G.R.No.

167330September18,2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONEROFINTERNALREVENUE,Respondent.
RESOLUTION
CORONA,J.:
ARTICLE

DeclarationofPrinciplesandStatePolicies

II

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Section15.TheStateshallprotectandpromotetherighttohealthofthe
peopleandinstillhealthconsciousnessamongthem.
ARTICLE
SocialJusticeandHumanRights

XIII

Section11.TheStateshalladoptanintegratedandcomprehensiveapproach
tohealthdevelopmentwhichshallendeavortomakeessentialgoods,health
andothersocialservicesavailabletoallthepeopleataffordablecost.There
shallbepriorityfortheneedsoftheunderprivilegedsick,elderly,disabled,
women,andchildren.TheStateshallendeavortoprovidefreemedicalcare
topaupers.1
Forresolutionareamotionforreconsiderationandsupplementalmotionfor
reconsiderationdatedJuly10,2008andJuly14,2008,respectively,filedby
petitionerPhilippineHealthCareProviders,Inc.2
Werecallthefactsofthiscase,asfollows:

Petitioner is a domestic corporation whose primary purpose is "[t]o

establish, maintain, conduct and operate a prepaid group practice health
caredeliverysystemorahealthmaintenanceorganizationtotakecareof
thesickanddisabledpersonsenrolledinthehealthcareplanandtoprovide
for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an
annualmembershipfeeandareentitledtovariouspreventive,diagnostic
and curative medical services provided by its duly licensed physicians,
specialistsandotherprofessionaltechnicalstaffparticipatinginthegroup
practicehealthdeliverysystematahospitalorclinicowned,operatedor
accreditedbyit.

OnJanuary27,2000,respondentCommissionerofInternalRevenue[CIR]
sent petitioneraformal demandletterandthecorrespondingassessment
noticesdemandingthepaymentofdeficiencytaxes,includingsurcharges
andinterest,forthetaxableyears1996and1997inthetotalamountof
P224,702,641.18.xxxx
Thedeficiency[documentarystamptax(DST)]assessmentwasimposedon
petitioners health care agreement with the members of its health care
programpursuanttoSection185ofthe1997TaxCodexxxx
xxxxxxxxx
PetitionerprotestedtheassessmentinaletterdatedFebruary23,2000.As
respondentdidnotactontheprotest,petitionerfiledapetitionforreviewin
theCourtofTaxAppeals(CTA)seekingthecancellationofthedeficiency
VATandDSTassessments.
OnApril5,2002,theCTArenderedadecision,thedispositiveportionof
whichread:

WHEREFORE,inviewoftheforegoing,theinstantPetitionforReviewis
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the
deficiencyVATamountingtoP22,054,831.75inclusiveof25%surcharge
plus20%interestfromJanuary20,1997untilfullypaidforthe1996VAT
deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interestfromJanuary20,1998untilfullypaidforthe1997VATdeficiency.
Accordingly,VATRulingNo.[231]88isdeclaredvoidandwithoutforce
and effect. The 1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE. Respondent is
ORDEREDtoDESISTfromcollectingthesaidDSTdeficiencytax.
SOORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)]
insofarasit cancelledtheDSTassessment.Heclaimedthat petitioners
healthcareagreementwasacontractofinsurancesubjecttoDSTunder
Section185ofthe1997TaxCode.
OnAugust16,2004,theCArendereditsdecision.Itheldthatpetitioners
healthcareagreementwasinthenatureofanonlifeinsurancecontract
subjecttoDST.
WHEREFORE,thepetitionforreviewisGRANTED.TheDecisionofthe
CourtofTaxAppeals,insofarasitcancelledandsetasidethe1996and
1997deficiencydocumentarystamptaxassessmentandorderedpetitioner
todesistfromcollectingthesameisREVERSEDandSETASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and
P68,450,258.73asdeficiencyDocumentaryStampTaxfor1996and1997,
respectively, plus25% surcharge for late payment and 20% interest per
annumfromJanuary27,2000,pursuanttoSections248and249oftheTax
Code,untilthesameshallhavebeenfullypaid.

SOORDERED.
PetitionermovedforreconsiderationbuttheCAdeniedit.Hence,petitioner
filedthiscase.
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In a decision dated June 12, 2008, the Court denied the petition and
affirmedtheCAsdecision.Weheldthatpetitionershealthcareagreement
duringthepertinentperiodwasinthenatureofnonlifeinsurancewhichis
acontractofindemnity,citingBlueCrossHealthcare,Inc.v.Olivares3and
Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioners
contentionthatitisahealthmaintenanceorganization(HMO)andnotan
insurancecompanyisirrelevantbecausecontractsbetweencompanieslike
petitionerandthebeneficiariesundertheirplansaretreatedasinsurance
contracts.Moreover,DSTisnotataxonthebusinesstransactedbutan
exciseontheprivilege,opportunityorfacilityofferedatexchangesforthe
transactionofthebusiness.
Unable to accept our verdict, petitioner filed the present motion for
reconsiderationandsupplementalmotionforreconsideration,assertingthe
followingarguments:
(a)TheDSTunderSection185oftheNationalInternalRevenue
of1997isimposedonlyonacompanyengagedinthebusinessof
fidelitybondsandotherinsurancepolicies.Petitioner,asanHMO,
isaserviceprovider,notaninsurancecompany.
(b) The Court, in dismissing the appeal in CIR v. Philippine
NationalBank,affirmedineffecttheCAsdispositionthathealth
careservicesarenotinthenatureofaninsurancebusiness.
(c)Section185shouldbestrictlyconstrued.

(d)Legislativeintenttoexcludehealthcareagreementsfromitems
subjecttoDSTisclear,especiallyinthelightoftheamendments
madeintheDSTlawin2002.

ofthefollowingmedicalservicestoindividualswhoenterintohealthcare
agreementswithit:

(e)Assuming arguendo thatpetitionersagreementsarecontracts

ofindemnity,theyarenotthosecontemplatedunderSection185.

Preventive medical services such as periodic monitoring of health

problems, family planning counseling, consultation and advices on diet,
exerciseandotherhealthyhabits,andimmunization;

(f) Assuming arguendo that petitioners agreements are akin to

healthinsurance,healthinsuranceisnotcoveredbySection185.

Diagnosticmedicalservicessuchasroutinephysicalexaminations,xrays,
urinalysis,fecalysis,completebloodcount,andthelikeand

(g)Theagreementsdonotfallunderthephrase"otherbranchof
insurance"mentionedinSection185.

Curative medical services which pertain to the performing of other

remedialandtherapeuticprocessesintheeventofaninjuryorsicknesson
thepartoftheenrolledmember.10

(h)TheJune12,2008decisionshouldonlyapplyprospectively.
(i)PetitioneravailedofthetaxamnestybenefitsunderRA 59480
for the taxable year 2005 and all prior years. Therefore, the
questionedassessmentsontheDSTarenowrenderedmootand
academic.6
OralargumentswereheldinBaguioCityonApril22,2009.Theparties
submittedtheirmemorandaonJune8,2009.
Initsmotionforreconsideration,petitionerrevealsforthefirsttimethatit
availedofataxamnestyunderRA9480 7(alsoknownasthe"TaxAmnesty
Actof2007")byfullypayingtheamountofP5,127,149.08representing5%
ofitsnetworthasoftheyearendingDecember31,2005.8
Wefindmeritinpetitionersmotionforreconsideration.
PetitionerwasformallyregisteredandincorporatedwiththeSecuritiesand
ExchangeCommissiononJune30,1987.9Itisengagedinthedispensation

Individualsenrolledinitshealthcareprogrampayanannualmembership
fee. Membership is on a yeartoyear basis. The medical services are
dispensedtoenrolledmembersinahospitalorclinicowned,operatedor
accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care
practitionersregardingpaymentschemes,financingandotherprocedures
for the delivery of health services. Except in cases of emergency, the
professionalservicesaretobeprovidedonlybypetitioner'sphysicians,i.e.
thosedirectlyemployed byit11 orwhose services arecontracted byit. 12
Petitioner also provides hospital services such as room and board
accommodation,laboratoryservices,operatingrooms,xrayfacilitiesand
generalnursingcare.13 Ifandwhenamemberavailsofthebenefitsunder
theagreement,petitionerpaystheparticipatingphysiciansandotherhealth
careprovidersfortheservicesrendered,atpreagreedrates.14
Toavailofpetitionershealthcareprograms,theindividualmembersare
requiredtosignandexecuteastandardhealthcareagreementembodying
thetermsandconditionsfortheprovisionofthehealthcareservices.The
same agreement contains the various health care services that can be

engagedbytheenrolledmember, i.e.,preventive,diagnosticandcurative
medical services. Except for the curative aspect of the medical service
offered, the enrolled member may actually make use of the health care
servicesbeingofferedbypetitioneratanytime.
HealthMaintenanceOrganizationsAreNotEngagedInTheInsurance
Business
WesaidinourJune12,2008decisionthatitisirrelevantthatpetitioneris
anHMOandnotaninsurerbecauseitsagreementsaretreatedasinsurance
contractsandtheDSTisnotataxonthebusinessbutanexciseonthe
privilege,opportunityorfacilityusedinthetransactionofthebusiness. 15
Petitioner,however,submitsthatitisofcriticalimportancetocharacterize
thebusinessitisengagedin,thatis,todeterminewhetheritisanHMOor
aninsurancecompany,asthisdistinctionisindispensableinturntothe
issueofwhetherornotitisliableforDSTonitshealthcareagreements. 16
Asecondhardlookattherelevant lawandjurisprudenceconvincesthe
Courtthattheargumentsofpetitioneraremeritorious.
Section185oftheNationalInternalRevenueCodeof1997(NIRCof1997)
provides:
Section185.Stamptaxonfidelitybondsandotherinsurancepolicies.On
all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person,associationorcompanyorcorporationtransactingthebusiness
ofaccident,fidelity,employersliability,plate,glass,steamboiler,burglar,
elevator,automaticsprinkler, orotherbranchofinsurance(exceptlife,
marine, inland, and fire insurance), and all bonds, undertakings, or
recognizances,conditionedfortheperformanceofthedutiesofanyoffice
orposition,forthedoingornotdoingofanythingthereinspecified,andon

allobligationsguaranteeingthevalidityorlegalityofanybondorother
obligationsissuedbyanyprovince,city,municipality,orotherpublicbody
or organization,andonall obligationsguaranteeing the title toany real
estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be
collectedadocumentarystamptaxoffiftycentavos(P0.50)oneachfour
pesos(P4.00),orfractionalpartthereof,ofthepremiumcharged.(Emphasis
supplied)
Itisacardinalruleinstatutoryconstructionthatnoword,clause,sentence,
provisionorpartofastatuteshallbeconsideredsurplusageorsuperfluous,
meaningless, void and insignificant. To this end, a construction which
renders every word operative is preferred over that which makes some
words idle and nugatory.17 Thisprinciple is expressed in the maxim Ut
magisvaleatquampereat,thatis,wechoosetheinterpretationwhichgives
effecttothewholeofthestatuteitseveryword.18
FromthelanguageofSection185,itisevidentthat tworequisites must
concur before the DST can apply, namely: (1) the document must be a
policyofinsuranceoranobligationinthenatureofindemnityand(2)
the maker should be transacting the business of accident, fidelity,
employersliability,plate,glass,steamboiler,burglar,elevator,automatic
sprinkler,orotherbranchofinsurance(exceptlife,marine,inland,andfire
insurance).
PetitionerisadmittedlyanHMO.UnderRA7875(or"TheNationalHealth
Insurance Act of1995"), an HMO is "an entitythat provides, offers or
arranges for coverage of designated health services needed by plan
membersforafixedprepaidpremium."19 Thepaymentsdonotvarywith
theextent,frequencyortypeofservicesprovided.
Thequestionis:waspetitioner,asanHMO,engagedinthebusinessof
insuranceduringthepertinenttaxableyears?Werulethatitwasnot.

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)

enumerateswhatconstitutes"doinganinsurancebusiness"or"transacting
aninsurancebusiness:"
a)makingorproposingtomake,asinsurer,anyinsurancecontract;
b) making or proposing to make, as surety, any contract of
suretyshipasavocationandnotasmerelyincidentaltoanyother
legitimatebusinessoractivityofthesurety;
c)doinganykindofbusiness,includingareinsurancebusiness,
specificallyrecognizedasconstitutingthedoingofaninsurance
businesswithinthemeaningofthisCode;
d)doingorproposingtodoanybusinessinsubstanceequivalentto
anyoftheforegoinginamannerdesignedtoevadetheprovisions
ofthisCode.
IntheapplicationoftheprovisionsofthisCode,thefactthatnoprofitis
derivedfromthemakingofinsurancecontracts,agreementsortransactions
orthatnoseparateordirectconsiderationisreceivedtherefore,shallnotbe
deemedconclusivetoshowthatthemakingthereofdoesnotconstitutethe
doingortransactingofaninsurancebusiness.
VariouscourtsintheUnitedStates,whosejurisprudencehasapersuasive
effect on our decisions,21 have determined that HMOs are not in the
insurance business. One test that they have applied is whether the
assumptionofriskandindemnificationofloss(whichareelementsofan
insurancebusiness)aretheprincipalobjectandpurposeoftheorganization
or whether they are merely incidental to its business. If these are the
principalobjectives,thebusinessisthatofinsurance.Butiftheyaremerely
incidental and service is the principal purpose, then the business is not
insurance.

Applying the "principal object and purpose test," 22 there is significant

Americancaselawsupportingtheargumentthatacorporation(suchasan
HMO,whetherornotorganizedforprofit),whosemainobjectistoprovide
themembersofagroupwithhealthservices,isnotengagedintheinsurance
business.
TherulewasenunciatedinJordanv.GroupHealthAssociation23wherein
theCourtofAppealsoftheDistrictofColumbiaCircuitheldthatGroup
Health Association should not be considered as engaged in insurance
activitiessinceitwascreatedprimarilyforthedistributionofhealthcare
servicesratherthantheassumptionofinsurancerisk.
xxxAlthoughGroupHealthsactivitiesmaybeconsideredinoneaspectas
creating security against loss from illness or accident more truly they
constitute the quantity purchase of wellrounded, continuous medical
servicebyitsmembers.xxx Thefunctionsofsuchanorganizationare
notidenticalwiththoseofinsuranceorindemnitycompanies.Thelatter
areconcernedprimarily,ifnotexclusively,withriskandtheconsequences
of its descent, not with service, or its extension in kind, quantity or
distribution;withtheunusualoccurrence,notthedailyroutineofliving.
Hazardispredominant.Ontheotherhand,thecooperativeisconcerned
principallywithgettingservicerenderedtoitsmembersanddoingsoat
lowerpricesmadepossiblebyquantitypurchasingandeconomiesin
operation.Itsprimarypurposeistoreducethecostratherthantherisk
ofmedicalcare;tobroadentheservicetotheindividualinkindand
quantity; to enlarge the number receiving it; to regularize it as an
everydayincidentofliving,likepurchasingfoodandclothingoroiland
gas,ratherthanmerelyprotectingagainstthefinanciallosscausedby
extraordinaryandunusualoccurrences,suchasdeath,disasteratsea,
fireandtornado.Itis,inthisinstance,totakecareofcolds,ordinaryaches
andpains,minorillsandallthetemporarybodilydiscomfortsaswellasthe
moreseriousandunusualillness.Tosummarize,thedistinctivefeatures

of the cooperative are the rendering of service, its extension, the

bringingofphysicianandpatienttogether,thepreventivefeatures,the
regularizationofserviceaswellaspayment,thesubstantialreduction
incostbyquantitypurchasinginshort,gettingthemedicaljobdone
and paid for; not, except incidentally to these features, the
indemnificationforcostaftertheservicesisrendered.Exceptthelast,
these are not distinctive or generally characteristic of the insurance
arrangement. There is, therefore, a substantial difference between
contractinginthiswayfortherenderingofservice,evenonthecontingency
thatitbeneeded,andcontractingmerelytostanditscostwhenorafteritis
rendered.
Thatanincidentalelementofriskdistributionorassumptionmaybepresent
shouldnotoutweighallotherfactors.Ifattentionisfocusedonlyonthat
feature,thelinebetweeninsuranceorindemnityandothertypesoflegal
arrangementandeconomicfunctionbecomesfaint,ifnotextinct.Thisis
especiallytruewhenthecontractisforthesaleofgoodsorserviceson
contingency.Butobviouslyitwasnotthepurposeoftheinsurancestatutes
to regulate all arrangements for assumption or distribution of risk. That
view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in
lookingonlyattheriskelement,totheexclusionofallotherspresentor
theirsubordinationtoit.Thequestionturns,notonwhetherriskis
involvedorassumed,butonwhetherthatorsomethingelsetowhichit
is related in the particular plan is its principal object purpose. 24
(Emphasissupplied)
In California Physicians Service v. Garrison,25 the California court felt
that,afterscrutinizingtheplanofoperationasawholeofthecorporation,it
wasserviceratherthanindemnitywhichstoodasitsprincipalpurpose.

Thereisanotherandmorecompellingreasonforholdingthattheserviceis
notengagedintheinsurancebusiness.Absenceorpresenceofassumption
ofriskorperilisnotthesoletesttobeappliedindeterminingitsstatus.
The question, more broadly, is whether, looking at the plan of
operationasawhole,serviceratherthanindemnityisitsprincipal
objectandpurpose.Certainlytheobjectsandpurposesofthecorporation
organizedandmaintainedbytheCaliforniaphysicianshaveawidescopein
thefieldofsocialservice.Probablythereisnomoreimpellingneedthan
thatofadequatemedicalcareonavoluntary,lowcostbasisforpersons
of small income. The medical profession unitedly is endeavoring to
meetthatneed.Unquestionablythisisserviceofahighorderandnot
indemnity.26(Emphasissupplied)
American courts have pointed out that the main difference between an
HMOandaninsurancecompanyisthat HMOsundertaketoprovideor
arrange for the provision of medical services through participating
physicianswhileinsurancecompaniessimplyundertaketoindemnifythe
insuredformedicalexpensesincurreduptoapreagreedlimit. Somerset
OrthopedicAssociates,P.A.v.HorizonBlueCrossandBlueShieldofNew
Jersey27isclearonthispoint:
The basicdistinctionbetweenmedical servicecorporationsand ordinary
healthandaccidentinsurersisthattheformerundertaketoprovideprepaid
medical services through participating physicians, thus relieving
subscribersofanyfurtherfinancialburden,whilethelatteronlyundertake
toindemnifyaninsuredformedicalexpensesupto,butnotbeyond,the
scheduleofratescontainedinthepolicy.
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The primary purpose of a medical service corporation, however, is an
undertakingtoprovidephysicianswhowillrenderservicestosubscribers

onaprepaidbasis.Hence,iftherearenophysiciansparticipatinginthe
medical service corporations plan, not only will the subscribers be
deprivedoftheprotectionwhichtheymightreasonablyhaveexpected
wouldbeprovided,butthecorporationwill,ineffect,bedoingbusiness
solely as a health and accident indemnity insurer without having
qualifiedassuchandrenderingitselfsubjecttothemorestringentfinancial
requirementsoftheGeneralInsuranceLaws.
Aparticipatingproviderofhealthcareservicesisonewhoagreesinwriting
torenderhealthcareservicestoorforpersonscoveredbyacontractissued
by health service corporation in return for which the health service
corporation agrees to make payment directly to the participating
provider.28(Emphasissupplied)
Consequently,themerepresenceofriskwouldbeinsufficienttooverride
theprimarypurposeofthebusinesstoprovidemedicalservicesasneeded,
withpayment madedirectlytotheprovideroftheseservices. 29 Inshort,
evenifpetitionerassumestheriskofpayingthecostoftheseserviceseven
if significantly more than what the member has prepaid, it nevertheless
cannotbeconsideredasbeingengagedintheinsurancebusiness.
By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by nonparticipating health
providerswouldstillbeincidentaltopetitionerspurposeofprovidingand
arrangingforhealthcareservicesanddoesnottransformitintoaninsurer.
Tofulfillitsobligationstoitsmembersundertheagreements,petitioneris
requiredtosetupasystemandthefacilitiesforthedeliveryofsuchmedical
services.Thisindubitablyshowsthatindemnificationisnotitssoleobject.
Infact,asubstantialportionofpetitionersservicescoverspreventiveand
diagnostic medical services intended to keep members from developing
medicalconditionsordiseases.30AsanHMO,itisitsobligationtomaintain
thegoodhealthofitsmembers. Accordingly,itshealthcareprograms

are designed to prevent or to minimize the possibility of any

assumptionofriskonitspart.Thus,itsundertakingunderitsagreements
isnottoindemnifyitsmembersagainstanylossordamagearisingfroma
medicalconditionbut,onthecontrary,toprovidethehealthandmedical
servicesneededtopreventsuchlossordamage.31
Overall, petitioner appears to provide insurancetype benefits to its
members (with respect to its curative medical services), but these are
incidental to the principal activity of providing them medical care. The
"insurancelike"aspectofpetitionersbusinessisminisculecomparedtoits
noninsurance activities. Therefore, since it substantially provides health
careservicesratherthaninsuranceservices,itcannotbeconsideredasbeing
intheinsurancebusiness.
Itisimportanttoemphasizethat,inadoptingthe"principalpurposetest"
usedintheabovequotedU.S.cases,wearenotsayingthatpetitioners
operationsareidenticalineveryrespecttothoseoftheHMOsorhealth
providerswhichwerepartiestothosecases.Whatwearestatingisthat,for
thepurposeofdeterminingwhat"doinganinsurancebusiness"means,we
havetoscrutinizetheoperationsofthebusinessasawholeandnotitsmere
components.Thisisofcourseonlyprudent andappropriate,takinginto
accounttheburdensomeandstrictlaws,rulesandregulationsapplicableto
insurersandotherentitiesengagedintheinsurancebusiness.Moreover,we
arealsonotunmindfulthatthereareotherAmericanauthoritieswhohave
foundparticularHMOstobeactuallyengagedininsuranceactivities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the
insuranceindustry.Thisisevidentfromthefactthatitisnotsupervisedby
theInsuranceCommissionbutbytheDepartmentofHealth. 33Infact,ina
letterdatedSeptember3,2000,theInsuranceCommissionerconfirmedthat
petitionerisnotengagedintheinsurancebusiness.Thisdeterminationof
thecommissionermustbeaccordedgreatweight.Itiswellsettledthatthe
interpretationofanadministrativeagencywhichistaskedtoimplementa

statuteisaccordedgreatrespectandordinarilycontrolstheinterpretationof
lawsbythecourts.Thereasonbehindthisrulewasexplainedin Nestle
Philippines,Inc.v.CourtofAppeals:34
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfyingthoseneeds;italsorelatestotheaccumulationofexperienceand
growth of specialized capabilities by the administrative agency charged
withimplementingaparticularstatute.InAsturiasSugarCentral,Inc.vs.
CommissionerofCustoms,35 theCourtstressedthatexecutiveofficialsare
presumed to have familiarized themselves with all the considerations
pertinenttothemeaningandpurposeofthelaw,andtohaveformedan
independent, conscientious and competent expert opinion thereon. The
courtsgivemuchweighttothegovernmentagencyofficialschargedwith
the implementation of the law, their competence, expertness, experience
andinformedjudgment,andthefactthattheyfrequentlyarethedraftersof
thelawtheyinterpret.36

Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or
emergencyorhisavailmentofsocalled"outpatientservices"(including
physical examination, xray and laboratory tests, medical consultations,
vaccineadministrationandfamilyplanningcounseling)isthecontingent
eventwhichgivesrisetoliabilityonthepartofthemember.Incaseof
exposureofthemembertoliability,hewouldbeentitledtoindemnification
bypetitioner.
Furthermore,thefactthatpetitionermustrelieveitsmemberfromliability
bypayingforexpensesarisingfromthestipulatedcontingenciesbeliesits
claim that itsservicesareprepaid.Theexpensestobeincurredbyeach
membercannot bepredictedbeforehand,iftheycanbepredictedat all.
Petitionerassumestheriskofpayingforthecostsoftheservicesevenif
they are significantly and substantially more than what the member has
"prepaid."Petitionerdoesnotbearthecostsalonebutdistributesorspreads
themoutamongalargegroupofpersonsbearingasimilarrisk,thatis,
amongalltheothermembersofthehealthcareprogram.Thisisinsurance. 37

AHealthCareAgreementIsNotAnInsuranceContractContemplated
UnderSection185OfTheNIRCof1997

Wereconsider.WeshallquoteonceagainthepertinentportionofSection
185:

Section185statesthatDSTisimposedon"allpoliciesofinsuranceor
obligationsofthenatureofindemnityforloss,damage,orliability."In
our decision dated June 12, 2008,we ruled that petitioners health care
agreementsarecontractsofindemnityandarethereforeinsurancecontracts:

Section185.Stamptaxonfidelitybondsandotherinsurancepolicies.On
all policies of insurance or bonds or obligations of the nature of
indemnityforloss,damage,orliabilitymadeorrenewedbyanyperson,
associationorcompanyorcorporationtransactingthebusinessofaccident,
fidelity,employersliability,plate,glass,steam boiler,burglar,elevator,
automatic sprinkler, or other branch of insurance (except life, marine,
inland,andfireinsurance),xxxx(Emphasissupplied)

Itisincorrecttosaythatthehealthcareagreementisnotbasedonlossor
damagebecause,underthesaidagreement,petitionerassumestheliability
andindemnifiesitsmemberforhospital,medicalandrelatedexpenses(such
as professional fees ofphysicians). Theterm "lossordamage" isbroad
enoughtocoverthemonetaryexpenseorliabilityamemberwillincurin
caseofillnessorinjury.

Inconstruingthisprovision,weshouldbeguidedbytheprinciplethattax
statutesarestrictlyconstruedagainstthetaxingauthority. 38Thisisbecause
taxation is a destructive power which interferes with the personal and

propertyrightsofthepeopleandtakesfromthemaportionoftheirproperty
forthesupportofthegovernment. 39Hence,taxlawsmaynotbeextended
byimplicationbeyondtheclearimportoftheirlanguage,northeiroperation
enlargedsoastoembracemattersnotspecificallyprovided. 40
Weareawarethat,in BlueCross and Philamcare,theCourtpronounced
thatahealthcareagreementisinthenatureofnonlifeinsurance,whichis
primarilyacontractofindemnity.However,thosecasesdidnotinvolvethe
interpretationofataxprovision.Instead,theydealtwiththeliabilityofa
healthserviceprovidertoamemberunderthetermsoftheirhealthcare
agreement.Suchcontracts,ascontractsofadhesion,areliberallyinterpreted
infavorofthememberandstrictlyagainsttheHMO.Forthisreason,we
reconsiderourrulingthatBlueCrossandPhilamcareareapplicablehere.
Section2(1)oftheInsuranceCodedefinesacontractofinsuranceasan
agreementwherebyoneundertakesforaconsiderationtoindemnifyanother
against loss,damageor liabilityarising from anunknown orcontingent
event.Aninsurancecontractexistswherethefollowingelementsconcur:
1.Theinsuredhasaninsurableinterest;
2.Theinsuredissubjecttoariskoflossbythehappeningofthe
designedperil;
3.Theinsurerassumestherisk;
4.Suchassumptionofriskispartofageneralschemetodistribute
actuallossesamongalargegroupofpersonsbearingasimilarrisk
and
5. In consideration of the insurers promise, the insured pays a
premium.41

Dotheagreementsbetweenpetitioneranditsmemberspossessallthese
elements?Theydonot.
First.Inourjurisdiction,acommentatorofourinsurancelawshaspointed
out that, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a
contractofinsurance:
Itdoesnotnecessarilyfollowhowever,thatacontractcontainingallthe
four elements mentioned above would be an insurance contract. The
primarypurposeofthepartiesinmakingthecontractmaynegatethe
existenceofaninsurancecontract.Forexample,alawfirmwhichenters
intocontractswithclientswherebyinconsiderationofperiodicalpayments,
itpromisestorepresentsuchclientsinallsuitsfororagainstthem,isnot
engagedintheinsurancebusiness.Itscontractsaresimplyforthepurpose
ofrenderingpersonalservices.Ontheotherhand,acontractbywhicha
corporation, in consideration of a stipulated amount, agrees at its own
expensetodefendaphysicianagainstallsuitsfordamagesformalpractice
isoneofinsurance,andthecorporationwillbedeemedasengagedinthe
businessofinsurance.Unlikethelawyersretainercontract,theessential
purpose of such a contract is not to render personal services, but to
indemnifyagainstlossanddamageresultingfromthedefenseofactionsfor
malpractice.42(Emphasissupplied)
Second.Notallthenecessaryelementsofacontractofinsurancearepresent
in petitioners agreements. To begin with, there is no loss, damage or
liabilityonthepartofthememberthatshouldbeindemnifiedbypetitioner
as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioners physician or affiliated
physiciantohim.Incaseofavailmentbyamemberofthebenefitsunder
theagreement,petitionerdoesnotreimburseorindemnifythememberas
thelatterdoesnotpayanythirdparty.Instead,itisthepetitionerwhopays

theparticipatingphysiciansandotherhealthcareprovidersfortheservices
renderedatpreagreedrates.Thememberdoesnotmakeanysuchpayment.
Inotherwords,thereisnothinginpetitioner'sagreementsthatgivesrisetoa
monetaryliabilityonthepartofthemembertoanythirdpartyproviderof
medical services which might in turn necessitate indemnification from
petitioner.Theterms"indemnify"or"indemnity"presupposethataliability
orclaimhasalreadybeenincurred.Thereisnoindemnitypreciselybecause
themembermerelyavailsofmedicalservicestobepaidoralreadypaidin
advanceatapreagreedpriceundertheagreements.
Third.Accordingtotheagreement,amembercantakeadvantageofthe
bulkofthebenefitsanytime,e.g.laboratoryservices,xray,routineannual
physicalexaminationandconsultations,vaccineadministrationaswellas
family planning counseling, even in the absence of any peril, loss or
damageonhisorherpart.
Fourth.Incaseofemergency,petitionerisobligedtoreimbursethemember
whoreceivescarefromanonparticipatingphysicianorhospital.However,
this is only a very minor part of the list of services available. The
assumptionoftheexpensebypetitionerisnotconfinedtothehappeningof
acontingencybutincludesincidentsevenintheabsenceofillnessorinjury.
In Michigan Podiatric Medical Association v. National Foot Care
Program,Inc.,43althoughthehealthcarecontractscalledforthedefendant
to partially reimburse a subscriber for treatment received from a non
designateddoctor,thisdidnotmakedefendantaninsurer.Citing Jordan,
theCourtdeterminedthat"theprimaryactivityofthedefendant(was)the
provision of podiatric services to subscribers in consideration of
prepaymentforsuchservices."44Sinceindemnityoftheinsuredwasnotthe
focalpointoftheagreementbuttheextensionofmedicalservicestothe
memberatanaffordablecost,itdidnotpartakeofthenatureofacontract
ofinsurance.

Fifth.Althoughriskisaprimaryelementofaninsurancecontract,itisnot
necessarilytruethatriskaloneissufficienttoestablishit.Almostanyone
whoundertakesacontractualobligationalwaysbearsacertaindegreeof
financialrisk.Consequently,thereisaneedtodistinguishprepaidservice
contracts(likethoseofpetitioner)fromtheusualinsurancecontracts.
Indeed,petitioner,asanHMO,undertakesabusinessriskwhenitoffersto
providehealthservices:theriskthatitmightfailtoearnareasonablereturn
onitsinvestment.Butitisnottheriskofthetypepeculiaronlytoinsurance
companies.Insurancerisk,alsoknownasactuarialrisk,istheriskthatthe
cost of insurance claims might be higher than the premiums paid. The
amountofpremiumiscalculatedonthebasisofassumptionsmaderelative
totheinsured.45
However, assuming that petitioners commitment to provide medical
servicestoitsmemberscanbeconstruedasanacceptanceoftheriskthatit
will shell out more than the prepaid fees, it still will not qualify as an
insurance contract because petitioners objective is to provide medical
servicesatreducedcost,nottodistributerisklikeaninsurer.
Insum,anexaminationofpetitionersagreementswithitsmembersleads
ustoconcludethatitisnotaninsurancecontractwithinthecontextofour
InsuranceCode.
There Was No Legislative Intent To Impose DST On Health Care
AgreementsOfHMOs
Furthermore, militating in convincing fashion against the imposition of
DSTonpetitionershealthcareagreementsunderSection185oftheNIRC
of1997istheprovisionslegislativehistory.ThetextofSection185came
intoU.S.lawasearlyas1904whenHMOsandhealthcareagreements
werenoteveninexistenceinthisjurisdiction.ItwasimposedunderSection
116,ArticleXIofActNo.1189(otherwiseknownasthe"InternalRevenue

Lawof1904")46enactedonJuly2,1904andbecameeffectiveonAugust1,
1904.Exceptfortherateoftax,Section185oftheNIRCof1997isa
verbatimreproductionofthepertinentportionofSection116,towit:
ARTICLE
StampTaxesonSpecifiedObjects

XI

Section116.Thereshallbelevied,collected,andpaidforandinrespectto
theseveralbonds,debentures,orcertificatesofstockandindebtedness,and
otherdocuments,instruments,matters,andthingsmentionedanddescribed
inthissection,orfororinrespecttothevellum,parchment,orpaperupon
whichsuchinstrument,matters,orthingsoranyofthemshallbewrittenor
printedbyanypersonorpersonswhoshallmake,sign,orissuethesame,
on and after January first, nineteen hundred and five, the several taxes
following:
xxxxxxxxx
Thirdxxx (c)onallpoliciesofinsuranceorbondorobligationofthe
natureofindemnityforloss,damage,orliabilitymadeorrenewedby
any person, association, company, or corporation transacting the
business of accident, fidelity, employers liability, plate glass, steam
boiler, burglar, elevator, automatic sprinkle, or other branch of
insurance (except life, marine, inland, and fire insurance) xxxx
(Emphasissupplied)
OnFebruary27,1914,ActNo.2339(theInternalRevenueLawof1914)
wasenactedrevisingandconsolidatingthelawsrelatingtointernalrevenue.
TheaforecitedpertinentportionofSection116,ArticleXIofActNo.1189
wascompletelyreproducedasSection30(l),ArticleIIIofActNo.2339.
TheverydetailedandexclusiveenumerationofitemssubjecttoDSTwas
thusretained.

OnDecember31,1916,Section30(l),ArticleIIIofActNo.2339was
again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the
pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwiseknownastheAdministrativeCodeof1917.
Section1449(1)eventuallybecameSec.222ofCommonwealthActNo.
466(theNIRCof1939),whichcodifiedalltheinternalrevenuelawsofthe
Philippines.InanamendmentintroducedbyRA40onOctober1,1946,the
DSTratewasincreasedbuttheprovisionremainedsubstantiallythesame.
Thereafter,onJune3,1977,thesameprovisionwiththesameDSTratewas
reproducedinPD1158(NIRCof1977)asSection234.UnderPDs1457
and1959,enactedonJune11,1978andOctober10,1984respectively,the
DSTratewasagainincreased.1avvphi1
EffectiveJanuary1,1986,pursuanttoSection45ofPD1994,Section234
oftheNIRCof1977wasrenumberedasSection198.AndunderSection23
of EO47 273dated July 25,1987, it was again renumbered and became
Section185.
OnDecember23,1993,underRA7660,Section185wasamendedbut,
again,onlywithrespecttotherateoftax.
NotwithstandingthecomprehensiveamendmentoftheNIRCof1977by
RA8424(ortheNIRCof1997),thesubjectlegalprovisionwasretainedas
thepresentSection185.In2004,amendmentstotheDSTprovisionswere
introducedbyRA924348butSection185wasuntouched.
On the other hand, the concept of an HMO was introduced in the
PhilippineswiththeformationofBancomHealthCareCorporationin1974.
The same pioneer HMO was later reorganized and renamed Integrated
Health Care Services, Inc. (or Intercare). However, there are those who

claimthatHealthMaintenance,Inc.istheHMOindustrypioneer,having
set foot in the Philippines as early as 1965 and having been formally
incorporatedin1991.Afterwards,HMOsproliferatedquicklyandcurrently,
there are 36 registered HMOs with a total enrollment of more than 2
million.49
Wecanclearlyseefromthesetwohistories(oftheDSTontheonehand
andHMOsontheother)thatwhenthelawimposingtheDSTwasfirst
passed,HMOswereyetunknowninthePhilippines.However,whenthe
variousamendmentstotheDSTlawwereenacted,theywerealreadyin
existenceinthePhilippinesandthetermhadinfactalreadybeendefinedby
RA7875.IfithadbeentheintentofthelegislaturetoimposeDSTon
healthcareagreements,itcouldhavedonesoinclearandcategoricalterms.
Ithadmanyopportunitiestodoso.Butitdidnot.ThefactthattheNIRC
contained no specific provision on the DST liability of health care
agreementsofHMOsatatimetheywerealreadyknownassuch,beliesany
legislativeintenttoimposeitonthem.Asamatteroffact,petitionerwas
assesseditsDSTliabilityonlyonJanuary27,2000,aftermorethana
decadeinthebusinessasanHMO.50
ConsideringthatSection185didnotchangesince1904(exceptfortherate
oftax),itwouldbesafetosaythathealthcareagreementswerenever,at
any time, recognized as insurance contracts or deemed engaged in the
businessofinsurancewithinthecontextoftheprovision.
ThePowerToTaxIsNotThePowerToDestroy
Asageneralrule,thepowertotaxisanincident ofsovereigntyandis
unlimitedinitsrange,acknowledginginitsverynaturenolimits,sothat
securityagainstitsabuseistobefoundonlyintheresponsibilityofthe
legislaturewhichimposesthetaxontheconstituencywhoistopayit. 51So
potentindeedisthepowerthatitwasonceopinedthat"thepowertotax
involvesthepowertodestroy."52

Petitionerclaimsthat theassessed DSTtodatewhich amountsto P376

million53iswaybeyonditsnetworthofP259million.54Respondentnever
disputedtheseassertions.Giventherealitiesontheground,imposingthe
DSTonpetitionerwouldbehighlyoppressive.Itisnotthepurposeofthe
governmenttothrottleprivatebusiness.Onthecontrary,thegovernment
ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a
legitimatebusiness.56AsaptlyheldinRoxas,etal.v.CTA,etal.:57
The power of taxation is sometimes called also the power to destroy.
Therefore it should beexercised withcaution tominimize injuryto the
proprietaryrightsofataxpayer.It mustbeexercisedfairly,equallyand
uniformly,lestthetaxcollectorkillthe"henthatlaysthegoldenegg."58
Legitimateenterprisesenjoytheconstitutionalprotectionnottobetaxedout
of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another
matterandshouldnotbeallowed.Itiscounterproductiveandultimately
subversive of the nations thrust towards a better economy which will
ultimatelybenefitthemajorityofourpeople.59
PetitionersTaxLiabilityWasExtinguishedUnderTheProvisionsOf
RA9840
Petitionerassertsthat,regardlessofthearguments,theDSTassessmentfor
taxableyears1996and1997becamemootandacademic60whenitavailed
of the tax amnesty under RA 9480 on December 10, 2007. It paid
P5,127,149.08 representing 5% of its net worth as of the year ended
December31,2005andcompliedwithallrequirementsofthetaxamnesty.
UnderSection6(a)ofRA9480,itisentitledtoimmunityfrompaymentof
taxesaswell asadditionsthereto,andtheappurtenant civil,criminalor
administrativepenaltiesunderthe1997NIRC,asamended,arisingfromthe

failuretopayanyandallinternalrevenuetaxesfortaxableyear2005and
prioryears.61
Far from disagreeing with petitioner, respondent manifested in its
memorandum:
Section6of[RA9840]providesthatavailmentoftaxamnestyentitlesa
taxpayertoimmunityfrompaymentofthetaxinvolved,includingthecivil,
criminal,oradministrativepenaltiesprovidedunderthe1997[NIRC],for
taxliabilitiesarisingin2005andtheprecedingyears.
Inviewofpetitionersavailmentofthebenefitsof[RA9840],andwithout
concedingthemeritsofthiscaseasdiscussedabove,respondentconcedes
thatsuchtaxamnestyextinguishesthetaxliabilitiesofpetitioner.This
admission,however,isnotmeanttoprecludearevocationoftheamnesty
granted in case it is found to have been granted under circumstances
amountingtotaxfraudunderSection10ofsaidamnestylaw. 62(Emphasis
supplied)
Furthermore,weheldinarecentcasethatDSTisoneofthetaxescovered
bythetaxamnestyprogramunderRA9480. 63Thereisnootherconclusion
todrawthanthatpetitionersliabilityforDSTforthetaxableyears1996
and1997wastotallyextinguishedbyitsavailmentofthetaxamnestyunder
RA9480.
IsTheCourtBoundByAMinuteResolutionInAnotherCase?
Petitionerraisesanotherinterestingissueinitsmotionforreconsideration:
whetherthisCourtisboundbytherulingoftheCA 64inCIRv.Philippine
NationalBank65thatahealthcareagreementofPhilamcareHealthSystems
isnotaninsurancecontractforpurposesoftheDST.

In support of its argument, petitioner cites the August 29, 2001 minute
resolutionofthisCourtdismissingtheappealinPhilippineNationalBank
(G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the
CourtshouldapplytheCArulingtherethatahealthcareagreementisnot
aninsurancecontract.
Itistruethat,althoughcontainedinaminuteresolution,ourdismissalofthe
petitionwasadispositionofthemeritsofthecase.Whenwedismissedthe
petition, we effectively affirmed the CA ruling being questioned. As a
result,ourrulinginthatcasehasalreadybecomefinal. 67 Whenaminute
resolutiondeniesordismissesapetitionforfailuretocomplywithformal
and substantive requirements, the challenged decision, together with its
findingsoffactandlegalconclusions,aredeemedsustained.68Butwhatis
itseffectonothercases?
Withrespecttothesamesubjectmatterandthesameissuesconcerningthe
same parties, it constitutes res judicata.69 However, if other parties or
anothersubjectmatter(evenwiththesamepartiesandissues)isinvolved,
the minute resolution is not binding precedent. Thus, in CIR v. Baier
Nickel,70 the Court noted that a previous case, CIR v. BaierNickel71
involvingthesamepartiesandthesameissues,waspreviouslydisposed
ofbytheCourtthruaminuteresolutiondatedFebruary17,2003sustaining
therulingoftheCA.Nonetheless,theCourtruledthat thepreviouscase
"ha(d) no bearing" on the latter case because the two cases involved
differentsubjectmattersastheywereconcernedwiththetaxableincomeof
differenttaxableyears.72
Besides, there are substantial, not simply formal, distinctions between a
minuteresolutionandadecision.Theconstitutionalrequirementunderthe
firstparagraphofSection14,ArticleVIIIoftheConstitutionthatthefacts
andthelawonwhichthejudgmentisbasedmustbeexpressedclearlyand
distinctlyappliesonlytodecisions,not tominute resolutions.Aminute

resolutionissignedonlybytheclerkofcourtbyauthorityofthejustices,
unlikeadecision.ItdoesnotrequirethecertificationoftheChiefJustice.
Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII
speaksofadecision.73Indeed,asarule,thisCourtlaysdowndoctrinesor
principles of law which constitute binding precedent in a decision duly
signedbythemembersoftheCourtandcertifiedbytheChiefJustice.
Accordingly,sincepetitionerwasnotapartyinG.R.No.148680andsince
petitioners liability for DST on its health care agreement was not the
subjectmatterofG.R.No.148680,petitionercannotsuccessfullyinvoke
theminuteresolutioninthatcase(whichisnotevenbindingprecedent)in
itsfavor.Nonetheless,inviewofthereasonsalreadydiscussed,thisdoes
notdetractinanywayfromthefactthatpetitionershealthcareagreements
arenotsubjecttoDST.
AFinalNote
Takingintoaccountthathealthcareagreementsareclearlynotwithinthe
ambitofSection185oftheNIRCandtherewasneveranylegislativeintent
to impose the same on HMOs like petitioner, the same should not be
arbitrarilyandunjustlyincludedinitscoverage.
Itisamatterofcommonknowledgethatthereisagreatsocialneedfor
adequate medical services at a cost which the average wage earner can
afford.HMOsarrange,organizeandmanagehealthcaretreatmentinthe
furtheranceofthegoalofprovidingamoreefficientandinexpensivehealth
care system made possible by quantity purchasing of services and
economiesofscale.Theyofferadvantagesoverthepayforservicesystem
(wherein individuals are charged a fee each time they receive medical
services),includingtheabilitytocontrolcosts.Theyprotecttheirmembers
from exposure to the high cost of hospitalization and other medical
expensesbroughtaboutbyafluctuatingeconomy.Accordingly,theyplay

an important role in society as partners of the State in achieving its

constitutional mandate of providing its citizens with affordable health
services.
TherateofDSTunderSection185isequivalentto12.5%ofthepremium
charged.74Itsimpositionwillelevatethecostofhealthcareservices.This
will in turnnecessitate an increase in the membership fees, resulting in
eitherplacinghealthservicesbeyondthereachoftheordinarywageearner
ordrivingtheindustrytotheground.Attheendoftheday,neitherside
wins,consideringtheindispensabilityoftheservicesofferedbyHMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The
August 16, 2004 decision of the Court of Appeals in CAG.R. SP No.
70479 is REVERSED and SETASIDE.The1996and1997deficiency
DST assessment against petitioner is hereby CANCELLED and SET
ASIDE.Respondentisorderedtodesistfromcollectingthesaidtax.
Nocosts.
SOORDERED.

RecibilasumadeseismilpesosdeDonJoaquinHerrerdeManilacomo
primadelaRentaVitaliciasolicitadapordichoDonJoaquinHerrerhoy,
sujeta al examen medico y aprobacion de la Oficina Central de la
Compaia.
G.R.No.L15895November29,1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late
Joaquin

Ma.

