RCBC v.

CA - Insurance Proceeds

289 SCRA 292 (1998)

Facts:

>  GOYU applied for credit facilities and accommodations with RCBC. After due
evaluation, a credit facility in the amount of P30 million was initially granted. Upon
GOYU's application increased GOYU's credit facility to P50 million, then to P90 million,
and finally to P117 million
>  As security for its credit facilities with RCBC, GOYU executed two REM and two CM in
favor of RCBC, which were registered with the Registry of Deeds at. Under each of these
four mortgage contracts, GOYU committed itself to insure the mortgaged property with
an insurance company approved by RCBC, and subsequently, to endorse and deliver the
insurance policies to RCBC.
>  GOYU obtained in its name a total of 10 insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly upon
instructions of GOYU
>  On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity.
>  MICO denied the claim on the ground that the insurance policies were either attached
pursuant to writs of attachments/garnishments issued by various courts or that the
insurance proceeds were also claimed by other creditors of GOYU alleging better rights
to the proceeds than the insured.
>  GOYU filed a complaint for specific performance and damages.  RCBC, one of GOYU's
creditors, also filed with MICO its formal claim over the proceeds of the insurance
policies, but said claims were also denied for the same reasons that AGCO denied
GOYU's claims.
>  However, because the endorsements do not bear the signature of any officer of
GOYU, the trial court, as well as the Court of Appeals, concluded that the endorsements
are defective and held that RCBC has no right over the insurance proceeds.

Issue:

Whether or not RCBC has a right over the insurance proceeds.

Held:

RCBC has a right over the insurance proceeds.

It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the
same property for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of

RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any
specific insurance policy in favor of any particular beneficiary or payee other than the
insured had not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of
property were mortgaged to RCBC had not such information been voluntarily disclosed
by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYU's
intention of obtaining insurance coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verify, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained

to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement
documents sent to it as this was only pursuant to the stipulation in the mortgage
contracts. We find such reliance to be justified under the circumstances of the case.
GOYU failed to seasonably repudiate the authority of the person or persons who
prepared such endorsements. Over and above this, GOYU continued, in the meantime,
to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence
of the loss insured against, it was too late for GOYU to disown the endorsements for any
imagined or contrived lack of authority of Alchester to prepare and issue said
endorsements. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU's inaction in this case, GOYU is at the very least
estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it

continued to enjoy the benefits of the credit facilities of RCBC which believed in good
faith that there was due endorsement pursuant to their mortgage contracts, is to
countenance grave contravention of public policy, fair dealing, good faith, and justice.
Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances
obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of
the insurance policies if not for the actual endorsement of the policies, at least on the
basis of the equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose
name or for whose benefit it is made. The peculiarity of the circumstances obtaining in
the instant case presents a justification to take exception to the strict application of said
provision, it having been sufficiently established that it was the intention of the parties
to designate RCBC as the party for whose benefit the insurance policies were taken out.
Consider thus the following:
1.       It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYU's credit facilities from RCBC. The mortgage contracts contained common
provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
properly covered against any loss by an insurance company acceptable to RCBC.
2.       GOYU voluntarily procured insurance policies to cover the mortgaged property
from MICO, no less than a sister company of RCBC and definitely an acceptable
insurance company to RCBC.
3.       Endorsement documents were prepared by MICO's underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU
did not assail, until of late, the validity of said endorsements.
4.       GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the
insurance policies to be taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence written conformity
thereto, obviously considered said endorsement to be sufficient compliance with its
obligation under the mortgage contracts since RCBC accordingly continued to extend
the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as
plain too is the intention of the parties to constitute RCBC as the beneficiary of the
various insurance policies obtained by GOYU. The intention of the parties will have to be
given full force and effect in this particular case. The insurance proceeds may, therefore,
be exclusively applied to RCBC, which under the factual circumstances of the case, is
truly the person or entity for whose benefit the policies were clearly intended

MALAYAN INSURANCE INC., Petitioner, v. GOYU & SONS, INC. respondent.

