1
EN BANC 3/8 deformed 20 ft or 30 ft. at P435.00 per tons
G.R. No. L-21109 June 26, 1967
NATIONAL SHIPYARDS & STEEL CORPORATION, plaintiff-appellee,
vs.
CARIDAD J. TORRENTO and MUTUAL SECURITY INSURANCE
CORPORATION, defendants-appellants.
MAKALINTAL, J.:
On December 5, 1958 defendant Caridad J. Torrento applied with the National
Shipyards & Steel Corporation (hereinafter referred to as NASSCO) for the purchase
on credit of 60 tons of steel bars, 3/8" deformed or plain, at P430.00 per ton, for a
120-day period.
A contract of purchase and sale was executed on January 13, 1959, but was
subsequently amended when plaintiff exhausted its stock of 3/8" plain steel bars.
As amended, the quantity of steel bars stated to be 60 metric tons in the original
contract was changed to 59.31 metric tons; the price was changed from P430.00 to
P435.00 per metric ton; and the specification of the steel bars was also changed
from "plain, round or corrugated" to "deformed."
Pursuant to the stipulation in the contract that the value of steel bars sold to
defendant Torrento should be secured by a surety bond issued by a reputable
bonding company, defendant Torrento as principal and Mutual Security Insurance
Corporation, as surety executed in favor of plaintiff a surety bond (S. 1754) on
January 23, 1960. When it was noted that the undertaking under the bond was only
P25,000.00, whereas the contract called for the payment of P25,800.00, defendant
surety executed a supplemental bond increasing the amount of P25,800.00.
On February 6, 1959, when NASSCO could no longer supply the steel bars called for
in the contract of purchase and sale inasmuch as its stock of 3/8" deformed steel
bars had been exhausted, the plaintiff and defendant Torrento executed a
supplemental agreement, the pertinent provisions of which read:
. . . Whereas the NASSCO has agreed to sell to the vendee and the vendee has
agreed to buy from the NASSCO . . . Fifty Nine and thirty one hundredths (59-31)
metric tons of steel bars on credit basis for size and price as follows:
Whereas, after consummation of said contract, only the following amount of steel
bars were delivered to the vendee, as follows:
20-67 M.T. 3/8" deformed and that there were no more available stock of steel bars
of size 3/8" x 20' or 30' deformed.
Now therefore, for and in consideration of the foregoing premises, the parties
hereby agree to modify and/or amend their said contract as follows:
1. That the NASSCO shall sell to the vendee and the vendee shall buy from the
NASSCO, 38.50 tons of steel bars on credit basis subject to availability of stock in
the following sizes and prices, to wit:
25 M.T. — 1/2" x 30 deformed at P440.00 per ton.
13.50 M.T. — 5/8" x 30 deformed at P430.00 per ton
2. That aside from the above amendment and/or modification, the said contract
shall not be affected, altered, or modified in any way.
Pursuant to the contract of purchase and sale and the supplemental contract,
NASSCO delivered to defendant Torrento steel bars in the total value of P25,794.09.
The 120-day period for payment lapsed. Demand letters were sent, but defendant
surety made no reply. Defendant Torrento did not question her liability, but only
asked for a 3-month extension to settle her account.
Action was brought to recover the unpaid contract price from defendant Torrento
and her surety. On October 18, 1960, the lower court rendered judgment: "ordering
the defendants, jointly and severally, to pay the plaintiff the sum of P25,794.09,
with interest thereon at the rate of 12% per annum, from August 29, 1959 until full
payment, and the costs of suit. On the cross-claim, judgment is hereby rendered,
ordering the cross-defendant Caridad J. Torrento to pay the cross-plaintiff Mutual
Security Insurance Corporation whatever sums the latter would pay the plaintiff by
virtue of this judgment, with interest thereon at the rate of 12% per annum, from
the date of payment to plaintiff, until full payment, and the costs of this suit."
Defendants interposed an appeal to the Court of Appeals, which later on certified
the case to Us on the ground that the errors assigned raise only questions of law.

Appellant Torrento maintains that plaintiff has no cause of action against her for
the reason that inasmuch as she had paid the corresponding premium on the surety
bond, the right of action, in case of her default, is exclusively against her surety.
Further, with respect to the cross-claim of the Surety, Torrento claims that it was
error for the lower court to take cognizance of the same even before payment by
said surety to NASSCO had been made. In other words, Torrento argues that the
cause of action alleged in the cross-claim does not arise until after payment has
been made by the surety to the plaintiff.
We find both arguments without merit. The surety bond (Exhibits C and C-1) states
in very clear terms that both principal and surety are held and firmly bound unto
the NASSCO in the sum of P25,800.00 for the payment of which they bind
themselves, jointly and severally. "If a person binds himself solidarity with the
principal debtor, . . . the contract is called suretyship" (Art. 2047, C.C.) in which case
the provisions of the Civil Code with respect to joint and solidary obligations apply;
and Article 1216 of the Civil Code provides that "the creditor may proceed against
any of the solidary debtors or all of them simultaneously. . . ." It has been
repeatedly held that although as a rule sureties . . . are only subsidiarily liable for an
obligation, nevertheless, if they bind themselves jointly and severally, or in solidum,
with the principal debtor, the creditor may bring an action against anyone of them,
either alone or together with the principal debtor (Molina vs. de la Riva, 7 Phil. 345;
Chinese Chamber vs. Pua Te Ching, 16 Phil. 406; La Yebana vs. Valenzuela, 67 Phil.
482; Chunaco vs. Tria, 63 Phil. 500).
With respect to the contention that the lower court erred in taking cognizance of
the surety's cross-claim, suffice it to say that this point was not raised in the court a
quo and, consequently may not be raised for the first time on appeal. Besides, as
the lower court also stated in its decision, "defendant Torrento made no effort to
dispute this (cross-claim) of defendant surety and did not even bother to cross-
examine the witness who identified the said indemnity agreement," which is the
basis of the cross-claim.1äwphï1.ñët
For its part, appellant surety company maintains that the execution of the
supplemental agreement of February 6, 1959 without its knowledge and consent
released it from any liability under the surety bond as there was a material
alteration of the principal contract. We find the contention without merit. The
court a quo analyzed the factual set-up as follow:
x x x An examination and comparison of the contract and the supplemental
agreement will reveal that the only change or alteration consists of the
following: Instead of the original stipulation for the purchase and sale of
2
3/8, 20' or 30', deformed steel bars, at P435.00 per ton, which kind of steel
bars were no longer available in stock, the supplemental agreement
provides for the sale by the plaintiff to defendant Torrento of other sizes of
deformed steel bars at prices of P430.00 and P440.00 per metric ton.
Specifically, the changes are in the diameter of the steel bars which
originally was 3/8", to 1/2 and 5/8"; and the price from P435.00 per ton, to
P430.00 per ton for the 1/211 bars. The amount of steel bars to be sold to
defendant Torrento remained the same. The length and the deformed
quality of the bars likewise remained unchanged. It is even specifically
provided in Par. 2 of the supplemental agreement that "aside from the
above amendments and/or modifications, the said contract (referring to
the original contract) shall not be affected, altered or modified in any
way." There was no alteration in the principal condition of the contract. The
period of payment was not changed, and the amount of the liability of the
principal debtor and of the surety was also untouched. There was no added
burden imposed upon or assumed by the buyer." (Emphasis Supplied)
x x x In short, the supplemental agreement did not result in the principal
debtor's assuming more onerous conditions than those stipulated in the
original contract, and for which the surety furnished the bond. There was
consequently, no material or essential alteration of the original contract
which could result in the release of the surety from the obligation under
the said bond.
We see no error in the ruling of the lower court just quoted.
In Pacific Tobacco Corporation vs. Lorenzana, et al., G.R. L-8086, October 31, 1961 it
was held: "for purposes of releasing a surety's obligation, there must be a material
alteration of the contract in connection with which the bond is given, a change
which imposes some new obligation on the party promising or takes away some
obligation already imposed, changing the legal effect of the original contract and
not merely the form thereof . . . To allow compensated surety companies to collect
and retain premiums for their services and then repudiate their obligations on slight
pretexts which have no relation to the risk, would be most unjust and immoral, and
would be a perversion of the wise and just rules designed for the protection of
voluntary sureties."
While it is the rule that the liability of a surety is limited by the terms of the surety
bond fixing its liability and that such liability cannot be extended by implication, it
should be noted in the present case that although the technical specifications of the
items to be purchased have been changed, it clearly appears that such changes are
 3

not substantial and have not added any other liability to that originally assumed. A
surety is not released by a change in the contract which does not have the effect of
making its obligation more onerous (Visayan Distributors, Inc. vs. Flores, 92 Phil.
145).

Wherefore, the appealed decision is hereby affirmed, with costs against

defendants-appellants.
 4

EN BANC That we, Victorio L. Rodriguez — 232 Madrid St., Manila as principal, and the Rizal
Surety & Insurance Company, a corporation duly organized and existing under and
G.R. No. L-21250 March 31, 1966 by virtue of the laws of the Philippine Islands, as surety, are held and firmly bound
to the Republic of the Philippines in the sum of Ten Thousand and 00/100 ..............
INTESTATE ESTATE OF HONOFRE LEYSON (Deceased); MARGARITA LEYSON (P10,000.00) Pesos, Philippine currency for the benefit of the heirs, legatees or
LAURENTE, administratrix-appellee, creditors of the said Honofre Leyson deceased, for which payment, well and truly to
vs. be made, we bind ourselves, our heirs, executors and administrators, jointly and
RIZAL SURETY AND INSURANCE COMPANY, bondsman-appellant. severally, firmly by these presents.

REGALA, J.:
The Rizal Surety & Insurance Co. brings this appeal from an order of the Court of
First Instance of Manila which declared it liable for P6,051.57 on its bond it had
given in behalf of Victorio L. Rodriguez.
Rodriguez was the administrator of the estate of Honofre Leyson. On December 27,
1951, the Manila Court of First Instance, in which the estate was at the time
pending settlement, ordered Rodriguez relieved of his trust after finding him guilty
of maladministration. As Rodriguez appealed the order of relief, the court, as a
measure of "protection of this estate," required him to file an increased bond of
P10,000 (which then was P500 only) to answer for "the faithful execution of his
trust as of the date of his appointment."
Rodriguez filed a bond, given by the appellant, but instead of a bond for the
purpose specified by the court in its order, he filed a bond which reads:
R.S. & I. No. 28764
The condition of the foregoing bond is such that whereas an order was issued by
the Court of First Instance of Manila, Philippine Islands, on the .... day of ..........., 19
... appointing .......... administrator of the estate of Honofre Leyson deceased, and to
whom it was ordered that letters of administration be issued, upon him furnishing a
bond in the sum of Ten Thousand and 00/100 (P10,000.00) Pesos, Philippine
Currency, with good and sufficient surety to the satisfaction of the Court.
THEREFORE, if the said Victorio L. Rodriguez faithfully prepares and present to the
Court, within three months from the date of his appointment, a correct inventory of
all the property of the deceased which may have come into his possession or into
the possession of any other person representing him according to law, if he
administers all the property of the deceased which at any time comes into his
possession or any other person representing him faithfully pays all the debts,
legacies, and bequests which encumber said estate, pays whatever dividends which
the Court may decide should be paid, and renders a just and true account of his
administration to the Court within a year or at any other date that he may be
required so to do, and faithfully execute all orders and decrees of said Court, then
in this case obligation shall be void, otherwise it shall remain in full force and
effect.1äwphï1.ñët

Republic of the Philippines s/t VICTORIO L. RODRIGUEZ

Court of First Instance of Manila Principal

Case No. 1894 RIZAL SURETY & INSURANCE CO.

By:
In the Matter of the Intestate )
Administrator's
Estate of Honofre Leyson, ) (Sgd.) Pablo I. de Jesus
Bond
; Deceased. ) Executive Vice President

Know all men by these Presents: In its order of June 27, 1952 approving the bond, the court stated:

The bond filed by Victorio L. Rodriguez in the amount of P10,000.00 in
accordance with the order of May 28, 1952 is hereby approved.
Said bond shall answer for the faithful execution of his trust as of the date
of his appointment.
Let the Rizal Surety & Insurance Company be notified of this order.
Required to account for the period June 27, 1951 to August 30, 1954, Rodriguez was
found short of P6,248.22. (The amount of shortage was later found by final
judgment of the Court of Appeals to be P6,051.57.) Despite several deadlines given
to him, Rodriguez failed to pay the money in court, for which reason he was
ordered arrested and declared in contempt.
On November 8, 1962, the Court, acting on motion of the new administratrix,
ordered the confiscation of Rodriguez' bond for the satisfaction of the amount of
P6,051.57. It is from this order that the surety company appeals.
It is first of all contended that appellant cannot be held liable on its bond because
the defalcations, for which the bond was ordered forfeited, were committed by the
principal before the bond was filed. The rule is invoked that a contract of suretyship
must be strictly construed and since the contract in this case contains no provision
malting it expressly retroactive, the point is made that the bond cannot cover
violations of trust by the administrator before the filing of that bond.
While it is indeed true that the bond does not specify the date when it took effect,
the fact is that both in its order requiring the administrator to file an increased
bond and in its subsequent order approving the bond, the court made plain that the
bond would answer "for the faithful execution of his (administrator's) trust as of the
date of his appointment." Rodriguez' appointment as administrator was made on
December 8, 1947 and it was on this date that the bond must be understood to
have taken effect. That the court should require this condition is understandable,
considering that it had earlier found the former administrator guilty of
maladministration and, as a consequence, ordered his removal. To repeat, the bond
in question was required by the court "for the protection of (the) estate" in view of
the fact that Rodriguez had appealed the order of removal and, therefore, could not
immediately be relieved of his position of trust.
Of course the bond given by the appellant is not responsive to the requirement of
the court order. Instead of reciting that it is being given "to answer for the faithful
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execution (by the administrator) of his trust as of the date of his appointment," it
recites that —
The condition of the foregoing bond is such that whereas an order was
issued by the Court of First Instance of Manila, Philippine Islands, on the ....
day
of ........, 19 ... to whom it was ordered that letters of administration be
issued . . . .
But, then, the contract, having been made on a form prepared by the surety, must
be construed against the surety and in favor of the promisee. (Pacific Tobacco
Corporation vs. Lorenzana, G.R. No. L-8086, Oct. 31, 1957.Cf. Vadil v. de Venecia, G.
R. No. L-16113, Oct 31, 1963). As this Court explained in Pacific Tobacco:
Although We might acknowledge that a surety is a favorite of the law and
his contract strictissimi juris, this rule has no bearing on the case at bar.
Anyway, it commonly refers to an accommodation surety and should not
be extended to favor a compensated surety, as is appellant in this case.
The rationale of this doctrine is reasonable; an accommodation surety acts
without motive of pecuniary gain and, hence, should be protected against
unjust pecuniary impoverishment by imposing on the principal duties akin
to those of a fiduciary. This cannot be said of a compensated corporate
surety which is a business association organized for the purpose of
assuming classified risks in the medium of standardized written contractual
forms drawn by its representatives with the primary aim of protecting his
own interest. (See Stearn's The Law of Suretyship, 4th ed., 402-403)
American courts in refusing to apply this rule on compensated sureties
have expressed themselves in varying language. Sometimes it is said that a
corporate compensated surety is not entitled to the benefit of
the strictissimi juris (U.S. vs. Geo. F. Pawling & Co., 297 F. 65); or that the
contract is to be construed against the surety and in favor of the promisee
(Consolidated Indem. & Ins. Co. vs. State, 184 Ark. 581, 43 S.W. [2] 240); or
that the contract is like one of insurance hence one or the other of the
above rules is to be applied (Lassetter vs. Becker, 26 Ariz. 224, 224 P. 810;
Md. Cas. Co. vs. Dunlap, 68 F. [2d] 289 . . .
Slovenko states with lucidity the distinction between an accommodation and a
compensated corporate sureties and the reasons for treating them differently thus:
The law has authorized the formation of corporations for the purpose of
conducting surety business, and the corporate surety differs significantly
 6

from the individual private surety. First, unlike the private surety, the
corporate surety signs for cash and not for friendship. The private surety is
regarded as someone doing a rather foolish act for praiseworthy motives;
the corporate surety, to the contrary, is in business to be a profit and
charges a premium depending upon the amount of guaranty and the risk
involved. Second, the corporate surety, like an insurance company,
prepares the instrument, which is a type of contract of adhesion, whereas
the private surety usually does not prepare the note or bond which he
signs. Third, the obligation of the private surety often is assumed simply on
the basis of the debtor's representations and without legal advice, while
the corporate surety does not bind itself until a full investigation has been
made. For these reasons, the courts distinguish between the individual
gratuitous surety and the vocational corporate surety. In the case of the
corporate surety, the rule of strictissimi juris is not applicable, and courts
apply the rules of
interpretation ... appertaining to contracts of insurance. (Slovenko,
Suretyship, 39 TUL. L. REV. 427, 442-443 [1965] ).

Nor is there any merit in the claim that the bond in this case was confiscated
without giving the appellant a chance to be heard on "the reality and
reasonableness of the damages." It has already been held that the nature of a
surety's obligation on an administrator's bond, which makes him privy to the
proceedings against his principal, is such that he is bound and concluded, in the
absence of fraud or collusion, by a judgment against his principal, even though the
surety was not a party to the proceedings. (Philippine Trust Co. v. Luzon Surety Co.,
G.R. No. L-13031, May 30, 1961)

Furthermore, the record shows that the surety was given an opportunity to be
heard. In the order of the Court dated November 8, 1962, the following appears.

The Rizal Surety and Insurance Company filed its opposition to the above
motion on October 22, this year, to which opposition the administratrix
filed her reply, dated October 27, 1962. . . . .

This motion refers to the petition filed by the heiress and the temporary
administratrix to make the surety liable to the extent of P6,051.57, which amount
was found due from the said former administrator.

Wherefore, the order appealed from is affirmed, without pronouncement as to

costs.

SECOND DIVISION
G.R. No. L-43706 November 14, 1986
NATIONAL POWER CORPORATION, petitioner,
vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC., respondents.
PARAS, J.:
This is a petition for review on certiorari seeking to set aside: (a) the judgment of
respondent Court of Appeals dated March 25, 1976 in CA-G.R. No. 50112-R,
entitled National Power Corporation, Plaintiff-Appellee vs. The Philippine American
Insurance Company, Inc. Defendant-Appellant, which reversed the decision of the
Court of First Instance of Manila in Civil Case No. 70811 entitled "National Power
Corporation v. Far Eastern Electric, Inc., et al." and (b) respondent's Court's
resolution dated April 19, 1976 denying petitioner National Power Corporation's
Motion for Reconsideration (Petition, p. 13, Rollo).
The undisputed facts of this case are as follows:
The National Power Corporation (NPC) entered into a contract with the Far Eastern
Electric, Inc. (FFEI) on December 26, 1962 for the erection of the Angat Balintawak
115-KW-3-Phase transmission lines for the Angat Hydroelectric Project. FEEI agreed
to complete the work within 120 days from the signing of the contract, otherwise it
would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed
to pay the sum of P97,829.00 as consideration. On the other hand, Philippine
American General Insurance Co., Inc. (Philamgen) issued a surety bond in the
amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as
required.
The condition of the bond reads:
The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC. under this bond will expire One (1) year from final Completion and
Acceptance and said bond will be cancelled 30 days after its expiration,
unless surety is notified of any existing obligation thereunder. (Exhibit 1-a)
7
in correlation with the provisions of the construction contract between Petitioner
and Far Eastern Electric, Inc. particularly the following provisions of the
Specifications. to wit:
1. Par. 1B-2l Release of Bond
1B-21 Release of Bond
The Contractor's performance bond will be released by the National Power
Corporation at the expiration of one (1) year from the completion and final
acceptance of the work, pursuant to the provisions of Act No. 3959, and
subject to the General Conditions of this contract. (Page 49, Printed Record
on Appeal); and
2. GP-19 of Specifications, which reads:
(a) Should the Contractor fail to complete the construction of the work as
herein specified and agreed upon, or if the work is abandoned, ... the
Corporation shall have the power to take over the work by giving notice in
writing to that effect to the Contractor and his sureties of its intention to
take over the construction work.
(b) ... It is expressly agreed that in the event the corporation takes over the
work from the Contractor, the latter and his bondsmen shall continue to
be liable under this contract for any expense in the completion of the work
in excess of the contract price and the bond filed by the Contractor shall be
answerable for the same and for any and all damages that the Corporation
may suffer as a result thereof. (pp. 76-78, Printed Record on Appeal)
FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI
and Philamgen wrote NPC requesting the assistance of the latter to complete the
project due to unavailability of the equipment of FEEI. The work was abandoned on
June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint
letter, Philamgen and FEEI informed NPC that FEEI was giving up the construction
due to financial difficulties. On the same date, NPC wrote Philamgen informing it of
the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen
liable for the cost of the work to be completed as of July 20, 1962 plus damages.
The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC
notified Philamgen that FEEI had an outstanding obligation in the amount of

P75,019.85, exclusive of interest and damages, and demanded the remittance of
the amount of the surety bond the answer for the cost of completion of the work.
In reply, Philamgen requested for a detailed statement of account, but after receipt
of the same, Philamgen did not pay as demanded but contended instead that its
liability under the bond has expired on September 20, 1964 and claimed that no
notice of any obligation of the surety was made within 30 days after its expiration.
NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to
complete the work abandoned; P144,000.00 as liquidated damages and P20,000.00
as attorney's fees. Only Philamgen answered while FEEI was declared in default.
The trial court rendered judgment in favor of NPC, the dispositive portion of which
reads:
WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the
plaintiff the sum of P75,019.86 plus interest at the legal rate from
September 21, 1967 until fully paid. Out of said amount, both defendants,
Far Eastern Electric, Inc., and the Philippine American Insurance Company,
Inc., are ordered to pay, jointly and severally, the amount of P30,672.00
covered by Surety Bond No. 26268, dated December 26, 1962, plus
interest at the legal rate from September 21, 1967 until fully paid,
Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as
attorney's fees and costs.
On appeal by Philamgen, the Court of Appeals reversed the lower court's decision
and dismissed the complaint.
Hence this petition.
Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo,
p. 62) in compliance with the resolution dated June 16, 1976 of the First Division of
this Court (Rollo, p. 52) while petitioner NPC filed its Reply to the comment of
respondent (Rollo, p. 76) as required in the resolution of this Court of August 16,
1976, (Rollo, p. 70). In the resolution of September 20, 1976, the petition for
certiorari was given due course (Rollo, p. 85). Petitioner's brief was filed on
November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the
required period and this case was submitted for decision without respondent's brief
in the resolution of this Court of February 25. 1977) Rollo, p. 103).
8
In its brief, petitioner raised the following assignment of errors:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD
HAVE GIVEN NOTICE TO PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING
OBLIGATION WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO HOLD SAID
SURETY LIABLE THEREUNDER, DESPITE PETITIONER'S TAKING OVER OF THE WORK
ABANDONED BY THE CONTRACTOR BEFORE ITS COMPLETION.
II
ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE
RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION UNDER THE BOND
DESPITE THE TAKE-OVER OF WORK BY PETITIONER, RESPONDENT COURT OF
APPEALS NONETHELESS ERRED IN HOLDING THAT PETITIONER'S LETTER DATED JULY
19, 1963 (EXH. E) TO PRIVATE RESPONDENT WAS NOT SUFFICIENT COMPLIANCE
WITH THE CONDITION OF THE BOND.
III
RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT
PHILAMGEN FROM ITS LIABILITY UNDER THE BOND.
The decisive issue in this case is the correct interpretation and/or application of the
condition of the bond relative to its expiration, in correlation with the provisions of
the construction contract, the faithful performance of which, said bond was issued
to secure.
The bone of contention in this case is the compliance with the notice requirement
as a condition in order to hold the surety liable under the bond.
Petitioner claims that it has already complied with such requirement by virtue of its
notice dated July 19, 1963 of abandonment of work by FEEI and of its takeover to
finish the construction, at the same time formally holding both FEEI and Philamgen
liable for the uncompleted work and damages. It further argued that the notice
required in the bond within 30 days after its expiration of any existing obligation, is
applicable only in case the contractor itself had completed the contract and not
when the contractor failed to complete the work, from which arises the continued
 9

liability of the surety under its bond as expressly provided for in the contract. the surety bond executed for its completion. To rule therefore that private
Petitioner's contention was sustained by the trial court. respondent was not properly notified would be gross error.