Herrer,
plaintiffappellant,

vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant
appellee.
Jose

A.

Espiritu
Cohn,FisherandDeWittforappellee.

for

appellant.

MALCOLM,J.:
Thisisanactionbroughtbytheplaintiffadadministratoroftheestateofthe
late Joaquin Ma. Herrer to recover from the defendant life insurance
companythesumofpesos6,000paidbythedeceasedforalifeannuity.
Thetrialcourtgavejudgmentforthedefendant.Plaintiffappeals.
Theundisputedfactsarethese: OnSeptember24,1917,JoaquinHerrer
madeapplicationtotheSunLifeAssuranceCompanyofCanadathroughits
officeinManilaforalifeannuity.TwodayslaterhepaidthesumofP6,000
tothemanagerofthecompany'sManilaofficeandwasgivenareceipt
readingasfollows:
MANILA,I.F.,26deseptiembre,1917.
PROVISIONALRECEIPTPesos6,000

The application was immediately forwarded to the head office of the

companyatMontreal,Canada.OnNovember26,1917,theheadofficegave
noticeofacceptancebycabletoManila.(Whetheronthesamedaythe
cablewasreceivednoticewassentbytheManilaofficeofHerrerthatthe
applicationhadbeenaccepted,isadisputedpoint,whichwillbediscussed
later.) On December 4, 1917, the policy was issued at Montreal. On
December18,1917,attorneyAurelioA.TorreswrotetotheManilaoffice
ofthecompanystatingthatHerrerdesiredtowithdrawhisapplication.The
followingdaythelocalofficerepliedtoMr.Torres,statingthatthepolicy
hadbeenissued,andcalledattentiontothenotificationofNovember26,
1917.ThisletterwasreceivedbyMr.TorresonthemorningofDecember
21,1917.Mr.HerrerdiedonDecember20,1917.
Asabovesuggested,theissueoffact raisedbytheevidenceiswhether
Herrer received notice of acceptance of his application. To resolve this
question,weproposetogodirectlytotheevidenceofrecord.
ThechiefclerkoftheManilaofficeoftheSunLifeAssuranceCompanyof
Canadaatthetimeofthetrialtestifiedthathepreparedtheletterintroduced
inevidenceasExhibit3,ofdateNovember26,1917,andhandedittothe
local manager,Mr.E.E.White,forsignature.Thewitnessadmittedon
crossexaminationthatafterpreparingtheletterandgivingittohemanager,
he new nothing of what became of it. The local manager, Mr. White,
testifiedtohavingreceivedthecablegramacceptingtheapplicationofMr.
HerrerfromthehomeofficeonNovember26,1917.Hesaidthatonthe
samedayhesignedaletternotifyingMr.Herrerofthisacceptance.The
witnessfurthersaidthatletters,afterbeingsigned,weresenttothechief
clerkandplacedonthemailingdeskfortransmission.Thewitnesscould

nottelliftheletterhadeveryactuallybeenplacedinthemails.Mr.Tuason,
who was the chief clerk, on November 26, 1917, was not called as a
witness. For the defense, attorney Manuel Torres testified to having
preparedthewillofJoaquinMa.Herrer,thatonthisoccasion,Mr.Herrer
mentionedhisapplicationforalifeannuity,andthathesaidthattheonly
documentrelatingtothetransactioninhispossessionwastheprovisional
receipt.RafaelEnriquez,theadministratoroftheestate,testifiedthathehad
gone through the effects of the deceased and had found no letter of
notificationfromtheinsurancecompanytoMr.Herrer.
Ourdeductionfromtheevidenceonthisissuemustbethattheletterof
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company,wasplacedintheordinarychannelsfortransmission,butasfaras
weknow,wasneveractuallymailedandthuswasneverreceivedbythe
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to
determinethelawwhichshouldbeappliedtothefacts.Inordertoreachour
legalgoal,theobvioussignpostsalongthewaymustbenoticed.
Untilquiterecently,alloftheprovisionsconcerninglifeinsuranceinthe
PhilippineswerefoundintheCodeofCommerceandtheCivilCode.Inthe
CodeoftheCommerce,thereformerlyexistedTitleVIIIofBookIIIand
SectionIIIofTitleIIIofBookIII,whichdealtwithinsurancecontracts.In
theCivilCodethereformerlyexistedandpresumablystillexist,ChaptersII
andIV,entitledinsurancecontractsandlifeannuities,respectively,ofTitle
XIIofBookIV.OntheafterJuly1,1915,therewas,however,inforcethe
InsuranceAct.No.2427.ChapterIVofthisActconcernslifeandhealth
insurance.TheActexpresslyrepealedTitleVIIIofBookIIandSectionIII
ofTitleIIIofBookIIIofthecodeofCommerce.Thelawofinsuranceis
consequentlynowfoundintheInsuranceActandtheCivilCode.

While, asjust noticed,theInsuranceAct dealswithlife insurance, it is

silentastothemethodstobefollowedinorderthattheremaybeacontract
ofinsurance.Ontheotherhand,theCivilCode,inarticle1802,notonly
describes a contact of life annuity markedly similar to the one we are
considering,butintwootherarticles,givesstrongcluesastotheproper
dispositionofthecase.Forinstance,article16oftheCivilCodeprovides
that"Inmatterswhicharegovernedbyspeciallaws,anydeficiencyofthe
lattershallbesuppliedbytheprovisionsofthisCode."Onthesupposition,
therefore, which is incontestable, that the special law on the subject of
insuranceisdeficientinenunciatingtheprinciplesgoverningacceptance,
thesubjectmatteroftheCivilcode,iftherebeany,wouldbecontrolling.In
theCivilCodeisfoundarticle1262providingthat"Consentisshownby
theconcurrenceofofferandacceptancewithrespecttothethingandthe
considerationwhicharetoconstitutethecontract.Anacceptancemadeby
lettershallnotbindthepersonmakingtheofferexceptfromthetimeit
cametohisknowledge.Thecontract,insuchcase,ispresumedtohave
beenenteredintoattheplacewheretheofferwasmade."Thislatterarticle
isinoppositiontotheprovisionsofarticle54oftheCodeofCommerce.
Ifnomistakehasbeenmadeinannouncingthesuccessivestepsbywhich
wereachaconclusion,thentheonlydutyremainingisforthecourttoapply
thelawasitisfound.Thelegislatureinitswisdomhavingenactedanew
law on insurance, and expressly repealed the provisions in the Code of
Commerce on the same subject, and having thus left a void in the
commerciallaw,itwouldseemlogicaltomakeuseoftheonlypertinent
provision of law found in the Civil code, closely related to the chapter
concerninglifeannuities.
TheCivilCoderule,thatanacceptancemadebylettershallbindtheperson
makingtheofferonlyfromthedateitcametohisknowledge,maynotbe
thebestexpressionofmoderncommercialusage.Stillitmustbeadmitted
thatitsenforcementavoidsuncertaintyandtendstosecurity.Notonlythis,
butinorderthattheprinciplemaynotbetakentoolightly,letitbenoticed

thatitisidenticalwiththeprinciplesannouncedbyaconsiderablenumber
ofrespectablecourtsintheUnitedStates.Thecourtswhotakethisview
haveexpresslyheldthatanacceptanceofanofferofinsurancenotactually
orconstructivelycommunicatedtotheproposerdoesnotmakeacontract.
Onlythemailingofacceptance,ithasbeensaid,completesthecontractof
insurance, as the locus poenitentiae is ended when the acceptance has
passedbeyondthecontroloftheparty.(IJoyce,TheLawofInsurance,pp.
235,244.)
Inresume,therefore,thelawapplicabletothecaseisfoundtobethesecond
paragraphofarticle1262oftheCivilCodeprovidingthatanacceptance
madebylettershallnotbindthepersonmakingtheofferexceptfromthe
timeitcametohisknowledge.Thepertinentfactis,thataccordingtothe
provisionalreceipt,threethingshadtobeaccomplishedbytheinsurance
company before there was a contract: (1) There had to be a medical
examinationoftheapplicant;(2)therehadtobeapprovaloftheapplication
bytheheadofficeofthecompany;and(3)thisapprovalhadinsomewayto
becommunicatedbythecompanytotheapplicant.Thefurtheradmitted
factsarethattheheadofficeinMontrealdidaccepttheapplication,did
cabletheManilaofficetothateffect,didactuallyissuethepolicyanddid,
throughitsagentinManila,actuallywritetheletterofnotificationandplace
itintheusualchannelsfortransmissiontotheaddressee.Thefactastothe
letterofnotificationthusfailstoconcurwiththeessentialelementsofthe
general rule pertaining to the mailing and delivery of mail matter as
announcedbytheAmericancourts,namely,whenaletterorothermail
matterisaddressedandmailedwithpostageprepaidthereisarebuttable
presumptionoffactthatitwasreceivedbytheaddresseeassoonasitcould
havebeentransmittedtohimintheordinarycourseofthemails.Butifany
oneoftheseelementalfactsfailstoappear,itisfataltothepresumption.
Forinstance,aletterwillnotbepresumedtohavebeenreceivedbythe
addressee unless it is shown that it was deposited in the postoffice,
properlyaddressedandstamped.(See22C.J.,96,and49L.R.A.[N.S.],
pp.458,etseq.,notes.)

We hold that the contract for a life annuity in the case at bar was not
perfectedbecauseithasnotbeenprovedsatisfactorilythattheacceptanceof
theapplicationevercametotheknowledgeoftheapplicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the
defendantthesumofP6,000withlegalinterestfromNovember20,1918,
untilpaid,withoutspecialfindingastocostsineitherinstance.Soordered.
Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.
Johnson,J.,dissents.

Jose

S.

Suarez
EligioG.Lagmanforrespondents.

for

petitioner.

FERNANDO,J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not
allowedtoescapeliabilityunderacommoncarrierinsurancepolicyonthe
pretextthatwhatwasinsured,notoncebuttwice,wasaprivatevehicleand
notacommoncarrier,thepolicybeingissuedupontheinsistenceofits
agentwhodiscountedfearsoftheinsuredthathisprivatelyownedvehicle
mightnotfallwithinitsterms,theinsuredmoreoverbeing"amanofscant
education,"finishingonlythefirstgrade.Soitwasheldinadecisionofthe
lowercourtthereafteraffirmedbyrespondentCourtofAppeals.Petitioner
inseekingthereviewoftheabovedecisionofrespondentCourtofAppeals
cannotbesosanguineastoentertainthebeliefthatadifferentoutcome
couldbeexpected.Tobemoreexplicit,wesustaintheCourtofAppeals.

G.R.No.L24833September23,1968
FIELDMEN'S INSURANCE CO., INC.,
petitioner,

vs.
MERCEDESVARGASVDA.DESONGCO,ETAL.andCOURTOF
APPEALS,respondents.

The facts as found by respondent Court of Appeals, binding upon us,

follow: "This is a peculiar case. Federico Songco of Floridablanca,
Pampanga,amanofscanteducationbeingonlyafirstgrader...,owneda
privatejeepneywithPlateNo.41289fortheyear1960.OnSeptember15,
1960, as such private vehicle owner, he was induced by Fieldmen's
Insurance Company Pampanga agent Benjamin Sambat to apply for a
CommonCarrier'sLiabilityInsurancePolicycoveringhismotorvehicle...
UponpayinganannualpremiumofP16.50,defendantFieldmen'sInsurance
Company,Inc.issuedonSeptember19,1960,CommonCarriersAccident
InsurancePolicyNo.45HO4254...thedurationofwhichwillbeforone
(1) year, effective September 15, 1960 to September 15, 1961. On
September 22, 1961, the defendant company, upon payment of the
corresponding premium, renewed the policy by extending the coverage
fromOctober15,1961toOctober15,1962.ThistimeFedericoSongco's

privatejeepneycarriedPlateNo.J68136Pampanga1961....OnOctober
29,1961,duringtheeffectivityoftherenewedpolicy,theinsuredvehicle
whilebeingdrivenbyRodolfoSongco,adulylicenseddriverandsonof
Federico (the vehicle owner) collided with a car in the municipality of
Calumpit, province of Bulacan, as a result of which mishap Federico
Songco(father)andRodolfoSongco(son)died,CarlosSongco(another
son),thelatter'swife,AngelitaSongco,andafamilyfriendbythenameof
JoseManuelsustainedphysicalinjuriesofvaryingdegree."1
It was further shown according to the decision of respondent Court of
Appeals: "Amor Songco, 42yearold son of deceased Federico Songco,
testifyingaswitness,declaredthatwheninsuranceagentBenjaminSambat
wasinducinghisfathertoinsurehisvehicle,hebuttedinsaying:'That
cannotbe,Mr.Sambat,becauseourvehicleisan"owner"privatevehicle
andnotforpassengers,'towhichagentSambatreplied:'whetherourvehicle
wasan"owner"typeorforpassengersitcouldbeinsuredbecausetheir
companyisnotownedbytheGovernmentandtheGovernmenthasnothing
todowiththeircompany.Sotheycoulddowhattheypleasewheneverthey
believeavehicleisinsurable'...Inspiteofthefactthatthepresentcasewas
filedandtriedintheCFIofPampanga,thedefendantcompanydidnoteven
care to rebut Amor Songco's testimony by calling on the witnessstand
agentBenjaminSambat,itsPampangaFieldRepresentative."2
The plaintiffs in the lower court, likewise respondents here, were the
survivingwidowandchildrenofthedeceasedFedericoSongcoaswellas
theinjuredpassengerJoseManuel.Ontheabovefactstheyprevailed,as
had been mentioned, in the lower court and in the respondent Court of
Appeals.1awphl.nt
The basis for the favorable judgment is thedoctrine announced in Qua
CheeGanv.LawUnionandRockInsuranceCo.,Ltd.,3withJusticeJ.B.L.
Reyes speaking for the Court. It is now beyond question that where
inequitableconductisshownbyaninsurancefirm,itis"estoppedfrom

enforcingforfeituresinitsfavor,inordertoforestallfraudorimpositionon
theinsured."4
Asmuch,ifnotmuchmoresothanthe QuaCheeGandecision,thisisa
casewherethedoctrineofestoppelundeniablycallsforapplication.After
petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico
Songcotobelievethathecouldqualifyunderthecommoncarrierliability
insurance policy, and to enter into contract of insurance paying the
premiumsdue,itcouldnot,thereafter,inanylitigationarisingoutofsuch
representation,bepermittedtochangeitsstandtothedetrimentoftheheirs
oftheinsured.Asestoppelisprimarilybasedonthedoctrineofgoodfaith
andtheavoidanceofharm that will befalltheinnocent partyduetoits
injuriousreliance,thefailuretoapplyitinthiscasewouldresultinagross
travestyofjustice.
Thatisallthatneedsbesaidinsofarasthefirstallegederrorofrespondent
CourtofAppealsisconcerned,petitionerbeingadamantinitsfarfrom
reasonable plea that estoppel could not be invoked by the heirs of the
insured as a bar to the alleged breach of warranty and conditioninthe
policy. lt would now rely on the fact that the insured owned a private
vehicle,notacommoncarrier,somethingwhichitknewallalongwhennot
oncebuttwiceitsagent,nodoubtwithoutanyobjectioninitspart,exerted
theutmostpressureontheinsured,amanofscanteducation,toenterinto
suchacontract.
NoristhereanymerittothesecondallegederrorofrespondentCourtthat
nolegalliabilitywasincurredunderthepolicybypetitioner.Whyliability
underthetermsofthepolicy5wasinescapablewassetforthinthedecision
of respondent Court of Appeals. Thus: "Since some of the conditions
containedinthepolicyissuedbythedefendantappellantwereimpossible
tocomplywithundertheexistingconditionsatthetimeand'inconsistent
withtheknownfacts,'theinsurer'isestoppedfromassertingbreachofsuch
conditions.'Fromthisjurisprudence,wefindnovalidreasontodeviateand

consequentlyholdthatthedecisionappealedfromshouldbeaffirmed.The
injuredparties,towit,CarlosSongco,AngelitoSongcoandJoseManuel,
forwhosehospitalandmedicalexpensesthedefendantcompanywasbeing
madeliable,werepassengersofthejeepneyatthetimeoftheoccurrence,
andRodolfoSongco,forwhoseburialexpensesthedefendantcompanywas
alsobeingmadeliablewasthedriverofthevehicleinquestion.Exceptfor
the fact, that they were not fare paying passengers, their status as
beneficiariesunderthepolicyisrecognizedtherein."6

view to protecting the weaker party from abuses and imposition, and
preventtheirbecomingtrapsfortheunwary(NewCivilCode.Article24;
Sent.ofSupremeCourtofSpain,13Dec.1934,27February1942)."8

Evenifitbeassumedthattherewasanambiguity,anexcerptfromtheQua
Chee Gan decision would reveal anew the weakness of petitioner's
contention.Thus:"Moreover,takingintoaccountthewellknownrulethat
ambiguitiesorobscuritiesmustbestrictlyinterpretedagainstthepartythat
causedthem,the'memoofwarranty'invokedbyappellantbarsthelatter
fromquestioningtheexistenceoftheappliancescalledforintheinsured
premises, since its initial expression, 'the undernoted appliances for the
extinctionoffirebeingkeptonthepremisesinsuredhereby,...itishereby
warranted...,'admitsofinterpretationasanadmissionoftheexistenceof
suchapplianceswhichappellantcannotnowcontradict,shouldtheparol
evidenceruleapply."7

Theconclusionthatinescapablyemergesfromtheaboveisthecorrectness
ofthedecisionofrespondentCourtofAppealssoughttobereviewed.For,
toborrowonceagainfromthelanguageoftheQuaCheeGanopinion:"The
contractofinsuranceisoneofperfectgoodfaith(uberimafides)notforthe
insuredalone,butequallysofortheinsurer;infact,itismoresoforthe
latter, since its dominant bargaining position carries with it stricter
responsibility."9

Tothesameeffectisthefollowingcitationfromthesameleadingcase:
"Thisrigidapplicationoftheruleonambiguitieshasbecomenecessaryin
viewofcurrentbusinesspractices.Thecourtscannotignorethatnowadays
monopolies, cartels and concentration of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing
withthemcunninglyprepared'agreements'thattheweakerpartymaynot
changeonewhit,hisparticipationinthe'agreement'beingreducedtothe
alternativeto'takeitorleaveit'labelledsinceRaymondSaleilles'contracts
byadherence' (contratsd'adhesion),incontrast tothose enteredintoby
partiesbargainingonanequalfooting,suchcontracts(ofwhichpoliciesof
insuranceandinternationalbillsofladingareprimeexamples)obviously
callforgreaterstrictnessandvigilanceonthepartofcourtsofjusticewitha

The last error assigned which would find fault with the decision of
respondentCourtofAppealsinsofarasitaffirmedthelowercourtawardfor
exemplary damages as well as attorney's fees is, on its face, of no
persuasiveforceatall.

Thisismerelytostressthatwhilethemoralityofthebusinessworldisnot
themoralityofinstitutionsofrectitudelikethepulpitandtheacademe,it
cannot descend so low as to be another name for guile or deception.
Moreover,shouldithappenthus,nocourtofjusticeshouldallowitselfto
lenditsapprovalandsupport.1awphl.nt
We have no choice but to recognize the monetary responsibility of
petitionerFieldmen'sInsuranceCo.,Inc.Itdidnotsucceedinitspersistent
effort toavoidcomplyingwithitsobligationinthelowercourt andthe
CourtofAppeals.Muchlessshoulditfindanyreceptivityfromusforits
unwarrantedandunjustifiedpleatoescapefromitsliability.
WHEREFORE,thedecisionofrespondentCourtofAppealsofJuly20,
1965, is affirmed in its entirety. Costs against petitioner Fieldmen's
InsuranceCo.,Inc.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,

CastroandAngeles,JJ.,concur.

G.R. No. 76452 July 26, 1994

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and
RODRIGO
DE
LOS
REYES,
petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance
Commissioner, and RAMON MONTILLA PATERNO, JR.,
respondents.
Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.
Oscar Z. Benares for private respondent.

QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the
Revised Rules of Court, with preliminary injunction or temporary
restraining order, to annul and set aside the Order dated November
6, 1986 of the Insurance Commissioner and the entire proceedings
taken in I.C. Special Case No. 1-86.

Petitioner De los Reyes, in his letter to respondent Commissioner

dated June 6, 1986, reiterated his claim that private respondent's
letter of May 16, 1986 did not supply the information he needed to
enable him to answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent
Commissioner on the validity of the Contract of Agency complained
of by private respondent.

We grant the petition.

The instant case arose from a letter-complaint of private respondent
Ramon M. Paterno, Jr. dated April 17, 1986, to respondent
Commissioner, alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine
American Life Insurance Company (Philamlife) as a result of certain
practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested
petitioner Rodrigo de los Reyes, in his capacity as Philamlife's
president, to comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner,
petitioner De los Reyes suggested that private respondent "submit
some sort of a 'bill of particulars' listing and citing actual cases, facts,
dates, figures, provisions of law, rules and regulations, and all other
pertinent data which are necessary to enable him to prepare an
intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the
Insurance Commissioner to private respondent for his comments
thereon.
On May 16, 1986, respondent Commissioner received a letter from
private respondent maintaining that his letter-complaint of April 17,
1986 was sufficient in form and substance, and requested that a
hearing thereon be conducted.

In said hearing, private respondent was required by respondent

Commissioner to specify the provisions of the agency contract which
he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to
respondent Commissioner dated July 31, 1986, reiterating his letter
of April 17, 1986 and praying that the provisions on charges and fees
stated in the Contract of Agency executed between Philamlife and its
agents, as well as the implementing provisions as published in the
agents' handbook, agency bulletins and circulars, be declared as null
and void. He also asked that the amounts of such charges and fees
already deducted and collected by Philamlife in connection therewith
be reimbursed to the agents, with interest at the prevailing rate
reckoned from the date when they were deducted.
Respondent Commissioner furnished petitioner De los Reyes with a
copy of private respondent's letter of July 31, 1986, and requested
his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8,
1986, stating inter alia that:
(1) Private respondent's letter of August 11, 1986
does not contain any of the particular information
which Philamlife was seeking from him and which he
promised to submit.

(2) That since the Commission's quasi-judicial power

was being invoked with regard to the complaint,
private respondent must file a verified formal
complaint before any further proceedings.

(3) No answer has been filed, and hence, the hearing scheduled on
November 5, 1986 in the Subpoena/Notice, and wherein the
respondent is required to appear, is premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction
over;

In his letter dated September 9, 1986, private respondent asked for

the resumption of the hearings on his complaint.

(1) the subject matter or nature of

the action; and

On October 1, private respondent executed an affidavit, verifying his

letters of April 17, 1986, and July 31, 1986.
In a letter dated October 14, 1986, Manuel Ortega, Philamlife's
Senior Assistant Vice-President and Executive Assistant to the
President, asked that respondent Commission first rule on the
questions of the jurisdiction of the Insurance Commissioner over the
subject matter of the letters-complaint and the legal standing of
private respondent.

(2) over the parties involved (Rollo,

p. 102).
In the Order dated November 6, 1986, respondent Commissioner
denied the Motion to Quash. The dispositive portion of said Order
reads:
NOW, THEREFORE, finding the position of
complainant thru counsel tenable and considering
the fact that the instant case is an informal
administrative litigation falling outside the operation
of the aforecited memorandum circular but
cognizable by this Commission, the hearing officer,
in open session ruled as it is hereby ruled to deny
the Motion to Quash Subpoena/Notice for lack of
merit (Rollo, p. 109).

On October 27, respondent Commissioner notified both parties of the

hearing of the case on November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash
Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is
premature because:

Hence, this petition.

(1) No complaint sufficient in form and contents has been filed;

(2
No summons has been issued nor received by the respondent De
los Reyes, and hence, no jurisdiction has been acquired over his
person;

II
The main issue to be resolved is whether or not the resolution of the
legality of the Contract of Agency falls within the jurisdiction of the
Insurance Commissioner.

Private respondent contends that the Insurance Commissioner has

jurisdiction to take cognizance of the complaint in the exercise of its
quasi-judicial powers. The Solicitor General, upholding the
jurisdiction of the Insurance Commissioner, claims that under
Sections 414 and 415 of the Insurance Code, the Commissioner has
authority to nullify the alleged illegal provisions of the Contract of
Agency.
III
The general regulatory authority of the Insurance Commissioner is
described in Section 414 of the Insurance Code, to wit:
The Insurance Commissioner shall have the duty to
see that all laws relating to insurance, insurance
companies and other insurance matters, mutual
benefit associations and trusts for charitable uses
are faithfully executed and to perform the duties
imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided
elsewhere in this Code, the Insurance Commissioner
is hereby authorized, at his discretion, to impose
upon insurance companies, their directors and/or
officers and/or agents, for any willful failure or refusal
to comply with, or violation of any provision of this
Code, or any order, instruction, regulation or ruling of
the Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an
unsafe and unsound manner as may be determined
by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and

(b) suspension, or after due hearing, removal of directors and/or

officers and/or agents.
A plain reading of the above-quoted provisions show that the
Insurance Commissioner has the authority to regulate the business
of insurance, which is defined as follows:
(2) The term "doing an insurance business" or
"transacting an insurance business," within the
meaning
of
this
Code,
shall
include
(a) making or proposing to make, as insurer, any
insurance
contract;
(b) making, or proposing to make, as surety, any
contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or
activity of the surety; (c) doing any kind of business,
including a reinsurance business, specifically
recognized as constituting the doing of an insurance
business within the meaning of this Code; (d) doing
or proposing to do any business in substance
equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
(Insurance Code, Sec. 2[2]; Emphasis supplied).
Since the contract of agency entered into between Philamlife and its
agents is not included within the meaning of an insurance business,
Section 2 of the Insurance Code cannot be invoked to give
jurisdiction over the same to the Insurance Commissioner. Expressio
unius est exclusio alterius.
With regard to private respondent's contention that the quasi-judicial
power of the Insurance Commissioner under Section 416 of the
Insurance Code applies in his case, we likewise rule in the negative.
Section 416 of the Code in pertinent part, provides:

The Commissioner shall have the power to

adjudicate claims and complaints involving any loss,
damage or liability for which an insurer may be
answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable
under a contract of suretyship, or for which a
reinsurer may be used under any contract or
reinsurance it may have entered into, or for which a
mutual benefit association may be held liable under
the membership certificates it has issued to its
members, where the amount of any such loss,
damage or liability, excluding interest, costs and
attorney's fees, being claimed or sued upon any kind
of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any
single claim one hundred thousand pesos.
A reading of the said section shows that the quasi-judicial power of
the Insurance Commissioner is limited by law "to claims and
complaints involving any loss, damage or liability for which an insurer
may be answerable under any kind of policy or contract of insurance,
. . ." Hence, this power does not cover the relationship affecting the
insurance company and its agents but is limited to adjudicating
claims and complaints filed by the insured against the insurance
company.
While the subject of Insurance Agents and Brokers is discussed
under Chapter IV, Title I of the Insurance Code, the provisions of said
Chapter speak only of the licensing requirements and limitations
imposed on insurance agents and brokers.
The Insurance Code does not have provisions governing the
relations between insurance companies and their agents. It follows
that the Insurance Commissioner cannot, in the exercise of its quasi-

judicial powers, assume jurisdiction over controversies between the

insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance
Corporation v. Judico, 180 SCRA 445 (1989), and Investment
Planning Corporation of the Philippines v. Social Security
Commission, 21 SCRA 904 (1962), that an insurance company may
have two classes of agents who sell its insurance policies: (1)
salaried employees who keep definite hours and work under the
control and supervision of the company; and (2) registered
representatives, who work on commission basis.
Under the first category, the relationship between the insurance
company and its agents is governed by the Contract of Employment
and the provisions of the Labor Code, while under the second
category, the same is governed by the Contract of Agency and the
provisions of the Civil Code on the Agency. Disputes involving the
latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated
November 6, 1986 of the Insurance Commission is SET ASIDE.
SO ORDERED.

P11,745.73, representing the face value of the policy in the

amount of P5,882.00 plus the additional benefits for
accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969,
minus the unpaid premiums and interest thereon due for
January and February, 1969, in the sum of P36.27.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD.,
plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law
wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of
death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was
issued by The Life Assurance Co., Ltd., Policy No. 009929 on
a whole-life for P5,882.00 with a, rider for Accidental Death
for the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her
as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a
result of an t when he was hit by a failing branch of a tree.
As the policy was in force, The Insular Life Assurance Co.,
Ltd. liable to pay the coverage in the total amount of

Carponia T. Ebrado filed with the insurer a claim for the

proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura
C. Ebrado were merely living as husband and wife without
the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of
the deceased insured. She asserts that she is the one
entitled to the insurance proceeds, not the common-law
wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid,
the insurer, The Insular Life Assurance Co., Ltd. commenced
an action for Interpleader before the Court of First Instance
of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was
held on July 8, 1972, after which, a pre-trial order was
entered reading as follows: +.wph!1
During the pre-trial conference, the parties
manifested to the court. that there is no
possibility of amicable settlement. Hence, the
Court proceeded to have the parties submit
their evidence for the purpose of the pre-trial
and make admissions for the purpose of
pretrial. During this conference, parties

Carponia T. Ebrado and Pascuala Ebrado

agreed and stipulated: 1) that the deceased
Buenaventura Ebrado was married to
Pascuala Ebrado with whom she has six
(legitimate) namely; Hernando, Cresencio,
Elsa, Erlinda, Felizardo and Helen, all
surnamed Ebrado; 2) that during the lifetime
of the deceased, he was insured with Insular
Life Assurance Co. Under Policy No. 009929
whole life plan, dated September 1, 1968 for
the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by
Exhibits A for plaintiffs and Exhibit 1 for the
defendant Pascuala and Exhibit 7 for Carponia
Ebrado; 3) that during the lifetime of
Buenaventura Ebrado, he was living with his
common-wife, Carponia Ebrado, with whom
she had 2 children although he was not
legally separated from his legal wife; 4) that
Buenaventura in accident on October 21,
1969 as evidenced by the death Exhibit 3 and
affidavit of the police report of his death
Exhibit 5; 5) that complainant Carponia
Ebrado filed claim with the Insular Life
Assurance Co. which was contested by
Pascuala Ebrado who also filed claim for the
proceeds of said policy 6) that in view ofthe
adverse claims the insurance company filed
this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is
now due from the Insular Life Assurance Co.
as proceeds of the policy P11,745.73; 8) that
the beneficiary designated by the insured in
the policy is Carponia Ebrado and the insured
made reservation to change the beneficiary

but although the insured made the option to

change the beneficiary, same was never
changed up to the time of his death and the
wife did not have any opportunity to write the
company that there was reservation to
change the designation of the parties agreed
that a decision be rendered based on and
stipulation of facts as to who among the two
claimants is entitled to the policy.
Upon motion of the parties, they are given ten
(10) days to file their simultaneous
memoranda from the receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment
declaring among others, Carponia T. Ebrado disqualified
from becoming beneficiary of the insured Buenaventura
Cristor Ebrado and directing the payment of the insurance
proceeds to the estate of the deceased insured. The trial
court held: +.wph!1
It is patent from the last paragraph of Art. 739
of the Civil Code that a criminal conviction for
adultery or concubinage is not essential in
order
to
establish
the
disqualification
mentioned therein. Neither is it also
necessary that a finding of such guilt or
commission of those acts be made in a
separate independent action brought for the
purpose. The guilt of the donee (beneficiary)
may be proved by preponderance of evidence

in the same proceeding (the action brought to

declare the nullity of the donation).
It is, however, essential that such adultery or
concubinage exists at the time defendant
Carponia T. Ebrado was made beneficiary in
the policy in question for the disqualification
and incapacity to exist and that it is only
necessary that such fact be established by
preponderance of evidence in the trial. Since
it is agreed in their stipulation above-quoted
that the deceased insured and defendant
Carponia T. Ebrado were living together as
husband and wife without being legally
married and that the marriage of the insured
with the other defendant Pascuala Vda. de
Ebrado was valid and still existing at the time
the insurance in question was purchased
there is no question that defendant Carponia
T. Ebrado is disqualified from becoming the
beneficiary of the policy in question and as
such she is not entitled to the proceeds of the
insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the
Court of Appeals, but on July 11, 1976, the Appellate Court
certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as
amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly
resolutory of the prime question at hand. Section 50 of the

Insurance Act which provides that "(t)he insurance shag be

applied exclusively to the proper interest of the person in
whose name it is made" 1 cannot be validly seized upon to
hold that the mm includes the beneficiary. The word
"interest" highly suggests that the provision refers only to
the "insured" and not to the beneficiary, since a contract of
insurance is personal in character. 2 Otherwise, the
prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the
same could easily be circumvented by modes of insurance.
Rather, the general rules of civil law should be applied to
resolve this void in the Insurance Law. Article 2011 of the
New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided
for in such special laws shall be regulated by this Code."
When not otherwise specifically provided for by the
Insurance Law, the contract of life insurance is governed by
the general rules of the civil law regulating contracts. 3 And
under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739
cannot be named beneficiary of a fife insurance policy by
the person who cannot make a donation to him. 4 Commonlaw spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides:
+.wph!1
The following donations shall be void:
1. Those made between persons who were
guilty of adultery or concubinage at the time
of donation;
Those made between persons found guilty of
the same criminal offense, in consideration
thereof;

3. Those made to a public officer or his wife,

descendants or ascendants by reason of his
office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the
spouse of the donor or donee; and the guilt of
the donee may be proved by preponderance
of evidence in the same action.
2. In essence, a life insurance policy is no different from a
civil donation insofar as the beneficiary is concerned. Both
are founded upon the same consideration: liberality. A
beneficiary is like a donee, because from the premiums of
the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said
insurance. As a consequence, the proscription in Article 739
of the new Civil Code should equally operate in life
insurance contracts. The mandate of Article 2012 cannot be
laid aside: any person who cannot receive a donation cannot
be named as beneficiary in the life insurance policy of the
person who cannot make the donation. 5 Under American
law, a policy of life insurance is considered as a testament
and in construing it, the courts will, so far as possible treat it
as a will and determine the effect of a clause designating
the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly
justify the institution of a barrier between common law
spouses in record to Property relations since such hip
ultimately encroaches upon the nuptial and filial rights of
the legitimate family There is every reason to hold that the
bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life
insurance policies since the same are based on similar

consideration As above pointed out, a beneficiary in a fife

insurance policy is no different from a donee. Both are
recipients of pure beneficence. So long as manage remains
the threshold of family laws, reason and morality dictate
that the impediments imposed upon married couple should
likewise be imposed upon extra-marital relationship. If
legitimate relationship is circumscribed by these legal
disabilities, with more reason should an illicit relationship be
restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: +.
wph!1
If the policy of the law is, in the language of
the opinion of the then Justice J.B.L. Reyes of
that court (Court of Appeals), 'to prohibit
donations in favor of the other consort and his
descendants because of and undue and
improper pressure and influence upon the
donor, a prejudice deeply rooted in our
ancient law;" por-que no se enganen
desponjandose el uno al otro por amor que
han de consuno' (According to) the Partidas
(Part IV, Tit. XI, LAW IV), reiterating the
rationale
'No
Mutuato
amore
invicem
spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is
very reason to apply the same prohibitive
policy to persons living together as husband
and wife without the benefit of nuptials. For it
is not to be doubted that assent to such
irregular connection for thirty years bespeaks
greater influence of one party over the other,
so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as
already pointed out by Ulpian (in his lib. 32 ad

Sabinum, fr. 1), 'it would not be just that such

donations should subsist, lest the condition 6f
those who incurred guilt should turn out to be
better.' So long as marriage remains the
cornerstone of our family law, reason and
morality alike demand that the disabilities
attached to marriage should likewise attach to
concubinage.
It is hardly necessary to add that even in the
absence of the above pronouncement, any
other conclusion cannot stand the test of
scrutiny. It would be to indict the frame of the
Civil Code for a failure to apply a laudable rule
to a situation which in its essentials cannot be
distinguished. Moreover, if it is at all to be
differentiated the policy of the law which
embodies a deeply rooted notion of what is
just and what is right would be nullified if such
irregular relationship instead of being visited
with disabilities would be attended with
benefits. Certainly a legal norm should not be
susceptible to such a reproach. If there is
every any occasion where the principle of
statutory construction that what is within the
spirit of the law is as much a part of it as what
is written, this is it. Otherwise the basic
purpose discernible in such codal provision
would not be attained. Whatever omission
may be apparent in an interpretation purely
literal of the language used must be remedied
by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or
concubinage is exacted before the disabilities mentioned in

Article 739 may effectuate. More specifically, with record to

the disability on "persons who were guilty of adultery or
concubinage at the time of the donation," Article 739 itself
provides: +.wph!1
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the
spouse of the donor or donee; and the guilty
of
the
donee
may
be
proved
by
preponderance of evidence in the same
action.
The underscored clause neatly conveys that no criminal
conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a
prosecution is needed. On the contrary, the law plainly
states that the guilt of the party may be proved "in the
same acting for declaration of nullity of donation. And, it
would be sufficient if evidence preponderates upon the guilt
of the consort for the offense indicated. The quantum of
proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law
relationship between the insured and the beneficiary has
been conveniently supplied by the stipulations between the
parties in the pre-trial conference of the case. It case agreed
upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado
with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his commonlaw wife, Carponia Ebrado, with whom he has two children.
These stipulations are nothing less than judicial admissions
which, as a consequence, no longer require proof and
cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without

going through the rigors of a trial for the sole purpose of

proving the illicit liaison between the insured and the
beneficiary. In fact, in that pretrial, the parties even agreed
"that a decision be rendered based on this agreement and
stipulation of facts as to who among the two claimants is
entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is
hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura
C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate
of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
G.R.No.181132June5,2009
HEIRSOFLORETOC.MARAMAG,representedbysurvivingspouse
VICENTA PANGILINAN MARAMAG,
Petitioners,

vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA
ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION,Respondents.
DECISION
NACHURA,J.:
This is a petition1 for review on certiorari under Rule 45 of the Rules,
seekingtoreverseandsetasidetheResolution 2datedJanuary8,2008ofthe

CourtofAppeals(CA),inCAG.R.CVNo.85948,dismissingpetitioners
appealforlackofjurisdiction.
Thecasestemsfromapetition3filedagainstrespondentswiththeRegional
Trial Court, Branch 29, for revocation and/or reduction of insurance
proceeds for being void and/or inofficious, with prayer for a temporary
restrainingorder(TRO)andawritofpreliminaryinjunction.
The petition alleged that: (1) petitioners were the legitimate wife and
children of Loreto Maramag (Loreto), while respondents were Loretos
illegitimatefamily;(2)EvadeGuzmanMaramag(Eva)wasaconcubineof
Loretoandasuspectinthekillingofthelatter,thus,sheisdisqualifiedto
receive any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance
Corporation(Grepalife);5 (3)theillegitimatechildrenofLoretoOdessa,
Karl Brian, and Trisha Angeliewere entitled only to onehalf of the
legitimeofthelegitimatechildren,thus,theproceedsreleasedtoOdessa
andthosetobereleasedtoKarlBrianandTrishaAngeliewereinofficious
andshouldbereduced;and(4)petitionerscouldnotbedeprivedoftheir
legitimes,whichshouldbesatisfiedfirst.
In support of the prayer for TRO and writ of preliminary injunction,
petitionersalleged,amongothers,thatpartoftheinsuranceproceedshad
alreadybeenreleasedinfavorofOdessa,whiletherestoftheproceedsare
tobereleasedinfavorofKarlBrianandTrishaAngelie,bothminors,upon
theappointmentoftheirlegalguardian.Petitionersalsoprayedforthetotal
amountofP320,000.00asactuallitigationexpensesandattorneysfees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his
legitimatewifeandOdessa,KarlBrian,andTrishaAngelieashislegitimate
children,andthattheyfiledtheirclaimsfortheinsuranceproceedsofthe
insurancepolicies;thatwhenitascertainedthatEvawasnotthelegalwife
of Loreto, it disqualified her as a beneficiary and divided the proceeds

amongOdessa,KarlBrian,andTrishaAngelie,astheremainingdesignated
beneficiaries;andthatitreleasedOdessasshareasshewasofage,but
withheldthereleaseofthesharesofminorsKarlBrianandTrishaAngelie
pending submission of letters of guardianship. Insular alleged that the
complaintorpetitionfailedtostateacauseofactioninsofarasitsoughtto
declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to
declareasinofficiousthesharesofOdessa,KarlBrian,andTrishaAngelie,
consideringthatnosettlementofLoretosestatehadbeenfilednorhadthe
respectivesharesoftheheirsbeendetermined.Insularfurtherclaimedthat
itwasboundtohonortheinsurancepoliciesdesignatingthechildrenof
LoretowithEvaasbeneficiariespursuanttoSection53oftheInsurance
Code.
Initsownanswer7 withcompulsorycounterclaim,Grepalifeallegedthat
Evawasnotdesignatedasaninsurancepolicybeneficiary;thattheclaims
filedbyOdessa,KarlBrian,andTrishaAngelieweredeniedbecauseLoreto
wasineligibleforinsuranceduetoamisrepresentationinhisapplication
formthathewasbornonDecember10,1936and,thus,notmorethan65
yearsoldwhenhesigneditinSeptember2001;thatthecasewaspremature,
therebeingnoclaimfiledbythelegitimatefamilyofLoreto;andthatthe
law on succession does not apply where the designation of insurance
beneficiariesisclear.
AsthewhereaboutsofEva,Odessa,KarlBrian,andTrishaAngeliewere
notknowntopetitioners,summonsbypublicationwasresortedto.Still,the
illegitimatefamilyof Loretofailedtofile their answer.Hence, the trial
court, upon motion of petitioners, declared them in default in its Order
datedMay7,2004.

DuringthepretrialonJuly28,2004,bothInsularandGrepalifemovedthat
theissuesraisedintheirrespectiveanswersberesolvedfirst.Thetrialcourt
orderedpetitionerstocommentwithin15days.
Intheircomment,petitionersallegedthattheissueraisedbyInsularand
Grepalifewaspurelylegalwhetherthecomplaintitselfwasproperornot
and that the designation of a beneficiary is an act of liberality or a
donationand,therefore,subjecttotheprovisionsofArticles752 8and7729
oftheCivilCode.
Inreply,bothInsularandGrepalifecounteredthattheinsuranceproceeds
belongexclusivelytothedesignatedbeneficiariesinthepolicies,nottothe
estateortotheheirsoftheinsured.Grepalifealsoreiteratedthatithad
disqualifiedEvaasabeneficiarywhenitascertainedthatLoretowaslegally
marriedtoVicentaPangilinanMaramag.
OnSeptember21,2004,thetrialcourtissuedaResolution,thedispositive
portionofwhichreads
WHEREFORE, the motion to dismiss incorporated in the answer of
defendantsInsularLifeandGrepalifeisgrantedwithrespecttodefendants
Odessa, Karl Brian and Trisha Maramag. The actionshall proceed with
respect totheotherdefendantsEvaVernadeGuzman,InsularLifeand
Grepalife.
SOORDERED.10
Insoruling,thetrialcourtratiocinatedthus
Art. 2011 of the Civil Code provides that the contract of insurance is
governedbythe(sic)speciallaws.Mattersnotexpresslyprovidedforin
suchspeciallawsshallberegulatedbythisCode.Theprincipallawon
insuranceistheInsuranceCode,asamended.Onlyincaseofdeficiencyin

theInsuranceCodethattheCivilCodemayberesortedto.(Enriquezv.Sun
LifeAssuranceCo.,41Phil.269.)

isthedoctrineinAmerica.Webelievethatthesamedoctrineobtainsin
theseIslandsbyvirtueofSection428oftheCodeofCommercexxx."

TheInsuranceCode,asamended,containsaprovisionregardingtowhom
theinsuranceproceedsshallbepaid.ItisveryclearunderSec.53thereof
that the insurance proceeds shall be applied exclusively to the proper
interestofthepersoninwhosenameorforwhosebenefititismade,unless
otherwisespecifiedinthepolicy.Sincethedefendantsaretheonesnamed
astheprimarybeneficiary(sic)intheinsurances(sic)takenbythedeceased
LoretoC.Maramagandthereisnoshowingthathereinplaintiffswerealso
included as beneficiary (sic) therein the insurance proceeds shall
exclusivelybepaidtothem.Thisisbecausethebeneficiaryhasavested
righttotheindemnity,unlesstheinsuredreservestherighttochangethe
beneficiary.(Greciov.SunlifeAssuranceCo.ofCanada,48Phil.[sic]63).

In[the]lightoftheabovepronouncements,itisveryclearthattheplaintiffs
has(sic)nosufficientcauseofactionagainstdefendantsOdessa,KarlBrian
and Trisha Angelie Maramag for the reduction and/or declaration of
inofficiousnessofdonationasprimarybeneficiary(sic)intheinsurances
(sic)ofthelateLoretoC.Maramag.

