1

FIRST DIVISION
[G.R. No. 125678. March 18, 2002]
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. In the standard application
form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes,
give details).
[1]

The application was approved for a period of one year from March 1, 1988 to March
1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the
agreement, respondents husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of out-
patient benefits such as annual physical examinations, preventive health care and other
out-patient services.
Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount
of coverage was increased to a maximum sum of P75,000.00 per disability.
[2]

During the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her
husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement
was void. According to petitioner, there was a concealment regarding Ernanis medical
history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that
he was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. Thus, respondent paid the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he died on the same
day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,
Branch 44, an action for damages against petitioner and its president, Dr. Benito
Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement
of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled
against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff
Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late
Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of

P10,000.00 as exemplary damages to
plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.
[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted
all awards for damages and absolved petitioner Reverente.
[4]
Petitioners motion for
reconsideration was denied.
[5]
Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an insurance contract;
hence the incontestability clause under the Insurance Code
[6]
does not apply.
Petitioner argues that the agreement grants living benefits, such as medical
check-ups and hospitalization which a member may immediately enjoy so long as he is
alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner
also points out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract where the insured
is indemnified for his loss. Moreover, since Health Care Agreements are only for a period
of one year, as compared to insurance contracts which last longer,
[7]
petitioner argues
that the incontestability clause does not apply, as the same requires an effectivity period
of at least two years. Petitioner further argues that it is not an insurance company, which
2

is governed by the Insurance Commission, but a Health Maintenance Organization under
the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where
the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.
[8]

Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest against
him, may be insured against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was in the nature
of non-life insurance, which is primarily a contract of indemnity.
[9]
Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners required
respondents husband to sign an express authorization for any person, organization or
entity that has any record or knowledge of his health to furnish any and all information
relative to any hospitalization, consultation, treatment or any other medical advice or
examination.
[10]
Specifically, the Health Care Agreement signed by respondents husband
states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall be no contract of health
care coverage unless and until an Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in
the application; that any physician is, by these presents, expressly authorized to disclose
or give testimony at anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in or addition to this application as
stated in the space for Home Office Endorsement.
[11]
(Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of
my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any
and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination. This authorization is in connection with the application for
health care coverage only. A photographic copy of this authorization shall be as valid as
the original.
[12]
(Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement
which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of Philamcare
shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented
information is deemed material if its revelation would have resulted in the declination of
the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit
or benefits applied for.
[13]

The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
3

especially coming from respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.
[14]
Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise
the rule although the statement is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally states to be true,
as a matter of expectation or belief, that which he then knows, to be actually untrue, or
the impossibility of which is shown by the facts within his knowledge, since in such case
the intent to deceive the insurer is obvious and amounts to actual fraud.
[15]
(Underscoring
ours)
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.
[16]
Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he
has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance. The right to rescind should be exercised previous to the
commencement of an action on the contract.
[17]
In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based.
[18]

None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation.
[19]
Being a
contract of adhesion, the terms of an insurance contract are to be construed strictly
against the party which prepared the contract the insurer.
[20]
By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.
[21]
This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to
be adopted, and exclusionary clauses of doubtful import should be strictly construed
against the provider.
[22]

Anent the incontestability of the membership of respondents husband, we quote
with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the Agreement within which to
contest the membership of the patient if he had previous ailment of asthma, and six
months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.
[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the nature
of a contract of indemnity. Hence, payment should be made to the party who incurred
the expenses. It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records adequately prove the
expenses incurred by respondent for the deceaseds hospitalization, medication and the
professional fees of the attending physicians.
[24]

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision
of the Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
4

G.R. No. 167330 June 12, 2008
PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
D E C I S I O N
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and therefore subject to
the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax
Code of 1997)?
This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in
its August 16, 2004 decision
1
in CA-G.R. SP No. 70479. Petitioner Philippine Health Care
Providers, Inc. believes otherwise and assails the CA decision in this petition for review
under Rule 45 of the Rules of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain,
conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization to take care of the sick and disabled persons enrolled in the
health care plan and to provide for the administrative, legal, and financial responsibilities
of the organization."
2
Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical
services provided by its duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system at a hospital or
clinic owned, operated or accredited by it.
3