On the other hand, private respondent insists that petitioner's notice dated July 19,
1983 is not sufficient despite previous events that it had knowledge of FEEI's failure
to comply with the contract and claims that it cannot be held liable under the bond
without notice within thirty days from the expiration of the bond, that there is a
subsisting obligation. Private respondent's contention is sustained by the Court of
Appeals.
The petition is impressed with merit.
PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution
dated April 19, 1976 of the Court of Appeals are hereby SET ASIDE, and a new one is
hereby rendered reinstating the decision of the Court of First Instance of Manila in
Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric,
Inc., et al."
SO ORDERED.

As correctly assessed by the trial court, the evidence on record shows that as early
as May 30, 1963, Philamgen was duly informed of the failure of its principal to
comply with its undertaking. In fact, said notice of failure was also signed by its
Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was
abandoning the construction job, the latter forthwith informed Philamgen of the
fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen was
seasonably notified, was even bolstered by its request from NPC for information of
the percentage completed by the bond principal prior to the relinquishment of the
job to the latter and the reason for said relinquishment. (Record on Appeal, pp.
193-195). The 30-day notice adverted to in the surety bond applies to the
completion of the work by the contractor. This completion by the contractor never
materialized.

The surety bond must be read in its entirety and together with the contract
between NPC and the contractors. The provisions must be construed together to
arrive at their true meaning. Certain stipulations cannot be segregated and then
made to control.

Furthermore, it is well settled that contracts of insurance are to be construed

liberally in favor of the insured and strictly against the insurer. Thus ambiguity in
the words of an insurance contract should be interpreted in favor of its beneficiary.
(Serrano v. Court of Appeals, 130 SCRA 327, July 16, 1984).

In the case at bar, it cannot be denied that the breach of contract in this case, that
is, the abandonment of the unfinished work of the transmission line of the
petitioner by the contractor Far Eastern Electric, Inc. was within the effective date
of the contract and the surety bond. Such abandonment gave rise to the continuing
liability of the bond as provided for in the contract which is deemed incorporated in

SECOND DIVISION
G.R. No. 107062 February 21, 1994
PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO, INC., respondents.
NOCON, J.:
Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid
to get a favorable decision from the Regional Trial Court and then again in the Court
of Appeals. 1 These are non-appearance during the pre-trial despite due notice, and
non-payment of docket fees upon filing of its third-party complaint. Just how strict
should these rules be applied is a crucial issue in this present dispute.
Petitioner, Interworld Assurance Corporation (the company now carries the
corporate name Philippine Pryce Assurance Corporation), was the butt of the
complaint for collection of sum of money, filed on May 13, 1988 by respondent,
Gegroco, Inc. before the Makati Regional Trial Court, Branch 138. The complaint
alleged that petitioner issued two surety bonds (No. 0029, dated July 24, 1987 and
No. 0037, dated October 7, 1987) in behalf of its principal Sagum General
Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONE
MILLION (1,000,000.00) PESOS, respectively.
On June 16, 1988, summons, together with the copy of the complaint, was served
on petitioner. Within the reglementary period, two successive motions were filed
by petitioner praying for a total of thirty (30) days extention within which to file a
responsible pleading.
In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner
admitted having executed the said bonds, but denied liability because allegedly 1)
the checks which were to pay for the premiums bounced and were dishonored
hence there is no contract to speak of between petitioner and its supposed
principal; and 2) that the bonds were merely to guarantee payment of its principal's
obligation, thus, excussion is necessary. After the issues had been joined, the case
was set for pre-trial conference on September 29, 1988. the petitioner received its
notice on September 9, 1988, while the notice addressed to its counsel was
returned to the trial court with the notation "Return to Sender, Unclaimed." 2
10
On the scheduled date for pre-trial conference, only the counsel for petitioner
appeared while both the representative of respondent and its counsel were
present. The counsel for petitioner manifested that he was unable to contract the
Vice-President for operations of petitioner, although his client intended to file a
third party complaint against its principal. Hence, the pre-trial was re-set to October
14, 1988. 3
On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party
Complaint" with the Third-Party Complaint attached. On this same day, in the
presence of the representative for both petitioner and respondent and their
counsel, the pre-trial conference was re-set to December 1, 1988. Meanwhile on
November 29, 1988, the court admitted the Third Party Complaint and ordered
service of summons on third party defendants. 4
On scheduled conference in December, petitioner and its counsel did not appear
notwithstanding their notice in open court. 5 The pre-trial was nevertheless re-set
to February 1, 1989. However, when the case was called for pre-trial conference on
February 1, 1989, petitioner was again nor presented by its officer or its counsel,
despite being duly notified. Hence, upon motion of respondent, petitioner was
considered as in default and respondent was allowed to present evidenceex-parte,
which was calendared on February 24, 1989. 6 Petitioner received a copy of the
Order of Default and a copy of the Order setting the reception of respondent's
evidence ex-parte, both dated February 1, 1989, on February 16, 1989. 7
On March 6, 1989, a decision was rendered by the trial court, the dispositive
portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Interworld Assurance Corporation to pay the
amount of P1,500,000.00 representing the principal of the amount due,
plus legal interest thereon from April 7, 1988, until date of payment; and
P20,000.00 as and for attorney's fees. 8
Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989,
having been denied it elevated its case to the Court of Appeals which however,
affirmed the decision of the trial court as well as the latter's order denying
petitioner's motion for reconsideration.
Before us, petitioner assigns as errors the following:

I. The respondent Court of Appeals gravely erred in declaring that the case
was already ripe for pre-trial conference when the trial court set it for the
holding thereof.
II. The respondent Court of Appeals gravely erred in affirming the decision
of the trial court by relying on the ruling laid down by this Honorable Court
in the case of Manchester Development Corporation v. Court of Appeals,
149 SCRA 562, and disregarding the doctrine laid down in the case of Sun
Insurance Office, Ltd. (SIOL) v. Asuncion, 170 SCRA 274.
III. The respondent Court of Appeals gravely erred in declaring that it
would be useless and a waste of time to remand the case for further
proceedings as defendant-appellant has no meritorious defense.
We do not find any reversible error in the conclusion reached by the court a quo.
Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since the
last pleading, which was supposed to be the third-party defendant's answer has not
been filed, the case is not yet ripe for pre-trial. This argument must fail on three
points. First, the trial court asserted, and we agree, that no answer to the third
party complaint is forthcoming as petitioner never initiated the service of summons
on the third party defendant. The court further said:
. . . Defendant's claim that it was not aware of the Order admitting the
third-party complaint is preposterous. Sec. 8, Rule 13 of the Rules,
provides:
Completeness of service — . . . Service by registered mail is complete upon
actual receipt by the addressee, but if he fails to claim his mail from the
post office within five (5) days from the date of first notice of the
postmaster, service shall take effect at the expiration of such time. 9
Moreover, we observed that all copies of notices and orders issued by the court for
petitioner's counsel were returned with the notation "Return to Sender,
Unclaimed." Yet when he chose to, he would appear in court despite supposed lack
of notice.
Second, in the regular course of events, the third-party defendant's answer would
have been regarded as the last pleading referred to in Sec. 1, Rule 20. However,
11
petitioner cannot just disregard the court's order to be present during the pre-trial
and give a flimsy excuse, such as that the answer has yet to be filed.
The pre-trial is mandatory in any action, the main objective being to simplify,
abbreviate and expedite trial, if not to fully dispense with it. Hence, consistent with
its mandatory character the Rules oblige not only the lawyers but the parties as well
to appear for this purpose before the Court 10 and when a party fails to appear at a
pre-trial conference he may be non-suited or considered as in default. 11
Records show that even at the very start, petitioner could have been declared as in
default since it was not properly presented during the first scheduled pre-trial on
September 29, 1988. Nothing in the record is attached which would show that
petitioner's counsel had a special authority to act in behalf of his client other than
as its lawyer.
We have said that in those instances where a party may not himself be present at
the pre-trial, and another person substitutes for him, or his lawyer undertakes to
appear not only as an attorney but in substitution of the client's person, it is
imperative for that representative or the lawyer to have "special authority" to enter
into agreements which otherwise only the client has the capacity to make. 12
Third, the court of Appeals properly considered the third-party complaint as a mere
scrap of paper due to petitioner's failure to pay the requisite docket fees. Said the
court a quo:
A third-party complaint is one of the pleadings for which Clerks of court of
Regional Trial Courts are mandated to collect docket fees pursuant to
Section 5, Rule 141 of the Rules of Court. The record is bereft of any
showing tha(t) the appellant paid the corresponding docket fees on its
third-party complaint. Unless and until the corresponding docket fees are
paid, the trial court would not acquire jurisdiction over the third-party
complaint (Manchester Development Corporation vs. Court of Appeals,
149 SCRA 562). The third-party complaint was thus reduced to a mere
scrap of paper not worthy of the trial court's attention. Hence, the trial
court can and correctly set the case for pre-trial on the basis of the
complaint, the answer and the answer to the counterclaim. 13
It is really irrelevant in the instant case whether the ruling in Sun Insurance Office,
Ltd. (SIOL) v. Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was
applied. Sun Insurance and Manchester are mere reiteration of old jurisprudential
pronouncements on the effect of non-payment of docket fees. 16 In previous cases,

we have consistently ruled that the court cannot acquire jurisdiction over the
subject matter of a case, unless the docket fees are paid.
Moreover, the principle laid down in Manchester could have very well been applied
in Sun Insurance. We then said:
The principle in Manchester [Manchester Development Corp. v. C.A., 149
SCRA 562 (1987)] could very well be applied in the present case. The
pattern and the intent to defraud the government of the docket fee due it
is obvious not only in the filing of the original complaint but also in the
filing of the second amended complaint.
In the present case, a more liberal interpretation of the rules is called for
considering that, unlike Manchester, private respondent demonstrated his
willingness to abide by the rules by paying the additional docket fees as
required. The promulgation of the decision in Manchester must have had
that sobering influence on private respondent who thus paid the additional
docket fee as ordered by the respondent court. It triggered his change of
stance by manifesting his willingness to pay such additional docket fees as
may be ordered. 17
Thus, we laid down the rules as follows:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but
the payment of the prescribed docket fee, that vests a trial court with jurisdiction
over the subject-matter or nature of the action. Where the filing of the initiatory
pleading is not accompanied by payment of the docket fee, the court may allow
payment of the fee within a reasonable time, but in no case beyond the applicable
prescriptive or reglamentary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee, but subsequently,
the judgment awards a claim nor specified in the pleading, or if specified the same
has not been left for determination by the court, the additional filing fee therefor
shall constitute a lien on the judgment. It shall be the responsibility of the clerk of
12
court or his duly authorized deputy to enforce said lien and assess and collect the
additional fee. 18
It should be remembered that both in Manchester and Sun Insurance plaintiffs
therein paid docket fees upon filing of their respective pleadings, although the
amount tendered were found to be insufficient considering the amounts of the
reliefs sought in their complaints. In the present case, petitioner did not and never
attempted to pay the requisite docket fee. Neither is there any showing that
petitioner even manifested to be given time to pay the requisite docket fee, as in
fact it was not present during the scheduled pre-trial on December 1, 1988 and
then again on February 1, 1989. Perforce, it is as if the third-party complaint was
never filed.
Finally, there is reason to believe that partitioner does not really have a good
defense. Petitioner hinges its defense on two arguments, namely: a) that the checks
issued by its principal which were supposed to pay for the premiums, bounced,
hence there is no contract of surety to speak of; and 2) that as early as 1986 and
covering the time of the Surety Bond, Interworld Assurance Company (now Phil.
Pryce) was not yet authorized by the insurance Commission to issue such bonds.
The Insurance Code states that:
Sec. 177. The surety is entitled to payment of the premium as soon as the
contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the obligee has
accepted the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has been paid by
the obligor to the surety. . . . (emphasis added)
The above provision outrightly negates petitioner's first defense. In a desperate
attempt to escape liability, petitioner further asserts that the above provision is not
applicable because the respondent allegedly had not accepted the surety bond,
hence could not have delivered the goods to Sagum Enterprises. This statement
clearly intends to muddle the facts as found by the trial court and which are on
record.
In the first place, petitioner, in its answer, admitted to have issued the bonds
subject matter of the original action.19 Secondly, the testimony of Mr. Leonardo T.
Guzman, witness for the respondent, reveals the following:
 13

Q. What are the conditions and terms of sales you extended to Sagum General  RTC: favored Gegroco, Inc
Merchandise?  CA: affirmed RTC
 Interworld: checks issued by its principal which were supposed to pay for the
A. First, we required him to submit to us Surety Bond to guaranty payment of the premiums bounced and it was not yet authorized by the Insurance Commission
spare parts to be purchased. Then we sell to them on 90 days credit. Also, we
to issue surety bonds
required them to issue post-dated checks.

Q. Did Sagum General merchandise comply with your surety bond requirement?
A. Yes. They submitted to us and which we have accepted two surety bonds.
Q Will you please present to us the aforesaid surety bonds?
A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24,
1987 and Interworld Assurance Corp. Surety Bond No. 0037 for P1,000.000 dated
October 7, 1987. 20
Likewise attached to the record are exhibits C to C-18 21 consisting of delivery
invoices addressed to Sagum General Merchandise proving that parts were
purchased, delivered and received.
On the other hand, petitioner's defense that it did not have authority to issue a
Surety Bond when it did is an admission of fraud committed against respondent. No
person can claim benefit from the wrong he himself committed. A representation
made is rendered conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon. 22
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals
dismissing the petition before them and affirming the decision of the trial court and
its order denying petitioner's Motion for Reconsideration are hereby AFFIRMED.
The present petition is DISMISSED for lack of merit.
ISSUE: W/N Interworld Assurance Corp. should be liable for the surety bond that it
issued as payment for the premium
HELD: YES. RTC and CA: confirmed
 Interworld did not and never attempted to pay the requisite docket fee and
was not present during the scheduled pre-trial so it is as if third-party complaint
was never filed
 Sec. 177. The surety is entitled to payment of the premium as soon as the
contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and until the
premium therefor has been paid, except where the obligee has accepted the
bond, in which case the bond becomes valid and enforceable irrespective of
whether or not the premium has been paid by the obligor to the surety
 Interworld's defense that it did not have authority to issue a Surety Bond when
it did is an admission of fraud committed against Gegroco. No person can claim
benefit from the wrong he himself committed. A representation made is
rendered conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon.

SO ORDERED.

FACTS:

 Gegroco, Inc filed for a collection of the issued surety bond for P500K and
P1M by Interworld Assurance Corporation (now Philippine Pryce Assurance
Corporation) in behalf of its principal Sagum General Merchandise

EN BANC
[G.R. No. L-12189. April 29, 1960.]
FRANCISCA GALLARDO, Plaintiff-Appellee, v. HERMENEGILDA S.
MORALES, Defendant-Appellant.
Cajulis & Dolorfino for Appellee.
Filemon Cajator for Appellant.
SYLLABUS
1. EXECUTION EXEMPTION; PROCEEDS FROM INSURANCE CONTRACTS AGAINST
LOSS OF LIFE DUE TO ACCIDENTAL CAUSES OR TO WILLFUL AND CRIMINAL ACT OF
ANOTHER. — The exemption from execution established in section 12, subdivision
(k), Rule 39 of the Rules of Court, 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.
DECISION
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."cralaw virtua1aw library
14
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 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 only Pl50.00. 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 threat, 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 v. Owens, 26 S. E. 75, 76, 100 Ga. 142."
"‘Life insurance includes all policies of insurance in which the payment of the
insurance money is contingent upon the loss of life. Bowless v. 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. v.
Girard 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. v. 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 debts, 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. v. Lessly, 106 S.W. 2d 551,
171 Tenn. 511 III A.L.R. 59."cralaw virtua1aw library
"Insurance policy, providing for payment in case of accidental death, is ‘life
insurance policy’ to such extent within state statute prescribing in-contestable
period for such policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co. of
15
California v. Parker, C.C.A.S.C., 71 F. 2d 872, 875.’
"‘Life insurance’ includes all policies of insurance in which pay ment of insurance
money is contingent upon loss of life. . . . Smith v. 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. v. 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 v. Fidelity & Casualty Co.,
146 Mo. 114, 47 S.W. 948. See also Johnson v. Fidelity & Guaranty Co., 148 Mich.
406, 151 N.W. 593, L.R.A. 1916A, 475; Zimmer v. Central Accidental Co., 207 Pa.
472, 56 A. 1003; Wright v. Fraternities Health & Accident Ass’n. 107 Me. 418, 78A.
475, 32 L.R.A. (N.S. )461; Metropolitan Life Ins. Co. v. Ins. Com’r 208 Mass. 386, 94
N.E. 477; Standard Life & Accident Ins. Co. v. Caroll, 86 F. 567, 41 L.R.A. 194; Wahl v.
Interstate Business Men’s Accident Ass’n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R.
1377." (Provident Life & Accident Ins. Co. v. 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. v. 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 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. I, 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.
16
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
 17

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

THIRD DIVISION
VIOLETA R. LALICAN, G.R. No. 183526
Petitioner,
- versus - Promulgated:
THE INSULAR LIFE ASSURANCE
COMPANY LIMITED, AS REPRESENTED August 25, 2009
BY THE PRESIDENT VICENTE R.
AVILON,
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari[1] under Rule 45 of the Rules of
Court are the Decision[2] dated 30 August 2007 and the Orders dated 10 April
2008[3] and 3 July 2008[4] of the Regional Trial Court (RTC) of Gapan City, Branch 34,
in Civil Case No. 2177. In its assailed Decision, the RTC dismissed the claim for death
benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent Insular
Life Assurance Company Limited (Insular Life); while in its questioned Orders dated
10 April 2008 and 3 July 2008, respectively, the RTC declared the finality of the
aforesaid Decision and denied petitioners Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are
as follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24
April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent
in GapanCity, issued in favor of Eulogio Policy No. 9011992,[5] which contained a 20-
Year Endowment Variable Income Package Flexi Plan worth P500,000.00,[6] with two
riders valued at P500,000.00 each.[7] Thus, the value of the policy amounted
to P1,500,000.00. Violeta was named as the primary beneficiary.
18
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a
quarterly basis in the amount of P8,062.00, payable every 24 April, 24 July, 24
October and 24 January of each year, until the end of the 20-year period of the
policy. According to the Policy Contract, there was a grace period of 31 days for the
payment of each premium subsequent to the first. If any premium was not paid on
or before the due date, the policy would be in default, and if the premium
remained unpaid until the end of the grace period, the policy would automatically
lapse and become void.[8]
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he
failed to pay the premium due on 24 January 1998, even after the lapse of the grace
period of 31 days. Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through
Malaluan, on 26 May 1998, an Application for Reinstatement[9] of Policy
No. 9011992,together with the amount of P8,062.00 to pay for the premium due
on 24 January 1998. In a letter[10] dated 17 July 1998, Insular Life notified Eulogio
that his Application for Reinstatement could not be fully processed because,
although he already deposited P8,062.00 as payment for the 24 January
1998 premium, he left unpaid the overdue interest thereon amounting
to P322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and
to file another application for reinstatement. Eulogio was likewise advised by
Malaluan to pay the premiums that subsequently became due on 24 April
1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house and submitted a second
Application for Reinstatement[11] of Policy No. 9011992, including the amount
ofP17,500.00, representing payments for the overdue interest on the premium
for 24 January 1998, and the premiums which became due on 24 April 1998 and 24
July 1998. As Malaluan was away on a business errand, her husband received
Eulogios second Application for Reinstatement and issued a receipt for the amount
Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-
respiratory arrest secondary to electrocution.
Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional
Office in the City of San Fernando, on 18 September 1998, Eulogios second
Application for Reinstatement of Policy No. 9011992 and P17,500.00
deposit. However, Insular Life no longer acted upon Eulogios second Application for

Reinstatement, as the former was informed on 21 September 1998 that Eulogio had
already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full
proceeds of Policy No. 9011992.
In a letter[12] dated 14 January 1999, Insular Life informed Violeta that her claim
could not be granted since, at the time of Eulogios death, Policy No. 9011992 had
already lapsed, and Eulogio failed to reinstate the same. According to the
Application for Reinstatement, the policy would only be considered reinstated upon
approval of the application by Insular Life during the applicants lifetime and good
health, and whatever amount the applicant paid in connection thereto was
considered to be a deposit only until approval of said application. Enclosed with
the 14 January 1999 letter of Insular Life to Violeta was DBP Check No.
0000309734, for the amount of P25,417.00, drawn in Violetas favor, representing
the full refund of the payments made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of
her claim. In a letter[13] dated 10 March 1999, Insular Life stated that it could not
find any reason to reconsider its decision rejecting Violetas claim. Insular Life again
tendered to Violeta the above-mentioned check in the amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to
the Cabanatuan District Office of Insular Life. Violetas counsel subsequently sent a
letter[14] dated 8 July 1999 to Insular Life, demanding payment of the full proceeds
of Policy No. 9011992. On 11 August 1999, Insular Life responded to the said
demand letter by agreeing to conduct a re-evaluation of Violetas claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with
the RTC, on 11 October 1999, a Complaint for Death Claim Benefit,[15] which was
docketed as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair
claim settlement practice and deliberately failed to act with reasonable promptness
on her insurance claim. Violeta prayed that Insular Life be ordered to pay her death
claim benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus
interests, attorneys fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim, [16] asserting that
Violetas Complaint had no legal or factual bases. Insular Life maintained that Policy
No. 9011992, on which Violeta sought to recover, was rendered void by the non-
payment of the 24 January 1998 premium and non-compliance with the
requirements for the reinstatement of the same. By way of counterclaim, Insular
19
Life prayed that Violeta be ordered to pay attorneys fees and expenses of litigation
incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements
for the reinstatement of Policy No. 9011992 had been complied with and the
defenses put up by Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to
have the same reinstated:
[The] arguments [of Insular Life] are not without basis. When the
premiums for April 24 and July 24, 1998 were not paid by
[Eulogio] even after the lapse of the 31-day grace period, his
insurance policy necessarily lapsed. This is clear from the terms
and conditions of the contract between [Insular Life] and [Eulogio]
which are written in [the] Policy provisions of Policy No. 9011992
x x x.[17]
The RTC, taking into account the clear provisions of the Policy Contract between
Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently
signed and submitted to Insular Life, held that Eulogio was not able to fully comply
with the requirements for the reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law
between the parties. In the instant case, the terms of the
insurance contract between [Eulogio] and [Insular Life] were
spelled out in the policy provisions of Insurance Policy No.
9011992. There is likewise no dispute that said insurance contract
is by nature a contract of adhesion[,] which is defined as one in
which one of the contracting parties imposes a ready-made form
of contract which the other party may accept or reject but cannot
modify. (Polotan, Sr. vs. CA, 296 SCRA 247).
The New Lexicon Websters Dictionary defines ambiguity as the
quality of having more than one meaning and an idea, statement
or expression capable of being understood in more than one
sense. In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the
Supreme Court stated that[:]