D EC I S I O N

MELO, J.:

The issues relevant to the herein three consolidated petitions revolve around the fire
loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the mortgage contracts entered into by and
between Rizal Commercial Banking Corporation (RCBC) and GOYU.

The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum commencing July 27, 1992. RCBC was
ordered to pay actual and compensatory damages in the amount of P5,000,000.00.
MICO and RCBC were held solidarily liable to pay GOYU P1,500,000.00 as exemplary
damages and P1,500,000.00 for attorneys fees. GOYUs obligation to RCBC was fixed at
P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties. RCBC
and MICO appealed separately but, in view of the common facts and issues involved,
their individual petitions were consolidated.

The undisputed facts may be summarized as follows:

GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers,
petitioners Uy Chun Bing and Eli D. Lao, recommended GOYUs application for approval
by RCBCs executive committee. A credit facility in the amount of P30 million was
initially granted. Upon GOYUs application and Uys and Laos recommendation, RCBCs
executive committee increased GOYUs credit facility to P50 million, then to P90
million, and finally to P117 million.

As security for its credit facilities with RCBC, GOYU executed two real estate
mortgages and two chattel mortgages in favor of RCBC, which were registered with
the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage
contracts, GOYU committed itself to insure the mortgaged property with an insurance
company approved by RCBC, and subsequently, to endorse and deliver the insurance
policies to RCBC.

GOYU obtained in its name a total of ten insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly
upon instructions of GOYU (Exhibits 1-Malayan to 9-Malayan).

On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity on account of the loss insured
against. MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts or
that the insurance proceeds were also claimed by other creditors of GOYU alleging
better rights to the proceeds than the insured. GOYU filed a complaint for specific
performance and damages which was docketed at the Regional Trial Court of the
National Capital Judicial Region (Manila, Branch 3) as Civil Case No. 93-65442, now
subject of the present G.R. No. 128833 and 128866.

RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds
of the insurance policies, but said claims were also denied for the same reasons that
MICO denied GOYUs claims.

In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional
Trial Court of Manila (Branch 3), confirmed that GOYUs other creditors, namely, Urban
Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs
of attachments from various courts, covering an aggregate amount of P14,938,080.23,
and ordered that the proceeds of the ten insurance policies be deposited with the said
court minus the aforementioned P14,938,080.23. Accordingly, on January 7, 1994,
MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC.

In the meantime, another notice of garnishment was handed down by another Manila
RTC sala (Branch 28) for the amount of P8,696,838.75 (Exhibit 22-Malayan).

After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, Malayan Insurance Company, Inc. and Rizal Commercial Banking
Corporation, ordering the latter as follows:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is deposited with this Court;

b. To pay the plaintiff damages by way of interest for the duration of the delay since July
27, 1992 (ninety days after defendant insurers receipt of the required proof of loss and
notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the
following amounts:

1) P50,000,000.00 from July 27, 1992 up to the time said amount was
deposited with this Court on January 7, 1994;

2) P24,040,518.58 from July 27, 1992 up to the time when the writs of
attachments were received by defendant Malayan;

2. For defendant Rizal Commercial Banking Corporation:

a. To pay the plaintiff actual and compensatory damages in the amount of

P2,000,000.00;

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally, the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorneys fees;

3) Costs of suit.

and on the Counterclaim of defendant RCBC, ordering the plaintiff to pay its
loan obligations with defendant RCBC in the amount of P68,785,069.04, as of
April 27, 1992, with interest thereon at the rate stipulated in the respective
promissory notes (without surcharges and penalties) per computation, pp. 14-
A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby ordered to
release immediately to the plaintiff the amount of P50,000,000.00 deposited with the
Court by defendant Malayan, together with all the interests earned thereon.

(Record, pp. 478-479.)

From this judgment, all parties interposed their respective appeals. GOYU was
unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial
courts findings of liability on their part. The Court of Appeals partly granted GOYUs
appeal, but sustained the findings of the trial court with respect to MICO and RCBCs
liabilities, thusly:

WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby modified as
follows:

1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:

a) To pay the plaintiff its fire loss claim in the total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No. 3649285) plus deposited in court and damages
by way of interest commencing July 27, 1992 until the time Goyu receives the said
amount at the rate of thirty-seven (37%) percent per annum which is twice the ceiling
prescribed by the Monetary Board.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:

a) To pay the plaintiff actual and compensatory damages in the amount of

P5,000,000.00.

