FIELDMEN’S INSURANCE CO., INC., PETITIONER, VS. ASIAN SURETY & INSURANCE CO., INC. AND THE HONORABLE COURT OF APPEALS, RESPONDENTS.

Appeal by certiorari from a decision of the Court of Appeals.

On various dates – between April 11, 1960 and January 9, 1961 –
the Asian Surety & Insurance Company, Inc. and the Fieldmen’s
Insurance Company, Inc. entered into seven (7) reinsurance agreements or
treaties^[1]
under the general terms of which the
former, as the ceding company, undertook to cede to the latter, as the
reinsuring company, a specified portion of the amount of insurance underwritten
by ASIAN upon payment to FIELDMEN’S of a proportionate share of the gross rate of the
premium applicable with respect to each cession after deducting a
commission.  Said agreements or treaties were to take effect
from certain specific dates and were to be in force until cancelled by either
party upon previous notice of at least three (3) months by registered mail to
the other party, the cancellation to take effect as of the 31st of December of
the year in which the notice was given.

On September 19, 1961 FIELDMEN’S, by means of registered mail,
served notice to ASIAN of the former’s desire to be
relieved from all participation in its various treaties with the latter
effective December 31, 1961.  This
communication, although admittedly received by ASIAN on September 25, 1961, did
not elicit any reply from ASIAN.

On December 7, 1961
FIELDMEN’S sent another letter to ASIAN expressing regrets at alleged
violations committed by the latter with respect to the various treaties between
them; in the same letter, FIELDMEN’S reiterated its position that it would
consider itself “no longer at risk for any reinsurance and/or
cession” given by ASIAN which might be in force on December 31, 1961.  Not having received any formal reply from
ASIAN, FIELDMEN’S sent anew a letter on February 17, 1962 reminding ASIAN of the December 7 letter regarding the cancellation
of all the reinsurance treaties and cessions as of December 31, 1961.  At the same time FIELDMEN’S requested ASIAN to submit its final accounting of all cessions made to the former for the preceding
months when the reinsurance agreements were in force.

Meanwhile one of the
risks reinsured with FIELDMEN’S under Cession No. 61-87, Policy No. RI-1236, issued in favor of the
Government Service Insurance System,
became a liability when the insured property was burned on February 16,
1962.  Since the policy was issued on July 1, 1961, it was supposed to expire on
July 1, 1962.^[2] The next day, February 17, ASIAN immediately notified FIELDMEN’S of said
fire loss.  And on February 26, 1962,
ASIAN sent its reply stating, among other things, as follows:

“x x
x we beg to reiterate that your letter of
December 7, 1961, terminating said treaties by December 31, 1961, is not in accordance with the terms thereof, since there was no prior
three months notice.  How ever,
considering the attitude express (sic) in
your aforesaid letter of December 7, 1961, we are willing to waive provision
that said treaties maybe cancelled on December 31st of any year, and will
consider them cancelled at the end of three (3) months from December 7, 1961,
by which time we shall be able to render the final accounting you desire.”

FIELDMEN’S, relying on the sufficiency of its notice of
termination dated September 19, 1961 and obviously bent on avoiding its
liability under the reinsurance agreements with ASIAN, filed a petition for
declaratory relief with the Court of
First Instance of Manila to seek a declaration that all the reinsurance
contracts entered into between them had terminated as of December 31, 1961 and
to obtain an order directing ASIAN to render a final accounting of the
transactions between them with respect to said reinsurance treaties as of the cut-off date.

In
its answer below ASIAN denied having received FIELDMEN’S letter dated
September 19, 1961; and argued that even assuming it did, FIELDMEN’S could not
have terminated the reinsurance treaties as of December 31, 1961 because the
letter was merely an expression of FIELDMEN’S desire to cancel the treaties and
not a formal notice of cancellation as contemplated in their reinsurance
agreements.  By way of special defense
ASIAN contended that even if the September 19 letter were considered sufficient
notice of cancellation – thereby rendering the reinsurance agreements
terminated as of December 31, 1961 – the lia­bility of FIELDMEN’S with respect
to policies or cessions issued under two of the said agreements (marked as
Annexes A and B) prior to their cancellation continued to have full force and
effect until the stated expiry dates of such policies or cessions.