Neithercouldtheplaintiffsinvoked(sic)thelawondonationsortherules
ontestamentarysuccessioninordertodefeattherightofhereindefendants
to collect the insurance indemnity. The beneficiary in a contract of
insurance isnot thedoneespoken inthe lawofdonation. Therules on
testamentary succession cannot apply here, for the insurance indemnity
doesnotpartakeofadonation.Assuch,theinsuranceindemnitycannotbe
considered as an advance of the inheritance which can be subject to
collation(DelValv.DelVal,29Phil.534).InthecaseofSouthernLuzon
EmployeesAssociationv.JuanitaGolpeo,etal.,theHonorableSupreme
Courtmadethefollowingpronouncements[:]
"WiththefindingofthetrialcourtthattheproceedstotheLifeInsurance
Policybelongsexclusivelytothedefendantashisindividualandseparate
property, we agree that the proceeds of an insurance policy belong
exclusivelytothebeneficiaryandnottotheestateofthepersonwhoselife
wasinsured,andthatsuchproceedsaretheseparateandindividualproperty
ofthebeneficiaryandnotoftheheirsofthepersonwhoselifewasinsured,

However,hereinplaintiffsarenottotallybereftofanycauseofaction.One
of the named beneficiary (sic) in the insurances (sic) taken by the late
LoretoC.MaramagishisconcubineEvaVernaDeGuzman.Anyperson
whoisforbiddenfromreceivinganydonationunderArticle739cannotbe
namedbeneficiaryofalifeinsurancepolicyofthepersonwhocannotmake
anydonationtohim,accordingtosaidarticle(Art.2012,CivilCode).Ifa
concubineismadethebeneficiary,itisbelievedthattheinsurancecontract
willstillremainvalid,buttheindemnitymustgotothelegalheirsandnot
totheconcubine,forevidently,whatisprohibitedunderArt.2012isthe
naming of the improper beneficiary. In such case, the action for the
declarationofnullitymaybebroughtbythespouseofthedonorordonee,
andtheguiltofthedonoranddoneemaybeprovedbypreponderanceof
evidenceinthesameaction(CommentofEdgardoL.Paras,CivilCodeof
thePhilippines,page897).SincethedesignationofdefendantEvaVernade
Guzmanasoneoftheprimarybeneficiary(sic)intheinsurances(sic)taken
bythelateLoretoC.MaramagisvoidunderArt.739oftheCivilCode,the
insuranceindemnitythatshouldbepaidtohermustgotothelegalheirsof
thedeceasedwhichthiscourtmayproperlytakecognizanceastheaction
forthedeclarationforthenullityofavoiddonationfallswithinthegeneral
jurisdictionofthisCourt.11
Insular12 andGrepalife13 filedtheirrespectivemotionsforreconsideration,
arguing, in the main, that the petition failed to state a cause of action.
Insular further averred that the proceeds were divided among the three

childrenastheremainingnamedbeneficiaries.Grepalife,foritspart,also
allegedthatthepremiumspaidhadalreadybeenrefunded.
Petitioners,intheircomment,reiteratedtheirearlierargumentsandposited
thatwhetherthecomplaintmaybedismissedforfailuretostateacauseof
action must be determined solely on the basis of the allegations in the
complaint,suchthatthedefensesofInsularandGrepalifewouldbebetter
threshedoutduringtrial.1avvphi1
OnJune16,2005,thetrialcourtissuedaResolution,disposing,asfollows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for
ReconsiderationfiledbydefendantsGrepalifeandInsularLifearehereby
GRANTED.Accordingly,theportionoftheResolutionofthisCourtdated
21 September 2004 which ordered the prosecution of the case against
defendantEvaVernaDeGuzman,GrepalifeandInsularLifeisherebySET
ASIDE,andthecaseagainstthemisherebyorderedDISMISSED.
SOORDERED.14
IngrantingthemotionsforreconsiderationofInsularandGrepalife,the
trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a
beneficiaryintheotherpolicysuchthattheentireproceedswouldbepaid
totheillegitimatechildrenofLoretowithEvapursuanttoSection53ofthe
Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is
disqualified,thattheproceedsshouldbepaidtotheestateoftheinsured.As
totheclaimthattheproceedstobepaidtoLoretosillegitimatechildren
shouldbereducedbasedontherulesonlegitime,thetrialcourtheldthatthe
distribution of the insurance proceeds is governed primarily by the
InsuranceCode,andtheprovisionsoftheCivil Codeareirrelevant and
inapplicable.WithrespecttotheGrepalifepolicy,thetrialcourtnotedthat

Evawasneverdesignatedasabeneficiary,butonlyOdessa,KarlBrian,and
TrishaAngelie;thus,itupheldthedismissalofthecaseastotheillegitimate
children.ItfurtherheldthatthematterofLoretosmisrepresentationwas
premature;theappropriateactionmaybefiledonlyupondenialoftheclaim
ofthenamedbeneficiariesfortheinsuranceproceedsbyGrepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it
dismissedtheappealforlackofjurisdiction,holdingthatthedecisionofthe
trialcourtdismissingthecomplaintforfailuretostateacauseofaction
involved a pure question of law. The appellate court also noted that
petitioners did not file within the reglementary period a motion for
reconsiderationofthetrialcourtsResolution,datedSeptember21,2004,
dismissingthecomplaintasagainstOdessa,KarlBrian,andTrishaAngelie;
thus,thesaidResolutionhadalreadyattainedfinality.
Hence,thispetitionraisingthefollowingissues:
a.Indeterminingthemeritsofamotiontodismissforfailureto
stateacauseofaction,maytheCourtconsidermatterswhichwere
notallegedintheComplaint,particularlythedefensesputupby
thedefendantsintheirAnswer?
b.Ingrantingamotionforreconsiderationofamotiontodismiss
forfailuretostateacauseofaction,didnottheRegionalTrial
Courtengageintheexaminationanddeterminationofwhatwere
thefactsandtheirprobativevalue,orthetruththereof,whenit
premisedthedismissal onallegationsof the defendantsintheir
answerwhichhadnotbeenproven?
c.xxx(A)rethemembersofthelegitimatefamilyentitledtothe
proceedsoftheinsurancefortheconcubine?15

Inessence,petitionerspositthattheirpetitionbeforethetrialcourtshould
nothavebeendismissedforfailuretostateacauseofactionbecausethe
findingthatEvawaseitherdisqualifiedasabeneficiarybytheinsurance
companiesorthatherdesignationwasrevokedbyLoreto,hypothetically
admitted as true, was raised only in the answers and motions for
reconsiderationofbothInsularandGrepalife.Theyarguethatforamotion
todismisstoprosperonthatground,onlytheallegationsinthecomplaint
should be considered. They further contend that, even assuming Insular
disqualifiedEvaasabeneficiary,hershareshouldnothavebeendistributed
to her children with Loreto but, instead, awarded to them, being the
legitimate heirs of the insured deceased, in accordance with law and
jurisprudence.

thecomplaintbecomesvulnerabletoamotiontodismissonthegroundof
failuretostateacauseofaction.17
Whenamotiontodismissispremisedonthisground,therulingthereon
shouldbebasedonlyonthefactsallegedinthecomplaint.Thecourtmust
resolvetheissueonthestrengthofsuchallegations,assumingthemtobe
true. The test of sufficiency of a cause of action rests on whether,
hypotheticallyadmittingthefactsallegedinthecomplainttobetrue,the
courtcanrenderavalidjudgmentuponthesame,inaccordancewiththe
prayerinthecomplaint.Thisisthegeneralrule.
However,thisruleissubjecttowellrecognizedexceptions,suchthatthere
isnohypotheticaladmissionoftheveracityoftheallegationsif:

Thepetitionshouldbedenied.
1.thefalsityoftheallegationsissubjecttojudicialnotice;
Thegrantofthemotiontodismisswasbasedonthetrialcourtsfinding
thatthepetitionfailedtostateacauseofaction,asprovidedinRule16,
Section1(g),oftheRulesofCourt,whichreads

2.suchallegationsarelegallyimpossible;
3.theallegationsrefertofactswhichareinadmissibleinevidence;

SECTION1.Grounds.Withinthetimeforbutbeforefilingtheanswerto
thecomplaintorpleadingassertingaclaim,amotiontodismissmaybe
madeonanyofthefollowinggrounds:
xxxx
(g)Thatthepleadingassertingtheclaimstatesnocauseofaction.
Acauseofactionistheactoromissionbywhichapartyviolatesarightof
another.16Acomplaintstatesacauseofactionwhenitcontainsthethree(3)
elementsofacauseofaction(1)thelegalrightoftheplaintiff;(2)the
correlativeobligationofthedefendant;and(3)theactoromissionofthe
defendantinviolationofthelegalright.Ifanyoftheseelementsisabsent,

4.bytherecordordocumentinthepleading,theallegationsappear
unfounded;or
5. there is evidence which has been presented to the court by
stipulationofthepartiesorinthecourseofthehearingsrelatedto
thecase.18
Inthiscase,itisclearfromthepetitionfiledbeforethetrialcourtthat,
althoughpetitionersarethelegitimateheirsofLoreto,theywerenotnamed
asbeneficiariesintheinsurancepoliciesissuedbyInsularandGrepalife.
ThebasisofpetitionersclaimisthatEva,beingaconcubineofLoretoand
asuspectinhismurder,isdisqualifiedfrombeingdesignatedasbeneficiary
of the insurance policies, and that Evas children with Loreto, being

illegitimatechildren,areentitledtoalessershareoftheproceedsofthe
policies. They also argued that pursuant to Section 12 of the Insurance
Code,19 Evasshareintheproceedsshouldbeforfeitedintheirfavor,the
formerhavingbroughtaboutthedeathofLoreto.Thus,theyprayedthatthe
shareofEvaandportionsofthesharesofLoretosillegitimatechildren
shouldbeawardedtothem,beingthelegitimateheirsofLoretoentitledto
theirrespectivelegitimes.
Itisevidentfromthefaceofthecomplaintthatpetitionersarenotentitled
toafavorablejudgmentinlightofArticle2011oftheCivilCodewhich
expressly provides that insurance contracts shall be governed byspecial
laws,i.e.,theInsuranceCode.Section53oftheInsuranceCodestates
SECTION53.Theinsuranceproceedsshallbeappliedexclusivelytothe
properinterestofthepersoninwhosenameorforwhosebenefititismade
unlessotherwisespecifiedinthepolicy.
Pursuantthereto,itisobviousthattheonlypersonsentitledtoclaimthe
insuranceproceedsareeithertheinsured,ifstillalive;orthebeneficiary,if
theinsuredisalreadydeceased,uponthematurationofthepolicy. 20 The
exception to this rule is a situation where the insurance contract was
intendedtobenefitthirdpersonswhoarenotpartiestothesameintheform
offavorablestipulationsorindemnity.Insuchacase,thirdpartiesmay
directlysueandclaimfromtheinsurer.21
Petitioners are third parties to the insurance contracts with Insular and
Grepalifeand,thus,arenotentitledtotheproceedsthereof.Accordingly,
respondentsInsularandGrepalifehavenolegalobligationtoturnoverthe
insuranceproceedstopetitioners.TherevocationofEvaasabeneficiaryin
onepolicyandherdisqualificationassuchinanotherareofnomoment
consideringthatthedesignationoftheillegitimatechildrenasbeneficiaries
inLoretosinsurancepoliciesremainsvalid.Becausenolegalproscription
existsinnamingasbeneficiariesthechildrenofillicitrelationshipsbythe

insured,22thesharesofEvaintheinsuranceproceeds,whetherforfeitedby
thecourtinviewoftheprohibitionondonationsunderArticle739ofthe
CivilCodeorbytheinsurersthemselvesforreasonsbasedontheinsurance
contracts,mustbeawardedtothesaidillegitimatechildren,thedesignated
beneficiaries,totheexclusionofpetitioners.Itisonlyincaseswherethe
insured has not designated any beneficiary,23 or when the designated
beneficiary is disqualified by law to receive the proceeds, 24 that the
insurancepolicyproceedsshallredoundtothebenefitoftheestateofthe
insured.
Inthisregard,theassailedJune16,2005Resolutionofthetrialcourtshould
beupheld.Inthesamelight,theDecisionoftheCAdatedJanuary8,2008
shouldbesustained.Indeed,theappellatecourthadnojurisdictiontotake
cognizanceoftheappeal;theissueoffailuretostateacauseofactionisa
questionoflawandnotoffact,therebeingnofindingsoffactinthefirst
place.25
WHEREFORE,thepetitionisDENIEDforlackofmerit.Costsagainst
petitioners.

G.R.No.23703September28,1925
HILARIO

GERCIO,
plaintiffappellee,

vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUNLIFEASSURANCEOFCANADA,appellant.
Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.
VicenteRomualdez,FeriaandLaOandP.J.Sevillaforappellee.
MALCOLM,J.:
The question of first impression inthe law of life insurance to be here
decidediswhethertheinsuredthehusbandhasthepowertochange
thebeneficiarytheformerwifeandtonameinsteadhisactualwife,
wheretheinsuredandthebeneficiaryhavebeendivorcedandwherethe
policyofinsurancedoesnotexpresslyreservetotheinsuredtherightto
changethebeneficiary.Althoughtheauthoritieshavebeenexhausted,no
legalsituationexactlyliketheonebeforeushasbeenencountered.
HilarioGercio,theinsured,istheplaintiff.TheSunLifeAssuranceCo.of
Canada, the insurer, and Andrea Zialcita, the beneficiary, are the
defendants.Thecomplaintisinthenatureofmandamus.Itspurposeisto
compel the defendant SunLife Assurance Co.of Canada tochange the
beneficiaryinthepolicyissuedbythedefendantcompanyonthelifeofthe
plaintiffHilarioGercio,withoneAndreaZialcitaasbeneficiary.

A default judgment was taken in the lower court against the defendant
Andrea Zialcita. The other defendant, the Sun Life Assurance Co. of
Canada, first demurred to the complaint and when the demurrer was
overruled,filedananswerinthenatureofageneraldenial.Thecasewas
thensubmittedfordecisiononanagreedstatementoffacts.Thejudgment
ofthetrialcourtwasinfavoroftheplaintiffwithoutcosts,andorderedthe
defendant company to eliminate from the insurance policy the name of
AndreaZialcitaasbeneficiaryandtosubstitutethereforsuchnameasthe
plaintiffmightfurnishtothedefendantforthatpurpose.
TheSunLifeAssuranceCo.ofCanadahasappealedandhasassignedthree
errorsallegedtohavebeencommittedbythelowercourt.Theappelleehas
counteredwithamotionwhichasksthecourttodismisstheappealofthe
defendantSunLifeAssuranceCo.ofCanada,withcosts.
Asthemotionpresentedbytheappelleeandthefirsttwoerrorsassignedby
theappellantarepreliminaryinnature,wewillpassuponthefirst.Appellee
arguesthatthe"substantialdefendant"wasAndreaZialcita,andthatsince
shewasadjudgedindefault,theSunLifeAssuranceCo.ofCanadahasno
interestintheappeal.Itwillbenoticed,however,thatthecomplaintprays
for affirmative relief against the insurance company. It will be noticed
further that it is stipulated that the insurance company has persistently
refusedtochangethebeneficiaryasdesiredbytheplaintiff.Astherightsof
AndreaZialcitainthepolicyarerightswhichareenforceablebyheronly
againsttheinsurancecompany,thedefendantinsurancecompanywillonly
be fully protected if the question at issue is conclusively determined.
Accordingly,wehavedecidednottoaccedetothemotionoftheappellee
andnottoorderthedismissaloftheappealoftheappellant.
This brings us to the main issue. Before, however, discussing its legal
aspects,itisadvisabletohavebeforeustheessentialfacts.Astheyare
stipulated,thispartofthedecisioncaneasilybeaccomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued
insurancepolicyNo.161481onthelifeofHilarioGercio.Thepolicywas
what is known as a twentyyear endowment policy. By its terms, the
insurancecompanyagreedtoinsurethelifeofHilarioGercioforthesumof
P/2,000,tobepaidhimonFebruary1,1930,oriftheinsuredshoulddie
beforesaiddate,thentohiswife,Mrs.AndreaZialcita,shouldshesurvive
him;otherwisetotheexecutors,administrators,orassignsoftheinsured.
Thepolicyalsocontainedascheduleofreserves,amountsincash,paidup
policies,andrenewedinsurance,guaranteed.Thepolicydidnotincludeany
provisionreservingtotheinsuredtherighttochangethebeneficiary.
Onthedatethepolicywasissued,AndreaZialcitawasthelawfulwifeof
HilarioGercio.Towardstheendoftheyear1919,shewasconvictedofthe
crimeofadultery.OnSeptember4,1920,adecreeofdivorcewasissuedin
civil case no. 17955, which had the effect of completely dissolving the
bondsofmatrimonycontractedbyHilarioGercioandAndreaZialcita.
OnMarch4,1922,HilarioGercioformallynotifiedtheSunLifeAssurance
Co.ofCanadathathehadrevokedhisdonationinfavorofAndreaZialcita,
andthathehaddesignatedinhersteadhispresentwife,AdelaGarciade
Gercio, as the beneficiary of the policy. Gercio requested the insurance
companytoeliminateAndreaZialcitaasbeneficiary.This,theinsurance
companyhasrefusedandstillrefusestodo.
With all of these introductory matters disposed of and with the legal
questiontotheforefront,itbecomesourfirstdutytodeterminewhatlaw
shouldbeappliedtothefacts.Inthisconnection,itshouldberemembered
thattheinsurancepolicywastakenoutin1910,thattheInsuranceAct.No.
2427,becameeffectivein1914,andthattheefforttochangethebeneficiary
wasmadein1922.ShouldtheprovisionsoftheCodeofCommerceandthe
CivilCodeinforcein1910,ortheprovisionsoftheInsuranceActnowin
force,orthegeneralprinciplesoflaw,guidethecourtinitsdecision?

Onthesupposition,first,thattheCodeofCommerceisapplicable,yetthere
canbefoundinitnoprovisioneitherpermittingorprohibitingtheinsured
tochangethebeneficiary.
Onthesupposition,next,thattheCivilCoderegulatesinsurancecontracts,
itwouldbemostdifficult,ifindeeditispracticable,totestalifeinsurance
policy by its provisions. Should the insurance contract, whereby the
husbandnamesthewifeasthebeneficiary,bedenominatedadonationinter
vivos,adonationcausamortis,acontractinfavorofathirdperson,oran
aleatorycontract?Thesubjectisfurthercomplicatedbythefactthatifan
insurancecontractshouldbeconsideredadonation,ahusbandmaythen
neverinsurehislifeinfavorofhiswifeandviceversa,inasmuchasarticle
1334 prohibits all donations between spouses during marriage. It would
seem,therefore,thatthiscourtwasrightwheninthecaseofDelValvs.Del
Val ([1915]), 29Phil., 534), it declined to consider the proceeds of the
insurancepolicyasadonationorgift,saying"thecontractoflifeinsurance
is a special contract and the destination of the proceeds thereof is
determinedbyspeciallawswhichdealexclusivelywiththatsubject.The
CivilCodehasnoprovisionswhichrelatedirectlyandspecificallytolife
insurancecontractsortothedestinationoflifeinsuranceproceeds...."
Some satisfaction is gathered from the perplexities of the Louisiana
SupremeCourt,acivillawjurisdiction,wherethejuristshavedisagreedas
to the classification of the insurance contract, but have agreed in their
conclusions as will hereafter see. (Re Succession of Leone Desforges
[1914], 52 L.R.A. [N.S.], 689; Lambert vs Penn Mutual Life Insurance
CompanyofPhiladelphiaandL'Hote&Co.[1898],50La.Ann.,1027.)
OnthefurthersuppositionthattheInsuranceActapplies,itwillbefound
that in this Law, there is likewise no provision either permitting or
prohibitingtheinsuredtochangethebeneficiary.
Wemustperforceconcludethatwhetherthecasebeconsideredasof1910,
or1914,or1922,andwhetherthecasebeconsideredinthelightofthe

CodeofCommerce,theCivilCode,ortheInsuranceAct,thedeficienciesin
thelawwillhavetobesupplementedbythegeneralprinciplesprevailingon
thesubject.Tothatend,wehavegatheredtheruleswhichfollowfromthe
bestconsideredAmericanauthorities.Inadoptingtheserules,wedosowith
thepurposeofhavingthePhilippineLawofInsuranceconformasnearlyas
possible tothe modern Law of Insurance as found inthe United States
proper.
Thewifehasaninsurableinterestinthelifeofherhusband.Thebeneficiary
hasanabsolutevestedinterestinthepolicyfromthedateofitsissuanceand
delivery.Sowhenapolicyoflifeinsuranceistakenoutbythehusbandin
whichthewifeisnamedasbeneficiary,shehasasubsistinginterestinthe
policy.Andthisappliestoapolicytowhichthereareattachedtheincidents
ofaloanvalue,cashsurrendervalue,anautomaticextensionbypremiums
paid,andtoanendowmentpolicy,aswellastoanordinarylifeinsurance
policy.Ifthehusbandwishestoretaintohimselfthecontrolandownership
ofthepolicyhemaysoprovideinthepolicy.Butifthepolicycontainsno
provision authorizing a change of beneficiary without the beneficiary's
consent,theinsuredcannotmakesuchchange.Accordingly,itisheldthata
lifeinsurancepolicyofahusbandmadepayabletothewifeasbeneficiary,
istheseparatepropertyofthebeneficiaryandbeyondthecontrolofthe
husband.
Astotheeffectproducedbythedivorce,thePhilippineDivorceLaw,Act
No. 2710,merely provides insection 9 that the decree of divorce shall
dissolve thecommunity property as soonas such decree becomes final.
Unlike the statutes of a few jurisdictions, there is no provision in the
PhilippineLawpermittingthebeneficiaryinapolicyforthebenefitofthe
wifeofthehusbandtobechangedafteradivorce.Itmustfollow,therefore,
intheabsenceofastatutetothecontrary,thatifapolicyistakenoutupona
husband'slifethewifeisnamedasbeneficiarytherein,asubsequentdivorce
doesnotdestroyherrightsunderthepolicy.

Thesearesomeof thepertinent principlesof the Law ofInsurance. To

reinforcethem,wewould,evenattheexpenseofcloggingthedecisionwith
unnecessarycitationofauthority,bringtonoticecertaindecisionswhich
seemtoustohavecontrollinginfluence.
Tobeginwith,itissaidthatourInsuranceActismostlytakenfromthe
statuteofCalifornia.Itshouldproveofinterest,therefore,toknowthestand
takenbytheSupremeCourtofthatState.ACaliforniadecisionoftcitedin
theCyclopediasisYorevs.Booth([1895]),110Cal.,238;52Am.St.Rep.,
81),inwhichwefindthefollowing:
...Itseemstobethesettleddoctrine,withbutslightdissentinthe
courtsofthiscountry,thatapersonwhoprocuresapolicyuponhis
ownlife,payabletoadesignatedbeneficiary,althoughhepaysthe
premiums himself, and keeps the policy in his exclusive
possession, has no power to change the beneficiary, unless the
policyitself,orthecharteroftheinsurancecompany,soprovides.
Inpolicy,althoughhehaspartedwithnothing,andissimplythe
objectofanother'sbounty,hasacquiredavestedandirrevocable
interestinthepolicy,whichhemaykeepaliveforhisownbenefit
bypayingthepremiumsorassessmentsifthepersonwhoeffected
theinsurancefailsorrefusestodoso.
As carrying great weight, there should also be taken into account two
decisionscomingfromtheSupremeCourtoftheUnitedStates.Thefirstof
these decisions, in point of time, is Connecticut Mutual Life Insurance
CompanyvsSchaefer([1877]),94U.S.,457).There,Mr.JusticeBradley,
deliveringtheopinionofthecourt,inpartsaid:
Thiswasanactiononapolicyofthecourt,inpartsaid:July25,
1868,onthejointlivesofGeorgeF.andFranciscaSchaefer,then
husbandandwife,payabletothesurvivoronthedeathofeither.In
January,1870,theyweredivorced,andalimonywasdecreedand

paidtothewife,andtherewasneveranyissueofthemarriage.
Theybothsubsequentlymarriedagain,afterwhich,inFebruary,
1871, George F. Schaefer died. This action was brought by
Francisca,thesurvivor.
xxxxxxxxx
The other point, relating to the alleged cessation of insurable
interestbyreasonofthedivorceoftheparties,isentitledtomore
serious consideration, although we have very little difficulty in
disposingofit.
Itwillbeproper,inthefirstplace,toascertainwhatisaninsurable
interest.It isgenerallyagreedthat merewagerpolicies,that is,
policiesinwhichtheinsuredpartyhasnointerestinitslossor
destruction,arevoid,asagainstpublicpolicy....Butprecisely
what interest is necessary, in order to take a policy out of the
categoryofmerewager,hasbeenthesubjectofmuchdiscussion.
Inmarineandfireinsurancethedifficultyisnotsogreat,because
thereinsuranceisconsideredasstrictlyanindemnity.Butinlife
insurancethelosscanseldombemeasuredbypecuniaryvalues.
Still,aninterestofsomesortintheinsuredlifemustexist.Aman
cannottakeoutinsuranceonthelifeofatotalstranger,noronthat
of one who is not so connected with him as to make the
continuanceofthelifeamatterofsomerealinteresttohim.
Itiswellsettledthatamanhasaninsurableinterestinhisownlife
andinthatofhiswifeandchildren;awomaninthelifeofher
husband;andthecreditorinthelifeofhisdebtor.Indeeditmaybe
saidgenerallythatanyreasonableexpectationofpecuniarybenefit
or advantage from the continued life of another creates an
insurableinterestinsuchlife.Andthereisnodoubtthataman
mayeffectaninsuranceonhisownlifeforthebenefitofarelative

orfried;ortwoormorepersons,ontheirjointlives,forthebenefit
of the survivor or survivors. The old tontines were based
substantiallyonthisprinciple,andtheirvalidityhasneverbeen
calledinquestion.
xxxxxxxxx
Thepolicyinquestionmight,inouropinion,besustainedasa
jointinsurance,withoutreferencetoanyotherinterest,ortothe
questionwhetherthecessationofinterestavoidsapolicygoodat
itsinception.Wedonothesitatetosay,however,that apolicy
takenoutingoodfaithandvalidatitsinception,isnotavoidedby
thecessationoftheinsurableinterest,unlesssuchbethenecessary
effectoftheprovisionsofthepolicyitself....
....Inourjudgmentoflifepolicy,originallyvalid,doesnotcease
tobesobythecessationoftheassuredparty'sinterestinthelife
insured.
AnothercontrollingdecisionoftheUnitedStatesSupremeCourtisthatof
theCentralNationalBankofWashingtonCityvs.Hume([1888],128U.S.,
134).Therein,Mr.ChiefJusticeFuller,astheorganofthecourt,announced
thefollowingdoctrines:
Wethinkitcannotbedoubtedthatintheinstanceofcontractsof
insurancewithawifeorchildren,orboth,upontheirinsurable
interestinthelifeofthehusbandorfather,thelatter,whilethey
are living, can exercise no power of disposition over the same
withouttheirconsent,norhasheanyinterestthereinofwhichhe
can avail himself; nor upon his death have his personal
representativesorhiscreditorsanyinterestintheproceedsofsuch
contracts, which belong to the beneficiaries to whom they are
payable.

Itisindeedthegeneralrulethatapolicy,andthemoneytobecome
due under it, belong, the moment it is issued, to the person or
personsnamedinitasthebeneficiaryorbeneficiaries,andthat
thereisnopowerinthepersonprocuringtheinsurance,byanyact
of his, by deed or by will, to transfer to any other person the
interestofthepersonnamed.
Ajurisdictionwhichfounditselfinsomewhat thesamesituationasthe
Philippines, because of having to reconcile the civil law with the more
modernprinciplesofinsurance,isLouisiana.Inacasecomingbeforethe
FederalCourts,InreDreuil&Co.([1915]),221Fed.,796),thefactswere
thatanendowmentinsurancepolicyprovidedforpaymentoftheamount
thereofattheexpirationoftwentyyearstotheinsured,orhisexecutors,
administrators,orassigns,withtheprovisothat,iftheinsureddiewithin
suchperiod,paymentwastobemadetohiswifeifshesurvivehim.Itwas
heldthatthewifehasavestedinterestinthepolicy,ofwhichshecannotbe
deprivedwithoutherconsent.Foster,DistrictJudge,announced:
In so far as the law of Louisiana is concerned, it may also be
consideredsettledthatwhereapolicyisofthesemitontinevariety,
asinthiscase,thebeneficiaryhasavestedrightinthepolicy,of
whichshecannotbedeprivedwithoutherconsent.(Lambertvs
PennMutualLifeIns.Co.,50La.Ann.,1027;24South.,16.)(See
insameconnectionaleadingdecisionoftheLouisianaSupreme
Court, Re Succession of Leonce Desforges, [1914], 52 L.R.A.
[N.S.],689.)
Some questionhas arisen as to the power of the insured to destroy the
vestedinterestofthebeneficiaryinthepolicy.Thatpointiswellcoveredin
thecaseofEntwistlevs.TravelersInsuranceCompany([1902],202Pa.St.,
141).Toquote:

. . . The interest of the wife was wholly contingent upon her

survivingherhusband,andshecouldconveynogreaterinterestin
thepolicythansheherselfhad.Theinterestofthechildrenofthe
insured, which was created for them by the contract when the
policywasissued;vestedinthematthesametimethattheinterest
ofthewifebecamevestedinher.Bothinterestswerecontingent.If
thewifediebeforetheinsured,shewilltakenothingunderthe
policy.Iftheinsuredshoulddiebeforethewife,thenthechildren
takenothingunderthepolicy.Weseenoreasontodiscriminate
betweenthewifeandthechildren.Theyareallpayees,underthe
policy,andtogetherconstitutetheassured.
Thecontingencywhichwill determinewhetherthewife,orthe
childrenasaclasswilltaketheproceeds,hasnotasyethappened;
allthebeneficiariesareliving,andnothinghasoccurredbywhich
therightsofthepartiesareinanywaychanged.Theprovisionthat
thepolicymaybeconvertedintocashattheoptionoftheholder
doesnotchangetherelativerightsoftheparties.Weagreeentirely
with the suggestion that "holder" or "holders", as used in this
connection,meansthosewhoinlawaretheownersofthepolicy,
andareentitledtotherightsandbenefitswhichmayaccrueunder
it;inotherwords,allthebeneficiaries;inthepresentcase,notonly
thewife,bythechildrenoftheinsured.Ifforanyreason,prudence
requiredtheconversionofthepolicyintocash,aguardianwould
havenospecialdifficultyinreasonableprotectingtheinterestof
hiswards.Buthoweverthatmaybe,itismanifestthattheoption
canonlybeexercisedbythosehavingthefulllegalinterestinthe
policy,orbytheirassignee.Neitherthehusband,northewife,nor
both together had power to destroy the vested interest of the
childreninthepolicy.
ThecasemostnearlyonallfourswiththeoneatbaristhatofWallacevs
MutualBenefitLifeInsuranceCo.([1906],97Minn.,27;3L.R.A.[N.S.],

478).Theopiniontheredeliveredalsoinvokesaddedinterestwhenitis
noted that it was written byMr. Justice Elliott, the author of a text on
insurance,lateramemberofthiscourt.IntheMinnesotacasecited,one
Wallaceeffecteda "twentyyearendowment" policy ofinsuranceonhis
life,payableintheevent ofhisdeathwithintwentyyearstoEmmaG.
Wallace,hiswife,but,ifhelived,tohimselfattheendoftwentyyears.If
Wallace died before the death of his wife, within the twenty years, the
policywaspayabletothepersonalrepresentativesoftheinsured.During
thependencyofdivorceproceedings,thepartiessignedacontractbywhich
Wallaceagreedthat,ifadivorcewasgrantedtoMrs.Wallace,thecourt
mightawardhercertainspecifiedpropertyasalimony,andMrs.Wallace
agreedtorelinquishallclaimtoanypropertyarisingoutoftherelationof
husband and wife. The divorce was granted. An action was brought by
WallacetocompelMrs.Wallacetorelinquishherinterestintheinsurance
policy.Mr.JusticeElliottsaid:
AssoonasthepolicywasissuedMrs.Wallaceacquiredavested
interesttherein,ofwhichshecouldnotbedeprivedwithouther
consent,exceptunderthetermsofthecontractwiththeinsurance
company.Norighttochangethebeneficiarywasreserved.Her
interestinthepolicywasherindividual property,subject tobe
divestedonlybyherdeath,thelapseoftime,orbythefailureof
theinsuredtopaythepremiums.Shecouldkeepthepolicyalive
by paying the premiums, if the insured did not do so. It was
contingentupontheseevents,butitwasfreefromthecontrolof
her husband. He had no interest in her property in this policy,
contingentorotherwise.Herinterestwasfreefromanyclaimon
thepartoftheinsuredorhiscreditors.Hecoulddepriveherofher
interest absolutely in but one way, by living more than twenty
years.Weareunabletoseehowtheplaintiff'sinterestinthepolicy
wasprimaryorsuperiortothatofthehusband.Bothinterestswere
contingent,buttheywereentirelyseparateanddistinct,theone
fromtheother.Thewife'sinterestwasnotaffectedbythedecree

ofcourtwhichdissolvedthemarriagecontractbetweentheparties.
Itremainsherseparateproperty,afterthedivorceasbefore...
....Thefactthatshewashiswifeatthetimethepolicywas
issuedmayhavebeen,andundoubtedlywas,thereasonwhyshe
was named as beneficiary in the event of his death. But her
propertyinterestinthepolicyafteritwasissueddidnotinany
reasonablesenseariseoutofthemarriagerelation.
SomewhatthesamequestioncamebeforetheSupremeCourtofKansasin
theleadingcaseofFilleyvs.IllinoisLifeInsuranceCompany([1914]),91
Kansas,220;L.R.A.[1915D],130).Itwasheld,followingconsideration
extendingtotwomotionsforrehearing,asfollows:
Thebenefitaccruingfromapolicyoflifeinsuranceuponthelife
ofamarriedman,payableuponhisdeathtohiswife,namingher,
ispayabletothesurvivingbeneficiarynamed,althoughshemay
haveyearsthereaftersecuredadivorcefromherhusband,andhe
wasthereafteragainmarriedtoonewhosustainedtherelationof
wifetohimatthetimeofhisdeath.
The rights of a beneficiary in an ordinary life insurance policy
becomevestedupontheissuanceofthepolicy,andcanthereafter,
duringthelifeofthebeneficiary,bedefeatedonlyasprovidedby
thetermsofthepolicy.
Ifspacepermitted,thefollowingcorroborativeauthoritycouldalsobetaken
intoaccount:Joyce,TheLawofInsurance,secondedition,vol.2,pp.1649
etseq.;37CorpusJuris,pp.394etseq.;14R.C.L.,pp.1376etseq.;Green
vs.Green([1912],147Ky.,608;39L.R.A.[N.S.],370);WashingtonLife
Insurance Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs. Miller
([1907]),137Ill.,App.,278);Blumvs.NewYorkL.Ins.Co.([1906],197
Mo., 513; 8 L.R.A. [N.S.], 923; Union Central Life Ins. Co. vs. Buxer

([1900],62OhioSt.,385;49L.R.A.,737);Griffithvs.NewYorkLifeIns.
Co.([1894],101Cal.,627;40Am.St.Rep.,96);Prestonvs.Conn.Mut.L.
Ins.Co.ofHartford ([1902]);95Md.,101); Snydervs.SupremeRulerof
FraternalMysticCircle ([1909],122Tenn.248;45L.R.A.[N.S.],209);
Lloydvs.RoyalUnionMut.L.Ins.Co.([1917],245Fed.,162); Phoenix
Mut.L.Ins.Co.vs.Dunham ([1878], 46Conn.,79; 33Am.Rep.,14);
McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep., 129);
SupremeCouncilAmericanLegionofHonorvs.SmithandSmith([1889],
45N.J.Eq.,466);Overhiservs.Overhiser([1900],63OhioSt.,77;81Am.
St.Rep.,612;50L.R.A.,552); Condonvs.NewYorkLifeInsuranceCo.
([1918],183Iowa,658);withwhichcompare Fostervs.Gile ([1880],50
Wis.,603)andHatchvs.Hatch([1904],35Tex.Civ.App.,373).
Ontheadmittedfactsandtheauthoritiessupportingthenearlyuniversally
acceptedprinciplesofinsurance,weareirresistiblyledtotheconclusion
thatthequestionatissuemustbeansweredinthenegative.
Thejudgmentappealedfromwillbereversedandthecomplaintordered
dismissedastotheappellant,withoutspecialpronouncementastothecosts
ineitherinstance.Soordered.

G.R.No.147839June8,2006
GAISANO

CAGAYAN,

INC.
Petitioner,
vs.
INSURANCECOMPANYOFNORTHAMERICA,Respondent.

DECISION
AUSTRIAMARTINEZ,J.:
BeforetheCourtisapetitionforreviewoncertiorarioftheDecision 1dated
October11,2000oftheCourtofAppeals(CA)inCAG.R.CVNo.61848
whichsetasidetheDecisiondatedAugust31,1998oftheRegionalTrial
Court,Branch138,Makati(RTC)inCivilCaseNo.92322andupheldthe
causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA
Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
Thefactualbackgroundofthecaseisasfollows:
IntercapitolMarketingCorporation(IMC)isthemakerofWranglerBlue
Jeans.LeviStrauss(Phils.)Inc.(LSPI)isthelocaldistributorofproducts
bearingtrademarksownedbyLeviStrauss&Co..IMCandLSPIseparately
obtained from respondent fire insurance policies with book debt
endorsements.Theinsurancepoliciesprovideforcoverageon"bookdebts
inconnectionwithreadymadeclothingmaterialswhichhavebeensoldor
deliveredtovariouscustomersanddealersoftheInsuredanywhereinthe
Philippines."2 Thepoliciesdefinedbookdebtsasthe"unpaidaccountstill
appearingintheBookofAccountoftheInsured45daysafterthetimeof
the loss covered under this Policy." 3 The policies also provide for the
followingconditions:

1.WarrantedthattheCompanyshallnotbeliableforanyunpaid
accountinrespectofthemerchandisesoldanddeliveredbythe
Insuredwhichareoutstandingatthedateoflossforaperiodin
excessofsix(6)monthsfromthedateofthecoveringinvoiceor
actualdeliveryofthemerchandisewhichevershallfirstoccur.
2.WarrantedthattheInsuredshallsubmittotheCompanywithin
twelve (12) days after the close of every calendar month all
amount shown in their books of accounts as unpaid and thus
becomereceivableitemfromtheircustomersanddealers.xxx4
xxxx
PetitionerisacustomeranddealeroftheproductsofIMCandLSPI.On
February25,1991,theGaisanoSuperstoreComplexinCagayandeOro
City,ownedbypetitioner,wasconsumedbyfire.Includedintheitemslost
ordestroyedinthefirewerestocksofreadymadeclothingmaterialssold
anddeliveredbyIMCandLSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner.ItallegesthatIMCandLSPIfiledwithrespondenttheirclaims
undertheirrespectivefireinsurancepolicieswithbookdebtendorsements;
thatasofFebruary25,1991,theunpaidaccountsofpetitioneronthesale
anddeliveryofreadymadeclothingmaterialswithIMCwasP2,119,205.00
whilewithLSPIitwas P535,613.00;thatrespondent paidtheclaimsof
IMCandLSPIand,byvirtuethereof,respondentwassubrogatedtotheir
rightsagainstpetitioner;thatrespondentmadeseveraldemandsforpayment
uponpetitionerbutthesewentunheeded.5
InitsAnswerwithCounterClaimdatedJuly4,1995,petitionercontends
that it could not be held liable because the property covered by the
insurancepoliciesweredestroyedduetofortuitieseventorforcemajeure;
thatrespondent'srightofsubrogationhasnobasisinasmuchastherewasno

breachofcontractcommittedbyitsincethelosswasduetofirewhichit
couldnotpreventorforesee;thatIMCandLSPInevercommunicatedtoit
thattheyinsuredtheirproperties;thatitneverconsentedtopayingtheclaim
oftheinsured.6

2.theamountofP535,613.00representingtheamountpaidbythe
plaintiffappellanttotheinsuredLeviStraussPhil.,Inc.,pluslegal
interestfromthetimeofdemanduntilfullypaid.
Withcostsagainstthedefendantappellee.

At the pretrial conference the parties failed to arrive at an amicable

settlement.7Thus,trialonthemeritsensued.
OnAugust31,1998,theRTCrendereditsdecisiondismissingrespondent's
complaint.8Itheldthatthefirewaspurelyaccidental;thatthecauseofthe
firewasnotattributabletothenegligenceofthepetitioner;thatithasnot
beenestablishedthatpetitioneristhedebtorofIMCandLSPI;thatsince
thesalesinvoicesstatethat"itisfurtheragreedthatmerelyforpurposeof
securingthepaymentofpurchaseprice,theabovedescribedmerchandise
remainsthepropertyofthevendoruntilthepurchasepriceisfullypaid",
IMCandLSPIretainedownershipofthedeliveredgoodsandmustbearthe
loss.
Dissatisfied,petitionerappealedtotheCA.9OnOctober11,2000,theCA
rendereditsdecisionsettingasidethedecisionoftheRTC.Thedispositive
portionofthedecisionreads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSEDandSETASIDEandanewoneisenteredorderingdefendant
appelleeGaisanoCagayan,Inc.topay:
1.theamountof P2,119,205.60representingtheamountpaidby
the plaintiffappellant to the insured Inter Capitol Marketing
Corporation,pluslegalinterestfromthetimeofdemanduntilfully
paid;

SOORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statementsofthenature,quantityandcostofthethingsold;thatlossofthe
goodsinthefiremustbebornebypetitionersincetheprovisocontainedin
thesalesinvoicesisanexceptionunderArticle1504(1)oftheCivilCode,
tothegeneralrulethatifthethingislostbyafortuitousevent,theriskis
bornebytheownerofthethingatthetimethelossundertheprincipleof
resperitdomino;thatpetitioner'sobligationtoIMCandLSPIisnotthe
deliveryofthelostgoodsbutthepaymentofitsunpaidaccountandassuch
theobligationtopayisnotextinguished,evenifthefireisconsidereda
fortuitousevent;thatbysubrogation,theinsurerhastherighttogoagainst
petitioner;that,beingafireinsurancewithbookdebtendorsements,what
wasinsuredwasthevendor'sinterestasacreditor.11
Petitionerfiledamotionforreconsideration 12butitwasdeniedbytheCA
initsResolutiondatedApril11,2001.13
Hence, the present petition for review on certiorari anchored on the
followingAssignmentofErrors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCEINTHEINSTANTCASEWASONEOVERCREDIT.
THECOURTOFAPPEALSERREDINHOLDINGTHATALLRISK
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD
TRANSFERREDTOPETITIONERUPONDELIVERYTHEREOF.

THECOURTOFAPPEALSERREDINHOLDINGTHATTHEREWAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL
CODEINFAVOROFRESPONDENT.14
Anentthefirsterror,petitionercontendsthattheinsuranceinthepresent
casecannot be deemed tobe over credit sinceaninsurance "oncredit"
beliesnotonlythenatureoffireinsurancebuttheexpresstermsofthe
policies;thatitwasnotcreditthatwasinsuredsincerespondentpaidonthe
occasionofthelossoftheinsuredgoodstofireandnotbecauseofthenon
payment by petitioner of any obligation; that, even if the insurance is
deemedasoneovercredit,therewasnolossastheaccountswerenotyet
duesincenopriordemandsweremadebyIMCandLSPIagainstpetitioner
forpaymentofthedebtandsuchdemandscamefromrespondentonlyafter
ithadalreadypaidIMCandLSPIunderthefireinsurancepolicies.15
Astotheseconderror,petitioneraversthatdespitedeliveryofthegoods,
petitionerbuyerIMCandLSPIassumedtheriskoflosswhentheysecured
fireinsurancepoliciesoverthegoods.
Concerningthethirdground,petitionersubmitsthatthereisnosubrogation
infavorofrespondentasnovalidinsurancecouldbemaintainedthereonby
IMCandLSPIsinceallriskhadtransferredtopetitionerupondeliveryof
thegoods; that petitionerwasnot privytotheinsurancecontract orthe
paymentbetweenrespondentanditsinsurednorwasitsconsentorapproval
eversecured;thatthislackofprivityforeclosesanyrealinterestonthepart
ofrespondentintheobligationtopay,limitingitsinteresttokeepingthe
insuredgoodssafefromfire.
Foritspart,respondentcountersthatwhileownershipoverthereadymade
clothing materials was transferred upon delivery to petitioner, IMC and
LSPI have insurable interest over said goods as creditors who stand to
sufferdirectpecuniarylossfromitsdestructionbyfire;thatpetitioneris
liable for loss of the readymade clothing materials since it failed to

overcome the presumption of liability under Article 1265 16 of the Civil

Code;thatthefirewascausedthroughpetitioner'snegligenceinfailingto
providestringentmeasuresofcaution,careandmaintenanceonitsproperty
becauseelectricwiresdonotusuallyshortcircuitunlesstherearedefectsin
their installation or when there is lack of proper maintenance and
supervisionoftheproperty;thatpetitionerisguiltyofgrossandevidentbad
faithinrefusingtopayrespondent'svalidclaimandshouldbeliableto
respondent for contracted lawyer's fees, litigation expenses and cost of
suit.17
Asageneralrule,inpetitionsforreview,thejurisdictionofthisCourtin
casesbroughtbeforeitfromtheCAislimitedtoreviewingquestionsoflaw
which involves no examination of the probative value of the evidence
presentedbythelitigantsoranyofthem. 18TheSupremeCourtisnotatrier
offacts;itisnotitsfunctiontoanalyzeorweighevidencealloveragain. 19
Accordingly,findingsoffactoftheappellatecourtaregenerallyconclusive
ontheSupremeCourt.20
Nevertheless, jurisprudence has recognized several exceptions in which
factualissuesmayberesolvedbythisCourt,suchas:(1)whenthefindings
aregroundedentirelyonspeculation,surmisesorconjectures;(2)whenthe
inferencemadeismanifestlymistaken,absurdorimpossible;(3)whenthere
is grave abuse of discretion; (4) when the judgment is based on a
misapprehensionoffacts;(5)whenthefindingsoffactsareconflicting;(6)
wheninmakingitsfindingstheCAwentbeyondtheissuesofthecase,or
itsfindingsarecontrarytotheadmissionsofboththeappellantandthe
appellee;(7)whenthefindingsarecontrarytothetrialcourt;(8)whenthe
findingsareconclusionswithoutcitationofspecificevidenceonwhichthey
are based; (9) when the factsset forth inthe petitionas well as inthe
petitioner'smainandreplybriefsarenotdisputedbytherespondent;(10)
whenthefindingsoffactarepremisedonthesupposedabsenceofevidence
and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties,

which, if properly considered, would justify a different conclusion. 21

Exceptions(4),(5),(7),and(11)applytothepresentpetition.

purchasepricetheabovedescribedmerchandiseremainsthepropertyofthe
vendoruntilthepurchasepricethereofisfullypaid."26

At issue is the proper interpretation of the questioned insurance policy.