3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL COMMERCIAL BANKING

CORPORATION, UY CHUN BING AND ELI D. LAO:

a) To pay the plaintiff jointly and severally the following amounts:

1. P1,500,000.00 as exemplary damages;

2. P1,500,000.00 as and for attorneys fees.

4. And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of P68,785,069.04 as of April 27, 1992 without any
interest, surcharges and penalties.

The Clerk of the Court of the Regional Trial Court of Manila is hereby ordered to
immediately release to Goyu & Sons, Inc. the amount of P50,505,594.60 (per O.R. No.
3649285) deposited with it by Malayan Insurance Co., Inc., together with all the
interests thereon.

(Rollo, p. 200.)

RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively, seeking
review and consequent reversal of the above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376,
which case, by virtue of the Court of Appeals resolution dated August 7, 1996, was
consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue in
said petition is RCBCs right to intervene in the action between Alfredo C. Sebastian (the
creditor) and GOYU (the debtor), where the subject insurance policies were attached in
favor of Sebastian.

After a careful review of the material facts as found by the two courts below in relation
to the pertinent and applicable laws, we find merit in the submissions of RCBC and
MICO.

The several causes of action pursued below by GOYU gave rise to several related issues
which are now submitted in the petitions before us. This Court, however, discerns one
primary and central issue, and this is, whether or not RCBC, as mortgagee, has any right
over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of
loss.

As earlier mentioned, accordant with the credit facilities extended by RCBC to GOYU,
the latter executed several mortgage contracts in favor of RCBC. It was expressly
stipulated in these mortgage contracts that GOYU shall insure the mortgaged property
with any of the insurance companies acceptable to RCBC. GOYU indeed insured the
mortgaged property with MICO, an insurance company acceptable to RCBC. Based on
their stipulations in the mortgage contracts, GOYU was supposed to endorse these
insurance policies in favor of, and deliver them, to RCBC. Alchester Insurance Agency,
Inc., MICOs underwriter from whom GOYU obtained the subject insurance policies,
prepared the nine endorsements (see Exh. 1-Malayan to 9-Malayan; also Exh. 51-RCBC
to 59-RCBC), copies of which were delivered to GOYU, RCBC, and MICO. However,
because these endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements are defective.

We do not quite agree.

It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the
same property for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and equity.

It is to be noted that nine endorsement documents were prepared by Alchester in favor

of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing
any specific insurance policy in favor of any particular beneficiary or payee other than
the insured had not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of
property were mortgaged to RCBC had not such information been voluntarily disclosed
by GOYU itself. Had it not been for GOYU, Alchester would not have known of GOYUs
intention of obtaining insurance coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verily, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained

to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine was explained
in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed and
who reasonably relied thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid the law in the administration
of justice where without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.

(p. 368.)

Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain
Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
documents for GOYUs nine insurance policies in favor of RCBC. The original copies of
each of these nine endorsement documents were sent to GOYU, and the others were
sent to RCBC and MICO, while the fourth copies were retained for Alchesters file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from Alchester the originals
of these endorsements.

RCBC, in good faith, relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such reliance to be
justified under the circumstances of the case. GOYU failed to seasonably repudiate the
authority of the person or persons who prepared such endorsements. Over and above
this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured against, it was too late
for GOYU to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an
implied ratification of said endorsements by virtue of GOYUs inaction in this case, GOYU
is at the very least estopped from assailing their operative effects. To permit GOYU to
capitalize on its non-confirmation of these endorsements while it continued to enjoy the
benefits of the credit facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance grave
contravention of public policy, fair dealing, good faith, and justice. Such an unjust
situation, the Court cannot sanction. Under the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBCs right to the proceeds of the insurance
policies if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose
name or for whose benefit it is made. The peculiarity of the circumstances obtaining in
the instant case presents a justification to take exception to the strict application of said
provision, it having been sufficiently established that it was the intention of the parties
to designate RCBC as the party for whose benefit the insurance policies were taken out.
Consider thus the following:

1. It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYUs credit facilities from RCBC. The mortgage contracts contained common
provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
properly covered against any loss by an insurance company acceptable to RCBC.

2. GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.

3. Endorsement documents were prepared by MICOs underwriter, Alchester Insurance

Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did not
assail, until of late, the validity of said endorsements.

4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the
insurance policies to be taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence of its written conformity
thereto, obviously considered said endorsement to be sufficient compliance with its
obligation under the mortgage contracts since RCBC accordingly continued to extend
the benefits of its credit facilities and GOYU continued to benefit therefrom. Just as
plain too is the intention of the parties to constitute RCBC as the beneficiary of the
various insurance policies obtained by GOYU. The intention of the parties will have to be
given full force and effect in this particular case. The insurance proceeds may, therefore,
be exclusively applied to RCBC, which under the factual circumstances of the case, is
truly the person or entity for whose benefit the policies were clearly intended.

Moreover, the laws evident intention to protect the interests of the mortgagee upon
the mortgaged property is expressed in Article 2127 of the Civil Code which states:

ART. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person.

Significantly, the Court notes that out of the 10 insurance policies subject of this case,
only 8 of them appear to have been subject of the endorsements prepared and
delivered by Alchester for and upon instructions of GOYU as shown below:

INSURANCE POLICY PARTICULARS ENDORSEMENT

a. Policy Number : F-114-07795 None

Issue Date : March 18, 1992

Expiry Date : April 5, 1993

Amount : P9,646,224.92

b. Policy Number : ACIA/F-174-07660 Exhibit 1-Malayan

Issue Date : January 18, 1992

Expiry Date : February 9, 1993

Amount : P4,307,217.54

c. Policy Number : ACIA/F-114-07661 Exhibit 2-Malayan

Issue Date : January 18, 1992

Expiry Date : February 15, 1993

Amount : P6,603,586.43

d. Policy Number : ACIA/F-114-07662 Exhibit 3-Malayan

Issue Date : January 18, 1992

Expiry Date : (not legible)

Amount : P6,603,586.43

e. Policy Number : ACIA/F-114-07663 Exhibit 4-Malayan

Issue Date : January 18, 1992

Expiry Date : February 9, 1993

Amount : P9,457,972.76

f. Policy Number : ACIA/F-114-07623 Exhibit 7-Malayan

Issue Date : January 13, 1992

Expiry Date : January 13, 1993

Amount : P24,750,000.00

g. Policy Number : ACIA/F-174-07223 Exhibit 6-Malayan

Issue Date : May 29, 1991

Expiry Date : June 27, 1992

Amount : P6,000,000.00
h. Policy Number : CI/F-128-03341 None

Issue Date : May 3, 1991

Expiry Date : May 3, 1992

Amount : P10,000,000.00

i. Policy Number : F-114-07402 Exhibit 8-Malayan

Issue Date : September 16, 1991

Expiry Date : October 19, 1992

Amount : P32,252,125.20

j. Policy Number : F-114-07525 Exhibit 9-Malayan

Issue Date : November 20, 1991

Expiry Date : December 5, 1992

Amount : P6,603,586.43

(pp. 456-457, Record; Folder of Exhibits for MICO.)

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted
by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p. 25). Likewise, the record
shows no endorsement for Policy Number CI/F-128-03341 [(h) above]. Also, one of the
endorsement documents, Exhibit 5-Malayan, refers to a certain insurance policy
number ACIA-F-07066, which is not among the insurance policies involved in the
complaint.

