PRATS & COMPANY, A REGISTERED PARTNERSHIP, PLAINTIFF AND APPELLANT, VS. PHOENIX INSURANCE COMPANY, HARTFORD, CONNECTICUT, A CORPORATION, DEFENDANT AND APPELLEE.

This action was instituted in the Court of First Instance of the
City of Manila by Prats & Co,, a mercantile partnership, for the
purpose of recovering from the Phoenix Insurance Co., of Hartford,
Connecticut, the sum of P17,800.60, with interest, by reason of a loss
alleged to have been sustained by the plaintiff, on August 21, 1924,
from a fire, it being alleged that said loss was covered by policy of
insurance No. 600217, for the sum of P200,000, issued by the defendant
company to the plaintiff. For answer, the defendant, Phoenix Insurance
Co., admitted the issuance of the policy of insurance but, by way of
special defense, alleged, among other things, that the fire in question
had been set by the plaintiff, or with its connivance, and that the
plaintiff had submitted under oath to the defendant a fraudulent claim
of loss, in contravention of the express terms of the policy. Upon
hearing the cause the trial court absolved the defendant from the
complaint with respect to the obligation created by the policy which
was the subject of the suit, but ordered the defendant to pay to the
plaintiff the sum of P11,731.93, with interest from the filing of the
complaint, upon account of moneys received from salvage sales,
conducted by the defendant, of remnants of the insured stock. From this
judgment the plaintiff appealed.

So far as liability under the policy of insurance which is the
subject of this action is concerned, we are of the opinion that the
defendant has sufficiently established two defenses, either of which
would be fatal to the right of recovery, namely, first, that the fire
which caused this loss was of incendiary origin, and that it was set by
the procurance or connivance of the plaintiff for the purpose of
defrauding the insurer; and, secondly, that the plaintiff, after the
fire, submitted to the defendant a fraudulent claim, supported by false
proof, in violation of the terms of the policy. Of these defenses the
trial judge sustained the second but passed the first without express
finding. We consider it important, however, briefly to exhibit the
salient facts on both points, not only because of the considerable sum
of money involved, but because the facts appearing in evidence supply a
typical illustration of the manner in which frauds of this character
against insurance companies may be constructed with some hope of
success, when insurance agents are accessible who, under the incentive
of writing large amounts of insurance, can be induced to close their
eyes to obvious dangers.

On July 10, 1923, Francisco Prats, Elias Hanna and Isidro Bejar
registered two mercantile partnerships in the Bureau of Commerce and
Industry for the purpose of engaging in mercantile business. The
articles of co-partnership of these two entities were the same except in
the firm names. It was apparently contemplated, in so far as any
legitimate function may have been intended, that Prats & Co. should
be an importing firm, while Hanna, Bejar & Co. should engage in
retail business. As events show, the existence of the parallel
entities, controlled by the same individuals, supplied, undeniably,
suitable engines for accomplishing an exploit of the kind that was here
attempted. Of the three individuals mentioned Elias Hanna and Isidro
Bejar were Turkish subjects of unsavory reputation in insurance circles
of Manila, while Francisco1 Prats was a Spanish subject who had had
some success as a merchant and, prior to his connection with the two
associates above mentioned, apparently enjoyed a fair reputation.
Another individual, who figures in the case as an instrument of the
three partners, is one Domingo Romero, who at the time with which we
are here concerned, was an employee of the Bureau of Internal Revenue,
with a salary of P150 per month. Ramon Prats, a son of Francisco Prats,
was united in marriage to a daughter of Domingo Romero, with the result
that social relations between Francisco Prats and Domingo Romero were
close. Francisco Prats appears to have acted as manager for both Prats
& Co. and Hanna, Be jar & Co.

On May 27, 1924, Prats, acting for Hanna, Bejar & Co., purchased
a one-story building at 95 Plaza Gardenia, Manila ; and soon thereafter
he began to assemble in this place the stock of merchandise which was
the subject of insurance in this case. The building referred to was
purchased outright for the sum of P1,600. It was old and was scarcely
more than a shed but had been used in times past for human habitation.
It was located in a part of the city which was inconvenient of access
to traders and out of the ordinary channels of business activity.
After, purchasing the building, Prats knocked out the partitions,
removed the floor, and laid a new cement floor on the ground. He then
installed shelving along the center. The main part of the structure was
thus converted into a single store, or bodega,
though certain adjuncts, consisting of kitchen and closets, remained
unchanged in the rear of the building. A sign was then set up over the
entrance bearing the firm name “Hanna, Bejar & Co.” In effecting
the purchase of this building Prats availed himself of the service of
Domingo Romero, who lived only two doors away at 97 Plaza Gardenia.