PetitionerclaimsthattheCAerredinconstruingafireinsurancepolicyon
bookdebtsasonecoveringtheunpaidaccountsofIMCandLSPIsince
suchinsuranceappliestolossofthereadymadeclothingmaterialssoldand
deliveredtopetitioner.

TheCourtisnotpersuaded.

TheCourtdisagreeswithpetitioner'sstand.
Itiswellsettledthatwhenthewordsofacontractareplainandreadily
understood,thereisnoroomforconstruction. 22Inthiscase,thequestioned
insurance policies provide coverage for "book debts in connection with
readymadeclothingmaterialswhichhavebeensoldordeliveredtovarious
customersanddealersoftheInsuredanywhereinthePhilippines." 23;and
definedbookdebtsasthe"unpaidaccountstillappearingintheBookof
AccountoftheInsured45daysafterthetimeofthelosscoveredunderthis
Policy."24Nowhereisitprovidedinthequestionedinsurancepoliciesthat
thesubjectoftheinsuranceisthegoodssoldanddeliveredtothecustomers
anddealersoftheinsured.
Indeed,whenthetermsoftheagreementareclearandexplicitthattheydo
notjustifyanattempttoreadintoitanyallegedintentionoftheparties,the
termsaretobeunderstoodliterallyjustastheyappearonthefaceofthe
contract.25Thus,whatwereinsuredagainstweretheaccountsofIMCand
LSPIwithpetitionerwhichremainedunpaid45daysafterthelossthrough
fire,andnotthelossordestructionofthegoodsdelivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reservedownershipofthegoodsbystipulatinginthesalesinvoicesthat
"[i]tisfurtheragreedthatmerelyforpurposeofsecuringthepaymentofthe

Thepresentcaseclearlyfallsunderparagraph(1),Article1504oftheCivil
Code:
ART.1504.Unlessotherwiseagreed,thegoodsremainattheseller'srisk
until the ownership therein is transferred to the buyer, but when the
ownershipthereinistransferredtothebuyerthegoodsareatthebuyer'srisk
whetheractualdeliveryhasbeenmadeornot,exceptthat:
(1)Wheredeliveryofthegoodshasbeenmadetothebuyerortoabailee
forthebuyer,inpursuanceofthecontractandtheownershipinthegoods
hasbeenretainedbythesellermerelytosecureperformancebythebuyerof
hisobligationsunderthecontract,thegoodsareatthebuyer'sriskfromthe
timeofsuchdelivery;(Emphasissupplied)
xxxx
Thus,whenthesellerretainsownershiponlytoinsurethatthebuyerwill
payitsdebt,theriskoflossisbornebythebuyer.27Accordingly,petitioner
bearstheriskoflossofthegoodsdelivered.
IMCandLSPIdidnotlosecompleteinterestoverthegoods.Theyhavean
insurableinterestuntilfullpaymentofthevalueofthedeliveredgoods.
Unlikethecivillawconceptofresperitdomino,whereownershipisthe
basisforconsiderationofwhobearstheriskofloss,inpropertyinsurance,
one'sinterestisnotdeterminedbyconceptoftitle,butwhetherinsuredhas
substantialeconomicinterestintheproperty.28

Section 13 of our Insurance Code defines insurable interest as "every

interestinproperty,whetherreal orpersonal,oranyrelationthereto,or
liabilityinrespectthereof,ofsuchnaturethatacontemplatedperilmight
directlydamnifytheinsured."Parenthetically,underSection14ofthesame
Code, an insurable interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the
expectancyarises.
Therefore,aninsurableinterestinpropertydoesnotnecessarilyimplya
propertyinterestin,oralienupon,orpossessionof,thesubjectmatterof
theinsurance,andneitherthetitlenorabeneficialinterestisrequisitetothe
existenceofsuchaninterest,itissufficientthattheinsuredissosituated
withreferencetothepropertythathewouldbeliabletolossshoulditbe
injuredordestroyedbytheperilagainstwhichitisinsured. 29Anyonehasan
insurableinterestinpropertywhoderivesabenefitfromitsexistenceor
wouldsufferlossfromitsdestruction.30Indeed,avendororsellerretainsan
insurableinterestinthepropertysoldsolongashehasanyinteresttherein,
inotherwords,solongashewouldsufferbyitsdestruction,aswherehe
hasavendor'slien.31 Inthiscase,theinsurableinterestofIMCandLSPI
pertaintotheunpaidaccountsappearingintheirBooksofAccount45days
afterthetimeofthelosscoveredbythepolicies.

consistsinthepaymentofmoney,thefailureofthedebtortomakethe
paymentevenbyreasonofafortuitouseventshallnotrelievehimofhis
liability.33 Therationaleforthisisthattherulethatanobligorshouldbe
heldexemptfromliabilitywhenthelossoccursthruafortuitouseventonly
holdstrue whentheobligationconsistsinthedelivery ofa determinate
thingandthereisnostipulationholdinghimliableevenincaseoffortuitous
event.Itdoesnotapplywhentheobligationispecuniaryinnature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a
genericthing,thelossordestructionofanythingofthesamekinddoesnot
extinguishtheobligation."Iftheobligationisgenericinthesensethatthe
object thereof is designated merely by its class or genus without any
particulardesignationorphysicalsegregationfromallothersofthesame
class,thelossordestructionofanythingofthesamekindevenwithoutthe
debtor'sfaultandbeforehehasincurredindelaywillnothavetheeffectof
extinguishingtheobligation.35 Thisruleisbasedontheprinciplethatthe
genusofathingcanneverperish.Genusnunquanperit. 36Anobligationto
paymoneyisgeneric;therefore,itisnotexcusedbyfortuitouslossofany
specificpropertyofthedebtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are
mattersimmaterialtothiscase.Whatisrelevanthereiswhetherithasbeen
establishedthatpetitionerhasoutstandingaccountswithIMCandLSPI.

Thenextquestionis:Ispetitionerliablefortheunpaidaccounts?
Petitioner'sargument that it isnotliablebecausethefireisafortuitous
eventunderArticle117432oftheCivilCodeismisplaced.Asheldearlier,
petitionerbearsthelossunderArticle1504(1)oftheCivilCode.
Moreover,itmustbestressedthattheinsuranceinthiscaseisnotforlossof
goodsbyfirebutforpetitioner'saccountswithIMCandLSPIthatremained
unpaid45daysafterthefire.Accordingly,petitioner'sobligationisforthe
payment ofmoney.AscorrectlystatedbytheCA,wheretheobligation

WithrespecttoIMC,therespondenthasadequatelyestablisheditsclaim.
Exhibits"C"to"C22"38 showthatpetitionerhasanoutstandingaccount
with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check
voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation
receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified,
presented and marked as exhibits in court. The subrogation receipt, by
itself,issufficienttoestablishnotonlytherelationshipofrespondentas
insurer and IMC as the insured, but also the amount paid to settle the

insuranceclaim.Therightofsubrogationaccruessimplyuponpaymentby
theinsurancecompanyoftheinsuranceclaim.41Respondent'sactionagainst
petitionerissquarelysanctionedbyArticle2207oftheCivilCodewhich
provides:

Nopronouncementastocosts.
SOORDERED.

Art.2207.Iftheplaintiff'spropertyhasbeeninsured,andhehasreceived
indemnityfromtheinsurancecompanyfortheinjuryorlossarisingoutof
thewrongorbreachofcontractcomplainedof,theinsurancecompanyshall
be subrogated to the rights of the insured against the wrongdoer or the
personwhohasviolatedthecontract.xxx
Petitionerfailedtorefuterespondent'sevidence.
AstoLSPI,respondent failedtopresentsufficientevidencetoproveits
causeofaction.NoevidentiaryweightcanbegiventoExhibit"F Levi
Strauss",42aletterdatedApril23,1991frompetitioner'sGeneralManager,
StephenS.Gaisano,Jr.,sinceitisnotanadmissionofpetitioner'sunpaid
account with LSPI. It only confirms the loss of Levi's products in the
amount of P535,613.00 in the fire that razed petitioner's building on
February25,1991.
Moreover,thereisnoproofoffull settlement oftheinsuranceclaim of
LSPI;nosubrogationreceipt wasofferedinevidence.Thus,thereisno
evidencethatrespondenthasbeensubrogatedtoanyrightwhichLSPImay
haveagainstpetitioner.Failuretosubstantiatetheclaimofsubrogationis
fataltopetitioner'scaseforrecoveryoftheamountofP535,613.00.
WHEREFORE,thepetitionispartly GRANTED.TheassailedDecision
datedOctober11,2000andResolutiondatedApril11,2001oftheCourtof
Appeals in CAG.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of P535,613.00 to
respondentisDELETEDforlackoffactualbasis.

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION,
petitioner,
vs.
THE
COURT
OF
APPEALS,
AMERICAN
HOME
ASSURANCE
CO.,
represented
by
American
International Underwriters (Phils.), Inc., respondent.

BELLOSILLO, J.:
This case involves a purely legal question: whether payment
by installment of the premiums due on an insurance policy
invalidates the contract of insurance, in view of Sec. 77 of
P.D. 612, otherwise known as the Insurance Code, as
amended, which provides:
Sec. 77. An insurer is entitled to the payment
of the premium as soon as the thing is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid and
binding unless and until the premium thereof
has been paid, except in the case of a life or
an industrial life policy whenever the grace
period provision applies.
Sometime in early 1982, private respondent American Home
Assurance
Co.
(AHAC),
represented
by
American
International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the
latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium
of P466,103.05. The premium was paid on installments on
12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private
respondent.
On 10 February 1983, private respondent issued to
petitioner Insurance Policy No. AH-CPP-9210596, which
replaced and renewed the previous policy, for a term

covering 1 March 1983 to 1 March 1984. The premium in the

amount of P466,103.05 was again paid on installments on
13 April 1983, 13 July 1983, 3 August 1983, 9 September
1983, and 21 November 1983. All payments were likewise
accepted by private respondent.
On 20 January 1984, the policy was again renewed and
private respondent issued to petitioner Insurance Policy No.
AH-CPP-9210651 for the period 1 March 1984 to 1 March
1985. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent,
the first on 6 February 1984 for P52,000.00 and the second,
on 6 June 1984 for P100,000.00. Thereafter, petitioner
refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover
the unpaid balance of P314,103.05 for Insurance Policy No.
AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the
issuance of Insurance Policy No. AH-CPP-9210651. It
explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor
and the receipts for the installment payments covering the
policy for 1984-85, as well as the two (2) previous policies,
stated the following reservations:
2. Acceptance of this payment shall not waive
any of the company rights to deny liability on
any claim under the policy arising before such
payments or after the expiration of the credit
clause of the policy; and

3. Subject to no loss prior to premium

payment. If there be any loss such is not
covered.

of the term of said policy on March 1, 1985.

Therefore, the defendant was justified in
refusing to pay the same. 1

Petitioner further claimed that the policy was never binding

and valid, and no risk attached to the policy. It then pleaded
a counterclaim for P152,000.00 for the premiums already
paid for 1984-85, and in its answer with amended
counterclaim,
sought
the
refund
of
P924,206.10
representing the premium payments for 1982-85.

Both parties appealed from the judgment of the trial court.

Thereafter, the Court of Appeals rendered a decision 2
modifying that of the trial court by ordering herein petitioner
to pay the balance of the premiums due on Policy No. AHCPP-921-651, or P314,103.05 plus legal interest until fully
paid, and affirming the denial of the counterclaim. The
appellate court thus explained

After some incidents, petitioner and private respondent

moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint
and the counterclaim upon the following findings:
While it is true that the receipts issued to the
defendant contained the aforementioned
reservations, it is equally true that payment of
the premiums of the three aforementioned
policies (being sought to be refunded) were
made during the lifetime or term of said
policies, hence, it could not be said, inspite of
the reservations, that no risk attached under
the
policies.
Consequently,
defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance
Policy No. AH-CPP-9210651, in view of the
reservation in the receipts ordinarily issued by
the plaintiff on premium payments the only
plausible conclusion is that plaintiff has no
right to demand their payment after the lapse

The obligation to pay premiums when due is

ordinarily as indivisible obligation to pay the
entire premium. Here, the parties herein
agreed to make the premiums payable in
installments, and there is no pretense that the
parties never envisioned to make the
insurance contract binding between them. It
was renewed for two succeeding years, the
second
and
third
policies
being
a
renewal/replacement for the previous one.
And the insured never informed the insurer
that it was terminating the policy because the
terms were unacceptable.
While it may be true that under Section 77 of
the Insurance Code, the parties may not
agree to make the insurance contract valid
and binding without payment of premiums,
there is nothing in said section which
suggests that the parties may not agree to
allow
payment
of
the
premiums
in
installment, or to consider the contract as
valid and binding upon payment of the first

premium. Otherwise, we would allow the

insurer to renege on its liability under the
contract, had a loss incurred (sic) before
completion of payment of the entire premium,
despite its voluntary acceptance of partial
payments, a result eschewed by a basic
considerations of fairness and equity.
To our mind, the insurance contract became
valid and binding upon payment of the first
premium, and the plaintiff could not have
denied liability on the ground that payment
was not made in full, for the reason that it
agreed to accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the
premiums for the insurance policies for 1982, 1983 and
1984 invalidated said policies because of the provisions of
Sec. 77 of the Insurance Code, as amended, and by the
conditions stipulated by the insurer in its receipts,
disclaiming liability for loss for occurring before payment of
premiums.
It argues that where the premiums is not actually paid in
full, the policy would only be effective if there is an
acknowledgment in the policy of the receipt of premium
pursuant to Sec. 78 of the Insurance Code. The absence of
an express acknowledgment in the policies of such receipt
of the corresponding premium payments, and petitioner's
failure to pay said premiums on or before the effective dates
of said policies rendered them invalid. Petitioner thus
concludes that there cannot be a perfected contract of
insurance upon mere partial payment of the premiums
because under Sec. 77 of the Insurance Code, no contract of
insurance is valid and binding unless the premium thereof

has been paid, notwithstanding any agreement to the

contrary. As a consequence, petitioner seeks a refund of all
premium payments made on the alleged invalid insurance
policies.
We hold that the subject policies are valid even if the
premiums were paid on installments. The records clearly
show that petitioner and private respondent intended
subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums.
The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not
allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not
prepared in full.
We therefore sustain the Court of Appeals. We quote with
approval the well-reasoned findings and conclusion of the
appellate court contained in its Resolution denying the
motion to reconsider its Decision
While the import of Section 77 is that
prepayment of premiums is strictly required
as a condition to the validity of the contract,
We are not prepared to rule that the request
to make installment payments duly approved
by the insurer, would prevent the entire
contract of insurance from going into effect
despite payment and acceptance of the initial
premium or first installment. Section 78 of the

Insurance Code in effect allows waiver by the

insurer of the condition of prepayment by
making an acknowledgment in the insurance
policy of receipt of premium as conclusive
evidence of payment so far as to make the
policy binding despite the fact that premium
is actually unpaid. Section 77 merely
precludes the parties from stipulating that the
policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement
granting credit extension, and such an
agreement is not contrary to morals, good
customs, public order or public policy (De
Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay
premiums in installments not so proscribed. At
the very least, both parties should be deemed
in estoppel to question the arrangement they
have voluntarily accepted. 4

premium after the expiration of the whole term of the third

policy (No. AH-CPP-9210651) in March 1985. Moreover, as
correctly observed by the appellate court, where the risk is
entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or
momentary.
WHEREFORE, finding no reversible error in the judgment
appealed from, the same is AFFIRMED. Costs against
petitioner.
SO ORDERED.

The reliance by petitioner on Arce vs. Capital Surety and

Insurance
Co. 5 is unavailing because the facts therein are
substantially different from those in the case at bar. In Arce,
no payment was made by the insured at all despite the
grace period given. In the case before Us, petitioner paid the
initial installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance
policies. For the 1984 policy, petitioner paid two (2)
installments although it refused to pay the balance.

G.R. No. 102253 June 2, 1995

It appearing from the peculiar circumstances that the

parties actually intended to make three (3) insurance
contracts valid, effective and binding, petitioner may not be
allowed to renege on its obligation to pay the balance of the

VITUG, J.:

SOUTH SEA SURETY AND INSURANCE COMPANY, INC.,

petitioner,
vs.
HON.
COURT
OF
APPEALS
and
VALENZUELA
HARDWOOD
AND
INDUSTRIAL
SUPPLY,
INC.,
respondents.
RESOLUTION

Two issues on the subject of insurance are raised in this

petition, that assails the decision, that assails the decision of
the Court of Appeals. (in CA-G.R. NO. CV-20156), the first
dealing on the requirement of premium payment and the
second relating to the agency relationship of parties under
that contract.
The court litigation started when Valenzuela Hardwood and
Industrial Supply, Inc. ("Hardwood"), filed with the Regional,
Trial Court of the National Capital Judicial Region, Branch l71
in Valenzuela, Metro Manila, a complaint for the recovery of
the value of lost logs and freight charges from Seven
Brothers Shipping Corporation or, to the extent of its alleged
insurance cover, from South Sea Surety and insurance
Company.
The factual backdrop is described briefly by the appellate
court thusly:
It appears that on 16 January 1984, plaintiff
[Valenzuela Hardwood and Industrial Supply,
Inc.] entered into an agreement with the
defendant Seven Brothers whereby the latter
undertook to load on board its vessel M/V
Seven Ambassador the former's lauan round
logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs,
against loss and/or, damage with defendant
South Sea Surety and Insurance Co., Inc. for
P2,000,000.00 end the latter issued its Marine
Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the

check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven
Ambassador sank on 25 January 1984
resulting in the loss of the plaintiffs insured
logs.
On 30 January 1984, a check for P5,625.00
(Exh. "E") to cover payment of the premium
and documentary stamps due on the policy
was tendered to the insurer but was not
accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance
policy it issued as of the date of inception for
non-payment of the premium due in
accordance with Section 77 of the Insurance
Code.
On 2 February 1984, plaintiff demanded from
defendant South Sea Surety and Insurance
Co., Inc. the payment of the proceeds of the
policy but the latter denied liability under the
policy. Plaintiff likewise filed a formal claim
with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but
the latter denied the claim. 1
In its decision, dated 11 May 1988, the trial court rendered
judgment in favor of plaintiff Hardwood.
On appeal perfected by both the shipping firm and the
insurance company, the Court of Appeals affirmed the

judgment of the court a quo only against the insurance

corporation; in absolving the shipping entity from liability,
the appellate court ratiocinated:
The primary issue to be resolved before us is
whether defendants shipping corporation and
the surety company are liable to the plaintiff
for the latter's lost logs.

In this petition for review on certiorari brought by South Sea

Surety and Insurance Co., Inc., petitioner argues that it
likewise should have been freed from any liability to
Hardwood. It faults the appellate court (a) for having
Supposedly disregarded Section 77 of the insurance Code
and (b) for holding Victorio Chua to have been an authorized
representative of the insurer.
Section 77 of the Insurance Code provides:

It appears that there is a stipulation in the

charter party that the ship owner would be
exempted from liability in case of loss.
The court a quo erred in applying the
provisions of the Civil Code on common
carriers to establish the liability of the
shipping corporation. The provisions on
common carriers should not be applied where
the carrier is not acting as such but as a
private carrier.
Under American jurisprudence, a common
carrier undertaking to carry a special or
chartered to a special person only, becomes a
private carrier.
As a private carrier, a stipulation exempting
the owner from liability even for the
negligence of its agent is valid (Home
Insurance Company, Inc. vs. American
Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore
be held liable for the loss of the logs. 2

Sec. 77. An insurer is entitled to payment of

the premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid and
binding unless and until the premium thereof
has been paid, except in the case of a life or
an industrial life policy whenever the grace
period provision applies.
Undoubtedly, the payment of the premium is a condition
precedent to, and essential for, the efficaciousness of the
contract. The only two statutorily provided exceptions are
(a) in case the insurance coverage relates to life or industrial
life (health) insurance when a grace period applies and (b)
when the insurer makes a written acknowledgment of the
receipt of premium, this acknowledgment being declared by
law to be then conclusive evidence of the premium payment
(Secs. 77-78, Insurance Code). The appellate court, contrary
to what the petition suggests, did not make any
pronouncement to the contrary. Indeed, it has said:

Concerning the issue as to whether there is a

valid contract of insurance between plaintiffappellee and defendant-appellant South Sea
Surety and Insurance Co., Inc., Section 77 of
the Insurance Code explicitly provides that
notwithstanding any agreement to the
contrary, no policy issued by an insurance
company is valid and binding unless and until
premium thereof has been paid. It is therefore
important to determine whether at the time of
the loss, the premium was already paid. 3
No attempt becloud the issues can disguise the fact that the
sole question raised in the instant petition is really
evidentiary in nature, i.e., whether or not Victorio Chua, in
receiving the check for the insurance premium prior to the
occurrence of the risk insured against has so acted as an
agent of petitioner. The appellate court, like the trial court,
has found in the affirmative. Said the appellate court:
In the instant case, the Marine Cargo
Insurance Policy No. 84/24229 was issued by
defendant insurance company on 20 January
1984. At the time the vessel sank on 25
January 1984 resulting in the loss of the
insured logs, the insured had already
delivered to Victorio Chua the check in
payment of premium. But, as Victorio Chua
testified, it was only in the morning of 30
January 1984 or 5 days after the vessel sank
when his messenger tendered the check to
defendant South Sea Surety and Insurance
Co., Inc. (TSN, pp. 3-27, 16-17, 22 October
1985).

The pivotal issue to be resolved to determine

the liability, of the surety corporation is
whether Mr. Chua acted as an agent of the
surety company or of the insured when he
received the check for insurance premiums.
Appellant surety company insists that Mr.
Chua is an administrative assistant for the
past ten years and an agent for less than ten
years of the Columbia Insurance Brokers, Ltd.
He is paid a salary as a administrative
assistant and a commission as agent based
on the premiums he turns over to the broker.
Appellant therefore argues that Mr. Chua,
having received the insurance premiums as
an agent of the Columbia Insurance Broker,
acted as an agent of the insured under
Section 301 of the Insurance Code which
provides as follows:
Sec. 301. Any person who for
any compensation, commission
or other thing of value, acts, or
aids in soliciting, negotiating or
procuring the making of any
insurance contract or in placing
risk or taking out insurance, on
behalf of an insured other than
himself, shall be an insurance
broker within the intent of this
Code,
and
shall
thereby
become liable to all the duties
requirements, liabilities and
penalties to which an insurance
broker is subject.

The appellees, upon the other hand, claim

that the second paragraph of Section 306 of
the Insurance Code provide as follows:
Sec. 306. . . . Any insurance
company which delivers to an
insurance agent or insurance
broker a policy or contract of
insurance shall be deemed to
have authorized such agent or
broker to receive on its behalf
payment of any premium which
is due on such policy of
contract of insurance at the
time of its issuance or delivery
or which becomes due thereon.
On cross-examination in behalf of South Sea
Surety and Insurance Co., Inc. Mr. Chua
testified that the marine cargo insurance
policy for the plaintiff's logs was delivered to
him on 21 January 1984 at his office to be
delivered to the plaintiff.
When the appellant South Sea Surety and
Insurance Co., Inc. delivered to Mr. Chua the
marine cargo insurance policy for the plaintiffs
logs, he is deemed to have been authorized
by the South Sea Surety and Insurance Co.,
Inc. to receive the premium which is due on
its behalf.
When therefore the insured logs were lost, the
insured had already paid the premium to an

agent of the South Sea Surety and Insurance

Co., Inc., which is consequently liable to pay
the insurance proceeds under the policy it
issued to the insured. 4
We see no valid reason to discard the factual conclusions of
the appellate court. Just as so correctly pointed out by
private respondent, it is not the function of this Court to
assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties particularly
where, such as here, the findings of both the trial court and
the appellate court on the matter coincide.
WHEREFORE, the resolution, dated 01 February 1993,
granting due course to the petition is RECALLED, and the
petition is DENIED. Costs against petitioner.
SO ORDERED.

G.R.No.137172April4,2001
UCPB GENERAL INSURANCE CO., INC.,
vs.
MASAGANATELAMART,INC.,respondent.

petitioner,

RESOLUTION
DAVIDE,JR.,C.J.:
Inourdecisionof15June1999inthiscase,wereversedandsetasidethe
assailed decision 1 of the Court of Appeals, which affirmed with
modification the judgment of the trial court (a) allowing Respondent to
consignthesumofP225,753.95asfullpaymentofthepremiumsforthe
renewal of the five insurance policies on Respondent's properties; (b)
declaringthereplacementrenewalpolicieseffectiveandbindingfrom22
May1992until22May1993;and(c)orderingPetitionertopayRespondent
P18,645,000.00 as indemnity for the burned properties covered by the
renewalreplacementpolicies.Themodificationconsistedinthe(1)deletion
ofthetrialcourt'sdeclarationthatthreeofthepolicieswereinforcefrom
August 1991 to August 1992; and (2) reduction of the award of the
attorney'sfeesfrom25%to10%ofthetotalamountduetheRespondent.
Thematerialoperativefactsuponwhichtheappealedjudgmentwasbased
aresummarizedbytheCourtofAppealsinitsassaileddecisionasfollows:

Plaintiff [herein Respondent] obtained from defendant [herein

Petitioner]five(5)insurancepolicies(Exhibits"A"to"E",Record,
pp.158175)onitsproperties[inPasayCityandManila]....
Allfive(5)policiesreflectontheirfacetheeffectivityterm:"from
4:00P.M.of22May1991to4:00P.M.of22May1992."OnJune
13,1992,plaintiffspropertieslocatedat24102432and24422450
TaftAvenue,PasayCitywererazedbyfire.OnJuly13,1992,
plaintifftendered,anddefendantaccepted,five(5)EquitableBank
Manager'sChecksinthetotalamountofP225,753.45asrenewal
premiumpaymentsforwhichOfficialReceiptDirectPremiumNo.
62926(Exhibit"Q",Record,p.191)wasissuedbydefendant.On
July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same
day,defendantreturnedthefive(5)manager'schecksstatinginits
letter (Exhibit "R" / "8", Record, p. 192) that it was rejecting
Masagana'sclaimonthefollowinggrounds:
"a)SaidpoliciesexpiredlastMay22,1992andwerenot
renewedforanotherterm;
b)Defendanthadputplaintiffanditsallegedbrokeron
noticeofnonrenewalearlier;and
c) The properties covered by the said policies were
burned in a fire that took place last June 13, 1992, or
beforetenderofpremiumpayment."

(Record,p.5)

HenceMasaganafiledthiscase.
TheCourtofAppealsdisagreedwithPetitioner'sstandthatRespondent's
tenderofpaymentofthepremiumson13July1992didnotresultinthe

renewal of the policies, having been made beyond the effective date of
renewalasprovidedunderPolicyConditionNo.26,whichstates:
26.RenewalClause.Unlessthecompanyatleastfortyfivedays
inadvanceoftheendofthepolicyperiodmailsordeliverstothe
assuredattheaddressshowninthepolicynoticeofitsintention
nottorenewthepolicyortoconditionitsrenewaluponreduction
oflimitsoreliminationofcoverages,theassuredshallbeentitled
to renew the policy upon payment of the premium due on the
effectivedateofrenewal.
BoththeCourtofAppealsandthetrialcourtfoundthatsufficientproof
exists that Respondent, which had procured insurance coverage from
Petitionerforanumberofyears,hadbeengranteda60to90daycredit
termfortherenewalofthepolicies.Suchapracticehadexisteduptothe
timetheclaimswerefiled.Thus:
FireInsurancePolicyNo.34658coveringMay22,1990toMay
22,1991wasissuedonMay7,1990butpremiumwaspaidmore
than90dayslateronAugust31,1990underO.R.No.4771(Exhs.
"T" and "T1"). Fire Insurance Policy No. 34660 for Insurance
RiskCoveragefromMay22,1990toMay22,1991wasissuedby
UCPBonMay4,1990butpremiumwascollectedbyUCPBonly
onJuly13,1990ormorethan60dayslaterunderO.R.No.46487
(Exhs. "V" and "V1"). And so were as other policies: Fire
InsurancePolicyNo.34657coveringrisksfromMay22,1990to
May22,1991wasissuedonMay7,1990butpremiumtherefor
waspaidonlyonJuly19,1990underO.R.No.46583(Exhs."W"
and"W1").FireInsurancePolicyNo.34661coveringrisksfrom
May22,1990toMay22,1991wasissuedonMay3,1990but
premiumwaspaidonlyonJuly19,1990underO.R.No.46582
(Exhs. "X" and "X1"). Fire Insurance Policy No. 34688 for
insurance coverage from May 22, 1990 to May 22, 1991 was
issuedonMay7,1990butpremiumwaspaidonlyonJuly19,
1990underO.R.No.46585(Exhs."Y"and"Y1").FireInsurance
PolicyNo.29126tocoverinsurancerisksfromMay22,1989to
May22,1990wasissuedonMay22,1989butpremiumtherefor
wascollectedonlyonJuly25,1990[sic]underO.R.No.40799

(Exhs."AA"and"AA1").FireInsurancePolicyNo.HO/F26408
covering risks from January 12, 1989 to January 12, 1990 was
issued to Intratrade Phils. (Masagana's sister company) dated
December 10, 1988 but premium therefor was paid only on
February15,1989underO.R.No.38075(Exhs."BB"and"BB
1").FireInsurancePolicyNo.29128wasissuedonMay22,1989
but premium was paid only on July 25, 1989 under O.R. No.
40800forinsurancecoveragefromMay22,1989toMay22,1990
(Exhs."CC"and"CC1").FireInsurancePolicyNo.29127was
issuedonMay22,1989butpremiumwaspaidonlyonJuly17,
1989underO.R.No.40682forinsuranceriskcoveragefromMay
22, 1989 to May 22, 1990 (Exhs. "DD" and "DD1"). Fire
InsurancePolicyNo.HO/F29362wasissuedonJune15,1989but
premium was paid only on February 13, 1990 under O.R. No.
39233forinsurancecoveragefromMay22,1989toMay22,1990
(Exhs."EE"and"EE1").FireInsurancePolicyNo.26303was
issuedonNovember22,1988butpremiumthereforwascollected
onlyonMarch15,1989underO.R.NO.38573forinsurancerisks
coveragefromDecember15,1988toDecember15,1989(Exhs.
"FF"and"FF1").

Inourdecisionof15June1999,wedefinedthemainissuetobe"whether
thefireinsurancepoliciesissuedbypetitionertotherespondentcovering
theperiodfromMay22,1991toMay22,1992...hadbeenextendedor
renewed by an implied credit arrangement though actual payment of
premiumwastenderedonalaterdateandaftertheoccurrenceofthe(fire)
risk insured against." We resolved thisissue inthe negative in view of
Section77oftheInsuranceCodeandourdecisionsinValenzuelav.Court
ofAppeals;2SouthSeaSuretyandInsuranceCo.,Inc.v.CourtofAppeals;
3
and Tibayv.CourtofAppeals.4Accordingly,wereversedandsetaside
thedecisionoftheCourtofAppeals.

Moreover,accordingtotheCourtofAppealsthefollowingcircumstances
constitute preponderant proof that no timely notice of nonrenewal was
madebyPetitioner:

Respondent likewise disagrees with our ruling that parties may neither
agreeexpresslyorimpliedlyontheextensionofcreditortimetopaythe
premiumnorconsiderapolicybindingbeforeactualpayment.Iturgesthe
Courttotakejudicialnoticeofthefactthatdespitetheexpressprovisionof
Section77oftheInsuranceCode,extensionofcredittermsinpremium
payment hasbeentheprevalent practiceintheinsuranceindustry.Most
insurance companies, including Petitioner, extend credit terms because
Section 77 of the Insurance Code is not a prohibitive injunction but is
merelydesignedfortheprotectionofthepartiestoaninsurancecontract.
The Code itself, in Section 78, authorizes the validity of a policy
notwithstandingnonpaymentofpremiums.

(1)Defendantappellantreceivedtheconfirmation(Exhibit"11",
Record,p.350)fromUltramarReinsuranceBrokersthatplaintiff's
reinsurancefacilityhadbeenconfirmedupto67.5%onlyonApril
15,1992asindicatedonExhibit"11".Apparently,thenoticeof
nonrenewal(Exhibit"7,"Record,p.320)wassentnotearlierthan
saiddate,orwithin45daysfromtheexpirydatesofthepoliciesas
provided under Policy Condition No. 26; (2) Defendant insurer
unconditionally accepted, and issued an official receipt for, the
premiumpaymentonJuly1[3],1992whichindicatesdefendant's
willingnesstoassumetheriskdespiteonlya67.5%reinsurance
cover[age];and(3)DefendantinsurerappointedEstebanAdjusters
andValuerstoinvestigateplaintiff'sclaimasshownbytheletter
datedJuly17,1992(Exhibit"11",Record,p.254).

Respondentseasonablyfiledamotionforthereconsiderationoftheadverse
verdict.Itallegesinthemotionthatwehadmadeinthedecisionourown
findingsoffacts,whicharenotinaccordwiththoseofthetrialcourtand
theCourtofAppeals.Thecourtsbelowcorrectlyfoundthatnonoticeof
nonrenewalwasmadewithin45daysbefore22May1992,orbeforethe
expirationdateofthefireinsurancepolicies.Thus,thepoliciesinquestion
wererenewedbyoperationoflawandwereeffectiveandvalidon30June
1992whenthefireoccurred,sincethepremiumswerepaidwithinthe60
to90daycreditterm.

RespondentalsoassertsthattheprincipleofestoppelappliestoPetitioner.
Despite its awareness of Section 77 Petitioner persuaded and induced
Respondenttobelievethatpaymentofpremiumonthe60to90daycredit
termwasperfectlyalright;infactitacceptedpaymentswithin60to90days
aftertheduedates.Byextendingcreditandhabituallyacceptingpayments

60 to 90 days from the effective dates of the policies, it has implicitly

agreedtomodifythetenoroftheinsurancepolicyandineffectwaivedthe
provisionthereinthatitwouldpayonlyforthelossordamageincasethe
sameoccurredafterpaymentofthepremium.
Petitioner filed an opposition to the Respondent's motion for
reconsideration.ItarguesthatboththetrialcourtandtheCourtofAppeals
overlookedthefactthaton6April1992Petitionersentbyordinarymailto
Respondentanoticeofnonrenewalandsentbypersonaldeliveryacopy
thereoftoRespondent'sbroker,Zuellig.Bothcourtslikewiseignoredthe
fact that Respondent was fully aware of the notice of nonrenewal. A
readingofSection66oftheInsuranceCodereadilyshowsthatinorderfor
aninsuredtobeentitledtoarenewalofanonlifepolicy,paymentofthe
premium due on the effective date of renewal should first be made.
Respondent'sargumentthatSection77isnotaprohibitiveprovisionfinds
noauthoritativesupport.
Upona meticulousreviewofthe recordsand reevaluationofthe issues
raisedinthemotionforreconsiderationandthepleadingsfiledthereafterby
the parties, we resolved to grant the motion for reconsideration. The
followingfacts,asfoundbythetrialcourtandtheCourtofAppeals,are
indeeddulyestablished:
1. For years, Petitioner had been issuing fire policies to the
Respondent,andthesepolicieswereannuallyrenewed.
2.PetitionerhadbeengrantingRespondenta60to90daycredit
termwithinwhichtopaythepremiumsontherenewedpolicies.
3. There was no valid notice of nonrenewal of the policies in
question,asthereisnoproofatallthatthenoticesentbyordinary
mailwasreceivedbyRespondent,andthecopythereofallegedly
senttoZuelligwasevertransmittedtoRespondent.
4. The premiums for the policies in question in the aggregate
amountofP225,753.95werepaidbyRespondentwithinthe60to

90day credit term and were duly accepted and received by

Petitioner'scashier.
TheinstantcasehastoriseorfallonthecoreissueofwhetherSection77of
theInsuranceCodeof1978(P.D.No.1460)mustbestrictlyappliedto
Petitioner'sadvantagedespiteitspracticeofgrantinga60to90daycredit
termforthepaymentofpremiums.
Section77oftheInsuranceCodeof1978provides:
SECTION77.Aninsurerisentitledtopaymentofthepremiumas
soonasthethinginsuredisexposedtotheperilinsuredagainst.
Notwithstanding any agreement to the contrary, no policy or
contractofinsuranceissuedbyaninsurancecompanyisvalidand
bindingunlessanduntilthepremiumthereofhasbeenpaid,except
inthecaseofalifeoranindustriallifepolicywheneverthegrace
periodprovisionapplies.
ThisSectionisareproductionofSection77ofP.D.No.612(TheInsurance
Code) promulgated on 18 December 1974. In turn, this Section has its
sourceinSection72ofActNo.2427otherwiseknownastheInsuranceAct
asamendedbyR.A.No.3540,approvedon21June1963,whichread:
SECTION72.Aninsurerisentitledtopaymentofpremiumas
soonasthethinginsuredisexposedtotheperilinsuredagainst,
unless there is clear agreement to grant the insured credit
extensionofthepremiumdue.Nopolicyissuedbyaninsurance
companyisvalidandbindingunlessanduntilthepremiumthereof
hasbeenpaid.(Italicsupplied)
ItcanbeseenatoncethatSection77doesnotrestatetheportionofSection
72 expressly permitting an agreement to extend the period to pay the
premium.ButarethereexceptionstoSection77?
Theanswerisintheaffirmative.

ThefirstexceptionisprovidedbySection77itself,andthatis,incaseofa
lifeorindustriallifepolicywheneverthegraceperiodprovisionapplies.
ThesecondisthatcoveredbySection78oftheInsuranceCode,which
provides:
SECTION 78. Any acknowledgment in a policy or contract of
insuranceofthereceiptofpremiumisconclusiveevidenceofits
payment,sofarastomakethepolicybinding,notwithstandingany
stipulation therein that it shall not be binding until premium is
actuallypaid.
A third exception was laid down in Makati Tuscany Condominium
Corporationvs.CourtofAppeals,5whereinweruledthatSection77may
notapplyifthepartieshaveagreedtothepaymentininstallmentsofthe
premiumandpartialpaymenthasbeenmadeatthetimeofloss.Wesaid
therein,thus:
Weholdthatthesubjectpoliciesarevalidevenifthepremiums
were paid on installments. The records clearly show that the
petitioners and private respondent intended subject insurance
policiestobebindingandeffectivenotwithstandingthestaggered
paymentofthepremiums.Theinitialinsurancecontractentered
intoin1982wasrenewedin1983,thenin1984.Inthosethree
years, the insurer accepted all the installment payments. Such
acceptanceofpaymentsspeaksloudlyoftheinsurer'sintentionto
honorthepoliciesitissuedtopetitioner.Certainly,basicprinciples
of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on
installments,andlaterdenyliabilityonthelameexcusethatthe
premiumswerenotprepaidinfull.
Not only that. In Tuscany, we also quoted with approval the following
pronouncement of the Court of Appeals in its Resolution denying the
motionforreconsiderationofitsdecision:

WhiletheimportofSection77isthatprepaymentofpremiumsis
strictlyrequiredasaconditiontothevalidityofthecontract,We
are not prepared to rule that the request to make installment
paymentsdulyapprovedbytheinsurerwouldpreventtheentire
contractofinsurancefromgoingintoeffectdespitepaymentand
acceptanceoftheinitialpremiumorfirstinstallment.Section78of
theInsuranceCodeineffectallowswaiverbytheinsurerofthe
condition of prepayment by making an acknowledgment in the
insurancepolicyofreceiptofpremiumasconclusiveevidenceof
paymentsofarastomakethepolicybindingdespitethefactthat
premium is actually unpaid. Section 77 merely precludes the
partiesfromstipulatingthatthepolicyisvalidevenifpremiums
arenotpaid,butdoesnotexpresslyprohibitanagreementgranting
creditextension,andsuchanagreementisnotcontrarytomorals,
good customs, public order or public policy (De Leon, The
InsuranceCode,p.175).Soisanunderstandingtoallowinsuredto
paypremiumsininstallmentsnotsoprescribed.Attheveryleast,
both parties should be deemed in estoppel to question the
arrangementtheyhavevoluntarilyaccepted.
BytheapprovaloftheaforequotedfindingsandconclusionoftheCourtof
Appeals, Tuscany hasprovidedafourthexceptiontoSection77,namely,
thattheinsurermaygrantcreditextensionforthepaymentofthepremium.
Thissimplymeansthatiftheinsurerhasgrantedtheinsuredacreditterm
forthepaymentofthepremiumandlossoccursbeforetheexpirationofthe
term,recoveryonthepolicyshouldbeallowedeventhoughthepremiumis
paidafterthelossbutwithinthecreditterm.
Moreover,thereisnothinginSection77whichprohibitsthepartiesinan
insurance contract to provide a credit term within which to pay the
premiums.Thatagreementisnotagainstthelaw,morals,goodcustoms,
publicorderorpublicpolicy.Theagreementbindstheparties.Article1306
oftheCivilCodeprovides:
ARTICLE 1306. The contracting parties may establish such
stipulations clauses, terms and conditions as they may deem
convenient,providedtheyarenotcontrarytolaw,morals,good
customs,publicorder,orpublicpolicy.

Finallyintheinstantcase,itwouldbeunjustandinequitableifrecoveryon
thepolicywouldnotbepermittedagainstPetitioner,whichhadconsistently
granteda60to90daycredittermforthepaymentofpremiumsdespiteits
fullawarenessofSection77.Estoppelbarsitfromtakingrefugeundersaid
Section,sinceRespondentreliedingoodfaithonsuchpractice.Estoppel
thenisthefifthexceptiontoSection77.
WHEREFORE, the Decision in this case of 15 June 1999 is
RECONSIDERED and SET ASIDE, and a new one is hereby
enteredDENYINGtheinstantpetitionforfailureofPetitionerto
sufficiently show that a reversible error was committed by the
Court of Appeals in its challenged decision, which is hereby
AFFIRMEDintoto.
Nopronouncementastocost.
SOORDERED.

