Insular Life vs.

Ebrado 80 SCRA 181- Common Law Wife Insurance

Facts:

> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his beneficiary,
referring to her as his wife.

> The insured then died and Carponia tried to claim the proceeds of the said plan.

> She admitted to being only the common law wife of the insured.

> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then filed an action
for interpleader.

Issue:

Whether or not the common law wife named as beneficiary can collect the proceeds.

Held:

NO.

The civil code prohibitions on donations made between persons guilty of adulterous concubinage applies to insurance
contracts. On matters not specifically provided for by the Insurance Law, the general rules on Civil law shall apply. A
life insurance policy is no different from a civil donation as far as the beneficiary is concerned, since both are founded
on liberality.

Why was the common law wife not ed to collect the proceeds despite the fact that she was the beneficiary?
Isnt this against Sec. 53?

It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had to consider. Art.
739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage from being beneficiaries of the life
insurance policies of the persons with whom they committed adultery or concubinage. If the SC used only Sec. 53, it
would have gone against Art. 739 and 2012.

Insular v Ebrado G.R. No. L-44059 October 28, 1977

Facts:

J. Martin:

Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for Accidental Death.
He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his wife.

Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay the coverage in
the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the
additional benefits foraccidental death.

Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary therein, although she
admited that she and the insured 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.

Insular commenced an action for Interpleader before the trial court as to who should be given the proceeds. The court
declared Carponia as disqualified.

Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim
the proceeds in case of death of the latter?
Held: No. Petition

Ratio:

Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the proper interest
of the person in whose name it is made"

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. 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.

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. 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. Common-law spouses are barred from receiving donations from each
other.

Article 739 provides that void donations are those made between persons who were guilty of adultery or concubinage
at the time of donation.

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. So long as
marriage 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.

A conviction for adultery or concubinage isnt required exacted before the disabilities mentioned in Article 739 may
effectuate. The article says that 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. 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.

The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was also living in with his
common-law wife with whom he has two children.

Philam v Pineda G.R. No. L-54216 July 19, 1989

J. Paras

Facts:

Pineda procured an ordinary life insurance policy from the petitioner company and designated his wife and children
as irrevocable beneficiaries.

He then filed a petition to amend the designation of the beneficiaries in his life policy from irrevocable to revocable.

The judge granted the request.

Petitioner promptly filed a motion but was denied. Hence, this petition.

Issues:

1. WON the designation of the irrevocable beneficiaries could be changed or amended without the consent of all the
irrevocable beneficiaries.

2. WON the irrevocable minor beneficiaries could give consent to the change in designation
Held: No to both. Petition dismissed.

Ratio:

Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be changed without the
consent of the beneficiary because he has a vested interest in the policy.

There was an express stipulation to this effect: It is hereby understood and agreed that, notwithstanding the
provisions of this policy to the contrary, inasmuch as the designation of the primary/contingent
beneficiary/beneficiaries in this Policy has been made without reserving the right to change said
beneficiary/ beneficiaries, such designation may not be surrendered to the Company, released or assigned; and no
right or privilege under the Policy may be exercised, or agreement made with the Company to any change in or
amendment to the Policy, without the consent of the said beneficiary/beneficiaries.

The alleged acquiescence of the six (6) children beneficiaries of the policy cannot be considered an effective
ratification due to the fact that they were minors. Neither could they act through their father insured since their
interests are quite divergent from one another.

Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract, for
otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential.

Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them
and for so many times, this court has consistently issued pronouncements upholding the validity and effectivity of
contracts.Likewise, contracts which are the private laws of the contracting parties should be fulfilled according to the
literal sense of their stipulations, for contracts are obligatory, no matter in what form they may be, whenever the
essential requisites for their validity are present

The change in the designation of was not within the contemplation of the parties. The lower court instead made a new
contract for them. It acted in excess of its authority when it did so.

Insurance Case Digest: Gercio V. Sun Life Assurance Co. Of Canada (1925) G.R. No. 23703 September 28, 1925

Lessons Applicable:
Blood relationship (Insurance)
Revocable Designation (Insurance)
FACTS:
January 29, 1910: Sun Life Assurance Co. of Canada issued a 20-year endowment insurance policy on the
life of Hilario Gercio
insurance company agreed to insure the life of Gercio for the sum of P2,000, to be paid him on
February 1, 1930, or if the insured should die before said date, then to his wife, Mrs. Andrea Zialcita, should she
survive him; otherwise to the executors, administrators, or assigns of the insured
policy did not include any provision reserving to the insured the right to change the beneficiary
End of 1919: she was convicted of the crime of adultery
September 4, 1920: a decree of divorce was issued
March 4, 1922: Gercio formally notified the Sun Life that he had revoked his donation in favor of Andrea
Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary of
the policy
Sun Life refused
Gercio filed a petition for mandamus to compel Sun Life
Trial Court: favored Gercio

ISSUE: W/N Gercio has the right to change the beneficiary of the policy

HELD: NO. Dismissed.

The wife has an insurable interest in the life of her husband.
The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. So
when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a
subsisting interest in the policy
applies to a policy to which there are attached the incidents of a loan value, cash surrender value,
an automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance
policy.
If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the
policy.
 But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's
consent, the insured cannot make such change.
Accordingly, it is held that a life insurance policy of a husband made payable to the wife as beneficiary, is the
separate property of the beneficiary and beyond the control of the husband.
effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that
the decree of divorce shall dissolve the community property as soon as such decree becomes final
absence of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is
named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy
Neither the husband, nor the wife, nor both together had power to destroy the vested interest of the children
in the policy.
Separate Opinion:
Johnson, Concurring Opinion:
I agree with the majority of the court, that the judgment of the lower court should be
revoked, but for a different reason. In my judgment, the action is premature and should have been
dismissed.
DELFIN NARIO vs. PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

July 2, 2014 Leave a comment

G.R. No. L-22796, June 26, 1967, EN BANC (REYES J.B.L., J.)

FACTS:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine

American Life Insurance Co., a life insurance policy under a 20-year endowment plan, with a face value

of P5,000.00. She designated thereon her husband, Delfin Nario, and their unemancipated minor son,

Ernesto Nario, as her irrevocable beneficiaries. About the middle of June, 1963, She then applied for a

loan on the above policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policy has

been in force for 3 years. The purpose of such loan was for the school expenses

of Ernesto.The application bore the written signature and consent of Delfin Nario in two capacities first,

as one of the irrevocable beneficiaries of the policy; and the other, as the father-guardian of said minor

son and irrevocable beneficiary, Ernesto Nario, and as the legal administrator of the minors properties,

pursuant to Article 320 of the Civil Code of the Philippines. PHILAMLIFE denied the loan application

contending that written consent of the minor son must not only be given by his father as legal

guardian but it must also be authorized by the court in a competent guardianship proceeding. Mrs.

Nario then signified her decision to surrender her policy and demand its cash value which then

amounted to P 520. The Insurance Company also denied the surrender of the policy on the same

ground as that given in disapproving the loan application. Mrs. Nario sued PHILAMLIFE praying that the

latter grant their loan application and/or accept the surrender of said policy in exchange for its cash

value. On September 10, 1963, Mrs. Nario and her husband, Delfin, sued PHILAMLIFE praying that the

latter grant their loan application and/or accept the surrender of said policy in exchange for its cash

value. Defendant PHILAMLIFE contends that the loan application and the surrender of the policy

involved acts of disposition and alienation of the property rights of the minor, said acts are not within

the power of administrator granted under Art. 320 in relation to art. 326 CC, hence, mere written
consent given by the father-guardian, for and in behalf of the minor son, without any court authority

therefor, was not a sufficient compliance of the law. The lower court ruled agreeing with defendants

contention, sustained defendants affirmative defense, and rendered, on January 28, 1964, its decision

dismissing plaintiffs complaint. Unable to secure reconsideration of the trial Courts ruling, petitioner

appealed directly to this Court, contending that the minors interest amounted to only one-half of the

policys cash surrender value of P520.00; that under Rule 96, Section 2 of the Revised Rules of Court,

payment of the wards debts is within the powers of the guardian, where no realty is involved; hence,

there is no reason why the father may not validly agree to the proposed transaction on behalf of the

minor without need of court authority.

ISSUE:

Whether or not PHILAMLIFE was justified in refusing to grant the loan application and the surrender of

the policy.

HELD:

YES. The decision appealed from is affirmed. Costs against appellants Nario. The appeal is

unmeritorious.

SC agreed with the lower court that the vested interest or right of the beneficiaries in the policy should

be measured on its full face value and not on its cash surrender value, for in case of death of the

insured, said beneficiaries are paid on the basis of its face value and in case the insured should

discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic

extended term or paid-up insurance options, etc. and that said vested right under the policy cannot be

divisible at any given time. SC likewise agreed with the conclusion of the lower court that the proposed

transactions in question constitute acts of disposition or alienation of property rights and not merely of

management or administration because they involve the incurring or termination of contractual

obligations. The full face value of the policy is P5,000.00 and the minors vested interest therein, as

one of the two (2) irrevocable beneficiaries, consists of one-half () of said amount or P2,500.00.

Applying laws (CC and rules of Court),the father a must file a petition for guardianship and post a

guardianship bond.

In the case at bar, the father did not file any petition for guardianship nor post a guardianship bond,

and as such cannot possibly exercise the powers vested on him as legal administrator of the minors

property. The consent gives for and in behalf of the son without prior court authorization to the loan

application and the surrender was insufficient and ineffective and PHILAMLIFE was justified in

disapproving the said applications. Assuming that the property of the ward was less than P2,000, the

effect would be the same, since the parents would only be exempted from filing a bond and judicial
authorization, but their acts as legal administrators are only limited to acts of management or

administration and not to acts of encumbrance or disposition.

SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS

SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS G.R. No. 105135, 22 June 1995

FACTS:

Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating his mother
Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with
double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company
rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy,
thus rendering the contract of insurance voidable. 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. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact
that was concealed was not the cause of death of the insured and that matters relating to the medical history of the
insured is deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance
of the insurance policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being the cause of death of the insured,
is sufficient to render the insurance contract voidable

HELD:

YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the
other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining. 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. The SC, therefore, ruled 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 two-year contestability period as recognized in Section 48 of
The Insurance Code. WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is
REVERSED and SET ASIDE.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12189 April 29, 1960

FRANCISCA GALLARDO, plaintiff-appellee,

vs.
HERMENEGILDA S. MORALES, defendant-appellant.

Cajulis and Dolorfino for appellee.

Filemon Cajator for appellant.
CONCEPCION, J.:

The issue before us is whether a personal accident insurance which "insures for injuries and/or death as a result of
murder or assault or attempt thereat" is a life insurance, within the purview of Rule 39, section 12, subdivision (k) of
the Rules of Court, exempting from execution.

All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance, if
the annual premiums paid do not exceed five hundred pesos, and if they exceed that sum a like exemption
shall exist which shall bear the same proportion to the moneys, benefits, privileges, and annuities so
accruing or growing out of such insurance that said five hundred pesos bears to the whole annual premiums
paid.