By August 21,1924, there had been assembled and stored by Prats in
the place above described a stock of goods which, according to the
documents exhibited by him, had a valuation of P211,329.72, on which he
had taken out insurance to the extent of P410,000. At midnight of the
day mentioned a fire occurred at 95 Plaza Gardenia, which destroyed the
building and ruined its contents, the amount realized from the salvage
of the stock being P11,731.93. With respect to the insurance upon this
stock at the time of the fire, the following facts appear: In the month
of June preceding the fire, nine policies aggregating P160,000 were
taken out by Prats in the name of Hanna, Bejar & Co. on merchandise
stored at 95 Plaza Gardenia. At the time these policies were taken out
the valuation of the goods then in said store could not have been more
than P68,753. On June 28, 1924, Prats procured from the agent of the
defendant in this case policy of insurance No. 600217 in the amount of
P200,000 on merchandise stored in the same place. The nine policies
already procured had been taken out, as we have seen, in the name of
Hanna, Bejar & Co.; but when Prats applied to the agent of the
defendant for the P200,000 policy last above mentioned, the agent told
him that if Hanna or Bejar had any interest in the stock to be insured
the policy could not be issued for the reasonthat, in such case, the
defendant would not be able to obtain reinsurance for any part of the
policy, owing to the bad reputation of Hanna and Bejar. Accordingly, at
the request of Prats, the policy for P200,000 was now made out in the
name of Prats & Co.; and Prats at the same time assured the agent
that Hanna and Bejar were not partners in Prats & Co. With the
writing of this policy the amountof insurance on the merchandise at 95
Plaza Gardenia was increased to P360,000, while the value of the stock
at that time was not probably much in excess of P158,000. On August
11,1924, or just ten days before the fire, Prats took out an additional
policy for P50,000 in the name of Prats & Co. on the same stock.
This made a total insurance of P410,000 on the contents of the store at
95 Plaza Gardenia. At the same time, according to Prats himself, the
valuation of the merchandise then in the place was not in excess of
P230,000. Furthermore, Prats, about this time, caused the first nine
policies which had been taken out in the name of Hanna, Bejar & Co.
to be indorsed to Prats & Co., thereby making this firm the sole
insured firm with respect to this stock of merchandise.

With respect to the origin of the stock thus assembled, we find that
part had been purchased in Europe by Prats; and in connection with its
importation from abroad it is noteworthy that on June 18, 1924, Prats
& Co. procured a policy of marine insurance to be issued by
Meerkamp & Co., Ltd., as agents of ‘the East India Insurance Co.,
Ltd., upon twenty-two cases of silk, of a supposed value of P43,400. At
the time this policy was procured Prats informed the insurer that the
goods were soon to arrive from France by the steamer Suwa Maru,
For this policy of insurance Prats paid out the sum of P736.25.
Nevertheless, it now appears that the twenty-two cases of silk covered
by this marine policy were fictitious, as no such purchase of silk had
been made by Prats & Co. in France or elsewhere. This fact was
offered in evidence by the defendant, as tending to reveal a scheme by
which, if a destructive lire should occur, the plaintiff would be able
to mislead the defendant as to the quantity of goods stored in the bodega. This item of proof, though circumstantial in its nature, was
undoubtedly competent and should have been admitted by the trial court.

The proof submitted by the defendant tends to show that obscure
manipulations were used by the plaintiff in the storing of merchandise
at 95 Plaza Gardenia and in the removal of part of the contents of the bodega
before the fire. In this connection it appears that forty-five cases of
old stock of Hanna, Bejar & Co., at Legaspi, P. I., were shipped to
Manila before the fire, but instead of being taken directly to 95 Plaza
Gardenia, they were housed for a time in the back part of the lower
floor of the Bazar Filipino in which Prats & Co. and Hanna, Bejar
& Co. had their offices. Moreover, a quantity of merchandise
purchased from Talambiras Brothers by Prats & Co. was taken to the
same place shortly before the fire, instead of directly to 95 Plaza
Gardenia; and it is the theory of the defendant that new merchandise
purchased from Talambiras Brothers was substituted for the old stock in
boxes from Hanna, Bejar & Co. at Legaspi, leaving the old goods to
be deposited in the bodega
to swell the debris of the fire. There is evidence also, which was
credited by the court, to the effect that on various occasions before
the fire goods were removed from the bodega to the store of
B. Abolafia, at Manila, where they were received without invoice. Some
of these goods were subsequently sent away by Abolafia for sale in the
provinces.