Any ambiguity in a contract, whose terms are
susceptible of different interpretations as a
result thereby, must be read and construed
against the party who drafted it on the
assumption that it could have been avoided by
the exercise of a little care.
In the instant case, the dispute arises from the afore-quoted provisions
written on the face of the second application for
reinstatement. Examining the said provisions, the court finds the same
clearly written in terms that are simple enough to admit of only one
interpretation. They are clearly not ambiguous, equivocal or uncertain
that would need further construction. The same are written on the very
face of the application just above the space where [Eulogio] signed his
name. It is inconceivable that he signed it without reading and
understanding its import.
Similarly, the provisions of the policy provisions (sic) earlier mentioned are
written in simple and clear laymans language, rendering it free from any
ambiguity that would require a legal interpretation or construction. Thus,
the court believes that [Eulogio] was well aware that when he filed the said
application for reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain conditions. Nowhere
in the policy or in the application for reinstatement was it ever
mentioned that the payment of premiums would have the effect of an
automatic and immediate renewal of the lapsed policy. Instead, what was
clearly stated in the application for reinstatement is that pending
approval thereof, the premiums paid would be treated as a deposit only
and shall not bind the company until this application is finally approved
during my/our lifetime and good health[.]
Again, the court finds nothing in the aforesaid provisions that would even
suggest an ambiguity either in the words used or in the manner they were
written. [Violeta] did not present any proof that [Eulogio] was not
conversant with the English language. Hence, his having personally signed
the application for reinstatement[,] which consisted only of one page,
could only mean that he has read its contents and that he understood
them.
Therefore, consistent with the above Supreme Court ruling and finding no
ambiguity both in the policy provisions of Policy No. 9011992 and in the
20
application for reinstatement subject of this case, the court finds no merit
in [Violetas] contention that the policy provision stating that [the lapsed
policy of Eulogio] should be reinstated during his lifetime is ambiguous and
should be construed in his favor. It is true that [Eulogio] submitted his
application for reinstatement, together with his premium and interest
payments, to [Insular Life] through its agent Josephine Malaluan in the
morning of September 17, 1998. Unfortunately, he died in the afternoon of
that same day. It was only on the following day, September 18, 1998 that
Ms. Malaluan brought the said document to [the regional office of Insular
Life] in San Fernando, Pampanga for approval. As correctly pointed out by
[Insular Life] there was no more application to approve because the
applicant was already dead and no insurance company would issue an
insurance policy to a dead person.[18] (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her
husband, it cannot express the same by interpreting the insurance
agreement in her favor where there is no need for such interpretation. It is
conceded that [Eulogios] payment of overdue premiums and interest was
received by [Insular Life] through its agent Ms. Malaluan. It is also true that
[the] application for reinstatement was filed by [Eulogio] a day before his
death. However, there is nothing that would justify a conclusion that such
receipt amounted to an automatic reinstatement of the policy that has
already lapsed. The evidence suggests clearly that no such automatic
renewal was contemplated in the contract between [Eulogio] and [Insular
Life]. Neither was it shown that Ms. Malaluan was the officer authorized
to approve the application for reinstatement and that her receipt of the
documents submitted by [Eulogio] amounted to its approval. [19] (Emphasis
ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that
[Violeta] has failed to establish by preponderance of evidence her cause of
action against the defendant, let this case be, as it is hereby DISMISSED.[20]
On 14 September 2007, Violeta filed a Motion for Reconsideration [21] of the afore-
mentioned RTC Decision. Insular Life opposed[22] the said motion, averring that the
arguments raised therein were merely a rehash of the issues already considered

and addressed by the RTC. In an Order[23] dated 8 November 2007, the RTC denied
Violetas Motion for Reconsideration, finding no cogent and compelling reason to
disturb its earlier findings. Per the Registry Return Receipt on record, the 8
November 2007 Order of the RTC was received by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply[24] to the
Motion for Reconsideration, wherein she reiterated the prayer in her Motion for
Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite
already receiving on 3 December 2007, a copy of the RTC Order dated 8 November
2007, which denied her Motion for Reconsideration, Violeta still filed with the RTC,
on 26 February 2008, a Reply Extended Discussion elaborating on the arguments
she had previously made in her Motion for Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,[25] declaring that the Decision dated 30
August 2007 in Civil Case No. 2177 had already attained finality in view of Violetas
failure to file the appropriate notice of appeal within the reglementary
period. Thus, any further discussions on the issues raised by Violeta in her Reply and
Reply Extended Discussion would be moot and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with
Motion,[26] praying that the Order dated 10 April 2008 be set aside and that she be
allowed to file an appeal with the Court of Appeals.
In an Order[27] dated 3 July 2008, the RTC denied Violetas Notice of Appeal with
Motion given that the Decision dated 30 August 2007 had long since attained
finality.
Violeta directly elevated her case to this Court via the instant Petition for Review
on Certiorari, raising the following issues for consideration:
1. Whether or not the Decision of the court a quo dated August
30, 2007, can still be reviewed despite having allegedly attained
finality and despite the fact that the mode of appeal that has
been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original
jurisdiction has decided the case on a question of law not in
accord with law and applicable decisions of the Supreme Court?
Violeta insists that her former counsel committed an honest mistake in filing a
Reply, instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and
in the computation of the reglementary period for appealing the said
21
judgment. Violeta claims that her former counsel suffered from poor health, which
rapidly deteriorated from the first week of July 2008 until the latters death just
shortly after the filing of the instant Petition on 8 August 2008. In light of these
circumstances, Violeta entreats this Court to admit and give due course to her
appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in
this case involving the interpretation of the second sentence of Section 19 of the
Insurance Code, which provides:
Section. 19. x x x [I]nterest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his
own life when he reinstated Policy No. 9011992 just before he passed away on 17
September 1998. The RTC should have construed the provisions of the Policy
Contract and Application for Reinstatement in favor of the insured Eulogio and
against the insurer Insular Life, and considered the special circumstances of the
case, to rule that Eulogio had complied with the requisites for the reinstatement of
Policy No. 9011992 prior to his death, and that Violeta is entitled to claim the
proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant
Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of
Court,[28] provides that no appeal may be taken from an order disallowing or
dismissing an appeal. In such a case, the aggrieved party may file a Petition
for Certiorari under Rule 65 of the Rules of Court.[29]
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had
long become final and executory. Violeta filed a Motion for Reconsideration
thereof, but the RTC denied the same in an Order dated 8 November 2007. The
records of the case reveal that Violeta received a copy of the 8 November
2007 Order on 3 December 2007. Thus, Violeta had 15 days[30] from said date of
receipt, or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice
of Appeal only on 20 May 2008, more than five months after receipt of the RTC
Order dated 8 November 2007 denying her Motion for Reconsideration.

Violetas claim that her former counsels failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latters
deteriorating health, is unpersuasive.
Violeta merely made a general averment of her former counsels poor health,
lacking relevant details and supporting evidence. By Violetas own admission, her
former counsels health rapidly deteriorated only by the first week of July 2008. The
events pertinent to Violetas Notice of Appeal took place months before July
2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violetas
Motion for Reconsideration of the Decision dated 30 August 2007, was received
on 3 December 2007; and Violetas Notice of Appeal was filed on 20 May
2008. There is utter lack of proof to show that Violetas former counsel was already
suffering from ill health during these times; or that the illness of Violetas former
counsel would have affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the
reglementary period binds Violeta, which failure the latter cannot now disown on
the basis of her bare allegation and self-serving pronouncement that the former
was ill. A client is bound by his counsels mistakes and negligence. [31]
The Court, therefore, finds no reversible error on the part of the RTC in denying
Violetas Notice of Appeal for being filed beyond the reglementary period. Without
an appeal having been timely filed, the RTC Decision dated 30 August 2007 in Civil
Case No. 2177 already became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a
fact when the reglementary period to appeal lapses and no appeal is perfected
within such period. As a consequence, no court (not even this Court) can exercise
appellate jurisdiction to review a case or modify a decision that has become
final.[32] When a final judgment is executory, it becomes immutable and unalterable.
It may no longer be modified in any respect either by the court, which rendered it
or even by this Court. The doctrine is founded on considerations of public policy and
sound practice that, at the risk of occasional errors, judgments must become final
at some definite point in time.[33]
The only recognized exceptions to the doctrine of immutability and unalterability
are the correction of clerical errors, the so-called nunc pro tunc entries, which cause
no prejudice to any party, and void judgments.[34] The instant case does not fall
under any of these exceptions.
22
Even if the Court ignores the procedural lapses committed herein, and proceeds to
resolve the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law,
particularly, whether Eulogio had an existing insurable interest in his own life until
the day of his death.
An insurable interest is one of the most basic and essential requirements in an
insurance contract. In general, an insurable interest is that interest which a person
is deemed to have in the subject matter insured, where he has a relation or
connection with or concern in it, such that the person will derive pecuniary benefit
or advantage from the preservation of the subject matter insured and will suffer
pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against.[35] The existence of an insurable interest
gives a person the legal right to insure the subject matter of the policy of
insurance.[36] Section 10 of the Insurance Code indeed provides that every person
has an insurable interest in his own life.[37] Section 19 of the same code also states
that an interest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs. [38]
Upon more extensive study of the Petition, it becomes evident that the matter of
insurable interest is entirely irrelevant in the case at bar. It is actually beyond
question that while Eulogio was still alive, he had an insurable interest in his own
life, which he did insure under Policy No. 9011992. The real point of contention
herein is whether Eulogio was able to reinstate the lapsed insurance policy on his
life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in
its 30 August 2007 Decision that Policy No. 9011992 lapsed because of Eulogios
non-payment of the premiums which became due on 24 April 1998 and 24 July
1998. Policy No. 9011992 had lapsed and become void earlier, on 24 February
1998, upon the expiration of the 31-day grace period for payment of the premium,
which fell due on 24 January 1998, without any payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogios filing
of his first Application for Reinstatement with Insular Life, through Malaluan, on 26
May 1998, constitutes an admission that Policy No. 9011992 had lapsed by
then. Insular Life did not act on Eulogios first Application for Reinstatement, since
the amount Eulogio simultaneously deposited was sufficient to cover only

the P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue
interests thereon. On 17 September 1998, Eulogio submitted a second Application
for Reinstatement to Insular Life, again through Malaluan, depositing at the same
time P17,500.00, to cover payment for the overdue interest on the premium for 24
January 1998, and the premiums that had also become due on 24 April 1998 and 24
July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it
has been permitted to lapse.[39] Both the Policy Contract and the Application for
Reinstatement provide for specific conditions for the reinstatement of a lapsed
policy.
The Policy Contract between Eulogio and Insular Life identified the following
conditions for reinstatement should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after
it lapsed if the following conditions are met: (1) the policy has not
been surrendered for its cash value or the period of extension as a
term insurance has not expired; (2) evidence of insurability
satisfactory to [Insular Life] is furnished; (3) overdue premiums
are paid with compound interest at a rate not exceeding that
which would have been applicable to said premium and
indebtedness in the policy years prior to reinstatement; and (4)
indebtedness which existed at the time of lapsation is paid or
renewed.[40]
Additional conditions for reinstatement of a lapsed policy were stated in the
Application for Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated
until this application is approved by the Company during my/our
lifetime and good health and until all other Company
requirements for the reinstatement of said Policy are fully
satisfied.
I/We further agree that any payment made or to be made in
connection with this application shall be considered as deposit
only and shall not bind the Company until this application is
23
finally approved by the Company during my/our lifetime and
good health. If this application is disapproved, I/We also agree to
accept the refund of all payments made in connection herewith,
without interest, and to surrender the receipts for such
payment.[41] (Emphases ours.)
In the instant case, Eulogios death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with Malaluan; but Policy
No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogios
lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The
Crown Life Insurance Company,[42] citing McGuire v. The Manufacturer's Life
Insurance Co.[43]:
The stipulation in a life insurance policy giving the insured the
privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of
an application. The insurer has the right to deny the
reinstatement if it is not satisfied as to the insurability of the
insured and if the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the insured
the insurance Company cannot be compelled to entertain an
application for reinstatement of the policy because the
conditions precedent to reinstatement can no longer be
determined and satisfied. (Emphases ours.)
It does not matter that when he died, Eulogios Application for Reinstatement and
deposits for the overdue premiums and interests were already with
Malaluan. Insular Life, through the Policy Contract, expressly limits the power or
authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to
extend the time limit for payment of premiums, to waive any
lapsation, forfeiture or any of our rights or requirements, such
powers being limited to our president, vice-president or persons
authorized by the Board of Trustees and only in
writing.[44] (Emphasis ours.)

Malaluan did not have the authority to approve Eulogios Application for
Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application
for Reinstatement and accompanying deposits, for processing and approval by the
latter.
The Court agrees with the RTC that the conditions for reinstatement under the
Policy Contract and Application for Reinstatement were written in clear and simple
language, which could not admit of any meaning or interpretation other than those
that they so obviously embody. A construction in favor of the insured is not called
for, as there is no ambiguity in the said provisions in the first place. The words
thereof are clear, unequivocal, and simple enough so as to preclude any mistake in
the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully
understand the import and meaning of the provisions of his Policy Contract and/or
Application for Reinstatement, both of which he voluntarily signed. While it is a
cardinal principle of insurance law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly as against the insurer
company, yet, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms, which the parties themselves
have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.[45]
Eulogios death, just hours after filing his Application for Reinstatement and
depositing his payment for overdue premiums and interests with Malaluan, does
not constitute a special circumstance that can persuade this Court to already
consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear
and express provisions of the Policy Contract and Application for Reinstatement,
and operate to remove the prerogative of Insular Life thereunder to approve or
disapprove the Application for Reinstatement.Even though the Court commiserates
with Violeta, as the tragic and fateful turn of events leaves her practically empty-
handed, the Court cannot arbitrarily burden Insular Life with the payment of
proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all
parties to a case. Courts are not permitted to make contracts for the parties. The
function and duty of the courts consist simply in enforcing and carrying out the
contracts actually made.[46]
Policy No. 9011992 remained lapsed and void, not having been reinstated in
accordance with the Policy Contract and Application for Reinstatement before
Eulogios death.Violeta, therefore, cannot claim any death benefits from Insular Life
on the basis of Policy No. 9011992; but she is entitled to receive the full refund of
the payments made by Eulogio thereon.
24
WHEREFORE, premises considered, the Court DENIES the instant Petition for
Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the
Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in
Civil Case No. 2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the
ground that the Decision dated 30 August 2007 subject thereof, was already final
and executory. No costs.
SO ORDERED.
Insurance; insurable interest. Insurable interest is one of the most basic and
essential requirements in an insurance contract. In general, an insurable interest is
that interest which a person is deemed to have in the subject matter insured,
where he has a relation or connection with or concern in it, such that the person
will derive pecuniary benefit or advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against. The existence
of an insurable interest gives a person the legal right to insure the subject matter of
the policy of insurance. Section 10 of the Insurance Code indeed provides that every
person has an insurable interest in his own life. Section 19 of the same code also
states that an interest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs.
Violeta R. Lalican vs. The Insular Life Assurance Company Limited, as represented by
the President Vicente R. Avilon, G.R. No. 183526, August 25, 2009.
Interpretation of insurance contracts
VIOLETA LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED
G.R. No. 183526, August 25, 2009, 597 SCRA 159
FACTS:
Eulogio, the husband of herein petitioner, applied for an insurance policy
the value of which is P1,500,000.00. Under the policy terms, Eulogio is obliged
to pay the premiums on a quarterly basis, until the end of the 20-year period of the
policy. It was likewise stated therein that the insured has 31-day grace period
for the payment of each premium subsequent to the first and that default in
 25

any payment of said premiums shall result in the automatic lapse of the said policy.
Eulogio failed to pay a premium even after the lapse of the 31-daygrace period.
Hence, the policy lapsed and became void. He filed an Application for
Reinstatement of said policy and paying the amount of the premium due. However,
Insular Life notified him that they could not fully process his application
because the amount he paid is inadequate to cover the accrued interests.
Hence, he again applied for the reinstatement of said policy this time, together with
the required amount. The husband of the insurance agent was the one
who received his application because the agent was away at that time.
Within the same day, the insured died. This fact was unknown to the agent who
then submitted Eulogio’s application for reinstatement to the Insular Life Regional
Office. Violeta then filed a claim for payment of the full proceeds of the policy.
However, the company said that she is not entitled to the insurance proceeds
because they claimed that the policy was not reinstated during her
husband’s lifetime and good health.

ISSUE: Whether or not Eulogio was able to reinstate the lapsed insurance
policy before his death

HELD:

NO. The Court agrees with the RTC that the conditions for reinstatement
under the Policy Contract and Application for Reinstatement were written in
clear and simple language, which could not admit of any meaning or interpretation
other than those that they

EN BANC
G.R. No. L-22796 June 26, 1967
DELFIN NARIO, and ALEJANDRA SANTOS-NARIO, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.
REYES, J.B.L., J.:
Direct appeal, on pure question of law, from a decision of the Court of First Instance
of Manila, in its Civil Case No. 54942, dismissing plaintiffs' complaint as well as from
a later order of the same court, denying a motion to set aside and/or reconsider
said decision of dismissal.
The facts of this case may be stated briefly as follows:
Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by
the Philippine American Life Insurance Co., a life insurance policy (No. 503617)
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, Mrs. Nario applied for a loan on the above stated
policy with the Insurance Company, which loan she, as policy-holder, has been
entitled to avail of under one of the provisions of said policy after the same has
been in force for three (3) years, for the purpose of using the proceeds thereof for
the school expenses of her minor son, Ernesto Nario. Said 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 minor's properties, pursuant to Article 320 of the Civil Code of the
Philippines.
The Insurance Company denied said application, manifesting to the policy holder
that the written consent for 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.
26
After the denial of said policy loan application, Mrs. Nario signified her decision to
surrender her policy to the Insurance Company, which she was also entitled to avail
of under one of the provisions of the same policy, and demanded its cash value
which then amounted to P520.00.
The Insurance Company also denied the surrender of the policy, on the same
ground as that given in disapproving the policy loan application; hence, on
September 10, 1963, Mrs. Alejandra Santos-Nario and her husband, Delfin Nario,
brought suit against the Philippine American Life Insurance Co. in the above
mentioned court of first instance, seeking to compel the latter (defendant) to grant
their policy loan application and/or to accept the surrender of said policy in
exchange for its cash value.
Defendant Insurance Company answered the complaint, virtually admitting its
material allegations, but it set up the affirmative defense that inasmuch as the
policy 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
powers of the legal administrator, under article 320 in relation to article 326 of the
Civil Code; 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, and it (defendant Insurance Company) was, therefore,
justified in refusing to grant and in disapproving the proposed transactions in
question.
There having been no substantial disagreement or dispute as to any material fact,
the parties, upon joint motion which the lower court granted, dispensed with the
presentation of evidence and submitted their respective memoranda, after which
the case was considered submitted for decision.
The lower court found and opined that since the parties expressly stipulated in the
endorsement attached to the policy and which formed part thereof that —
It is hereby understood and agreed that, notwithstanding the provisions of
this Policy to the contrary, inasmuch as the designation of the beneficiaries
have been made by the Insured without reserving the right to change said
beneficiaries, the Insured may not designate a new beneficiary or assign,
release or surrender this Policy to the Company and exercise any and all
other rights and privileges hereunder or agree with the Company to any
change in or amendment to this Policy, without the consent of the
beneficiaries originally designated;
 27

that under the above quoted provision, the minor son, as one of the designated
irrevocable beneficiaries, "acquired a vested right to all benefits accruing to the
policy, including that of obtaining a policy loan to the extent stated in the schedule
of values attached to the policy (Gercio vs. Sun Life Assurance of Canada, 48 Phil.
53, 58)"; that the proposed transactions in question (policy loan and surrender of
policy) involved acts of disposition or alienation of the minor's properties for which
the consent given by the father-guardian for and in behalf of the minor son, must
be with the requisite court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs.
Suguitan, G.R. No. L-8300, November 18, 1955; 99 Phil. 1004 [unrep] and in the case
at bar, such consent was given by the father-guardian without any judicial
authority; said court, agreeing with defendant's contention, sustained defendant's
affirmative defense, and rendered, on January 28, 1964, its decision dismissing
plaintiffs' complaint.
The father, or in his absence the mother, is the legal administrator of the
property pertaining to the child under parental authority. If the property is
worth more than two thousand pesos, the father or mother shall give a
bond subject to the approval of the Court of First Instance.
and article 326 of the same Code reads —
When the property of the child is worth more than two thousand pesos,
the father or mother shall be considered a guardian of the child's property,
subject to the duties and obligations of guardians under the Rules of Court.
The above quoted provisions of the Civil Code have already been implemented and
clarified in our Revised Rules of Court which provides —

Unable to secure reconsideration of the trial Court's ruling, petitioner appealed

SEC. 7. Parents as guardians. — When the property of the child under
directly to this Court, contending that the minor's interest amounted to only one-
parental authority is worth two thousand pesos or less, the father or the
half of the policy's cash surrender value of P520.00; that under Rule 96, Section 2 of
mother, without the necessity of court appointment, shall be his legal
the Revised Rules of Court, payment of the ward's debts is within the powers of the
guardian. When the property of the child is worth more than two thousand
guardian, where no realty is involved; hence, there is no reason why the father may
pesos, the father or the mother shall be considered guardian of the child's
not validly agree to the proposed transaction on behalf of the minor without need
property, with the duties and obligations of guardians under these rules,
of court authority.
and shall file the petition required by Section 2 hereof. For good reasons
the court may, however, appoint another suitable person. (Rule 93).
The appeal is unmeritorious. We agree with the lower court that the vested interest
or right of the beneficiaries in the policy should be measured on its full face value
It appearing that the minor beneficiary's vested interest or right on the policy
and not on its cash surrender value, for in case of death of the insured, said
exceeds two thousand pesos (P2,000.00); that plaintiffs did not file any
beneficiaries are paid on the basis of its face value and in case the insured should
guardianship bond to be approved by the court; and as later implemented in the
discontinue paying premiums, the beneficiaries may continue paying it and are
abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs should
entitled to automatic extended term or paid-up insurance options, etc. and that
have, but, had not, filed a formal application or petition for guardianship, plaintiffs-
said vested right under the policy cannot be divisible at any given time. We likewise
parents cannot possibly exercise the powers vested on them, as legal
agree with the conclusion of the lower court that the proposed transactions in
administrators of their child's property, under articles 320 and 326 of the Civil Code.
question (policy loan and surrender of policy) constitute acts of disposition or
As there was no such petition and bond, the consent given by the father-guardian,
alienation of property rights and not merely of management or administration
for and in behalf of the minor son, without prior court authorization, to the policy
because they involve the incurring or termination of contractual obligations.
loan application and the surrender of said policy, was insufficient and ineffective,
and defendant-appellee was justified in disapproving the proposed transactions in
As above noted, the full face value of the policy is P5,000.00 and the minor's vested question.
interest therein, as one of the two (2) irrevocable beneficiaries, consists of one-half
(½) of said amount or P2,500.00.
The American cases cited by appellants are not applicable to the case at bar for lack
of analogy. In those cases, there were pending guardianship proceedings and the
Article 320 of the Civil Code of the Philippines provides — guardians therein were covered by bonds to protect the wards' interests, which
circumstances are wanting in this case.

The result would be the same even if we regarded the interest of the ward to be
worth less than P2,000.00. While the father or mother would in such event be
exempt from the duty of filing a bond, and securing judicial appointment, still the
parent's authority over the estate of the ward as a legal-guardian would not extend
to acts of encumbrance or disposition, as distinguished from acts of management or
administration. The distinction between one and the other kind of power is too
basic in our law to be ignored. Thus, under Article 1877 of the Civil Code of the
Philippines, an agency in general terms does not include power to encumber or
dispose of the property of the principal; and the Code explicitly requires
a special power or authority for the agent "to loan or borrow money, unless the
latter act be urgent or indispensable for the preservation of the thing under
administration" (Art. 1878 no. 7). Similarly, special powers are required to required
to effect novations, to waive any obligation gratuitously or obligate the principal as
a guarantor or surety (Do., nos. 2, 4 and 11). By analogy, since the law merely
constitutes the parent as legal administrator of the child's property (which is a
general power), the parent requires special authority for the acts above specified,
and this authority can be given only by a court. This restricted interpretation of the
parent's authority becomes all the more necessary where as in the case before us,
there is no bond to guarantee the ward against eventual losses.
Appellants seek to bolster their petition by invoking the parental power (patria
potestas) under the Civil Code of 1889, which they claim to have been revived by
the Civil Code of the Philippines (Rep. Act 386). The appeal profits them nothing.
For the new Civil Code has not effected a restitutio in integrum of the Spanish patria
potestas; the revival has been only in part. And, significantly, the Civil Code now in
force did not reenact Article 164 of the Civil Code of 1889, that prohibited the
alienation by the parents of the real property owned by the child without court
authority and led the commentators and interpreters of said Code to infer that the
parents could by themselves alienate the child's movable property. The omission of
any equivalent precept in the Civil Code now in force proves the absence of any
authority in the parents to carry out now acts of disposition or alienation of the
child's goods without court approval, as contended by the appellee and the court
below.
Wherefore, the decision appealed from is affirmed. Costs against appellants Nario.
So ordered.
28
Facts:
> Mrs. Nario applied for and was issued a life Insurance policy (no. 503617) by
PHILAMLIFE under a 20-yr endowment plant, with a face value of 5T. Her husband
Delfin and their unemancipated son Ernesto were her revocable beneficiaries.
> Mrs. Nario 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 in 2 capacities
o As one of the irrevocable beneficiaries of the policy
o As father-guardian of Ernesto and also the legal administrator of the minor’s
properties pursuant to Art. 320 of the CC.
> 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.
> PHILAMLIFE 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.
> 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 court authority is required.
 29

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

Held:

YES. SC agreed with the trial 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 and that said vested right under the
policy cannot be divisible at any given time. SC also agreed with TC that the said
acts (loan app and surrender) constitute acts of disposition or alienation of property
rights and not merely management or administration because they involve the
incurring or termination of contractual obligations.

