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JOSE MARQUES v. FAR EAST BANK

FACTS:

The case involves consolidated petitions for review filed by Far East Bank and Trust Company (FEBTC) and Makati Insurance Company against Jose Marques and Maxilite Technologies, Inc. (Maxilite). Maxilite is a domestic corporation engaged in the importation and trading of energy-efficiency equipment, with Marques as its President and controlling stockholder. FEBTC is a local bank that handles the financing and related requirements of Marques and Maxilite. Maxilite and Marques maintained accounts with FEBTC, and several transactions were made between them, including loans and credit card transactions. Far East Bank Insurance Brokers, Inc. (FEBIBI) and Makati Insurance Company are subsidiaries of FEBTC.

In June 1993, Maxilite and Marques entered into a trust receipt transaction with FEBTC for the shipment of high-technology equipment, with the merchandise serving as collateral. It was agreed that the merchandise would be insured against fire at the cost and expense of Maxilite, with Maxilite paying for the insurance premiums. FEBIBI facilitated the procurement and processing of four separate fire insurance policies for the trust receipted merchandise from Makati Insurance Company. Maxilite paid the premiums through debit arrangements, with FEBTC debiting Maxilite's account accordingly. However, Maxilite failed to pay the premium for one of the insurance policies, and Makati Insurance Company denied Maxilite's fire loss claim on the ground of non-payment of premium. Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company, seeking damages and the injunction of certain actions by FEBTC. FEBTC, FEBIBI, and Makati Insurance Company argued that Maxilite and Marques have no cause of action against them.

Plaintiffs Maxilite and Marques filed a complaint against Far East Bank and Trust Company (FEBTC), Far East Bank International Banking and Insurance Corporation (FEBIBI), and Makati Insurance Company (MICI) for damages arising from the destruction of their warehouse by fire. Maxilite alleged that it obtained an insurance policy from MICI and paid the premiums through FEBTC. However, despite the payments, the insurance policy was not renewed by the defendants, and when the fire occurred, they refused to pay the insurance claim. FEBTC argued that Maxilite and Marques had no cause of action against them and denied the allegations.

The trial court ruled in favor of Maxilite and Marques, holding that the non-payment of the insurance premium was due to the fault or negligence of FEBTC and the defendants should be liable for the damages suffered by the plaintiffs. The court ordered the defendants to pay the plaintiffs various amounts as damages, attorney's fees, and litigation expenses. The counter-claims were dismissed and the writ of preliminary injunction was made permanent.

The Court of Appeals affirmed the trial court's decision, emphasizing the closely related relationship among the defendants and the lack of notice of cancellation or communication from the defendants regarding the non-payment of premiums. The court modified the damages awarded to the plaintiffs but upheld their entitlement to compensation.

This case involves two consolidated petitions, G.R. No. 171379 and G.R. No. 171419, which both challenge the decision of the Court of Appeals. In G.R. No. 171379, the petitioners question the reduction of the interest rate from 12% to 6% per annum and the decrease in the awarded moral and exemplary damages. They also dispute the court's ruling allowing the foreclosure of the real estate mortgage and disallowing legal compensation for the parties' obligations. On the other hand, in G.R. No. 171419, the petitioners contest the court's findings that the premium for the insurance policy has been paid, and those found jointly and severally liable for the claim. They also challenge the award of damages and attorney's fees.

ISSUES:

  1. Whether FEBTC, FEBIBI, and Makati Insurance Company are estopped from claiming that the insurance premium has been unpaid.

  2. Whether FEBTC is liable for damages due to negligence.

  3. Whether FEBTC, FEBIBI, and Makati Insurance Company are separate juridical entities.

  4. Whether the corporate veil should be pierced to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity.

  5. Whether FEBIBI and Makati Insurance Company can be held liable for negligence in relation to the non-payment of the insurance premium.

  6. Whether the interest rate should be reduced from 12% to 6%.

  7. Whether legal compensation exists in this case.

RULING:

  1. The Court finds that FEBTC, FEBIBI, and Makati Insurance Company are estopped from claiming that the insurance premium has been unpaid. The representation and commitment of FEBTC to handle Maxilite's financing and capital requirements, the prior payment of premiums through automatic debit arrangement, the written reminders sent by FEBIBI to debit Maxilite's account, and the release of the insurance policy to Maxilite all establish FEBTC's obligation to automatically debit Maxilite's account for the premium amount. Additionally, FEBTC's negligence in failing to debit Maxilite's account and disregarding the written reminders further supports the application of estoppel.

  2. FEBTC is held liable for damages due to negligence. Its failure to debit Maxilite's account and handle the insurance premium with due diligence constitutes negligence. Maxilite suffered damage to the extent of the face value of the insurance policy or the sum of P2.1 million, which FEBTC must pay in accordance with Article 2176 of the Civil Code.

  3. The Court recognizes FEBTC, FEBIBI, and Makati Insurance Company as separate and independent juridical entities.

  4. The corporate veil should not be pierced as there is no evidence indicating illegitimate or illegal functions and no grounds to treat FEBTC, FEBIBI, and Makati Insurance Company as a single entity.

  5. There is no evidence showing negligence on the part of FEBIBI and Makati Insurance Company regarding the non-payment of the insurance premium.

  6. The interest rate is reduced from 12% to 6% as the obligation to pay does not arise from a loan or forbearance of money.

  7. Legal compensation does not exist in this case as the essential elements were not established by Maxilite and Marques.

PRINCIPLES:

  • Estoppel is based on public policy, fair dealing, good faith, and justice. It prohibits a party from speaking against their act, representation, or commitment to the injury of another who reasonably relied on it.

  • Estoppel can arise from silence, where a person's failure to speak induces another to believe in the existence of certain facts and act to their prejudice.

  • Negligence is the omission to do something that a reasonable person would do, or the doing of something that a prudent person would not do. Negligence leads to liability for damages under Article 2176 of the Civil Code.

  • A subsidiary's separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary shall be confined to those arising in their respective business.

  • The corporate veil may be pierced only when there is evidence of illegitimate or illegal functions.

  • The interest rate for payment of a sum of money should be in accordance with the stipulation in writing, and in the absence thereof, the rate shall be 12% per annum. For breaches not involving a loan or forbearance, an interest rate of 6% per annum may be imposed on the amount of damages awarded.

  • Legal compensation requires the fulfillment of essential elements.