In accordance with a compromise agreement between the parties in the above-entitled case, a decision was
rendered therein by the Court of First Instance of Manila, on February 3, 1956, sentencing defendant Hermenegilda
S. Morales to pay to plaintiff Francisca Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due course, the
corresponding writ of execution was issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished
and levied execution on the sum of P7,000.00, out of the P30,000.00 a due from the Capital Insurance & Surety Co.,
Inc., to said defendant, as beneficiary under a personal accident policy issued by said company to defendant's
husband, Luis Morales, who died, on August 26, 1950, by assassination. Invoking the above-quoted provision of the
Rules of Court, defendant asked the sheriff to quash and lift said garnishment or levy on execution. Upon denial of
this request by the sheriff, defendant filed a motion praying that the aforementioned sum of P7,000.00 be declared
exempt from execution under said provision of the Rules of Court, and that the Sheriff of Manila be ordered to quash
or lift said garnishment or levy on execution. This motion was denied by an order dated October 18, 1956. Hence, the
present appeal by the defendant, who maintains that the policy in question is a life insurance policy, within the
purview of the aforementioned exemption, for it insured her husband ". . . for injuries and/or death as a result of
murder or assault or attempt thereat."

In its order denying the claim for exemption set up by the defendant, the lower court expressed itself as follows:

Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a fundamental
distinction between life insurance, and accident insurance, and the insurance policy issued to Luis G.
Morales, husband of herein defendant, was undoubtedly an accident insurance, as distinguished from a life
insurance. As conceded by the facts appearing in the pleadings, the personal accident policy, part of the
proceeds of which is under garnishment, was for P50,000.00 and yet the annual premium was for P15.00. If
it were an ordinary life insurance policy, taking into account that the insured, Luis G. Morales, was 38 years
of age and the amount of the policy was for P50,000.00 the annual premium would have been around
P1,206.00. Besides, the period for the policy was stipulated for one year, and considerations as to age,
health, occupation and other personal circumstances were not taken into account in an accident insurance
policy. Even the certification issued by the insurance commissioner on August 23, 1956, marked as Annex
"1" of the opposition, shows that the Capital Insurance and Surety Company Inc. is a non-life insurance
company and that the only authority granted to it to transact business covers fire, marine, surety, fidelity,
accident, motor car, and miscellaneous insurance, except life insurance. From this circumstance alone, not
to mention many others, there are abundant indications that there exists a fundamental distinction between
life insurance and accident insurance. As counsel for oppositor has clearly pointed out, an accident policy
merely insures the person from injury and or death resulting from murder, assault, or an attempt thereat,
while in life insurance policy, what is insured is the life of the subject for a definite number of years. From the
authorities quoted by the oppositor, this Court is fully convinced that an accident policy is fundamentally
different from a life insurance policy, especially if this Court takes into account that accident insurance is an
indemnity or casualty contract, while life insurance is an investment contract.

It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance.
However, when one of the risks insured in the latter is the death of the insured by accident, then there are authorities
to the effect that such accident insurance may, also, be regarded as a life insurance.

"Life insurance" is a contract whereby one party insures a person against loss by the death of another.
Petition of Robbins, 140 A. 366, 367, 126 Me. 555.

An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain amount
of money if another dies within the time limited by the policy. Cason vs. Owens, 26 S. E. 75, 76, 100 Ga.
142.

Life insurance includes in which the payment of the insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.

A contract for life insurance is really a contract for insurance for one year in consideration of an advanced
premium, with the right of assured to continue it from year to year upon payment of a premium as stipulated.
Mutual Life Ins. Co. 100 Pa 172, 180.

In its broader sense, "life insurance" includes accident insurance, since life is insured under either contract.
American Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.
 Under statute providing that 'any life insurance' on life of husband shall insure to benefit of widow and
children exempt from husband's debt, proceeds of policy insuring against death by accident insured to
widow's benefit free from husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly,
106 S.W. 2d 551, 171 Tenn. 511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidental death, is "life insurance policy" to such extent
within state statue prescribing in-contestable period for policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut.
Life Ins. Co. of California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.

"Life insurance" includes all policies of insurance in which payment of insurance money is contingent upon
loss of life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.

Insurance policy including a death benefit and a health or accident disability benefit constituted a "life
insurance policy" within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance
companies with different rates as between life insurance companies and other companies, in view of
provisions of Code 1906, ss 2576, 2598 (Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c. 191, s
I (Hemingway's Code 1927, s 5995); it being immaterial that in some policy forms the health and disability
feature was more valuable asent a showing that death provision was inserted to avoid the higher tax.
Universal Life Ins. Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25 Words & Phrases 260, 261, 262.)

When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life Assurance
Society, for $10,000, payable upon proof of death, with a provision that upon death by accident the amount
of insurance payable would be increased to $20,000. The plaintiff insisted that this was life insurance, a
disclosure of which was not called for in question 10, while the defendant insisted it was accident insurance
that should have been disclosed and further insisted that, it being a fact material to the risk the failure to
disclose the policy in the Equitable Life Assurance Society rendered the policy issued to the applicant
void. . . .

The court might have gone further and held that the failure of the applicant to characterize the insurance in
the Equitable Life Assurance Society as accident insurance did not constitute a false answer to the inquiry of
what accident or health insurance he was carrying. The policy in the Equitable Life Assurance Society
covered loss of life from natural as well as external and accidental causes, and was life insurance. The mere
addition of the double indemnity clause providing for increased insurance upon proof of death by accident
did not divest the policy of its character of insurance on life, or make the contract other than life
insurance,for insurance on life includes all policies of insurance in which the payment of the insurance
money is contingent upon the loss of life. Logan vs. Fidelity & Casualty Co., 146 Mo. 114, 47 S.W. 948. See
also Johnson vs. Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W. 593, L.R.A. 1916A, 475;
Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003; Wright vs. Fraternities Health & Accident Ass'n.
107 Me. 418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass. 386, 94
N.E. 477; Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194; Wahl vs. Interstate
Business Men's Accident Ass'n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377." (Provident Life & Accident
Ins. Co. vs. Rimmer, 12 S. W. 2d Series, 365, 367.)

For this reason, and because the above-quoted provision of the Rules of Court makes reference to "any life
insurance," we are inclined to believe that the exemption there established applies to ordinary life insurance
contracts, as well as to those which, although intended primarily to indemnify for risks arising from accident, likewise,
insure against loss of life due, either to accidental causes, or to the willful and criminal act of another, which, as such,
is not strictly accidental in nature. Indeed, it has been held that statutes of this nature seek to enable the head of the
family to secure his widow and children from becoming a burden upon the community and, accordingly, should merit
a liberal interpretation.

The object of this statue was to enable a husband, when death deprived wife and children of his support, to
secure them from want and to prevent them from becoming a charge upon the public. Necessities of the wife
and children and the public interest are none the less if the death of the husband be brought about by
accident rather than by disease. The intent of the legislature in the enactment of this statute would not be
advanced by the construction of the law upon which the petitioners insist. (American Trust & Banking
Co. vs.Lessly et al., Supreme Court of Tenn., 106 S.W. 2d, 551, 552.)

Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of
creditors, a limitation being sometimes imposed as to amount, see infra Sec. 40, or as to the beneficiaries
entitled to the exemption, see infra subdivision of this section. Statutes exempting life insurance are
regarded as exemption laws, and not as part of the insurance from law of the state, nor as designed simply
to protect insurer from harassing litigation. Such statutes should be construed liberally and in the light of,
and to give effect to, their purpose of enabling an individual to provide a fund after his death for his family
which will be free from the claims of creditors. The exemption privilege is created not by contract but by
legislative grant, and grounds for the exemption of the proceeds of insurance policies must be found in the
statutes. (35 C.J.S. pp. 53-54.)

By weight of authority, exemption statutes or rules should be liberally construed with a view to giving effect
to their beneficent and humane purpose. To this end, every reasonable doubt as to whether a given property
 is or is not exempt should be resolved in favor of exemption. (Comments on the Rules of Court by Moran
[1957 ed.] Vol. 1, p. 564.)

Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and quashed, with
the costs of this instance against plaintiff Francisca Gallardo. It is so ordered.

Insurance Case Digest: Gallardo V. Morales (1960)

G.R. No. L-12189 April 29, 1960

Lessons Applicable: Definition and Coverage of Life Insurance (Insurance)
Laws Applicable: Rule 39, section 12, subdivision (k) of the Rules of Court (old law)

FACTS:
CFI: Hermenegilda S. Morales to pay P7,000 to a creditor Francisca Gallardo
writ of execution was issued and delivered to the Sheriff who garnished and levied execution
on the sum of P7,000 out of the P30,000 due from the Capital Insurance & Surety Co. Inc.,
to Morales as beneficiary whose husband Luis Morales died by assassination.
Morales asked the sheriff to quash and lift said garnishment or levy on execution invoking Rule
39, section 12, subdivision (k) of the Rules of Court but it was denied.
All moneys, benefits, privileges, or annuities accruing or in any manner growing out of
any life insurance, if the annual premiums paid do not exceed five hundred pesos, and if they
exceed that sum a like exemption shall exist which shall bear the same proportion to the moneys,
benefits, privileges, and annuities so accruing or growing out of such insurance that said five
hundred pesos bears to the whole annual premiums paid.
Morales appealed maintaining that it was a life insurance for it insured her husband for injuries
and/or death as a result of murder or assault or attempt thereat
ISSUE: W/N the insurance is a life insurance and not an accident insurance

HELD: NO. order appealed from is reversed, and the garnishment in dispute hereby set aside and
quashed

the annual premium was for P15

If it were an ordinary life insurance policy, taking into account that the insured, Luis G.
Morales, was 38 years of age and the amount of the policy was for P50,000.00 the annual
premium would have been around P1,206
the period for the policy was stipulated for one year, and considerations as to age, health,
occupation and other personal circumstances were not taken into account in an accident insurance
policy
Annex "1" of the opposition, shows that the Capital Insurance and Surety Company Inc. is a
non-life insurance company and that the only authority granted to it to transact business covers
fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance, except life
insurance
Accident vs Life Insurance Policy
accident policy - merely insures the person from injury and or death resulting from
murder, assault, or an attempt thereat
Accident insurance
indemnity or casualty contract
life insurance policy - what is insured is the life of the subject for a definite number of
years
life insurance
investment contract
 contract by which the insurer, for a stipulated sum, engages to pay a
certain amount of money if another dies within the time limited by the policy
contract for insurance for one year in consideration of an advanced
premium, with the right of assured to continue it from year to year upon payment of a premium as
stipulated
includes accident insurance, since life is insured under either contract
includes all policies of insurance in which payment of insurance money
is contingent upon loss of life
"any life insurance"
applies to ordinary life insurance contracts, as well as to those which, although
intended primarily to indemnify for risks arising from accident, likewise, insure against loss of life
due, either to accidental causes, or to the willful and criminal act of another, which, as such, is not
strictly accidental in nature
statutes of this nature seek to enable the head of the family to secure his widow and
children from becoming a burden upon the community and, accordingly, should merit a liberal
interpretation.