On December 4, 1962 the
trial court rendered a decision declaring six^[3]
of the seven^[4]
reinsurance agreements in question cancelled as of December 31, 1961.  At the same time, it upheld ASIAN’S position
that all cessions of reinsurance made by it to FIELDMEN’S prior to the
cancellation of the reinsurance treaties continued in full force and effect
until their expiry dates.  The same decision
also ordered FIELDMEN’S to make an accounting of its business transactions with
ASIAN within 30 days, and to pay the costs.

On Appeal to the Court of Appeals, the decision of the trial
court was substantially affirmed, with
the slight modification that the order for accounting was eli­minated, without prejudice to the filing of a
proper action between the parties for that purpose.

The cancellation as of December 31, 1961 of the reinsurance
treaties involved in this case is not
now in issue.  It was declared by both
the trial court and the Court of Appeals, and has not been challenged
here.  The main controversy between the
parties is on the question of whether or not said cancellation had the effect
of terminating also the liability of FIELDMEN’S as reinsures with respect to
policies or cessions issued prior to the termina­tion of the principal
reinsurance contracts or treaties.

Of
the six reinsurance contracts under consideration two contain provisions which clearly and
expressly recognize the continuing affectivity of policies ceded under them for
reinsurance notwithstanding the cancellation of the contracts themselves.  Thus, as already noted hereinabove, Article
10 of the Facultative-Obligatory Reinsurance Treaty Fire (Annex A to the
petition below) provides “that in the event of termination of this
Agreement x x
x, the liability of the Fieldmen’s under current cessions shall
continue in full force and effect until
their natural expiry x x x;” and the 4th
paragraph of Article VI of the Personal Accident Reinsurance Treaty (Annex B to
the petition below) states:

“4.     On the
termination of this Agreement from any cause whatever, the liability of the
REINSURER (Fieldmen’s) under any current cession
including any amounts due to be ceded under the terms of this Agreement and
which are not cancelled in the ordinary course of business shall continue in
full force until their expiry unless the COMPANY (Asian) shall, prior to
the thirty-first December next following such notice, elect to withdraw the
existing cessions, x x x“

Insofar as the two reinsurance agreements with the express
stipulations aforequoted are concerned, there is
clearly no merit in FIELDMEN’S claim that their cancellation carried with it ipso facto the termination of all
reinsurance cessions there under.  Such
cessions continued to be in force until their respective dates of
expiration.  Since it was under one of
said agreements, namely, the Facultative-Obligatory Reinsurance Treaty-Fire,
that the reinsurance cession corresponding to the GSIS policy had been made,
FIELDMEN’S cannot avoid liability which arose by reason of the burning of the
insured property.

With respect to the other
four agreements, it would seem that the petition for declaratory relief is moot,
and that no useful purpose would be served by defining the respective rights
and obligations of the parties there under. 
The said agreements have been cancelled, and it does not appear that any
claim by or liability in favor of the insured has actually arisen under any of
the reinsurance cessions made prior to such cancellation.  Future conflicts of the same nature as those
which have motivated the present action can of course be obviated by using more
precise and definite terminology in the reinsurance agreements which the
parties may enter into henceforth.