G.R. No. 130421 June 28, 1999

AMERICAN HOME ASSURANCE COMPANY, petitioner,
vs.
ANTONIO CHUA, respondent.
DAVIDE, JR. C.J.:
In this petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, petitioner seeks the reversal
of the decision 1 of the Court of Appeals in CA-G.R. CV No.
40751, which affirmed in toto the decision of the Regional
Trial Court, Makati City, Branch 150 (hereafter trial court), in
Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the

insurance business. Sometime in 1990, respondent obtained
from petitioner a fire insurance covering the stock-in-trade
of his business, Moonlight Enterprises, located at Valencia,
Bukidnon. The insurance was due to expire on 25 March
1990.
On 5 April 1990 respondent issued PCIBank Check No.
352123 in the amount of P2,983.50 to petitioner's agent,
James Uy, as payment for the renewal of the policy. In turn,
the latter delivered Renewal Certificate No. 00099047 to
respondent. The check was drawn against a Manila bank
and deposited in petitioner's bank account in Cagayan de
Oro City. The corresponding official receipt was issued on 10
April. Subsequently, a new insurance policy, Policy No. 2064234498-7, was issued, whereby petitioner undertook to
indemnify respondent for any damage or loss arising from
fire up to P200,000 for the period 25 March 1990 to 25
March 1991.
On 6 April 1990 Moonlight Enterprises was completely razed
by fire. Total loss was estimated between P4,000,000 and
P5,000,000. Respondent filed an insurance claim with
petitioner and four other co-insurers, namely, Pioneer
Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and
Domestic Insurance Company of the Philippines. Petitioner
refused to honor the claim notwithstanding several demands
by respondent, thus, the latter filed an action against
petitioner before the trial court.
In its defense, petitioner claimed there was no existing
insurance contract when the fire occurred since respondent
did not pay the premium. It also alleged that even assuming
there was a contract, respondent violated several conditions

of the policy, particularly: (1) his submission of fraudulent

income tax return and financial statements; (2) his failure to
establish the actual loss, which petitioner assessed at
P70,000; and (3) his failure to notify to petitioner of any
insurance already effected to cover the insured goods.
These violations, petitioner insisted, justified the denial of
the claim.
The trial court ruled in favor of respondent. It found that
respondent paid by way of check a day before the fire
occurred. The check, which was deposited in petitioner's
bank account, was even acknowledged in the renewal
certificate issued by petitioner's agent. It declared that the
alleged fraudulent documents were limited to the disparity
between the official receipts issued by the Bureau of Internal
Revenue (BIR) and the income tax returns for the years
1987 to 1989. All the other documents were found to be
genuine. Nonetheless, it gave credence to the BIR
certification that respondent paid the corresponding taxes
due for the questioned years.
As to respondent's failure to notify petitioner of the other
insurance contracts covering the same goods, the trial court
held that petitioner failed to show that such omission was
intentional and fraudulent. Finally, it noted that petitioner's
investigation of respondent's claim was done in
collaboration with the representatives of other insurance
companies who found no irregularity therein. In fact, Pioneer
Insurance and Surety Corporation and Prudential Guarantee
and Assurance, Inc. promptly paid the claims filed by
respondent.
The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in

favor of [respondent] and against the
[petitioner] ordering the latter to pay the
former the following:
1. P200,000.00, representing
the amount of the insurance,
plus legal interest from the date
of filing of this case;
2.
P200,000.00
damages;

as

moral

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary
damages;
5. P50,000.00
fees; and

as

An insurer is entitled to payment of the

premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid and
binding unless and until the premium thereof
has been paid, except in the case of life or an
industrial life policy whenever the grace
period provision applies.

attorney's

6. Cost of suit.
On appeal, the assailed decision was affirmed in toto by the
Court of Appeals. The Court of Appeals found that
respondent's claim was substantially proved and petitioner's
unjustified refusal to pay the claim entitled respondent to
the award of damages.
Its motion for reconsideration of the judgment having been
denied, petitioner filed the petition in this case. Petitioner
reiterates its stand that there was no existing insurance
contract between the parties. It invokes Section 77 of the
Insurance Code, which provides:

and cites the case of Arce v. Capital Insurance &

Surety Co., Inc., 2 where we ruled that unless and
until the premium is paid there is no insurance.
Petitioner emphasizes that when the fire occurred on 6 April
1990 the insurance contract was not yet subsisting pursuant
to Article 1249 3 of the Civil Code, which recognizes that a
check can only effect payment once it has been cashed.
Although respondent testified that he gave the check on 5
April to a certain James Uy, the check, drawn against a
Manila bank and deposited in a Cagayan de Oro City bank,
could not have been cleared by 6 April, the date of the fire.
In fact, the official receipt issued for respondent's check
payment was dated 10 April 1990, four days after the fire
occurred.
Citing jurisprudence, 4 petitioner also contends that
respondent's non-disclosure of the other insurance contracts
rendered the policy void. It underscores the trial court's
neglect in considering the Commission on Audit's
certification that the BIR receipts submitted by respondent
were, in effect, fake since they were issued to other persons.
Finally, petitioner argues that the award of damages was

excessive and unreasonable considering that it did not act in

bad faith in denying respondent's claim.
Respondent counters that the issue of non-payment of
premium is a question of fact which can no longer be
assailed. The trial court's finding on the matter, which was
affirmed by the Court of Appeals, is conclusive.
Respondent refutes the reason for petitioner's denial of his
claim. As found by the trial court, petitioner's loss adjuster
admitted prior knowledge of respondent's existing insurance
contracts with the other insurance companies. Nonetheless,
the loss adjuster recommended the denial of the claim, not
because of the said contracts, but because he was
suspicious of the authenticity of certain documents which
respondent submitted in filing his claim.
To bolster his argument, respondent cites Section 66 of the
Insurance Code, 5 which requires the insurer to give a notice
to the insured of its intention to terminate the policy fortyfive days before the policy period ends. In the instant case,
petitioner opted not to terminate the policy. Instead, it
renewed the policy by sending its agent to respondent, who
was issued a renewal certificate upon delivery of his check
payment for the renewal of premium. At this precise
moment the contract of insurance was executed and already
in effect. Respondent also claims that it is standard
operating procedure in the provinces to pay insurance
premiums by check when collected by insurance agents.
On the issue of damages, respondent maintains that the
amounts awarded were reasonable. He cites numerous trips
he had to make from Cagayan de Oro City to Manila to
follow up his rightful claim. He imputes bad faith on

petitioner who made enforcement of his claim difficult in the

hope that he would eventually abandon it. He further
emphasizes that the adjusters of the other insurance
companies recommended payment of his claim, and they
complied therewith.
In its reply, petitioner alleges that the petition questions the
conclusions of law made by the trial court and the Court of
Appeals.
Petitioner invokes respondent's admission that his check for
the renewal of the policy was received only on 10 April
1990, taking into account that the policy period was 25
March 1990 to 25 March 1991. The official receipt was dated
10 April 1990. Anent respondent's testimony that the check
was given to petitioner's agent, a certain James Uy, the
latter points out that even respondent was not sure if Uy
was indeed its agent. It faults respondent for not producing
Uy as his witness and not taking any receipt from him upon
presentment of the check. Even assuming that the check
was received a day before the concurrence of the fire, there
still could not have been payment until the check was
cleared.
Moreover, petitioner denies respondent's allegation that it
intended a renewal of the contract for the renewal
certificate clearly specified the following conditions:
Subject to the payment by the assured of the
amount due prior to renewal date, the policy
shall be renewed for the period stated.
Any payment tendered other than in cash is
received subject to actual cash collection.

Subject to no loss prior to premium and

payment. If there be any loss, is not covered
[sic].
Petitioner asserts that an insurance contract can only
be enforced upon the payment of the premium,
which should have been made before the renewal
period.
Finally, in assailing the excessive damages awarded to
respondent petitioner stresses that the policy in issue was
limited to a liability of P200,000; but the trial court granted
the following monetary awards: P200,000 as actual
damages; P200,000 as moral damages; P100,000 as
exemplary damages; and P50,000 as attorney's fees.
The following issues must be resolved: first, whether there
was a valid payment of premium, considering that
respondent's check was cashed after the occurrence of the
fire; second, whether respondent violated the policy by his
submission of fraudulent documents and non-disclosure of
the other existing insurance contracts; and finally, whether
respondent is entitled to the award of damages.

disturbed on appeal in the absence of any clear showing

that the trial court overlooked certain facts or circumstances
which would substantially affect the disposition of the case. 7
We see no reason to depart from this ruling.
According to the trial court the renewal certificate issued to
respondent contained the acknowledgment that premium
had been paid. It is not disputed that the check drawn by
respondent in favor of petitioner and delivered to its agent
was honored when presented and petitioner forthwith issued
its official receipt to respondent on 10 April 1990. Section
306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to
an insurance agent or insurance broker shall be deemed to
have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy
or contract of insurance at the time of its issuance or
delivery or which becomes due thereon. 8 In the instant
case, the best evidence of such authority is the fact that
petitioner accepted the check and issued the official receipt
for the payment. It is, as well, bound by its agent's
acknowledgment of receipt of payment.
Sec. 78 of the Insurance Code explicitly provides:

The general rule in insurance laws is that unless the

premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life
insurance. 6 Whether payment was indeed made is a
question of fact which is best determined by the trial court.
The trial court found, as affirmed by the Court of Appeals,
that there was a valid check payment by respondent to
petitioner. Well-settled is the rule that the factual findings
and conclusions of the trial court and the Court of Appeals
are entitled to great weight and respect, and will not be

An acknowledgment in a policy or contract of

insurance of the receipt of premium is
conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding
any stipulation therein that it shall not be
binding until the premium is actually paid.

This Section establishes a legal fiction of payment

and should be interpreted as an exception to Section
77. 9
Is respondent guilty of the policy violations imputed against
him? We are not convinced by petitioner's arguments. The
submission of the alleged fraudulent documents pertained
to respondent's income tax returns for 1987 to 1989.
Respondent, however, presented a BIR certification that he
had paid the proper taxes for the said years. The trial court
and the Court of Appeals gave credence to the certification
and it being a question of fact, we hold that said finding is
conclusive.
Ordinarily, where the insurance policy specifies as a
condition the disclosure of existing co-insurers, nondisclosure thereof is a violation that entitles the insurer to
avoid the policy. This condition is common in fire insurance
policies and is known as the "other insurance clause." The
purpose for the inclusion of this clause is to prevent an
increase in the moral hazard. We have ruled on its validity
and the case of Geagonia v. Court of Appeals 10 clearly
illustrates such principle. However, we see an exception in
the instant case.
Citing Section 29 11 of the Insurance Code, the trial court
reasoned that respondent's failure to disclose was not
intentional and fraudulent. The application of Section 29 is
misplaced. Section 29 concerns concealment which is
intentional. The relevant provision is Section 75, which
provides that:
A policy may declare that a violation of
specified provisions thereof shall avoid it,

otherwise the breach of an immaterial

provision does not avoid the policy.
To constitute a violation the other existing insurance
contracts must be upon the same subject matter and with
the same interest and risk. 12 Indeed, respondent acquired
several co-insurers and he failed to disclose this information
to petitioner. Nonetheless, petitioner is estopped from must
invoking this argument. The trial court cited the testimony
of petitioner's loss adjuster who admitted previous
knowledge of the co-insurers. Thus,
COURT:
Q The matter of additional insurance of other companies,
was that ever discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were aware the insured
was insured with other companies like Pioneer and so on?
A Yes, Your Honor.
Q But in your report you never recommended the denial of
the claim simply because of the non-disclosure of other
insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about this, the only reason
you recommended the denial of the claim, you found three
documents to be spurious. That is your only basis?

A Yes, Your Honor.

13

[Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived

by respondent by the latter's non-disclosure of the other
insurance contracts when petitioner actually had prior
knowledge thereof. Petitioner's loss adjuster had known all
along of the other existing insurance contracts, yet, he did
not use that as basis for his recommendation of denial. The
loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other
insurance contracts binds petitioner. We, therefore, hold that
there was no violation of the "other insurance" clause by
respondent.
Petitioner is liable to pay its share of the loss. The trial court
and the Court of Appeals were correct in awarding P200,000
for this. There is, however, merit in petitioner's grievance
against the damages and attorney's fees awarded.
There is no legal and factual basis for the award of P200,000
for loss of profit. It cannot be denied that the fire totally
gutted respondent's business; thus, respondent no longer
had any business to operate. His loss of profit cannot be
shouldered by petitioner whose obligation is limited to the
object of insurance, which was the stock-in-trade, and not
the expected loss in income or profit.
Neither can we approve the award of moral and exemplary
damages. At the core of this case is petitioner's alleged
breach of its obligation under a contract of insurance. Under
Article 2220 of the Civil Code, moral damages may be
awarded in breaches of contracts where the defendant
acted fraudulently or in bad faith. We find no such fraud or
bad faith. It must again be stressed that moral damages are

emphatically not intended to enrich a plaintiff at the

expense of the defendant. Such damages are awarded only
to enable the injured party to obtain means, diversion or
amusements that will serve to obviate the moral suffering
he has undergone, by reason of the defendant's culpable
action. Its award is aimed at the restoration, within the limits
of the possible, of the spiritual status quo ante, and it must
be proportional to the suffering inflicted. 14 When awarded,
moral damages must not be palpably and scandalously
excessive as to indicate that it was the result of passion,
prejudice or corruption on the part of the trial court judge. 15
The law 16 is likewise clear that in contracts and quasicontracts the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner. Nothing thereof can be
attributed to petitioner which merely tried to resist what it
claimed to be an unfounded claim for enforcement of the
fire insurance policy.
As to attorney's fees, the general rule is that attorney's fees
cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to
litigate. 17 In short, the grant of attorney's fees as part of
damages is the exception rather than the rule; counsel's
fees are not awarded every time a party prevails in a suit. It
can be awarded only in the cases enumerated in Article
2208 of the Civil Code, and in all cases it must be
reasonable. 18 Thereunder, the trial court may award
attorney's fees where it deems just and equitable that it be
so granted. While we respect the trial court's exercise of its
discretion in this case, the award of P50,000 is unreasonable
and excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The

challenged decision of the Court of Appeals in CA-G.R. No.
40751 is hereby MODIFIED by a) deleting the awards of
P200,000 for loss of profit, P200,000 as moral damages and
P100,000 as exemplary damages, and b) reducing the award
of attorney's fees from P50,000 to P10,000.
No pronouncement as to costs.

2005Decision2 oftheCourtofAppeals(CA)inCAG.R.CVNo.62286
anditsNovember9,2006Resolution3 denyingthepetitioner'sMotionfor
Reconsideration.4
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Antecedents

OnJuly3,1993,DeliaSotero(Sotero)tookoutalifeinsurancepolicyfrom
Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece, 5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face
value of P100,000.00, in Sotero's favor on August 30, 1993, after the
requisitemedicalexaminationandpaymentoftheinsurancepremium. 6

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G.R.No.175666,July29,2013
MANILA BANKERS LIFE INSURANCE CORPORATION,
Petitioner,v.CRESENCIAP.ABAN,Respondent.

OnApril10,1996,7whentheinsurancepolicyhadbeeninforceformore
thantwoyearsandsevenmonths,Soterodied.Respondentfiledaclaimfor
the insurance proceeds on July 9, 1996. Petitioner conducted an
investigationintotheclaim,8andcameoutwiththefollowingfindings:
1.

DECISION
DELCASTILLO,J.:

Soterodidnotpersonallyapplyforinsurancecoverage,asshewas
illiterate;
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2.

Soterowassicklysince1990;

3.

Soterodidnothavethefinancialcapabilitytopaytheinsurance
premiumsonInsurancePolicyNo.747411;

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TheultimateaimofSection48oftheInsuranceCodeistocompelinsurers
tosolicitbusinessfromorprovideinsurancecoverageonlytolegitimate
andbonafideclients,byrequiringthemtothoroughlyinvestigatethosethey
insurewithintwoyearsfromeffectivityofthepolicyandwhiletheinsured
isstillalive.Iftheydonot,theywillbeobligatedtohonorclaimsonthe
policiestheyissue,regardlessoffraud,concealmentormisrepresentation.
Thelawassumesthattheywilldojustthatandnotsitontheirlaurels,
indiscriminatelysolicitingandacceptinginsurancebusinessfromanyTom,
Dick

and

Harry.

Fortheabovereasons,petitionerdeniedrespondent'sclaim onApril16,
1997 and refunded the premiums paid on the policy. 11

AssailedinthisPetitionforReviewon Certiorari1 aretheSeptember28,

On April 24, 1997, petitioner filed a civil case for rescission and/or

4.

Soterodidnot signtheJuly3,1993applicationforinsurance; 9
[and]

5.

Respondentwastheone.whofiledtheinsuranceapplication,andx
xxdesignatedherselfasthebeneficiary.10
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annulmentofthepolicy,whichwasdocketedasCivilCaseNo.97867and
assignedtoBranch134oftheMakatiRegionalTrialCourt.Themainthesis
oftheComplaintwasthatthepolicywasobtainedbyfraud,concealment
and/ormisrepresentationundertheInsuranceCode, 12whichthusrendersit
voidable under Article 139013
of the Civil Code.

policyhadbeeninforceformorethantwoyears,petitionerisnowbarred
from contesting the same or seeking a rescission or annulment thereof.

RespondentfiledaMotiontoDismiss 14 claimingthatpetitioner'scauseof
actionwasbarredbyprescriptionpursuanttoSection48oftheInsurance
Code,whichprovidesasfollows:
Wheneverarighttorescindacontractofinsuranceisgiventotheinsurer
byanyprovisionofthischapter,suchrightmustbeexercisedpreviousto
the commencement of an action on the contract.

PetitionerinterposedanappealwiththeCA,docketedasCAG.R.CVNo.
62286. Petitioner questioned the dismissal of Civil Case No. 97867,
arguingthatthetrialcourterredinapplyingSection48anddeclaringthat
prescriptionhassetin.Itcontendedthatsinceitwasrespondentandnot
Soterowhoobtainedtheinsurance,thepolicyissuedwasrenderedvoidab
initio
for

want

of

insurable

interest.

Afterapolicyoflifeinsurancemadepayableonthedeathoftheinsured
shallhavebeeninforceduringthelifetimeoftheinsuredforaperiodof
twoyearsfromthedateofitsissueorofitslastreinstatement,theinsurer
cannotprovethatthepolicyisvoidabinitioorisrescindiblebyreasonof
thefraudulentconcealmentormisrepresentationoftheinsuredorhisagent.
DuringtheproceedingsontheMotiontoDismiss,petitioner'sinvestigator
testifiedincourt,statingamongothersthattheinsuranceunderwriterwho
solicitedtheinsuranceisacousinofrespondent'shusband,DindoAban, 15
and that it was the respondent who paid the annual premiums on the
policy.16

Ruling

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Court

On December 9, 1997, the trial court issued an Order 17 granting

respondent'sMotiontoDismiss,thus:
WHEREFORE,defendantCRESENCIAP.ABAN'sMotiontoDismissis
hereby granted. Civil Case No. 97867 is hereby dismissed.
SOORDERED.
Indismissingthecase,thetrialcourtfoundthatSotero,andnotrespondent,
wastheonewhoprocuredtheinsurance;thus,Soterocouldlegallytakeout
insuranceonherownlifeandvalidlydesignateasshedidrespondent
asthebeneficiary.ItheldfurtherthatunderSection48,petitionerhadonly
twoyearsfromtheeffectivityofthepolicytoquestionthesame;sincethe
18

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Petitionermovedforreconsideration,butinanotherOrder 19datedOctober
20, 1998, the trial court stood its ground.

of

the

Court

of

Appeals

On September 28, 2005, the CA issued the assailed Decision, which

containedthefollowingdecretalportion:
WHEREFORE, in the light of all the foregoing, the instant appeal is
DISMISSED
for

lack

of

merit.
SOORDERED.20
TheCAthussustainedthetrialcourt.ApplyingSection48topetitioner's
case,theCAheldthatpetitionermaynolongerprovethatthesubjectpolicy
wasvoid abinitio orrescindiblebyreasonoffraudulentconcealmentor
misrepresentationafterthelapseofmorethantwoyearsfromitsissuance.It
ratiocinatedthatpetitionerwasequippedwithamplemeanstodetermine,
within the first two years of the policy, whether fraud, concealment or
misrepresentationwaspresentwhentheinsurancecoveragewasobtained.If
itfailedtodosowithinthestatutorytwoyearperiod,thentheinsuredmust
be protected and allowed to claim upon the policy.
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Petitionermovedforreconsideration,21 buttheCAdeniedthesameinits
November9,2006Resolution.22Hence,thepresentPetition.
Issues
Petitionerraisesthefollowingissuesforresolution:

I
[WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING
THEORDEROFTHETRIALCOURTDISMISSINGTHECOMPLAINT
ONTHEGROUNDOFPRESCRIPTIONINCONTRAVENTION(OF)
PERTINENTLAWSANDAPPLICABLEJURISPRUDENCE.
II
[WHETHER] THE COURT OF APPEALS ERRED IN SUSTAINING
THE APPLICATION OF THE INCONTESTABILITY PROVISION IN
THEINSURANCECODEBYTHETRIALCOURT.
III
[WHETHER] THE COURT OF APPEALS ERRED IN DENYING
PETITIONER'S MOTION FOR RECONSIDERATION.23
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Arguments

Respondent's

Relyingontheresultsoftheinvestigationthatitconductedaftertheclaim
for the insurance proceeds was filed, petitioner insists that respondent's
claimwasspurious,asitappearedthatSoterodidnotactuallyapplyfor
insurancecoverage,wasunlettered,sickly,andhadnovisiblesourceof
income to pay for the insurance premiums; and that respondent was an
impostor, posing as Sotero and fraudulently obtaining insurance in the
latter's name without her knowledge and consent.
PetitioneraddsthatInsurancePolicyNo.747411wasvoid abinitio and
couldnothavegivenrisetorightsandobligations;assuch,theactionfor
the declaration of its nullity or inexistence does not prescribe. 25
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Arguments

Respondent,ontheotherhand,essentiallyarguesinherComment 26thatthe
CA is correct in applying Section 48. She adds that petitioner's new
allegationinitsPetitionthatthepolicyisvoidabinitiomeritsnoattention,
havingfailedtoraisethesamebelow,asithadclaimedoriginallythatthe
policy

was

merely

voidable.

On the issue of insurable interest, respondent echoes the CA's

pronouncement that since it was Sotero who obtained the insurance,
insurableinterest waspresent.UnderSection10oftheInsuranceCode,
Soterohadinsurableinterestinherownlife,andcouldvalidlydesignate
anyoneasherbeneficiary.RespondentsubmitsthattheCA'sfindingsof
factleadingtosuchconclusionshouldberespected.
OurRuling
The

InprayingthattheCADecisionbereversedandthatthecaseberemanded
tothetrialcourtfortheconductoffurtherproceedings,petitionerarguesin
itsPetitionandReply24 thatSection48cannotapplytoacasewherethe
beneficiaryundertheinsurancecontractposedastheinsuredandobtained
thepolicyunderfraudulentcircumstances.Itaddsthatrespondent,whowas
merely Sotero's niece, had no insurable interest in the life of her aunt.

Court

denies

the

Petition.

TheCourtwillnotdepartfromthetrialandappellatecourts'findingthatit
wasSoterowhoobtainedtheinsuranceforherself,designatingrespondent
asherbeneficiary.Bothcourtsareinaccordinthisrespect,andtheCourtis
loath to disturb this. While petitioner insists that its independent
investigationontheclaimrevealsthatitwasrespondent,posingasSotero,
whoobtainedtheinsurance,thisclaimisnolongerfeasibleinthewakeof
thecourts'findingthatitwasSoterowhoobtainedtheinsuranceforherself.
This finding of fact binds the Court.

WiththeabovecrucialfindingoffactthatitwasSoterowhoobtainedthe
insuranceforherselfpetitioner'scaseisseverelyweakened,ifnottotally
disproved. Allegations of fraud, which are predicated on respondent's
alleged posing as Sotero and forgery of her signature in the insurance
application,areatoncebeliedbythetrialandappellatecourts'findingthat
Soteroherselftookouttheinsuranceforherself."[Fraudulentintentonthe
partoftheinsuredmustbeestablishedtoentitletheinsurertorescindthe
contract"27 Intheabsenceofproofofsuchfraudulentintent,norightto
rescind

arises.

Moreover,theresultsandconclusionsarrivedatduringtheinvestigation
conductedunilaterallybypetitioneraftertheclaimwasfiledmaysimplybe
dismissedasselfservingandmaynotformthebasisofacauseofaction
giventheexistenceandapplicationofSection48,aswillbediscussedat
length

below.

Section48servesanoblepurpose,asitregulatestheactionsofboththe
insurerandtheinsured.Undertheprovision,aninsurerisgiventwoyears
fromtheeffectivityofalifeinsurancecontractandwhiletheinsuredis
alivetodiscoverorprovethatthepolicyisvoidabinitioorisrescindible
byreasonofthefraudulentconcealmentormisrepresentationoftheinsured
orhisagent.Afterthetwoyearperiodlapses,orwhentheinsureddies
withintheperiod,theinsurermustmakegoodonthepolicy,eventhough
thepolicywasobtainedbyfraud,concealment,ormisrepresentation.Thisis
nottosaythatinsurancefraudmustberewarded,butthatinsurerswho
recklessly and indiscriminately solicit and obtain business must be
penalized,forsuchrecklessnessandlackofdiscriminationultimatelywork
tothedetrimentofbonafidetakersofinsuranceandthepublicingeneral.
Section48regulatesboththeactionsoftheinsurersandprospectivetakers
oflifeinsurance.Itgivesinsurersenoughtimetoinquirewhetherthepolicy
was obtained by fraud, concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their attempts at insurance
fraudwouldbetimelyuncoveredthusdeterringthemfromventuringinto
suchnefariousenterprise.Atthesametime,legitimatepolicyholdersare
absolutelyprotectedfromunwarranteddenialoftheirclaimsordelayinthe
collection of insurance proceeds occasioned by allegations of fraud,
concealment,ormisrepresentationbyinsurers,claimswhichmaynolonger
be set upafter the twoyear period expiresas ordained under the law.
Thus,theselfregulatingfeatureofSection48liesinthefactthatboththe
insurerandtheinsuredaregiventheassurancethatanydishonestschemeto
obtainlifeinsurancewouldbeexposed,andattemptsatundulydenyinga
claimwouldbestruckdown.Lifeinsurancepoliciesthatpassthestatutory
twoyearperiodareessentiallytreatedaslegitimateandbeyondquestion,
andtheindividualswhowieldthemaremadesecurebythethoughtthat
they will be paid promptly upon claim. In this manner, Section 48

contributes to the stability of the insurance industry.

Section48preventsasituationwheretheinsurerknowinglycontinuesto
acceptannualpremiumpaymentsonlifeinsurance,onlytolaterondenya
claim on the policy on specious claims of fraudulent concealment and
misrepresentation,suchaswhatobtainsintheinstantcase.Thus,insteadof
conducting at the first instance an investigation into the circumstances
surroundingtheissuanceofinsurancePolicyNo.747411whichwouldhave
timelyexposedthesupposedflawsandirregularitiesattendingitasitnow
professes,petitionerappearstohaveturnedablindeyeandoptedinsteadto
continue collecting the premiums on the policy. For nearly three years,
petitionercollectedthepremiumsanddevotedthesametoitsownprofit.It
cannotnowdenytheclaimwhenitiscalledtoaccount.Section48mustbe
applied to it with full force and effect.

TheCourtthereforeagreesfullywiththeappellatecourt'spronouncement
that
[t]he"incontestabilityclause"isaprovisioninlawthatafterapolicyoflife
insurancemadepayableonthedeathoftheinsuredshallhavebeeninforce
duringthelifetimeoftheinsuredforaperiodoftwo(2)yearsfromthedate
ofitsissueorofitslastreinstatement,theinsurercannotprovethatthe
policyisvoidabinitioorisrescindiblebyreasonoffraudulentconcealment
or misrepresentation of the insured or his agent.
Thepurposeofthelawistogiveprotectiontotheinsuredorhisbeneficiary
bylimitingtherescindingofthecontractofinsuranceonthegroundof
fraudulent concealment ormisrepresentationtoaperiodofonlytwo(2)
years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2)
years.Itisnotfairfortheinsurertocollectthepremiumsaslongasthe
insuredisstillalive,onlytoraisetheissueoffraudulentconcealmentor
misrepresentationwhentheinsureddiesinordertodefeattherightofthe
beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last
reinstatement, the beneficiary is given the stability to recover under the

policywhentheinsureddies.Theprovisionalsomakesclearwhenthetwo
year period should commence in case the policy should lapse and is
reinstated, that is, from the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no
matter how patent or wellfounded, will no longer lie.
Congressfeltthiswasasufficientanswertothevarioustacticsemployedby
insurance companies to avoid liability.

Thesocalled"incontestabilityclause" precludestheinsurerfrom raising

the defenses of false representations or concealment of material facts
insofarashealthandpreviousdiseasesareconcernediftheinsurancehas
beeninforceforatleasttwoyearsduringtheinsuredslifetime.Thephrase
"duringthelifetime"foundinSection48simplymeansthatthepolicyisno
longerconsideredinforceaftertheinsuredhasdied.Thekeyphraseinthe
second paragraph of Section 48 is "for a period of two years."
Asbornebytherecords,thepolicywasissuedonAugust30.1993,the
insureddiedonApril10,1996,andtheclaimwasdeniedonApril16,1997.
Theinsurancepolicywasthusinforceforaperiodof3years,7months,
and24days.Consideringthattheinsureddiedafterthetwoyearperiod,the
plaintiffappellantis,therefore,barredfromprovingthatthepolicyisvoid
ab initio by reason of the insured fraudulent concealment or
misrepresentation or want of insurable interest on the part of the
beneficiary,

herein

defendantappellee.

Wellsettledistherulethatitistheplaintiffappellant'sburdentoshowthat
thefactualfindingsofthetrialcourtarenotbasedonsubstantialevidence
orthatitsconclusionsarecontrarytoapplicablelawandjurisprudence.The
plaintiffappellantfailedtodischargethatburden.28
Petitionerclaimsthatitsinsuranceagent,whosolicitedtheSoteroaccount,
happenstobethecousinofrespondent'shusband,andthusinsinuatesthat
bothconnivedtocommitinsurancefraud.Ifthisweretrulythecase,then
petitioner would have discovered the scheme earlier if it had inearnest
conductedaninvestigationintothecircumstancessurroundingtheSotero
policy.ButbecauseitdidnotanditinvestigatedtheSoteroaccountonly
afteraclaimwasfiledthereonmorethantwoyearslater,naturallyitwas
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unable to detect the scheme. For its negligence and inaction, the Court
cannotsympathizewithitsplight.Instead,itscasepreciselyprovidesthe
strongargumentforrequiringinsurerstodiligentlyconductinvestigations
on each policy they issue within the twoyear period mandated under
Section48,andnotalterclaimsforinsuranceproceedsarefiledwiththem.
Besides, if insurers cannot vouch for the integrity and honesty of their
insuranceagents/salesmenandtheinsurancepoliciestheyissue,thenthey
shouldceasedoingbusiness.Iftheycouldnotproperlyscreentheiragents
orsalesmenbeforetakingthemintomarkettheirproducts,oriftheydonot
thoroughly investigate the insurance contracts they enter into with their
clients,thentheyhaveonlythemselvestoblame.Otherwisesaid,insurers
cannot be allowed to collect premiums on insurance policies, use these
amountscollectedandinvestthesamethroughtheyears,generatingprofits
and returns therefrom for their own benefit, and thereafter conveniently
denyinsuranceclaimsbyquestioningtheauthorityorintegrityoftheirown
agentsortheinsurancepoliciestheyissuedtotheirpremiumpayingclients.
This is exactly one of the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing
frivolouscasesincourt,hopingthattheinevitablemaybeputoffforyears
orevendecadesbythependencyoftheseunnecessarycourtcases.Inthe
meantime,theybenefitfromcollectingtheinterestand/orreturnsonboth
thepremiumspreviouslypaidbytheinsuredandtheinsuranceproceeds
whichshouldotherwisegototheirbeneficiaries.Thebusinessofinsurance
isahighlyregulatedcommercialactivityinthecountry, 29 andisimbued
withpublicinterest.30 "[A]ninsurancecontract isacontractofadhesion
whichmustbeconstruedliberallyinfavoroftheinsuredandstrictlyagainst
the insurer in order to safeguard the [former's] interest." 31
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WHEREFORE,thePetitionisDENIED.TheassailedSeptember28,2005
DecisionandtheNovember9,2006ResolutionoftheCourtofAppealsin
CAG.R. CV No. 62286 are
AFFIRMED.

SOORDERED.

DECISION
PERALTA,J.:
BeforeusisaPetitionforReviewonCertiorariunderRule45oftheRules
ofCourtassailingtheDecision1datedMay31,2011andResolution 2dated
August10,2011oftheCourtofAppeals(CA)inCAG.R.CVNo.93027.
Thefactsfollow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV00186, with petitioner, involving her
motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligatesthepetitionertopaytherespondenttheamountofSixHundred
ThirtyThousandPesos(P630,000.00)incaseoflossordamagetosaid
vehicle during the period covered, which is from February 26, 2007 to
February26,2008.
OnApril16,2007,atabout9:00a.m.,respondentinstructedherdriver,Jose
Joel SalazarLanuza(Lanuza),tobringtheabovedescribedvehicletoa
nearbyautoshopforatuneup.However,Lanuzanolongerreturnedthe
motorvehicletorespondentanddespitediligenteffortstolocatethesame,
said efforts proved futile. Resultantly, respondent promptly reported the
incidenttothepoliceandconcomitantlynotifiedpetitionerofthesaidloss
and demanded payment of the insurance proceeds in the total sum of
P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent,statingamongothers,thus:
G.R.No.198174September2,2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIASONIACASTOR,RESPONDENT.

Upon verification of the documents submitted, particularly the Police

Report and your Affidavit, which states that the culprit, who stole the
Insure[d]unit,isemployedwithyou.Wewouldliketoinviteyouonthe
provisionofthePolicyunderExceptionstoSectionIII,whichwequote:
1.)TheCompanyshallnotbeliablefor:

xxxx
(4)AnymaliciousdamagecausedbytheInsured,anymemberofhisfamily
orby"APERSONINTHEINSUREDSSERVICE."
Inview[of]theforegoing,weregretthatwecannotactfavorablyonyour
claim.

OnMay31,2011,theCArenderedaDecisionaffirmingintototheRTCof
QuezonCitysdecision.Thefalloreads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly,theDecision,datedDecember19,2008,ofBranch215ofthe
Regional TrialCourtofQuezonCity,inCivil CaseNo.Q0761099,is
herebyAFFIRMEDintoto.

InlettersdatedJuly12,2007andAugust3,2007,respondentreiteratedher
claimandarguedthattheexceptionreferstodamageofthemotorvehicle
and not toitsloss.However,petitioners denial of respondents insured
claimremainsfirm.

SOORDERED.4

Accordingly, respondent filed a Complaint for Sum of Money with

Damages against petitioner before the Regional Trial Court (RTC) of
QuezonCityonSeptember10,2007.

Hence,thepresentpetitionwhereinpetitionerraisesthefollowinggrounds
fortheallowanceofitspetition:

InaDecisiondatedDecember19,2008,theRTCofQuezonCityruledin
favorofrespondentinthiswise:
WHEREFORE,premisesconsidered,judgmentisherebyrenderedinfavor
oftheplaintiffandagainstthedefendantorderingthelatterasfollows:
Topayplaintifftheamountof P466,000.00pluslegalinterestof6%per
annumfromthetimeofdemanduptothetimetheamountisfullysettled;
TopayattorneysfeesinthesumofP65,000.00;and
Topaythecostsofsuit.
Allotherclaimsnotgrantedareherebydeniedforlackoflegalandfactual
basis.3
Aggrieved,petitionerfiledanappealwiththeCA.

PetitionerfiledaMotionforReconsiderationagainstsaiddecision,butthe
samewasdeniedinaResolutiondatedAugust10,2011.

WITHDUERESPECTTOTHEHONORABLECOURTOFAPPEALS,
ITERREDANDGROSSLYORGRAVELYABUSEDITSDISCRETION
WHENITADJUDGEDINFAVOROFTHEPRIVATERESPONDENT
ANDAGAINSTTHEPETITIONERANDRULEDTHATEXCEPTION
DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE
TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS]
EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES
THEMSELVESDISAGREEABOUTTHEMEANINGOFPARTICULAR
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE
COURTS LIBERALLY IN FAVOR OF THE ASSURED AND
STRICTLYAGAINSTTHEINSURER.
WITHDUERESPECTTOTHEHONORABLECOURTOFAPPEALS,
IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION
WHENIT[AFFIRMED]INTOTOTHEJUDGMENTOFTHETRIAL
COURT.5
Simply,thecoreissueboilsdowntowhetherornotthelossofrespondents
vehicleisexcludedundertheinsurancepolicy.
Weruleinthenegative.

SignificantportionsofSectionIIIoftheInsurancePolicystates:

(1.00%)oftheInsuredsestimateofFairMarketValueasshowninthe
PolicySchedulewithaminimumdeductibleamountofPhp3,000.00;

SECTIONIIILOSSORDAMAGE
TheCompanywill,subjecttotheLimitsofLiability,indemnifytheInsured
againstlossofordamagetotheScheduleVehicleanditsaccessoriesand
sparepartswhilstthereon:
(a)
by accidental collision or overturning, or collision or overturning
consequentuponmechanicalbreakdownorconsequentuponwearandtear;

Consequential loss, depreciation, wear and tear, mechanical or electrical

breakdowns,failuresorbreakages;
Damagetotires,unlesstheScheduleVehicleisdamagedatthesametime;
AnymaliciousdamagecausedbytheInsured,anymemberofhisfamilyor
byapersonintheInsuredsservice.6

by fire, external explosion, selfignition or lightning or burglary,

housebreakingortheft;

Indenyingrespondentsclaim,petitionertakesexceptionbyarguingthat
the word "damage," under paragraph 4 of "Exceptions to Section III,"
meanslossduetoinjuryorharm toperson,propertyorreputation,and
shouldbeconstruedtocovermalicious"loss"asin"theft."Thus,itasserts
thatthelossofrespondentsvehicleasaresultofitbeingstolenbythe
lattersdriverisexcludedfromthepolicy.

(c)

Wedonotagree.

bymaliciousact;

Ruling in favor of respondent, the RTC of Quezon City scrupulously

elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III
thereofdidnotqualifyastowhowouldcommitthetheft.Thus:

(b)

(d)
whilst in transit (including the processes of loading and unloading)
incidentaltosuchtransitbyroad,rail,inlandwaterway,liftorelevator.
xxxx
EXCEPTIONSTOSECTIONIII
TheCompanyshallnotbeliabletopayfor:
LossorDamageinrespectofanyclaimorseriesofclaimsarisingoutof
one event, the first amount of each and every loss for each and every
vehicle insured by this Policy, such amount being equal to one percent

Theft perpetrated by a driver of the insured is not an exception to the

coveragefromtheinsurancepolicysubjectofthiscase.Thisisevidentfrom
the very provision of Section III "Loss or Damage." The insurance
company,subject tothelimitsofliability,isobligatedtoindemnifythe
insured against theft. Said provision does not qualify as to who would
committhetheft.Thus,evenifthesameiscommittedbythedriverofthe
insured,therebeingnocategoricaldeclarationofexception,thesamemust
be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract shouldbeinterpretedastocarryoutthepurposeforwhichthe
partiesenteredintothecontractwhichistoinsureagainstrisksoflossor
damagetothegoods.Suchinterpretationshouldresultfromthenaturaland
reasonablemeaningoflanguageinthepolicy.Whererestrictiveprovisions

areopentotwointerpretations,thatwhichismostfavorabletotheinsured
isadopted."Thedefendantwouldarguethatifthepersonemployedbythe
insuredwouldcommitthetheftandtheinsurerwouldbeheldliable,then
thiswouldresulttoanabsurdsituationwheretheinsurerwouldalsobeheld
liable if the insured wouldcommit the theft. Thisargument is certainly
flawed.Ofcourse,ifthetheftwouldbecommittedbytheinsuredhimself,
thesamewouldbeanexceptiontothecoveragesinceinthatcasethere
wouldbefraudonthepartoftheinsuredorbreachofmaterialwarranty
underSection69oftheInsuranceCode.7
Moreover,contractsofinsurance,likeothercontracts,aretobeconstrued
according to the sense and meaning of the terms which the parties
themselveshaveused.Ifsuchtermsareclearandunambiguous,theymust
be taken and understood in their plain, ordinary and popular sense. 8
Accordingly, in interpreting the exclusions in an insurance contract, the
terms usedspecifying theexcludedclasses therein are tobegiventheir
meaningasunderstoodincommonspeech.9
Adverse to petitioners claim, the words "loss" and "damage" mean
differentthingsincommonordinaryusage.Theword"loss"referstotheact
orfactoflosing,orfailuretokeeppossession,whiletheword"damage"
meansdeteriorationorinjurytoproperty.1wphi1
Therefore,petitionercannotexcludethelossofrespondentsvehicleunder
theinsurancepolicyunderparagraph4of"ExceptionstoSectionIII,"since
thesamerefersonlyto"maliciousdamage,"ormorespecifically,"injury"
to the motor vehicle caused by a person under the insureds service.
Paragraph 4 clearly does not contemplate "loss of property," as what
happenedintheinstantcase.
Further,theCAaptlyruledthat"maliciousdamage,"asprovidedforinthe
subjectpolicyasoneoftheexceptionsfromcoverage,isthedamagethatis
thedirectresultfromthedeliberateorwillfulactoftheinsured,membersof
hisfamily,andanypersonintheinsuredsservice,whoseclearplanor
purpose was to cause damage to the insured vehicle for purposes of
defraudingtheinsurer,viz.:

ThisinterpretationbytheCourt isbolstered bytheobservationthat the

subject policy appearstoclearlydelineate between theterms"loss" and
"damage"byusingbothtermsthroughoutthesaidpolicy.xxx
xxxx
Iftheintentionofthedefendantappellantwastoincludetheterm"loss"
withintheterm"damage"thenlogicdictatesthatitshouldhaveusedthe
term "damage" alone in the entire policy or otherwise included a clear
definitionofthesaidtermaspartoftheprovisionsofthesaidinsurance
contract.WhichiswhytheCourtfindsitpuzzlingthatinthesaidpolicys
provisiondetailingtheexceptionstothepolicyscoverageinSectionIII
thereof, which is one of the crucial parts in the insurance contract, the
insurer,afterliberallyusingthewords"loss"and"damage"intheentire
policy, suddenly went specific by using the word "damage" onlyin the
policys exception regarding "malicious damage." Now, the defendant
appellantwouldlikethisCourttobelievethatitreallyintendedtheword
"damage"intheterm"maliciousdamage"toincludethetheftoftheinsured
vehicle.
TheCourtdoesnotfindtheparticularcontentiontobewelltaken.
True,itisabasicruleintheinterpretationofcontractsthatthetermsofa
contractaretobeconstruedaccordingtothesenseandmeaningoftheterms
which the parties thereto have used. In the case of property insurance
policies,theevidentintentionofthecontractingparties,i.e.,theinsurerand
the assured, determine the import of the various terms and provisions
embodiedinthepolicy.However,whenthetermsoftheinsurancepolicy
are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, the policy will be
construedbythecourtsliberallyinfavoroftheassuredandstrictlyagainst
theinsurer.10
Lastly,acontractofinsuranceisacontractofadhesion.So,whentheterms
of the insurance contract contain limitations on liability, courts should
construetheminsuchawayastoprecludetheinsurerfromnoncompliance
withhisobligation.Thus,inEternalGardensMemorialParkCorporationv.
PhilippineAmericanLifeInsuranceCompany,11thisCourtruled

Itmustberememberedthataninsurancecontractisacontractofadhesion
whichmustbeconstruedliberallyinfavoroftheinsuredandstrictlyagainst
the insurer in order to safeguard the latters interest. Thus, in Malayan
InsuranceCorporationv.CourtofAppeals,thisCourtheldthat:
Indemnityandliabilityinsurancepoliciesareconstruedinaccordancewith
thegeneralruleofresolvinganyambiguitythereininfavoroftheinsured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
thereinshouldberesolvedagainsttheinsurer;inotherwords,itshouldbe
construedliberallyinfavoroftheinsuredandstrictlyagainsttheinsurer.
Limitationsofliabilityshouldberegardedwithextremejealousyandmust
beconstruedinsuchawayastoprecludetheinsurerfromnoncompliance
withitsobligations.
Inthemorerecent caseofPhilamcareHealthSystems,Inc.v.Courtof
Appeals,wereiteratedtheaboveruling,statingthat:
Whenthetermsofinsurancecontractcontainlimitationsonliability,courts
shouldconstruetheminsuchawayastoprecludetheinsurerfromnon
compliancewithhisobligation.Beingacontractofadhesion,thetermsof
aninsurancecontractaretobeconstruedstrictlyagainstthepartywhich
preparedthecontract,theinsurer.Byreasonoftheexclusivecontrolofthe
insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and
liberallyinfavoroftheinsured,especiallytoavoidforfeiture. 12
WHEREFORE, premises considered, the instant Petition for Review on
CertiorariisDENIED.Accordingly,theDecisiondatedMay31,2011and
Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.
SOORDERED.

G.R.No.186983February22,2012
MA. LOURDES S. FLORENDO,
Petitioner,

vs.
PHILAMPLANS,INC.,PERLAABCEDEMA.CELESTEABCEDE,
Respondents.
DECISION
ABAD,J.:
Thiscaseisabout aninsuredsallegedconcealmentinhispensionplan
applicationofhistruestateofhealthanditseffectonthelifeinsurance
portionofthatplanincaseofdeath.
TheFactsandtheCase
On October 23, 1997 Manuel Florendo filed an application for
comprehensive pensionplanwithrespondent Philam Plans,Inc.(Philam
Plans)aftersomeconvincingbyrespondentPerlaAbcede.Theplanhada
preneedpriceof P997,050.00,payablein10years,and hada maturity
valueofP2,890,000.00after20years.1Manuelsignedtheapplicationand
lefttoPerlathetaskofsupplyingtheinformationneededintheapplication. 2
RespondentMa.CelesteAbcede,Perlasdaughter,signedtheapplicationas
salescounselor.3
Asidefrompensionbenefits,thecomprehensivepensionplanalsoprovided
lifeinsurancecoveragetoFlorendo. 4ThiswascoveredbyaGroupMaster
Policy that Philippine American Life Insurance Company (Philam Life)
issued to Philam Plans.5 Under the master policy, Philam Life was to

automaticallyprovidelifeinsurancecoverage,includingaccidentaldeath,to
allwhosignedupforPhilamPlanscomprehensivepensionplan. 6 Ifthe
plan holderdiedbefore thematurityof the plan,hisbeneficiary wasto
insteadreceivetheproceedsofthelifeinsurance,equivalenttothepreneed
price.Further,thelifeinsurancewastotakecareofanyunpaidpremium
until the pension plan matured, entitling the beneficiary to the maturity
valueofthepensionplan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement
PP430055848toManuel,withpetitionerMa.LourdesS.Florendo,hiswife,
asbeneficiary.Intime,Manuelpaidhisquarterlypremiums.9
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning.Subsequently,LourdesfiledaclaimwithPhilamPlansforthe
paymentofthebenefitsunderherhusbandsplan. 10 BecauseManueldied
beforehispensionplanmaturedandhiswifewastogetonlythebenefitsof
hislifeinsurance,PhilamPlansforwardedherclaimtoPhilamLife.11
OnMay3,1999PhilamPlanswroteLourdesaletter, 12decliningherclaim.
PhilamLifefoundthatManuelwasonmaintenancemedicineforhisheart
and had an implanted pacemaker. Further, he suffered from diabetes
mellitusandwastakinginsulin.Lourdesrenewedherdemandforpayment
undertheplan13 butPhilamPlansrejectedit,14 promptinghertofilethe
presentactionagainstthepensionplancompanybeforetheRegionalTrial
Court(RTC)ofQuezonCity.15
OnMarch30,2006theRTCrenderedjudgment,16 orderingPhilamPlans,
PerlaandMa.Celeste,solidarily,topayLourdesallthebenefitsfromher
husbands pension plan, namely: P997,050.00, the proceeds of his term
insurance,and P2,890,000.00lumpsumpensionbenefituponmaturityof
hisplan; P100,000.00asmoraldamages;andtopaythecostsofthesuit.
TheRTCruledthatManuelwasnotguiltyofconcealingthestateofhis
healthfromhispensionplanapplication.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
decision,17 holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. As such, it required

ManueltodisclosetoPhilamPlansconditionsaffectingtheriskofwhichhe
wasawareormaterialfactsthathekneworoughttoknow.18
IssuesPresented
Theissuespresentedinthiscaseare:
1. Whether or not the CA erred in finding Manuel guilty of
concealing his illness when he kept blank and did not answer
questionsinhispensionplanapplicationregardingtheailmentshe
sufferedfrom;
2.WhetherornottheCAerredinholdingthatManuelwasbound
bythefailureofrespondentsPerlaandMa.Celestetodeclarethe
conditionofManuelshealthinthepensionplanapplication;and
3. Whether or not the CA erred in finding that Philam Plans
approvalofManuelspensionplanapplicationandacceptanceof
hispremiumpaymentsprecludeditfromdenyingLourdesclaim.
RulingsoftheCourt
One.Lourdespointsoutthat,seeingtheunfilledspacesinManuelspension
planapplicationrelatingtohismedicalhistory,PhilamPlansshouldhave
returnedittohimforcompletion.SincePhilamPlanschosetoapprovethe
application just as it was, it cannot cry concealment on Manuels part.
Further, Lourdes adds that Philam Plans never queried Manuel directly
regardingthestateofhishealth.Consequently,itcouldnotblamehimfor
notmentioningit.19
ButLourdesisshiftingtoPhilamPlanstheburdenofputtingonthepension
planapplicationthetruestateofManuelshealth.Sheforgetsthatsince
PhilamPlanswaivedmedicalexaminationforManuel,ithadtorelylargely
onhisstatingthetruthregardinghishealthinhisapplication.For,afterall,
he knew more than anyone that he had been under treatment for heart
conditionanddiabetesformorethanfiveyearsprecedinghissubmissionof
thatapplication.ButhekeptthosecrucialfactsfromPhilamPlans.