Republic of the Philippines

Supreme Court
Baguio City

THIRD DIVISION

PHILIPPINE DEPOSIT INSURANCE G.R. No. 170290

CORPORATION,

Petitioner,
Present:

VELASCO, JR., J., Chairperson,

- versus
PERALTA,

ABAD,

MENDOZA, and
REYES, JJ.

CITIBANK, N.A. and BANK OFAMERICA, S.T. &

N.A.,
 Respondents. Promulgated:

April 11, 2012

x --------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the October 27,
2005 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 61316, entitled Citibank, N.A. and Bank of America, S.T. &
N.A. v. Philippine Deposit Insurance Corporation.

The Facts

Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of
Republic Act (R.A.) No. 3591, as amended by R.A. No. 9302.[2]

Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. & N.A. (BA) is
a national banking association, both of which are duly organized and existing under the laws of the United States of America and
duly licensed to do business in the Philippines, with offices in Makati City.[3]

In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course
of its banking business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a
total of P11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with
corresponding maturity dates.[4] These funds, which were lodged in the books of Citibank under the account Their Account-Head
Office/Branches-Foreign Currency, were not reported to PDIC as deposit liabilities that were subject to assessment for insurance.
[5]
As such, in a letter dated March 16, 1978, PDIC assessed Citibank for deficiency in the sum of P1,595,081.96.[6]

Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30,
1976 to June 30, 1978, BA received from its head office and its other foreign branches a total of P629,311,869.10 in dollars,
covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their
books under the account Due to Head Office/Branches. [7] Because BA also excluded these from its deposit liabilities, PDIC wrote
to BA on October 9, 1979, seeking the remittance of P109,264.83 representing deficiency premium assessments for dollar
deposits.[8]

Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a petition for declaratory
relief before the Court of First Instance (now the Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979,
respectively.[9] In their petitions, Citibank and BA sought a declaratory judgment stating that the money placements they received
from their head office and other foreign branches were not deposits and did not give rise to insurable deposit liabilities under
Sections 3 and 4 of R.A. No. 3591 (the PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were
improper and erroneous.[10] The cases were then consolidated.[11]
 On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision[12] in favor of
Citibank and BA, ruling that the subject money placements were not deposits and did not give rise to insurable deposit liabilities,
and that the deficiency assessments issued by PDIC were improper and erroneous. Therefore, Citibank and BA were not liable to
pay the same. The RTC reasoned out that the money placements subject of the petitions were not assessable for insurance
purposes under the PDIC Charter because said placements were deposits made outside of the Philippines and, under Section
3.05(b) of the PDIC Rules and Regulations, [13] such deposits are excluded from the computation of deposit liabilities. Section 3(f)
of the PDIC Charter likewise excludes from the definition of the term deposit any obligation of a bank payable at the office of the
bank located outside the Philippines. The RTC further stated that there was no depositor-depository relationship between the
respondents and their head office or other branches. As a result, such deposits were not included as third-party deposits that must
be insured. Rather, they were considered inter-branch deposits which were excluded from the assessment base, in accordance
with the practice of the United States Federal Deposit Insurance Corporation (FDIC) after which PDIC was patterned.

Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27, 2005 Decision. In so
ruling, the CA found that the money placements were received as part of the banks internal dealings by Citibank and BA as
agents of their respective head offices. This showed that the head office and the Philippine branch were considered as the same
entity. Thus, no bank deposit could have arisen from the transactions between the Philippine branch and the head office because
there did not exist two separate contracting parties to act as depositor and depositary. [14] Secondly, the CA called attention to the
purpose for the creation of PDIC which was to protect the deposits of depositors in the Philippines and not the deposits of the
same bank through its head office or foreign branches. [15] Thirdly, because there was no law or jurisprudence on the treatment of
inter-branch deposits between the Philippine branch of a foreign bank and its head office and other branches for purposes of
insurance, the CA was guided by the procedure observed by the FDIC which considered inter-branch deposits as non-assessable.
[16]
Finally, the CA cited Section 3(f) of R.A. No. 3591, which specifically excludes obligations payable at the office of the bank
located outside the Philippines from the definition of a deposit or an insured deposit. Since the subject money placements were
made in the respective head offices of Citibank and BA located outside the Philippines, then such placements could not be subject
to assessment under the PDIC Charter.[17]
Hence, this petition.

The Issues

PDIC raises the issue of whether or not the subject dollar deposits are assessable for insurance purposes under the PDIC Charter
with the following assigned errors:

A.

The appellate court erred in ruling that the subject dollar deposits are money placements, thus, they
are not subject to the provisions of Republic Act No. 6426 otherwise known as the Foreign Currency
Deposit Act of the Philippines.

B.

The appellate court erred in ruling that the subject dollar deposits are not covered by the PDIC
insurance.[18]

Respondents similarly identify only one issue in this case:

Whether or not the money placements subject matter of these petitions are assessable for insurance
purposes under the PDIC Act.[19]
The sole question to be resolved in this case is whether the funds placed in the Philippine branch by the head office and foreign
branches of Citibank and BA are insurable deposits under the PDIC Charter and, as such, are subject to assessment for insurance
premiums.

The Courts Ruling

The Court rules in the negative.

A branch has no separate legal personality;

Purpose of the PDIC

PDIC argues that the head offices of Citibank and BA and their individual foreign branches are separate and independent
entities. It insists that under American jurisprudence, a banks head office and its branches have a principal-agent relationship only
if they operate in the same jurisdiction. In the case of foreign branches, however, no such relationship exists because the head
office and said foreign branches are deemed to be two distinct entities. [20] Under Philippine law, specifically, Section 3(b) of R.A.
No. 3591, which defines the terms bank and banking institutions, PDIC contends that the law treats a branch of a foreign bank as
a separate and independent banking unit.[21]

The respondents, on the other hand, initially point out that the factual findings of the RTC and the CA, with regard to the nature
of the money placements, the capacity in which the same were received by the respondents and the exclusion of inter-branch
deposits from assessment, can no longer be disturbed and should be accorded great weight by this Court. [22] They also argue that
the money placements are not deposits. They postulate that for a deposit to exist, there must be at least two parties a depositor
and a depository each with a legal personality distinct from the other. Because the respondents respective head offices and their
branches form only a single legal entity, there is no creditor-debtor relationship and the funds placed in the Philippine branch
belong to one and the same bank. A bank cannot have a deposit with itself.[23]

This Court is of the opinion that the key to the resolution of this controversy is the relationship of the Philippine
branches of Citibank and BA to their respective head offices and their other foreign branches.

The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines. It may
choose to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate
and independent legal personality to conduct business in the country. In the alternative, it may create a branch in the Philippines,
which would not be a legally independent unit, and simply obtain a license to do business in the Philippines.[24]

In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its
business interests in the Philippines. Their Philippine branches are, as the name implies, merely branches, without a separate legal
personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the
respondents in their respective branches in the Philippines should not be treated as deposits made by third parties subject to
deposit insurance under the PDIC Charter.

For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence. In the leading case
of Sokoloff v. The National City Bank of New York,[25]where the Supreme Court of New York held:

Where a bank maintains branches, each branch becomes a separate business entity with separate
books of account. A depositor in one branch cannot issue checks or drafts upon another branch or
demand payment from such other branch, and in many other respects the branches are considered
separate corporate entities and as distinct from one another as any other bank. Nevertheless, when
considered with relation to the parent bank they are not independent agencies; they are, what their
name imports, merely branches, and are subject to the supervision and control of the parent
bank, and are instrumentalities whereby the parent bank carries on its business, and are
established for its own particular purposes, and their business conduct and policies are controlled
by the parent bank and their property and assets belong to the parent bank, although nominally
held in the names of the particular branches. Ultimate liability for a debt of a branch would rest
upon the parent bank. [Emphases supplied]

This ruling was later reiterated in the more recent case of United States v. BCCI Holdings Luxembourg [26] where the
United States Court of Appeals, District of Columbia Circuit, emphasized that while individual bank branches may be treated as
independent of one another, each branch, unless separately incorporated, must be viewed as a part of the parent bank rather than
as an independent entity.

In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are
considered as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221
(An Act Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment
of all the liabilities of its Philippine branch, to wit:
 Republic Act No. 8791:

Sec. 75. Head Office Guarantee. In order to provide effective protection of the interests of the
depositors and other creditors of Philippine branches of a foreign bank, the head office of such
branches shall fully guarantee the prompt payment of all liabilities of its Philippine branch.

Residents and citizens of the Philippines who are creditors of a branch in

the Philippines of foreign bank shall have preferential rights to the assets of such branch in
accordance with the existing laws.

Republic Act No. 7721:

Sec. 5. Head Office Guarantee. The head office of foreign bank branches shall guarantee prompt
payment of all liabilities of its Philippine branches.

Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of R.A. No. 3591 (The
PDIC Charter) which provides:

Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred
to as the Corporation which shall insure, as herein provided, the deposits of all banks which are
entitled to the benefits of insurance under this Act, and which shall have the powers hereinafter
granted.

The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing
public by way of providing permanent and continuing insurance coverage on all insured deposits.

R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment of the PDIC:

Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve,
maintain faith and confidence in the country's banking system, and protect it from illegal schemes
and machinations.

Towards this end, the government must extend all means and mechanisms necessary for the
Philippine Deposit Insurance Corporation to effectively fulfill its vital task of promoting and
safeguarding the interests of the depositing public by way of providing permanent and continuing
insurance coverage on all insured deposits, and in helping develop a sound and stable banking
system at all times.
The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has already been
sufficiently established by US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its
branch. Now, suppose the Philippine branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required
to answer for the deposit liabilities of Citibank Philippines. If the Court were to adopt the posture of PDIC that the head office
and the branch are two separate entities and that the funds placed by the head office and its foreign branches with the Philippine
branch are considered deposits within the meaning of the PDIC Charter, it would result to the incongruous situation where
Citibank, as the head office, would be placed in the ridiculous position of having to reimburse itself, as depositor, for the losses it
may incur occasioned by the closure of Citibank Philippines. Surely our law makers could not have envisioned such a
preposterous circumstance when they created PDIC.

Finally, the Court agrees with the CA ruling that there is nothing in the definition of a bank and a banking institution in Section
3(b) of the PDIC Charter[27] which explicitly states that the head office of a foreign bank and its other branches are separate and
distinct from their Philippine branches.

There is no need to complicate the matter when it can be solved by simple logic bolstered by law and jurisprudence. Based on the
foregoing, it is clear that the head office of a bank and its branches are considered as one under the eyes of the law. While
branches are treated as separate business units for commercial and financial reporting purposes, in the end, the head office
remains responsible and answerable for the liabilities of its branches which are under its supervision and control. As such, it is
unreasonable for PDIC to require the respondents, Citibank and BA, to insure the money placements made by their home office
and other branches. Deposit insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the
funds and the one which made the placements are one and the same legal entity.

