as annexes to their petition. How then could We have been expected to rule on this issue even if We were to hold that foreign judgments could be the basis for the application of the aforementioned principle of res judicata?"53

Consequently, both courts correctly denied the dismissal of herein subject complaint.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Callejo, Sr., JJ., concur.

Footnotes

1 In CA-G.R. SP No. 34382, entitled, "Bank of America NT&SA, Bank of America International Ltd., Plaintiffs/Petitioners, versus, Hon. Manuel S. Padolina, as Judge Regional Trial Court of Pasig, M.M., Branch 162 and Eduardo Litonjua, Sr., et al., Defendants/Respondents".

2 Docketed as Civil Case No. 63181 and entitled, "Eduardo K. Lintonjua, Sr. and Aurelio K. Litonjua, Jr., Plaintiffs, versus, Bank of America, National Trust & Savings Corporation and Bank of America, Internaitonal Ltd., Defendants." p. 54, SC Rollo.

3 Id., at pp. 54-56.

4 Panamanian flag, registered owners Espriona Shipping Co., S.A.

5 Liberian flag, registered owners Liberia Transport Navigation S.A.

6 Panamanian flag, registered owners El Challenger S.A.

7 Panamanian flag, registered owners Eshley Compania Naviera S.A.

8 Rollo, p. 57.

9 Id., at 58.

10 Id., at p. 59.

11 Id., at p. 60.

12 Rollo, pp. 62-63.

13 Id., at p. 38.

14 Id., at pp. 24-25.

15 Rollo, pp. 71-98

16 Rollo, at p. 71-98.

17 Id., at pp. 48-50.

18 Rollo, p. 18.

19 Id., at p. 20.

20 Id., at p. 21.

21 330 US 501, 508 (1947), cited on page 14, Petition for Review.

22 454 US 235, 241 (1981), cited on page 14, Petition for Review.

23 Petition for Review, p. 14; Rollo, p. 24.

24 Rollo, pp. 24-25.

25 Rollo, p. 26, Petition for Review, 16.

26 Rollo, pp. 25-26.

27 Id., p. 248

28 Rollo, pp. 103-104.

29 Id., at pp. 104-105.

30 Id., at pp. 108-109.

31 Id., at p. 117.

32 Id., at p. 120.

33 Id., at p. 121.

34 Far East Bank and Trust Company vs. Court of Appeals and SMP, Inc., 341 SCRA 485, 492 (2000).

35 Columbia Pictures Inc. vs. Court of Appeals, 261 SCRA 144, 162 (1996).

36 San Lorenzo Village Association, Inc. vs. Court of Appeals, 288 SCRA 115 (1998).

37 Id. at p. 128.

38 Ibid.

39 Dabuco et al., vs. Court of Appeals, (January 20, 2002).

40 Supra, at p. 128.

41 Ibid, at p. 128 (1998).

42 Jorge R. Coquia and Elizabeth Aguiling-Pangalangan, CONFLICTS OF LAWS, pp. 40-41, 2000 Ed.

43 First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, 281 (1996).

44 Hongkong and Shanghai Banking Corp. vs. Sherman, 176 SCRA 331, 339 (1989).

45 260 SCRA 673 (1996).

46 Id. at p. 695.

47 Philsec. Investment Corp. vs. Court of Appeals, 274 SCRA 102, 113 (1997), citing Hongkong and Shanghai Banking Corp. vs. Sherman, 176 SCRA 331 at 339 (1989).

48 Id. at p. 113.

49 R & M General Merchandise, Inc. vs. Court of Appeals and La Perla Industries, Inc., G.R. No. 144189 (October 5, 2001).