The pertinent part of petitioner's membership or health care agreement
4
provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims
for reimbursement] of this Agreement, Members shall have the following
Benefits under this Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers
injury which requires confinement in a participating Hospital[,] the services or
benefits stated below shall be provided to the Member free of charge, but in no
case shall [petitioner] be liable to pay more than P75,000.00 in benefits with
respect to anyone sickness, injury or related causes. If a member has exhausted
such maximum benefits with respect to a particular sickness, injury or related
causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It is[,]
however, understood that the payment by [petitioner] of the said maximum in
In-Patient Benefits to any one member shall preclude a subsequent payment of
benefits to such member in respect of an unrelated sickness, injury or related
causes happening during the remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which
are used to dissolve blood clots in the vascular systems (i.e.,
trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services or benefits
mentioned in the immediately preceding paragraph shall be subject to the
following conditions:
(a) The Hospital Confinement must be approved by [petitioner's]
Physician, Participating Physician or [petitioner's] Medical Coordinator
in that Hospital prior to confinement.
(b) The confinement shall be in a Participating Hospital and the
accommodation shall be in accordance with the Member[']s benefit
classification.
(c) Professional services shall be provided only by the [petitioner's]
Physicians or Participating Physicians.
5

(d) If discharge from the Hospital has been authorized by [petitioner's]
attending Physician or Participating Physician and the Member shall fail
or refuse to do so, [petitioner] shall not be responsible for any charges
incurred after discharge has been authorized.
Out-Patient Services. A Member is entitled free of charge to the following
services or benefits which shall be rendered or administered either in
[petitioner's] Clinic or in a Participating Hospital under the direction or
supervision of [petitioner's] Physician, Participating Physician or [petitioner's]
Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary
date of membership, to be done at [petitioner's] designated
hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination
(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis
(vii) Fasting Blood Sugar (FBS)
(viii) SGPT
(ix) Creatinine
(x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for women 40 years and above)
(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical
Examination.
The following tests are to be done as part of the Member[']s Annual
check-up program at [petitioner's] designated clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise and other
healthy habits
(iv) Immunization but excluding drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the immediate
relief of symptoms
(v) Minor surgery not requiring confinement
6

Emergency Care. Subject to the conditions and limitations in this Agreement and
those specified below, a Member is entitled to receive emergency care [in case
of emergency. For this purpose, all hospitals and all attending physician(s) in the
Emergency Room automatically become accredited. In participating hospitals,
the member shall be entitled to the following services free of charge: (a)
doctor's fees, (b) emergency room fees, (c) medicines used for immediate relief
and during treatment, (d) oxygen, intravenous fluids and whole blood and
human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory
and diagnostic examinations and other medical services related to the
emergency treatment of the patient.]
5
Provided, however, that in no case shall
the total amount payable by [petitioner] for said Emergency, inclusive of
hospital bill and professional fees, exceed P75,000.00.
If the Member received care in a non-participating hospital, [petitioner] shall
reimburse [him]
6
80% of the hospital bill or the amount of P5,000.00[,]
whichever is lesser, and 50% of the professional fees of non-participating
physicians based on [petitioner's] schedule of fees provided that the total
amount[,] inclusive of hospital bills and professional fee shall not exceed
P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment
of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997
in the total amount of P224,702,641.18. The assessment represented the following:
Value Added Tax (VAT) DST
1996 P 45,767,596.23 P 55,746,352.19
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.92
The deficiency DST assessment was imposed on petitioner's health care agreement with
the members of its health care program pursuant to Section 185 of the 1997 Tax Code
which provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employer's liability,
plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance), and all bonds,
undertakings, or recognizances, conditioned for the performance of the duties
of any office or position, for the doing or not doing of anything therein specified,
and on all obligations guaranteeing the validity or legality of any bond or other
obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may be made or renewed by any
such person, company or corporation, there shall be collected a documentary
stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part
thereof, of the premium charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent
did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals
(CTA) seeking the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,
7
the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT
amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from
January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87
inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid
for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void
and without force and effect. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is
ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
8

Respondent appealed the CTA decision to the CA
9
insofar as it cancelled the DST
assessment. He claimed that petitioner's health care agreement was a contract of
insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.
10
It held that petitioner's health care
agreement was in the nature of a non-life insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of
Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency
documentary stamp tax assessment and ordered petitioner to desist from
collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19
and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per annum
from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until
the same shall have been fully paid.
SO ORDERED.
11

7

Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of insurance
but a contract for the provision on a prepaid basis of medical services, including medical
check-up, that are not based on loss or damage. Petitioner also insists that it is not
engaged in the insurance business. It is a health maintenance organization regulated by
the Department of Health, not an insurance company under the jurisdiction of the
Insurance Commission. For these reasons, petitioner asserts that the health care
agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments.
12
It is an excise upon the privilege, opportunity, or facility offered at
exchanges for the transaction of the business.
13
In particular, the DST under Section 185 of
the 1997 Tax Code is imposed on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance), bond or obligation in the
nature of indemnity for loss, damage, or liability.
Under the law, a contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event.
14
The event insured against must be designated in the
contract and must either be unknown or contingent.
15