Under the laws (CC and rules of Court) The father is constituted as the minor’s legal
administrator of the propty, and when the propty of the child is worth more than
P2T (as in the case at bar, the minor’s propty was worth 2,500 his ½ share as
beneficiary), 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 minor’s property. The
consent give 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 propty of the ward was less than 2T, 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.

EN BANC
G.R. No. L-8151 December 16, 1955
VIRGINIA CALANOC, petitioner,
vs.
COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
CO., respondents.
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000 representing the value of a supplemental
policy covering accidental death which was secured by one Melencio Basilio from
the Philippine American Life Insurance Company. The case originated in the
Municipal Court of Manila and judgment being favorable to the plaintiff it was
appealed to the court of first instance. The latter court affirmed the judgment but
on appeal to the Court of Appeals the judgment was reversed and the case is now
before us on a petition for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner
of Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine
American Life Insurance Company in the amount of P2,000 to which was attached a
supplementary contract covering death by accident. On January 25, 1951, he died
of a gunshot wound on the occasion of a robbery committed in the house of Atty.
Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow,
was paid the sum of P2,000, face value of the policy, but when she demanded the
payment of the additional sum of P2,000 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the
deceased died because he was murdered by a person who took part in the
commission of the robbery and while making an arrest as an officer of the law
which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.
The pertinent facts which need to be considered for the determination of the
questions raised are those reproduced in the decision of the Court of Appeals as
follows:
The circumstances surrounding the death of Melencio Basilio show that
when he was killed at about seven o'clock in the night of January 25, 1951,
he was on duty as watchman of the Manila Auto Supply at the corner of
Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda
30
who had his residence at the corner of Zurbaran and Oroquieta, a block
away from Basilio's station, had come home that night and found that his
house was well-lighted, but with the windows closed; that getting
suspicious that there were culprits in his house, Atty. Ojeda retreated to
look for a policeman and finding Basilio in khaki uniform, asked him to
accompany him to the house with the latter refusing on the ground that he
was not a policeman, but suggesting that Atty. Ojeda should ask the traffic
policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty.
Ojeda went to the traffic policeman at said corner and reported the
matter, asking the policeman to come along with him, to which the
policeman agreed; that on the way to the Ojeda residence, the policeman
and Atty. Ojeda passed by Basilio and somehow or other invited the latter
to come along; that as the tree approached the Ojeda residence and stood
in front of the main gate which was covered with galvanized iron, the fence
itself being partly concrete and partly adobe stone, a shot was fired; that
immediately after the shot, Atty. Ojeda and the policeman sought cover;
that the policeman, at the request of Atty. Ojeda, left the premises to look
for reinforcement; that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death; that the shot must have come from inside the yard of
Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized
iron gate; that upon inquiry Atty. Ojeda found out that the savings of his
children in the amount of P30 in coins kept in his aparador contained in
stockings were taken away, the aparador having been ransacked; that a
month thereafter the corresponding investigation conducted by the police
authorities led to the arrest and prosecution of four persons in Criminal
Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an
Inhabited House and in Band with Murder'.
It is contended in behalf of the company that Basilio was killed which "making an
arrest as an officer of the law" or as a result of an "assault or murder" committed in
the place and therefore his death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability. This contention
was upheld by the Court of Appeals and, in reaching this conclusion, made the
following comment:
From the foregoing testimonies, we find that the deceased was a
watchman of the Manila Auto Supply, and, as such, he was not boud to
leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the
trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact,
according to the finding of the lower court, Atty. Ojeda finding Basilio in

uniform asked him to accompany him to his house, but the latter refused
on the ground that he was not a policeman and suggested to Atty. Ojeda to
ask help from the traffic policeman on duty at the corner of Rizal Avenue
and Zurbaran, but after Atty. Ojeda secured the help of the traffic
policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the
main gate of said residence, he was shot and thus died. The death,
therefore, of Basilio, although unexpected, was not caused by an accident,
being a voluntary and intentional act on the part of the one wh robbed, or
one of those who robbed, the house of Atty. Ojeda. Hence, it is out
considered opinion that the death of Basilio, though unexpected, cannot
be considered accidental, for his death occurred because he left his post
and joined policeman Magsanoc and Atty. Ojeda to repair to the latter's
residence to see what happened thereat. Certainly, when Basilio joined
Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger
to which he was exposing himself, yet, instead of remaining in his place, he
went with Atty. Ojeda and Patrolman Magsanoc to see what was the
trouble in Atty. Ojeda's house and thus he was fatally shot.
We dissent from the above findings of the Court of Appeals. For one thing, Basilio
was a watchman of the Manila Auto Supply which was a block away from the house
of Atty. Ojeda where something suspicious was happening which caused the latter
to ask for help. While at first he declied the invitation of Atty. Ojeda to go with him
to his residence to inquire into what was going on because he was not a regular
policeman, he later agreed to come along when prompted by the traffic policeman,
and upon approaching the gate of the residence he was shot and died. The
circumstance that he was a mere watchman and had no duty to heed the call of
Atty. Ojeda should not be taken as a capricious desire on his part to expose his life
to danger considering the fact that the place he was in duty-bound to guard was
only a block away. In volunteering to extend help under the situation, he might
have thought, rightly or wrongly, that to know the truth was in the interest of his
employer it being a matter that affects the security of the neighborhood. No doubt
there was some risk coming to him in pursuing that errand, but that risk always
existed it being inherent in the position he was holding. He cannot therefore be
blamed solely for doing what he believed was in keeping with his duty as a
watchman and as a citizen. And he cannot be considered as making an arrest as an
officer of the law, as contended, simply because he went with the traffic policeman,
for certainly he did not go there for that purpose nor was he asked to do so by the
policeman.
31
Much less can it be pretended that Basilio died in the course of an assault or
murder considering the very nature of these crimes. In the first place, there is no
proof that the death of Basilio is the result of either crime for the record is barren of
any circumstance showing how the fatal shot was fired. Perhaps this may be
clarified in the criminal case now pending in court as regards the incident but
before that is done anything that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was intentional for there is the
possibility that the malefactor had fired the shot merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim. In any
event, while the act may not excempt the triggerman from liability for the damage
done, the fact remains that the happening was a pure accident on the part of the
victim. The victim could have been either the policeman or Atty. Ojeda for it cannot
be pretended that the malefactor aimed at the deceased precisely because he
wanted to take his life.
We take note that these defenses are included among the risks exluded in the
supplementary contract which enumerates the cases which may exempt the
company from liability. While as a general rule "the parties may limit the coverage
of the policy to certain particular accidents and risks or causes of loss, and may
expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782),
however, it is to be desired that the terms and phraseology of the exception clause
be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be
interpreted or resolved aganst the one who has caused the obscurity. (Article 1377,
new Civil Code) And so it has bene generally held that the "terms in an insurance
policy, which are ambiguous, equivacal, or uncertain . . . are to be construed strictly
and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially
where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that
he "insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and
deliberation by experts and legal advisers employed by, and acting exclusively in the
interest of, the insurance company." (44 C. J. S., p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate
the bearings and possible complications of every contingency. So long as
insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance,

construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was procured.
(Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the circumstances unfolded in the
present case do not warrant the finding that the death of the unfortunate victim
comes within the purview of the exception clause of the supplementary policy and,
hence, do not exempt the company from liability.
Wherefore, reversing the decision appealed from, we hereby order the company to
pay petitioner-appellant the amount of P2,000, with legal interest from January 26,
1951 until fully paid, with costs.
In construing ambiguous terms in an insurance policy covering accidental death, the
Supreme Court held that such terms are to be construed strictly against the insurer,
and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured. The killing of the victim was a pure accident
on his part since it is possible that the malefactor had fired the shot merely to scare
away the people around for his own protection and not necessarily to kill or hit the
victim.
Calanoc v. CAG.R. No. L-8151 December 16, 1955J. Bautista Angelo
Doctrine: In case of ambiguity in an insurance contract covering accidental death,
the Supreme Court held that such terms shall be construed strictly against the
insurer and liberally in favor of the insured in order to effect the purpose of
indemnity.
Facts:
Melencio Basilio, a watchman of the Manila Auto Supply, secured a life insurance
policy from the Philippine American Insurance Company in the amount of P2,000 to
which was attached a supplemental contract covering death by accident. He later
died from a gunshot wound on the occasion of a robbery committed; subsequently,
his widow was paid P2,000 representing the face value of the policy. The widow
demanded the payment of the additional sum of P2,000 representing the value of
32
the supplemental policy which the company refused because the deceased died by
murder during the robbery and while making an arrest as an officer of the law
which were expressly excluded in the contract. The company’s contention which
was upheld by the Court of Appeals provides that the circumstances surrounding
Basilio’s death was caused by one of the risks excluded by the supplementary
contract which exempts the company from liability.
Issue:Is the Philippine American Life Insurance Co. liable to the petitioner for the
amount covered by the supplemental contract?
Held:
Yes. The circumstances of Basilio’s death cannot be taken as purely intentional on
the part of Basilio to expose himself to the danger. There is no proof that his death
was the result of intentional killing because there is the possibility that the
malefactor had fired the shot merely to scare away the people around. In this case,
the company’s defense points out that Basilio’s is included among the risks
excluded in the supplementary contract; however, the terms and phraseology of
the exception clause should be clearly expressed within the understanding of the
insured. Art. 1377 of the New Civil Code provides that in case ambiguity,
uncertainty or obscurity in the interpretation of the terms of the contract, it shall be
construed against the party who caused such obscurity. Applying this to the
situation, the ambiguous or obscure terms in the insurance policy are to be
construed strictly against the insurer and liberally in favor of the insured party. The
reason is to ensure the protection of the insured since these insurance contracts
are usually arranged and employed by experts and legal advisers acting exclusively
in the interest of the insurance company. As long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal their
own intentions, the courts must, infairness to those who purchase insurance,
construe every ambiguity in favor of the insured.
FACTS:
Basilio was a watchman of the Manila Auto Supply, secured a life insurance policy
from the Philippine American Life Insurance Company in the amount of P2,000 to
which was attached a supplementary contract covering death by accident. On
January 25, 1951, he died of a gunshot wound on the occasion of a robbery
committed in the house of Atty. Ojeda (he was on the site, few blocks away from
 33

the premises of the Manila Auto Supply because of the policeman’s invitation to supplementary contract covering death by accident. The insurance company said he
accompany them in checking the lawyers house which the lawyer suspected of was killed by someone participating in a robbery and while making an arrest, two
being robbed). Virginia, the widow, was paid the sum of P2,000, face value of the contingencies expressly excluded in the contract.
policy, but when she demanded the payment of the additional sum of P2,000
representing the value of the supplemental policy, the company refused alleging
that the deceased died because he was murdered by a person who took part in the
Basilio was killed as he stood outside the iron gate of Atty Ojeda, as they tried to get
commission of the robbery and while making an arrest as an officer of the law
into the house where they suspected a robber had broken into.
which contingencies were expressly excluded in the contract and have the effect of
exempting the company from liability.

ISSUE: Whether the insurer is liable to the insured under the supplementary The Court of Appeals upheld the company, that said Basilio’s killing was not an
contract accident, but rather an intentional act on the part of the robber. The Supreme Court
ruled that there was no proof that it was intentional, that the robber had aimed for
HELD: Basilio, because there was nothing on record that showed how the fatal shot was
fired while it was an accident on the part of Basilio. The house being robbed was
Yes the insurer is liable under the supplementary contract .The circumstance that
not the one he was guarding, and he had earlier refused to go to the house without
he was a mere watchman and had no duty to heed the call of Atty. Ojeda should
not be taken as a capricious desire on his part to expose his life to danger a policeman. Insurer ordered to pay.
considering the fact that the place he was in duty-bound to guard was only a block
away. In volunteering to extend help under the situation, he might have thought,
rightly or wrongly, that to know the truth was in the interest of his employer it
being a matter that affects the security of the neighborhood. He cannot therefore
be blamed solely for doing what he believed was in keeping with his duty as a
watchman and as a citizen. And he cannot be considered as making an arrest as an
officer of the law for certainly he did not go there for that purpose nor was he
asked to do so by the policeman. Much less can it be pretended that Basilio died in
the course of an assault or murder considering the very nature of these crimes. It
cannot be said be said that the killing was intentional for there is the possibility that
the malefactor had fired the shot merely to scare away the people around for his
own protection and not necessarily to kill or hit the victim. In any event, the fact
remains that the happening was a pure accident on the part of the victim.

The terms and phraseology of the exception clause be clearly expressed so as to be

within the easy grasp and understanding of the insured, for if the terms are
doubtful or obscure the same must of necessity be interpreted or resolved against
the one who has caused the obscurity.

CALANOC v CA (G.R. L-8151): Melencio Basilio was a security guard who died while
on duty. The insurance company paid his widow, Virginia Calanoc, the face value of
the policy, P2,000, but refused to give the additional sum of P2,000 in the

EN BANC
[G.R. No. L-5642. February 25, 1954.]
HERMINIA Q. KANAPI, Plaintiff-Appellant, v. THE INSULAR LIFE ASSURANCE CO.,
LTD.,Defendant-Appellee.
Jose Aguirre and Alfredo Catolico for Appellant.
Araneta & Araneta for Appellee.
SYLLABUS
LIFE INSURANCE; MURDER; DEATH RESULTING FROM AN INJURY INTENTIONALLY
INFLICTED BY A THIRD PARTY. — The "Accident Death Benefit Clause" of the policy
provides for the payment of an additional sum upon proof "that the death of the
insured resulted directly from bodily injury affected through external and violent
means sustained in an accident and independently of all other causes." But far from
showing that the insured died from bodily injury sustained in an accident, the
agreed facts are to the effect that the insured was murdered, thus making it
indisputable that his death resulted from injury "intentionally inflicted by a third
party", which is one exceptions to the accident benefit clause. Held: The insured
died from an injury intentionally inflicted by a third party, and, therefore, the clause
does not apply.
REYES, J.:
This is an action on a life insurance policy.
On August 1, 1848, the defendant insurance company issued a policy on the life of
plaintiff's husband, Henry G. Kanapi, whereby defendant undertook to pay to
plaintiff as beneficiary, upon the death of the insured, the sum of P5,000 if the
death be due to natural causes and an additional P5,000 if the death be due to
accidental means, payment of this additional sum being provided for in the
"Accidental Death Benefit Policy Clause" appended to and forming part of the policy
but expressly made subject to the exception that the clause would not apply where
death resulted from injury "intentionally inflicted by a third party." During the life of
the policy, the insured died from a bullet wound inflicted, without provocation, by
one Conrado Quemosing, who, as author of the killing, was found guilty of murder
and sentenced to prison.
34
Upon receiving proof of the insured's death, defendant paid plaintiff P5,000, but
refused to pay the additional P5,000 claimed upon the accidental death benefit
clause on the ground that, as the injured died from an injury intentionally inflicted
by a third party, the clause did not apply. The present action is for the recovery of
the additional sum.
Upholding defendant's stand, the lower court dismissed the action, whereupon
plaintiff appealed to this Court, and the question for us to determine is whether
plaintiff is entitled to the additional P5,000 claimed under the accident benefit
clause of the policy.
This clause provide for the payment of the sum upon proof "that the death of the
Insured resulted directly from bodily injury affected through external and violent
means sustained in an accident . . . and independently of all other clauses." But far
from proving that the insured died from bodily injury sustained in an accident, the
agreed facts are to the effect that the insured was murdered, thus making it
indisputable that his death resulted from injury "intentionally inflicted by a third
party"; which is one of the exceptions to the accident benefit clause, according to
which the benefit shall not apply to death resulting from "(5) Any injury received . . .
(e) that has been inflicted intentionally by a third party, either with or without
provocation on the part of the Insured, and whether or not the attack or the
defense by the third party was caused by a violation of the law by the Insured. . . ."
There is nothing to the suggestion that the case comes under exception 5 (d) or that
portion of it which excepts from the benefit any injury received "in any assault
provoked by the Insured", it being argued that by express mention of provoked
assault an unprovoked one is inferentially excluded. The inference is not admissible
because where the injury is inflicted without provocation the case comes within the
terms of exception 5 (e), which, is, therefore, the one that should be applied.
We find the decision appealed from to be in accordance with law and the facts. It is,
therefore, affirmed, with costs.

EN BANC
G.R. No. L-25579 March 29, 1972
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN
and GRACIA T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of Pangasinan in its
Civil Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife
Assurance Company under Policy No. 398075 for the sum of P5,000.00 and, under a
supplementary contract denominated "Accidental Death Benefit Clause, for an
additional sum of P5,000.00 if "the death of the Insured resulted directly from
bodily injury effected solely through external and violent means sustained in an
accident ... and independently of all other causes." The clause, however,expressly
provided that it would not apply where death resulted from an injury"intentionally
inflicted by another party."
On the night of May 20, 1964, or during the first hours of the following day a band
of robbers entered the house of the insured Juan S. Biagtan. What happened then is
related in the decision of the trial court as follows:
...; that on the night of May 20, 1964 or the first hours of May 21, 1964,
while the said life policy and supplementary contract were in full force and
effect, the house of insured Juan S. Biagtan was robbed by a band of
robbers who were charged in and convicted by the Court of First Instance
of Pangasinan for robbery with homicide; that in committing the robbery,
the robbers, on reaching the staircase landing on the second floor, rushed
towards the door of the second floor room, where they suddenly met a
person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed instruments,
causing wounds on the body of said Juan S. Biagtan resulting in his death at
about 7 a.m. on the same day, May 21, 1964;
35
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The
insurance company paid the basic amount of P5,000.00 but refused to pay the
additional sum of P5,000.00 under the accidental death benefit clause, on the
ground that the insured's death resulted from injuries intentionally inflicted by third
parties and therefore was not covered. Plaintiffs filed suit to recover, and after due
hearing the court a quo rendered judgment in their favor. Hence the present appeal
by the insurer.
The only issue here is whether under the facts are stipulated and found by the trial
court the wounds received by the insured at the hands of the robbers — nine in all,
five of them mortal and four non-mortal — were inflicted intentionally. The court,
in ruling negatively on the issue, stated that since the parties presented no evidence
and submitted the case upon stipulation, there was no "proof that the act of
receiving thrust (sic) from the sharp-pointed instrument of the robbers was
intended to inflict injuries upon the person of the insured or any other person or
merely to scare away any person so as to ward off any resistance or obstacle that
might be offered in the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the
admitted facts. Nine wounds were inflicted upon the deceased, all by means of
thrusts with sharp-pointed instruments wielded by the robbers. This is a physical
fact as to which there is no dispute. So is the fact that five of those wounds caused
the death of the insured. Whether the robbers had the intent to kill or merely to
scare the victim or to ward off any defense he might offer, it cannot be denied that
the act itself of inflicting the injuries was intentional. It should be noted that the
exception in the accidental benefit clause invoked by the appellant does not speak
of the purpose — whether homicidal or not — of a third party in causing the
injuries, but only of the fact that such injuries have been "intentionally" inflicted —
this obviously to distinguish them from injuries which, although received at the
hands of a third party, are purely accidental. This construction is the basic idea
expressed in the coverage of the clause itself, namely, that "the death of the
insured resulted directly from bodily injury effected solely through external and
violent means sustained in an accident ... and independently of all other causes." A
gun which discharges while being cleaned and kills a bystander; a hunter who
shoots at his prey and hits a person instead; an athlete in a competitive game
involving physical effort who collides with an opponent and fatally injures him as a
result: these are instances where the infliction of the injury is unintentional and
therefore would be within the coverage of an accidental death benefit clause such
as thatin question in this case. But where a gang of robbers enter a house and
coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is
contrary to all reason and logic to say that his injuries are not intentionally inflicted,
 36

regardless of whether they prove fatal or not. As it was, in the present case they did accidental, "the clause of the proviso that excludes the (insurer's) liability, in case
prove fatal, and the robbers have been accused and convicted of the crime of death or injury is intentionally inflicted by another person, applies to this case."
robbery with homicide.
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court insured was shot three times by a person unknown late on a dark and stormy night,
in support of its decision. The facts in that case, however, are different from those while working in the coal shed of a railroad company. The policy did not cover
obtaining here. The insured there was a watchman in a certain company, who death resulting from "intentional injuries inflicted by the insured or any other
happened to be invited by a policeman to come along as the latter was on his way person." The inquiry was as to the question whether the shooting that caused the
to investigate a reported robbery going on in a private house. As the two of them, insured's death was accidental or intentional; and the Court found that under the
together with the owner of the house, approached and stood in front of the main facts, showing that the murderer knew his victim and that he fired with intent to
gate, a shot was fired and it turned out afterwards that the watchman was hit in the kill, there could be no recovery under the policy which excepted death from
abdomen, the wound causing his death. Under those circumstances this Court held intentional injuries inflicted by any person.
that it could not be said that the killing was intentional for there was the possibility
that the malefactor had fired the shot to scare people around for his own WHEREFORE, the decision appealed from is reversed and the complaint dismissed,
protection and not necessarrily to kill or hit the victim. A similar possibility is clearly without pronouncement as to costs.
ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed Biagtan vs. The Insular Life Assurance Company, Ltd. 44 SCRA 58
have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as Unlike the ruling in the case of Calanoc vs. Court of Appeals, where the killing of the
such intent is concerned. The manner of execution of the crime permits no other
victim was held as accidental and thus covered by the insurance policy, the
conclusion.
Supreme Court held that in the instant case, the insured was killed intentionally.
The term “intentional” implies the exercise of the reasoning faculties,
Court decisions in the American jurisdiction, where similar provisions in accidental
death benefit clauses in insurance policies have been construed, may shed light on consciousness and volition.
the issue before Us. Thus, it has been held that "intentional" as used in an accident
policy excepting intentional injuries inflicted by the insured or any other person,
etc., implies the exercise of the reasoning faculties, consciousness and
volition. 1 Where a provision of the policy excludes intentional injury, it is the
intention of the person inflicting the injury that is controlling. 2 If the injuries
suffered by the insured clearly resulted from the intentional act of a third person
the insurer is relieved from liability as stipulated. 3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am.
St. Rep. 484, the insured was waylaid and assassinated for the purpose of robbery.
Two (2) defenses were interposed to the action to recover indemnity, namely: (1)
that the insured having been killed by intentional means, his death was not
accidental, and (2) that the proviso in the policy expressly exempted the insurer
from liability in case the insured died from injuries intentionally inflicted by another
person. In rendering judgment for the insurance company the Court held that while
the assassination of the insured was as to him an unforeseen event and therefore

EN BANC
G.R. No. L-34583 October 22, 1931
THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late
Adolphe Oscar Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased
Adolphe Oscar Schuetze, has appealed to this court from the judgment of the Court
of First Instance of Manila absolving the defendant Juan Posadas, Jr., Collector of
Internal Revenue, from the complaint filed against him by said plaintiff bank, and
dismissing the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial
court in its judgment, to wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze
was inefficient to established the domicile of her husband.
2. The lower court erred in holding that under section 1536 of the
Administrative Code the tax imposed by the defendant is lawful and valid.
3. The lower court erred in not holding that one-half (½) of the proceeds of
the policy in question is community property and that therefore no
inheritance tax can be levied, at least on one-half (½) of the said proceeds.
4. The lower court erred in not declaring that it would be unconstitutional
to impose an inheritance tax upon the insurance policy here in question as
it would be a taking of property without due process of law.
The present complaint seeks to recover from the defendant Juan Posadas, Jr.,
Collector of Internal Revenue, the amount of P1,209 paid by the plaintiff under
protest, in its capacity of administrator of the estate of the late Adolphe Oscar
Schuetze, as inheritance tax upon the sum of P20,150, which is the amount of an
insurance policy on the deceased's life, wherein his own estate was named the
beneficiary.
37
At the hearing, in addition to documentary and parol evidence, both parties
submitted the following agreed statement of facts of the court for consideration:
It is hereby stipulated and agreed by and between the parties in the above-entitled
action through their respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe
Oscar Schuetze, is of legal age, a native of Manila, Philippine Islands, and is and was
at all times hereinafter mentioned a resident of Germany, and at the time of the
death of her husband, the late Adolphe Oscar Schuetze, she was actually residing
and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times hereinafter
mentioned a banking institution duly organized and existing under and by virtue of
the laws of the Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary public
Salvador Zaragoza, drew a general power appointing the above-mentioned Bank of
the Philippine Islands as her attorney-in-fact, and among the powers conferred to
said attorney-in-fact was the power to represent her in all legal actions instituted by
or against her;
4. That the defendant, of legal age, is and at all times hereinafter mentioned the
duly appointed Collector of Internal Revenue with offices at Manila, Philippine
Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the
first time of March 31, 1890, and worked in the several German firms as a mere
employee and that from the year 1903 until the year 1918 he was partner in the
business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of
making various trips to Europe;
7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java,
and with the intention of going to Bremen, landed in the Philippine Islands where
he met his death on February 2, 1928;