50 Ibid.

51 Dasmarinas Vill. Assn. Inc., et al., vs. CA, 299 SCRA 598, 605 (1998).

52 Cokaliong Shipping Lines, Inc. vs. Amin, 260 SCRA 122, 125 (1996).

53 Rollo, p. 47; CA Decision, p. 14.

Insurance Case Digest: New Life Enterprises v. Court of Appeals (1992)

G.R. No. 94071 March 31, 1992
Lessons Applicable: Requisites of Double insurance (Insurance)

FACTS:

• May 15, 1981: Western Guaranty Corporation issued Fire Insurance Policy to New Life Enterprises foar P350,000
• renewed on May, 13, 1982
• July 30,1981: Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy to New Life Enterprises for P300,000
• November 12, 1981; Additional P700,000
• February 8, 1982: Equitable Insurance Corporation issued Fire Insurance Policy to New Life Enterprises for P200,000
• October 19, 1982 2 am: fire electrical in nature destroyed the stock in trade worth P1,550,000
• Julian Sy went to Reliance to claim but he was refused.  Same thing happened with the others who were sister companies.
• Sy violated the "Other Insurance Clause"
• RTC: favored New Life and against the three insurance companies
• CA: reversed -failure to state or endorse the other insurance coverage

ISSUE: W/N Sy can claim against the three insurance companies for violating the "Other Insurance Clause"

HELD: NO.

• The terms of the contract are clear and unambiguous.
• The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. 
• The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would estop the insurers from denying the claim. 
• conclusion of the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insurance claims adjuster
• Availmentof the services of the same agents and adjusters by different companies is a common practice in the insurancebusiness and such facts do not warrant the speculative conclusion of the trial court.
• The conformity of the insured to the terms of the policy isimplied from his failure to express any disagreement with what is provided for. 
• a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception - guilty of clear fraud 
• total absence of such notice nullifies the policy
• assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive period was yet toexpire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, but petitioners let the period lapse without bringing their action in court

Jurisprudence: G.R. No. 94071

SECOND DIVISION

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.:

This appeal by certiorari seeks the nullification of the decision ¹ of respondent Court of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and consequently ordered the dismissal of the aforesaid actions filed by herein petitioners.

The undisputed background of this case as found by the court a quo and adopted by respondent court, being sustained by the evidence on record, we hereby reproduce the same with approval. ²

The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena. Under the business name of New Life Enterprises, the partnership engaged in the sale of construction materials at its place of business, a two storey building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional insurance wasissued by the same company on November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of P700,000.00.

On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00.

Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock inthe morning of October 19, 1982, the stocks in the trade inside said building were insured against fire inthe total amount of P1,550,000.00. According to the certification issued by the Headquarters, Philippine Constabulary /Integrated National Police, Camp Crame, the cause of fire was electrical in nature.According to the plaintiffs, the building and the stocks inside were burned. After the fire, Julian Sy went tothe agent of Reliance Insurance whom he asked to accompany him to the office of the company so thathe can file his claim. He averred that in support of his claim, he submitted the fire clearance, the insurance policies and inventory of stocks. He further testified that the three insurance companies are sister companies, and as a matter of fact when he was following-up his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and if said company agrees to pay, they would also pay. The same treatment was given him by the other insurance companies. Ultimately, thethree insurance companies denied plaintiffs' claim for payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-84) Western Guaranty Corporation throughClaims Manager Bernard S. Razon told the plaintiff that his claim "is denied for breach of policyconditions." Reliance Insurance purveyed the same message in its letter dated November 23, 1982 andsigned by Executive Vice-President Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's claimis denied for breach of policy conditions." The letter of denial received by the plaintiff from EquitableInsurance Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President Elma R. Bondad, said "we find that certain policy conditions wereviolated, therefore, we regret, we have to deny your claim, as it is hereby denied in its entirety."

In relation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin D. Dator, actingin behalf of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-84) to Executive Vice-President Mary Dee Co asking that he be informed as to the specific policy conditions allegedly violated by theplaintiff. In her reply-letter dated March 30, 1983, Executive Vice-President Mary Dee Co informed Atty. Datorthat Julian Sy violated Policy Condition No. "3" which requires the insured to give notice of any insurance orinsurances already effected covering the stocks in trade. ³

Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate civilactions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for trial, andthereafter the court below rendered its decision on December 19, l986 with the following disposition:

WHEREFORE, judgment in the above-entitled cases is rendered in the following manner, viz:

1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New Life Enterprises and against the defendant Equitable Insurance Corporation ordering the latter to pay the former the sum of Two HundredThousand (P200,000.00) Pesos and considering that payment of the claim of the insured has beenunreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is further ordered to paythe plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00) Pesos. All sums of money tobe paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of the InsuranceCode) from February 14, 1983, (91st day from November 16, 1982, when Sworn Statement of Fire Claim was received from the insured) until they are fully paid;