Funds not a deposit under the definition

of the PDIC Charter;
Excluded from assessment
 PDIC avers that the funds are dollar deposits and not money placements. Citing R.A. No. 6848, it defines money
placement as a deposit which is received with authority to invest. Because there is no evidence to indicate that the respondents
were authorized to invest the subject dollar deposits, it argues that the same cannot be considered money placements. [28] PDIC
then goes on to assert that the funds received by Citibank and BA are deposits, as contemplated by Section 3(f) of R.A. No. 3591,
for the following reasons: (1) the dollar deposits were received by Citibank and BA in the course of their banking operations from
their respective head office and foreign branches and were recorded in their books as Account-Head Office/Branches-Time
Deposits pursuant to Central Bank Circular No. 343 which implements R.A. No. 6426; (2) the dollar deposits were credited as
dollar time accounts and were covered by Certificates of Dollar Time Deposit which were interest-bearing and payable upon
maturity, and (3) the respondents maintain 100% foreign currency cover for their deposit liability arising from the dollar time
deposits as required by Section 4 of R.A. No. 6426.[29]

To refute PDICs allegations, the respondents explain the inter-branch transactions which necessitate the creation of the
accounts or placements subject of this case. When the Philippine branch needs to procure foreign currencies, it will coordinate
with a branch in another country which handles foreign currency purchases. Both branches have existing accounts with their head
office and when a money placement is made in relation to the acquisition of foreign currency from the international market, the
amount is credited to the account of the Philippine branch with its head office while the same is debited from the account of the
branch which facilitated the purchase. This is further documented by the issuance of a certificate of time deposit with a stated
interest rate and maturity date. The interest rate represents the cost of obtaining the funds while the maturity date represents the
date on which the placement must be returned. On the maturity date, the amount previously credited to the account of the
Philippine branch is debited, together with the cost for obtaining the funds, and credited to the account of the other branch. The
respondents insist that the interest rate and maturity date are simply the basis for the debit and credit entries made by the head
office in the accounts of its branches to reflect the inter-branch accommodation. [30] As regards the maintenance of currency cover
over the subject money placements, the respondents point out that they maintain foreign currency cover in excess of what is
required by law as a matter of prudent banking practice. [31]

PDIC attempts to define money placement in order to impugn the respondents claim that the funds received from their
head office and other branches are money placements and not deposits, as defined under the PDIC Charter. In the process, it loses
sight of the important issue in this case, which is the determination of whether the funds in question are subject to assessment for
deposit insurance as required by the PDIC Charter. In its struggle to find an adequate definition of money placement, PDIC
desperately cites R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines. Reliance on the said
law is unfounded because nowhere in the law is the term money placement defined. Additionally, R.A. No. 6848 refers to the
establishment of an Islamic bank subject to the rulings of Islamic Sharia to assist in the development of the Autonomous Region
of Muslim Mindanao (ARMM),[32] making it utterly irrelevant to the case at bench. Since Citibank and BA are neither Islamic
banks nor are they located anywhere near the ARMM, then it should be painfully obvious that R.A. No. 6848 cannot aid us in
deciding this case.

Furthermore, PDIC heavily relies on the fact that the respondents documented the money placements with certificates
of time deposit to simply conclude that the funds involved are deposits, as contemplated by the PDIC Charter, and are
consequently subject to assessment for deposit insurance. It is this kind of reasoning that creates non-existent obscurities in the
law and obstructs the prompt resolution of what is essentially a straightforward issue, thereby causing this case to drag on for
more than three decades.

Noticeably, PDIC does not dispute the veracity of the internal transactions of the respondents which gave rise to the
issuance of the certificates of time deposit for the funds the subject of the present dispute. Neither does it question the findings of
the RTC and the CA that the money placements were made, and were payable, outside of the Philippines, thus, making them fall
under the exclusions to deposit liabilities. PDIC also fails to impugn the truth of the testimony of John David Shaffer, then a
Fiscal Agent and Head of the Assessment Section of the FDIC, that inter-branch deposits were excluded from the assessment
base. Therefore, the determination of facts of the lower courts shall be accepted at face value by this Court, following the well-
established principle that factual findings of the trial court, when adopted and confirmed by the CA, are binding and
conclusive on this Court, and will generally not be reviewed on appeal. [33]
 As explained by the respondents, the transfer of funds, which resulted from the inter-branch transactions, took place in
the books of account of the respective branches in their head office located in the United States. Hence, because it is payable
outside of the Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter:

Sec. 3(f) The term deposit means the unpaid balance of money or its equivalent received by a bank
in the usual course of business and for which it has given or is obliged to give credit to a
commercial, checking, savings, time or thrift account or which is evidenced by its certificate of
deposit, and trust funds held by such bank whether retained or deposited in any department of
said bank or deposit in another bank, together with such other obligations of a bank as the Board
of Directors shall find and shall prescribe by regulations to be deposit liabilities of the
Bank; Provided, that any obligation of a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part
of the total deposits or of the insured deposits; Provided further, that any insured bank which is
incorporated under the laws of the Philippines may elect to include for insurance its deposit
obligation payable only at such branch. [Emphasis supplied]

The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC, after which PDIC was modelled, is
also persuasive. Inter-branch deposits refer to funds of one branch deposited in another branch and both branches are part of the
same parent company and it is the practice of the FDIC to exclude such inter-branch deposits from a banks total deposit liabilities
subject to assessment.[34]

All things considered, the Court finds that the funds in question are not deposits within the definition of the PDIC Charter and
are, thus, excluded from assessment.

WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of Appeals in CA-G.R. CV No. 61316
is AFFIRMED.

Insurance Case Digest: Rizal Commercial Banking Corporation V. CA (1998)

G.R.Nos. 128833 April 20, 1998

Lessons Applicable: Assignee (Insurance)

FACTS:

RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc. GOYUs
applied again and through Binondo Branch key officer's Uys and Laos recommendation, RCBCs
executive committee increased its credit facility to P50M to P90M and finally to P117M.
As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in favor
of RCBC.
GOYU obtained in its name 10 insurance policy on the mortgaged properties
from Malayan Insurance Company, Inc. (MICO). In February 1992, he was issued 8 insurance
policies in favor of RCBC.
April 27, 1992: One of GOYUs factory buildings was burned so he claimed against MICO for
the loss who denied contending that the insurance policies were either attached pursuant to writs
of attachments/garnishments or that creditors are claiming to have a better right
GOYU filed a complaint for specific performance and damages at the RTC
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons that MICO denied
GOYUs claims
RTC: Confirmed GOYUs other creditors (Urban Bank, Alfredo Sebastian, and Philippine Trust
Company) obtained their writs of attachment covering an aggregate amount of P14,938,080.23
 and ordered that 10 insurance policies be deposited with the court minus the said amount so
MICO deposited P50,505,594.60.
Another Garnishment of P8,696,838.75 was handed down
RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC its loan
CA: Modified by increasing the damages in favor of GOYU
In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C. Sebastian
(the creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor
of Sebastian
RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss

HELD: YES.
mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole
benefit
although it appears that GOYU obtained the subject insurance policies naming itself as the sole
payee, the intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity
8 endorsement documents were prepared by Alchester in favor of RCBC
MICO, a sister company of RCBC
GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
GOYU is at the very least estopped from assailing their operative effects.
The two courts below erred in failing to see that the promissory notes which they ruled should
be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones
RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance
policies
insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastians right as attaching creditor must yield to the preferential rights of RCBC over the
Malayan insurance policies as first mortgagee.

Insurance Case Digest: Palileo V. Cosio (1955)

G.R. No. L-7667 November 28, 1955

Lessons Applicable: Mortgagor (Insurance)

Laws Applicable:

FACTS:

Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee) praying that
their transaction be one of a loan with an equitable mortgage to secure the payment of the loan. The original
counsel of Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs so she forgot the date of the
trial and she was substituted.
 it is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right to repurchase. After
the execution of the contract, Cosio insured in her name the building with Associated Insurance & Surety
Co. against fire.
The building was partly destroyed by fire so she claimed an indemnity of P13,107
Palileo demanded that the amount of insurance proceeds be credited to her loan
RTC: it is a loan with equitable mortgage so the insurance proceeds should be credited to the loan and
refund the overpayment.

ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her own benefit

HELD: YES. Modify. collection of insurance proceeds shall not be deemed to have compensated the obligation of
the Palileo to Cosio, but bars the Cosio from claiming its payment from the Palileo; and Cosio shall pay to Palileo
P810 representing the overpayment made by Palileo by way of interest on the loan.
When the the mortgagee may insure his interest in the property independently of the mortgagor , upon the
destruction of the property the insurance money paid to the mortgagee will not inure to the benefit
of the mortgagor, and the amount due under the mortgage debt remains unchanged. The
mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by
subrogation to the insurer, to the extent of the insurance money paid
It is true that there are authorities which hold that "If a mortgagee procures insurance on his
separate interest at his own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to
have the insurance proceeds applied in reduction of the mortgage debt" But these authorities
merely represent the minority view .

Geagonia v CA G.R. No. 114427

Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year policy
and covered thestock trading of dry goods. The policy noted the requirement that "3. The insured shall give notice to
the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any
of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured,
and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this
policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not
apply when the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00." The petitioners stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioners stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC.
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of
P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two
policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to
inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent. The
Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence
of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC
policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest
on the stocks. The Insurance Commission then ordered the respondent company to pay complainant the sum of
P100,000.00 with interest and attorneys fees. CA reversed the decision of the Insurance Commission because it
found that the petitioner knew of the existence of the two other policies issued by the PFIC.

Issues:

1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and thereby
violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:

1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18
January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the
Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem
motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or
original.

2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance
policies should be construed most strictly against those for whose benefits they are inserted, and most favorably
toward those against whom they are intended to operate. With these principles in mind, Condition 3 of the subject
policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that
(a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such
condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may
have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 169103 March 16, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
MANILA BANKERS' LIFE INSURANCE CORPORATION, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue (CIR) of the April 29, 2005
Decision2 and July 27, 2005 Resolution3 of the Court of Appeals in CA-G.R. SP No. 70600, which upheld the April 4,
2002 Decision4 of the Court of Tax Appeals (CTA) in CTA Case No. 6189.

The facts as found by the CTA and Court of Appeals are undisputed.