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent
case of Blue Cross Healthcare, Inc. v. Olivares,
16
this Court ruled that a health care
agreement is in the nature of a non-life insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract for the provision
of medical services. Petitioner does not actually provide medical or hospital services but
merely arranges for the same
17
and pays for them up to the stipulated maximum amount
of coverage. It is also incorrect to say that the health care agreement is not based on loss
or damage because, under the said agreement, petitioner assumes the liability and
indemnifies its member for hospital, medical and related expenses (such as professional
fees of physicians). The term "loss or damage" is broad enough to cover the monetary
expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional
services to the member in case of sickness, injury or emergency or his availment of so-
called "out-patient services" (including physical examination, x-ray and laboratory tests,
medical consultations, vaccine administration and family planning counseling) is the
contingent event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are
prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if
they can be predicted at all. Petitioner assumes the risk of paying for the costs of the
services even if they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved in Philamcare
Health Systems, Inc. v. CA.
18
The health care agreement in that case entitled the subscriber
to avail of the hospitalization benefits, whether ordinary or emergency, listed therein. It
also provided for "out-patient benefits" such as annual physical examinations, preventive
health care and other out-patient services. This Court ruled in Philamcare Health Systems,
Inc.:
[T]he insurable interest of [the subscriber] in obtaining the health care
agreement was his own health. The health care agreement was in the nature of
non-life insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency, the health care provider must pay for the
same to the extent agreed upon under the contract.
19
(emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health care program in
obtaining the health care agreement is his own health. Under the agreement, petitioner is
bound to indemnify any member who incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingency to the extent agreed upon
under the contract.
Petitioner's contention that it is a health maintenance organization and not an insurance
company is irrelevant. Contracts between companies like petitioner and the beneficiaries
under their plans are treated as insurance contracts.
20

Moreover, DST is not a tax on the business transacted but an excise on the privilege,
opportunity, or facility offered at exchanges for the transaction of the business.
21
It is an
excise on the facilities used in the transaction of the business, separate and apart from
the business itself.
22

WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of
Appeals in CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
deficiency documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for
8

late payment and 20% interest per annum from January 27, 2000 until full payment
thereof.
Costs against petitioner.
SO ORDERED.
Puno, C.J., Chairperson, Carpio, Azcuna, Leonardo-de Castro, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-22042 August 17, 1967
DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed
GUINGON, plaintiffs-appellees,
vs.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO.,
INC., defendants.
CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.
Generoso Almario and Associates for plaintiffs-appellees.
Achacoso and Associates for defendant-appellant.
BENGZON, J.P., J.:
Julio Aguilar owned and operated several jeepneys in the City of Manila among which was
one with plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital
Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with
third-party liability. As a consequence thereof an insurance policy was executed by the
Capital Insurance & Surety Co., Inc., the pertinent provisions of which in so far as this case
is concerned contains the following:
Section II LIABILITY TO THE PUBLIC
1. The Company, will, subject to the limits of liability, indemnify the Insured in the
event of accident caused by or arising out of the use of the Motor Vehicle/s or in
connection with the loading or unloading of the Motor Vehicle/s, against all
sums including claimant's costs and expenses which the Insured shall become
legally liable to pay in respect of:
a. death of or bodily injury to any person
b. damage to property
During the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte,
one of the drivers of the jeepneys operated by Aguilar, while driving along the
intersection of Juan Luna and Moro streets, City of Manila, bumped with the jeepney
abovementioned one Gervacio Guingon who had just alighted from another jeepney and
as a consequence the latter died some days thereafter.
A corresponding information for homicide thru reckless imprudence was filed against
Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was
imposed on him.
As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages
praying that the sum of P82,771.80 be paid to them jointly and severally by the
defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital
Insurance & Surety Co., Inc. For failure to answer the complaint, Del Monte and Aguilar
were declared in default. Capital Insurance & Surety Co., Inc. answered, alleging that the
plaintiff has no cause of action against it. During the trial the following facts were
stipulated:
COURT: The Court wants to find if there is a stipulation in the policy whereby the
insured is insured against liability to third persons who are not passengers of
jeeps.
ALMARIO: As far as I know, in my honest belief, there is no particularization as to
the passengers, whether the passengers of the jeep insured or a passenger of
another jeep or whether it is a pedestrian. With those, we can submit the
stipulation.
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)
On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the
following dispositive portion:
WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio
Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for
the death of their father, plus P1,000.00 for attorney's fees plus costs.
The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay
the plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred
(P500.00) Pesos as attorney's fees and costs. These sums of P5,000.00 and
9