Besides,whenManuelsignedthepensionplanapplication,headoptedas
hisownthewrittenrepresentationsanddeclarationsembodiedinit.Itis
clearfromtheserepresentationsthatheconcealedhischronicheartailment
anddiabetesfromPhilamPlans.Thepertinentportionofhisrepresentations
anddeclarationsreadasfollows:
Iherebyrepresentanddeclaretothebestofmyknowledgethat:
xxxx
(c) I have never been treated for heart condition, high blood
pressure,cancer,diabetes,lung,kidneyorstomachdisorderorany
otherphysicalimpairmentinthelastfiveyears.
(d)Iamingoodhealthandphysicalcondition.
Ifyouranswertoanyofthestatementsaboverevealotherwise,pleasegive
detailsinthespaceprovidedfor:
Dateofconfinement:____________________________
NameofHospitalorClinic:____________________________
NameofAttendingPhysician:____________________________
Findings:____________________________
Others:(Pleasespecify):____________________________
xxxx.20(Emphasissupplied)
SinceManuelsignedtheapplicationwithoutfillinginthedetailsregarding
hiscontinuingtreatmentsforheartconditionanddiabetes,theassumptionis
thathehasneverbeentreatedforthesaidillnessesinthelastfiveyears
precedinghisapplication.Thisisimplicitfromthephrase"Ifyouranswer
toanyofthestatementsabove(specifically,thestatement: Ihavenever

beentreatedforheartconditionordiabetes)revealotherwise,pleasegive
detailsinthespaceprovidedfor."Butthisisuntruesincehehadbeenon
"Coumadin,"atreatmentforvenousthrombosis, 21andinsulin,adrugused
inthetreatmentofdiabetesmellitus,atthattime.22
Lourdes insists that Manuel had concealed nothing since Perla, the
solicitingagent,knewthatManuelhadapacemakerimplantedonhischest
inthe70sorabout20yearsbeforehesignedupforthepensionplan. 23But
by its tenor, the responsibility for preparing the application belonged to
Manuel. Nothing in it implies that someone else may provide the
informationthatPhilamPlansneeded.Manuelcannotsigntheapplication
anddisowntheresponsibilityforhavingitfilledup.IfhefurnishedPerla
theneededinformationanddelegatedtoherthefillingupoftheapplication,
thensheactedonhisinstruction,notonPhilamPlansinstruction.
LourdesnextpointsoutthatitmadenodifferenceifManuelfailedtoreveal
thefactthathehadapacemakerimplantintheearly70ssincethisdidnot
fallwithinthefiveyeartimeframethatthedisclosurecontemplated. 24Buta
pacemakerisanelectronicdeviceimplantedintothebodyandconnectedto
thewalloftheheart,designedtoprovideregular,mild,electricshockthat
stimulatesthecontractionoftheheartmusclesandrestoresnormalcytothe
heartbeat.25 That Manuel still had his pacemaker when he applied for a
pension plan in October 1997 is an admission that he remained under
treatment for irregular heartbeat within five years preceding that
application.
Besides,asalreadystated,Manuelhadbeentakingmedicineforhisheart
condition and diabetes when he submitted his pension plan application.
These clearly fell within the fiveyear period. More, even if Perlas
knowledgeofManuelspacemakermaybeappliedtoPhilamPlansunder
thetheoryofimputedknowledge,26itisnotclaimedthatPerlawasawareof
histwootherafflictionsthatneededmedicaltreatments.PursuanttoSection
2727oftheInsuranceCode,ManuelsconcealmententitlesPhilamPlansto
rescinditscontractofinsurancewithhim.
Two. Lourdes contends that the mere fact that Manuel signed the
applicationinblankandletPerlafillintherequireddetailsdidnotmakeher
hisagentandbindhimtoherconcealmentofhistruestateofhealth.Since

there is no evidence of collusion between them, Perlas fault must be

consideredsolelyherownandcannotprejudiceManuel.28
ButManuelforgotthatinsigningthepensionplanapplication,hecertified
thathewrotealltheinformationstatedinitorhadsomeonedoitunderhis
direction.Thus:
APPLICATION
(Comprehensive)

FOR

PENSION

PLAN

IherebyapplytopurchasefromPHILAMPLANS,INC.aPensionPlan
Program describedhereininaccordancewiththeGeneralProvisionsset
forth in this application and hereby certify that the date and other
informationstatedhereinarewrittenbymeorundermydirection.xxx. 29
(Emphasissupplied)
AssumingthatitwasPerlawhofilleduptheapplicationform,Manuelis
still bound bywhat it contains since he certified that heauthorized her
action.PhilamPlanshadeveryrighttoactonthefaithofthatcertification.
Lourdes could not seek comfort from her claim that Perla had assured
Manuelthatthestateofhishealthwouldnothindertheapprovalofhis
applicationandthatwhatiswrittenonhisapplicationmadenodifferenceto
theinsurancecompany.But,indubitably,Manuelwasmadeawarewhenhe
signedthepensionplanapplicationthat,ingrantingthesame,PhilamPlans
andPhilamLifewereactingonthetruthoftherepresentationscontainedin
thatapplication.Thus:

AstheCourtsaidinNewLifeEnterprisesv.CourtofAppeals:31
It may be true that x x x insured persons may accept policies without
readingthem,andthatthisisnotnegligenceperse.But,thisisnotwithout
any exception. It is and was incumbent upon petitioner Sy to read the
insurancecontracts,andthiscanbereasonablyexpectedofhimconsidering
that he has been a businessman since 1965 and the contract concerns
indemnityincaseoflossinhismoneymakingtradeofwhichimportant
considerationhecouldnothavebeenunawareasitwaspreciselythereason
forhisprocuringthesame.32
The same may be said of Manuel, a civil engineer and manager of a
constructioncompany.33Hecouldbeexpectedtoknowthatonemustread
everydocument,especiallyifitcreatesrightsandobligationsaffectinghim,
before signing the same. Manuel is not unschooled that the Court must
cometohissuccor.Itcouldreasonablybeexpectedthathewouldnottrifle
withsomethingthatwouldprovideadditionalfinancialsecuritytohimand
tohiswifeinhistwilightyears.
Three.InafinalattempttodefendherclaimforbenefitsunderManuels
pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed
waivedafterthesamehasbeenapproved,thepolicyhasbeenissued,and
thepremiumshavebeencollected.34
TheCourtcannotagree.ThecomprehensivepensionplanthatPhilamPlans
issuedcontainsaoneyearincontestabilityperiod.Itstates:

DECLARATIONSANDREPRESENTATIONS

VIII.INCONTESTABILITY

xxxx

AfterthisAgreementhasremainedinforceforone(1)year,wecanno
longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid
(lapsed),orthatyouarenotinsurableatthetimeyouboughtthispension
program by reason of age. If this Agreement lapses but is reinstated
afterwards,theone(1)yearcontestabilityperiodshallstartagainonthe
dateofapprovalofyourrequestforreinstatement.351wphi1

Iagreethattheinsurancecoverageofthisapplicationisbasedonthetruth
of the foregoing representations and is subject to the provisions of the
Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN
LIFEINSURANCECO.toPHILAMPLANS,INC.30(Emphasissupplied)

The above incontestability clause precludes the insurer from disowning

liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its
issuance.
SinceManuel diedontheeleventhmonthfollowingtheissuanceofhis
plan,36theoneyearincontestabilityperiodhasnotyetsetin.Consequently,
PhilamPlanswasnotbarredfromquestioningLourdesentitlementtothe
benefitsofherhusbandspensionplan.
WHEREFORE,theCourtAFFIRMSinitsentiretythedecisionoftheCourt
ofAppealsinCAG.R.CV87085datedDecember18,2007.
SOORDERED.
G.R.No.195872March12,2014
FORTUNE

MEDICARE,

INC.,
vs.
DAVIDROBERTU.AMORIN,Respondent.

Petitioner,

DECISION
REYES,J.:
Thisisapetitionforreviewoncertiorari1 underRule45oftheRulesof
Court, which challenges the Decision2 dated September 27, 2010 and
Resolution3datedFebruary24,2011oftheCourtofAppeals(CA)inCA
G.R.CVNo.87255.
TheFacts
DavidRobertU.Amorin(Amorin)wasacardholder/memberofFortune
Medicare,Inc.(FortuneCare),acorporationengagedinprovidinghealth
maintenance services to its members. The terms of Amorin's medical
coveragewereprovidedinaCorporateHealthProgramContract4(Health

CareContract)whichwasexecutedonJanuary6,2000byFortuneCareand
theHouseofRepresentatives,whereAmorinwasapermanentemployee.
WhileonvacationinHonolulu,Hawaii,UnitedStatesofAmerica(U.S.A.)
in May 1999, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, causing him to incur
professional and hospitalization expenses of US$7,242.35 and
US$1,777.79,respectively.HeattemptedtorecoverfromFortuneCarethe
full amount thereof upon his return to Manila, but the company merely
approvedareimbursementofP12,151.36,anamountthatwasbasedonthe
averagecostofappendectomy,netofmedicarededuction,iftheprocedure
were performed in an accredited hospital in Metro Manila.5 Amorin
receivedunderprotesttheapprovedamount,butaskedforitsadjustmentto
coverthetotalamountofprofessionalfeeswhichhehadpaid,andeighty
percent (80%) of the approved standard charges based on "American
standard",consideringthattheemergencyprocedureoccurredintheU.S.A.
Tosupporthisclaim,AmorincitedSection3,ArticleVonBenefitsand
CoveragesoftheHealthCareContract,towit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL.
Whether as an inpatient or outpatient, the member shall be
entitled to full coverage under the benefits provisions of the
ContractatanyFortuneCareaccreditedhospitalssubjectonlyto
the pertinent provision of Article VII (Exclusions/Limitations)
hereof.Foremergencycareattendedbynonaffiliatedphysician
(MSU),themembershallbereimbursed80%oftheprofessional
feewhichshouldhavebeenpaid,hadthememberbeentreatedby
anaffiliatedphysician.Theavailmentofemergencycarefroman
unaffiliatedphysicianshallnotinvalidateordiminishanyclaimif
it shall beshowntohavebeen reasonablyimpossible toobtain
suchemergencycarefromanaffiliatedphysician.
B.EMERGENCYCAREINNONACCREDITEDHOSPITAL
1.Whetherasaninpatientoroutpatient,FortuneCareshallreimbursethe
totalhospitalizationcostincludingtheprofessionalfee(basedonthetotal
approvedcharges)toamemberwhoreceivesemergencycareinanon
accredited hospital. The above coverage applies only to Emergency

confinement within Philippine Territory. However, if the emergency

confinementoccursinaforeignterritory,FortuneCarewillbeobligatedto
reimburseorpayeighty(80%)percentoftheapprovedstandardcharges
whichshallcoverthehospitalizationcostsandprofessionalfees.xxx6
Still,FortuneCaredeniedAmorinsrequest,promptingthelattertofilea
complaint7 forbreachofcontractwithdamageswiththeRegional Trial
Court(RTC)ofMakatiCity.
For its part, Fortune Care argued that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign
countries,asthecontractsoperationwasconfinedtoPhilippineterritory.8
Further,itarguedthatitsliabilitytoAmorinwasextinguisheduponthe
lattersacceptancefromthecompanyoftheamountofP12,151.36.
TheRTCRuling
OnMay8,2006,theRTCofMakati,Branch66rendereditsDecision9
dismissingAmorinscomplaint.CitingSection3,ArticleVoftheHealth
CareContract,theRTCexplained:
Taking the contract as a whole, the Court is convinced that the parties
intendedtousethePhilippinestandardasbasis.Section3oftheCorporate
HealthCareProgramContractprovidesthat:
xxxx
Onthebasisoftheclauseprovidingforreimbursementequivalentto80%
oftheprofessionalfeewhichshouldhavebeenpaid,hadthememberbeen
treatedbyanaffiliatedphysician,theCourtconcludesthatthebasisfor
reimbursementshallbePhilippinerates.Thatprovision,takenwithArticle
Vofthehealthprogramcontract,whichidentifiesaffiliatedhospitalsas
only those accredited clinics, hospitals and medical centers located
"nationwide" only point to the Philippine standard as basis for
reimbursement.

Theclauseprovidingforreimbursementincaseofemergencyoperationina
foreignterritoryequivalentto80%oftheapprovedstandardchargeswhich
shall cover hospitalization costs and professional fees, can only be
reasonably construed in connection with the preceding clause on
professionalfeestogivemeaningtoasomewhatvagueclause.Aparticular
clauseshouldnotbestudiedasadetachedandisolatedexpression,butthe
whole and every part of the contract must be considered in fixing the
meaningofitsparts.10
Intheabsenceofevidencetothecontrary,thetrialcourtconsideredthe
amount of P12,151.36 already paid by Fortune Care to Amorin as
equivalentto80%ofthehospitalizationandprofessionalfeespayabletothe
latterhadhebeentreatedinanaffiliatedhospital.11
Dissatisfied,AmorinappealedtheRTCdecisiontotheCA.
TheCARuling
On September 27, 2010, the CA rendered its Decision12 granting the
appeal.Thus,thedispositiveportionofitsdecisionreads:
WHEREFORE,alltheforegoingpremisesconsidered,theinstantappealis
herebyGRANTED.TheMay8,2006assailedDecisionoftheRegional
TrialCourt(RTC)ofMakatiCity,Branch66isherebyREVERSEDand
SETASIDE,andanewoneenteredorderingFortuneMedicare,Inc.to
reimburse[Amorin]80%ofthetotalamountoftheactualhospitalization
expensesof$7,242.35andprofessionalfeeof$1,777.79paidbyhimtoSt.
FrancisMedicalCenterpursuanttoSection3,ArticleVoftheCorporate
Health Care Program Contract, or their peso equivalent at the time the
amountsbecamedue,lessthe[P]12,151.36alreadypaidbyFortunecare.
SOORDERED.13
In so ruling, the appellate court pointed out that, first, health care
agreementssuchasthesubjectHealthCareContract,beinglikeinsurance
contracts,mustbeliberallyconstruedinfavorofthesubscriber.Incaseits
provisionsaredoubtfulorreasonablysusceptibleoftwointerpretations,the

constructionconferringcoverageistobeadoptedandexclusionaryclauses
of doubtful import should be strictly construed against the provider.14
Second,theCAexplainedthattherewasnothingunderArticleVofthe
HealthCareContractwhichprovidedthatthePhilippinestandardshouldbe
used even in the event of an emergency confinement in a foreign
territory.15
FortuneCaresmotionforreconsiderationwasdeniedinaResolution16
datedFebruary24,2011.Hence,thefilingofthepresentpetitionforreview
oncertiorari.
ThePresentPetition
FortuneCarecitesthefollowinggroundstosupportitspetition:
I.TheCAgravelyerredinconcludingthatthephrase"approved
standardcharges"issubjecttointerpretation,andthatitdidnot
automaticallymean"PhilippineStandard";and
II.TheCAgravelyerredindenyingFortuneCaresmotionfor
reconsideration, which in effect affirmed its decision that the
American Standard Cost shall be applied in the payment of
medical and hospitalization expenses and professional fees
incurredbytherespondent.17
TheCourtsRuling
Thepetitionisbereftofmerit.
TheCourtfindsnocogentreasontodisturbtheCAsfindingthatFortune
CaresliabilitytoAmorinunderthesubjectHealthCareContractshouldbe
basedontheexpensesforhospitalandprofessionalfeeswhichheactually
incurred, and should not be limited by the amount that he would have
incurred had his emergency treatment been performed in an accredited
hospitalinthePhilippines.

Weemphasizethatforpurposesofdeterminingtheliabilityofahealthcare
providertoitsmembers,jurisprudenceholdsthatahealthcareagreementis
in the nature of nonlife insurance, which is primarily a contract of
indemnity.Oncethememberincurshospital,medicaloranyotherexpense
arisingfromsickness,injuryorotherstipulatedcontingent,thehealthcare
provider must pay for the same to the extent agreed upon under the
contract.18
Toaidintheinterpretationofhealthcareagreements,theCourtlaiddown
thefollowingguidelinesinPhilamcareHealthSystemsv.CA19:
Whenthetermsofinsurancecontractcontainlimitationsonliability,courts
shouldconstruetheminsuchawayastoprecludetheinsurerfromnon
compliancewithhisobligation.Beingacontractofadhesion,thetermsof
aninsurancecontractaretobeconstruedstrictlyagainstthepartywhich
preparedthecontracttheinsurer.Byreasonoftheexclusivecontrolofthe
insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. This is
equallyapplicable toHealthCareAgreements. Thephraseologyusedin
medical or hospital service contracts, such as the one at bar, must be
liberallyconstruedinfavorofthesubscriber,andifdoubtfulorreasonably
susceptibleoftwointerpretationstheconstructionconferringcoverageisto
beadopted,andexclusionaryclausesofdoubtfulimportshouldbestrictly
construedagainsttheprovider.20(Citationsomittedandemphasisours)
Consistentwiththeforegoing,wereiteratedinBlueCrossHealthCare,Inc.
v.SpousesOlivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a health care
agreementisinthenatureofanonlifeinsurance.Itisanestablishedrulein
insurancecontractsthatwhentheirtermscontainlimitationsonliability,
theyshouldbeconstruedstrictlyagainsttheinsurer.Thesearecontractsof
adhesionthetermsofwhichmustbeinterpretedandenforcedstringently
againsttheinsurerwhichpreparedthecontract.Thisdoctrineisequally
applicabletohealthcareagreements.
xxxx

xxx[L]imitationsof liabilityonthepart ofthe insureror healthcare

providermustbeconstruedinsuchawayastoprecludeitfromevadingits
obligations. Accordingly, they should be scrutinized by the courts with
"extreme jealousy" and "care" and with a "jaundiced eye." x x x.22
(Citationsomittedandemphasissupplied)
Intheinstantcase,theextentofFortuneCaresliabilitytoAmorinunder
theattendantcircumstanceswasgovernedbySection3(B),ArticleVofthe
subjectHealthCareContract,consideringthattheappendectomywhichthe
memberhadtoundergoqualifiedasanemergencycare,butthetreatment
wasperformedatSt.FrancisMedicalCenterinHonolulu,Hawaii,U.S.A.,a
nonaccreditedhospital.WerestatethepertinentportionsofSection3(B):
B.EMERGENCYCAREINNONACCREDITEDHOSPITAL
1.Whetherasaninpatientoroutpatient,FortuneCareshallreimbursethe
totalhospitalizationcostincludingtheprofessionalfee(basedonthetotal
approvedcharges)toamemberwhoreceivesemergencycareinanon
accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency
confinementoccursinforeignterritory,FortuneCarewillbeobligatedto
reimburseorpayeighty(80%)percentoftheapprovedstandardcharges
whichshallcoverthehospitalizationcostsandprofessionalfees.xxx23
(Emphasissupplied)
Thepointofdisputenowconcernstheproperinterpretationofthephrase
"approvedstandardcharges",whichshallbethebasefortheallowable80%
benefit.Thetrialcourtruledthatthephraseshouldbeinterpretedinlightof
theprovisionsofSection3(A),i.e.,totheextentthatmaybeallowedfor
treatmentsperformedbyaccreditedphysiciansinaccreditedhospitals.As
theappellatecourthoweverheld,thismustbeinterpretedinitsliteralsense,
guidedbytherulethatanyambiguityshallbestrictlyconstruedagainst
FortuneCare,andliberallyinfavorofAmorin.
TheCourtagreeswiththeCA.AsmaybegleanedfromtheHealthCare
Contract,thepartiestheretocontemplatedthepossibilityofemergencycare
inaforeigncountry.AsthecontractrecognizedFortuneCaresliabilityfor
emergency treatments even in foreign territories, it expressly limited its

liabilityonlyinsofarasthepercentageofhospitalizationandprofessional
feesthatmustbepaidorreimbursedwasconcerned,peggedatamere80%
oftheapprovedstandardcharges.
The word "standard" as used in the cited stipulation was vague and
ambiguous,asitcouldbesusceptibleofdifferentmeanings.Plainly,the
term"standardcharges"couldbereadasreferringtothe"hospitalization
costsandprofessionalfees"whichwerespecificallycitedascompensable
even when incurred in a foreign country. Contrary to Fortune Cares
argument,fromnowhereintheHealthCareContractcoulditbereasonably
deducedthatthese"standardcharges"referredtothe"Philippinestandard",
orthatcostwhichwouldhavebeenincurredifthemedicalserviceswere
performedinanaccreditedhospitalsituatedinthePhilippines.TheRTC
rulingthattheuseofthe"Philippinestandard"couldbeinferredfromthe
provisionsofSection3(A),whichcoveredemergencycareinanaccredited
hospital,wasmisplaced.Evidently,thepartiestotheHealthCareContract
madeacleardistinctionbetweenemergencycareinanaccreditedhospital,
andthatobtainedfromanonaccreditedhospital.1wphi1Thelimitationon
payment based on "Philippine standard" for services of accredited
physicianswasexpresslymadeapplicableonlyinthecaseofanemergency
careinanaccreditedhospital.
Theproperinterpretationofthephrase"standardcharges"couldinsteadbe
correlatedwithandreasonablyinferredfromtheotherprovisionsofSection
3(B), considering that Amorins case fell under the second case, i.e.,
emergencycareinanonaccreditedhospital.Ratherthanadeterminationof
PhilippineorAmericanstandards,thefirstpartoftheprovisionspeaksof
the full reimbursement of "the total hospitalization cost including the
professionalfee(basedonthetotalapprovedcharges)toamemberwho
receives emergency care in a nonaccredited hospital" within the
Philippines.Thus,foremergencycareinnonaccreditedhospitals,thiscited
clausedeclaredthestandardinthedeterminationoftheamounttobepaid,
withoutanyreferencetoandregardlessoftheamountsthatwouldhave
beenpayableifthetreatmentwasdonebyanaffiliatedphysicianorinan
affiliated hospital. For treatments in foreign territories, the only
qualification was only as to the percentage, or 80% of that payable for
treatmentsperformedinnonaccreditedhospital.

Alltold,intheabsenceofanyqualifyingwordthatclearlylimitedFortune
Care'sliabilitytocoststhatareapplicableinthePhilippines,theamount
payablebyFortuneCareshouldnotbelimitedtothecostoftreatmentinthe
Philippines, as to do so would result in the clear disadvantage of its
member.If,asFortuneCareargued,thepremiumandotherchargesinthe
HealthCareContractweremerelycomputedonassumptionandriskunder
Philippine cost and, that the American cost standard or any foreign
country's cost was never considered, such limitations should have been
distinctlyspecifiedandclearlyreflectedintheextentofcoveragewhichthe
company voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on
emergency care in nonaccredited hospitals was modified to read as
follows:
However, if the emergency confinement occurs in a foreign territory,
Fortunecare will be obligated to reimburse or pay one hundred (100%)
percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum
allowablecoverage,payableinpesosatprevailingcurrencyexchangerate
atthetimeofavailmentinsaidterritorywherehe/sheisconfined.xxx24
Settledistherulethatambiguitiesinacontractareinterpretedagainstthe
partythatcausedtheambiguity."Anyambiguityinacontractwhoseterms
aresusceptibleofdifferentinterpretationsmustbereadagainsttheparty
whodraftedit."25 WHEREFORE,thepetitionisDENIED.TheDecision
datedSeptember27,2010andResolutiondatedFebruary24,2011ofthe
CourtofAppealsinCAG.R.CVNo.87255areAFFIRMED.
SOORDERED.
G.R. No. 105135 June 22, 1995
SUNLIFE
ASSURANCE
COMPANY
OF
CANADA,
petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO
and BERNARDA BACANI, respondents.

a) consulted any doctor or other

health practitioner?
QUIASON, J.:

b) submitted to:

This is a petition for review for certiorari under Rule 45 of

the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of Appeals in
CA-G.R. CV No. 29068, and its Resolution dated April 22,
1992, denying reconsideration thereof.

EGG?
X-rays?
blood
tests?
other tests?

We grant the petition.

c) attended or been admitted to

any hospital or other medical
facility?

I
On April 15, 1986, Robert John B. Bacani procured a life
insurance contract for himself from petitioner. He was issued
Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated
beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash.
Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her
son. Petitioner conducted an investigation and its findings
prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda
Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the
total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in
his application when he answered the following questions:
5. Within the past 5 years have you:

6. Have you ever had or sought advice for:

xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p.
53)
The deceased answered question No. 5(a) in the affirmative
but limited his answer to a consultation with a certain Dr.
Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other
questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application
for insurance, the insured was examined and confined at the
Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was
subjected to urinalysis, ultra-sonography and hematology
tests.
On November 17, 1988, respondent Bernarda Bacani and
her husband, respondent Rolando Bacani, filed an action for
specific performance against petitioner with the Regional
Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner

filed its answer with counterclaim and a list of exhibits

consisting of medical records furnished by the Lung Center
of the Philippines.
On January 14, 1990, private respondents filed a "Proposed
Stipulation with Prayer for Summary Judgment" where they
manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by
the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the
authenticity and due execution of several documents as well
as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto,
thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial
court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against the
defendant, condemning the latter to pay the
former the amount of One Hundred Thousand
Pesos (P100,000.00) the face value of
insured's Insurance Policy No. 3903766, and
the Accidental Death Benefit in the amount of
One Hundred Thousand Pesos (P100,000.00)
and further sum of P5,000.00 in the concept
of reasonable attorney's fees and costs of
suit.
Defendant's counterclaim is hereby Dismissed
(Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded
that the facts concealed by the insured were made in good
faith and under a belief that they need not be disclosed.

Moreover, it held that the health history of the insured was

immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed
the decision of the trial court. The appellate court ruled that
petitioner cannot avoid its obligation by claiming
concealment because the cause of death was unrelated to
the facts concealed by the insured. It also sustained the
finding of the trial court that matters relating to the health
history of the insured were irrelevant since petitioner waived
the medical examination prior to the approval and issuance
of the insurance policy. Moreover, the appellate court agreed
with the trial court that the policy was "non-medical" (Rollo,
pp. 4-5).
Petitioner's motion for reconsideration was denied; hence,
this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the
appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based
on a misappreciation of the facts (Geronimo v. Court of
Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court
concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good
faith" and the facts concealed or misrepresented were
irrelevant since the policy was "non-medical". We disagree.
Section 26 of The Insurance Code
party to a contract of insurance
other, in good faith, all facts within
material to the contract and as

is explicit in requiring a
to communicate to the
his knowledge which are
to which he makes no

warranty, and which the other has no means of ascertaining.

Said Section provides:
A neglect to communicate that which a party
knows and ought to communicate, is called
concealment.
Materiality is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon
the party to whom communication is due, in forming his
estimate of the disadvantages of the proposed contract or in
making his inquiries (The Insurance Code, Sec. 31).

The argument, that petitioner's waiver of the medical

examination of the insured debunks the materiality of the
facts concealed, is untenable. We reiterate our ruling in
Saturnino v. Philippine American Life Insurance Company, 7
SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders
even more material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . "

The terms of the contract are clear. The insured is

specifically required to disclose to the insurer matters
relating to his health.

Moreover, such argument of private respondents would

make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there
is concealment, ineffective (See Vda. de Canilang v. Court of
Appeals, supra).

The information which the insured failed to disclose were

material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have
definitely affected petitioner's action on his application,
either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of
the insured by petitioner in order for it to reasonably assess
the risk involved in accepting the application.

Anent the finding that the facts concealed had no bearing to

the cause of death of the insured, it is well settled that the
insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled
the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v.
The Philippine American Life Insurance Co., 56 O.G. No. 48
[1960]).

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443

(1993), we held that materiality of the information withheld
does not depend on the state of mind of the insured. Neither
does it depend on the actual or physical events which
ensue.

We, therefore, rule that petitioner properly exercised its

right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be
emphasized that rescission was exercised within the twoyear contestability period as recognized in Section 48 of The
Insurance Code.

Thus, "goad faith" is no defense in concealment. The

insured's failure to disclose the fact that he was hospitalized
for two weeks prior to filing his application for insurance,
raises grave doubts about his bonafides. It appears that
such concealment was deliberate on his part.

WHEREFORE, the petition is GRANTED and the Decision of

the Court of Appeals is REVERSED and SET ASIDE.
SO ORDERED.

On May 12, 1962, Kwong Nam applied for a 20-year endowment

insurance on his life for the sum of P20,000.00, with his wife,
appellee Ng Gan Zee as beneficiary. On the same date, appellant,
upon receipt of the required premium from the insured, approved the
application and issued the corresponding policy. On December 6,
1963, Kwong Nam died of cancer of the liver with metastasis. All
premiums had been religiously paid at the time of his death.
On January 10, 1964, his widow Ng Gan Zee presented a claim in
due form to appellant for payment of the face value of the policy. On
the same date, she submitted the required proof of death of the
insured. Appellant denied the claim on the ground that the answers
given by the insured to the questions appealing in his application for
life insurance were untrue.

G.R. No. L-30685 May 30, 1983

NG
GAN
vs.
ASIAN CRUSADER
defendant-appellant.

ZEE,
LIFE

plaintiff-appellee,
ASSURANCE

CORPORATION,

Alberto Q. Ubay for plaintiff-appellee.

Santiago F. A lidio for defendant-appellant.
ESCOLIN, J.:
This is an appeal from the judgment of the Court of First Instance of
Manila, ordering the appellant Asian-Crusader Life Assurance
Corporation to pay the face value of an insurance policy issued on
the life of Kwong Nam the deceased husband of appellee Ng Gan
Zee. Misrepresentation and concealment of material facts in
obtaining the policy were pleaded to avoid the policy. The lower court
rejected the appellant's theory and ordered the latter to pay appellee
"the amount of P 20,000.00, with interest at the legal rate from July
24, 1964, the date of the filing of the complaint, until paid, and the
costs. "
The Court of Appeals certified this appeal to Us, as the same
involves solely a question of law.

Appellee brought the matter to the attention of the Insurance

Commissioner, the Hon. Francisco Y. Mandamus, and the latter, after
conducting an investigation, wrote the appellant that he had found no
material concealment on the part of the insured and that, therefore,
appellee should be paid the full face value of the policy. This opinion
of the Insurance Commissioner notwithstanding, appellant refused to
settle its obligation.
Appellant alleged that the insured was guilty of misrepresentation
when he answered "No" to the following question appearing in the
application for life insuranceHas any life insurance company ever refused your
application for insurance or for reinstatement of a
lapsed policy or offered you a policy different from
that applied for? If, so, name company and date.
In its brief, appellant rationalized its thesis thus:
... As pointed out in the foregoing summary of the
essential facts in this case, the insured had in
January, 1962, applied for reinstatement of his
lapsed life insurance policy with the Insular Life
Insurance Co., Ltd, but this was declined by the

insurance company, although later on approved for

reinstatement with a very high premium as a result
of his medical examination. Thus notwithstanding
the said insured answered 'No' to the [above]
question propounded to him. ... 1
The lower court found the argument bereft of factual basis; and We
quote with approval its disquisition on the matterOn the first question there is no evidence that the
Insular Life Assurance Co., Ltd. ever refused any
application of Kwong Nam for insurance. Neither is
there any evidence that any other insurance
company has refused any application of Kwong Nam
for insurance.
... The evidence shows that the Insular Life
Assurance Co., Ltd. approved Kwong Nam's request
for reinstatement and amendment of his lapsed
insurance policy on April 24, 1962 [Exh. L-2
Stipulation of Facts, Sept. 22, 1965). The Court
notes from said application for reinstatement and
amendment, Exh. 'L', that the amount applied for
was P20,000.00 only and not for P50,000.00 as it
was in the lapsed policy. The amount of the
reinstated and amended policy was also for
P20,000.00. It results, therefore, that when on May
12, 1962 Kwong Nam answered 'No' to the question
whether any life insurance company ever refused his
application for reinstatement of a lapsed policy he
did not misrepresent any fact.
... the evidence shows that the application of Kwong
Nam with the Insular Life Assurance Co., Ltd. was
for the reinstatement and amendment of his lapsed
insurance policy-Policy No. 369531 -not an
application for a 'new insurance policy. The Insular
Life Assurance Co., Ltd. approved the said
application on April 24, 1962. Policy No. 369531 was

reinstated for the amount of P20,000.00 as applied

for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new
policy was issued by the Insular Life Assurance Co.,
Ltd. to Kwong Nam in connection with said
application for reinstatement and amendment. Such
being the case, the Court finds that there is no
misrepresentation on this matter. 2
Appellant further maintains that when the insured was examined in
connection with his application for life insurance, he gave the
appellant's medical examiner false and misleading information as to
his ailment and previous operation. The alleged false statements
given by Kwong Nam are as follows:
Operated on for a Tumor [mayoma] of the stomach.
Claims that Tumor has been associated with ulcer of
stomach. Tumor taken out was hard and of a hen's
egg size. Operation was two [2] years ago in
Chinese General Hospital by Dr. Yap. Now, claims
he is completely recovered.
To demonstrate the insured's misrepresentation, appellant directs
Our attention to:
[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong
Nam at the Chinese General Hospital on May 22, 1960, i.e., about 2
years before he applied for an insurance policy on May 12, 1962.
According to said report, Dr. Fu Sun Yuan had diagnosed the
patient's ailment as 'peptic ulcer' for which, an operation, known as a
'sub-total gastric resection was performed on the patient by Dr.
Pacifico Yap; and
[2] The Surgical Pathology Report of Dr. Elias Pantangco showing
that the specimen removed from the patient's body was 'a portion of
the stomach measuring 12 cm. and 19 cm. along the lesser
curvature with a diameter of 15 cm. along the greatest dimension.
On the bases of the above undisputed medical data showing that the
insured was operated on for peptic ulcer", involving the excision of a

portion of the stomach, appellant argues that the insured's statement

in his application that a tumor, "hard and of a hen's egg size," was
removed during said operation, constituted material concealment.
The question to be resolved may be propounded thus: Was
appellant, because of insured's aforesaid representation, misled or
deceived into entering the contract or in accepting the risk at the rate
of premium agreed upon?
The lower court answered this question in the negative, and We
agree.
Section 27 of the Insurance Law [Act 2427] provides:
Sec. 27. Such party a contract of insurance must
communicate to the other, in good faith, all facts
within his knowledge which are material to the
contract, and which the other has not the means of
ascertaining, and as to which he makes no warranty.
3

Thus, "concealment exists where the assured had knowledge of a

fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assurer, but he
designedly and intentionally withholds the same." 4

It bears emphasis that Kwong Nam had informed the appellant's

medical examiner that the tumor for which he was operated on was
"associated with ulcer of the stomach." In the absence of evidence
that the insured had sufficient medical knowledge as to enable him to
distinguish between "peptic ulcer" and "a tumor", his statement that
said tumor was "associated with ulcer of the stomach, " should be
construed as an expression made in good faith of his belief as to the
nature of his ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge of its
incorrectness and without any deliberate intent on his part to mislead
the appellant.
While it may be conceded that, from the viewpoint of a medical
expert, the information communicated was imperfect, the same was
nevertheless sufficient to have induced appellant to make further
inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts
maybe waived either by the terms of insurance or by
neglect to make inquiries as to such facts where
they are distinctly implied in other facts of which
information is communicated.

It has also been held "that the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld." 5

It has been held that where, upon the face of the application, a
question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further inquiry,
they waive the imperfection of the answer and render the omission to
answer more fully immaterial. 6

Assuming that the aforesaid answer given by the insured is false, as

claimed by the appellant. Sec. 27 of the Insurance Law, abovequoted, nevertheless requires that fraudulent intent on the part of the
insured be established to entitle the insurer to rescind the contract.
And as correctly observed by the lower court, "misrepresentation as
a defense of the insurer to avoid liability is an 'affirmative' defense.
The duty to establish such a defense by satisfactory and convincing
evidence rests upon the defendant. The evidence before the Court
does not clearly and satisfactorily establish that defense."

As aptly noted by the lower court, "if the ailment and operation of
Kwong Nam had such an important bearing on the question of
whether the defendant would undertake the insurance or not, the
court cannot understand why the defendant or its medical examiner
did not make any further inquiries on such matters from the Chinese
General Hospital or require copies of the hospital records from the
appellant before acting on the application for insurance. The fact of
the matter is that the defendant was too eager to accept the

application and receive the insured's premium. It would be

inequitable now to allow the defendant to avoid liability under the
circumstances."
Finding no reversible error committed by the trial court, the judgment
appealed from is hereby affirmed, with costs against appellant AsianCrusader life Assurance Corporation.
SO ORDERED.

G.R. No. 92492 June 17, 1993

THELMA
VDA.
DE
CANILANG,
petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio
and was diagnosed as suffering from "sinus tachycardia." The doctor
prescribed the following fro him: Trazepam, a tranquilizer; and Aptin,
a beta-blocker drug. Mr. Canilang consulted the same doctor again
on 3 August 1982 and this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "nonmedical" insurance policy with respondent Great Pacific Life
Assurance Company ("Great Pacific") naming his wife, Thelma
Canilang, as his beneficiary. 1 Jaime Canilang was issued ordinary
life insurance Policy No. 345163, with the face value of P19,700,
effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure,"

"anemia," and "chronic anemia." 2 Petitioner, widow and beneficiary
of the insured, filed a claim with Great Pacific which the insurer
denied on 5 December 1983 upon the ground that the insured had
concealed material information from it.
Petitioner then filed a complaint against Great Pacific with the
Insurance Commission for recovery of the insurance proceeds.
During the hearing called by the Insurance Commissioner, petitioner
testified that she was not aware of any serious illness suffered by
her late husband 3 and that, as far as she knew, her husband had
died because of a kidney disorder. 4 A deposition given by Dr.
Wilfredo Claudio was presented by petitioner. There Dr. Claudio
stated that he was the family physician of the deceased Jaime
Canilang 5 and that he had previously treated him for "sinus
tachycardia" and "acute bronchitis." 6 Great Pacific for its part
presented
Dr.
Esperanza
Quismorio,
a
physician
and a medical underwriter working for Great Pacific. 7 She testified
that the deceased's insurance application had been approved on the
basis of his medical declaration. 8 She explained that as a rule,
medical examinations are required only in cases where the applicant
has indicated in his application for insurance coverage that he has
previously undergone medical consultation and hospitalization. 9
In a decision dated 5 November 1985, Insurance Commissioner
Armando Ansaldo ordered Great Pacific to pay P19,700 plus legal
interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious
that, even if it had been disclosed, it would not have
affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into
the health condition of the applicant by the issuance
of the policy despite the lack of answers to "some of
the pertinent questions" in the insurance application;
3. there was no intentional concealment on the part
of the insured Jaime Canilang as he had thought

that he was merely suffering from a minor ailment

and simple cold; 10 and

amount to fraud and private respondent is deemed

to have waived inquiry thereto. 11

4. Batas Pambansa Blg. 847 which voids an

insurance contract, whether or not concealment was
intentionally made, was not applicable to Canilang's
case as that law became effective only on 1 June
1985.

The medical declaration which was set out in the application for
insurance executed by Jaime Canilang read as follows:

On appeal by Great Pacific, the Court of Appeals reversed and set

aside the decision of the Insurance Commissioner and dismissed
Thelma Canilang's complaint and Great Pacific's counterclaim. The
Court of Appealed found that the use of the word "intentionally" by
the Insurance Commissioner in defining and resolving the issue
agreed upon by the parties at pre-trial before the Insurance
Commissioner was not supported by the evidence; that the issue
agreed upon by the parties had been whether the deceased insured,
Jaime Canilang, made a material concealment as the state of his
health at the time of the filing of insurance application, justifying
respondent's denial of the claim. The Court of Appeals also found
that the failure of Jaime Canilang to disclose previous medical
consultation and treatment constituted material information which
should have been communicated to Great Pacific to enable the latter
to make proper inquiries. The Court of Appeals finally held that the
Ng Gan Zee case which had involved misrepresentation was not
applicable in respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for
Review on Certiorari alleging that:
1. . . . the Honorable Court of Appeals, speaking
with due respect, erred in not holding that the issue
in the case agreed upon between the parties before
the Insurance Commission is whether or not Jaime
Canilang "intentionally" made material concealment
in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts
about his previous health conditions does not

MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital,
sanitarium or infirmary, nor receive any medical or
surgical advice/attention within the last five (5)
years.
(2) I have never been treated nor consulted a
physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney, stomach disorder, or
any other physical impairment.
(3) I am, to the best of my knowledge, in good
health.
EXCEPTIONS:
_________________________________________
_______________________________________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I hereby
agree that if there be any fraud or misrepresentation
in the above statements material to the risk, the
INSURANCE COMPANY upon discovery within two
(2) years from the effective date of insurance shall
have the right to declare such insurance null and
void. That the liabilities of the Company under the

said Policy/TA/Certificate shall accrue and begin

only from the date of commencement of risk stated
in the Policy/TA/Certificate, provided that the first
premium is paid and the Policy/TA/Certificate is
delivered to, and accepted by me in person, when I
am in actual good health.
Signed at Manila his 4th day of August, 1992.

We note that in addition to the negative statements made by Mr.