Respondent Manila Bankers Life Insurance Corporation is a duly organized domestic corporation primarily engaged
in the life insurance business.5

On May 28, 1999, petitioner Commissioner of Internal Revenue issued Letter of Authority No. 0000207056authorizing
a special team of Revenue Officers to examine the books of accounts and other accounting records of respondent for
taxable year "1997 & unverified prior years."7

On December 14, 1999, based on the findings of the Revenue Officers, the petitioner issued a Preliminary
Assessment Notice8 against the respondent for its deficiency internal revenue taxes for the year 1997. The
respondent agreed to all the assessments issued against it except to the amount of P2,351,680.90 representing
deficiency documentary stamp taxes on its policy premiums and penalties. 9

Thus, on January 4, 2000, the petitioner issued against the respondent a Formal Letter of Demand10 with the
corresponding Assessment Notices attached,11 one of which was Assessment Notice No. ST-DST2-97-0054-
200012 pertaining to the documentary stamp taxes due on respondents policy premiums:

Documentary Stamp Tax on Policy Premiums

 Assessment No. ST-DST2-97-0054-2000

Tax Due 3,954,955.00

Less: Tax Paid 2,308,505.74
Tax Deficiency 1,646,449.26
Add: 20% Int./a 680,231.64
Recommended Compromise
Penalty-Late Payment _____ 25,000.00
Total Amount Due 2,351,680.9013

The tax deficiency was computed by including the increases in the life insurance coverage or the sum assured by
some of respondents life insurance plans14:

ISSUED INCREASED
ORDINARY P648,127,000.00 P 74,755,000.00
GROUP 114,936,000.00 744,164,000.00

TOTAL P763,063,000.00 P 818,919,000.00

GRAND TOTAL/TAX BASE P1,581,982,000.00

TAX RATE P0.50/200.00
TAX DUE P 3,954,955.00
LESS: TAX PAID P 2,308,505.74

DEFICIENCY DST - BASIC P 1,646,499.26

- 20% INTEREST 680,231.64
- SURCHARGE 25,000.00

TOTAL ASSESSMENT P 2,351,680.9015

The amount of P818,919,000.00 comprises the increases in the sum assured for the respondents ordinary insurance
the "Money Plus Plan" (P74,755,000.00), and group insurance (P744,164,000.00).16

On February 3, 2000, the respondent filed its Letter of Protest17 with the Bureau of Internal Revenue (BIR) contesting
the assessment for deficiency documentary stamp tax on its insurance policy premiums. Despite submission of
documents on April 3, 2000,18 as required by the BIR in its March 20, 200019 letter, the respondents Protest was not
acted upon by the BIR within the 180-day period given to it by Section 228 of the 1997 National Internal Revenue
Code (NIRC) within which to rule on the protest. Hence, on October 26, 2000, the respondent filed a Petition for
Review with the CTA for the cancellation of Assessment Notice No. ST-DST2-97-0054-2000. The respondent invoked
the CTAs March 30, 1993 ruling in the similar case of Lincoln Philippine Life Insurance Company, Inc. (now Jardine-
CMA Life Insurance Company, Inc.) v. Commissioner of Internal Revenue,20 wherein the CTA held that the tax base to
be used in computing the documentary stamp tax is the value at the time the instrument is issued because the
documentary stamp tax is levied and paid only once, which is at the time the taxable document is issued.

On April 4, 2002, the CTA granted the respondents Petition with the dispositive portion as follows:

WHEREFORE, in the light of all the foregoing, respondent Commissioner of Internal Revenue is hereby ORDERED
to CANCEL and WITHDRAW Assessment Notice No. ST-DST2-97-0054-2000 dated January 4, 2000 in the amount
of P2,351,680.90 representing deficiency documentary stamp taxes for the taxable year 1997.21

The CTA, applying the Tax Code Provisions then in force, held that:

[T]he documentary stamp tax on life insurance policies is imposed only once based on the amount insured at the time
of actual issuance of such policies. The documentary stamp tax which is in the nature of an excise tax is imposed on
the document as originally issued. Therefore, any subsequent increase in the insurance coverage resulting from
policies which have been subjected to the documentary stamp tax at the time of their issuance, is no longer subject to
the documentary stamp tax.22

Aggrieved by the decision, the petitioner went to the Court of Appeals on a Petition for Review23 docketed as CA-G.R.
SP No. 70600 on the ground that:

THE TAX COURT ERRED IN RULING THAT INCREASES IN THE COVERAGE OR THE SUM ASSURED BY AN
EXISTING INSURANCE POLICY IS NOT SUBJECT TO THE DOCUMENTARY STAMP TAX. (DST). 24
On April 29, 2005, the Court of Appeals sustained the cancellation of Assessment Notice No. ST-DST2-97-0054-2000
in its Decision, the decretal portion of which reads:

WHEREFORE, all considered and finding no merit in the herein appeal, judgment is hereby rendered upholding the
April 4, 2002, CTA Decision in CTA Case No. 6189 entitled "Manila Bankers Life Insurance Corporation, Petitioner,
versus Commissioner of Internal Revenue, Respondent.25

The Court of Appeals, in upholding the decision of the CTA, said that the subject of the documentary stamp tax is the
issuance of the instrument representing the creation, change or cessation of a legal relationship.26 It further held that
because the legal status or nature of the relationship embodied in the document has no bearing at all on the tax, the
fulfillment of suspensive conditions incorporated in the respondents policies, as claimed by the petitioner, would still
not give rise to new documentary stamp tax payments.27

The petitioner asked for reconsideration of the above Decision and cited this Courts March 19, 2002 Decision in
Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc.,28 the very same case the
respondent invoked before the CTA. The petitioner argued that in Lincoln, this Court reversed both the CTA and the
Court of Appeals and sustained the validity of the deficiency documentary stamp tax imposed on the increase in the
sum insured even though no new policy was issued because the increase, by reason of the "Automatic Increase
Clause," was already definite at the time the policy was issued.

On July 27, 2005, the Court of Appeals sustained its ruling, and stated that the Lincoln Case was not applicable
because the increase in the sum assured in Lincolns insurance policy was definite and determinable at the time such
policy was issued as the automatic increase clause, which allowed for the increase, formed an integral part of the
policy; whereas in the respondents case, "the tax base of the disputed deficiency assessment was not [a] definite or
determinable increase in the sum assured."29

The petitioner is now before us praying for the nullification of the Court of Appeals April 29, 2005 Decision and July
27, 2005 Resolution and to have the assessment for deficiency documentary stamp tax on respondents policy
premiums, plus 25% surcharge for late payment and 20% annual interest, sustained30 on the following arguments:

A.

THE APPLICABLE PROVISIONS OF THE NIRC AT THE TIME THE ASSESSMENT FOR DEFICIENCY
DOCUMENTARY STAMP TAX WAS ISSUED PROVIDE THAT DOCUMENTARY STAMP TAX IS COLLECTIBLE NOT
ONLY ON THE ORIGINAL POLICY BUT ALSO UPON RENEWAL OR CONTINUANCE THEREOF.

B.

THE AMOUNT INSURED BY THE POLICY AT THE TIME OF ITS ISSUANCE NECESSARILY INCLUDED THE
ADDITIONAL SUM AS A RESULT OF THE EXERCISE OF THE OPTION UNDER THE "GUARANTEED
CONTINUITY" CLAUSE IN RESPONDENTS INSURANCE POLICIES.

C.

THE "GUARANTEED CONTINUITY" CLAUSE OFFERS TO THE INSURED AN OPTION TO AVAIL OF THE RIGHT
TO RENEW OR CONTINUE THE POLICY. IF AND WHEN THE INSURED AVAILS OF SUCH OPTION AND SUCH
GUARANTEED CONTINUITY CLAUSE TAKES EFFECT, THE INSURER IS LIABLE FOR DEFICIENCY
DOCUMENTARY STAMP TAX CORRESPONDING TO THE INCREASE OF THE INSURANCE COVERAGE.

D.

SECTION 198 OF THE 1997 NIRC CLEARLY STATES THAT THE DOCUMENTARY STAMP TAX IS IMPOSABLE
UPON RENEWAL OR CONTINUANCE OF ANY POLICY OF INSURANCE OR THE RENEWAL OR CONTINUANCE
OF ANY CONTRACT BY ALTERING OR OTHERWISE, AT THE SAME RATE AS THAT IMPOSED ON THE
ORIGINAL INSTRUMENT.31

As can be gleaned from the facts, the deficiency documentary stamp tax was assessed on the increases in the life
insurance coverage of two kinds of policies: the "Money Plus Plan," which is an ordinary term life insurance policy;
and the group life insurance policy. The increases in the coverage of the life insurance policies were brought about by
the premium payments made subsequent to the issuance of the policies. The Money Plus Plan is a 20-year term
ordinary life insurance plan with a "Guaranteed Continuity Clause" which allowed the policy holder to continue the
policy after the 20-year term subject to certain conditions. Under the plan, the policy holders paid their premiums in
five separate periods, with the premium payments, after the first period premiums, to be made only upon reaching a
certain age. The succeeding premium payments translated to increases in the sum assured. Thus, the petitioner
believed that since the documentary stamp tax was affixed on the policy based only on the first period premiums,
then the succeeding premium payments should likewise be subject to documentary stamp tax. In the case of
respondents group insurance, the deficiency documentary stamp tax was imposed on the premiums for the
additional members to already existing and effective master policies. The petitioner concluded that any additional
member to the group of employees, who were already insured under the existing mother policy, should similarly be
subjected to documentary stamp tax.32

The resolution of this case hinges on the validity of the imposition of documentary stamp tax on increases in the
coverage or sum assured by existing life insurance policies, even without the issuance of new policies.

In view of the fact that the assessment for deficiency documentary stamp tax covered the taxable year 1997, the
relevant and applicable legal provisions are those found in the 1977 National Internal Revenue Code (Tax Code) as
amended,33 to wit:
Section 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. Upon documents,
instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation,
right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had
or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the
person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued,
accepted, or transferred when the obligation or right arises from Philippine sources or the property is situated in the
Philippines, and the same time such act is done or transaction had: Provided, That whenever one party to the taxable
document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly
liable for the tax. 34

Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other instruments by
whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives,
there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or fractional part
thereof, of the amount insured by any such policy.35(Emphases ours.)

Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.36 It is in the nature of an
excise tax because it is imposed upon the privilege, opportunity or facility offered at exchanges for the transaction of
the business. It is an excise upon the facilities used in the transaction of the business distinct and separate from the
business itself.37

To elucidate, documentary stamp tax is levied on the exercise of certain privileges granted by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments. Examples of these
privileges, the exercise of which are subject to documentary stamp tax, are leases of lands, mortgages, pledges,
trusts and conveyances of real property. Documentary stamp tax is thus imposed on the exercise of these privileges
through the execution of specific instruments, independently of the legal status of the transactions giving rise thereto.
The documentary stamp tax must be paid upon the issuance of these instruments, without regard to whether the
contracts which gave rise to them are rescissible, void, voidable, or unenforceable. 38

Accordingly, the documentary stamp tax on insurance policies, though imposed on the document itself, is actually
levied on the privilege to conduct insurance business. Under Section 173, the documentary stamp tax becomes due
and payable at the time the insurance policy is issued, with the tax based on the amount insured by the policy as
provided for in Section 183.

Documentary Stamp Tax

on the "Money Plus Plan"

The petitioner would have us reverse both the CTA and the Court of Appeals based on our decision in Commissioner
of Internal Revenue v. Lincoln Philippine Life Insurance Company, Inc.39

The Lincoln case has been invoked by both parties in different stages of this case. The respondent relied on the
CTAs ruling in the Lincoln case when it elevated its protest there; and when we reversed the CTAs ruling therein, the
petitioner called the Court of Appeals attention to it, and prayed for a decision upholding the assessment for
deficiency documentary stamp tax just like in the Lincoln case.