P500.00 adjudged against Capital Insurance and Surety Co., Inc. shall be applied
in partial satisfaction of the judgment rendered against Iluminado del Monte and
Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court on September 30,
1963 certified the case to Us because the appeal raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company agreed to indemnify the
insured Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first
show himself to be entitled to indemnity before the insurance company may be held liable
for the same? (3) Plaintiffs not being parties to the insurance contract, do they have a
cause of action against the company; and (4) Does the fact that the insured is liable to the
plaintiffs necessarily mean that the insurer is liable to the insured?
In the discussion of the points thus raised, what is paramount is the interpretation of the
insurance contract with the aim in view of attaining the objectives for which the insurance
was taken. The Rules of Court provide that parties may be joined either as plaintiffs or
defendants, as the right to relief in respect to or arising out of the same transactions is
alleged to exist (Sec. 6, Rule 3). The policy, on the other hand, contains a clause stating:
E. Action Against Company
No action shall lie against the Company unless, as a condition precedent thereto,
the Insured shall have fully complied with all of the terms of this Policy, nor until
the amount of the Insured's obligation to pay shall have been finally determined
either by judgment against the Insured after actual trial or by written agreement
of the Insured, the claimant, and the Company.
Any person or organization or the legal representative thereof who has secured
such judgment or written agreement shall thereafter be entitled to recover
under this policy to the extent of the insurance afforded by the Policy. Nothing
contained in this policy shall give any person or organization any right to join the
Company as a co-defendant in any action against the Insured to determine the
Insured's liability.
Bankruptcy or insolvency of the Insured or of the Insured's estate shall not
relieve the Company of any of its obligations hereunder.
Appellant contends that the "no action" clause in the policy closes the avenue to any third
party which may be injured in an accident wherein the jeepney of the insured might have
been the cause of the injury of third persons, alleging the freedom of contracts. Will the
mere fact that such clause was agreed upon by the parties in an insurance policy prevail
over the Rules of Court which authorizes the joining of parties plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all?
(2) If so, can plaintiffs sue the insurer jointly with the insured?
The policy in the present case, as aforequoted, is one whereby the insurer agreed to
indemnify the insured "against all sums . . . which the Insured shall become legally liable to
pay in respect of: a. death of or bodily injury to any person . . . ." Clearly, therefore, it is
one for indemnity against liability;
1
from the fact then that the insured is liable to the third
person, such third person is entitled to sue the insurer.1wph1.t
The right of the person injured to sue the insurer of the party at fault (insured), depends
on whether the contract of insurance is intended to benefit third persons also or only the
insured. And the test applied has been this: Where the contract provides for indemnity
against liability to third persons, then third persons to whom the insured is liable, can sue
the insurer. Where the contract is for indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract being solely to reimburse the
insured for liability actually discharged by him thru payment to third persons, said third
persons' recourse being thus limited to the insured alone.
2

The next question is on the right of the third person to sue the insurer jointly with the
insured. The policy requires, as afore-stated, that suit and final judgment be first obtained
against the insured; that only "thereafter" can the person injured recover on the policy; it
expressly disallows suing the insurer as a co-defendant of the insured in a suit to
determine the latter's liability. As adverted to before, the query is which procedure to
follow that of the insurance policy or the Rules of Court.
The "no action" clause in the policy of insurance cannot prevail over the Rules of Court
provision aimed at avoiding multiplicity of suits. In a case squarely on the point, American
Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action"
clause in a policy of insurance cannot override procedural rules aimed at avoidance of
multiplicity of suits. We quote:
Appellants filed a plea in abatement on the grounds that the suit had been
prematurely brought against the insurance company, and that it had been
improperly joined with Zunker, as said insurance company, under the terms of
the policy, was only liable after judgment had been awarded against Zunker. . . .
* * * That plea was properly overruled, because under the laws of Texas a dual
suit will always be avoided whenever all parties can have a fair trial when joined
in one suit. Appellee, had he so desired, could have prosecuted his claim to
judgment as against Zunker and then have sued on that judgment against the
10