It is significant to note in this connection:  (1) that in ASIAN’S answer to the petition
below, particularly to the allegation in paragraph III concerning the right of
either party to terminate the reinsurance agreements upon at least three months
notice, such termination to take effect on the 31st of December of the year in
which notice was given, ASIAN made express reference only to the provisions in
the two agreements marked as Annexes A and B to the petition that “the
liability of FIELDMEN’S under any current cession … shall continue in full
force and effect until their natural expiry…;” (2) that the same
provisions, and no other, were relied upon as a special defense on the question
of FIELDMEN’S continued liability; and (3) that in ASIAN’S prayer for relief in
its answer it was only with respect to those two agreements that ASIAN asked
for a declaration that the cessions on reinsurance issued prior to their
cancellation would continue in full force and effect until their natural
expiry.  In other words, ASIAN was quite
willing that no similar declaration be made by the Court with respect to the other agreements, obviously be­cause no
risk reinsured pursuant thereto had become an actual liability.  And since those agreements had been cancelled
as of December 31, 1961,
there is no point in the prayer
for declaratory judgment concerning them.

FIELDMEN’S insists on its alternative prayer that all cessions
under the six reinsurance agreements be
declared rescinded by reason of certain
violations thereof, as stated by FIELDMEN’S in its letter of December 7, 1961.

This action, however, is
not one for rescission but merely for declaratory relief, and the petition
contains no averments, which would constitute grounds for
rescission.  Neither are there any
findings of fact in the decision
of the Court of Appeals upon which rescission may be predicated.  If anything, the thrust of said decision is that ASIAN was not guilty of any
substantial breach of the contracts, which would warrant such a step.  And this conclusion, being factual in nature,
is binding and conclusive upon
this Court.

WHEREFORE, the decision appealed from is affirmed insofar as it refers to
the Facultative-Obligatory Reinsurance Treaty and the Personal Accident
Reinsurance Treaty are concerned, and modified with respect to the others by
declaring the issues concerning them as moot and academic.  No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Castro,
Fernando, Teehankee, Barredo,
and Villamor, JJ., concur.

^[1]
The seven (7) reinsurance agreements or treaties involved in this case are:

1.  Facultative-Obligatory Reinsurance Treaty-Fire
dated January 9, 1961 and effective from January 1, 1961.

2.  Personal Accident Reinsurance Treaty dated
November 28, 1960 and effective from January 1, 1961.

3.  Quota-Share Reinsurance Treaty-Specified
Casualty Lines dated April 11, 1960 and effective from April 1, 1960.

4.  Fire Branch Reinsurance/Retrocession Treaty
dated April 11, 1960 and effective from April 1, 1960.

5.  Fire First Surplus Reinsurance Treaty dated
April 11, 1960 and effective from April 1, 1960.

6.  Aviation Quota-Share Reinsurance Treaty dated
April 11, 1960 and effective from April 1, 1960.

7.  Reinsurance/Retrocession Agreement-Specified
Casualty Lines dated April 11, 1960 and effective from April 1, 1960.

^[2]
Article 10 of the Facultative-Obligatory Reinsurance Treaty-Fire under which
the policy in question had been issued provides:

“This
Agreement shall take effect at January 1st, 1961 and shall apply to risks
underwritten on and after that date, and shall continue in force for an
indefinite period subject to cancellation at anytime by either party giving to
the other three months’ notice of its desire to cancel such notice to expire at
the 31st of December of any year.

“In the
event of termination of this Agreement in accordance with paragraph 1 of this
Article, the liability of the FIELDMEN’S under current Cessions shall continue in full force and effect until
their natural expiry.  However, no cession shall be ceded for a period longer than twelve months.”

^[3]
The six are:  1. Facultative-Obligatory
Reinsurance Treaty-Fire; 2. Personal Accident Reinsurance Treaty; 3.
Quota-Share Reinsurance Treaty-Specified Casualty
Lines; 4. Fire Branch Reinsurance/Retrocession Treaty; 5. Aviation Quota-Share
Reinsurance Treaty; 6. Reinsurance Retrocession Agreement.

^[4]
The Fire First Surplus Reinsurance Treaty
had been admittedly cancelled effective December 31, 1961 by mutual consent of
the parties.