It is therefore necessary to briefly discuss the Lincoln case to determine its applicability, if any, to the case now before
us. Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (Lincoln) had been issuing its "Junior Estate Builder
Policy," a special kind of life insurance policy because of a clause which provided for an automatic increase in the
amount of life insurance coverage upon attainment of a certain age by the insured without the need of a new policy.
As Lincoln paid documentary stamp taxes only on the initial sum assured, the CIR issued a deficiency documentary
stamp tax assessment for the year 1984, the year the clause took effect. Both the CTA and the Court of Appeals
found no basis for the deficiency assessment. As discussed above, however, this Court reversed both lower courts
and sustained the CIRs assessment.

This Court ruled that the increase in the sum assured brought about by the "automatic increase" clause incorporated
in Lincolns Junior Estate Builder Policy was still subject to documentary stamp tax, notwithstanding that no new
policy was issued, because the date of the effectivity of the increase, as well as its amount, were already definite and
determinable at the time the policy was issued. As such, the tax base under Section 183, which is "the amount fixed
in the policy," is "the figure written on its face and whatever increases will take effect in the future by reason of the
automatic increase clause." 40 This Court added that the automatic increase clause was "in the nature of a
conditional obligation under Article 1181,41 by which the increase of the insurance coverage shall depend upon the
happening of the event which constitutes the obligation." 42

Since the Lincoln case, wherein the then CIRs arguments for the BIR are very similar to the petitioners arguments
herein, was decided in favor of the BIR, the petitioner is now relying on our ruling therein to support his position in this
case. Although the two cases are similar in many ways, they must be distinguished by the nature of the respective
"clauses" in the life insurance policies involved, where we note a major difference. In Lincoln, the relevant clause is
the "Automatic Increase Clause" which provided for the automatic increase in the amount of life insurance coverage
upon the attainment of a certain age by the insured, without any need for another contract. In the case at bar, the
clause in contention is the "Guaranteed Continuity Clause" in respondents Money Plus Plan, which reads:

GUARANTEED CONTINUITY

We guarantee the continuity of this Policy until the Expiry Date stated in the Schedule provided that the effective
premium is consecutively paid when due or within the 31-day Grace Period.

We shall not have the right to change premiums on your Policy during the 20-year Policy term.
At the end of each twenty-year period, and provided that you have not attained age 55, you may renew your Policy
for a further twenty-year period. To renew, you must submit proof of insurability acceptable to MBLIC and pay the
premium due based on attained age according to the rates prevailing at the time of renewal.43

A simple reading of respondents guaranteed continuity clause will show that it is significantly different from the
"automatic increase clause" in Lincoln. The only things guaranteed in the respondents continuity clause were: the
continuity of the policy until the stated expiry date as long as the premiums were paid within the allowed time; the
non-change in premiums for the duration of the 20-year policy term; and the option to continue such policy after the
20-year period, subject to certain requirements. In fact, even the continuity of the policy after its term was not
guaranteed as the decision to renew it belonged to the insured, subject to certain conditions. Any increase in the sum
assured, as a result of the clause, had to survive a new agreement between the respondent and the insured. The
increase in the life insurance coverage was only corollary to the new premium rate imposed based upon the insureds
age at the time the continuity clause was availed of. It was not automatic, was never guaranteed, and was certainly
neither definite nor determinable at the time the policy was issued.

Therefore, the increases in the sum assured brought about by the guaranteed continuity clause cannot be subject to
documentary stamp tax under Section 183 as insurance made upon the lives of the insured.

However, it is clear from the text of the guaranteed continuity clause that what the respondent was actually offering in
its Money Plus Plan was the option to renew the policy, after the expiration of its original term. Consequently, the
acceptance of this offer would give rise to the renewal of the original policy.

The petitioner avers that these life insurance policy renewals make the respondent liable for deficiency documentary
stamp tax under Section 198.

Section 198 of the old Tax Code reads:

Section 198. Stamp Tax on Assignments and Renewals of Certain Instruments. Upon each and every
assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any
agreement, contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be
levied, collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument.44

Section 198 speaks of assignments and renewals. In the case of insurance policies, this section applies only when
such policy was assigned or transferred. The provision which specifically applies to renewals of life insurance policies
is Section 183:

Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other instruments by
whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives,
there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or fractional part
thereof, of the amount insured by any such policy. (Emphasis ours.)

Section 183 is a substantial reproduction of the earlier documentary stamp tax provision, Section 1449(j) of the
Administrative Code of 1917. Regulations No. 26, or The Revised Documentary Stamp Tax Regulations,45provided
the implementing rules to the provisions on documentary stamp tax under the Administrative Code of 1917. Section
54 of the Regulations, in reference to what is now Section 183, explicitly stated that the documentary stamp tax
imposed under that section is also collectible upon renewals of life insurance policies, viz:

Section 54. Tax also due on renewals. The tax under this section is collectible not only on the original policy or
contract of insurance but also upon the renewal of the policy or contract of insurance.

To argue that there was no new legal relationship created by the availment of the guaranteed continuity clause would
mean that any option to renew, integrated in the original agreement or contract, would not in reality be a renewal but
only a discharge of a pre-existing obligation. The truth of the matter is that the guaranteed continuity clause only gave
the insured the right to renew his life insurance policy which had a fixed term of twenty years. And although the policy
would still continue with essentially the same terms and conditions, the fact is, its maturity date, coverage, and
premium rate would have changed. We cannot agree with the CTA in its holding that "the renewal, is in effect treated
as an increase in the sum assured since no new insurance policy was issued."46 The renewal was not meant to
restore the original terms of an old agreement, but instead it was meant to extend the life of an existing agreement,
with some of the contracts terms modified. This renewal was still subject to the acceptance and to the conditions of
both the insured and the respondent. This is entirely different from a simple mutual agreement between the insurer
and the insured, to increase the coverage of an existing and effective life insurance policy.

It is clear that the availment of the option in the guaranteed continuity clause will effectively renew the Money Plus
Plan policy, which is indisputably subject to the imposition of documentary stamp tax under Section 183 as an
insurance renewed upon the life of the insured.

Documentary Stamp Tax

on Group Life Insurance

The petitioner is also asking this Court to sustain his deficiency documentary stamp tax assessment on the additional
premiums earned by the respondent in its group life insurance policies.

This Court, in Pineda v. Court of Appeals47 has had the chance to discuss the concept of "group insurance," to wit:

In its original and most common form, group insurance provides life or health insurance coverage for the employees
of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy that is issued by the
insurer to a representative of the group or to an administrator of the insurance program, such as an employer. The
employer acts as a functionary in the collection and payment of premiums and in performing related duties. Likewise
falling within the ambit of administration of a group policy is the disbursement of insurance payments by the employer
to the employees. Most policies, such as the one in this case, require an employee to pay a portion of the premium,
which the employer deducts from wages while the remainder is paid by the employer. This is known as a contributory
plan as compared to a non-contributory plan where the premiums are solely paid by the employer.

Although the employer may be the titular or named insured, the insurance is actually related to the life and health of
the employee. Indeed, the employee is in the position of a real party to the master policy, and even in a non-
contributory plan, the payment by the employer of the entire premium is a part of the total compensation paid for the
services of the employee. Put differently, the labor of the employees is the true source of the benefits, which are a
form of additional compensation to them.48 (Emphasis ours.)

When a group insurance plan is taken out, a group master policy is issued with the coverage and premium rate based
on the number of the members covered at that time. In the case of a company group insurance plan, the premiums
paid on the issuance of the master policy cover only those employees enrolled at the time such master policy was
issued. When the employer hires additional employees during the life of the policy, the additional employees may be
covered by the same group insurance already taken out without any need for the issuance of a new policy.

The respondent claims that since the additional premiums represented the additional members of the same existing
group insurance policy, then under our tax laws, no additional documentary stamp tax should be imposed since the
appropriate documentary stamp tax had already been paid upon the issuance of the master policy. The respondent
asserts that since the documentary stamp tax, by its nature, is paid at the time of the issuance of the policy, "then
there can be no other imposition on the same, regardless of any change in the number of employees covered by the
existing group insurance."49

To resolve this issue, it would be instructive to take another look at Section 183: On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any
life or lives.

The phrase "other instruments" as also found in the earlier version of Section 183, i.e., Section 1449(j) of the
Administrative Code of 1917, was explained in Regulations No. 26, to wit:

Section 52. "Other instruments" defined. The term "other instruments" includes any instrument by whatever name
the same is called whereby insurance is made or renewed, i.e., by which the relationship of insurer and insured is
created or evidenced, whether it be a letter of acceptance, cablegrams, letters, binders, covering notes, or
memoranda. (Emphasis ours.)

Whenever a master policy admits of another member, another life is insured and covered. This means that the
respondent, by approving the addition of another member to its existing master policy, is once more exercising its
privilege to conduct the business of insurance, because it is yet again insuring a life. It does not matter that it did not
issue another policy to effect this change, the fact remains that insurance on another life is made and the relationship
of insurer and insured is created between the respondent and the additional member of that master policy. In the
respondents case, its group insurance plan is embodied in a contract which includes not only the master policy, but
all documents subsequently attached to the master policy.50 Among these documents are the Enrollment Cards
accomplished by the employees when they applied for membership in the group insurance plan. The Enrollment Card
of a new employee, once registered in the Schedule of Benefits and attached to the master policy, becomes evidence
of such employees membership in the group insurance plan, and his right to receive the benefits therein. Everytime
the respondent registers and attaches an Enrollment Card to an existing master policy, it exercises its privilege to
conduct its business of insurance and this is patently subject to documentary stamp tax as insurance made upon a
life under Section 183.

The respondent would like this Court to ignore the petitioners argument that renewals of insurance policies are also
subject to documentary stamp tax for being raised for the first time. This Court was faced with the same dilemma in
Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,51 when the petitioner
also raised an issue therein for the first time in the Supreme Court. In addressing the procedural lapse, we said:

As clearly ruled by Us "To allow a litigant to assume a different posture when he comes before the court and
challenges the position he had accepted at the administrative level," would be to sanction a procedure whereby the
Court - which is supposed to review administrative determinations - would not review, but determine and decide for
the first time, a question not raised at the administrative forum. Thus it is well settled that under the same underlying
principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court
cannot generally be raised for the first time on appeal. x x x.52

However, in the same case, we also held that:

Nonetheless it is axiomatic that the State can never be in estoppel, and this is particularly true in matters involving
taxation. The errors of certain administrative officers should never be allowed to jeopardize the government's financial
position.53 (Emphasis ours.)

Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of
sovereignty.54 Taxes are the lifeblood of the government and their prompt and certain availability is an imperious
need. It is through taxes that government agencies are able to operate and with which the State executes its
functions for the welfare of its constituents.55 It is for this reason that we cannot let the petitioners oversight bar the
governments rightful claim.1avvphi1
This Court would like to make it clear that the assessment for deficiency documentary stamp tax is being upheld not
because the additional premium payments or an agreement to change the sum assured during the effectivity of an
insurance plan are subject to documentary stamp tax, but because documentary stamp tax is levied on every
document which establishes that insurance was made or renewed upon a life.