The proceeds of the 8 insurance policies endorsed to RCBC aggregate to

P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect of an
endorsement by GOYU itself, these 8 policies can not be attached by GOYUs other
creditors up to the extent of the GOYUs outstanding obligation in RCBCs favor. Section
53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies
shall be applied exclusively to the proper interest of the person for whose benefit it was
made. In this case, to the extent of GOYUs obligation with RCBC, the interest of GOYU in
the subject policies had been transferred to RCBC effective as of the time of the
endorsement. These policies may no longer be attached by the other creditors of GOYU,
like Alfredo Sebastian in the present G.R. No. 128834, which may nonetheless forthwith
be dismissed for being moot and academic in view of the results reached herein. Only
the two other policies amounting to P19,646,224.92 may be validly attached, garnished,
and levied upon by GOYUs other creditors. To the extent of GOYUs outstanding
obligation with RCBC, all the rest of the other insurance policies above-listed which were
endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and
levy by the other creditors of GOYU.
This brings us to the next relevant issue to be resolved, which is, the extent of GOYUs
outstanding obligation with RCBC which the proceeds of the 8 insurance policies will
discharge and liquidate, or put differently, the actual amount of GOYUs liability to RCBC.

The Court of Appeals simply echoed the declaration of the trial court finding that GOYUS
total obligation to RCBC was only P68,785,060.04 as of April 27, 1992, thus sanctioning
the trial courts exclusion of Promissory Note No. 421-92 (renewal of Promissory Note
No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-91)
on the ground that their execution is highly questionable for not only are these dated
after the fire, but also because the signatures of either GOYU or any its representative
are conspicuously absent. Accordingly, the Court of Appeals speculated thusly:

Hence, this Court is inclined to conclude that said promissory notes were pre-signed by
plaintiff in blank terms, as averred by plaintiff, in contemplation of the speedy grant of
future loans, for the same practice of procedure has always been adopted in its previous
dealings with the bank.

(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates posterior to the fire does not necessarily
mean that the documents are spurious, for it is presumed that the ordinary course of
business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All,
Inc., 222 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument
has the burden of proof of showing that he no longer owes the obligee any amount
(Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).

Even casting aside the presumption of regularity of private transactions, receipt of the
loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as
indicated in the testimony of Go Song Hiap when he answered the queries of the trial
court:

ATTY. NATIVIDAD

Q: But insofar as the amount stated in Exhibits 1 to 29-RCBC, you received all the
amounts stated therein?

A: Yes, sir, I received the amount.

COURT

He is asking if he received all the amounts stated in Exhibits 1 to 29-RCBC?

WITNESS:

Yes, Your Honor, I received all the amounts.

COURT

Indicated in the Promissory Notes?

WITNESS
A. The promissory Notes they did not give to me but the amount I asked which is
correct, Your Honor.

COURT

Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is correct?

A: Yes, Your Honor.

(tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial admission of having received all the proceeds of the
29 promissory notes as hereinabove quoted, GOYU also offered and admitted to RCBC
that its obligation be fixed at P116,301,992.60 as shown in its letter dated March 9,
1993, which pertinently reads:

We wish to inform you, therefore that we are ready and willing to pay the current past
due account of this company in the amount of P116,301,992.60 as of 21 January 1993,
specified in pars. 15, p. 10, and 18, p. 13 of your affidavits of Third Party Claims in the
Urban case at Makati, Metro Manila and in the Zamboanga case at Zamboanga city,
respectively, less the total of P8,851,519.71 paid from the Seaboard and Equitable
insurance companies and other legitimate deductions. We accept and confirm this
amount of P116,301,992.60 as stated as true and correct.

(Exhibit BB.)

The Court of Appeals erred in placing much significance on the fact that the excluded
promissory notes are dated after the fire. It failed to consider that said notes had for
their origin transactions consummated prior to the fire. Thus, careful attention must be
paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of
Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU.

The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are
mere renewals of previous ones. The proceeds of the loan represented by these
promissory notes were admittedly received by GOYU. There is ample factual and legal
basis for giving GOYUs judicial admission of liability in the amount of P116,301,992.60
full force and effect

It should, however, be quickly added that whatever amount RCBC may have recovered
from the other insurers of the mortgaged property will, nonetheless, have to be applied
as payment against GOYUs obligation. But, contrary to the lower courts findings,
payments effected by GOYU prior to January 21, 1993 should no longer be deducted.
Such payments had obviously been duly considered by GOYU, in its aforequoted letter
dated March 9, 1993, wherein it admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.