8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany,
executed a will, in accordance with its law, wherein plaintiff was named his
universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First Instance of
Manila under date of May 24, 1928, was appointed administrator of the estate of
the deceased Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings instituted in the Court of First
Instance of Manila, civil case No. 33089, the deceased at the time of his death was
possessed of not only real property situated in the Philippine Islands, but also
personal property consisting of shares of stock in nineteen (19) domestic
corporations;
11. That the fair market value of all the property in the Philippine Islands left by the
deceased at the time of his death in accordance with the inventory submitted to
the Court of First Instance of Manila, civil case No. 33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate of the
deceased rendered its final account on June 19, 1929, and that said estate was
closed on July 16, 1929;
13. That among the personal property of the deceased was found life-insurance
policy No. 194538 issued at Manila, Philippine Islands, on January 14, 1913, for the
sum of $10,000 by the Sun Life Assurance Company of Canada, Manila branch, a
foreign corporation duly organized and existing under and by virtue of the laws of
Canada, and duly authorized to transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was
named the beneficiary without any qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the
premiums of said policy to the Sun Life Assurance Company of Canada, Manila
branch;
16. That on or about the year 1918, the Sun Life Assurance Company of Canada,
Manila branch, transferred said policy to the Sun Life Assurance Company of
Canada, London branch;
38
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time
of his death paid the premiums of said policy to the Sun Life Assurance Company of
Canada, London Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his
widow, the plaintiff herein;
19. That at the time of the death of the deceased and at all times thereafter
including the date when the said insurance policy was paid, the insurance policy
was not in the hands or possession of the Manila office of the Sun Life Assurance
Company of Canada, nor in the possession of the herein plaintiff, nor in the
possession of her attorney-in-fact the Bank of the Philippine Islands, but the same
was in the hands of the Head Office of the Sun Life Assurance Company of Canada,
at Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the
decedent's estate received from the Sun Life Assurance Company of Canada, Manila
branch, the sum of P20,150 representing the proceeds of the insurance policy, as
shown in the statement of income and expenses of the estate of the deceased
submitted on June 18, 1929, by the administrator to the Court of First Instance of
Manila, civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said
sum of P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax
upon the transmission of the proceeds of the policy in question in the sum of
P20,150 from the estate of the late Adolphe Oscar Schuetze to the sole heir of the
deceased, or the plaintiff herein, which inheritance tax amounted to the sum of
P1,209;
23. That the Bank of the Philippine Islands as administrator of the decedent's estate
and as attorney-in-fact of the herein plaintiff, having been demanded by the herein
defendant to pay inheritance tax amounting to the sum of P1,209, paid to the
defendant under protest the above-mentioned sum;
24. That notwithstanding the various demands made by plaintiff to the defendant,
said defendant has refused and refuses to refund to plaintiff the above mentioned
sum of P1,209;

25. That plaintiff reserves the right to adduce evidence as regards the domicile of
the deceased, and so the defendant, the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation of facts without
prejudice to their right to introduce such evidence, on points not covered by the
agreement, which they may deem proper and necessary to support their respective
contentions.
In as much as one of the question raised in the appeal is whether an insurance
policy on said Adolphe Oscar Schuetze's life was, by reason of its ownership, subject
to the inheritance tax, it would be well to decide first whether the amount thereof
is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar
Schuetze is the sole beneficiary named in the life-insurance policy for $10,000,
issued by the Sun Life Assurance Company of Canada on January 14, 1913. During
the following five years the insured paid the premiums at the Manila branch of the
company, and in 1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-
appellant Rosario Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period from
January 14, 1913 to January 14, 1914, all the money used for paying the premiums,
i. e., from the second year, or January 16, 1914, or when the deceased Adolphe
Oscar Schuetze married the plaintiff-appellant Rosario Gelano, until his death on
February 2, 1929, is conjugal property inasmuch as it does not appear to have
exclusively belonged to him or to his wife (art. 1407, Civil Code). As the sum of
P20,150 here in controversy is a product of such premium it must also be deemed
community property, because it was acquired for a valuable consideration, during
said Adolphe Oscar Schuetze's marriage with Rosario Gelano at the expense of the
common fund (art. 1401, No. 1, Civil Code), except for the small part corresponding
to the first premium paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition,
Manresa treats of life insurance in the following terms, to wit:
The amount of the policy represents the premiums to be paid, and the
right to it arises the moment the contract is perfected, for at the moment
the power of disposing of it may be exercised, and if death occurs payment
may be demanded. It is therefore something acquired for a valuable
39
consideration during the marriage, though the period of its fulfillment,
depend upon the death of one of the spouses, which terminates the
partnership. So considered, the question may be said to be decided by
articles 1396 and 1401: if the premiums are paid with the exclusive
property of husband or wife, the policy belongs to the owner; if with
conjugal property, or if the money cannot be proved as coming from one
or the other of the spouses, the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex.
Civ. A., 509) laid down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A husband took out
an endowment life insurance policy on his life, payable "as directed by
will." He paid the premiums thereon out of community funds, and by his
will made the proceeds of the policy payable to his own estate. Held, that
the proceeds were community estate, one-half of which belonged to the
wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down
the following doctrine:
A testator, after marriage, took out an insurance policy, on which he paid
the premiums from his salary. Held that the insurance money was
community property, to one-half of which, the wife was entitled as
survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following
doctrine:
A decedent paid the first third of the amount of the premiums on his life-
insurance policy out of his earnings before marriage, and the remainder
from his earnings received after marriage. Held, that one-third of the
policy belonged to his separate estate, and the remainder to the
community property.
Thus both according to our Civil Code and to the ruling of those North American
States where the Spanish Civil Code once governed, the proceeds of a life-insurance
policy whereon the premiums were paid with conjugal money, belong to the
conjugal partnership.

The appellee alleges that it is a fundamental principle that a life-insurance policy
belongs exclusively to the beneficiary upon the death of the person insured, and
that in the present case, as the late Adolphe Oscar Schuetze named his own estate
as the sole beneficiary of the insurance on his life, upon his death the latter became
the sole owner of the proceeds, which therefore became subject to the inheritance
tax, citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid down that
an heir appointed beneficiary to a life-insurance policy taken out by the deceased,
becomes the absolute owner of the proceeds of such policy upon the death of the
insured.
The estate of a deceased person cannot be placed on the same footing as an
individual heir. The proceeds of a life-insurance policy payable to the estate of the
insured passed to the executor or administrator of such estate, and forms part of its
assets (37 Corpus Juris, 565, sec. 322); whereas the proceeds of a life-insurance
policy payable to an heir of the insured as beneficiary belongs exclusively to said
heir and does not form part of the deceased's estate subject to administrator. (Del
Val vs. Del Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of the
Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a married
person becomes the exclusive owner of the proceeds upon the death of the insured
even if the premiums were paid by the conjugal partnership, so, it is argued, where
the beneficiary named is the estate of the deceased whose life is insured, the
proceeds of the policy become a part of said estate upon the death of the insured
even if the premiums have been paid with conjugal funds.
In a conjugal partnership the husband is the manager, empowered to alienate the
partnership property without the wife's consent (art. 1413, Civil Code), a third
person, therefore, named beneficiary in a life-insurance policy becomes the
absolute owner of its proceeds upon the death of the insured even if the premiums
should have been paid with money belonging to the community property. When a
married man has his life insured and names his own estate after death, beneficiary,
he makes no alienation of the proceeds of conjugal funds to a third person, but
appropriates them himself, adding them to the assets of his estate, in contravention
of the provisions of article 1401, paragraph 1, of the Civil Code cited above, which
provides that "To the conjugal partnership belongs" (1) Property acquired for a
valuable consideration during the marriage at the expense of the common fund,
whether the acquisition is made for the partnership or for one of the spouses only."
Furthermore, such appropriation is a fraud practised upon the wife, which cannot
be allowed to prejudice her, according to article 1413, paragraph 2, of said Code.
40
Although the husband is the manager of the conjugal partnership, he cannot of his
own free will convert the partnership property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar
Schuetze, were paid out of the conjugal funds, with the exceptions of the first, the
proceeds of the policy, excluding the proportional part corresponding to the first
premium, constitute community property, notwithstanding the fact that the policy
was made payable to the deceased's estate, so that one-half of said proceeds
belongs to the estate, and the other half to the deceased's widow, the plaintiff-
appellant Rosario Gelano Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of Internal
Revenue has authority, under the law, to collect the inheritance tax upon one-half
of the life-insurance policy taken out by the late Adolphe Oscar Schuetze, which
belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-
appellant, the Bank of the Philippine Islands, was appointed administrator of the
late Adolphe Oscar Schuetze's testamentary estate by an order dated March 24,
1928, entered by the Court of First Instance of Manila. On July 13, 1928, the Sun
Life Assurance Company of Canada, whose main office is in Montreal, Canada, paid
Rosario Gelano Vda. de Schuetze upon her arrival at Manila, the sum of P20,150,
which was the amount of the insurance policy on the life of said deceased, payable
to the latter's estate. On the same date Rosario Gelano Vda. de Schuetze delivered
the money to said Bank of the Philippine Islands, as administrator of the deceased's
estate, which entered it in the inventory of the testamentary estate, and then
returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835
and section 1 of Act No. 3031, contains the following relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue
of inheritance, devise, bequest, gift mortis causa or advance in anticipation
of inheritance, devise, or bequest of real property located in the Philippine
Islands and real rights in such property; of any franchise which must be
exercised in the Philippine Islands; of any shares, obligations, or bonds
issued by any corporation or sociedad anonimaorganized or constituted in
the Philippine Islands in accordance with its laws; of any shares or rights in
any partnership, business or industry established in the Philippine Islands
or of any personal property located in the Philippine Islands shall be
subject to the following tax:

In as much as the proceeds of the insurance policy on the life of the late Adolphe
Oscar Schuetze were paid to the Bank of the Philippine Islands, as administrator of
the deceased's estate, for management and partition, and as such proceeds were
turned over to the sole and universal testamentary heiress Rosario Gelano Vda. de
Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds is the
Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule governing the
levying of taxes upon tangible personal property, in the following words:
GENERAL RULE. — The suits of tangible personal property, for purposes of
taxation may be where the owner is domiciled but is not necessarily so.
Unlike intangible personal property, it may acquire a taxation situs in a
state other than the one where the owner is domiciled, merely because it
is located there. Its taxable situs is where it is more or less permanently
located, regardless of the domicile of the owner. It is well settled that the
state where it is more or less permanently located has the power to tax it
although the owner resides out of the state, regardless of whether it has
been taxed for the same period at the domicile of the owner, provided
there is statutory authority for taxing such property. It is equally well
settled that the state where the owner is domiciled has no power to tax it
where the property has acquired an actual situs in another state by reason
of its more or less permanent location in that state. ... (2 Cooley, The Law
of Taxation, 4th ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in transit," he has
the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In order to acquire
a situs in a state or taxing district so as to be taxable in the state or district
regardless of the domicile of the owner and not taxable in another state or
district at the domicile of the owner, tangible personal property must be
more or less permanently located in the state or district. In other words,
the situs of tangible personal property is where it is more or less
permanently located rather than where it is merely in transit or
temporarily and for no considerable length of time. If tangible personal
property is more or less permanently located in a state other than the one
where the owner is domiciled, it is not taxable in the latter state but is
taxable in the state where it is located. If tangible personal property
belonging to one domiciled in one state is in another state merely in
41
transitu or for a short time, it is taxable in the former state, and is not
taxable in the state where it is for the time being. . . . .
Property merely in transit through a state ordinarily is not taxable there.
Transit begins when an article is committed to a carrier for transportation
to the state of its destination, or started on its ultimate passage. Transit
ends when the goods arrive at their destination. But intermediate these
points questions may arise as to when a temporary stop in transit is such
as to make the property taxable at the place of stoppage. Whether the
property is taxable in such a case usually depends on the length of time
and the purpose of the interruption of transit. . . . .
. . . It has been held that property of a construction company, used in
construction of a railroad, acquires a situs at the place where used for an
indefinite period. So tangible personal property in the state for the
purpose of undergoing a partial finishing process is not to be regarded as
in the course of transit nor as in the state for a mere temporary purpose.
(2 Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar
Schuetze and made payable to his estate, were delivered to the Bank of the
Philippine Islands for administration and distribution, they were not in transit but
were more or less permanently located in the Philippine Islands, according to the
foregoing rules. If this be so, half of the proceeds which is community property,
belongs to the estate of the deceased and is subject to the inheritance tax, in
accordance with the legal provision quoted above, irrespective of whether or not
the late Adolphe Oscar Schuetze was domiciled in the Philippine Islands at the time
of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a
life-insurance policy payable to the insured's estate, on which the premiums were
paid by the conjugal partnership, constitute community property, and belong one-
half to the husband and the other half to the wife, exclusively; (2) that if the
premiums were paid partly with paraphernal and partly conjugal funds, the
proceeds are likewise in like proportion paraphernal in part and conjugal in part;
and (3) that the proceeds of a life-insurance policy payable to the insured's estate
as the beneficiary, if delivered to the testamentary administrator of the former as
part of the assets of said estate under probate administration, are subject to the
inheritance tax according to the law on the matter, if they belong to the assured
exclusively, and it is immaterial that the insured was domiciled in these Islands or
outside.1awphil.net

Wherefore, the judgment appealed from is reversed, and the defendant is ordered
to return to the plaintiff the one-half of the tax collected upon the amount of
P20,150, being the proceeds of the insurance policy on the life of the late Adolphe
Oscar Schuetze, after deducting the proportional part corresponding to the first
premium, without special pronouncement of costs. So ordered.
FACTS:
BPI, as administrator of the estate of deceased Adolphe Schuetze, appealed to CFI
Manila absolving defendant, Collector of Internal Revenue, from the complaint filed
against him in recovering the inheritance tax amounting to P1209 paid by the
plaintiff, Rosario Gelano Vda de Schuetze, under protest, and sum of P20,150
representing the proceeds of the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing
and living in Germany when Adolphe died in December 1927. The latter while in
Germany, executed a will in March 1926, pursuant with its law wherein plaintiff was
named his universal heir. The deceased possessed not only real property situated
in the Philippines but also personal property consisting of shares of stocks in 19
domestic corporations. Included in the personal property is a life insurance policy
issued at Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance
Company of Canada, Manila Branch. In the insurance policy, the estate of the
deceased was named the beneficiary without any qualification. Rosario is the sole
and only heir of the deceased. BPI, as administrator of the decedent’s estate and
attorney in fact of the plaintiff, having been demanded by Posadas to pay the
inheritance tax, paid under protest. Notwithstanding various demands made by
plaintiff, Posadas refused to refund such amount.
ISSUE: WON the plaintiff is entitled to the proceeds of the insurance.
HELD:
SC ruled that(1)the proceeds of a life-insurance policy payable to the insured's
estate, on which the premiums were paid by the conjugal partnership, constitute
community property, and belong one-half to the husband and the other half to the
wife, exclusively; (2)if the premiums were paid partly with paraphernal and partly
conjugal funds, the proceeds are likewise in like proportion paraphernal in part and
conjugal in part; and (3)the proceeds of a life-insurance policy payable to the
42
insured's estate as the beneficiary, if delivered to the testamentary administrator of
the former as part of the assets of said estate under probate administration, are
subject to the inheritance tax according to the law on the matter, if they belong to
the assured exclusively, and it is immaterial that the insured was domiciled in these
Islands or outside.
Hence, the defendant was ordered to return to the plaintiff one-half of the tax
collected upon the amount of P20,150, being the proceeds of the insurance policy
on the life of the late Adolphe Oscar Schuetze, after deducting the proportional part
corresponding to the first premium.
BPI vs. Posadas 56 Phil 215
Facts:
The estate of Adolphe Oscar Schuetze is the sole beneficiary named in the life-
insurance policy for $10,000, issued by the Sun Life Assurance Company of Canada.
During the following five years the insured paid the premiums at the Manila branch
of the company. The deceased Adolphe Oscar Schuetze married the plaintiff-
appellant Rosario Gelano. The plaintiff-appellant, the Bank of the Philippine Islands,
was appointed administrator of the late Adolphe Oscar Schuetze's testamentary
estate by an order, entered by the Court of First Instance of Manila. The Sun Life
Assurance Company of Canada, whose main office is in Montreal,Canada, paid
Rosario Gelano Vda. de Schuetze upon her arrival at Manila, the sum of P20,150,
which was theamount of the insurance policy on the life of said deceased, payable
to the latter's estate. On the same date Rosario Gelano Vda. de Schuetze delivered
the money to said Bank of the Philippine Islands, as administrator of the deceased's
estate, which entered itin the inventory of the testamentary estate, and then
returned the money to said widow. The appellee alleges that it is a fundamental
principle that a life-insurance policy belongs exclusively to the beneficiary upon the
death of the person insured.
Issue: Whether or not the life insurance policy belongs to theconjugal partnership.
Ruling:
SC holds, (1) that the proceeds of a life-insurance policy payable to the insured's
estate, on which the premiums were paid by the conjugal partnership, constitute
community property, and belong one-half to the husband and the other half to
the wife, exclusively; and (2) that if the premiums were paid partly with
paraphernal and partly conjugal funds, the proceeds are likewise in like proportion
 43

paraphernal in part and conjugal in part. That the proceeds of a life-insurance policy paid by the conjugal partnership, constitute community property, and belong one-
payable to the insured's estate as the beneficiary, if delivered to the testamentary half to the husband and the other half to the wife, exclusively; (2) that if the
administrator of the former as part of the assets of said estate under probate premiums were paid partly with paraphernal and partly conjugal funds, the
administration, are subject to the inheritance tax according to the law on the
proceeds are likewise in like proportion paraphernal in part and conjugal in part;
matter, if they belong to the assured exclusively, and it is immaterial that the
insured was domiciled in these Islands or outside. and (3) that the proceeds of a life-insurance policy payable to the insured's estate
as the beneficiary, if delivered to the testamentary administrator of the former as
part of the assets of said estate under probate administration, are subject to the
FACTS: inheritance tax according to the law on the matter, if they belong to the assured
exclusively, and it is immaterial that the insured was domiciled in these Islands or
The estate of Adolphe Oscar Schuetze is the sole beneficiary named in the life-
outside.
insurance policy for $10,000, issued by the Sun Life Assurance Company of Canada
on January 14, 1913. During the following five years the insured paid the premiums CA decision is reversed. Defendant is ordered to return ½ of the tax collected upon
at the Manila branch of the company, and in 1918 the policy was transferred to the the amount of P20,150, being the proceeds of the insurance policy on the life of the
London branch. The record shows that the deceased Adolphe Oscar Schuetze late Adolphe Oscar Schuetze, after deducting the proportional part corresponding
married the plaintiff-appellant Rosario Gelano on January 16, 1914. Bank of the to the first premium.
Philippine Islands, was appointed administrator of the late Adolphe Oscar
Schuetze's testamentary estate by an order dated March 24, 1928, entered by the
Court of First Instance of Manila. On July 13, 1928, the Sun Life Assurance Company
of Canada, whose main office is in Montreal, Canada, paid Rosario Gelano Vda. de
Schuetze upon her arrival at Manila, the sum of P20,150, which was the amount of
the insurance policy on the life of said deceased, payable to the latter's estate. On
the same date Rosario Gelano Vda. de Schuetze delivered the money to said Bank
of the Philippine Islands, as administrator of the deceased's estate, which entered it
in the inventory of the testamentary estate, and then returned the money to said
widow. The present complaint seeks to recover from the defendant Juan Posadas,
Jr., Collector of Internal Revenue, the amount of P1,209 paid by the plaintiff under
protest, in its capacity of administrator of the estate of the late Adolphe Oscar
Schuetze, as inheritance tax upon the sum of P20,150, which is the amount of an
insurance policy on the deceased's life, wherein his own estate was named the
beneficiary.

ISSUE: WON the proceeds of a life-insurance policy is subject to inheritance tax.

RULING:

By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a
life-insurance policy payable to the insured's estate, on which the premiums were

EN BANC
G.R. No. L-9374 February 16, 1915
FRANCISCO DEL VAL, ET AL., plaintiffs-appellants,
vs.
ANDRES DEL VAL, defendant-appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of the city of Manila
dismissing the complaint with costs.
The pleadings set forth that the plaintiffs and defendant are brother and sisters;
that they are the only heirs at law and next of kin of Gregorio Nacianceno del Val,
who died in Manila on August 4, 1910, intestate; that an administrator was
appointed for the estate of the deceased, and, after a partial administration, it was
closed and the administrator discharged by order of the Court of First Instance
dated December 9, 1911; that during the lifetime of the deceased he took out
insurance on his life for the sum of P40,000 and made it payable to the defendant
as sole beneficiary; that after his death the defendant collected the face of the
policy; that of said policy he paid the sum of P18,365.20 to redeem certain real
estate which the decedent had sold to third persons with a right to repurchase; that
the redemption of said premises was made by the attorney of the defendant in the
name of the plaintiff and the defendant as heirs of the deceased vendor; that the
redemption of said premises they have had the use and benefit thereof; that during
that time the plaintiffs paid no taxes and made no repairs.
It further appears from the pleadings that the defendant, on the death of the
deceased, took possession of most of his personal property, which he still has in his
possession, and that he has also the balance on said insurance policy amounting to
P21,634.80.
Plaintiffs contend that the amount of the insurance policy belonged to the estate of
the deceased and not to the defendant personally; that, therefore, they are entitled
to a partition not only of the real and personal property, but also of the P40,000 life
insurance. The complaint prays a partition of all the property, both real and
personal, left by the deceased; that the defendant account for P21,634.80, and that
that sum be divided equally among the plaintiffs and defendant along with the
other property of deceased.
44
The defendant denies the material allegations of the complaint and sets up as
special defense and counterclaim that the redemption of the real estate sold by his
father was made in the name of the plaintiffs and himself instead of in his name
alone without his knowledge or consent; and that it was not his intention to use the
proceeds of the insurance policy for the benefit of any person but himself, he
alleging that he was and is the sole owner thereof and that it is his individual
property. He, therefore, asks that he be declared the owner of the real estate
redeemed by the payment of the P18,365.20, the owner of the remaining
P21,634.80, the balance of the insurance policy, and that the plaintiff's account for
the use and occupation of the premises so redeemed since the date of the
redemption.
The learned trial court refused to give relief to either party and dismissed the
action.
It says in its opinion: "This purports to be an action for partition, brought against an
heir by his coheirs. The complaint, however, fails to comply with Code Civ., Pro. sec.
183, in that it does not 'contain an adequate description of the real property of
which partition is demanded.' Because of this defect (which has not been called to
our attention and was discovered only after the cause was submitted) it is more
than doubtful whether any relief can be awarded under the complaint, except by
agreement of all the parties."
This alleged defect of the complaint was made one of the two bases for the
dismissal of the action.
We do not regard this as sufficient reason for dismissing the action. It is the
doctrine of this court, set down in several decisions, Lizarraga Hermanos vs. Yap
Tico, 24 Phil. Rep., 504, that, even though the complaint is defective to the extent
of failing in allegations necessary to constitute a cause of action, if, on the trial of
the cause, evidence is offered which establishes the cause of action which the
complaint intended to allege, and such evidence is received without objection, the
defect is thereby cured and cannot be made the ground of a subsequent objection.
If, therefore, evidence was introduced on the trial in this case definitely and clearly
describing the real estate sought to be partitioned, the defect in the complaint was
cured in that regard and should not have been used to dismiss the action. We do
not stop to inquire whether such evidence was or was not introduced on the trial,
inasmuch as this case must be turned for a new trial with opportunity to both
parties to present such evidence as is necessary to establish their respective claims.