WHEREFORE, the petition is GRANTED. The April 29, 2005 Decision and the July 27, 2005 Resolution of the Court
of Appeals in CA-G.R. SP No. 70600 are hereby SET ASIDE. Respondent Manila Bankers Life Insurance Corp. is
hereby ordered to pay petitioner Commissioner of Internal Revenue the deficiency documentary stamp tax in the
amount of P1,646,449.26, plus the delinquency penalties of 25% surcharge on the amount due and 20% annual
interest from January 5, 2000 until fully paid.

SO ORDERED.

American Home v Chua G.R. No. 130421. June 28, 1999

C.J. Davide

Facts:

Chua obtained from American Home a fire insurance covering the stock-in-trade of his business. The insurance was
due to expire on March 25, 1990.

On April 5, 1990, Chua issued a check for P2,983.50 to American Homes agent, James Uy, as payment for
the renewal of the policy. The official receipt was issued on April 10. In turn, the latter a renewal certificate. A new
insurance policy was issued where petitioner undertook to indemnify respondent for any damage or loss arising from
fire up to P200,000 March 20, 1990 to March 25, 1991.

On April 6, 1990, the business 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, Prudential Guarantee, Filipino Merchants and Domestic Insurance. Petitioner refused to honor the claim
hence, the respondent filed an action in the trial court.

American Home claimed there was no existing contract because respondent did not pay the premium. Even with a
contract, they contended that he was ineligible bacue of his fraudulent tax returns, his failure to establish the actual
loss and his failure to notify to petitioner of any insurance already effected. The trial court ruled in favor of respondent
because the respondent paid by way of check a day before the fire occurred and that the other insurance companies
promptly paid the claims. American homes was made to pay 750,000 in damages.

The Court of Appeals found that respondents claim was substantially proved and petitioners unjustified refusal to
pay the claim entitled respondent to the award of damages.

American Home filed the petition reiterating its stand that there was no existing insurance contract between the
parties. It invoked Section 77 of the Insurance Code, which provides that no policy or contract of insurance issued by
an insurance company is valid and binding unless and until the premium thereof has been paid and the case of Arce
v. Capital Insurance that until the premium is paid there is no insurance.

Issues:

1. Whether there was a valid payment of premium, considering that respondents check was cashed after the
occurrence of the fire

2. Whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the other
existing insurance contracts

3. Whether respondent is entitled to the award of damages.

Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

Ratio:
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to
petitioner. The court respected this.

The renewal certificate issued to respondent contained the acknowledgment that premium had been paid.

In the instant case, the best evidence of such authority is the fact that petitioner accepted the check and issued
the officialreceipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment.

Section 78 of the Insurance Code explicitly provides:

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.

2. Submission of the alleged fraudulent documents pertained to respondents income tax returns for 1987 to 1989.
Respondent, however, presented a BIR certification that he had paid the proper taxes for the said years. Since this is
a question of fact, the finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure is
a violation that entitles the insurer to avoid the policy. The purpose for the inclusion of this clause is to prevent an
increase in the moral hazard. 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.

Respondent acquired several co-insurers and he failed to disclose this information to petitioner. Nonetheless,
petitioner is estopped from invoking this argument due to the loss adjusters admission of previous knowledge of the
co-insurers.

It cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other insurance
contracts when petitioner actually had prior knowledge thereof. The loss adjuster, being an employee of petitioner, is
deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner.

3. Petitioner is liable to pay the loss. But there is merit in petitioners grievance against the damages and attorneys
fees awarded. There was no basis for an award for loss of profit. This cannot be shouldered by petitioner whose
obligation is limited to the object of insurance.

There was no fraud to justify moral damages. Exemplary damages cant be awarded because the defendant never
acted in a reckless manner to claim insurance. Attorneys fees cant be recovered as part of damages because no
premium should be placed on the right to litigate.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-43862 January 13, 1989

MERCANTILE INSURANCE CO., INC., plaintiff-appellee,

vs.
FELIPE YSMAEL, JR., & CO., INC., defendants-appellants.

Beltran, Evangelista & Cuasay for plaintiff-appellee.

Abraham F. Sarmiento Law Office for defendants-appellants.

BIDIN, J.:

This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila (now Regional
Trial Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein referred to as the plaintiff-
appellee) vs. Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to as the defendant-appellant) ordering
defendants-appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., to pay jointly and severally to the plaintiff
the sum of P100,000.00 plus 15% thereof as attorney's fees, and costs. On appeal to the Court of Appeals, this case
which involves only a question of law, was certified to this Court.

The factual milieu of this case as found by the trial court is as follows:

Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an overdraft
line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. The latter
was willing to grant credit accommodation of P2,000,000.00 applied for provided that the applicant
shall have filed a bond in the sum of P140,000.00 to guarantee the payment of the said amount.
Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed
surety bond No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A).
On December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co.,
Inc. executed another surety bond MERICO Bond No. G (16) 0030 in the sum of P40,000.00. It is
the condition in both bonds that if the principal Felipe Ysmael, Jr. & Co., Inc. shall perform and fulfill
its undertakings with the Philippine National Bank, then these surety bonds shall be null and void
(Exh. B).

As security and in consideration of the execution of the surety bonds, exhibits A and B, Felipe
Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president
and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity
agreement (Exh. D) wherein the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr.
bound themselves jointly and severally to indemnify the plaintiff, hold save it harmless from and
against any and all payments, damages, costs, losses, penalties, charges and expenses which
said company as surety (relative to MERICO Bond No. 0007) shall incur or become liable to pay
plus an additional amount as attorney's fees equal to 20% of the amount due to the company,
Paragraph 3 of the indemnity agreement expressly provides:

3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph,

where the obligation involves a liquidated amount for the payment of which the company has
become legally liable under the terms of the obligation and its suretyship undertaking or by the
demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or
extension for payment of the latter's demand the full amount necessary to discharge the
COMPANY's aforesaid liability irrespective of whether or not payment has actually been made by
the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the
undersigned or either of them by court action or otherwise to enforce payment even prior to making
payment to the obligee which may hereafter be done by the COMPANY.

On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their official
capacities and the defendants executed another indemnity agreement (Exh. E) with the plaintiff in
consideration of the surety bond (referring to MERICO Bond No. G (16) 0030. In the indemnity
agreement (Exh. E) the same provisions of paragraph 3 found in exhibit D is provided for.

By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was reduced by
P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the
aforesaid reduction is P100,000.00 (Exh. C), P60,000.00 on Surety Bond No. 0007 plus
P40,000.00 on Surety Bond No. 0030.

In view of the failure of the defendants to pay the overdraft and credit line with the Philippine
National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under
surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)-
0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) otherwise drastic measures
for collection to protect the interest of the bank would be taken. Attached to the demand letter is a
statement of account.

By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of demand
to the defendants (Exhs. G and H) inviting their attention to the letter of demand of the Philippine
National Bank sent to the plaintiff and demanding from the defendants the settlement of said
account. These letters were received as shown by the registry return receipts (Exhs. G-2 and H-2).
Since the defendants failed to settle their obligation with the Philippine National Bank, on February
10, 1971, plaintiff brought the present action.

Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which motion was
subsequently denied. Thereafter, the defendants filed their answer and the case was set for pre-trial. On the date
scheduled for pre-trial, the defendants and their counsel failed to appear, thus on motion of the plaintiff, they were
declared in default and plaintiff was allowed to present its evidence ex-parte. Upon motion for reconsideration filed by
the defendants, the case was ordered re-opened and the case was scheduled for reception of defendant's evidence.
Thereafter, the parties were required to submit their respective memoranda and the case was submitted for decision.
On October 30, 1971, the trial court rendered its decision, the dispositive part of which reads:
 WHEREFORE, in view of the foregoing considerations, judgment is rendered for the plaintiff and
the defendants are ordered to pay jointly and severally the plaintiff the sum of P100,000.00 plus the
further sum of 15% thereof in the concept of reasonable attorney's fees and the costs.

Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the Philippine
National Bank in partial satisfaction of the obligation of the defendants to said Bank.

SO ORDERED. (Record on Appeal, p. 96)

Said decision was appealed to the Court of Appeals on questions of facts and law. Acting on the appeal and finding
that the only question raised therein involves a question of law, the Court of Appeals by resolution *** dated April 29,
1976, certified the same to this Court, for proper disposition (Rollo, pp. 62-63).

This Court, thru its First Division by Resolution dated May 31, 1978, resolved to have the case docketed and declared
the same submitted for decision (Rollo, p. 65).

The defendants-appellants raised the following assignments of errors in the Court of Appeals:

THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR LACK OF CAUSE OF
ACTION, THE COMPLAINT BEING PREMATURE BECAUSE THE PLAINTIFF HAS PAID
NOTHING ON THE SURETY BONDS AND HAS SUFFERED NO ACTUAL DAMAGE.

II

THE LOWER COURT ERRED IN NOT DECLARING THAT PARAGRAPH 3 OF THE INDEMNITY
AGREEMENTS IS VOID.

III

CONSEQUENTLY, THE TRIAL COURT ERRED IN ORDERING THE DEFENDANTS-

APPELLANT'S TO PAY JOINTLY AND SEVERALLY TO THE PLAINTIFF THE SUM OF
P100,000.00 PLUS THE FURTHER SUM OF 15% THEREOF IN THE CONCEPT OF
REASONABLE ATTORNEY'S FEES AND THE COSTS. (Brief for Defendants-Appellants, CA, pp.
1-2).

The crux of the controversy is whether or not the surety can be allowed indemnification from the defendants-
appellants, upon the latter's default even before the former has paid to the creditor.

There is no dispute that the overdraft line of P1,000,000.00 and the credit line of Pl,000,000.00 applied for by the
defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as
MERICO Bond No. G(16) 0007 for one hundred thousand pesos (Exh. A) and MERICO Bond No. G(16) 0030 for forty
thousand pesos (Exh. B), later reduced as above stated on September 5, 1967 (Exh. C) by P40,000.00 or a total
amount of P100,000.00. As security and in consideration of the execution of the surety bonds, the defendants
executed with the plaintiff identical indemnity agreements (Exhs. D and E) which provide, among others that payment
of indemnity or compensation may be claimed irrespective of whether or not plaintiff company has actually paid the
same.

Defendants-appellants maintain that the complaint is premature and that paragraph 3 of the indemnity agreements is
void for being contrary to law, public policy and good morals. They argued that to allow plaintiff surety (appellee
herein) to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute
unjust enrichment at the expense of another. (Brief for Defendants-Appellants, CA, p.6).