Canilang in paragraph 1 and 2 of the medical declaration, he failed
to disclose in the appropriate space, under the caption "Exceptions,"
that he had twice consulted Dr. Wilfredo B. Claudio who had found
him to be suffering from "sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great
Pacific issued the contract of insurance and at the time Jaime
Canilang died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11 June 1978.
These provisions read as follows:
Sec. 26. A neglect to communicate that which a
party knows and ought to communicate, is called a
concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factors
within his knowledge which are material to the
contract and as to which he makes no warranty, and
which the other has not the means of ascertaining.
(Emphasis supplied)

Under the foregoing provisions, the information concealed must be

information which the concealing party knew and "ought to [have]
communicate[d]," that is to say, information which was "material to
the contract." The test of materiality is contained in Section 31 of the
Insurance Code of 1978 which reads:
Sec. 31. Materially is to be determined not by the
event, but solely by the probable and reasonable
influence of the facts upon the party to whom the
communication is due, in forming his estimate of the
Illegible
disadvantages of the proposed contract, or in
Signature of Applicant. making his inquiries. (Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart rate
exceeds 100 beats per minute." 13 The symptoms of this condition
include pounding in the chest and sometimes faintness and
weakness of the person affected. The following elaboration was
offered by Great Pacific and set out by the Court of Appeals in its
Decision:
Sinus tachycardia is defined as sinus-initiated; heart
rate faster than 100 beats per minute. (Harrison' s
Principles of Internal Medicine, 8th ed. [1978], p.
1193.) It is, among others, a common reaction to
heart disease, including myocardial infarction, and
heart failure per se. (Henry J.L. Marriot, M.D.,
Electrocardiography, 6th ed., [1977], p. 127.) The
medication prescribed by Dr. Claudio for treatment
of Canilang's ailment on June 18, 1982, indicates
the condition that said physician was trying to
manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3,
Dec. 1985, p. 112) which is anti-anxiety, anticonvulsant, muscle-relaxant; and Aptin, (Idem, p.
36) a cardiac drug, for palpitations and nervous
heart. Such treatment could have been a very
material information to the insurer in determining the
action to be take on Canilang's application for life
insurance coverage. 14

We agree with the Court of Appeals that the information which Jaime
Canilang failed to disclose was material to the ability of Great Pacific
to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the
diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great
Pacific would have made further inquiries and would have probably
refused to issue a non-medical insurance policy or, at the very least,
required a higher premium for the same coverage. 15 The materiality
of the information withheld by Great Pacific did not depend upon the
state of mind of Jaime Canilang. A man's state of mind or subjective
belief is not capable of proof in our judicial process, except through
proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality
depend upon the actual or physical events which ensue. Materiality
relates rather to the "probable and reasonable influence of the facts"
upon the party to whom the communication should have been made,
in assessing the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance; that
"probable and reasonable influence of the facts" concealed must, of
course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical"
insurance policy. In Saturnino v. Philippine-American Life Insurance
Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in
a non-medical insurance contract] renders even
more material the information required of the
applicant concerning previous condition of health
and diseases suffered, for such information
necessarily constitutes an important factor which the
insurer takes into consideration in deciding whether
to issue the policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great
Pacific to convey certain information to the insurer was not
"intentional" in nature, for the reason that Jaime Canilang believed
that he was suffering from minor ailment like a common cold.
Section 27 of the Insurance Code of 1978 as it existed from 1974 up

to 1985, that is, throughout the time range material for present
purposes, provided that:
Sec. 27. A concealment entitles the injured party to
rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914
up to 1974, had provided:
Sec. 26. A concealment, whether intentional or
unintentional, entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was
amended
by
B.P. Blg. 874. This subsequent statute modified Section 27 of the
Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to
have been that by deleting the phrase "intentional or unintentional,"
the Insurance Code of 1978 (prior to its amendment by B.P. Blg.
874) intended to limit the kinds of concealment which generate a
right to rescind on the part of the injured party to "intentional
concealments." This argument is not persuasive. As a simple matter
of grammar, it may be noted that "intentional" and "unintentional"
cancel each other out. The net result therefore of the phrase
"whether intentional or unitentional" is precisely to leave unqualified
the term "concealment." Thus, Section 27 of the Insurance Code of
1978 is properly read as referring to "any concealment" without
regard to whether such concealment is intentional or unintentional.
The phrase "whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether intentional or
unintentional" could not have had the effect of imposing an
affirmative requirement that a concealment must be intentional if it is
to entitle the injured party to rescind a contract of insurance. The

restoration in 1985 by B.P. Blg. 874 of the phrase "whether

intentional or unintentional" merely underscored the fact that all
throughout (from 1914 to 1985), the statute did not require proof that
concealment must be "intentional" in order to authorize rescission by
the injured party.
In any case, in the case at bar, the nature of the facts not conveyed
to the insurer was such that the failure to communicate must have
been intentional rather than merely inadvertent. For Jaime Canilang
could not have been unaware that his heart beat would at times rise
to high and alarming levels and that he had consulted a doctor twice
in the two (2) months before applying for non-medical insurance.
Indeed, the last medical consultation took place just the day before
the insurance application was filed. In all probability, Jaime Canilang
went to visit his doctor precisely because of the discomfort and
concern brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific
had waived inquiry into the concealment by issuing the insurance
policy notwithstanding Canilang's failure to set out answers to some
of the questions in the insurance application. Such failure precisely
constituted concealment on the part of Canilang. Petitioner's
argument, if accepted, would obviously erase Section 27 from the
Insurance Code of 1978.
It remains only to note that the Court of Appeals finding that the
parties had not agreed in the pretrial before the Insurance
Commission that the relevant issue was whether or not Jaime
Canilang had intentionally concealed material information from the
insurer, was supported by the evidence of record, i.e., the Pre-trial
Order itself dated 17 October 1984 and the Minutes of the Pre-trial
Conference dated 15 October 1984, which "readily shows that the
word "intentional" does not appear in the statement or definition of
the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit
and the Decision of the Court of Appeals dated 16 October 1989 in
C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement
as to the costs.

SO ORDERED.

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN,
petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN
LIFE INSURANCE COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals'
decision affirming the decision of the Insurance Commissioner which
dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds
from their late father's policy. The facts of the case as found by the
Court of Appeals are:

Petitioners appeal from the Decision of the

Insurance
Commissioner
dismissing
herein
petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery
of the proceeds of Policy No. 1082467 in the amount
of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of
herein petitioners, applied for life insurance in the
amount of P 80,000.00 with respondent company.
Said application was approved and Policy No.
1082467 was issued effective November 6,1973,
with petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma
(Exhibit B). Petitioners then filed with respondent
company their claim for the proceeds of the life
insurance policy. However, in a letter dated
September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason
of the alleged misrepresentation and concealment of
material facts made by the deceased Tan Lee Siong
in his application for insurance (Exhibit 3). The
premiums paid on the policy were thereupon
refunded .
Alleging that respondent company's refusal to pay
them the proceeds of the policy was unjustified and
unreasonable, petitioners filed on November 27,
1975, a complaint against the former with the Office
of the Insurance Commissioner, docketed as I.C.
Case No. 218.
After hearing the evidence of both parties, the
Insurance Commissioner rendered judgment on
August 9, 1977, dismissing petitioners' complaint.
(Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the
Insurance Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of
errors, to wit:
A. The conclusion in law of respondent Court that
respondent insurer has the right to rescind the policy
contract when insured is already dead is not in
accordance with existing law and applicable
jurisprudence.
B. The conclusion in law of respondent Court that
respondent insurer may be allowed to avoid the
policy on grounds of concealment by the deceased
assured, is contrary to the provisions of the policy
contract itself, as well as, of applicable legal
provisions and established jurisprudence.
C. The inference of respondent Court that
respondent insurer was misled in issuing the policy
are manifestly mistaken and contrary to admitted
evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had
the right to rescind the contract of insurance as rescission must
allegedly be done during the lifetime of the insured within two years
and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of

this chapter, such right must be exercised previous

to the commencement of an action on the contract.

commencement of this action

27,1975. (Rollo, pp. 99-100)

After a policy of life insurance made payable on the

death of the insured shall have been in force during
the lifetime of the insured for a period of two years
from the date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is void ab
initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or
his agent.

xxx xxx xxx

According to the petitioners, the Insurance Law was amended and

the second paragraph of Section 48 added to prevent the insurance
company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from
raising the defenses of false representations or concealment of
material facts insofar as health and previous diseases are concerned
if the insurance has been in force for at least two years during the
insured's lifetime. The phrase "during the lifetime" found in Section
48 simply means that the policy is no longer considered in force after
the insured has died. The key phrase in the second paragraph of
Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the
insured died on April 26,1975. The policy was thus in
force for a period of only one year and five months.
Considering that the insured died before the twoyear period had lapsed, respondent company is not,
therefore, barred from proving that the policy is void
ab initio by reason of the insured's fraudulent
concealment or misrepresentation. Moreover,
respondent company rescinded the contract of
insurance and refunded the premiums paid on
September
11,
1975,
previous
to
the

on

November

The petitioners contend that there could have been no concealment

or misrepresentation by their late father because Tan Lee Siong did
not have to buy insurance. He was only pressured by insistent
salesmen to do so. The petitioners state:
Here then is a case of an assured whose application
was submitted because of repeated visits and
solicitations by the insurer's agent. Assured did not
knock at the door of the insurer to buy insurance. He
was the object of solicitations and visits.
Assured was a man of means. He could have
obtained a bigger insurance, not just P 80,000.00. If
his purpose were to misrepresent and to conceal his
ailments in anticipation of death during the two-year
period, he certainly could have gotten a bigger
insurance. He did not.
Insurer Philamlife could have presented as witness
its Medical Examiner Dr. Urbano Guinto. It was he
who accomplished the application, Part II, medical.
Philamlife did not.
Philamlife could have put to the witness stand its
Agent Bienvenido S. Guinto, a relative to Dr. Guinto,
Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to
denounce the pressure and practice indulged in by
agents in selling insurance. At one time or another
most of us have been subjected to that pressure,

that practice. This court took judicial cognizance of

the whirlwind pressure of insurance sellingespecially of the agent's practice of 'supplying the
information,
preparing
and
answering
the
application, submitting the application to their
companies, concluding the transactions and
otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v.
Feliciano, et al., 73 Phil. 201; at page 205:
It is of common knowledge that the selling of
insurance today is subjected to the whirlwind
pressure of modern salesmanship.
Insurance companies send detailed instructions to
their agents to solicit and procure applications.
These agents are to be found all over the length and
breadth of the land. They are stimulated to more
active efforts by contests and by the keen
competition offered by the other rival insurance
companies.
They supply all the information, prepare and answer
the applications, submit the applications to their
companies, conclude the transactions, and
otherwise smooth out all difficulties.
The agents in short do what the company set them
out to do.
The Insular Life case was decided some forty years
ago when the pressure of insurance salesmanship
was not overwhelming as it is now; when the
population of this country was less than one-fourth of
what it is now; when the insurance companies
competing with one another could be counted by the
fingers. (pp. 140-142, Rollo)

xxx xxx xxx

In the face of all the above, it would be unjust if,
having been subjected to the whirlwind pressure of
insurance salesmanship this Court itself has long
denounced, the assured who dies within the twoyear period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is
the "incontestability clause" added by the second paragraph of
Section 48.
The insurer has two years from the date of issuance of the insurance
contract or of its last reinstatement within which to contest the policy,
whether or not, the insured still lives within such period. After two
years, the defenses of concealment or misrepresentation, no matter
how patent or well founded, no longer lie. Congress felt this was a
sufficient answer to the various tactics employed by insurance
companies to avoid liability. The petitioners' interpretation would give
rise to the incongruous situation where the beneficiaries of an
insured who dies right after taking out and paying for a life insurance
policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that
the medical terms were explained in a layman's language to the
insured. They state that the insurer should have presented its two
medical field examiners as witnesses. Moreover, the petitioners
allege that the policy intends that the medical examination must be
conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no
evidence was presented by respondent company to
show that the questions appearing in Part II of the
application for insurance were asked, explained to

and understood by the deceased so as to prove

concealment on his part. The same is not well taken.
The deceased, by affixing his signature on the
application form, affirmed the correctness of all the
entries and answers appearing therein. It is but to be
expected that he, a businessman, would not have
affixed his signature on the application form unless
he clearly understood its significance. For, the
presumption is that a person intends the ordinary
consequence of his voluntary act and takes ordinary
care of his concerns. [Sec. 5(c) and (d), Rule 131,
Rules of Court].
The evidence for respondent company shows that
on September 19,1972, the deceased was examined
by Dr. Victoriano Lim and was found to be diabetic
and hypertensive; that by January, 1973, the
deceased was complaining of progressive weight
loss and abdominal pain and was diagnosed to be
suffering from hepatoma, (t.s.n. August 23, 1976, pp.
8-10; Exhibit 2). Another physician, Dr. Wenceslao
Vitug, testified that the deceased came to see him
on December 14, 1973 for consolation and claimed
to have been diabetic for five years. (t.s.n., Aug.
23,1976, p. 5; Exhibit 6) Because of the
concealment made by the deceased of his
consultations and treatments for hypertension,
diabetes and liver disorders, respondent company
was thus misled into accepting the risk and
approving his application as medically standard
(Exhibit 5- C) and dispensing with further medical
investigation and examination (Exhibit 5-A). For as
long as no adverse medical history is revealed in the
application form, an applicant for insurance is
presumed to be healthy and physically fit and no
further medical investigation or examination is
conducted by respondent company. (t.s.n., April
8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or

"contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves,
83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large
amounts of money are collected from ignorant
persons by companies and associations which adopt
high sounding titles and print the amount of benefits
they agree to pay in large black-faced type, following
such undertakings by fine print conditions which
destroy the substance of the promise. All provisions,
conditions, or exceptions which in any way tend to
work a forfeiture of the policy should be construed
most strongly against those for whose benefit they
are inserted, and most favorably toward those
against whom they are meant to operate. (Trinidad v.
Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for
insurance regarding the insured's medical history are in smaller print
than the rest of the printed form or that they are designed in such a
way as to conceal from the applicant their importance. If a warning in
bold red letters or a boxed warning similar to that required for
cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure
insurance salesmanship. We are limited in this petition to
ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to show that
the factual findings of the respondent court are not based on
substantial evidence or that its conclusions are contrary to applicable
law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

G.R.No.L4611December17,1955
QUA

CHEE

GAN,
plaintiffappellee,

vs.
LAWUNIONANDROCKINSURANCECO.,LTD.,representedby
itsagent,WARNER,BARNESANDCO.,LTD.,defendantappellant.
Delgado, Flores & Macapagal for appellant.
AndresAguilar,ZacariasGutierrezLora,GregorioSabaterandPerkins,
PonceEnrile&Contrerasforappellee.

REYES,J.B.L.,J.:
QuaCheeGan,amerchantofAlbay,institutedthisactionin1940,inthe
CourtofFirstInstanceofsaidprovince,seekingtorecovertheproceedsof
certainfireinsurancepoliciestotallingP370,000,issuedbytheLawUnion
&RockInsuranceCo.,Ltd.,uponcertainbodegasandmerchandiseofthe
insuredthatwereburnedonJune21,1940.Therecordsoftheoriginalcase

weredestroyedduringtheliberationoftheregion,andwerereconstitutedin
1946. After a trial that lasted several years, the Court of First Instance
renderedadecisioninfavoroftheplaintiff,thedispositivepartwhereof
readsasfollows:
Wherefore,judgmentisrenderedfortheplaintiffandagainstthe
defendantcondemningthelattertopaytheformer
(a)Underthefirstcauseofaction,thesumofP146,394.48;
(b)Underthesecondcauseofaction,thesumofP150,000;
(c)Underthethirdcauseofaction,thesumofP5,000;
(d)Underthefourthcauseofaction,thesumofP15,000;and
(e)Underthefifthcauseofaction,thesumofP40,000;
allofwhichshallbearinterestattherateof8%perannuminaccordance
withSection91(b)oftheInsuranceActfromSeptember26,1940,until
eachispaid,withcostsagainstthedefendant.
ThecomplaintininterventionofthePhilippineNationalBankisdismissed
withoutcosts.(RecordonAppeal,166167.)
Fromthedecision,thedefendantInsuranceCompanyappealeddirectlyto
thisCourt.
Therecordshowsthatbeforethelastwar,plaintiffappelleeownedfour
warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
municipalityofTabaco,Albay,usedforthestorageofstocksofcopraand
ofhemp,baledandloose,inwhichtheappelleedealthextensively.They
hadbeen,withtheircontents,insuredwiththedefendantCompanysince
1937, and the lose made payable to the Philippine National Bank as
mortgageofthehempandcrops,totheextentofitsinterest.OnJune,1940,
theinsurancestoodasfollows:

PolicyNo.

PropertyInsured

2637164(Exhibit"LL")

BodegaNo.1(Building)

2637165(Exhibit"JJ")

BodegaNo.2(Building)
BodegaNo.3(Building)

Initsfirstassignmentoferror,theinsurancecompanyallegesthatthetrial
Court should have held that the policies were avoided for breach of
HempPressmovedbysteamenginewarranty, specifically the one appearing on a rider pasted (with other
similarriders)onthefaceofthepolicies(ExhibitsX,Y,JJandLL).These
riderswereattachedforthefirsttimein1939,andthepertinentportions
Merchandisecontents(copraandemptysacksofBodegaNo.1)
readasfollows:
Merchandisecontents(hemp)ofBodegaNo.3
BodegaNo.4(Building)

2637345(Exhibit"X")
2637346(Exhibit"Y")

Memo. of Warranty. The undernoted Appliances for the

Merchandisecontents(loosehemp)ofBodegaNo.4
extinctionoffirebeingkeptonthepremisesinsuredhereby,andit
beingdeclaredandunderstoodthatthereisanampleandconstant
watersupplywithsufficientpressureavailableatallseasonsfor
Total
thesame,itisherebywarrantedthatthesaidappliancesshallbe
maintainedinefficientworkingorderduringthecurrencyofthis
policy,byreasonwhereofadiscountof21/2percentisallowed
FireofundeterminedoriginthatbrokeoutintheearlymorningofJuly21,
onthepremiumchargeableunderthispolicy.
1940, and lasted almost one week, gutted and completely destroyed
Bodegas Nos.1,2and4,withthemerchandise storedtheren.Plaintiff
appelleeinformedtheinsurerbytelegramonthesamedate;andonthenext
Hydrants inthecompound,notlessinnumberthanoneforeach
day,thefireadjustersengagedbyappellantinsurancecompanyarrivedand
150feetofexternalwallmeasurementofbuilding,protected,with
proceededtoexamineandphotographthepremises,poredoverthebooksof
notlessthan100feetofhosepipingandnozzlesforeverytwo
theinsuredandconductedanextensiveinvestigation.Theplaintiffhaving
hydrantskeptundercoverinconvenientplaces,thehydrantsbeing
submittedthecorrespondingfireclaims,totallingP398,562.81(butreduced
suppliedwithwaterpressurebyapumpingengine,orfromsome
to the full amount of the insurance, P370,000), the Insurance Company
othersource,capableofdischargingattherateofnotlessthan200
resistedpayment,claimingviolationofwarrantiesandconditions,filingof
gallonsof water per minuteintotheupperstoryof the highest
fraudulent claims, and that the fire had been deliberately caused by the
buildingprotected,andatrainedbrigadeofnotlessthan20mento
insuredorbyotherpersonsinconnivancewithhim.
workthesame.'
2637067(Exhibit"GG")

Withcounselfortheinsurancecompanyactingasprivateprosecutor,Que
CheeGan,withhisbrother,QuaCheePao,andsomeemployeesofhis,
wereindictedandtriedin1940forthecrimeofarson,itbeingclaimedthat
theyhadsetfiretothedestroyedwarehousestocollecttheinsurance.They
were,however,acquittedbythetrialcourtinafinaldecisiondatedJuly9,
1941(ExhibitWW).Thereafter,thecivilsuittocollecttheinsurancemoney
proceededtoitstrialandterminationintheCourtbelow,withtheresult
notedatthestartofthisopinion.ThePhilippineNationalBank'scomplaint
ininterventionwasdismissedbecausetheappelleehadmanagedtopayhis
indebtednesstotheBankduringthependecyofthesuit,anddespitethefire
losses.

Itisarguedthatsincethebodegasinsuredhadanexternalwallperimeterof
500metersor1,640feet,theappelleeshouldhaveeleven(11)firehydrants
inthecompound,andthatheactuallyhadonlytwo(2),withafurtherpair
nearby,belongingtothemunicipalityofTabaco.
WeareinagreementwiththetrialCourtthattheappellantisbarredby
waiver(orratherestoppel)toclaimviolationofthesocalledfirehydrants
warranty,forthereasonthatknowingfullyallthatthenumberofhydrants
demanded therein never existed from the very beginning, the appellant
neverthlessissuedthepoliciesinquestionsubject tosuchwarranty,and
received the corresponding premiums. It would be perilously close to
connivingatfraudupontheinsuredtoallowappellanttoclaimsnowas

voidabinitiothepoliciesthatithadissuedtotheplaintiffwithoutwarning
oftheirfataldefect,ofwhichitwasinformed,andafterithadmisledthe
defendantintobelievingthatthepolicieswereeffective.
Theinsurancecompanywasaware,evenbeforethepolicieswereissued,
thatinthepremisesinsuredtherewereonlytwofirehydrantsinstalledby
Qua Chee Gan and two others nearby, owned by the municipality of
TAbaco,contrarytotherequirementsofthewarrantyinquestion.Suchfact
appears from positive testimony for the insured that appellant's agents
inspectedthepremises;andthesimpledenialsofappellant'srepresentative
(Jamiczon)cannotovercomethatproof.Thatsuchinspectionwasmadeis
moreoverrenderedprobablebyitsbeingaprerequisiteforthefixingofthe
discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting
equipmentavailable(See"ScaleofAllowances"towhichthepolicieswere
expressly made subject). The law, supported bya long line of cases, is
expressed by American Jurisprudence (Vol. 29, pp. 611612) to be as
follows:
Itisusuallyheldthatwheretheinsurer,atthetimeoftheissuance
ofapolicyofinsurance,hasknowledgeofexistingfactswhich,if
insistedon,wouldinvalidatethecontractfromitsveryinception,
suchknowledgeconstitutesawaiverofconditionsinthecontract
inconsistent withthefacts,andtheinsurerisstoppedthereafter
fromassertingthebreachofsuchconditions.Thelawischaritable
enoughtoassume,intheabsenceofanyshowingtothecontrary,
thataninsurancecompanyintendstoexecutedavalidcontractin
returnforthepremiumreceived;andwhenthepolicycontainsa
conditionwhichrendersitvoidableatitsinception,andthisresult
isknowntotheinsurer,itwillbepresumedtohaveintendedto
waivetheconditionsandtoexecuteabindingcontract,ratherthan
tohavedeceivedtheinsuredintothinkingheisinsuredwhenin
factheisnot,andtohavetakenhismoneywithoutconsideration.
(29Am.Jur.,Insurance,section807,atpp.611612.)
Thereasonfortheruleisnotdifficulttofind.

Theplain,humanjusticeofthisdoctrineisperfectlyapparent.To
allowacompanytoacceptone'smoneyforapolicyofinsurance
whichitthenknowstobevoidandofnoeffect,thoughitknowsas
itmust,thattheassuredbelievesittobevalidandbinding,isso
contrarytothedictatesofhonestyandfairdealing,andsoclosely
relatedtopositivefraud,astotheabhorenttofairmindedmen.It
wouldbetoallowthecompanytotreatthepolicyasvalidlong
enoughtogetthepreiumonit,andleaveitatlibertytorepudiateit
thenextmoment.Thiscannotbedeemedtobetherealintentionof
the parties. To hold that a literal construction of the policy
expressedthetrueintentionofthecompanywouldbetoindictit,
forfraudulentpurposesanddesignswhichwecannotbelieveitto
beguiltyof(Wilsonvs.CommercialUnionAssuranceCo.,96Atl.
540,543544).
Theinequitablenessoftheconductobservedbytheinsurancecompanyin
thiscaseisheightenedbythefactthataftertheinsuredhadincurredthe
expenseofinstallingthetwohydrants,thecompanycollectedthepremiums
andissuedhimapolicysowordedthatitgavetheinsuredadiscountmuch
smallerthanthat hewasnormalyentitledto.Accordingtothe"Scaleof
Allowances,"apolicysubject toawarrantyoftheexistenceofonefire
hydrantforevery150feetofexternalwallentitledtheinsuredtoadiscount
of 7 1/2 per cent of the premium; while the existence of "hydrants, in
compund"(regardlessofnumber)reducedtheallowanceonthepremiumto
amere21/2percent.Thisschedulewaslogical,sinceagreaternumberof
hydrants and fire fighting appliances reduced the risk of loss. But the
appellant company,intheparticularcasenowbeforeus,sowordedthe
policies that while exacting the greater number of fire hydrants and
appliances,itkeptthepremiumdiscountattheminimumof21/2percent,
therebygivingtheinsurancecompanyadoublebenefit.Noreasonisshown
whyappellant'spremises,thathadbeeninsuredwithappellantforseveral
yearspast,suddenlyshouldberegardedin1939assohazardousastobe
accorded a treatment beyond the limits of appellant's own scale of
allowances.Suchabnormaltreatmentoftheinsuredstronglypointsatan
abuseoftheinsurancecompany'sselectionofthewordsandtermsofthe
contract,overwhichithadabsolutecontrol.

Theseconsiderationsleadustoregardtheparolevidencerule,invokedby
theappellantasnotapplicabletothepresentcase.Itisnotaquestionhere
whetherornotthepartiesmayvaryawrittencontractbyoralevidence;but
whether testimony is receivable so that a party may be, by reason of
inequitableconductshown,estoppedfromenforcingforfeituresinitsfavor,
inordertoforestallfraudorimpositionontheinsured.
Receipt of Premiums or Assessments afte Cause for Forfeiture
OtherthanNonpayment.Itisawellsettledruleoflawthatan
insurerwhichwithknowledgeoffactsentitlingittotreatapolicy
asnolongerinforce,receivesandacceptsapreiumonthepolicy,
estopped to take advantage of theforfeiture. It cannot treat the
policyasvoidforthepurposeofdefensetoanactiontorecoverfor
alossthereafteroccurringandatthesametimetreatitasvalidfor
thepurposeofearningandcollectingfurtherpremiums."(29Am.
Jur.,653,p.657.)
Itwouldbeunconscionabletopermitacompanytoissueapolicy
undercircumstanceswhichitknewrenderedthepolicyvoidand
then to accept and retain premiums under such a void policy.
Neitherlawnorgoodmoralswouldjustifysuchconductandthe
doctrine of equitable estoppel is peculiarly applicable to the
situation.(McGuirevs.HomeLifeIns.Co.94Pa.SuperCt.457.)
Moreover, taking into account the well known rule that ambiguities or
obscuritiesmustbestrictlyinterpretedagansttheprtythatcausedthem, 1the
"memoofwarranty"invokedbyappellantbarsthelatterfromquestioning
theexistenceoftheappliancescalledforintheinsuredpremises,sinceits
initial expression, "the undernoted appliances for the extinction of fire
beingkeptonthepremisesinsuredhereby,...itisherebywarranted...",
admistsofinterpretationasanadmissionoftheexistenceofsuchappliances
which appellant cannot now contradict, should the parol evidence rule
apply.
Theallegedviolationofthewarrantyof100feetoffirehoseforeverytwo
hydrants,mustbeequallyrejected,sincetheappellant'sargumentthereonis
basedontheassumptionthattheinsuredwasboundtomaintainnolessthan
elevenhydrants(oneper150feetofwall),whichrequirementappellantis

estopped from enforcing. The supposed breach of the wter pressure

conditionismadetorestonthetestimonyofwitnessSerra,thatthewater
supplycouldfilla5galloncanin3seconds;appellantthereuponinferring
thatthemaximumquantityobtainablefromthehydrantswas100gallonsa
minute,whenthewarrantycalledfor200gallonsaminute.Thetranscript
shows,however,that Serrarepeatedlyrefusedandprofessedinabilityto
estimatetherateofdischargeofthewater,andonlygavethe"5gallonper
3second" rate because the insistence of appellant's counsel forced the
witness to hazard a guess. Obviously, the testimony is worthless and
insufficienttoestablishtheviolationclaimed,speciallysincetheburdenof
itsprooflayonappellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderantthatthesamewasorganized,anddrilled,fromtimetogive,
althonotmaintainedasapermanentlyseparateunit,whichthewarrantydid
not require.Anyway,it wouldbeunreasonabletoexpect theinsured to
maintain for his compound alone a fire fighting force that many
municipalities in the Islands do not even possess. There is no merit in
appellant'sclaimthatsubordinatemembershipofthebusinessmanager(Co
Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not
necessarilyadeptatfirefighting,thequalitiesrequiredbeingdifferentfor
bothactivities.
Underthesecondassignmentoferror,appellantinsurancecompanyavers,
that theinsuredviolatedthe"HempWarranty" provisionsofPolicyNo.
2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admittedthattherewere36cans(latas)ofgasolineinthebuildingdesigned
as"BodegaNo.2"thatwasaseparatestructurenotaffectedbythefire.Itis
well to note that gasoline is not specifically mentioned among the
prohibitedarticleslistedinthesocalled"hempwarranty."Thecauserelied
uponbytheinsurerspeaksof"oils(animaland/orvegetableand/ormineral
and/ortheirliquidproductshavingaflashpointbelow300oFahrenheit",
andisdecidedlyambiguousanduncertain;forinordinaryparlance,"Oils"
mean"lubricants"andnotgasolineorkerosene.Andhowmanyinsured,it
maywellbewondered,areinapositiontounderstandordetermine"flash
point below 003o Fahrenheit. Here, again, by reason of the exclusive
controloftheinsurancecompanyoverthetermsandphraseologyofthe

contract,theambiguitymustbeheldstrictlyagainsttheinsurerandliberraly
infavoroftheinsured,speciallytoavoidaforfeiture(44C.J.S.,pp.1166
1175;29Am.Jur.180).
Insuranceis,initsnature,complexanddifficultforthelaymanto
understand.Policiesarepreparedbyexpertswhoknowandcan
anticipate the hearing and possible complications of every
contingency.Solongasinsurancecompaniesinsistupontheuseof
ambiguous,intricateandtechnicalprovisions,whichconcealrather
than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance, construe every
ambiguityinfavoroftheinsured.(Algoevs.PacificMut.L.Ins.
Co.,91Wash.324,LRA1917A,1237.)
Aninsurershouldnotbeallowed,bytheuseofobscurephrases
andexceptions,todefeat theverypurposeforwhichthepolicy
wasprocured(Moorevs.AetnaLifeInsuranceCo.,LRA1915D,
264).
Weseenoreasonwhytheprohibitionofkeepinggasolineinthepremises
couldnotbeexpressedclearlyandunmistakably,inthelanguageandterms
that thegeneral publiccanreadilyunderstand,without resort toobscure
esotericexpression(nowderisivelytermed"gobbledygook").Wereiterate
therulestatedinBachrachvs.BritishAmericanAssuranceCo.(17Phil.
555,561):
Ifthecompanyintendedtorelyuponaconditionofthatcharacter,
itoughttohavebeenplainlyexpressedinthepolicy.
Thisrigidapplicationoftheruleonambiguitieshasbecomenecessaryin
viewofcurrentbusinesspractices.Thecourtscannotignorethatnowadays
monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing
withthemcunninglyprepared"agreements"thattheweakerpartymaynot
changeonewhit,hisparticipationinthe"agreement"beingreducedtothe
alternativetotakeitorleaveit"labelledsinceRaymondBaloilles"contracts
byadherence"(contractsd'adhesion),incontrasttotheseenteredintoby
partiesbargainingonanequalfooting,suchcontracts(ofwhichpoliciesof

insuranceandinternationalbillsofladingareprimeexamples)obviously
callforgreaterstrictnessandvigilanceonthepartofcourtsofjusticewitha
view to protecting the weaker party from abuses and imposition, and
preventtheirbecomingtrapsfortheunwarry(NewCivilCoee,Article24;
Sent.ofSupremeCourtofSpain,13Dec.1934,27February1942).
Sipudieraestimarsequelacondicion18delapolizadeseguro
envolviaalgunaoscuridad,habradesertenidoencuentaqueal
seguroes,practicamenteuncontratodelosllamadosdeadhesiony
por consiguiente en caso de duda sobre la significacion de las
clausulasgeneralesdeunapolizaredactadaporlascompafijas
sinlaintervencionalgunadesusclientessehadeadoptarde
acuerdoconel articulo1268delCodigoCivil,lainterpretacion
masfavorablealasegurado,yaquelaobscuridadesimputableala
empresa aseguradora, que debia haberse explicado mas
claramante.(Dec.Trib.Sup.ofSpain13Dec.1934)
Thecontractofinsuranceisoneofperfectgoodfaith(uferrimalfidei)not
fortheinsuredalone,butequallysofortheinsurer;infact,itismeresofor
the latter, since its dominant bargaining position carries with it stricter
responsibility.
Anotherpointthatisinfavoroftheinsuredisthatthegasolinekeptin
BodegaNo.2wasonlyincidentaltohisbusiness,beingnomorethana
customary 2 day's supply for the five or six motor vehicles used for
transportingofthestoredmerchandise(t.s.n.,pp.14471448)."Itiswell
settled that the keeping of inflammable oils on the premises though
prohibitedbythepolicydoesnotvoiditifsuchkeepingisincidentaltothe
business."Bachrachvs.BritishAmericanAss.Co.,17Phil.555,560);and
"according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the
prohibitedarticlesarenecessaryorincustomaryuseincarryingonthetrade
orbusinessconductedonthepremises."(45C.J.S.,p.311;also4Couch
on Insurance, section 966b). It should also be noted that the "Hemp
Warranty"forbadestorageonly"inthebuildingtowhichthisinsurance
applies and/or in any building communicating therewith", and it is
undisputed that no gasoline was stored in the burned bodegas, and that

"BodegaNo.2"whichwasnotburnedandwherethegasolinewasfound,
stoodisolatedfromtheotherinsuredbodegas.
Thechargethattheinsuredfailedorrefusedtosubmittotheexaminersof
the insurer the books, vouchers, etc. demanded by them was found
unsubstantiatedbythetrialCourt,andnoreasonhasbeenshowntoalter
thisfinding.Theinsuredgavetheinsuranceexaminerallthedateheasked
for (Exhibits AA, BB, CCC and Z), and the examiner even kept and
photographedsomeoftheexaminedbooksinhispossession.Whatdoes
appeartohavebeenrejectedbytheinsuredwasthedemandthatheshould
submit"a list of all books, vouchers,receipts andotherrecords"(Age4,
Exhibit 9c); but the refusal of the insured in this instance was well
justified,sincethedemandforalistofallthevouchers(whichwerenotin
usebytheinsured)andreceiptswaspositivelyunreasonable,considering
thatsuchlistingwassuperfluousbecausetheinsurerwasnotdeniedaccess
to the records, that the volume of Qua Chee Gan's business ran into
millions,andthatthedemandwasmadejustafterthefirewheneverything
wasinturmoil.Thattherepresentativesoftheinsurancecompanywereable
tosecureallthedatetheyneededisprovedbythefactthattheadjuster
AlexanderStewartwasabletopreparehisownbalancesheet(ExhibitLof
thecriminalcase)thatdidnotdifferfromthatsubmittedbytheinsured
(ExhibitJ)exceptforthevaluationofthemerchandise,asexpresslyfound
bytheCourtinthecriminalcaseforarson.(Decision,ExhibitWW).
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW)
acquitingQuaChocGan,appelleeinthepresentproceedings.Thedecision
states(ExhibitWW,p.11):
AlexanderD.StewartdeclaroquehaexaminadoloslibrosdeQua
ChocGanenTabacoasicomosuexistenciadecoprayabacaen
lasbodegaaltiempodelincendioduranteelperiodocomprendido
desdeel1.odeeneroal21dejuniode1940yhaencontradoque
QuaChocGanhasufricounaperdidadeP1,750.76ensunegocio
en Tabaco. Segun Steward al llegar a este conclusion el ha
tenidoencuentaelbalancedecomprobacionExhibit'J'queleha
entregadoelmismoacusadoQueChocGanenrelacionconsus
librosylohaencontradocorrectoaexcepciondelospreciosde

abacaycopraquealliaparecenquenoestandeacuerdoconlos
preciosenelmercado.Estacomprobacionapareceenelbalance
mercadoexhibitJquefuepreparadoporelmismotestigo.
Inviewofthediscrepancyinthevaluationsbetweentheinsuredandthe
adjuster Stewart for the insurer, the Court referred the controversy to a
government auditor, Apolonio Ramos; but the latter reached a different
resultfromtheothertwo.Notonlythat,butRamosreportedtwodifferent
valuations that could be reached according to the methods employed
(ExhibitWW,p.35):
Lacienciadelacontabilidadesbuena,pueshatenidosusmuchos
usosbuenosparapromovarelcomercioylafinanza,peroenel
casopresenteharesultadountantocumplicadayacomodaticia,
comolopruebaelresultadodelexamenhechoporloscontadores
StewartyRamos,pueseljuzgadonoalcanzaavercomohabiendo
examinado las mismas partidas y los mismos libros dichos
contadores hayan de llegara dos conclusiones que difieron
sustancialmente entre si. En otras palabras, no solamente la
comprobacionhechaporStewartdifieredelacomprobacionhecha
porRamossinoque,segunesteultimo,sucomprobacionhadado
lugaradosresultadosdiferentesdependiendodelmetodoquese
emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged
photographsofcertainpagesoftheinsurancebook(destroyedbythewar)
ofinsuredQuaCheeGan(Exhibits26Aand26B)andallegedlyshowing
abnormalpurchasesofhempandcoprafromJune11toJune20,1940.The
Court below remained unconvinced of the authenticity of those
photographs, and rejected them, because they were not mentioned not
introducedinthecriminalcase;andconsideringtheevidentimportanceof
saidexhibitsinestablishingthemotiveoftheinsuredincommittingthe
arsoncharged,andtheabsenceofadequateexplanationfortheiromission
inthecriminalcase,wecannot saythat theirrejectioninthecivil case
constitutedreversibleerror.

Thenexttwodefensespleadedbytheinsurer,thattheinsuredconnived
atthelossandthatthefraudulentlyinflatedthequantityoftheinsuredstock
intheburntbodegas,arecloselyrelatedtoeachother.Bothdefensesare
predictedontheassumptionthattheinsuredwasinfinancialdifficultiesand
setthefiretodefraudtheinsurancecompany,presumablyinordertopay
offthePhilippineNationalBank,towhichmostoftheinsuredhempand
coprawaspledged.Bothdefensesarefatallyunderminedbytheestablished
fact that, notwithstanding the insurer's refusal to pay the value of the
policiestheextensiveresourcesoftheinsured(ExhibitWW)enabledhimto
payofftheNationalBankinashorttime;andifhewasabletodoso,no
motiveappearsforattempttodefraudtheinsurer.Whiletheacquittalofthe
insuredinthearsoncaseisnotresjudicataonthepresentcivilaction,the
insurer's evidence, to judge from the decision in the criminal case, is
practicallyidenticalinbothcasesandmustleadtothesameresult,sincethe
prooftoestablishthedefenseofconnivanceatthefireinordertodefraud
theinsurer"cannotbemateriallylessconvincingthanthatrequiredinorder
toconvicttheinsuredofthecrimeofarson"(Bachrachvs.BritishAmerican
AssuranceCo.,17Phil.536).
Astothedefensethattheburnedbodegascouldnotpossiblyhavecontained
thequantitiesofcopraandhempstatedinthefireclaims,theinsurer'scase
restsalmostexclusivelyontheestimates,inferencesandconclusionsAsto
thedefensethattheburnedbodegascouldnotpossiblyhavecontainedthe
quantitiesofcopraandhempstatedinthefireclaims,theinsurer'scaserests
almost exclusively on the estimates, inferences and conclusions of its
adjusterinvestigator,AlexanderD.Stewart, whoexamined thepremises
duringandafterthefire.Histestimony,however,wasbasedoninferences
fromthephotographsandtracesfoundafterthefire,andmustyieldtothe
contradictorytestimonyofengineerAndresBolinas,andspeciallyofthe
thenChiefoftheLoanDepartmentoftheNationalBank'sLegaspibranch,
PorfirioBarrios,andofBankAppraiserLoretoSamson,whoactuallysaw
thecontentsofthebodegasshortlybeforethefire,whileinspectingthemfor
the mortgagee Bank. The lower Court was satisfied of the veracity and
accuracy of these witnesses, and the appellant insurer has failed to
substantiateitschargesagansttheircharacter.Infact,theinsurer'srepeated
accusations that these witnesses were later "suspended for fraudulent
transactions" without giving any details, is a plain attempt to create
prejudiceagainstthem,withouttheleastsupportinfact.

Stewarthimself,intestifyingthatitisimpossibletodeterminefromthe
remainsthequantityofhempburned(t.s.n.,pp.1468,1470),rebutted
appellant'sattacksontherefusaloftheCourtbelowtoacceptitsinferences
from the remains shown in the photographs of the burned premises. It
appears,likewise,thattheadjuster'scalculationsofthemaximumcontents
ofthedestroyedwarehousesrestedontheassumptionthatallthecopraand
hempwereinsacks,andontheresultofhisexperimentstodeterminethe
space occupied by definite amounts of sacked copra. The error in the
estimatesthusarrivedatproceedsfromthefactthatalargeamountofthe
insured'sstockwereinlooseform,occupyinglessspacethanwhenkeptin
sacks; andfrom Stewart'sobviousfailuretogivedue allowancefor the
compressionofthematerialatthebottomofthepiles(t.s.n.,pp.1964,
1967) due to the weight of the overlying stock, as shown by engineer
Bolinas.It isprobablethattheerrorswereduetoinexperience(Stewart
himselfadmittedthatthiswasthefirstcoprafirehehadinvestigated);butit
isclearthatsucherrorsrendervaluelesStewart'scomputations.Thesewere
infact twicepasseduponandtwicerejectedbydifferent judges(inthe
criminal and civil cases) and their concordant opinion is practically
conclusive.
Theadjusters'reports,Exhibits9Aand9B,werecorrectlydisregardedby
theCourtbelow,sincetheopinionsstatedthereinwerebasedon exparte
investigationsmadeatthebackoftheinsured;andtheappellantdidnot
presentatthetrialtheoriginaltestimonyanddocumentsfromwhichthe
conclusionsinthereportweredrawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the
insuredcontainedfalseandfraudulentstatementsthatavoidedtheinsurance
policy.ButthetrialCourtfoundthatthediscrepancieswerearesultofthe
insured'serroneousinterpretationoftheprovisionsoftheinsurancepolicies
andclaimforms,causedbyhisimperfectknowledgeofEnglish,andthat
themisstatementswereinnocentlymadeandwithoutintenttodefraud.Our
reviewofthelengthyrecordfailstodisclosereasonsforrejectingthese
conclusionsoftheCourtbelow.Forexample,theoccurrenceofprevious
firesinthepremisesinsuredin1939,althoomittedintheclaims,Exhibits
EEandFF,wereneverthelessrevealedbytheinsuredinhisclaimsExhibits
Q(filedsimultaneouslywiththem),KKandWW.Consideringthatallthese
claimsweresubmittedtothesmaeagent,andthatthissameagenthadpaid

the loss caused by the 1939 fire, we find no error in the trial Court's
acceptanceoftheinsured'sexplanationthattheomissioninExhibitsEEand
FFwasduetoinadvertance,fortheinsuredcouldhardlyexpectundersuch
circumstances,thatthe1939wouldpassunnoticedbytheinsuranceagents.
Similarly,the20percentoverclaimon70percentofthehemostock,was
explainedbytheinsuredascausedbyhisbeliefthat hewasentitledto
includeintheclaimhisexpectedprofitonthe70percentofthehemp,
becausethesamewasalreadycontractedforandsoldtootherpartiesbefore
thefireoccurred.Comparedwithothercasesofovervaluationrecordedin
ourjudicialannals,the20percentexcessinthecaseoftheinsuredisnotby
itselfsufficienttoestablishfraudulentintent.Thus,inYuCuavs.South
BritishIns.Co.,41Phil.134,theclaimwasfourteen(14)times(1,400per
cent)biggerthantheactualloss;inGoLuvs.YorkshireInsuranceCo.,43
Phil.,633,eight(8)times(800percent);inTuasonvs.NorthChinaIns.
Co.,47Phil.14,six(6)times(600percent);inTanItvs.SunInsurance,51
Phil. 212, the claim totalled P31,860.85 while the goods insured were
inventoriedatO13,113.Certainly,theinsured'soverclaimof20percentin
thecaseatbar,dulyexplainedbyhimtotheCourtaquo,appearspunyby
comparison,andcannotberegardedas"morethanmisstatement,morethan
inadvertenceofmistake,morethanamereerrorinopinion,morethana
slight exaggeration" (Tan It vs. Sun Insurance Office, ante) that would
entitletheinsurertoavoidthepolicy.Itiswelltonotethattheoverchange
of20percentwasclaimedonlyonapart(70percent)ofthehempstock;
hadtheinsuredactedwithfraudulentintent,nothingpreventedhimfrom
increasingthevalueofallofhiscopra,hempandbuildingsinthesame
proportion. This also applies to the alleged fraudulent claim for burned
emptysacks,thatwaslikewiseexplainedtooursatisfactionandthatofthe
trialCourt.Theruleisthattoavoidapolicy,thefalseswearingmustbe
wilfulandwithintenttodefraud(29Am.Jur.,pp.849851)whichwasnot
thecause.Ofcourse,thelackoffraudulentintentwouldnotauthorizethe
collectionoftheexpectedprofitunderthetermsofthepolices,andthetrial
Courtcorrectlydeductethesamefromitsaward.
Wefindnoreversibleerrorinthejudgmentappealedfrom,whereforethe
smaeisherebyaffirmed.Costsagainsttheappellant.Soordered.
Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and
Concepcion,JJ.,concur.

Plaintiffs,nowappellants,filedthisactionintheCourtofFirstInstanceof
ManilatorecoverthesumofP5,000.00,correspondingtothefacevalueof
an insurance policy issued by defendant on the life of Estefania A.
Saturnino, and thesum of P1,500.00 asattorney's fees. Defendant,now
appellee, set up special defenses in its answer, with a counterclaim for
damagesallegedlysustainedasaresultoftheunwarrantedpresentationof
thiscase.Boththecomplaintandthecounterclaimweredismissedbythe
trial court; but appellants were declared entitled to the return of the
premiumalreadypaid;plusinterestat6%uptoJanuary8,1959,whena
checkforthecorrespondingamountP359.65wassenttothemby
appellee.
Thepolicysueduponisonefor20yearendowmentnonmedicalinsurance.
Thiskindofpolicydispenseswiththemedicalexaminationoftheapplicant
usuallyrequiredinordinarylifepolicies.However,detailedinformationis
calledforintheapplicationconcerningtheapplicant'shealthandmedical
history.ThewrittenapplicationinthiscasewassubmittedbySaturninoto
appelleeonNovember16,1957,witnessedbyappellee'sagentEdwardA.
Santos.Thepolicywasissuedonthesameday,uponpaymentofthefirst
year's premium of P339.25. On September 19, 1958 Saturnino died of
pneumonia,secondarytoinfluenza.Appellantshere,whoarehersurviving
husbandandminorchild,respectively,demandedpaymentofthefacevalue
of the policy. The claim was rejected and this suit was subsequently
instituted.
G.R.No.L16163February28,1963
IGNACIO SATURNINO, in his own behalf and as the JUDICIAL
GUARDIANOFCARLOSSATURNINO,minor, plaintiffsappellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
defendantappellee.
Eleazaro

A.

Samson

Abello&Maciasfordefendantappellee.
MAKALINTAL,J.:

for

plaintiffsappellants.