If overinsurance and the assemblage of goods at inflated values in the bodega
at 95 Plaza Gardenia, together with the surreptitious abstraction of
goods therefrom by the insured, have suggested a possible intention on
the part of its manager to realize improperly on its insurance
policies, this inference is, in our opinion, put beyond reach of
reasonable doubt by facts relative to the destruction of the place. In
this connection we note that at about the time the bodega at
95 Plaza Gardenia had been purchased, Domingo Romero assisted one Ramon
Osete to rent No. 69 Calle Gardenia, which was close to the rear of the
building at 95 Plaza Gardenia. Osete appears to have been the
individual chosen for the role of incendiary, and he slept at the place
mentioned until the night of the fire. A night or two before the fire
this Osete, accompanied by one Antonio Prats, appears to have brought
two cans of petroleum to his lodging place at 69 Calle Gardenia. After
these cans had been taken to Osete’s bathroom by his muchacho,
the latter was sent out on an errand; and while he was gone the
petroleum disappeared. After the fire had been started in the
plaintiff’s bodega shortly after midnight on August 21, 1924,
Osete conveyed this boy in his automobile to the fire alarm box on
Plaza Gardenia. Reaching this place, Osete planted the boy there with
instructions to stop anyone who might attempt to turn in the alarm by
telling him that he (the boy) had already done so; and in fact, after
the fire had gained some headway, one Joaquin Silos, who lived near the
bodega,
ran to the box to turn on the alarm but was stopped in the act by a
person who stated that he had already given the alarm. Nevertheless,
when Fire Chief Vanderford reached the scene of the fire a few minutes
later, he found that the box had not been disturbed and he himself
turned on the alarm. The boy stated that when he was on the way with
Osete to the alarm box, as just stated, an-explosion took place in the bodega and a dull sound was emitted. Vanderford says that upon his arrival he saw that the smoke issuing from the bodega
was black, suggesting the combustion of some inflammable material like
petroleum. He also noted the odor of petroleum, as did also some of the
firemen who reached the scene. It may be added that when the debris of
the fire was subsequently searched, merchandise soaked with petroleum
was found in the ruins.

Domingo Romero, who had been living at 97 Plaza Gardenia, had before
the fire taken his family temporarily to the home of Prats in Pasay.
But after the fire was over the family moved back to 97 Plaza Gardenia,
although that place had been considerably damaged by the flames.

Among those who suffered from the fire were the menbers of the
Artigas family, living at 93 Gardenia, on the side opposite Romero’s
house. Another neighbor who likewise suffered from the fire was one
Juan Atayde, occupant of 67 Calle Gardenia, at the side of the house
occupied by Osete. Soon after the fire Domingo Romero quietly passed a
100-peso bill into the hand of Maria Luisa Artigas, a daughter
belonging to the Artigas family. Romero likewise gave the same amount
to Juan Atayde. It is selfevident that the gifts thus made by Romero to
Luisa Artigas and Juan Atayde had other motives than pure charity and
that the money probably came from some other source than his own modest
earnings. After the fire was over the suspicions of incendiarism were
so strong that a special investigation was made by the police
department with the result that Deputy Chief Lorenzo came to the
conclusion that the fire had originated from an intentional act.
Reflection upon the proof before the court engenders in us the same
belief and conducts us to the further conclusion that Prats & Co.
was not alien to the deed.

The finding of the trial court to the effect that the plaintiff had
submitted false proof in support of his claim is also, in our opinion,
well founded. That conclusion appears to have been based upon three
items of proof and, with respect to at least two of these, we think
that the conclusion of his Honor was correctly drawn. These two facts
are, first, that the plaintiff had submitted a claim for jewelry lost
in the fire as of a value of P12,800 when the true value of said
jewelry was about P600; and, secondly, that the plantiff had sought to
recover from the insurance company the value of goods which had been
surreptitiously withdrawn by it from the bodega prior to the
fire. Neither of these two facts are consistent with good faith on the
part of the plaintiff, and each constituted a breach of the
stipulations of the policy against the use of fraudulent devices and
false proof with respect to the loss.