insurance company, but the law does not make it imperative that he should do
so, but would permit him to dispose of the whole matter in one suit.
The rule has often been announced in Texas that when two causes of action are
connected with each other, or grow out of the same transaction, they may be
properly joined, and in such suit all parties against whom the plaintiff asserts a
common or an alternative liability may be joined as defendants. . . . Even if
appellants had presented any plea in abatement as to joinder of damages arising
from a tort with those arising from a contract, it could not, under the facts of
this case, be sustained, for the rule is that a suit may include an action for breach
of contract and one for tort, provided they are connected with each other or
grew out of the same transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of
Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to
third persons not a party to the contract, as herein, by a "no action" clause in the contract
of insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So
ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.
Footnotes
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20853 May 29, 1967
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,
vs.
ENRIQUE MORA, ET AL., defendants-appellees.
G. Magsaysay for plaintiffs-appellants.
Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.
J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in
civil case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S.
Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts
Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum
of P2,002.73, issued by the State Bonding & Insurance Co. Inc., and directing payment of
the said amount to the H. Reyes, Inc.
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged
the same to the H.S. Reyes, Inc., with the condition that the former would insure the
automobile with the latter as beneficiary. The automobile was thereafter insured on June
23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-
0615 was issued to Enrique Mora, the pertinent provisions of which read:
1. The Company (referring to the State Bonding & Insurance Co., Inc.) will,
subject to the Limits of Liability, indemnify the Insured against loss of or
damages to the Motor Vehicle and its accessories and spare parts whilst
thereon; (a) by accidental collision or overturning or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and tear,
x x x x x x x x x
2. At its own option the Company may pay in cash the amount of the loss or
damage or may repair, reinstate, or replace the Motor Vehicle or any part
thereof or its accessories or spare parts. The liability of the Company shall not
exceed the value of the parts whichever is the less. The Insured's estimate of
value stated in the schedule will be the maximum amount payable by the
Company in respect of any claim for loss or damage.1wph1.t
x x x x x x x x x
4. The Insured may authorize the repair of the Motor Vehicle necessitated by
damage for which the Company may be liable under this Policy provided that:
(a) The estimated cost of such repair does not exceed the Authorized Repair
Limit, (b) A detailed estimate of the cost is forwarded to the Company without
delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.,"
by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the
said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was
made payable to the H.S. Reyes, Inc. as Mortgagee;
x x x x x x x x x
During the effectivity of the insurance contract, the car met with an accident. The
insurance company then assigned the accident to the Bayne Adjustment Co. for
investigation and appraisal of the damage. Enrique Mora, without the knowledge and
11

consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and
materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor
and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment
Co. The insurance company after claiming a franchise in the amount of P100, drew a check
in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of
Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment
Co. for disposition and delivery to the proper party. In the meantime, the car was
delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without
payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and
materials.
Upon the theory that the insurance proceeds should be paid directly to them, the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the
Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance Co.,
Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with
a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc.
to interplead in order to determine who has better right to the insurance proceeds in
question. Enrique Mora was declared in default for failure to appear at the hearing, and
evidence against him was received ex parte. However, the counsel for the Bonifacio Bros.
Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation
of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S.
Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding &
Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this
decision, the appellants elevated the case to the Court of First Instance of Manila which
the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a
decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied
the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between the Bonifacio Bros.
Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the
other. The appellants argue that the insurance company and Enrique Mora are parties to
the repair of the car as well as the towage thereof performed. The authority for this
assertion is to be found, it is alleged, in paragraph 4 of the insurance contract which
provides that "the insured may authorize the repair of the Motor Vehicle necessitated by
damage for which the company may be liable under the policy provided that (a) the
estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a
detailed estimate of the cost is forwarded to the company without delay." It is stressed
that the H.H. Bayne Adjustment Company's recommendation of payment of the
appellants' bill for materials and repairs for which the latter drew a check for P2,002.73
indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of
the insurance company.
This argument is, in our view, beside the point, because from the undisputed facts and
from the pleadings it will be seen that the appellants' alleged cause of action rests
exclusively upon the terms of the insurance contract. The appellants seek to recover the
insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance
contract document executed by and between the State Bonding & Insurance Company,
Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties
thereto nor is there any clause or provision thereof from which we can infer that there is
an obligation on the part of the insurance company to pay the cost of repairs directly to
them. It is fundamental that contracts take effect only between the parties thereto,
except in some specific instances provided by law where the contract contains some
stipulation in favor of a third person.
1
Such stipulation is known as stipulation pour
autrui or a provision in favor of a third person not a pay to the contract. Under this
doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms
of the contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person.
2
Consequently, a third person not a party to the
contract has no action against the parties thereto, and cannot generally demand the
enforcement of the same.
3
The question of whether a third person has an enforcible
interest in a contract, must be settled by determining whether the contracting parties
intended to tender him such an interest by deliberately inserting terms in their agreement
with the avowed purpose of conferring a favor upon such third person. In this connection,
this Court has laid down the rule that the fairest test to determine whether the interest of
a third person in a contract is a stipulation pour autrui or merely an incidental interest, is
to rely upon the intention of the parties as disclosed by their contract.
4
In the instant case
the insurance contract does not contain any words or clauses to disclose an intent to give
any benefit to any repairmen or materialmen in case of repair of the car in question. The
parties to the insurance contract omitted such stipulation, which is a circumstance that
supports the said conclusion. On the other hand, the "loss payable" clause of the
insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that
it was only the H.S. Reyes, Inc. which they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance Company that it has
vehemently opposed the assertion or pretension of the appellants that they are privy to
the contract. If it were the intention of the insurance company to make itself liable to the
repair shop or materialmen, it could have easily inserted in the contract a stipulation to
that effect. To hold now that the original parties to the insurance contract intended to
confer upon the appellants the benefit claimed by them would require us to ignore the
indespensable requisite that a stipulationpour autrui must be clearly expressed by the
parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof would show that
instead of establishing privity between the appellants and the insurance company, such
stipulation merely establishes the procedure that the insured has to follow in order to be
entitled to indemnity for repair. This paragraph therefore should not be construed as
bringing into existence in favor of the appellants a right of action against the insurance
company as such intention can never be inferred therefrom.
12