It appears that two months prior to the issuance of the policy or on

September 9, 1957, Saturnino was operated on for cancer, involving
completeremovaloftherightbreast,includingthepectoralmusclesandthe
glandsfoundintherightarmpit.Shestayedinthehospitalforaperiodof
eight days, after which she was discharged, although according to the
surgeonwhooperatedonhershecouldnotbeconsidereddefinitelycured,
herailmentbeingofthemalignanttype.
NotwithstandingthefactofheroperationEstefaniaA.Saturninodidnot
makeadisclosurethereofinherapplicationforinsurance.Onthecontrary,
shestatedthereinthatshedidnothave,norhadsheeverhad,amongother
ailmentslistedintheapplication,cancerorothertumors;thatshehadnot
consultedanyphysician,undergoneanyoperationorsufferedanyinjury

withintheprecedingfiveyears;andthatshehadneverbeentreatedfornor
didsheeverhaveanyillnessordiseasepeculiartohersex,particularlyof
thebreast,ovaries,uterus,andmenstrualdisorders.Theapplicationalso
recitesthattheforegoingdeclarationsconstituted"afurtherbasisforthe
issuanceofthepolicy."
The question at issue is whether or not the insured made such false
representationsofmaterialfactsastoavoidthepolicy.Therecanbeno
disputethattheinformationgivenbyherinherapplicationforinsurance
wasfalse,namely,thatshehadneverhadcancerortumors,orconsulted
anyphysicianorundergoneanyoperationwithintheprecedingperiodof
fiveyears.Arethefactsthenfalselyrepresentedmaterial?TheInsurance
Law(Section30)providesthat"materialityistobedeterminednotbythe
event,butsolelybytheprobableandreasonableinfluenceofthefactsupon
thepartytowhomthecommunicationisdue,informinghisestimateofthe
proposedcontract,orinmakinghisinquiries."Itseemstobethecontention
ofappellantsthatthefactssubjectoftherepresentationwerenotmaterialin
viewofthe"nonmedical"natureoftheinsuranceappliedfor,whichdoes
awaywiththeusualrequirementofmedicalexaminationbeforethepolicy
is issued. The contention is without merit. If anything, the waiver of
medicalexaminationrendersevenmorematerialtheinformationrequired
of the applicant concerning previous condition of health and diseases
suffered,forsuchinformationnecessarilyconstitutesanimportantfactor
whichtheinsurertakesintoconsiderationindecidingwhethertoissuethe
policyor not.It islogical toassumethat ifappellee hadbeen properly
apprisedoftheinsured'smedicalhistoryshewouldatleasthavebeenmade
toundergomedicalexaminationinordertodetermineherinsurability.
Appellants argue that due information concerning the insured's previous
illnessandoperationhadbeengiventoappelleesagentEdwardA.Santos,
whofilledtheapplicationformafteritwassignedinblankbyEstefaniaA.
Saturnino.ThiswasdeniedbySantosinhistestimony,andthetrialcourt
foundsuchtestimonytobetrue.Thisisafindingoffactwhichisbinding
uponus,thisappealhavingbeentakenuponquestionsoflawalone.Wedo
notdeemitnecessary,therefore,toconsiderappellee'sadditionalargument,
whichwasupheldbythetrialcourt,thatinsigningtheapplicationformin
blankandleavingittoEdwardA.Santostofill(assumingthattobethe
truth) the insured in effect made Santos her agent for that purpose and

consequentlywasresponsiblefortheerrorsintheentriesmadebyhimin
thatcapacity.
In the application for insurance signed by the insured in this case, she
agreedtosubmittoamedicalexaminationbyadulyappointedexaminerof
appelleeifinthelatter'sopinionsuchexaminationwasnecessaryasfurther
evidence of insurability. In not asking her to submit to a medical
examination,appellantsmaintain,appelleewasguiltyofnegligence,which
precluded it from finding about her actual state of health. No such
negligencecanbeimputedtoappellee.Itwaspreciselybecausetheinsured
hadgivenherselfacleanbillofhealththatappelleenolongerconsideredan
actualmedicalcheckupnecessary.
Appellantsalsocontendtherewasnofraudulentconcealmentofthetruth
inasmuchastheinsuredherselfdidnotknow,sinceherdoctornevertold
her,thatthediseaseforwhichshehadbeenoperatedonwascancer.Inthe
firstplacetheconcealmentofthefactoftheoperationitselfwasfraudulent,
as there could not have been any mistake about it, no matter what the
ailment.Secondly,inordertoavoidapolicyitisnotnecessarytoshow
actual fraud on the part of the insured. In the case of Kasprzyk v.
MetropolitanInsuranceCo.,140N.Y.S.211,214,itwasheld:
Moreover,ifitwerethelawthataninsurancecompanycouldnot
dependapolicyonthegroundofmisrepresentation,unlessitcould
show actual knowledge on the part of the applicant that the
statementswerefalse,thenitisplainthatitwouldbeimpossible
for it to protect itself and its honest policyholders against
fraudulentandimproperclaims.Itwouldbewhollyatthemercyof
any one who wished to apply for insurance, as it would be
impossibletoshowactualfraudexceptintheextremestcases.It
could not rely on an application as containing information on
whichitcouldact.Therewouldbenoincentivetoanapplicantto
tellthetruth.

Wherefore, the parties respectfully pray that the foregoing

stipulationoffactsbeadmittedandapprovedbythisHonorable
Court,withoutprejudicetothepartiesadducingotherevidenceto
prove their case not covered by this stipulation of facts.
1wph1.t
In this jurisdiction a concealment, whether intentional or unintentional,
entitlestheinsurertorescindthecontractofinsurance,concealmentbeing
definedas"negligencetocommunicatethatwhichapartyknowsandought
tocommunicate"(Sections24&26,ActNo.2427).InthecaseofArgente
v.WestCoastLifeInsuranceCo.,51Phil.725,732,thisCourtsaid,quoting
fromJoyce,TheLawofInsurance,2nded.,Vol.3:
"Thebasisoftherulevitiatingthecontractincasesofconcealment
isthatitmisleadsordeceivestheinsurerintoacceptingtherisk,or
accepting it at the rate of premium agreed upon. The insurer,
relyinguponthebeliefthattheassuredwilldiscloseeverymaterial
fact within his actual or presumed knowledge, is misled into a
belief that the circumstance withheld does not exist, and he is
therebyinducedtoestimatetheriskuponafalsebasisthatitdoes
notexist."
Thejudgmentappealedfrom,dismissingthecomplaintandawardingthe
returntoappellantsofthepremiumalreadypaid,withinterestat6%upto
January29,1959,affirmed,withcostsagainstappellants.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L.,Barrera,Paredes,DizonandRegala,JJ.,concur.

MALAYAN INSURANCE COMPANY, INC., PETITIONER,

vs.
PAPCO.,LTD.(PHIL.BRANCH),RESPONDENT.
DECISION
MENDOZA,J.:
ChallengedinthispetitionforreviewoncertiorariunderRule45ofthe
RulesofCourtistheOctober27,2011Decision 1oftheCourtofAppeals
(CA),whichaffirmedwithmodificationtheSeptember17,2009Decision 2
oftheRegionalTrialCourt,Branch15,Manila(RTC),anditsFebruary24,
2012Resolution3denyingthemotionforreconsiderationfiledbypetitioner
MalayanInsuranceCompany.,Inc.(Malayan).
TheFacts
TheundisputedfactualantecedentsweresuccinctlysummarizedbytheCA
asfollows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire
InsurancePolicyNo.F00227000073toPAPCo.,Ltd.(PAPCo.)forthe
lattersmachineriesandequipmentlocatedatSanyoPrecisionPhils.Bldg.,
PhaseIII,Lot4,Block15,PEZA,Rosario,Cavite(SanyoBuilding).The
insurance, which was for Fifteen Million Pesos (?15,000,000.00) and
effectiveforaperiodofone(1)year,wasprocuredbyPAPCo.forRizal
CommercialBankingCorporation(RCBC),themortgageeoftheinsured
machineriesandequipment.
After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Pursuant thereto, a renewal policy, Fire Insurance Policy No. F00227
000079,wasissuedbyMalayantoPAPCo.fortheperiodMay13,1997to
May13,1998.

G.R.No.200784August7,2013

OnOctober12,1997andduringthesubsistenceoftherenewalpolicy,the
insuredmachineriesandequipmentweretotallylostbyfire.Hence,PAP
Co.filedafireinsuranceclaimwithMalayanintheamountinsured.

c)

Inaletter,datedDecember15,1997,Malayandeniedtheclaimuponthe
groundthat,atthetimeoftheloss,theinsuredmachineriesandequipment
weretransferredbyPAPCo.toalocationdifferentfromthatindicatedin
thepolicy.Specifically,that theinsuredmachineriesweretransferredin
September1996fromtheSanyoBuildingtothePacePacificBldg.,Lot14,
Block14,PhaseIII,PEZA,Rosario,Cavite(PacePacific).Contestingthe
denial, PAP Co. argued that Malayan cannot avoid liability as it was
informed of the transfer by RCBC, the party dutybound to relay such
information.However,MalayanreiterateditsdenialofPAPCo.sclaim.
Distraught,PAPCo.filedthecomplaintbelowagainstMalayan.4

SOORDERED.5

RulingoftheRTC

TheRTCfurtherstatedthatPAPsnoticetoRizalCommercial Banking
Corporation (RCBC) sufficiently complied with the notice requirement
under the policy considering that it was RCBC which procured the
insurance.PAPactedingoodfaithinnotifyingRCBCaboutthetransfer
andthelatterevenconductedaninspectionofthemachineryinitsnew
location.

On September 17, 2009, the RTC handed down its decision, ordering
MalayantopayPAPCompanyLtd(PAP)anindemnityforthelossunder
the fire insurance policy as well as for attorneys fees. The dispositive
portionoftheRTCdecisionreads:
WHEREFORE,premisesconsidered,judgmentisherebyrenderedinfavor
oftheplaintiff.Defendantisherebyordered:
a)
TopayplaintiffthesumofFIFTEENMILLIONPESOS(P15,000,000.00)
as and for indemnity for the loss under the fire insurance policy, plus
interestthereonat therateof12%perannum from thetimeoflosson
October12,1997untilfullypaid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS
(PhP500,000.00)asandbywayofattorneysfees;[and,]

Topaythecostsofsuit.

TheRTCexplainedthatMalayanisliabletoindemnifyPAPfortheloss
underthesubjectfireinsurancepolicybecause,althoughtherewasachange
intheconditionofthethinginsuredasaresultofthetransferofthesubject
machineries to another location, said insurance company failed to show
proofthatsuchtransferresultedintheincreaseoftheriskinsuredagainst.
Intheabsenceofproofthatthealterationofthethinginsuredincreasedthe
risk,thecontractoffireinsuranceisnotaffectedperArticle169ofthe
InsuranceCode.

Not contented,MalayanappealedtheRTCdecisiontotheCAbasically
arguingthatthetrialcourterredinorderingittoindemnifyPAPfortheloss
ofthesubjectmachineriessincethelatter,withoutnoticeand/orconsent,
transferredthesametoalocationdifferentfromthatindicatedinthefire
insurancepolicy.
RulingoftheCA
OnOctober27,2011,theCArenderedtheassaileddecisionwhichaffirmed
theRTCdecisionbutdeletedtheattorneysfees.Thedecretalportionofthe
CAdecisionreads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified,
MalayanInsuranceCompanymustindemnifyPAPCo.Ltdtheamountof
Fifteen Million Pesos (PhP15,000,000.00) for the loss under the fire

insurancepolicy,plusinterestthereonattherateof12%perannumfrom
thetimeoflossonOctober12,1997untilfullypaid.However,theFive
HundredThousandPesos(PhP500,000.00)awardedtoPAP Co.,Ltd.as
attorneysfeesisDELETED.Withcosts.
SOORDERED.6
The CA wrote that Malayan failed to show proof that there was a
prohibitiononthetransferoftheinsuredpropertiesduringtheefficacyof
the insurance policy. Malayan also failed to show that its contractual
consentwasneededbeforecarryingoutatransferoftheinsuredproperties.
Despiteitsbareclaimthattheoriginalandtherenewedinsurancepolicies
contained provisions on transfer limitations of the insured properties,
Malayannevercitedthespecificprovisions.
TheCAfurtherstatedthateveniftherewassuchaprovisionontransfer
restrictionsoftheinsuredproperties,stillMalayancouldnotescapeliability
becausethetransferwasmadeduringthesubsistenceoftheoriginalpolicy,
not the renewal policy. PAP transferred the insured properties from the
Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in
September1996.Therefore,Malayanwasawareorshouldhavebeenaware
ofsuchtransferwhenitissuedtherenewalpolicyonMay14,1997.The
CAopinedthatsinceaninsurancepolicywasacontractofadhesion,any
ambiguitymust beresolvedagainst thepartythatpreparedthecontract,
which,inthiscase,wasMalayan.
Finally,theCAaddedthatMalayanfailedtoshowthatthetransferofthe
insuredpropertiesincreasedtheriskoftheloss.It,thus,couldnotusesuch
transferasanexcusefornotpayingtheindemnitytoPAP.Althoughthe
insuranceproceedswerepayabletoRCBC,PAPcouldstillsueMalayanto
enforceitsrightsonthepolicybecauseitremainedapartytotheinsurance
contract.
Not inconformitywiththeCAdecision,Malayanfiledthispetitionfor
reviewanchoredonthefollowing
GROUNDS

I
THECOURTOFAPPEALSHASDECIDEDTHECASEINAMANNER
NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT AFFIRMED
THEDECISIONOFTHETRIALCOURTANDTHUSRULINGINTHE
QUESTIONED DECISION AND RESOLUTION THAT PETITIONER
MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT
BECAUSE:
CONTRARYTOTHECONCLUSIONOFTHECOURTOFAPPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT
DENIED,THATONTHEFACEOFTHERENEWALPOLICYISSUED
TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE
WARRANTY OR A REPRESENTATION MADE BY THE INSURED
THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO
BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE
RENEWALPOLICYWASISSUEDTORESPONDENTPAPCO.,THE
INSURED PROPERTIES WERE NOT AT THE SANYO BUILDING
BUTWEREATADIFFERENTLOCATION,THATIS,ATTHEPACE
FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN
THE LOSS INSURED AGAINST OCCURRED. THESE SET OF
UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY
AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF
CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVEWARRANTYUNDERSECTIONS27,45AND74IN
RELATION TO SECTION 31 OF THE INSURANCE CODE,
RESPECTIVELY.
RESPONDENTPAPCO.WASNEVERABLETOSHOWTHATITDID
NOT COMMIT CONCEALMENT, MISREPRESENTATION OR
BREACHOFANAFFIRMATIVEWARRANTYWHENITFAILEDTO
PROVETHATITINFORMEDPETITIONERMALAYANTHATTHE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A
LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE
INSURANCEPOLICY.

INANYEVENT,RESPONDENTPAPCO.NEVERDISPUTEDTHAT
THEREARECONDITIONSANDLIMITATIONSTOTHERENEWAL
POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS
DENIEDINTHEFIRSTPLACE.INFACT,THEBESTPROOFTHAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND
LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE
FOCUSEDONITSFACTUALASSERTIONTHATITSUPPOSEDLY
NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS
REQUIREDBYTHEINSURANCEPOLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE
THAT THERE WAS AN INCREASE IN RISK BECAUSE OF THE
UNILATERAL TRANSFER OF THE INSURED PROPERTIES. IN
FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY
RESPONDENTPAPCO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT
APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE
HONORABLECOURTWHENITIMPOSEDINTERESTATTHERATE
OFTWELVEPERCENT(12%)INTERESTFROMTHETIMEOFTHE
LOSSUNTILFULLYPAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN
INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF
MONEYFROMWHICHABREACHENTITLESAPLAINTIFFTOAN
AWARDOFINTERESTATTHERATEOFTWELVEPERCENT(12%)
PERANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE
INSURANCECODESHOULDNOTHAVEBEENAPPLIEDBYTHE
COURTOFAPPEALSBECAUSETHEREWASNEVERANYFINDING
THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR
WITHHELD THE PROCEEDS OF THE INSURANCE POLICY
BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE
DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT,

MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE

WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO
RESCINDTHEINSURANCEPOLICYAND/ORTOCONSIDERTHE
CLAIMASVOIDED.
III
THECOURTOFAPPEALSHASDECIDEDTHECASEINAMANNER
NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE
DECISIONSOFTHEHONORABLECOURTWHENITAGREEDWITH
THETRIALCOURTANDHELDINTHEQUESTIONEDDECISION
THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS
PAYABLETORESPONDENTPAPCO.DESPITETHEEXISTENCEOF
AMORTGAGEECLAUSEINTHEINSURANCEPOLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM
ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN
THE QUESTIONED DECISION AND RESOLUTION THAT THE
INTERPRETATIONMOSTFAVORABLETOTHEINSUREDSHALL
BEADOPTED.7
Malayanbasicallyarguesthatitcannotbeheldliableundertheinsurance
contract because PAP committed concealment, misrepresentation and
breach of an affirmative warranty under the renewal policy when it
transferredthelocationoftheinsuredpropertieswithoutinformingit.Such
transfer affected the correct estimation of the risk which should have
enabledMalayantodecidewhetheritwaswillingtoassumesuchriskand,
ifso,atwhatrateofpremium.ThetransferalsoaffectedMalayansability
tocontroltheriskbyguardingagainsttheincreaseoftheriskbroughtabout
bythechangeinconditions,specificallythechangeinthelocationofthe
risk.
MalayanclaimsthatPAPconcealedamaterialfactinviolationofSection
27oftheInsuranceCode8whenitdidnotinformMalayanoftheactualand
newlocationoftheinsuredproperties.Infact,beforetheissuanceofthe

renewalpolicyonMay14,1997,PAPeveninformeditthattherewouldbe
nochangesintherenewalpolicy.MalayanalsoarguesthatPAPisguiltyof
breachofwarrantyundertherenewalpolicyinviolationofSection74of
theInsuranceCode9when,contrarytoitsaffirmationintherenewalpolicy
thattheinsuredpropertieswerelocatedattheSanyoFactory,thesewere
alreadytransferredtothePaceFactory.MalayanaddsthatPAPisguiltyof
misrepresentation upon a material fact in violation of Section45 of the
InsuranceCode10whenitinformedMalayanthattherewouldbenochanges
intheoriginalpolicy,andthattheoriginalpolicywouldberenewedonan
"asis"basis.
MalayanfurtherarguesthatPAPfailedtodischargetheburdenofproving
thatthetransferoftheinsuredpropertiesundertheinsurancepolicywas
withitsknowledgeandconsent.GrantingthatPAPinformedRCBCofthe
transfer or change of location of the insured properties, the same is
irrelevant and does not bind Malayan considering that RCBC is a
corporationvestedwithseparateanddistinctjuridicalpersonality.Malayan
didnotconsenttobetheprincipalofRCBC.RCBCdidnotalsoactas
Malayansrepresentative.
Withregardtotheallegedincreaseofrisk,Malayaninsiststhatthereis
evidenceofanincreaseinriskasaresultoftheunilateraltransferofthe
insuredproperties.AccordingtoMalayan,theSanyoFactorywasoccupied
asafactoryofautomotive/computerpartsbytheassuredandfactoryofzinc
&aluminumdiecastandplasticgearforcopymachinebySanyoPrecision
Phils.,Inc.witharateof0.449%under6.1.2A,whilePaceFactorywas
occupiedasfactorythatrepackedsiliconesealanttoplasticcylinderswitha
rateof0.657%under6.1.2A.
PAPsposition
On the other hand, PAP counters that there is no evidence of any
misrepresentation,concealmentordeceptiononitspartandthatitsclaimis
notfraudulent.Itinsiststhatitcanstillsuetoprotectitsrightsandinterest
onthepolicynotwithstandingthefactthattheproceedsofthesamewas
payabletoRCBC,andthatitcancollectinterestattherateof12%per
annumontheproceedsofthepolicybecauseitsclaimforindemnitywas
undulydelayedwithoutlegaljustification.

TheCourtsRuling
TheCourtagreeswiththepositionofMalayanthatitcannotbeheldliable
forthelossoftheinsuredpropertiesunderthefireinsurancepolicy.
Ascanbegleanedfromthepleadings,itisnotdisputedthatonMay13,
1996,PAPobtaineda?15,000,000.00fireinsurancepolicyfromMalayan
coveringitsmachineriesandequipmenteffectiveforone(1)yearoruntil
May13,1997;thatthepolicyexpresslystatedthattheinsuredproperties
werelocatedat"SanyoPrecisionPhils.Building,PhaseIII,Lots4&6,
Block15,EPZA,Rosario,Cavite";thatbeforeitsexpiration,thepolicywas
renewed11onan"asis"basisforanotheryearoruntilMay13,1998;that
the subject properties were later transferred to the Pace Factory also in
PEZA;andthatonOctober12,1997,duringtheeffectivityoftherenewal
policy,afirebrokeoutatthePaceFactorywhichtotallyburnedtheinsured
properties.
Thepolicyforbadetheremovaloftheinsuredpropertiesunlesssanctioned
byMalayan
ConditionNo.9(c)oftherenewalpolicyprovides:
9.Underanyofthefollowingcircumstancestheinsuranceceasestoattach
asregardsthepropertyaffectedunlesstheinsured,beforetheoccurrenceof
any loss or damage, obtains the sanction of the company signified by
endorsementuponthepolicy,byoronbehalfoftheCompany:
xxxxxxxxx
(c)Ifpropertyinsuredberemovedtoanybuildingorplaceotherthanin
thatwhichishereinstatedtobeinsured.12
Evidently,bytheclearandexpressconditionintherenewal policy,the
removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the
insurersconsent,wouldfreethelatterfromanyliability.

The respondent failed to notify, and to obtain the consent of, Malayan
regardingtheremoval

Q
WhatdidyoudoasBranchManagerofPapCo.Ltd.?

The records are bereft of any convincing and concrete evidence that
Malayan was notified of the transfer of the insured properties from the
SanyofactorytothePacefactory.TheCourthascombedtherecordsand
found nothing that would show that Malayan was duly notified of the
transferoftheinsuredproperties.
What PAP did to prove that Malayan was notified was to show that it
relayedthefactoftransfertoRCBC,theentitywhichmadethereferraland
thenamedbeneficiaryinthepolicy.MalayanandRCBCmighthavebeen
sistercompanies,butsuchfactdidnotmakeoneanagentoftheother.The
factthatRCBCreferredPAPtoMalayandidnotclotheitwithauthorityto
representandbindthesaidinsurancecompany.Afterthereferral,PAPdealt
directlywithMalayan.
The respondent overlooked the fact that during the November 9, 2006
hearing,13 its counsel stipulated in open court that it was Malayans
authorized insurance agent, Rodolfo Talusan, who procured the original
policy from Malayan, not RCBC. This was the reason why Talusans
testimonywasdispensedwith.

A
WhatIdidIinstructedmySecretary,becausetheseequipmentwasbank
loanandbecauseoftheinsuranceItoldmysecretarytonotify.
Q
Tonotifywhom?
A
ItoldmySecretarytoinformthebank.
Q
YouarereferringtoRCBC?
A

Moreover,intheprevioushearingheldonNovember17,2005, 14 PAPs
hostilewitness,AlexanderBarrera,AdministrativeAssistantofMalayan,
testifiedthathewastheonewhoprocuredMalayansrenewalpolicy,not
RCBC,andthatRCBCmerelyreferredfireinsuranceclientstoMalayan.
He stressed, however, that no written referral agreement exists between
RCBCandMalayan.HealsodeniedthatPAPnotifiedMalayanaboutthe
transferbeforetherenewalpolicywasissued.HeaddedthatPAP,through
MaricarJardiniano(Jardiniano),informedhimthatthefireinsurancewould
berenewedonan"asisbasis."15
GrantingthatanynoticetoRCBCwasbindingonMalayan,PAPsclaim
thatitnotifiedRCBCandMalayanwasnotindubitablyestablished.Atbest,
PAPcouldonlycomeupwiththehearsaytestimonyofitsprincipalwitness,
BranchManagerKatsumiYoneda(Mr.Yoneda),whotestifiedasfollows:

Yes,sir.
xxxx
Q
AftertheRCBCwasinformedinthemanneryoustated,whatdidyoudo
regardingthenewlocationofthesepropertiesatPacePacificBldg.insofar
asMalayanInsuranceCompanyisconcerned?
A

After that transfer, we informed the RCBC about the transfer of the
equipment andalsoMalayanInsurancebut wewerenotabletocontact
MalayanInsurancesoIinstructedagainmysecretarytoinformMalayan
aboutthetransfer.
Q
WhowasthesecretaryyouinstructedtocontactMalayanInsurance,the
defendantinthiscase?

Becausesheismysecretary.
Q
Sohowmanysecretariesdidyouhaveatthattime?
A
Two,sir.

DoryRamos.
Q

WhathappenedwiththeinstructionthatyougavetoyoursecretaryDory
RamosaboutthematterofinformingthedefendantMalayanInsuranceCo
ofthenewlocationoftheinsuredproperties?

Howmanysecretariesdoyouhaveatthattimeinyouroffice?

She informed me that the notification was already given to Malayan

Insurance.

Onlyone,sir.
Q

DoyouknowacertainMaricarJardiniano?

Asidefromwhatshetoldyouhowdidyouknowthattheinformationwas
properlyrelayedbythesaidsecretary,DoryRamos,toMalayanInsurance?

Yes,sir.

Iaskedher,DoryRamos,didyouinformMalayanInsuranceandshesaid
yes,sir.

Q
Q
Whydoyouknowher?
A

Nowafteryouweretoldbyyoursecretary,DoryRamos,thatshewasable
toinformMalayanInsuranceCompanyaboutthetransferoftheproperties

insured to the new location, do you know what happened insofar this
informationwasgiventothedefendantMalayanInsurance?

A
Verbal.16[Emphasessupplied]

A
IheardthatsomeonefromMalayanInsurancecameovertoourcompany.
Q
DidyoucometoknowwhowasthatpersonwhocametoyourplaceatPace
Pacific?
A
Idonotknow,sir.
Q
HowdidyouknowthatthispersonfromMalayanInsurancecametoyour
place?
A
Itisaccordingtothereportgiventome.
Q
Whogavethatreporttoyou?
A
DoryRamos.
Q
Wasthatreportinwritingorverballydone?

ThetestimonyofMr.Yonedaconsistedofhearsaymatters.Heobviously
hadnopersonalknowledgeofthenoticetoeitherMalayanorRCBC.PAP
shouldhavepresentedhissecretaries,DoryRamosandMaricarJardiniano,
atthewitnessstand.Histestimonyalonewasunreliable.
Moreover,theCourttakesnoteofthefactthatMr.Yonedaadmittedthatthe
insured properties were transferred to a different location only after the
renewalofthefireinsurancepolicy.
COURT
Q
Whendidyoutransferthemachineriesandequipmentsbeforetherenewal
oraftertherenewaloftheinsurance?
A
Aftertherenewal.
COURT
Q
Youunderstandmyquestion?
A
Yes,YourHonor.17[Emphasissupplied]
This enfeebles PAPs position that the subject properties were already
transferredtothePacefactorybeforethepolicywasrenewed.

ThetransferfromtheSanyoFactorytothePACEFactoryincreasedthe
risk.
ThecourtsbelowheldthatevenifMalayanwasnotnotifiedthereof,the
transferoftheinsuredpropertiestothePaceFactorywasinsignificantasit
didnotincreasetherisk.
Malayanarguesthatthechangeoflocationofthesubjectpropertiesfrom
theSanyoFactorytothePaceFactoryincreasedthehazardtowhichthe
insuredpropertieswereexposed.Malayanwrote:
Withregardstotheexposureoftheriskundertheoldlocation,thiswas
occupied as factory of automotive/computer parts by the assured, and
factory of zinc & aluminum die cast, plastic gear for copy machine by
SanyoPrecisionPhils.,Inc.witharateof0.449%under6.1.2A.Butunder
PacePacificMfg.Corporationthiswasoccupiedasfactorythatrepacks
siliconesealanttoplasticcylinderswitharateof0.657%under6.1.2A.
Hence,therewasanincreaseinthehazardasindicatedbytheincreasein
rate.18
The Court agrees with Malayan that the transfer to the Pace Factory
exposedthepropertiestoahazardousenvironmentandnegativelyaffected
thefireratingstatedintherenewalpolicy.Theincreaseintariffratefrom
0.449%to0.657%putthesubjectpropertiesatagreaterriskofloss.Such
increase in risk would necessarily entail an increase in the premium
paymentonthefirepolicy.
Unfortunately,PAPchosetoremaincompletelysilentonthisverycrucial
point.Despitetheimportanceoftheissue,PAPfailedtorefuteMalayans
argumentontheincreasedrisk.
Malayanisentitledtorescindtheinsurancecontract
Consideringthattheoriginal policywasrenewedonan"asisbasis,"it
followsthattherenewalpolicycarriedwithitthesamestipulationsand
limitations. The terms and conditions in the renewal policy provided,
amongothers,thatthelocationoftheriskinsuredagainstisattheSanyo

factory in PEZA. The subject insured properties, however, were totally

burnedatthePaceFactory.AlthoughitwasalsolocatedinPEZA,Pace
Factorywasnotthelocationstipulatedintherenewalpolicy.Therebeing
anunconsentedremoval,thetransferwasatPAPsownrisk.Consequently,
itmustsuffertheconsequencesofthefire.Thus,theCourtagreeswiththe
reportofCunninghamToplisPhilippines,Inc.,aninternationallossadjuster
whichinvestigatedthefireincidentatthePaceFactory,whichopinedthat
"[g]iventhatthelocationofriskcoveredunderthepolicyisnotthelocation
affected,thepolicywill,therefore,notrespondtothisloss/claim."19
It can also be said that with the transfer of the location of the subject
properties,withoutnoticeandwithoutMalayansconsent,aftertherenewal
ofthepolicy,PAPclearlycommittedconcealment,misrepresentationanda
breachofamaterialwarranty.Section26oftheInsuranceCodeprovides:
Section26.Aneglecttocommunicatethatwhichapartyknowsandought
tocommunicate,iscalledaconcealment.
UnderSection27oftheInsuranceCode,"aconcealmententitlestheinjured
partytorescindacontractofinsurance."
Moreover,underSection168oftheInsuranceCode,theinsurerisentitled
to rescind the insurance contract in case of an alteration in the use or
conditionofthethinginsured.Section168oftheInsuranceCodeprovides,
asfollows:
Section68.Analterationintheuseorconditionofathinginsuredfromthat
towhichitislimitedbythepolicymadewithouttheconsentoftheinsurer,
bymeanswithinthecontroloftheinsured,andincreasingtherisks,entitles
aninsurertorescindacontractoffireinsurance.
Accordingly, an insurer can exercise its right to rescind an insurance
contractwhenthefollowingconditionsarepresent,towit:
1)thepolicylimitstheuseorconditionofthethinginsured;
2)thereisanalterationinsaiduseorcondition;

3)thealterationiswithouttheconsentoftheinsurer;
4)thealterationismadebymeanswithintheinsuredscontrol;and
5)thealterationincreasestheriskofloss.20
In the case at bench, all these circumstances are present. It was clearly
established that the renewal policy stipulated that the insured properties
werelocatedattheSanyofactory;thatPAPremovedthepropertieswithout
theconsentofMalayan;andthatthealterationofthelocationincreasedthe
riskofloss.
WHEREFORE,theOctober27,2011DecisionoftheCourtofAppealsis
hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company,Inc.isherebydeclaredNOTliableforthelossoftheinsured
machineriesandequipmentsufferedbyPAPCo.,Ltd.
SOORDERED.
G.R.No.L17312November29,1965
ARTURO R. TANCO, JR.,
plaintiffappellee,
vs.
THEPHILIPPINEGUARANTYCOMPANY,defendantappellant.

Manuel Y. Macias and Julio R. Vicencio for plaintiffappellee.

RufinoY.LunaandJosueH.Gustilofordefendantappellant.
MAKALINTAL,J.:
Plaintiff'sautomobile,whilebeingdrivenatthesouthernapproachofthe
JonesbridgebyhisbrotherManuelTancoonSeptember1,1959,figuredin
acollisionwithapickupdeliveryvan,asaresultofwhichbothvehicles
weredamaged.PlaintiffpaidforrepairsthetotalsumofP2,536.99andthen
filedhisclaimwithdefendantcompanyunderacarinsurancepolicyissued
bythelatter.Theclaimwasrejected,whereuponsuitwascommencedinthe
MunicipalCourtofManila,whenceitwaselevatedonappealtotheCourt

ofFirstInstanceofManila,whichgavejudgmentforplaintiffintheamount
stated,plusinterestat8%andP500.00asattorney'sfees.Appealwastaken
bydefendantdirectlytothisCourt,therebeingnodisputeastothefacts.
Thepolicysueduponcovers,uptoacertainlimit,lossordamagetothe
insured vehicle as well as damage to property of third persons as a
consequenceoforincident totheoperationofsaidvehicle.Thereisan
exceptionclause,however,whichprovidesthat"thecompanyshallnotbe
liableinrespectofanyaccident,loss,damageorliabilitycaused,sustained
orincurred...whilst(theinsuredvehicle)is...beingdrivenbyorisforthe
purposeofbeingdrivenbyhiminthechargeofanypersonotherthanan
AuthorizedDriver."Thepolicydefinedtheterm"AuthorizedDriver"tobe
theinsuredhimselfand"(b)anypersondrivingontheInsured'sorderor
with his permission, provided that the person driving is permitted in
accordance with the licensing or other laws or regulations to drive the
MotorVehicleorhasbeenpermittedandisnotdisqualifiedbyorderofa
courtoflaworbyreasonofanyenactmentorregulationinthatbehalffrom
drivingsuchMotorVehicle."
Atthetimeofthecollisionplaintiff'sbrotherwhowasatthewheel,didnot
haveavalidlicense,theonehehadobtainedfortheyear1958nothaving
been renewed on or before the last working day of February 1959, as
required by section 31 of the Motor Vehicle Law, Act No. 3992. That
sectionstatesthatanylicensenotsorenewed"shallbecomedelinquentand
invalid," and section 21 states that "except as otherwise specifically
providedinthisActnopersonshalloperateanymotorvehicleonthepublic
highwayswithouthavingprocuredalicenseforthecurrentyear,norwhile
suchlicenseisdelinquent,invalid,suspendedorrevoked."
Inrenderingjudgmentforplaintiffthetrialcourtadvertedtotheabsenceof
evidencethatManuelTancohadbeen"disqualifiedbyorderofacourtof
laworbyreasonofanyenactmentorregulationinthatbehalffromdriving
such motor vehicle," and ruled that if there is any ambiguity in the
definitionoftheterm"authorizeddriver"inthepolicytheambiguityshould
beconstruedinfavorofplaintiff,sincethepolicyhadbeenpreparedinits
entiretybydefendant.Thetrialcourt'sadvertenceistrueasamatteroffact;
anditsrulingiscorrectasamatteroflaw.Butneitheronenortheotheris
relevantinthiscase.Appellantdoesnotrelyontheportionoftheprovisoin

thepolicyquotedbythecourt butonthat whichstatesthat"theperson

drivingispermittedinaccordancewiththelicensingorotherlaws."Andas
tothisthereisnoambiguitywhatsoever,becausetheMotorVehicleLaw
expressly prohibits any person from operating a motor vehicle on the
highwayswithoutalicenseforthecurrent yearorwhilesuchlicenseis
delinquentorinvalid.ThatManuelTancorenewedhislicenseonSeptember
8,1959, one week after the accident did not cure the delinquency or
revalidatethelicensewhichhadalreadyexpired.
Wearenotawarethatthequestionpresentedherehasbeendecidedbythis
Courtinanypreviouscase.Indeedalltheauthoritiescitedbytheparties
consist of decisionsCourts United States. We note, however, that those
relieduponbyappelleearenotinpointbyreasonofmaterialdifferencesin
thefactsorissuespresented.InMessersmithvs.AmericanFidelityCo.,187
App.Div.35,175N.Y.Supp.169;andFireman'sFundInsuranceCo.vs.
Haley,129Miss.525,90So.635,thequestionwaswhethertheinsured
couldrecoveronanautomobilepolicyfordamagesustainedinacollision
whichoccurredwhilethevehiclewasbeingdriveninviolationoflawin
thefirstcasebyaninfantattheinstanceoftheinsured,andinthesecondby
theinsuredhimselfbeyondthestatutoryspeedlimit.Inneithercasewas
thereaprovisioninthepolicyexpresslyexcludingliabilitybyreasonofthe
particular violation involved. We have no reason to disagree with the
pronouncementofthecourtinthesecondcase,aftercitingthefirst,that"if
suchadefense(thatthevehiclewasbeingdriveninviolationoflaw)were
permissibleautomobileinsurancewouldbepracticallyvalueless."
In MacMahonvs.Pearlman,13N.E.154156,aMassachusettscase,the
defenseoftheinsurerwasalsotheviolationoflawbytheinsured,namely,
thatshewasdrivingwithoutalicense;butasstatedinthedecision,"the
casualtycompanydoesnoturgethattheunlawfulconductisforbiddenin
express terms, (but) that because of public policy it ought not to be
compelled to pay damages." The court, citing Messersmith v. American
FidelityCo.,supra,similarlyallowedrecovery,sayingthattorestrictsuch
insurancetocaseswheretherehasbeennoviolationofcriminal lawor
ordinancewouldreduceindemnitytoashadow.
InthecasebeforeUsnowappellant'sdefensedoesnotrestonthegeneral
propositionthatifalawisviolatedatthetimeoftheaccidentwhichcauses

thedamageorinjurytherecanbenorecovery,but ratheronaspecific
provision in the policy that appellant shall not be liable if the accident
occurs while the vehicle is being driven by any person other than an
authorizeddriverandthatanauthorizeddriver,ifnottheinsuredhimself,is
one who is acting on his order or with his permission, provided he is
permittedtodriveunderthelicensinglaws.
The cases cited by appellant are apropos. In Crahan v. Automobile
Underwriters,Inc.,etal.,176A.(Pa.)817,aclauseinthepolicyexcluding
losswhilethemotorvehicle"isbeingoperatedbyanypersonprohibitedby
law from driving an automobile" was held to be free from doubt or
ambiguity,reasonableinitstermsandinfurtheranceofthepolicyofthe
lawprohibitingunlicenseddriverstooperatemotorvehicles.InZabonickv.
Ralston,et al.,261 N.W. (Mich.) 316, theinsured wasdriving withan
expiredlicense,inviolationoflaw(ActNo.91ofthePublicActsof1931),
whentheaccidentoccurred.Underaprovisioninthepolicythattheinsurer
"shall not be liable while the automobile is operated ... by any person
prohibitedbylawfromdriving,"theinsurancecompanywasabsolved,the
Supreme Court of Michigan saying: "To require a person to secure an
operator's license and meet certain requirements before driving an
automobile is a regulation for the protection of life and property, the
wisdom of which can scarcely be questioned. The Legislature has also
providedthateverythreeyearssuchlicensesexpireandmayberenewed
under certain conditions. If one fails to complywith the regulation, the
statutesays,heorsheshallnotdriveamotorvehicleuponthehighway.
Under the terms of the contract, while under such statutory prohibition,
plaintiff could not recover under his policy. To permit such recovery,
notwithstandingthelackofadriver'slicense,wouldtendtounderminethe
protectionaffordedthepublicbyvirtueofActNo.91."
Theexclusionclauseinthecontractinvokedbyappellantisclear.Itdoes
notrefertoviolationsoflawingeneral,whichindeedwouldtendtorender
automobileinsurancepracticallyasham,buttoaspecificsituationwherea
person other than the insured himself, even upon his order or with his
permission,drivesthemotorvehiclewithoutalicenseorwithonethathas
alreadyexpired.Noprincipleoflaworofpublicpolicymilitatesagainstthe
validityofsuchaprovision.

Thejudgmentappealedfromisreversed,withcosts.

G.R. No. L-49699 August 8, 1988

PERLA COMPANIA de SEGUROS, INC.,
petitioner,
vs.
HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court
of First instance of Camarines Norte, Branch III, ERNESTO A.
RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and
as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and
GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR., for
himself and Guardian Ad Litem for minor FERNANDO G.
ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for
minors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA.,
respondents.

Jose B. Sanez for petitioner.

James B. Pajares for private respondents.

CORTES, J.:
The instant petition for certiorari and prohibition with preliminary
injunction concerns the ability of insurers under the "no fault
indemnity" provision of the Insurance Code. *
On December 27, 1977, in a collision between the IH Scout in which
private respondents were riding and a Superlines bus along the
national highway in Sta. Elena, Camarines Norte, private
respondents sustained physics injuries in varying degrees of gravity.
Thus, they filed with the Court of First Instance of Camarines Norte
on February 23,1978 a complaint for damages against Superlines,
the bus driver and petitioner, the insurer of the bus [Rollo, pp. 27-39.]
The bus was insured with petitioner for the amount of P50,000.00 as
and for passenger liability and P50,000.00 as and for third party
liability. The vehicle in which private respondents were riding was
insured with Malayan Insurance Co.
Even before summons could be served, respondent judge issued an
order dated March 1, 1978 [Rollo, pp. 40-41], the pertinent portion of
which stated:
The second incident is the prayer for an order of this
court for the Insurance Company, Perla Compania
de Seguros, Inc., to pay immediately the P5,000.00
under the "no fault clause" as provided for under
Section 378 of the Insurance Code, and finding that
the requisite documents to be attached in the record,
the said Insurance Company is therefore directed to
pay the plaintiffs (private respondents herein) within
five (5) days from receipt of this order.

Petitioner denied in its Answer its alleged liability under the "no fault
indemnity" provision [Rollo, p. 44] and likewise moved for the
reconsideration of the order. Petitioner held the position that under
Sec. 378 of the Insurance Code, the insurer liable to pay the
P5,000.00 is the insurer of the vehicle in which private respondents
were riding, not petitioner, as the provision states that "[i]n the case
of an occupant of a vehicle, claim shall lie against the insurer of the
vehicle in which the occupant is riding, mounting or dismounting
from." Respondent judge, however, denied reconsideration. A second
motion for reconsideration was filed by petitioner. However, in an
order dated January 3, 1979, respondent judge denied the second
motion for reconsideration and ordered the issuance of a writ of
execution [Rollo, p. 69.] Hence, the instant petition praying principally
for the annulment and setting aside of respondent judge's orders
dated March 1, 1978 and January 3, 1979.
The Court issued a temporary restraining order on January 24,1979
[Rollo pp. 73-74.]
The sole issue raised in this petition is whether or not petitioner is the
insurer liable to indemnify private respondents under Sec. 378 of the
Insurance Code.
The key to the resolution of the issue is of courts e Sec. 378, which
provides:
Sec. 378. Any claim for death or injury to any
passenger or third party pursuant to the provision of
this chapter shall be paid without the necessity of
proving fault or negligence of any kind. Provided,
That for purposes of this section
(i) The indemnity in respect of any one person shall
not exceed five thousand pesos;
(ii) The following proofs of loss, when submitted
under oath, shall be sufficient evidence to
substantiate the claim:

(a) Police report of accident, and

(b) Death certificate and evidence
sufficient to establish the proper
payee, or
(c) Medical report and evidence of
medical or hospital disbursement in
respect of which refund is claimed;
(iii) Claim may be made against one motor vehicle
only. In the case of an occupant of a vehicle, claim
shall lie against the insurer of the vehicle in which
the occupant is riding, mounting or dismounting
from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. In all cases,
the right of the party paying the claim to recover
against the owner of the vehicle responsible for the
accident shall be maintained. [Emphasis supplied.]
From a reading of the provision, which is couched in straight-forward
and unambiguous language, the following rules on claims under the
"no fault indemnity" provision, where proof of fault or negligence is
not necessary for payment of any claim for death Or injury to a
passenger or a third party, are established:
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against
the insurer of the vehicle. in which he is riding, mounting or
dismounting from.
3. In any other case (i.e. if the victim is not an occupant of a vehicle),
the claim shall lie against the insurer of the directly offending vehicle.
4. In all cases, the right of the party paying the claim to recover
against the owner of the vehicle responsible for the accident shall be
maintained.

The law is very clear the claim shall lie against the insurer of the
vehicle in which the "occupant" ** is riding, and no other. The
claimant is not free to choose from which insurer he will claim the "no
fault indemnity," as the law, by using the word "shall, makes it
mandatory that the claim be made against the insurer of the vehicle
in which the occupant is riding, mounting or dismounting from.
That said vehicle might not be the one that caused the accident is of
no moment since the law itself provides that the party paying the
claim under Sec. 378 may recover against the owner of the vehicle
responsible for the accident. This is precisely the essence of "no fault
indemnity" insurance which was introduced to and made part of our
laws in order to provide victims of vehicular accidents or their heirs
immediate compensation, although in a limited amount, pending final
determination of who is responsible for the accident and liable for the
victims'injuries or death. In turn, the "no fault indemnity" provision is
part and parcel of the Insurance Code provisions on compulsory
motor vehicle ability insurance [Sec. 373-389] and should be read
together with the requirement for compulsory passenger and/or third
party liability insurance [Sec. 377] which was mandated in order to
ensure ready compensation for victims of vehicular accidents.
Irrespective of whether or not fault or negligence lies with the driver
of the Superlines bus, as private respondents were not occupants of
the bus, they cannot claim the "no fault indemnity" provided in Sec.
378 from petitioner. The claim should be made against the insurer of
the vehicle they were riding. This is very clear from the law.
Undoubtedly, in ordering petitioner to pay private respondents the 'no
fault indemnity,' respondent judge gravely abused his discretion in a
manner that amounts to lack of jurisdiction. The issuance of the
corrective writ of certiorari is therefore warranted.
WHEREFORE, the petition is GRANTED and respondent judge's
order dated March 1, 1978, requiring petitioner to pay private
respondents the amount of P5,000.00 as "no fault indemnity' under
Sec. 378 of the Insurance Code, and that of January 3, 1979,
denying the second motion for reconsideration and issuing a writ of
execution, are ANNULLED and SET ASIDE. The temporary
restraining order issued by the Court on January 24, 1979 is made
permanent.

SO ORDERED.