Ang Giok Chip vs. Springfield Fire & Marine Insurance Company

An express warranty contained in a rider physically attached to and expressly referred to in an insurance policy as forming part of the contract is valid under Section 65 of the Philippine Insurance Act, because the rider is "contained in the policy itself" and does not qualify as a separate "instrument signed by the insured" requiring the insured's signature.

Ang Giok Chip, doing business under the name and style of Hua Bee Kong Si, was the owner of a warehouse at No. 643 Calle Reina Regente, City of Manila, the contents of which were insured with three insurance companies for a total of P60,000. One policy in the amount of P10,000 was issued by Springfield Fire & Marine Insurance Company. The Philippine Insurance Act (Act No. 2427), Section 65, governs the formal requisites of express warranties, requiring that every express warranty made at or before the execution of a policy must be contained in the policy itself or in another instrument signed by the insured and referred to in the policy as forming part of it. This provision was taken verbatim from Section 2605 of the Civil Code of California, and the Court looked to California law and general insurance doctrine for guidance on its construction.

Ang Giok Chip, doing business under the name and style of Hua Bee Kong Si, was formerly the owner of a warehouse situated at No. 643 Calle Reina Regente, City of Manila. The contents of the warehouse were insured with three insurance companies for a total sum of P60,000, of which one policy in the amount of P10,000 was issued by Springfield Fire & Marine Insurance Company. The policy described the insured risk as covering general non-hazardous merchandise, chiefly consisting of chucherias, produce, cacao, and flour, all the property of the insured or held in trust, on commission, or on joint account, while contained during the currency of the policy in the godown at the stated address.

The policy expressly stated that it was subject to the attached "Ordinary Short Period Rate Scale," Warranties A and F, Co-insurance Clause, and Three Fourths Loss Clause, which were described as "forming part of same." Securely pasted on the left-hand margin of the face of the policy were five warranties and special clauses, one of which was Warranty F. Warranty F declared that during the currency of the policy no hazardous goods be stored in the building, provided always that the insured be permitted to store a small quantity of specified hazardous goods not exceeding in all three per cent of the total value of the whole of the goods or merchandise contained in the warehouse. The rider containing Warranty F was not signed by the insured.

The warehouse was destroyed by fire on January 11, 1928, while the policy issued by Springfield Fire & Marine Insurance Company was in force. Predicated on this policy, the plaintiff instituted action in the Court of First Instance of Manila against the defendant to recover a proportional part of the loss amounting to P8,170.59. Four special defenses were interposed by the insurance company, one of which was planted on a violation of Warranty F fixing the amount of hazardous goods which might be stored in the insured building. The trial judge found against the insurance company on all points and rendered judgment in favor of the plaintiff for P8,188.74. From this judgment the insurance company appealed.

The Supreme Court found it unnecessary to discuss three of the four special defenses, but concluded that more than three per cent of the total value of the merchandise contained in the warehouse constituted hazardous goods, and that this percentage reached as high as thirty-nine per cent, relying on the consular invoices and the testimony of the adjuster, Herridge. The central legal question was whether Warranty F, a rider attached to the face of the policy and referred to in the policy text as forming part of the contract, was null and void for non-compliance with Section 65 of the Philippine Insurance Act.

• Validity of Warranty F: The insurance company maintained that Warranty F, a rider attached to and expressly referred to in the policy as forming part of the contract, was valid and binding under Section 65 of the Philippine Insurance Act, and that the insured's storage of hazardous goods exceeding three per cent of total merchandise value constituted a breach of warranty discharging the insurer's liability.
• Violation of Warranty: The insurance company argued that the consular invoices and the testimony of the adjuster, Herridge, established that hazardous goods constituted as much as thirty-nine per cent of the total value of the merchandise in the warehouse, far exceeding the three per cent limit prescribed by Warranty F.

• Invalidity of Warranty F: The insured contended that Warranty F was null and void because it was contained in a rider or slip of paper pasted on the margin of the policy and not signed by the insured, thus failing to comply with the requirements of Section 65 of the Philippine Insurance Act, which requires that an express warranty be contained in the policy itself or in another instrument signed by the insured and referred to in the policy as forming part of it.