To bolster their contention, defendants-appellants argue that it is an indispensable requisite for an action to prosper,
that the party bringing the action must have a cause of action against the other party; and that for a cause of action to
be ripe for litigation, there must be both wrongful violation and damages; all of which are not present in the case at
bar because plaintiff-appellee has not suffered any injury whatsoever, notwithstanding the demand sent to it by the
Philippine National Bank, nor has plaintiff-appellee made a single actual payment to said bank. Hence, to allow
plaintiff-appellee to recover from them something which it has not paid in its capacity as surety would violate the
fundamental principle which states NEMOCUM ALTERIUS DETRIMENTO LOCOPLETARI POTEST (No person
should unjustly enrich himself at the expense of another). [Defendants-Appellants' Brief, pp. 7-8; 49].

The question as to whether or not under the Indemnity Agreement of the parties, the Surety can demand
indemnification from the principal, upon the latter's default, even before the former has paid to the creditor, has long
been settled by this Court in the affirmative.

It has been held that:

 The stipulation in the indemnity agreement allowing the surety to recover even before it paid the
creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even
before paying the creditors. (Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA 528 [1965] citing;
Security Bank v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto Surety and Ins. Co., v.
Aguilar, et al., G.R. No. L-5625, March 16, 1954).

Hence, appellants contention that the action of the appellee (surety company) is premature or that the complaint fails
to state a cause of action because the surety has not paid anything to the bank, cannot be sustained (Cosmopolitan
Ins. Co., Inc. v. Reyes, supra). In fact, such contention is belied not only by the allegations in the complaint but also
by the agreement entered into between the appellants and the appellee in favor of the bank.

The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion of which states:

6. That defendants, by virtue of the two Surety Bonds (Annexes "A" and "B") were extended by the
Philippine National Bank, a credit accommodation in the sum of TWO MILLION (P2,000,000.00)
PESOS;

7. That the Philippine National Bank is demanding and collecting from the plaintiff the sum of ONE
HUNDRED THOUSAND (P100,000.00) PESOS which is the defendants' account with the said
bank that is secured and covered by the above-mentioned bonds (Annexes "A" and "B");

8. That under the terms of the Indemnity Agreements (Annexes "D" and "E") more particularly
paragraph 3, plaintiff may forthwith proceed against the defendants to impose payment, even prior
to making payment to the Philippine National Bank;

9. That notwithstanding series of demands made by plaintiff, the defendants failed and refused to
pay the Philippine National Bank the sum of ONE HUNDRED THOUSAND (P l00,000.00) PESOS;

10. That on account of defendants' default, plaintiff becomes liable to the Philippine National Bank
in the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS;' (Record on Appeal, p. 2.)

Correspondingly, it is readily apparent that said cause of action was derived from the terms of the Indemnity
Agreement, paragraph 3 thereof, as above quoted. By virtue of the provisions of the Indemnity Agreement,
defendants-appellants have undertaken to hold plaintiff-appellee free and harmless from any suit, damage or liability
which may be incurred by reason of non-performance by the defendants-appellants of their obligation with the
Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case
of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that
the obligee PNB may proceed against either of them for the satisfaction of the obligation. (Brief for Plaintiff-Appellee,
p. 7).

II

Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the prerogative of filing
an action even prior to the latter's making any payment to the Philippine National Bank.

Contracts are respected as the law between the contracting parties (Henson v. IAC, 148 SCRA 11 [1987], citing
Castro v. CA, 99 SCRA 722 [1980] and Escano v. CA, 100 SCRA 197 [1980]) It is settled that the parties may
establish such stipulations, clauses, terms and conditions as they may want to include, and as long as such
agreements are not contrary to law, morals, good customs, public policy or public order, they shall have the force of
law between them (Herrera v. Petrophil Corp., 146 SCRA [1986].

Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious
intentment (Ibid.). It is a basic and fundamental rule in the interpretation of contracts that if the terms thereof are clear
and leave no doubt as to the intention of the contracting parties, the literal meaning of the stipulation shall control.

In the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement. The only bone of
contention is whether or not such terms are null and void as defendants-appellants would have this Court declare.

A careful analysis of the contract in question will show that the provisions therein do not contravene any law or public
policy much less do they militate against the public good. In fact, as shown above, they are fully sanctioned by well-
established jurisprudence. Having voluntarily entered into such contract, the appellants cannot now be heard to
complain. Their indemnity agreement have the force and effect of law.

Elucidating further on the obligations of the parties in agreements of this nature, this Court ruled:

...The indemnity agreement was not executed for the benefit of the creditors; it was rather for the
benefit of the surety and if the latter thought it necessary in its own interest to impose this
stipulation, and the indemnitors voluntarily agreed to the same, the court should respect the
 agreement of the parties and require them to abide by their contract. (Security Bank v. Globe
Assurance, 107 Phil. 733 [1960].

III

Finally, the trial court did not err in ordering defendants-appellants to pay jointly and severally the plaintiff the sum of
P100,000.00 plus 15% as attorney's fees.

It must be stressed that in the case at bar, the principal debtors, defendants-appellants herein, are simultaneously the
same persons who executed the Indemnity Agreement. Thus, the position occupied by them is that of a principal
debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the
Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds.
There is, therefore, no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code
does not apply. Otherwise stated, there is no more need for the plaintiff-appellee to exhaust all the properties of the
principal debtor before it may proceed against defendants-appellants.

As to the attorney's fees, it has been squarely ruled by this Court that the award of fifteen (15) per cent for cases of
this nature is not unreasonable (Cosmopolitan Insurance Co., Inc. v. Reyes, supra).

WHEREFORE, the decision appealed from is hereby AFFIRMED.

Makati Tuscany Condominium Corporation v CA (Insurance)

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.

FACTS:
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.
Successive renewals of the policies were made in the same manner. On 1984, the policy was again
renewed and 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.

Private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy.
Petitioner explained that it discontinued the payment of premiums because the policy did not contain a
credit clause in its favor. 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.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
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.

RULING:
No, the contract remains valid even if the premiums were paid on installments. 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.
At the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
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. The obligation to pay premiums when due
is ordinarily as indivisible obligation to pay the entire premium.

Makati Tuscany v CA G.R. No. 95546 November 6, 1992

J. Bellosillo

Facts:

American International Underwriters issued a policy in favor of Makati Tuscany Condominium Corporation with a total
premium of P466,103.05. The company issued a replacement policy. Premium was again paid. In 1984, the policy
was again renewed and private respondent issued to petitioner another policy. The petitioner paid 152,000 pesos
then refused to furnish the balance.

The company filed an action to recover the unpaid balance of P314,103.05.

The condominium administration explained that it discontinued the payment of premiums because the policy did
not containa credit clause in its favor and that the acceptance of premiums didnt 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 prior to premium payment, loss wasnt covered.

Petitioner sought for a refund. The trial court dismissed the complaint and counterclaim owing to the argument that
payment of the premiums of the policies were made during the lifetime or term of said policies, so risk attached under
the policies.

The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reason that it was part of an
indivisible obligation.

Petitioner now asserts that its payment by installment of the premiums for the insurance policies invalidated them
because of the provisions of Sec. 77 of the Insurance Code disclaiming liability for loss for occurring before payment
of premiums.

Issue: 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

Held: Judgment affirmed.

Ratio:

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.

Petitioner concluded 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.

Quoting the CA 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. So is an understanding to allow insured to
pay premiums ininstallments not so proscribed.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. 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. Here, 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.

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
premium after the expiration of the whole term. 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.

South Sea v CA G.R. No. 102253 June 2, 1995

J. Vitug

Facts:

Valenzuela Hardwood entered into an agreement with the defendant Seven Brothers whereby the latter undertook to
load the former's 940 lauan logs for shipment to Manila.

South Sea insured the logs for P2,000,000.00 in its marine policy. Valenzuela then gave the check in payment of the
premium on the insurance policy to Mr. Victorio Chua.

Seven Brothers ship sank resulting in the loss of the logs.

A check for P5,625.00 to cover payment of the premium 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.

Valenzuela demanded from South Sea 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.

Valenzuela filed a complaint a complaint for the recovery of the value of lost logs and freight charges from Seven
Brothers Shipping Corporation or from South Sea Surety and Insurance Company, the insurer.

The trial court rendered judgment in favor of plaintiff Valenzuela. The Court of Appeals affirmed the judgment only
against the insurance corporation and absolved the shipping entity from liability. The court held that there was a
stipulation in the charter party exempted the ship owner from liability in case of loss.

In the SC petition, petitioner argues that it should have been freed from any liability to Hardwood.
It faults the appellatecourt (a) for having disregarded Section 77 of the insurance Code and (b) for holding Victorio
Chua to have been an authorized representative of the insurer.

Issue:

WON Mr. Chua acted as an agent of the surety company or of the insured when he received the check for insurance
premiums.

Held: Agent of the surety. Petition denied.

Ratio:

To determine if there was a valid contract of insurance, it must be determine if the premium was validly paid to the
company or its agents at the time of the loss.

The appellate and trial courts have found that Chua acted as an agent.

South Sea insisted that Chua has been an agent for less than ten years of the Columbia Insurance Brokers, a
different company. Appellant argued that Mr. Chua, having received the premiums, acted as an agent under Section
301 of the Insurance Code which provides:

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 dutiesrequirements, liabilities and penalties to which an insurance broker is subject.

Valenzuela claimed that the second paragraph of Section 306 of the Insurance Code provided:

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.

Mr. Chua testified that the marine cargo insurance policy logs was by South Sea to be given to the wood company.

When South Sea delivered to Mr. Chua the marine cargo insurance policy for Valenzuelas logs, he is deemed to
have been authorized by former to receive the premium which is due on its behalf.

When the 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.

The court followed the factual evidence of the lower courts and held that they didnt try questions of fact.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of
Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum
of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondents
properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993;
and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by
the renewal-replacement policies. The modification consisted in the (1) deletion of the trial courts declaration that
three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorneys
fees from 25% to 10% of the total amount due the Respondent.

Masagana obtained from UCPB five (5) insurance policies on its Manila properties.

The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masaganas properties were
razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal premium payments. A
receipt was issued. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured
properties. UCPB then rejected Masaganas claims under the argument that the fire took place before the tender of
payment.

Hence Masagana filed this case.

The Court of Appeals disagreed with UCPBs argument that Masaganas tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as
provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or
delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition
itsrenewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon
payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured
insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the claims were filed. Most of the premiums have been paid
for more than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.

The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed
by an implied credit arrangement though actual payment of premium was tendered on a later date and after the
occurrence of the risk insured against.

UCPB filed a motion for reconsideration.

The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the
premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioners advantage despite
its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:

Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid

An exception to this section is Section 78 which provides: Any 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 premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the payment
in installments of the premium and partial payment has been made at the time of loss.

Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding despite the fact
that premium is actually unpaid. Section 77 does not expressly prohibit an agreement granting credit extension. At
the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.

The Tuscany case has provided another exception to Section 77 that the insurer may grant credit extension for the
payment of the premium. If the insurer has granted the insured a credit term for the payment of the premium and
loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is
paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or
public policy. The agreement binds the parties.

It would be unjust if recovery on the policy would not be permitted against Petitioner, which had consistently granted a
60- to 90-day credit term for the payment of premiums. Estoppel bars it from taking refuge since Masagana relied in
good faith on such practice. Estoppel then is the fifth exception.