The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of

January 21, 1993, to wit:

Total Obligation as admitted by GOYU as of January 21, 1993: P116,301,992.60

Broken down as follows

Principal1 Interest

Regular 80,535,946.32

FDU 7,548,025.17

____________ _____________

Total: 108,083,971.49 8,218,021.112cräläwvirtualibräry

LESS:

1) Proceeds from

Seaboard Eastern

Insurance Company: 6,095,145.81

2) Proceeds from

Equitable Insurance

Company: 2,756,373.00

3) Payment from

foreign department

negotiation: 203,584.89

9,055,104.703cräläwvirtualibräry

NET AMOUNT as of January 21, 1993: P 107,246,887.90

The need for the payment of interest due upon the principal amount of the obligation,
which is the cost of money to RCBC, the primary end and the ultimate reason for RCBCs
existence and being, was duly recognized by the trial court when it ruled favorably on
RCBCs counterclaim, ordering GOYU to pay its loan obligation with RCBC in the amount
of P68,785,069.04, as of April 27,1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and penalties) per computation, pp.
14-A, 14-B, 14-C (Record, p. 479). Inexplicably, the Court of Appeals, without even laying
down the factual or legal justification for its ruling, modified the trial courts ruling and
ordered GOYU to pay the principal amount of P68,785,069.04 without any interest,
surcharges and penalties (Rollo, p. 200).

It is to be noted in this regard that even the trial court hedgingly and with much
uncertainty deleted the payment of additional interest, penalties, and charges, in this
manner:
Regarding defendant RCBCs commitment not to charge additional interest, penalties
and surcharges, the same does not require that it be embodied in a document or some
form of writing to be binding and enforceable. The principle is well known that generally
a verbal agreement or contract is no less binding and effective than a written one. And
the existence of such a verbal agreement has been amply established by the evidence in
this case. In any event, regardless of the existence of such verbal agreement, it would
still be unjust and inequitable for defendant RCBC to charge the plaintiff with surcharges
and penalties considering the latters pitiful situation. (Emphasis supplied.)

(Record, p. 476)

The essence or rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties. What may justify a court in not allowing
the creditor to charge surcharges and penalties despite express stipulation therefor in a
valid agreement, may not equally justify non-payment of interest. The charging of
interest for loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its existence or being.
It is inconceivable for a bank to grant loans for which it will not charge any interest at all.
We fail to find justification for the Court of Appeals outright deletion of the payment of
interest as agreed upon in the respective promissory notes. This constitutes gross error.

For the computation of the interest due to be paid to RCBC, the following rules of
thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals  (234
SCRA 78 [1994]), shall apply, to wit:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The
provisions under Title XVIII on Damages of the Civil Code govern in determining the
measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum.  No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date of the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

(pp. 95-97.)

There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision (pp.470
and 471, Record) such agreed interest rates must be followed. This is very clear from
paragraph II, sub-paragraph 1 quoted above.

On the issue of payment of surcharges and penalties, we partly agree that GOYUs pitiful
situation must be taken into account. We do not agree, however, that payment of any
amount as surcharges and penalties should altogether be deleted. Even assuming that
RCBC, through its responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may
have relayed its assurance for assistance to GOYU immediately after the occurrence of
the fire, we cannot accept the lower courts finding that RCBC had thereby ipso
facto effectively waived collection of any additional interests, surcharges, and penalties
from GOYU. Assurances of assistance are one thing, but waiver of additional interests,
surcharges, and penalties is another.

Surcharges and penalties agreed to be paid by the debtor in case of default partake of
the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the Civil
Code. Article 2227 thereof provides:

ART. 2227. Liquidated damages, whether intended as a indemnity or penalty, shall be

equitably reduced if they are iniquitous and unconscionable.

In exercising this vested power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case. It should be stressed that the Court
will not make any sweeping ruling that surcharges and penalties imposed by banks for
non-payment of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one case, may be totally
just and equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under which GOYU found
itself after the occurrence of the fire, the Court rules the surcharges rates ranging
anywhere from 9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous
and unconscionable. The Court tempers these rates to 2% and 3%, respectively.
Furthermore, in the light of GOYUs offer to pay the amount of P116,301,992.60 to RCBC
as March 1993 (See: Exhibit BB), which RCBC refused, we find it more in keeping with
justice and equity for RCBC not to charge additional interest, surcharges, and penalties
from that time onward.