• Validity of Warranty F: Whether a warranty contained in a rider physically attached to and expressly referred to in an insurance policy as forming part of the contract is valid under Section 65 of the Philippine Insurance Act, or whether it is null and void for non-compliance with the statutory requirement that express warranties be contained in the policy itself or in another instrument signed by the insured.
• Breach of Warranty: Whether the insured violated Warranty F by storing hazardous goods in the warehouse exceeding three per cent of the total value of the merchandise contained therein.

• Validity of Warranty F: Yes. Warranty F, a rider attached to the face of the insurance policy and expressly referred to in the policy as forming part of the contract, is valid and sufficient under Section 65 of the Philippine Insurance Act, because the rider is "contained in the policy itself" and does not constitute a separate "instrument" requiring the insured's signature.
• Breach of Warranty: Yes. More than three per cent of the total value of the merchandise in the warehouse constituted hazardous goods, the percentage reaching as high as thirty-nine per cent, as established by consular invoices and the testimony of the adjuster.

• Validity of Warranty F: Section 65 of the Philippine Insurance Act provides that every express warranty must be "contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it." The word "contained" means "included," "inclosed," "embraced," or "comprehended." A rider attached to a policy and thus "embodied" therein falls within the phrase "contained in the policy itself." The alternative — "another instrument" — could not mean a mere slip of paper like a rider, but something akin to the policy itself, which Section 48 defines as "the written instrument in which a contract of insurance is set forth." Under California law, from which the Philippine provision was taken verbatim, "instrument" invariably means some written paper signed and delivered by one person to another, transferring title to or giving a lien on property, or giving a right to debt or duty. A rider is therefore not an "instrument" within the statutory meaning. The Philippine Insurance Act was taken verbatim from Section 2605 of the Civil Code of California, and under well-settled canons of statutory construction, Philippine courts should follow the construction placed by California courts on California law. The California Code Examiners' notes and California jurisprudence confirm that Section 2605 was an affirmance of the generally accepted doctrine that a warranty may be contained in another instrument than the policy when expressly referred to in the policy as forming part thereof, and that a rider attached to a policy is part of the contract to the same extent as if actually embodied therein. Furthermore, the insured's receipt of the policy without objection bound both parties to its terms, it being the insured's duty to read the policy. Considerations of public policy also supported validity: the policy was a standard form, its issuance with attached riders conformed to well-established practice in the Philippines and elsewhere, and sixty-nine insurance companies doing business in the Islands had outstanding policies more or less similar to the one involved; to nullify such policies would place an unnecessary hindrance in the transaction of insurance business.

• Breach of Warranty: The Court found that more than three per cent of the total value of the merchandise contained in the warehouse constituted hazardous goods, and that this percentage reached as high as thirty-nine per cent. This finding was based on the consular invoices and the testimony of the adjuster, Herridge. Having established both the validity of Warranty F and its breach by the insured, the insurer was discharged from liability.

• Rider as Part of the Insurance Policy — A rider or slip attached to an insurance policy and expressly referred to therein as forming part of the contract is considered "contained in the policy itself" within the meaning of Section 65 of the Philippine Insurance Act. Such a rider is part of the contract to the same extent and with like effect as if actually embodied in the policy. The Court applied this doctrine by holding Warranty F, pasted on the margin of the policy and referred to in the policy text, valid and binding without requiring the insured's signature.

• Statutory Meaning of "Instrument" in Insurance Law — The term "instrument" as used in Section 65 of the Philippine Insurance Act, referring to "another instrument signed by the insured and referred to in the policy," does not mean a mere slip of paper or rider, but a formal written paper signed and delivered by one person to another, transferring title to or giving a lien on property, or giving a right to debt or duty. The Court relied on California definitions of "instrument" to conclude that a rider is not an "instrument" and therefore does not require the insured's signature to be valid.

• Duty of the Insured to Read the Policy — The receipt of an insurance policy by the insured without objection binds both the insurer and the insured to the terms thereof. The insured may not thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to read the policy and it will be assumed that he did so. The Court applied this principle to bind the insured to Warranty F, which was attached to the policy accepted without objection.

• "When, therefore, the courts speak of a rider attached to the policy, and thus 'embodied' therein, or of a warranty 'incorporated' in the policy, it is believed that the phrase 'contained in the policy itself' must necessarily include such rider and warranty." — This passage articulates the ratio decidendi: the interpretive bridge between the statutory phrase "contained in the policy itself" and the practice of attaching riders, establishing that physical attachment and express reference satisfy the statutory requirement.