2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against the defendantReliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum of P1,000,000.00(P300,000.00 under Policy No. 69135 and P700,000.00 under Policy No. 71547) and considering thatpayment of the claim of the insured has been unreasonably denied, pursuant to Sec. 244 of theInsurance Code, defendant is further ordered to pay the plaintiff the amount of P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244of the Insurance Code) from February 14, 1983, (91st day from November 16, 1982 when SwornStatement of Fire Claim was received from the insured) until they are fully paid;

3. In Civil Case No. 8-84, judgment is rendered for the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corporation ordering the latter to pay the sum of P350,000.00 to theConsolidated Bank and Trust Corporation, Lucena Branch, Lucena City, as stipulated on the face ofPolicy No. 37201, and considering that payment of the aforementioned sum of money has been unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is further ordered to pay the plaintiff attorney's fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st day from 1st week of November 1983 when insured filed formalclaim for full indemnity according to adjuster Vetremar Dela Merced) until they are fully paid. ⁴

As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence this petition the cruxwherein is whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners thereby resulting in their forfeiture of all the benefits thereunder.

Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformly contained inall the aforestated insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Company of any insurance or insurances already effected, or which maysubsequently be effected, covering any of the property or properties consisting of stocks in trade, goods inprocess and/or inventories only hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated therein or endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under thispolicy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of loss or damage not more than P200,000.00. ⁵

Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of which compensation is claimed by petitioners. ⁶ The policy issued by respondent Western Guaranty Corporation (Western) did not declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks, while Reliance's Policies covering the same stocks did not likewise declare Western and Equitable as such co-insurers. It is further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring indication of any co-insurance although there were three (3) policies subsisting on the same stocks in trade at the time of the loss, namely, that of Western in the amount of P350,000.00 and two (2) policies of Reliance in the total amount of P1,000,000.00. ⁷

In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all benefits thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional insurancecoverage and that they were not informed about the requirement that such other or additional insurance should bestated in the policy, as they have not even read policies. ⁸ These contentions cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicability here has likewise beenroundly refuted by respondent court whose factual findings we find acceptable.

Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding the co-insurance on the property, he contradicted himself by inexplicably claiming that he had not read the terms of the policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, aside from the fact that the insurance with Western was obtained before those of Reliance and Equitable; and that the conclusion of the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawn from the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insurance claims adjuster. Availmentof the services of the same agents and adjusters by different companies is a common practice in the insurancebusiness and such facts do not warrant the speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear and plain or readily understandable by an ordinary reader thereof, there is absolutely no room for interpretation or construction anymore. ⁹ Courts are not allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal, oruncertain. ¹⁰ The parties must abide by the terms of the contract because such terms constitute the measure of theinsurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from the insurer.¹¹

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally infavor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. ¹² Moreover, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. ¹³

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the policy isimplied from his failure to express any disagreement with what is provided for. ¹⁴ It may be true that the majority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and that this is not negligenceper se. 15 But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman since 1965 ¹⁶ andthe contract concerns indemnity in case of loss in his money-making trade of which important consideration he couldnot have been unaware as it was pre-in case of loss in his money-making trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: ¹⁷

. . . And considering the terms of the policy which required the insured to declare other insurances, thestatement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were no other insurance on the property. . . .

The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance Act). Such misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies is not open to doubt.

xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured. According to Justice Story: "The insured has no right tocomplain, for he assents to comply with all the stipulations on his side, in order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which,but for those stipulations, would not have been entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., ¹⁸ we held:

It is not disputed that the insured failed to reveal before the loss three other insurances. As found by the Court of Appeals, by reason of said unrevealed insurances, the insured had been guilty of a falsedeclaration; a clear misrepresentation and a vital one because where the insured had been asked to reveal but did not, that was deception. Otherwise stated, had the insurer known that there were many co-insurances, it could have hesitated or plainly desisted from entering into such contract. Hence, theinsured was guilty of clear fraud (Rollo, p. 25).

Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and "Other InsuranceClause" are materially different from the actual number of co-insurances taken over the subject property.Consequently, "the whole foundation of the contract fails, the risk does not attach and the policy neverbecomes a contract between the parties." Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise. Falsehood in such representations isnot shown to vary or add to the contract, or to terminate a contract which has once been made, but to show that no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p. 991, Vol. II, 8thEd.,) A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (Tongoy vs.C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).

As the insurance policy against fire expressly required that notice should be given by the insured of otherinsurance upon the same property, the total absence of such notice nullifies the policy.

To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need merely toturn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this Policy shall be forfeited . . . . ¹⁹

Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had elapsed frompetitioners' receipt of the insurers' letter of denial on November 29, 1982. Policy Condition No. 27 of their insurance contract with Reliance provides:

27. Action or suit clause. — If a claim be made and rejected and an action or suit be not commenced either inthe Insurance Commission or any court of competent jurisdiction of notice of such rejection, or in case ofarbitration taking place as provided herein, within twelve (12) months after due notice of the award made by thearbitrator or arbitrators or umpire, then the claim shall for all purposes be deemed to have been abandoned andshall not thereafter be recoverable hereunder. ²⁰

On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we hesitate in concluding that plaintiff's right toventilate his claim in court has been barred by reason of the time constraint provided in the insurance contract. It is evident that after the plaintiff had received the letter of denial, he still found it necessary to be informed of thespecific causes or reasons for the denial of his claim, reason for which his lawyer, Atty. Dator deemed it wise tosend a letter of inquiry to the defendant which was answered by defendant's Executive Vice-President in a letter dated March 30, 1983, . . . . Assuming, gratuitously, that the letter of Executive Vice-President Mary Dee Co dated March 30, 1983, was received by plaintiff on the same date, the period of limitation should start to run onlyfrom said date in the spirit of fair play and equity. . . . ²¹

We have perforce to reject this theory of the court below for being contrary to what we have heretofore declared:

It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:

The condition contained in an insurance policy that claims must be presented within one year after rejection is not merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance companies as it demands that insurancesuits be brought by the insured while the evidence as to the origin and cause of destructionhave not yet disappeared.

In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity ofbringing suits against the Insurer within one year from the rejection of the claim. The contention of therespondents that the one-year prescriptive period does not start to run until the petition forreconsideration had been resolved by the insurer, runs counter to the declared purpose for requiring thatan action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from thedenial of the claim. To uphold respondents' contention would contradict and defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence which may be considered against them is destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same cannot betaken to mean the rejection of a petition for reconsideration as insisted by respondents. Such was clearly not themeaning contemplated by this Court. The insurance policy in said case provides that the insured should file his claim first, with the carrier and then with the insurer. The "final rejection" being referred to in said case is the rejection by the insurance company. ²²

Furthermore, assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive period was yet toexpire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, but petitioners let the period lapse without bringing their action in court. We accordingly find no "peculiar circumstances" sufficient to relaxthe enforcement of the one-year prescriptive period and we, therefore, hold that petitioners' claim was definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of Appeals, the same is herebyAFFIRMED.

SO ORDERED.

Melencio-Hererra and Nocon, JJ., concur.

Paras, J., took no part.

Padilla, J., took no part.

Footnotes

1 Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras and Bonifacio A. Cacdac, Jr., concurring Rollo, 51.

2 Per Judge Hoover S. Abling.

3 Rollo, 34-36.

4 Ibid., 32-33.

5 Exhibits "20-c", "18-b", "14-b"; Folder of Exhibit, 20, 29, 31.

6 Memorandum for Petitioners, 13.

7 Rollo, 35.

8 Memorandum for the Petitioners, 13.

9 Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990).

10 Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA 54 (1990).

11 Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA 741 (1990).

12 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193 (1991).

13 Article 1159, Civil Code.

14 Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company, 56 SCRA 375 (1931).

15 Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22.

16 TSN, February 11, 1986, 28.

17 61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs. Ng Hua, 106 Phil. 1117, 1119-1120 (1960).

18 168 SCRA 1 (1988).

19 Exhibits "20-d", "18-e, "14-e"; Folder of Exhibits, 21, 30, 33.

20 Exhibit "14-f"; Folder of Exhibits, 33.

21 Rollo, 49.

22 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12