Given the factual milieu spread hereover, we rule that it was error to hold MICO liable in
damages for denying or withholding the proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the endorsements of the insurance
policies, RCBC has the right to claim the insurance proceeds, in substitution of the
property lost in the fire. Having assigned its rights, GOYU lost its standing as the
beneficiary of the said insurance policies.

Secondly, for an insurance company to be held liable for unreasonably delaying and
withholding payment of insurance proceeds, the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403 [1990]). It is generally
agreed, however, that an insurer may in good faith and honesty entertain a difference
of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted unless the evidence and circumstances
show that such refusal was willful and without reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70
ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep 307; Kusnetsky
vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar does not
show that MICO wantonly and in bad faith delayed the release of the proceeds. The
problem in the determination of who is the actual beneficiary of the insurance policies,
aggravated by the claim of various creditors who wanted to partake of the insurance
proceeds, not to mention the importance of the endorsement to RCBC, to our mind, and
as now borne out by the outcome herein, justified MICO in withholding payment to
GOYU.

In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC
cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid
creditor, one for specific performance and the other for foreclosure. In doing so, said
the appellate court, the second action is deemed barred, RCBC having split a single
cause of action (Rollo, pp. 195-199). The Court of Appeals was too accommodating in
giving due consideration to this argument of GOYU, for the foreclosure suit is still
pending appeal before the same Court of Appeals in CA G.R CV No. 46247, the case
having been elevated by RCBC.

In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said foreclosure case which is not before it. This is
plain reversible error if not grave abuse of discretion.

As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):

It should have been enough, nonetheless, for the appellate court to merely set aside the
questioned orders of the trial court for having been issued by the latter with grave
abuse of discretion. In likewise enjoining permanently herein petitioner from entering in
and interfering with the use or occupation and enjoyment of petitioners (now private
respondent) residential house and compound, the appellate court in effect, precipitately
resolved with finality the case for injunction that was yet to be heard on the merits by
the lower court. Elevated to the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial court. In Municipality of Bian,
Laguna vs. Court of Appeals, 219 SCRA 69, we ruled that the Court of Appeals would
have no jurisdiction in a certiorari proceeding involving an incident in a case to rule on
the merits of the main case itself which was not on appeal before it.

(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the Zamboanga
Regional Trial Court, since it has been determined that RCBC has the right to the
insurance proceeds, the subject matter of intervention is rendered moot and academic.
Respondent Sebastian must, however, yield to the preferential right of RCBC over the
MICO insurance policies. It is basic and fundamental that the first mortgagee has
superior rights over junior mortgagees or attaching creditors (Alpha Insurance & Surety
Co. vs. Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs. Gonzales Diaz,
52 Phil. 271 [1928]).

WHEREFORE, the petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby REVERSED and
SET ASIDE, and a new one entered:

1. Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442
before Branch 3 of the Manila Regional Trial Court for lack of merit;

2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking

Corporation the proceeds of the insurance policies in the amount of P51,862,390.94
(per report of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the
amount of P50,505,594.60 (per O.R. No. 3649285);

3. Ordering the Clerk of Court to release the amount of P50,505,594.60 including the
interests earned to Rizal Commercial Banking Corporation;

4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective
rates stipulated in each promissory note from January 21, 1993 until finality of this
judgment, and surcharges at 2% and penalties at 3% from January 21, 1993 to March 9,
1993, minus payments made by Malayan Insurance Company, Inc. and the proceeds of
the amount deposited with the trial court and its earned interest. The total amount due
RCBC at the time of the finality of this judgment shall earn interest at the legal rate of
12% in lieu of all other stipulated interests and charges until fully paid.

The petition of Rizal Commercial Banking Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being moot and academic in view of the results herein
arrived at. Respondent Sebastians right as attaching creditor must yield to the
preferential rights of Rizal Commercial Banking Corporation over the Malayan insurance
policies as first mortgagee.

SO ORDERED.