Another cogent reason for not recognizing a right of action by the appellants against the
insurance company is that "a policy of insurance is a distinct and independent contract
between the insured and insurer, and third persons have no right either in a court of
equity, or in a court of law, to the proceeds of it, unless there be some contract of trust,
expressed or implied between the insured and third person."
5
In this case, no contract of
trust, expressed or implied exists. We, therefore, agree with the trial court that no cause
of action exists in favor of the appellants in so far as the proceeds of insurance are
concerned. The appellants' claim, if at all, is merely equitable in nature and must be made
effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc.
This conclusion is deducible not only from the principle governing the operation and
effect of insurance contracts in general, but is clearly covered by the express provisions of
section 50 of the Insurance Act which read:
The insurance shall be applied exclusively to the proper interests of the person
in whose name it is made unless otherwise specified in the policy.
The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.,"
which unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the
insurance proceeds arises only if there was loss and not where there is mere damage as in
the instant case. Suffice it to say that any attempt to draw a distinction between "loss"
and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or
damage.
Loss in insurance, defined. The injury or damage sustained by the insured in
consequence of the happening of one or more of the accidents or misfortune
against which the insurer, in consideration of the premium, has undertaken to
indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic
Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and
Castro, JJ., concur.
Lessons Applicable: stipulation pour autrui (Insurance)

FACTS:
Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to H.S. Reyes,
Inc., with the condition that they would be the beneficiary of its insurance
June 23, 1959: The sedan was insured with State Bonding & Insurance Co., Inc
During the period of effectivity, the sedan met an accident and it was appraised
by Bayne Adjustment Co. and repaired it with Bonifacio Bros. and the parts were
supplied by Ayala Auto Parts Co. This was all done without the knowledge of H.S.
Reyes. Enrique was billed P2,102.73 through Bayne. The insurance company drew a
check deducting P100 for franchise and entrusted it to Bayne payable to Enrique or
H.S. Reyes.
Still unpaid, the sedan was delivered to Enrique without the Knowledge ofH.S. Reyes
Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the
insurance proceeds should be paid directly to them
CFI affirmed MTC: H.S. Reyes, Inc. as having a better right


ISSUE: W/N there is privity between Bonifacio Bro and Ayala Auto against the
insurancecompany


HELD: NO. Judgment affirmed
GR: contracts take effect only between the parties thereto
EX: some specific instances provided by law where the contract contains some
stipulation in favor of a third person - stipulation pour autrui
provision in favor of a third person not a party to the contract
third person is allowed to avail himself of a benefit granted to him by the terms of
the contract, provided that the contracting parties have clearly and deliberately
conferred a favor upon such person
stipulation pour autrui must be clearly expressed - none here
13

"loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable
to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they
intended to benefit.
stipulation merely establishes the procedure that the insured has to follow in order
to be entitled to indemnity for repair
a policy of insurance is a distinct and independent contract between the insured and
insurer, and third persons have no right either in a court of equity, or in a court of
law, to the proceeds of it, unless there be some contract of trust, expressed or
implied between the insured and third person
"loss" in insurance law embraces injury or damage
The injury or damage sustained by the insured in consequence of the happening of
one or more of the accidents or misfortune against which the insurer, in
consideration of the premium, has undertaken to indemnify the insured
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-23248 February 28, 1969
MANUEL UY, plaintiff-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, defendant-appellant.
Jalandoni and Jamir for plaintiff-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico
P. de Castro, Solicitor Augusto M. Amores and Special Attorney M. N. Maningat for
defendant-appellant.