The court in its decision further says: "It will be noticed that the provision above
quoted refers exclusively to real estate. . . . It is, in other words, an exclusive real
property action, and the institution thereof gives the court no jurisdiction over
chattels. . . . But no relief could possibly be granted in this action as to any property
except the last (real estate), for the law contemplated that all the personal property
of an estate be distributed before the administration is closed. Indeed, it is only in
exceptional cases that the partition of the real estate is provided for, and this too is
evidently intended to be effected as a part of the administration, but here the
complaint alleges that the estate was finally closed on December 9, 1911, and we
find upon referring to the record in that case that subsequent motion to reopen the
same were denied; so that the matter of the personal property at least must be
considered res judicata (for the final judgment in the administration proceedings
must be treated as concluding not merely what was adjudicated, but what might
have been). So far, therefore, as the personal property at least is concerned,
plaintiffs' only remedy was an appeal from said order."
We do not believe that the law is correctly laid down in this quotation. The courts of
the Islands have jurisdiction to divide personal property between the common
owners thereof and that power is as full and complete as is the power to partition
real property. If an actual partition of personal property cannot be made it will be
sold under the direction of the court and the proceeds divided among the owners
after the necessary expenses have been deducted.
The administration of the estate of the decedent consisted simply, so far as the
record shows, in the payment of the debts. No division of the property, either real
or personal, seems to have been made. On the contrary, the property appears,
from the record, to have been turned over to the heirs in bulk. The failure to
partition the real property may have been due either to the lack of request to the
court by one or more of the heirs to do so, as the court has no authority to make a
partition of the real estate without such request; or it may have been due to the
fact that all the real property of decedent had been sold under pacto de retro and
that, therefore, he was not the owner of any real estate at the time of his death. As
to the personal property, it does not appear that it was disposed of in the manner
provided by law. (Sec. 753, Code of Civil Procedure.) So far as this action is
concerned, however, it is sufficient for us to know that none of the property was
actually divided among the heirs in the administration proceeding and that they
remain coowners and tenants-in- common thereof at the present time. To maintain
an action to partition real or personal property it is necessary to show only that it is
owned in common.
45
The order finally closing the administration and discharging the administrator,
referred to in the opinion of the trial court, has nothing to do with the division of
either the real or the personal property. The heirs have the right to ask the probate
court to turn over to them both the real and personal property without division;
and where that request is unanimous it is the duty of the court to comply with it,
and there is nothing in section 753 of the Code of Civil Procedure which prohibits it.
In such case an order finally settling the estate and discharging the administrator
would not bar a subsequent action to require a division of either the real or
personal property. If, on the other hand, an order had been made in the
administration proceedings dividing the personal or the real property, or both,
among the heirs, then it is quite possible that, to a subsequent action brought by
one of the heirs for a partition of the real or personal property, or both, there could
have been interposed a plea of res judicata based on such order. As the matter now
stands, however, there is no ground on which to base such a plea. Moreover, no
such plea has been made and no evidence offered to support it.
With the finding of the trial court that the proceeds of the life-insurance policy
belong exclusively to the defendant as his individual and separate property, we
agree. That the proceeds of an insurance policy belong exclusively to the
beneficiary and not to the estate of the person whose life was insured, and that
such proceeds are the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured, is the doctrine in America. We
believe that the same doctrine obtains in these Islands by virtue of section 428 of
the Code of Commerce, which reads:
The amount which the underwriter must deliver to the person insured, in
fulfillment of the contract, shall be the property of the latter, even against
the claims of the legitimate heirs or creditors of any kind whatsoever of
the person who effected the insurance in favor of the former.
It is claimed by the attorney for the plaintiffs that the section just quoted is
subordinate to the provisions of the Civil Code as found in article 1035. This article
reads:
An heir by force of law surviving with others of the same character to a
succession must bring into the hereditary estate the property or securities
he may have received from the deceased during the life of the same, by
way of dowry, gift, or for any good consideration, in order to compute it in
fixing the legal portions and in the account of the division.

Counsel also claim that the proceeds of the insurance policy were a donation or gift
made by the father during his lifetime to the defendant and that, as such, its
ultimate destination is determined by those provisions of the Civil Code which
relate to donations, especially article 819. This article provides that "gifts made to
children which are not betterments shall be considered as part of their legal
portion."
We cannot agree with these contentions. The contract of life insurance is a special
contract and the destination of the proceeds thereof is determined by special laws
which deal exclusively with that subject. The Civil Code has no provisions which
relate directly and specifically to life- insurance contracts or to the destination of
life insurance proceeds. That subject is regulated exclusively by the Code of
Commerce which provides for the terms of the contract, the relations of the parties
and the destination of the proceeds of the policy.
The proceeds of the life-insurance policy being the exclusive property of the
defendant and he having used a portion thereof in the repurchase of the real estate
sold by the decedent prior to his death with right to repurchase, and such
repurchase having been made and the conveyance taken in the names of all of the
heirs instead of the defendant alone, plaintiffs claim that the property belongs to
the heirs in common and not to the defendant alone.
We are not inclined to agree with this contention unless the fact appear or be
shown that the defendant acted as he did with the intention that the other heirs
should enjoy with him the ownership of the estate — in other words, that he
proposed, in effect, to make a gift of the real estate to the other heirs. If it is
established by the evidence that that was his intention and that the real estate was
delivered to the plaintiffs with that understanding, then it is probable that their
contention is correct and that they are entitled to share equally with the defendant
therein. If, however, it appears from the evidence in the case that the conveyances
were taken in the name of the plaintiffs without his knowledge or consent, or that it
was not his intention to make a gift to them of the real estate, then it belongs to
him. If that facts are as stated, he has two remedies. The one is to compel the
plaintiffs to reconvey to him and the other is to let the title stand with them and to
recover from them the sum he paid on their behalf.
For the complete and proper determination of the questions at issue in this case,
we are of the opinion that the cause should be returned to the trial court with
instructions to permit the parties to frame such issues as will permit the settlement
of all the questions involved and to introduce such evidence as may be necessary
for the full determination of the issues framed. Upon such issues and evidence
46
taken thereunder the court will decide the questions involved according to the
evidence, subordinating his conclusions of law to the rules laid down in this opinion.
We do not wish to be understood as having decided in this opinion any question of
fact which will arise on the trial and be there in controversy. The trial court is left
free to find the facts as the evidence requires. To the facts as so found he will apply
the law as herein laid down.
The judgment appealed from is set aside and the cause returned to the Court of
First Instance whence it came for the purpose hereinabove stated. So ordered.
Facts:
> Petitioners and private respondents are brothers and Sisters and are the only
heirs and next of kin of Gregorio del Val who died intestate.
> It was found out that the deceased took out insurance on his life for the sum of
40T and made it payable to private respondents as sole beneficiary.
> After Gregorio’s death, Andres collected the proceeds of the policy.
> Of the said policy, Andres paid 18T to redeem some real property which Gregorio
had sold to third persons during his lifetime.
> Said redemption of the property was made by Andres’ laywer in the name of
Andres and the petitioners. (Accdg to Andres, said redemption in the name of
Petitioners and himself was without his knowledge and that since the redemption,
petitioners have been in possession of the property)
> Petitioners now contend that the amount of the insurance policy belonged to the
estate of the deceased and not to Andres personally.
> Pet filed a complaint for partition of property including the insurance proceeds
> Andress claims that he is the sole owner of the proceeds and prayed that he be
declared:
> Sole owner of the real property, redeemed with the use of the insurance
proceeds and its remainder;
> Petitioners to account for the use and occupation of the premises.
 47

Issue: Whether or not the petitioners have a right to the insurance proceeds? ISSUE: W/N the Andres as sole beneficiary should have exclusive right to the
insurance claim.
Held:

NO .The contract of life insurance is a special contract and the destination of the
proceeds thereof is determined by special laws which deal exclusively with the
subject. Our civil code has no provisions which relate directly and specifically to
life-insurance contracts of to the destination of life-insurance proceeds that subject
is regulated exclusively by the Code of Commerce. Thus, contention of petitioners
that proceeds should be considered as a donation or gift and should be included in
the estate of the deceased is UNTENABLE.
Since the repurchase has been made n the names of all the heirs instead of the
defendant alone, petitioners claim that the property belongs to the heirs in
common and not to the defendant alone. The SC held that if it is established by
evidence that that was his intention and that the real estate was delivered to the
plaintiffs with that understanding, then it is probable that their contention is
correct and that they are entitled to share equally with the defendant. HOWEVER,
it appears from the evidence that the conveyances were taken in the name of the
plaintiffs without the knowledge and consent of Andres, or that it was not his
intention to make a gift to them of real estate, when it belongs to him.
HELD:
YES. judgment appealed from is set aside and the cause returned to the CFI
 agree with the CFI proceeds of an insurance policy belong exclusively to the
beneficiary
 The contract of life insurance is a special contract and the destination of the
proceeds thereof is determined by special laws which deal exclusively with that
subject. The Civil Code has no provisions which relate directly and specifically to
life- insurance contracts or to the destination of life insurance proceeds.
 CA not inclined to agree with this contention unless the fact appear or be
shown that the defendant acted as he did with the intention to make a gift of
the real estate to the other heirs.

Lessons Applicable: Estate (Insurance)

FACTS:

 Gregorio Nacianceno del Val had a life insurance of P40,000 naming as sole
beneficiary his brother Andres Del Val who used the insurance money to
repurchase his estate for P18,365.20 and keeping the balance of the insurance
of P21,634.80 he also did the same to the personal properties in his possesion
 Francisco Del Val, Et Al., brothers and sisters, contended that the insurance
claim as well as the personal properties should be given to the estate and not to
Andres.
 Andres: It was his fathers who sold the property named with his brothers and
sisters without his consent. Claims that the insurance is solely his.
 Trial Court: dismissed the action stating that it is an action for partition between
co-heirs The complaint, however, fails to comply with Code Civ., Pro. sec. 183, in
that it does not 'contain an adequate description of the real property of which
partition is demanded. Since the estate was finally closed. the matter of the
personal property at least must be considered res judicata.
 48

EN BANC or disability caused by accidental means". Appellant insurer now contends that
while the death of the insured was due to head injury, said injury was sustained
G.R. No. L-21574 June 30, 1966 because of his voluntary participation in the contest. It is claimed that the
participation in the boxing contest was the "means" that produced the injury which,
SIMON DE LA CRUZ, plaintiff and appellee, in turn, caused the death of the insured. And, since his inclusion in the boxing card
vs. was voluntary on the part of the insured, he cannot be considered to have met his
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant. death by "accidental means".

BARRERA, J.: The terms "accident" and "accidental", as used in insurance contracts, have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision
happen by chance or fortuitously, without intention and design, and which is
of the Court of First Instance of Pangasinan (in Civ Case No. U-265), ordering it to
unexpected, unusual, and unforeseen. An accident is an event that takes place
indemnify therein plaintiff Simon de la Cruz for the death of the latter's son, to pay
without one's foresight or expectation — an event that proceeds from an unknown
the burial expenses, and attorney's fees.
cause, or is an unusual effect of a known cause and, therefore, not expected. 1
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in
Appellant however, would like to make a distinction between "accident or
Baguio, was the holder of an accident insurance policy (No. ITO-BFE-170)
accidental" and "accidental means", which is the term used in the insurance policy
underwritten by the Capital Insurance & Surety Co., Inc., for the period beginning
involved here. It is argued that to be considered within the protection of the policy,
November 13, 1956 to November 12, 1957. On January 1, 1957, in connection with
what is required to be accidental is the means that caused or brought the death and
the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing
not the death itself. It may be mentioned in this connection, that the tendency of
contest for general entertainment wherein the insured Eduardo de la Cruz, a non-
court decisions in the United States in recent years is to eliminate the fine
professional boxer participated. In the course of his bout with another person,
distinction between the terms "accidental" and "accidental means" and to consider
likewise a non-professional, of the same height, weight, and size, Eduardo slipped
them as legally synonymous.2 But, even if we take appellant's theory, the death of
and was hit by his opponent on the left part of the back of the head, causing
the insured in the case at bar would still be entitled to indemnification under the
Eduardo to fall, with his head hitting the rope of the ring. He was brought to the
policy. The generally accepted rule is that, death or injury does not result from
Baguio General Hospital the following day. The cause of death was reported as
accident or accidental means within the terms of an
hemorrhage, intracranial, left.
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury. 3 There is no
Simon de la Cruz, the father of the insured and who was named beneficiary under
accident when a deliberate act is performed unless some additional, unexpected,
the policy, thereupon filed a claim with the insurance company for payment of the
independent, and unforeseen happening occurs which produces or brings about the
indemnity under the insurance policy. As the claim was denied, De la Cruz instituted
result of injury or death.4 In other words, where the death or injury is not the
the action in the Court of First Instance of Pangasinan for specific performance.
natural or probable result of the insured's voluntary act, or if something unforeseen
Defendant insurer set up the defense that the death of the insured, caused by his
occurs in the doing of the act which produces the injury, the resulting death is
participation in a boxing contest, was not accidental and, therefore, not covered by
within the protection of policies insuring against death or injury from accident.
insurance. After due hearing the court rendered the decision in favor of the plaintiff
which is the subject of the present appeal.
In the present case, while the participation of the insured in the boxing contest is
voluntary, the injury was sustained when he slid, giving occasion to the infliction by
It is not disputed that during the ring fight with another non-professional boxer,
his opponent of the blow that threw him to the ropes of the ring. Without this
Eduardo slipped, which was unintentional. At this opportunity, his opponent landed
unfortunate incident, that is, the unintentional slipping of the deceased, perhaps he
on Eduardo's head a blow, which sent the latter to the ropes. That must have
could not have received that blow in the head and would not have died. The fact
caused the cranial injury that led to his death. Eduardo was insured "against death
 49

that boxing is attended with some risks of external injuries does not make any
injuries received in the course of the game not accidental. In boxing as in other
equally physically rigorous sports, such as basketball or baseball, death is not
ordinarily anticipated to result. If, therefore, it ever does, the injury or death can
only be accidental or produced by some unforeseen happening or event as what
occurred in this case.
Furthermore, the policy involved herein specifically excluded from its coverage —
(e) Death or disablement consequent upon the Insured engaging in
football, hunting, pigsticking, steeplechasing, polo-playing, racing of any
kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was not
declared outside of the protection of the insurance contract. Failure of the
defendant insurance company to include death resulting from a boxing match or
other sports among the prohibitive risks leads inevitably to the conclusion that it
did not intend to limit or exempt itself from liability for such death. 5
Wherefore, in view of the foregoing considerations, the decision appealed from is
hereby affirmed, with costs against appellant. so ordered.
HELD:
The terms “accident” and “accidental” as used in the insurance contract, have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that proceeds from
an unknown cause and, therefore, not expected. Without the unintentional slipping
of the deceased, perhaps he would not have received the blow in the head and
would not have died. Boxing is attended with some risks of external injuries, but
any injury received in the course of the game could be accidental. In boxing, as in
other equally physically rigorous sports, such as basketball or baseball, death is not
ordinarily anticipated to result. If, therefore, it ever does, the injury or death can
only be accidental or produced by some unforeseen happening or event as what
occurred in this case. The insurer was liable.
WHEREFORE, in view of the foregoing, considerations, the decision appealed from is
hereby affirmed, with costs against appellant, so ordered.

FACTS:

Eduardo de la Cruz, the son of herein petitioner, was the holder of an accident
insurance policy. In connection with the celebration of the New Year, the insured, a
non-professional boxer, participated in a boxing contest. In the course of his bout
with another person, likewise a non-professional, of the same height, weight, and
size, Eduardo slipped and was hit by his opponent on the left part of the back of the
head, causing Eduardo to fall, with his head hitting the rope of the ring. The insured
died with the cause of death reported as “hemorrhage intercranial, left”. The
insurer refused to pay the proceeds of the policy on the ground that the death of
the insured, caused by his participation in a boxing contest, was not accidental and,
therefore, not covered by insurance.

ISSUE: Whether or not the death of the insured is covered by the policy.

FIRST DIVISION
G.R. No. 105562 September 27, 1993
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO,
CELIA CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.
DAVIDE, JR., J.:
This is an appeal by certiorari to review and set aside the Decision of the public
respondent Court of Appeals in CA-G.R. SP No. 22950 1 and its Resolution denying
the petitioners' motion for reconsideration. 2 The challenged decision modified the
decision of the Insurance Commission in IC Case
No. RD-058. 3
The petitioners were the complainants in IC Case No. RD-058, an administrative
complaint against private respondent Insular Life Assurance Company, Ltd.
(hereinafter Insular Life), which was filed with the Insurance Commission on 20
September 1989. 4 They prayed therein that after due proceedings, Insular Life "be
ordered to pay the claimants their insurance claims" and that "proper
sanctions/penalties be imposed on" it "for its deliberate, feckless violation of its
contractual obligations to the complainants, and of the Insurance Code." 5 Insular
Life's motion to dismiss the complaint on the ground that "the claims of
complainants are all respectively beyond the jurisdiction of the Insurance
Commission as provided in Section 416 of the Insurance Code," 6 having been
denied in the Order of 14 November 1989, 7it filed its answer on 5 December
1989. 8 Thereafter, hearings were conducted on various dates.
On 20 June 1990, the Commission rendered its decision 9 in favor of the
complainants, the dispositive portion of which reads as follows:
WHEREFORE, this Commission merely orders the respondent company to:
a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a
copy of this Decision until actual payment thereof;
50
b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for
P50,000.00 and P40,000.00, respectively;
c) Notify henceforth it should notify individual beneficiaries designated
under any Group Policy, in the event of the death of insured(s), where the
corresponding claims are filed by the Policyholder;
d) Show cause within ten days why its other responsible officers who have
handled this case should not be subjected to disciplinary and other
administrative sanctions for deliberately releasing to Capt. Nuval the check
intended for spouses ALARCON, in the absence of any Special Power of
Attorney for that matter, and for negligence with respect to the release of
the other five checks.
SO ORDERED. 10
In holding for the petitioners, the Insurance Commission made the following
findings and conclusions:
After taking into consideration the evidences [sic], testimonial and
documentary for the complainants and the respondent, the Commission
finds that; First: The respondent erred in appreciating that the powers of
attorney executed by five (5) of the several beneficiaries convey absolute
authority to Capt. Nuval, to demand, receive, receipt and take delivery of
insurance proceeds from respondent Insular Life. A cursory reading of the
questioned powers of authority would disclosed [sic] that they do not
contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising
from the death of the seaman-insured. On the contrary, the said powers of
attorney are couched in terms which could easily arouse suspicion of an
ordinary
man. . . .
Second: The testimony of the complainants' rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor her
husband, executed a special power of attorney in favor of Captain Rosendo Nuval,
authorizing him to claim, receive, receipt and take delivery of any insurance
proceeds from Insular Life arising out of the death of their insured/seaman son, is
not convincingly refuted.

Third: Respondent Insular Life did not observe Section 180 of the Insurance Code,
when it issued or released two checks in the amount of P150,000.00 for the three
minor children (P50,000.00 each) of complainant, Dina Ayo and another check of
P40,000.00 for minor beneficiary Marissa Lontok, daughter of another complainant
Lucia Lontok, there being no showing of any court authorization presented or the
requisite bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor,
any right, under the policy, without necessity of court authority or the giving of a
bond where the interest of the minor in the particular act involved does not exceed
twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which docketed the case
as CA-G.R. SP No. 22950. The appeal urged the appellate court to reverse the
decision because the Insurance Commission (a) had no jurisdiction over the case
considering that the claims exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were
insufficient to convey absolute authority to Capt. Nuval to demand, receive and
take delivery of the insurance proceeds pertaining to the petitioners, (c) erred in
not giving credit to the version of Insular Life that the power of attorney supposed
to have been executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the
Insurance Code for having released to the surviving mothers the insurance proceeds
pertaining to the beneficiaries who were still minors despite the failure of the
former to obtain a court authorization or to post a bond.
On 10 October 1991, the public respondent rendered a decision, 12 the decretal
portion of which reads:
WHEREFORE, the decision appealed from is modified by eliminating
therefrom the award to Dina Ayo and Lucia Lontok in the amounts of
P50,000.00 and P40,000.00, respectively. 13
It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
51
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to provide
life insurance coverage to its sea-based employees enrolled under the plan. On 17
February 1986, during the effectivity of the policy, six covered employees of the
PMSI perished at sea when their vessel, M/V Nemos, a Greek cargo vessel, sunk
somewhere in El Jadida, Morocco. They were survived by complainants-appellees,
the beneficiaries under the policy.
Following the tragic demise of their loved ones, complainants-appellees sought to
claim death benefits due them and, for this purpose, they approached the President
and General Manager of PMSI, Capt. Roberto Nuval. The latter evinced willingness
to assist complainants-appellees to recover Overseas Workers Welfare
Administration (OWWA) benefits from the POEA and to work for the increase of
their PANDIMAN and other benefits arising from the deaths of their husbands/sons.
They were thus made to execute, with the exception of the spouses Alarcon, special
powers of attorney authorizing Capt. Nuval to, among others, "follow up, ask,
demand, collect and receive" for their benefit indemnities of sums of money due
them relative to the sinking of M/V Nemos. By virtue of these written powers of
attorney, complainants-appellees were able to receive their respective death
benefits. Unknown to them, however, the PMSI, in its capacity as employer and
policyholder of the life insurance of its deceased workers, filed with respondent-
appellant formal claims for and in behalf of the beneficiaries, through its President,
Capt. Nuval. Among the documents submitted by the latter for the processing of
the claims were five special powers of attorney executed by complainants-
appellees. On the basis of these and other documents duly submitted, respondent-
appellant drew against its account with the Bank of the Philippine Islands on 27
May 1986 six (6) checks, four for P200,00.00 each, one for P50,000.00 and another
for P40,00.00, payable to the order of complainants-appellees. These checks were
released to the treasurer of PMSI upon instructions of Capt. Nuval over the phone
to Mr. Mariano Urbano, Assistant Department Manager for Group Administration
Department of respondent-appellant. Capt. Nuval, upon receipt of these checks
from the treasurer, who happened to be his son-in-law, endorsed and deposited
them in his account with the Commercial Bank of Manila, now Boston Bank.
On 3 July 1989, after complainants-appellees learned that they were entitled, as
beneficiaries, to life insurance benefits under a group policy with respondent-
appellant, they sought to recover these benefits from Insular Life but the latter
denied their claim on the ground that the liability to complainants-appellees was
already extinguished upon delivery to and receipt by PMSI of the six (6) checks
issued in their names. 14

On the basis thereof, the public respondent held that the Insurance Commission
had jurisdiction over the case on the ground that although some of the claims
exceed P100,000.00, the petitioners had asked for administrative sanctions against
Insular Life which are within the Commission's jurisdiction to grant; hence, "there
was merely a misjoinder of causes of action . . . and, like misjoinder of parties, it is
not a ground for the dismissal of the action as it does not affect the other reliefs
prayed for." 15 It also rejected Insular Life's claim that the Alarcons had submitted a
special power of attorney which they (Insular Life) later misplaced.
On the other hand, the public respondent ruled that the powers of attorney,
Exhibits "1" to "5," relied upon by Insular Life were sufficient to authorize Capt.
Nuval to receive the proceeds of the insurance pertaining to the beneficiaries. It
stated:
When the officers of respondent-appellant read these written powers,
they must have assumed Capt. Nuval indeed had authority to collect the
insurance proceeds in behalf of the beneficiaries who duly affixed their
signatures therein. The written power is specific enough to define the
authority of the agent to collect any sum of money pertaining to the
sinking of the fatal vessel. Respondent-appellant interpreted this power to
include the collection of insurance proceeds in behalf of the beneficiaries
concerned. We believe this is a reasonable interpretation even by an
officer of respondent-appellant unschooled in the law. Had respondent
appellant, consulted its legal department it would not have received a
contrary view. There is nothing in the law which mandates a specific or
special power of attorney to be executed to collect insurance proceeds.
Such authority is not included in the enumeration of Art. 1878 of the New
Civil Code. Neither do we perceive collection of insurance claims as an act
of strict dominion as to require a special power of attorney. Moreover,
respondent-appellant had no reason to doubt Capt. Nuval. Not only was he
armed with a seemingly genuine authorization, he also appeared to be the
proper person to deal with respondent-appellant being the President and
General Manager of the PMSI, the policyholder with whom respondent-
appellant always dealt. The fact that there was a verbal agreement
between complainants-appellees and Capt. Nuval limiting the authority of
the latter to claiming specified death benefits cannot prejudice the
insurance company which relied on the terms of the powers of attorney
which on their face do not disclose such limitation. Under the
circumstances, it appearing that complainants-appellees have failed to
point to a positive provision of law or stipulation in the policy requiring a
specific power of attorney to be presented, respondents-appellant's
52
reliance on the written powers was in order and it cannot be penalized for
such an act. 16
Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled
that the requirement in Section 180 of the Insurance Code which provides in part
that:
In the absence of a judicial guardian, the father, or in the latter's absence
or incapacity, the mother, of any minor, who is an insured or a beneficiary
under a contract of life, health or accident insurance, may exercise, in
behalf of said minor, any right under the policy, without necessity of court
authority or the giving of a bond, where the interest of the minor in the
particular act involved does not exceed twenty thousand pesos. Such a
right, may include, but shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds of the policy, and giving the
minor's consent to any transaction on the policy.
has been amended by the Family Code 17 which grants the father and
mother joint legal guardianship over the property of their unemancipated
common child without the necessity of a court appointment; however,
when the market value of the property or the annual income of the child
exceeds P50,000.00, the parent concerned shall be required to put up a
bond in such amount as the court may determine.
Hence, this petition for review on certiorari which we gave due course after the
private respondent had filed the required comment thereon and the petitioners
their reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits "1" to "5,"
which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia
Calumag, and Marilyn Montenegro, respectively, on 14 May 1986 18 and uniformly
granted to Capt. Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt for my benefit indemnities
or sum of money due me relative to the sinking of M.V. NEMOS in the
vicinity of El Jadida, Casablanca, Morocco on the evening of February 17,
1986; and
 53

To sign receipts, documents, pertinent waivers of indemnities or other a The practice of our company in claim pertaining to group insurance, the
writings of whatsoever nature with any and all third persons, concerns and policyholder is the one who files the claim for the beneficiaries of the deceased. At
entities, upon terms and conditions acceptable to my said attorney. that time, Capt. Noval [sic] is the President and General Manager of Prime Marine.