The other point relied upon by his Honor to sustain the conclusion
that the plaintiff had attempted to deceive-the defendant with respect
to the extent of the loss was at least competent in its general bearing
on the good faith of the plaintiff, even if, as is probably true, not
alone sufficient
to constitute a breach of the same stipulations.
The point is this: After the fire the plaintiff presented to the
adjuster certain cost sheets and copies of supposed invoices in which
the prices and expenses of importation of a quantity of goods were
stated at double the true amount. The adjuster soon discovered the
artificial nature of these documents, and, with his consent, they were
withdrawn by Prats and subsequently destroyed. At the hearing Prats
stated that these documents had been fabricated in order that they
might be exhibited to intending purchasers of the goods, thereby making
it appear to them that the cost of the merchandise had been much
greater than it in fact was—a ruse which is supposed to have been
entirely innocent or at least not directed against the insurer. But a
question naturally arises as to the purpose which these documents might
have been made to serve if the fire, as doubtless intended by its
designers, had been so destructive as to remove all vestiges of the
stock actually involved. Upon the whole we are forced to state the
conclusion, not only that the plaintiff caused the fire to be set, or
connived therein, but also that it submitted fraudulent proof as the
trial judge found.

Before concluding this opinion we are constrained to make a few
observations with reference to the trial of this case and the
inordinate amount of time consumed in the proceedings. We are told in
the appellant’s brief that the trial of this case covered a period of
almost two years, in which fifty separate sessions were held, without
counting the numerous hearings upon the taking of the deposition of
Francisco Prats, a partner in the plaintiff firm, whose testimony was
taken at the instance of the defendant. Taken all together, the time
thus consumed was out of all proportion to the difficulties of the
case. An examination of the voluminous transcript reveals at least part
of the reason for this inordinate consumption of time; since we find
that far too much of the space in the transcript is taken up with the
record of petty skirmishes in court resulting from objections over the
admission of evidence.

In the course of long experience we have observed that justice is
most effectively and expeditiously administered in the courts where
trivial objections to the admission of proof are received with least
favor. The practice of excluding evidence on doubtful objections to its
materiality or technical objections to the form of the questions should
be avoided. In a case of any intricacy it is impossible for a judge of
first instance, in the early stages of the development of the proof, to
know with any certainty whether testimony is relevant or not; and where
there is no indication of bad faith on the part of the attorney
offering the evidence, the court may as a rule safely accept the
testimony upon the statement of the attorney that the proof offered
will be connected later. Moreover, it must be remembered that in the
heat of the battle over which he presides a judge of first instance may
possibly fall into error in judging of the relevancy of proof where a
fair and logical connection is in fact shown. When such a mistake is
made and the proof is erroneously ruled out, the Supreme Court, upon
appeal, often finds itself embarrassed and possibly unable to correct
the effects of the error without returning the case for a new trial,—a
step which this court is always very loath to take. On the other hand,
the admission of proof in a court of first instance, even if the
.question as to its form, materiality, or relevancy is doubtful, can
never result in much harm to either litigant, because the trial judge
is supposed to know the law; and it is its duty, upon final
consideration of the case, to distinguish the relevant and material
from the irrelevant and immaterial. If this course is followed and the
cause is prosecuted to the Supreme Court upon appeal, this court then
has all the material before it necessary to make a correct judgment.

In this connection it should be remembered that many of the
technical rules of evidence which are often invoked in our courts were
originally worked out in England and the United States, where the jury
system prevails. These rules were adopted for the purpose of keeping
matter from juries which—it was supposed—might unduly influence them in
deciding on the facts. They have little pertinence to a system of
procedure, like ours, in which the court is judge both of the law and
facts, and in which accordingly it is necessary for the court to know
what the proof is before it rules upon the propriety of receiving it.
Apart from these considerations is the circumstance mentioned above
that the time consumed in the trial on such collateral points is
generally many times greater than would be consumed if the questionable
testimony should be admitted for what it is worth. What has been said
above finds special relevancy in this case in view of the action of the
trial court in refusing to consider the proof referred to in the
opinion showing that the plaintiff, while engaged in assembling its
stock, procured maritime insurance upon a fictitious importation of
silk. We earnestly commend the maintenance of a liberal practice in the
admission of proof.

Our examination of the case leads to the conclusion that the result reached by the trial court was correct.

The appealed decision will therefore be affirmed, and it is so ordered, with costs against the appellant.

Avanceña, C. J., Villamor, and Ostrand, JJ., concur

Romualdez, J., concurs for the affirmance of the appealed judgment.

Villa-Real, J., concurs in the result.

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CONCURRING

MALCOLM, J.:

I concur in the result and agree with the clear decision of the
trial judge sustaining the defense of false proof, but desire to make
of record my nonconformity as to a discussion of questions not involved
in the disposition of the assignment of errors.