Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals 2 dated December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto the Decision 3 dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorney’s fees, and the costs of suit.

The facts are undisputed:chanrob1es virtual 1aw library

The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the respondent is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero.

It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire Insurance Policy No. F-1397, the petitioner insured the respondent’s stocks-in-trade against fire loss, damage or liability during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos (P200,000.00).

On July 1, 1989, at or about 12:40 a.m., the respondent’s building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of the respondent’s stocks-in-trade, pieces of furniture and fixtures, equipments and records.

Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo.

The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No. F-1397, which provides:chanrob1es virtual 1aw library

This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely:chanrob1es virtual 1aw library



(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.

Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions.

Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of "loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy.

In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that:chanrob1es virtual 1aw library

Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by defendant-Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and after applying those helpful tools like common sense, logic and the Court’s honest appraisal of the real and actual situation obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said defendant-Country Bankers to pay the plaintiff-Insolvent Cooperative, as follows:chanrob1es virtual 1aw library

1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid;

2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00;

3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00;

4. To pay in the concept of litigation expenses the sum of P5,000.00;

5. To pay by way of reimbursement the attorney’s fees in the sum of P10,000.00; and

6. To pay the costs of the suit.

For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed.

IT IS SO ORDERED.

Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on three (3) assigned errors, 4 to wit:chanrob1es virtual 1aw library

1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENT’S STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY.

2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT.

A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment. 5

In the instant case, the petitioner does not dispute that the respondent’s stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance Policy No. F-1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy.

Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. 6 Stated elsewise, since the petitioner in this case is defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence. 7 But petitioner failed to do so.

The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:chanrob1es virtual 1aw library

. . . investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA PD end. . . .

A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception. 8 Consequently, a witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence as well. 9

The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends. 10

Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-examined.

There are exceptions to the hearsay rule, among which are entries in official records. 11 To be admissible in evidence, however, three (3) requisites must concur, to wit:chanrob1es virtual 1aw library

(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;

(b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and

(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information. 12

The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal, 13 the latter’s Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens the petitioner’s defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fire to the respondent’s building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in the said report, for being hearsay.

The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course of Juarbal’s investigation and may be admitted as such but not necessarily to prove the truth thereof. 14

The petitioner’s evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial court’s imposition of twelve percent (12%) interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and attorney’s fees for lack of legal and valid basis.

Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc.: 15

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:chanrob1es virtual 1aw library

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 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.

In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable."cralaw virtua1aw library

Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint.

We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed. 16 That part of the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at all. The justification, if any, for such an award of actual damages does not appear in the body of the decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same must be deleted.

Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. They are designed to permit the courts to mould behavior that has socially deleterious consequences, and its imposition is required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the case at bar.

With respect to the award of litigation expenses and attorney’s fees, Article 2208 of the New Civil Code 17 enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. 18 The award of attorney’s fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. We find none in this case to warrant the award by the trial court of litigation expenses and attorney’s fees in the amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must also be deleted.

WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in the trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as attorney’s fees are hereby DELETED. Costs against the petitioner.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.

Endnotes:

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1. Penned by Associate Justice Jesus M. Elbinias and concurred in by Associate Justices Eugenio S. Labitoria and Marina L. Buzon, Rollo, pp. 25-29.

2. Fourth Division.

3. Penned by Judge Bernardo V. Saludares, Rollo, pp. 31-52.

4. Rollo, p. 12.

5. Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366, 372 [1988]; Summit Guaranty & Insurance Co., Inc. v. Court of Appeals, 110 SCRA 241, 249 [1981] citing 20 Am. Jur. 142; Paris-Manila Perfume Co. v. Phoenix Assurance Co., 49 Phil. 753 [1926].

6. 44 Am Jur 2d Insurance § 1938.

7. 44 Am Jur 2d Insurance § 2021.

8. Section 36 of Rule 130 of the Revised Rules of Court.

9. D.M. Consunji, Inc. v. Court of Appeals and Maria J. Juego, G.R. No. 137973, April 20, 2001, pp. 3-4 citing 31A C.J.S. Evidence § 194 and Philippine Home Assurance Corp. v. Court of Appeals, 257 SCRA 468, 479 [1996].

10. Section 216 [2], Gilbert, Law Summaries on Evidence, cited in Remedial Law, Vol. V: Revised Rules on Evidence, Oscar M. Herrera, 1999 Edition, p. 565.

11. Section 44 of Rule 130 of the Revised Rules of Court provides:chanrob1es virtual 1aw library

Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated.

12. Africa v. Caltex (Phil.), Inc., 16 SCRA 448, 452 [1966].

13. Rollo, pp. 16-17.

14. Rodriguez v. Court of Appeals, 273 SCRA 607, 618 [1997].

15. 234 SCRA 78, 95-97 [1994].

16. Eduardo P. Lucas v. Spouses Maximo C. Royo and Corazon B. Royo, G.R. No. 136185, October 30, 2000, p. 9; Integrated Packaging Corporation v. Court of Appeals, 333 SCRA 170. 179 [2000]; Lucena v. Court of Appeals, 313 SCRA 47, 61-62 [1999].

17. Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:chanrob1es virtual 1aw library

1) When exemplary damages are awarded;

2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

3) In criminal cases of malicious prosecution against the plaintiff;

4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

6) In actions for legal support;

7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

9) In a separate civil action to recover civil liability arising from a crime;

10) When at least double judicial costs are awarded;

11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

18. Ibaan Rural Bank, Inc. v. Court of Appeals, 321 SCRA 88, 95 [1999].