ZALDIVAR, J.:
Manuel Uy filed a complaint with the Court of First Instance of Manila (Civil Case
No. 55678) against the Postmaster General, praying for an injunction to restrain
said Postmaster General and his subordinates, agents or representatives from
enforcing Fraud Order No. 3, dated November 22, 1963, declaring Manuel Uy
Sweepstakes Agency as conducting a lottery or gift enterprise and directing all
postmasters and other employees of the Bureau of Posts concerned to return to
the sender any mail matter addressed to Manuel Uy Sweepstakes Agency or to
any of its agents or representatives with the notation "Fraudulent" stamped
upon the cover of such mail matter, and prohibiting the issuance or payment of
any money order or telegraphic transfer to the said agency or to any of its
agents and representatives.
As prayed for in the complaint, a writ of preliminary injunction was issued ex
parte by the lower court. The Postmaster General moved for the dissolution of
the writ of preliminary injunction, but the motion was denied.
The Postmaster General filed an answer to the complaint, setting up the defense
that Manuel Uy was conducting a lottery or gift enterprise that is prohibited by
law; that as Postmaster General he has the authority to issue the fraud order in
question and he did not abuse his discretion in doing so; and that Manuel Uy had
not exhausted all the administrative remedies before invoking judicial
intervention.
The lower court, on the basis of the stipulation of facts submitted by the parties
declared Fraud Order No. 3 contrary to law and violative of the rights of the
plaintiff and made permanent the preliminary injunction previously issued.
The Postmaster General appealed to this Court.
The salient facts gathered from the stipulation of facts and culled from the briefs
of the parties are as follows:
Manuel Uy (appellee, for short) is a duly authorized agent of the Philippine
Charity Sweepstakes Office (PCSO for short), a government entity created and
empowered by law to hold sweepstakes draws and lotteries for charitable and
public purposes. As such agent of the PCSO appellee is engaged in the sale and
distribution of sweepstakes and lottery tickets which the PCSO prints and issues
for each and every one of the not less than twenty draws that said office
annually holds. To carry out its business of selling sweepstakes and lottery
tickets issued by the PCSO appellee, upon authority of the said office, employs
sub-agents throughout the Philippines, through which sub-agents not less than
70% of appellee's total sales for each draw are made; and, with the consent of
the PCSO appellee agrees to give 50% of the agent's prize to the sub-agent
selling the prize-winning ticket. The agent's prize is 10% of the prize won by the
ticket sold.
For the Grand Christmas Sweepstakes Draw which would be held on December
15, 1963, the PCSO fixed the first, second and third prizes at P700,000.00,
P350,000.00, and P175,000.00, respectively, and set a sale goal, of
P6,000,000.00 worth of tickets. The PCSO directed its duly authorized agents to
undertake every means possible to help achieve the six-million-peso sales goal.
In compliance with said directive, appellee devised and, through his
representatives, offered to the public, the "Grand Christmas Bonus Award" plan.
The plan was designed to boost the sales of tickets for the PCSO Grand
Christmas Sweepstakes Draw. According to said plan, the appellee's sub-agents
and purchasers of whole sweepstakes tickets sold by appellee and his sub-
agents may, in addition to the regular prize money of the December 15, 1963
draw, win bonuses and awards as follows: for the sub-agent and buyer of the
ticket winning the first prize, one 1963 Volkswagen sedan each; for the sub-
agent and buyer of the ticket winning the second prize, one Radiowealth 23-inch
television set each; for the sub-agent and buyer of the ticket winning the third
prize, one Radiowealth refrigerator each; for the sub-agents and buyers of the
tickets winning any of the six fourth prizes, one Radiowealth sewing machine
each; and for the sub-agent and buyer of the ticket winning the charity prize,
14

one Radiowealth Fiesta "hi-fi" radio set each. Except for the amount paid for the
authorized prize of the sweepstakes tickets, those entitled to benefit from the
plan did not have to pay any other amount in consideration of the right to
benefit from the plan. The awards may be claimed by presenting to the appellee
the sales invoice of the winning tickets, in the case of the sellers, and the eight
shares of the winning tickets, in the case of the buyers.
The aforementioned plan is a modification (or alternative plan, as the appellee
calls it) of the original scheme presented by the appellee, thru counsel, to the
Assistant Postmaster General in a letter dated October 15, 1963, and which the
latter, in his answer dated October 18, 1963, considered as violative of the Postal
Law.
The appellee advertised his "Grand Christmas Bonus Award" plan, as described
above, in the metropolitan newspapers of nationwide circulation, the first of
such advertisements appearing in seven such newspapers in their issues of
November 18, 1963. The newspaper advertisements were repeated almost every
week after November 18, 1963, with the last of them published in the issue of
the "Daily Mirror" of December 7, 1963.
As already stated, the fraud order in question was issued by the Postmaster-
General (appellant, for short) under date of November 22, 1963. However, it was
only on December 10, 1963 that the appellee came to know of the issuance and
context thereof when he sought clarification from the Manila Post Office why
his parcels containing sweepstakes tickets for his sub-agents, as well as his other
mail matters of purely personal nature, were refused acceptance for mailing the
day previous.
In the afternoon of December 10, 1963, appellee filed the complaint, mentioned
at the beginning of this opinion, alleging among others, that in issuing Fraud
Order No. 3 the appellant "has acted arbitrarily or gravely exceeded his
authority, and/or committed an error of law".
1