We agree with the Insurance Commission that the special powers of attorney "do q What is the reason why policyholders are the ones who file the claim and not the
not contain in unequivocal and clear terms authority to Capt. Nuval to obtain, designated beneficiaries of the employees of the policyholders?
receive, receipt from respondent company insurance proceeds arising from the
death of the seaman-insured. On the contrary, the said powers of attorney are a Yes because group insurance is normally taken by the employer as an employee-
couched in terms which could easily arouse suspicion of an ordinary man." 19 The benefit program and as such, the benefit should be awarded by the policyholder to
holding of the public respondent to the contrary is principally premised on its make it appear that the benefit really is given by the employer. 20
opinion that:
On cross-examination, Urbano further elaborated that even payments, among
[t]here is nothing in the law which mandates a specific or special power of other things, are coursed through the policyholder:
attorney to be executed to collect insurance proceeds. Such authority is
not included in the enumeration of art. 1878 of the New Civil Code. q What is the corporate concept of group insurance insofar as Insular Life is
Neither do we perceive collection of insurance claims as an act of strict concerned?
dominion as to require a special power of attorney.
WITNESS:
If this be so, then they could not have been meant to be a general power of
attorney since Exhibits "1" to "5" are special powers of attorney. The execution by
a Group insurance is a contract where a group of individuals are covered under one
the principals of special powers of attorney, which clearly appeared to be in
master contract. The individual underwriting characteristics of each individual is not
prepared forms and only had to be filled up with their names, residences, dates of
considered in the determination of whether the individual is insurable or not. The
execution, dates of acknowledgment and others, excludes any intent to grant a
contract is between the policyholder and the insurance company. In our case, it is
general power of attorney or to constitute a universal agency. Being special powers
Prime Marine and Insular Life. We do not have contractual obligations with the
of attorney, they must be strictly construed.
individual employees; it is between Prime Marine and Insular Life.

Certainly, it would be highly imprudent to read into the special powers of attorney
q And so it is part of that concept that all inquiries, follow-up, payment of claims,
in question the power to collect and receive the insurance proceeds due the
premium billings, etc. should always be coursed thru the policyholder?
petitioners from Group Policy No. G-004694. Insular Life knew that a power of
attorney in favor of Capt. Nuval for the collection and receipt of such proceeds was
a Yes that is our practice.
a deviation from its practice with respect to group policies. Such practice was
testified to by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group
Administrative Department, thus: q And when you say claim payments should always be coursed thru the policyholder,
do you require a power of attorney to be presented by the policyholder or not?
ATTY. CAGUIOA:
a Not necessarily.
Can you explain to us why in this case, the claim was filed by a certain Capt. Noval
[sic]? q In other words, under a group insurance policy like the one in this case, Insular
Life could pay the claims to the policyholder himself even without the presentation
of any power of attorney from the designated beneficiaries?
WITNESS:
 54

WITNESS: This practice is usual in the group insurance business and is consistent with the
jurisprudence thereon in the State of California — from whose laws our Insurance
a No. Sir. Code has been mainly patterned — which holds that the employer-policyholder is
the agent of the insurer.
ATTY. AMPIL:
Group insurance is a comparatively new form of insurance. In the United States, the
q Why? Is this case, the present case different from the cases which you answered first modern group insurance policies appear to have been issued in 1911 by the
that no power of attorney is necessary in claims payments? Equitable Life Assurance Society. 22 Group insurance is essentially a single insurance
contract that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance coverage for the
WITNESS:
employees of one employer.
a We did not pay Prime Marine; we paid the beneficiaries.
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
q Will you now tell the Honorable Commission why you did not pay Prime Marine
administrator of the insurance program, such as an employer. 23The employer acts
and instead paid the beneficiaries, the designated beneficiaries?
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
ATTY. AMPIL: is the disbursement of insurance payments by the employer to the
employees. 24 Most policies, such as the one in this case, require an employee to
I will rephrase the question. 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
q Will you tell the Commission what circumstances led you to pay the designated compared to a non-contributory plan where the premiums are solely paid by the
beneficiaries, the complainants in this case, instead of the policyholder when as you employer.
answered a while ago, it is your practice in group insurance that claims payments,
etc., are coursed thru the policyholder? 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
WITNESS: 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
a It is coursed but, it is not paid to the policyholder. compensation paid for the services of the employee. 25 Put differently, the labor of
the employees is the true source of the benefits, which are a form of additional
q And so in this case, you gave the checks to the policyholder only coursing them compensation to them.
thru said policyholder?
It has been stated that every problem concerning group insurance presented to a
a That is right, Sir. court should be approached with the purpose of giving to it every legitimate
opportunity of becoming a social agency of real consequence considering that the
primary aim is to provide the employer with a means of procuring insurance
q Not directly to the designated beneficiaries?
protection for his employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the employees to
a Yes, Sir. 21 carry a larger amount of insurance than they could otherwise, and helps to attract
and hold a permanent class of employees. 26

In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court
explicitly ruled that in group insurance policies, the employer is the agent of the
insurer. Thus:
We are convinced that the employer is the agent of the insurer in
performing the duties of administering group insurance policies. It cannot
be said that the employer acts entirely for its own benefit or for the
benefit of its employees in undertaking administrative functions. While a
reduced premium may result if the employer relieves the insurer of these
tasks, and this, of course, is advantageous to both the employer and the
employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of sales, and
at the same time the insurer's own administrative costs are markedly
reduced.
The most persuasive rationale for adopting the view that the employer
acts as the agent of the insurer, however, is that the employee has no
knowledge of or control over the employer's actions in handling the policy
or its administration. An agency relationship is based upon consent by one
person that another shall act in his behalf and be subject to his control. It is
clear from the evidence regarding procedural techniques here that the
insurer-employer relationship meets this agency test with regard to the
administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance
of the employer's administrative acts, and if these duties are not
undertaken properly the insurer is in a position to exercise more
constricted control over the employer's conduct.
In Neider vs. Continental Assurance Company, 28 which was cited in Elfstrom, it was
held that:
[t]he employer owes to the employee the duty of good faith and due
care in attending to the policy, and that the employer should make clear to
the employee anything required of him to keep the policy in effect, and the
time that the obligations are due. In its position as administrator of the
policy, we feel also that the employer should be considered as the agent of
the insurer, and any omission of duty to the employee in its administration
should be attributable to the insurer.
55
The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John
Hancock Mutual Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State
Board of Equalization. 30
In the light of the above disquisitions and after an examination of the facts of this
case, we hold that PMSI, through its President and General Manager, Capt. Nuval,
acted as the agent of Insular Life. The latter is thus bound by the misconduct of its
agent.
Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the
petitioners. Unfortunately, through its official, Mr. Urbano, it acted imprudently
and negligently in the premises by relying without question on the special power of
attorney. In Strong vs. Repide, 31 this Court ruled that it is among the established
principles in the civil law of Europe as well as the common law of American that
third persons deal with agents at their peril and are bound to inquire as to the
extent of the power of the agent with whom they contract. And in Harry E. Keller
Electric Co. vs. Rodriguez,32 this Court, quoting Mechem on Agency, 33 stated that:
The person dealing with an agent must also act with ordinary prudence
and reasonable diligence. Obviously, if he knows or has good reason to
believe that the agent is exceeding his authority, he cannot claim
protection. So if the suggestions of probable limitations be of such a clear
and reasonable quality, or if the character assumed by the agent is of such
a suspicious or unreasonable nature, or if the authority which he seeks to
exercise is of such an unusual or improbable character, as would suffice to
put an ordinarily prudent man upon his guard, the party dealing with him
may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true
condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of attorney were in
due form, Insular Life was grossly negligent in delivering the checks, drawn in favor
of the petitioners, to a party who is not the agent mentioned in the special power
of attorney.
Nor can we agree with the opinion of the public respondent that since the shares of
the minors in the insurance proceeds are less than P50,000.00, then under Article
225 of the Family Code their mothers could receive such shares without need of
either court appointments as guardian or the posting of a bond. It is of the view
that said Article had repealed the third paragraph of Section 180 of the Insurance
Code. 34 The pertinent portion of Article 225 of the Family Code reads as follows:
 56

Art. 225. The father and the mother shall jointly exercise legal guardianship
over the property of their unemancipated common child without the
necessity of a court appointment. In case of disagreement, the father's
decision shall prevail, unless there is judicial order to the contrary.

Where the market value of the property or the annual income of the child
exceeds P50,000, the parent concerned shall be required to furnish a bond
in such amount as the court may determine, but not less than ten per
centum (10%) of the value of the property or annual income, to guarantee
the performance of the obligations prescribed for general guardians.

It is clear from the said Article that regardless of the value of the unemancipated
common child's property, the father and mother ipso jure become the legal
guardian of the child's property. However, if the market value of the property or the
annual income of the child exceeds P50,000.00, a bond has to be posted by the
parents concerned to guarantee the performance of the obligations of a general
guardian.

It must, however, be noted that the second paragraph of Article 225 of the Family
Code speaks of the "market value of the property or the annual income of the
child," which means, therefore, the aggregate of the child's property or annual
income; if this exceeds P50,000.00, a bond is required. There is no evidence that the
share of each of the minors in the proceeds of the group policy in question is the
minor's only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of

10 October 1991 and the Resolution of 19 May 1992 of the public respondent in CA-
G.R. SP No. 22950 are SET ASIDE and the Decision of the Insurance Commission in IC
Case No. RD-058 is REINSTATED.

Costs against the private respondent.

SO ORDERED.

THIRD DIVISION
HEIRS OF LORETO C. MARAMAG, represented by surviving
spouse VICENTA PANGILINAN MARAMAG, Petitioners,
- versus -
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN
MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA
ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE
CORPORATION, Respondents.
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This is a petition[1] for review on certiorari under Rule 45 of the Rules, seeking to
reverse and set aside the Resolution[2] dated January 8, 2008 of the Court of
Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners appeal for lack of
jurisdiction.
The case stems from a petition[3] filed against respondents with the Regional Trial
Court, Branch 29, for revocation and/or reduction of insurance proceeds for being
void and/or inofficious, with prayer for a temporary restraining order (TRO) and a
writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of
Loreto Maramag (Loreto), while respondents were Loretos illegitimate family; (2)
Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the
killing of the latter, thus, she is disqualified to receive any proceeds from his
insurance policies from Insular Life Assurance Company, Ltd. (Insular) [4] and Great
Pacific Life Assurance Corporation (Grepalife);[5] (3) the illegitimate children of
LoretoOdessa, Karl Brian, and Trisha Angeliewere entitled only to one-half of the
legitime of the legitimate children, thus, the proceeds released to Odessa and those
57
to be released to Karl Brian and Trisha Angelie were inofficious and should be
reduced; and (4) petitioners could not be deprived of their legitimes, which should
G.R. No. 181132
be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners
June 5, 2009
alleged, among others, that part of the insurance proceeds had already been
released in favor of Odessa, while the rest of the proceeds are to be released in
favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their
legal guardian. Petitioners also prayed for the total amount of P320,000.00 as
actual litigation expenses and attorneys fees.
In answer,[6] Insular admitted that Loreto misrepresented Eva as his legitimate wife
and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they
filed their claims for the insurance proceeds of the insurance policies; that when it
ascertained that Eva was not the legal wife of Loreto, it disqualified her as a
beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie,
as the remaining designated beneficiaries; and that it released Odessas share as she
was of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship. Insular alleged that the
complaint or petition failed to state a cause of action insofar as it sought to declare
as void the designation of Eva as beneficiary, because Loreto revoked her
designation as such in Policy No. A001544070 and it disqualified her in Policy No.
A001693029; and insofar as it sought to declare as inofficious the shares of Odessa,
Karl Brian, and Trisha Angelie, considering that no settlement of Loretos estate had
been filed nor had the respective shares of the heirs been determined. Insular
further claimed that it was bound to honor the insurance policies designating the
children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance
Code.
In its own answer[7] with compulsory counterclaim, Grepalife alleged that Eva was
not designated as an insurance policy beneficiary; that the claims filed by Odessa,
Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for
insurance due to a misrepresentation in his application form that he was born on
December 10, 1936 and, thus, not more than 65 years old when he signed it in
September 2001; that the case was premature, there being no claim filed by the

legitimate family of Loreto; and that the law on succession does not apply where
the designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known
to petitioners, summons by publication was resorted to. Still, the illegitimate family
of Loreto failed to file their answer. Hence, the trial court, upon motion of
petitioners, declared them in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the
issues raised in their respective answers be resolved first. The trial court ordered
petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife
was purely legal whether the complaint itself was proper or not and that the
designation of a beneficiary is an act of liberality or a donation and, therefore,
subject to the provisions of Articles 752[8] and 772[9] of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong
exclusively to the designated beneficiaries in the policies, not to the estate or to the
heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a
beneficiary when it ascertained that Loreto was legally married to Vicenta
Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion
of which reads
WHEREFORE, the motion to dismiss incorporated in the answer of
defendants Insular Life and Grepalife is granted with respect to
defendants Odessa, Karl Brian and Trisha Maramag. The action
shall proceed with respect to the other defendants Eva Verna de
Guzman, Insular Life and Grepalife.
SO ORDERED.[10]
In so ruling, the trial court ratiocinated thus
58
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code.The principal law on
insurance is the Insurance Code, as amended. Only in case of deficiency in
the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun
Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom
the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof
that the insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made,
unless otherwise specified in the policy. Since the defendants are the ones
named as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein the insurance proceeds shall
exclusively be paid to them. This is because the beneficiary has a vested
right to the indemnity, unless the insured reserves the right to change the
beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules
on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a
contract of insurance is not the donee spoken in the law of donation. The
rules on testamentary succession cannot apply here, for the insurance
indemnity does not partake of a donation. As such, the insurance
indemnity cannot be considered as an advance of the inheritance which
can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of
Southern Luzon Employees Association v. Juanita Golpeo, et al., the
Honorable Supreme Court made the following pronouncements[:]
With the finding of the trial court that the
proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual
and separate property, we agree that the
proceeds of an insurance policy belong
exclusively to the beneficiary and not to the
estate of the person whose life was insured, and

that such proceeds are the separate and
individual property of the beneficiary and not of
the heirs of the person whose life was insured,
is the doctrine in America. We believe that the
same doctrine obtains in theseIslands by virtue
of Section 428 of the Code of Commerce x x x.
In [the] light of the above pronouncements, it is very clear that the
plaintiffs has (sic) no sufficient cause of action against defendants Odessa,
Karl Brian and Trisha Angelie Maramag for the reduction and/or
declaration of inofficiousness of donation as primary beneficiary (sic) in the
insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One
of the named beneficiary (sic) in the insurances (sic) taken by the late
Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person
who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil
Code). If a concubine is made the beneficiary, it is believed that the
insurance contract will still remain valid, but the indemnity must go to the
legal heirs and not to the concubine, for evidently, what is prohibited
under Art. 2012 is the naming of the improper beneficiary. In such case,
the action for the declaration of nullity may be brought by the spouse of
the donor or donee, and the guilt of the donor and donee may be proved
by preponderance of evidence in the same action (Comment of Edgardo L.
Paras, Civil Code of the Philippines, page 897). Since the designation of
defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in
the insurances (sic) taken by the late Loreto C. Maramag is void under Art.
739 of the Civil Code, the insurance indemnity that should be paid to her
must go to the legal heirs of the deceased which this court may properly
take cognizance as the action for the declaration for the nullity of a void
donation falls within the general jurisdiction of this Court.[11]
[12]
Insular and [13]
Grepalife filed their respective motions for
reconsideration, arguing, in the main, that the petition failed to state a
cause of action. Insular further averred that the proceeds were divided
59
among the three children as the remaining named beneficiaries. Grepalife,
for its part, also alleged that the premiums paid had already been
refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that
whether the complaint may be dismissed for failure to state a cause of action must
be determined solely on the basis of the allegations in the complaint, such that the
defenses of Insular and Grepalife would be better threshed out during trial.
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions
for Reconsideration filed by defendants Grepalife and Insular Life
are hereby GRANTED. Accordingly, the portion of the Resolution
of this Court dated 21 September 2004 which ordered the
prosecution of the case against defendant Eva Verna De Guzman,
Grepalife and Insular Life is hereby SET ASIDE, and the case
against them is hereby ordered DISMISSED.
SO ORDERED.[14]
In granting the motions for reconsideration of Insular and Grepalife, the trial court
considered the allegations of Insular that Loreto revoked the designation of Eva in
one policy and that Insular disqualified her as a beneficiary in the other policy such
that the entire proceeds would be paid to the illegitimate children of Loreto with
Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases
where there are no beneficiaries designated, or when the only designated
beneficiary is disqualified, that the proceeds should be paid to the estate of the
insured. As to the claim that the proceeds to be paid to Loretos illegitimate children
should be reduced based on the rules on legitime, the trial court held that the
distribution of the insurance proceeds is governed primarily by the Insurance Code,
and the provisions of the Civil Code are irrelevant and inapplicable. With respect to
the Grepalife policy, the trial court noted that Eva was never designated as a
beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the
dismissal of the case as to the illegitimate children. It further held that the matter of
Loretos misrepresentation was premature; the appropriate action may be filed only

upon denial of the claim of the named beneficiaries for the insurance proceeds by
Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the
appeal for lack of jurisdiction, holding that the decision of the trial court dismissing
the complaint for failure to state a cause of action involved a pure question of
law. The appellate court also noted that petitioners did not file within the
reglementary period a motion for reconsideration of the trial courts Resolution,
dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian,
and Trisha Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to
state a cause of action, may the Court consider matters which
were not alleged in the Complaint, particularly the defenses put
up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss
for failure to state a cause of action, did not the Regional Trial
Court engage in the examination and determination of what were
the facts and their probative value, or the truth thereof, when it
premised the dismissal on allegations of the defendants in their
answer which had not been proven?
c. (A)re the members of the legitimate family entitled to the
proceeds of the insurance for the concubine?[15]
In essence, petitioners posit that their petition before the trial court should not
have been dismissed for failure to state a cause of action because the finding that
Eva was either disqualified as a beneficiary by the insurance companies or that her
designation was revoked by Loreto, hypothetically admitted as true, was raised only
in the answers and motions for reconsideration of both Insular and Grepalife. They
argue that for a motion to dismiss to prosper on that ground, only the allegations in
the complaint should be considered. They further contend that, even assuming
Insular disqualified Eva as a beneficiary, her share should not have been distributed
60
to her children with Loreto but, instead, awarded to them, being the legitimate
heirs of the insured deceased, in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial courts finding that the
petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the
Rules of Court, which reads
SECTION 1. Grounds. Within the time for but before filing the
answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made on any of the following grounds:
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of
another.[16] A complaint states a cause of action when it contains the three (3)
elements of a cause of action(1) the legal right of the plaintiff; (2) the correlative
obligation of the defendant; and (3) the act or omission of the defendant in
violation of the legal right. If any of these elements is absent, the complaint
becomes vulnerable to a motion to dismiss on the ground of failure to state a cause
of action.[17]
When a motion to dismiss is premised on this ground, the ruling thereon should be
based only on the facts alleged in the complaint. The court must resolve the issue
on the strength of such allegations, assuming them to be true. The test of
sufficiency of a cause of action rests on whether, hypothetically admitting the facts
alleged in the complaint to be true, the court can render a valid judgment upon the
same, in accordance with the prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no
hypothetical admission of the veracity of the allegations if:
1. The falsity of the allegations is subject to judicial notice;
 61

2. Such allegations are legally impossible; Petitioners are third parties to the insurance contracts with Insular and Grepalife
and, thus, are not entitled to the proceeds thereof. Accordingly, respondents
3. The allegations refer to facts which are inadmissible in evidence;
Insular and Grepalife have no legal obligation to turn over the insurance proceeds

4. By the record or document in the pleading, the allegations appear unfounded; or to petitioners. The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the
5. There is evidence which has been presented to the court by stipulation of the designation of the illegitimate children as beneficiaries in Loretos insurance policies
[18]
parties or in the course of the hearings related to the case. remains valid. Because no legal proscription exists in naming as beneficiaries the
children of illicit relationships by the insured,[22] the shares of Eva in the insurance
In this case, it is clear from the petition filed before the trial court that, although
proceeds, whether forfeited by the court in view of the prohibition on donations
petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries
under Article 739 of the Civil Code or by the insurers themselves for reasons based
in the insurance policies issued by Insular and Grepalife. The basis of petitioners
on the insurance contracts, must be awarded to the said illegitimate children, the
claim is that Eva, being a concubine of Loreto and a suspect in his murder, is
designated beneficiaries, to the exclusion of petitioners. It is only in cases where the
disqualified from being designated as beneficiary of the insurance policies, and that
insured has not designated any beneficiary,[23] or when the designated beneficiary is
Evas children with Loreto, being illegitimate children, are entitled to a lesser share
disqualified by law to receive the proceeds,[24] that the insurance policy proceeds
of the proceeds of the policies.They also argued that pursuant to Section 12 of the
shall redound to the benefit of the estate of the insured.
Insurance Code,[19] Evas share in the proceeds should be forfeited in their favor, the
former having brought about the death of Loreto. Thus, they prayed that the share In this regard, the assailed June 16, 2005 Resolution of the trial court should be
of Eva and portions of the shares of Loretos illegitimate children should be awarded upheld. In the same light, the Decision of the CA dated January 8, 2008 should be
to them, being the legitimate heirs of Loreto entitled to their respective legitimes. sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the
appeal; the issue of failure to state a cause of action is a question of law and not of
It is evident from the face of the complaint that petitioners are not entitled to a
fact, there being no findings of fact in the first place.[25]
favorable judgment in light of Article 2011 of the Civil Code which expressly
provides that insurance contracts shall be governed by special laws, i.e., the WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
Insurance Code. Section 53 of the Insurance Code states
SO ORDERED.
SECTION 53. The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or for whose Lessons Applicable: To whom insurance proceeds payable (Insurance)
benefit it is made unless otherwise specified in the policy.
FACTS:
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is  Loreto Maramag designated as beneficiary his concubine Eva de Guzman
already deceased, upon the maturation of the policy. [20]
The exception to this rule is Maramag
 Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto
a situation where the insurance contract was intended to benefit third persons who
Maramag) and his concubine Eva de Guzman Maramag, also suspected in the
are not parties to the same in the form of favorable stipulations or indemnity. In
killing of Loreto and his illegitimate children are claiming for his insurance.
such a case, third parties may directly sue and claim from the insurer.[21]
 Vicenta alleges that Eva is disqualified from claiming