• "In other words, the rider, warranty F, is contained in the policy itself, because by the contract of insurance agreed to by the parties it is made to form a part of the same, but is not another instrument signed by the insured and referred to in the policy as forming a part of it." — This sentence crystallizes the Court's dual conclusion that the rider falls within the first statutory alternative ("contained in the policy itself") and outside the second ("another instrument signed by the insured"), resolving the central legal question.

• "We cannot believe that it was ever the legislative intention to insert in the Philippine Law on Insurance an oddity, an incongruity, entirely out of harmony with the law as found in other jurisdiction, and destructive of good business practice." — This passage reflects the public-policy reasoning supporting the Court's construction, emphasizing harmonization with established insurance practice and the avoidance of legislative absurdity.

• Isaac Upham Co. vs. United States Fidelity & Guaranty Co., 211 Pac. 809 (Cal. Ct. App. 1922) — Cited as reflecting the attitude of California courts toward warranties referred to in policies. The case held that a warranty contained in an application for insurance not referred to in the policy was not incorporated into the policy. The Supreme Court used it to show that California law requires express reference in the policy for a warranty to be binding, which was satisfied in the present case.

• Conner vs. Manchester Assurance Co., 130 Fed. 743 (N.D. Cal. 1904) — Cited for the proposition that Section 2605 of the Civil Code of California (from which Section 65 of the Philippine Insurance Act was taken) was an affirmance of the generally accepted doctrine applicable to insurance contracts. The Court relied on this federal interpretation to support its construction of the Philippine provision.

• Hoag vs. Howard, 55 Cal. 564 (1880) — Cited for the California definition of "instrument" as a written paper signed and delivered by one person to another, transferring title to or giving a lien on property, or giving a right to debt or duty. The Court used this definition to conclude that a rider is not an "instrument" within the meaning of Section 65.

• People vs. Fraser, 137 Pac. 276 (Cal. 1913) — Cited alongside Hoag vs. Howard for the same California definition of "instrument," reinforcing the distinction between a formal instrument and a mere rider or slip of paper.

• Section 65, Act No. 2427 (Philippine Insurance Act) — Provides that "every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it." The Court construed the phrase "contained in the policy itself" to include a rider physically attached to and expressly referred to in the policy, and held that a rider is not an "instrument" requiring the insured's signature.

• Section 48, Act No. 2427 (Philippine Insurance Act) — Defines a policy as "the written instrument in which a contract of insurance is set forth." The Court used this definition to distinguish the policy itself from a mere rider, supporting the conclusion that a rider is not a separate "instrument" under Section 65.

• Section 2605, Civil Code of California — The California provision from which Section 65 of the Philippine Insurance Act was taken verbatim. The Court examined the California Code Examiners' notes and California jurisprudence to determine the proper construction of the Philippine provision.

Street, Villamor, Ostrand, and Romualdez, JJ., concurred in the majority opinion.

• Villa-Real, J. — Dissented on the ground that a rider or slip attached to an insurance policy, though referred to therein as making part of it, is not one of the two forms prescribed by Section 65 for valid express warranties. Section 65 provides only two forms: embodiment in the policy itself, or in another instrument signed by the insured and referred to in the policy. The dissent argued that permitting an express warranty in an unsigned piece of paper attached to the policy would be contrary to the evident intent and purpose of Section 65, which seeks to protect the insured by requiring either embodiment in the policy or signature on a separate instrument. Allowing unsigned riders would open the door to fraud, as such riders could easily be detached and replaced. The dissent further argued that long-standing practice of using unsigned riders does not justify continuing an illegal practice when its legality is questioned.

• Imperial, J. — Dissented on the ground that Warranty F does not form an integral part of the policy but appears on a separate slip of paper pasted on the policy, making it an "instrument other than the policy" under the second alternative of Section 65. As such, it cannot be valid because it is not signed by the insured. The reference in the policy to "Warranty F" was made in a general way, without giving any idea of its contents, and could not be considered equivalent to including the warranty in the policy. The dissent further argued that, assuming Warranty F were valid, the trial court's finding that inflammable goods did not exceed three per cent of total merchandise value was borne out by the evidence and should not be disturbed. Chief Justice Avanceña concurred in this dissent.