 RTC: Granted - civil code does NOT apply
 CA: dismissed the case for lack of jurisdiction for filing beyond reglementary
period
ISSUE: W/N Eva can claim even though prohibited under the civil code against
donation
HELD:
YES. Petition is DENIED.
 Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy of the person who cannot
make any donation to him
 If a concubine is made the beneficiary, it is believed that the insurance contract
will still remain valid, but the indemnity must go to the legal heirs and not to
the concubine, for evidently, what is prohibited under Art. 2012 is the naming
of the improper beneficiary.
 SECTION 53. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy.
 GR: only persons entitled to claim the insurance proceeds are either the
insured, if still alive; or the beneficiary, if the insured is already deceased, upon
the maturation of the policy.
 EX: situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or
indemnity. In such a case, third parties may directly sue and claim from the
insurer
 It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the proceeds,
that the insurance policy proceeds shall redound to the benefit of the estate of
the insured
Facts:
• Petitioners were the legitimate wife and children of Loreto Maramag (Loreto),
while respondents were Loreto’s illegitimate family.
62
• Loreto designated respondents as beneficiaries in his life insurance policies from
Insular Life Assurance Company, Ltd. (Insular) and Great Pacific Life Assurance
Corporation (Grepalife).
• Petitioners instituted in the RTC a petition for revocation and/or reduction of
insurance proceeds for being void and/or inofficious, with prayer for a temporary
restraining order (TRO) and a writ of preliminary injunction.
• Pursuant to the motion to dismiss incorporated in Insular and Grepalife’s
respective answers, the TC dismissed the complaint with respect to the illegitimate
children, who are the designated primary beneficiaries in the life insurance policies,
for lack of cause action. However, trial court ruled that the action may proceed
against the concubine, Insular Life, and Grepalife.
• Insular and Grepalife filed their respective motions for reconsideration, arguing, in
the main, that the petition failed to state a cause of action against them.
• TC granted, and dismissed the case against them. In doing so, the TC court
considered the allegations found in Insular’s answer.
CA dismissed petitioners’ appeal for lack of jurisdiction, holding that the decision of
the trial court dismissing the complaint for failure to state a cause of action involved
a pure question of law. Further, it found that due to petitioners’ failure to timely file
a motion for reconsideration, the dismissal against Insular and Grepalife had
already attained finality.
Issue: WON the TC erred in granting the motion to dismiss?
NO Arguments: Petitioners:
The finding that Eva was either disqualified as a beneficiary by the insurance
companies or that her designation was revoked by Loreto was raised only in the
answers and motions for reconsideration of both Insular and Grepalife. For a
motion to dismiss to prosper on that ground, only the allegations in the complaint
should be considered.
Ratio:
 63

When a motion to dismiss is premised on Sec. 1(g) of Rule 16 of the Rules of Court, • Thus, they prayed that the share of Eva and portions of the share of Loreto’s
the ruling thereon should be based only on the facts alleged in the complaint. The illegitimate children should be awarded to them, being the legitimate heirs of
court must resolve the issue on the strength of such allegations, assuming them to Loreto entitled to their respective legitimes.
be true. The test of sufficiency of a cause of action rests on whether, hypothetically
admitting the facts alleged in the complaint to be true, the court can render a valid ISSUE: Whether or not the proceeds should be awarded to the petitioners
judgment upon the same, in accordance with the prayer in the complaint. However,
HELD:
this rule is subject to well-recognized exceptions, such that there is no hypothetical
admission of the veracity of the allegations if: 1.the falsity of the allegations is No. The insurance contracts are governed by specials laws. Petitioners are third
subject to judicial notice;2.such allegations are legally impossible;3.the allegations parties to the insurance contracts with Insular and Grepalife and thus, they are not
refer to facts which are inadmissible in evidence;4.by the record or document in the entitled to the proceeds thereof.
pleading, the allegations appear unfounded; or 5.there is evidence which has been
presented to the court by stipulation of the parties or in the course of the hearings The Insular and Grepalife have no legal obligation to turn over the insurance
related to the case. It is evident from the face of the complaint that petitioners are proceeds to the petitioner.
not entitled to a favorable judgment in light of Article 2011 of the Civil Code which
It is only in cases where the insured has not designated any beneficiary, or when
expressly provides that insurance contracts shall be governed by special laws, i.e.,
the designated beneficiary is disqualified by law to receive the proceeds, that the
the Insurance Code. Section 53 of the Insurance Code states that “the insurance
insurance policy proceeds shall redound to the benefit of the estate of the insured.
proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise specified in the policy.” From
the petition filed before the trial court that, it is clear tat although petitioners are
the legitimate heirs of Loreto, they were not named as beneficiaries in the
insurance policies issued by Insular and Grepalife. Thus, they are not entitled to the
proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal
obligation to turn over the insurance proceeds to petitioners.

Heirs of Maramag vs. Maramag G.R. No. 181132 June 5, 2009

FACTS:

• Petitioners in this case are the legitimate heirs of deceased Loreto

• The petitioners were not named as beneficiaries in the insurance policies issued
by Insular and Grepalife.

• Petitioners claim that Eva, the concubine of Loreto and a suspect in his murder, is
disqualified from being designated of the insurance policies

• They further add that Eva’s children with Loreto, being illegitimate children, are
entitled to a lesser share of the proceeds of the policies

SECOND DIVISION
[G.R. No. 113899. October 13, 1999]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS AND
MEDARDA V. LEUTERIO, respondents.
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the
Decision[1] dated May 17, 1993, of the Court of Appeals and its Resolution[2] dated
January 4, 1994 in CA-G.R. CV No. 18341.The appellate court affirmed in toto the
judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance
claim filed by private respondent against Great Pacific Life Assurance Co. The
dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE
ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation
to Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF
THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of
EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorneys fees and litigation expenses in the complaint and
counterclaim, with costs against the defendant and dismissing the complaint in
respect to the plaintiffs, other than the widow-beneficiary, for lack of cause of
action.[3]
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great Pacific
Life Assurance Corporation (hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP).Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of
DBP applied for membership in the group life insurance plan. In an application form,
Dr. Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment?
64
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage.
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when he applied for an
insurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did
not disclose he had been suffering from hypertension, which caused his
death.Allegedly, such non-disclosure constituted concealment that justified the
denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch
18, against Grepalife for Specific Performance with Damages.[5] During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias
findings, based partly from the information given by the respondent widow, stated
that Dr. Leuterio complained of headaches presumably due to high blood
pressure. The inference was not conclusive because Dr. Leuterio was not autopsied,
hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent
widow and against Grepalife. On May 17, 1993, the Court of Appeals sustained the
trial courts decision. Hence, the present petition. Petitioners interposed the
following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT
LIABLE TO THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP)
WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE
PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE
OF PLAINTIFFS HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE
OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT
OF JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION
AND OVER THE PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO
PAY TO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY
EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT
PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE
CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE
GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF
THE INSURANCE CLAIM ARISING FROM THE DEATH OF WILFREDO
LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as
beneficiary in a group life insurance contract from a complaint filed by the
widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the insurance
contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the
amount of eighty six thousand, two hundred (P86,200.00) pesos without proof
of the actual outstanding mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio,
not the real party in interest, hence the trial court acquired no jurisdiction over the
case. It argues that when the Court of Appeals affirmed the trial courts judgment,
Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP,
the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged
properties and the parties to this type of contract. The rationale of a group
insurance policy of mortgagors, otherwise known as the mortgage redemption
insurance, is a device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such form of contract
so that in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation.[7] In a similar vein, ample protection is given
to the mortgagor under such a concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the insurance proceeds to the
65
mortgage indebtedness.[8] Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagors interest, and the mortgagor
continues to be a party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the interest
of the mortgagor, who does not cease to be a party to the original contract, and any
act of his, prior to the loss, which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may
be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or
interests in the insurance, the policy stating that: In the event of the debtors death
before his indebtedness with the Creditor [DBP] shall have been fully paid, an
amount to pay the outstanding indebtedness shall first be paid to the creditor and
the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor.[10] When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the defense of
concealment committed by the insured. Thereafter, DBP collected the debt from
the mortgagor and took the necessary action of foreclosure on the residential lot of
private respondent.[11] In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we
held:
Insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. * * * Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for the benefit of another
person named or unnamed, and although it is expressly made payable to another as
his interest may appear or otherwise. * * * Although a policy issued to a mortgagor
is taken out for the benefit of the mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially where the mortgagees
interest is less than the full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain.[13]
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover it whatever the insured might have recovered, [14] the widow of
the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that
Dr. Leuterio failed to disclose that he had hypertension, which might have caused
his death. Concealment exists where the assured had knowledge of a fact material
to the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds the
same.[15]
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando
Mejia, as supported by the information given by the widow of the
decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death
of Dr. Leuterio was a duly documented hospital record, and that the widows
declaration that her husband had possible hypertension several years ago should
not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. As the attending physician, Dr.
Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital
confinement.[16] Dr. Leuterios death certificate stated that hypertension was only
the possible cause of death. The private respondents statement, as to the medical
history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the
appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in
good health and that he had not consulted a doctor or any of the enumerated
ailments, including hypertension; when he died the attending physician had
certified in the death certificate that the former died of cerebral hemorrhage,
probably secondary to hypertension. From this report, the appellant insurance
company refused to pay the insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
66
Contrary to appellants allegations, there was no sufficient proof that the insured
had suffered from hypertension. Aside from the statement of the insureds widow
who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any witness who could
attest to Dr. Leuterios medical history...
Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim. [17]
The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract.[18] Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer. [19] In the case at bar,
the petitioner failed to clearly and satisfactorily establish its defense, and is
therefore liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Petitioner claims
that there was no evidence as to the amount of Dr. Leuterios outstanding
indebtedness to DBP at the time of the mortgagors death. Hence, for private
respondents failure to establish the same, the action for specific performance
should be dismissed. Petitioners claim is without merit. A life insurance policy is a
valued policy.[20] Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a policy of insurance
upon life or health is the sum fixed in the policy. [21] The mortgagor paid the
premium according to the coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtors death during the
terms of this insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with the creditor shall
have been fully paid, an amount to pay the outstanding indebtedness shall first be
paid to the Creditor and the balance of the Sum Assured, if there is any shall then
be paid to the beneficiary/ies designated by the debtor.[22] (Emphasis omitted)
However, we noted that the Court of Appeals decision was promulgated on May 17,
1993. In private respondents memorandum, she states that DBP foreclosed in 1995
their residential lot, in satisfaction of mortgagors outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to the benefit of the heirs of
the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed
 67

on the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs
represented by his widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the
petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six
thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo
Leuterio (deceased), upon presentation of proof of prior settlement of mortgagors
indebtedness to Development Bank of the Philippines. Costs against petitioner.
SO ORDERED.
FACTS:
Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group
life insurance with Development Bank of the Philippines (DBP) wherein Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr.
Leuterio answered questions concerning his test, attesting among others that he
does not have any heart conditions and that he is in good health to the best of his
knowledge.
However, after about a year, Dr. Leuterio died due to “massive cerebral
hemorrhage.” When DBP submitted a death claim to Grepalife, the latter denied
the claim, alleging that Dr. Leuterio did not disclose he had been suffering from
hypertension, which caused his death. Allegedly, such non-disclosure constituted
concealment that justified the denial of the claim.
“mortgage redemption insurance,” is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into
such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from
such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. In a similar vein,
ample protection is given to the mortgagor under such a concept so that in the
event of death, the mortgage obligation will be extinguished by the application of
the insurance proceeds to the mortgage indebtedness. In this type of policy
insurance, the mortgagee is simply an appointee of the insurance fund. Such loss-
payable clause does not make the mortgagee a party to the contract.
The insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. Subject to some exceptions, insured may thus
sue, although the policy is taken wholly or in part for the benefit of another person,
such as a mortgagee.
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover it whatever the insured might have recovered, the widow of
the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for
“Specific Performance with Damages.” Both the trial court and the Court of Appeals
found in favor of the widow and ordered Grepalife to pay DBP.

ISSUE: Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a

group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor

HELD:

The rationale of a group of insurance policy of mortgagors, otherwise known as the


FIRST DIVISION
[G.R. No. 119176. March 19, 2002]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. LINCOLN PHILIPPINE LIFE
INSURANCE COMPANY, INC. (now JARDINE-CMA LIFE INSURANCE COMPANY,
INC.) and THE COURT OF APPEALS, respondents.
DECISION
KAPUNAN, J.:
This is a petition for review on certiorari filed by the Commission on Internal
Revenue of the decision of the Court of Appeals dated November 18, 1994 in C.A.
G.R. SP No. 31224 which reversed in part the decision of the Court of Tax Appeals in
C.T.A. Case No. 4583.
The facts of the case are undisputed.
Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life
Insurance Company, Inc.) is a domestic corporation registered with the Securities
and Exchange Commission and engaged in life insurance business. In the years prior
to 1984, private respondent issued a special kind of life insurance policy known as
the Junior Estate Builder Policy, the distinguishing feature of which is a clause
providing for an automatic increase in the amount of life insurance coverage upon
attainment of a certain age by the insured without the need of issuing a new policy.
The clause was to take effect in the year 1984. Documentary stamp taxes due on
the policy were paid by petitioner only on the initial sum assured.
In 1984, private respondent also issued 50,000 shares of stock dividends with a par
value of P100.00 per share or a total par value of P5,000,000.00. The actual value of
said shares, represented by its book value, was P19,307,500.00. Documentary
stamp taxes were paid based only on the par value of P5,000,000.00 and not on the
book value.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for
the year 1984 in the amounts of (a) P464,898.75, corresponding to the amount of
automatic increase of the sum assured on the policy issued by respondent, and
(b) P78,991.25 corresponding to the book value in excess of the par value of the
stock dividends. The computation of the deficiency documentary stamp taxes is as
follows:
68
On Policies Issued:
Total policy issued during the year P1,360,054,000.00
Documentary stamp tax due thereon
(P1,360,054,000.00 divided by
P200.00 multiplied by P0.35) P 2,380,094.50
Less: Payment P 1,915,495.75
Deficiency P 464,598.75
Add: Compromise Penalty 300.00
-----------------------
TOTAL AMOUNT DUE & COLLECTIBLE P 464,898.75
Private respondent questioned the deficiency assessments and sought their
cancellation in a petition filed in the Court of Tax Appeals, docketed as CTA Case No.
4583.
On March 30, 1993, the Court of Tax Appeals found no valid basis for the deficiency
tax assessment on the stock dividends, as well as on the insurance policy. The
dispositive portion of the CTAs decision reads:
WHEREFORE, the deficiency documentary stamp tax assessments in the amount
of P464,898.76 and P78,991.25 or a total of P543,890.01 are hereby cancelled for
lack of merit. Respondent Commissioner of Internal Revenue is ordered to desist
from collecting said deficiency documentary stamp taxes for the same are
considered withdrawn.
SO ORDERED.[1]
Petitioner appealed the CTAs decision to the Court of Appeals. On November 18,
1994, the Court of Appeals promulgated a decision affirming the CTAs decision
insofar as it nullified the deficiency assessment on the insurance policy, but
reversing the same with regard to the deficiency assessment on the stock

dividends. The CTA ruled that the correct basis of the documentary stamp tax due
on the stock dividends is the actual value or book value represented by the shares.
The dispositive portion of the Court of Appeals decision states:
IN VIEW OF ALL THE FOREGOING, the decision appealed from is
hereby REVERSED with respect to the deficiency tax assessment on the stock
dividends, but AFFIRMED with regards to the assessment on the Insurance Policies.
Consequently, private respondent is ordered to pay the petitioner herein the sum
of P78,991.25, representing documentary stamp tax on the stock dividends it
issued. No costs pronouncement.
SO ORDERED.[2]
A motion for reconsideration of the decision having been denied,[3] both the
Commissioner of Internal Revenue and private respondent appealed to this Court,
docketed as G.R. No. 118043 and G.R. No. 119176, respectively. In G.R. No. 118043,
private respondent appealed the decision of the Court of Appeals insofar as it
upheld the validity of the deficiency tax assessment on the stock dividends. The
Commissioner of Internal Revenue, on his part, filed the present petition
questioning that portion of the Court of Appeals decision which invalidated the
deficiency assessment on the insurance policy,attributing the following errors:
THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT
THERE IS A SINGLE AGREEMENT EMBODIED IN THE POLICY AND THAT
THE AUTOMATIC INCREASE CLAUSE IS NOT A SEPARATE AGREEMENT,
CONTRARY TO SECTION 49 OF THE INSURANCE CODE AND SECTION 183
OF THE REVENUE CODE THAT A RIDER, A CLAUSE IS PART OF THE POLICY.
THE HONORABLE COURT OF APPEALS ERRED IN NOT COMPUTING THE
AMOUNT OF TAX ON THE TOTAL VALUE OF THE INSURANCE ASSURED IN
THE POLICY INCLUDING THE ADDITIONAL INCREASE ASSURED BY THE
AUTOMATIC INCREASE CLAUSE DESPITE ITS RULING THAT THE ORIGINAL
POLICY AND THE AUTOMATIC CLAUSE CONSTITUTED ONLY A SINGULAR
TRANSACTION.[4]
Section 173 of the National Internal Revenue Code on documentary stamp taxes
provides:
Sec. 173. Stamp taxes upon documents, instruments and papers. - Upon
documents, instruments, loan agreements, and papers, and upon acceptances,
assignments, sales, and transfers of the obligation, right or property incident
69
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 section 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 at 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
thereto who is not exempt shall be the one directly liable for the tax. (As
amended by PD No. 1994) The basis for the value of documentary stamp taxes to be
paid on the insurance policy is Section 183 of the National Internal Revenue Code
which states in part:
The basis for the value of documentary stamp taxes to be paid on the insurance
policy is Section 183 of the National Internal Revenue Code which states in part:
Sec. 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 thirty (now 50c) centavos on each Two hundred pesos
per fractional part thereof, of the amount insured by any such policy.
Petitioner claims that the automatic increase clause in the subject insurance policy
is separate and distinct from the main agreement and involves another transaction;
and that, while no new policy was issued, the original policy was essentially re-
issued when the additional obligation was assumed upon the effectivity of this
automatic increase clause in 1984; hence, a deficiency assessment based on the
additional insurance not covered in the main policy is in order.
The Court of Appeals sustained the CTAs ruling that there was only one transaction
involved in the issuance of the insurance policy and that the automatic increase
clause is an integral part of that policy.
The petition is impressed with merit.
Section 49, Title VI of the Insurance Code defines an insurance policy as the written
instrument in which a contract of insurance is set forth.[5] Section 50 of the same
Code provides that the policy, which is required to be in printed form, may contain
any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary
to complete the contract of insurance.[6] It is thus clear that any rider, clause,
warranty or endorsement pasted or attached to the policy is considered part of
such policy or contract of insurance.

The subject insurance policy at the time it was issued contained an automatic
increase clause. Although the clause was to take effect only in 1984, it was written
into the policy at the time of its issuance.The distinctive feature of the junior estate
builder policy called the automatic increase clause already formed part and parcel
of the insurance contract, hence, there was no need for an execution of a separate
agreement for the increase in the coverage that took effect in 1984 when the
assured reached a certain age.
It is clear from Section 173 that the payment of documentary stamp taxes is done at
the time the act is done or transaction had and the tax base for the computation of
documentary stamp taxes on life insurance policies under Section 183 is the
amount fixed in policy, unless the interest of a person insured is susceptible of exact
pecuniary measurement.[7] What then is the amount fixed in the policy?Logically,
we believe that 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 embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance
coverage was to take effect later on, the date of its effectivity, as well as the
amount of the increase, was already definite at the time of the issuance of the
policy. Thus, the amount insured by the policy at the time of its issuance necessarily
included the additional sum covered by the automatic increase clause because it
was already determinable at the time the transaction was entered into and formed
part of the policy.
The automatic increase clause in the policy is in the nature of a conditional
obligation under Article 1181,[8] by which the increase of the insurance coverage
shall depend upon the happening of the event which constitutes the obligation. In
the instant case, the additional insurance that took effect in 1984 was an obligation
subject to a suspensive obligation,[9] but still a part of the insurance sold to which
private respondent was liable for the payment of the documentary stamp tax.
The deficiency of documentary stamp tax imposed on private respondent is
definitely not on the amount of the original insurance coverage, but on the increase
of the amount insured upon the effectivity of the Junior Estate Builder Policy.
Finally, it should be emphasized that while tax avoidance schemes and
arrangements are not prohibited,[10] tax laws cannot be circumvented in order to
evade the payment of just taxes. In the case at bar,to claim that the increase in the
amount insured (by virtue of the automatic increase clause incorporated into the
policy at the time of issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear evasion of the law
requiring that the tax be computed on the basis of the amount insured by the
policy.
70
WHEREFORE, the petition is hereby given DUE COURSE. The decision of the Court of
Appeals is SET ASIDE insofar as it affirmed the decision of the Court of Tax Appeals
nullifying the deficiency stamp tax assessment petitioner imposed on private
respondent in the amount of P464,898.75 corresponding to the increase in 1984 of
the sum under the policy issued by respondent.
SO ORDERED.
FACTS:
Respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA Life
Insurance Company, Inc.) is a domestic corporation engaged in life insurance
business. Respondents issued a special kind of life insurance policy known as the
Junior Estate Builder Policy, in which there is a clause providing for an automatic
increase in the amount of life insurance coverage upon attainment of a certain age
by the insured without the need of issuing a new policy.
CIR then issued deficiency documentary stamps tax assessment corresponding to
the amount of automatic increase of the sum assured on the policy issued by
respondent.
Respondent filed a petition with the CTA which was held in their favor. The CIR
appealed with the CA affirming the decision of the CTA.
ISSUE: Whether a new insurance policy is distinct from the main policy making it
liable for additional taxes.
RULING:
YES. The subject insurance policy at the time it was issued contained an automatic
increase clause. Although the clause was to take effect on a later date, it was
written into the policy at the time of its issuance.
Section 173 of the NIRC provides that the payment of documentary stamp taxes is
done at the time the act is done. Section 183 of the NIRC provides that the tax base
for the computation of documentary stamp taxes on life insurance policies is the
amount fixed in policy.
Here, although the automatic increase in the amount of life insurance coverage was
to take effect later on, the amount of the increase was already definite at the time
of the issuance of the policy. Thus, the amount insured by the policy at the time of
its issuance necessarily included the additional sum covered by the automatic
 71

increase clause because it was already determinable at the time the transaction into the policy at the time of its issuance. The distinctive feature of the “junior
was entered into and formed part of the policy. estate builder policy” called the “automatic increase clause” already formed part
and parcel of the insurance contract, hence, there was no need for an execution of
a separate agreement for the increase in the coverage that took effect in 1984
The additional insurance was an obligation subject to a suspensive obligation, but
still a part of the insurance sold to which respondent was liable for the payment of when the assured reached a certain age.
the documentary stamp tax. The deficiency of documentary stamp tax imposed on The said increase however is imposable with documentary stamp taxes. The original
respondent is not on the amount of the original insurance coverage, but on the documentary stamps tax paid by Lincoln Philippine covers the original amount of
increase of the amount insured upon the effectivity of the Junior Estate Builder
the policies without the projected increase. The said increase was already definite
Policy.
at the time of the issuance of the policy. Thus, the amount insured by the policy at
379 SCRA 423 – Mercantile Law – Insurance Law – The Policy – Automatic Increase the time of its issuance necessarily included the additional sum covered by the
in the Coverage – Documentary Stamp Tax automatic increase clause because it was already determinable at the time the
transaction was entered into and formed part of the policy.
Prior to 1984, Lincoln Philippine Life Insurance Company, Inc. (now called Jardine-
CMA Life Insurance Company, Inc.) used to issue policies called “Junior Estate While tax avoidance schemes and arrangements are not prohibited, tax laws cannot
Builder Policy”. A clause therein provides for an automatic increase in the amount be circumvented in order to evade the payment of just taxes. In the case at bar, to
of life insurance coverage upon attainment of a certain age by the insured without claim that the increase in the amount insured (by virtue of the automatic increase
the need of issuing a new policy. The clause was to take effect in the year 1984. clause incorporated into the policy at the time of issuance) should not be included
Documentary stamp taxes due on the policy were paid by Lincoln Philippine only on in the computation of the documentary stamp taxes due on the policy would be a
the initial sum assured. clear evasion of the law requiring that the tax be computed on the basis of the
amount insured by the policy.
When the clause became effective in 1984, the Commissioner of Internal Revenue
assessed an additional tax on the increased amount of the coverage of the said
policies. Said tax was to cover the deficiency documentary stamps tax for said year.
The Court of Appeals ruled that there is only one policy and the automatic increase
is not a separate policy; that said increase of coverage is not covered by another
documentary stamp tax.
ISSUE: Whether or not there is only one policy.
HELD: Yes. Section 49, Title VI of the Insurance Code defines an insurance policy as
the written instrument in which a contract of insurance is set forth. Section 50 of
the same Code provides that the policy, which is required to be in printed form,
may contain any word, phrase, clause, mark, sign, symbol, signature, number, or
word necessary to complete the contract of insurance. It is thus clear that any rider,
clause, warranty or endorsement pasted or attached to the policy is considered part
of such policy or contract of insurance.
The subject insurance policy at the time it was issued contained an “automatic
increase clause.” Although the clause was to take effect only in 1984, it was written