Disclaiming that in issuing the fraud order he acted arbitrarily, or gravely
exceeded his authority and/or committed an error of law, appellant, in his
answer to the complaint, cites as basis of his action, the provisions of Sections
1954(a), 1982, and 1983 of the Postal Law (Chapter 52 of the Revised
Administrative Code), pertinent portions of which read:
SEC. 1954. Absolutely nonmailable matter. No matter belonging to any of the
following classes, whether sealed as first class matter or not, shall be imported
into the Philippines through the mails, or be deposited in or carried by the mails
of the Philippines, or be delivered to its addressee by any officer or employee of
the Bureau of Posts:
(a) Written or printed matter in any form, advertising, describing, or in any
manner pertaining to, or conveying or purporting to convey any information
concerning any lottery, gift enterprise, or similar scheme depending in whole or
in part upon lot or chance, or any scheme, device, or enterprise for obtaining
money or property of any kind by means of false or fraudulent pretenses,
representations, or promises.
x x x x x x x x x
SEC. 1982. Fraud orders. Upon satisfactory evidence that any person or
company is engaged in conducting any lottery, gift enterprise, or scheme or the
distribution of money, or of any real or personal property by lot, chance, or
drawing of any kind, or that any person or company is conducting any scheme,
device, or enterprise for obtaining money or property of any kind through the
mails by means of false or fraudulent pretenses, representations, or promises,
the Director of Posts may instruct any postmaster or other officer or employee
of the Bureau of Posts to return to the person depositing same in the mails, with
the word "fraudulent" plainly written or stamped upon the outside cover
thereof, any mail matter of whatever class mailed by or addressed to such
person or company or the representative or agent of such person or company....
SEC. 1983. Deprivation of use of money order system and telegraphic transfer
service. Director of Posts may, upon evidence satisfactory to him that any
person or company is engaged in conducting any lottery, gift enterprise, or
scheme for the distribution of money or of any real or personal property by lot,
chance, or drawing of any kind, or that any person or company is conducting any
scheme, device, or enterprise for obtaining money or property of any kind
through the mails by means of false or fraudulent pretenses, representations, or
promise, forbid the issue or payment by any postmaster of any postal money
order or telegraphic transfer to said person or company, or to the agent of any
such person or company, whether such agent is acting as an individual or as a
firm, bank, corporation, or association of any kind, and may provide by
regulation for the return to the remitters of the sums named in money orders or
telegraphic transfers drawn in favor of such person or company or its agent....
(Emphasis supplied).
Invoking the phrase "upon evidence satisfactory to him the appellant contends
that the fraud order in question was legally issued because he had been satisfied
with the evidence presented to him that appellee was conducting a lottery or
gift enterprise.
2
We note that the appellee does not question the authority of
the appellant, under Sections 1954(a), 1982 and 1983 aforequoted, to prohibit
the use of the mails, the money order system and the telegraphic transfer
service for the promotion of lotteries, gift enterprises or fraudulent
schemes.
3
Indeed, appellant would be remiss in the performance of his duties
should he fail to exercise his authority under the Postal Law if and when the
mails, the money order system, and the telegraphic transfer service are utilized
for the promotion of lotteries, gift enterprises and similar schemes prohibited by
law. Appellant's authority, however, is not absolute. Neither does the law give
him unlimited discretion. The appellant may only exercise his authority if there is
a clear showing that the mails, the money order system and the telegraphic
transfer service are used to promote a scheme or enterprise prohibited by law.
In the present case, therefore, the question that must be resolved is whether
appellee's "Grand Christmas Bonus Award" plan constitutes a lottery, gift
enterprise, or similar scheme proscribed by the Postal Law, aforequoted, as
would authorize the appellant to issue the fraud order in question.
Before we resolve the question, however, we wish to advert to the claim of the
appellant that he had made his decision based upon satisfactory evidence that
15

the "Grand Christmas Bonus Award" plan of appellee is a lottery or gift
enterprise for the distribution of gifts by chance, and his decision in this regard
cannot be reviewed by the court.
4
Thus, the appellant, in his brief,
5
says:
It is respectfully submitted that corollary to the rule that courts cannot interfere
in the performance of ordinary duties of the executive department is the equally
compelling rule that decisions of the defendant on questions of fact are final and
conclusive and generally cannot be reviewed by the courts. For it cannot be
denied that the Postmaster General is charged with quasi-judicial functions and
vested with discretion in determining what is mailable matter and in withholding
from the plaintiff the privilege of using the mail, the money order system and
the telegraphic transfer service... As the disputed, Fraud Order No. 3 was issued
pursuant to the powers vested in the defendant by the Postal Law and in
accordance with satisfactory evidence presented to him, it cannot be said that
the defendant was palpably wrong or that his decision had no reasonable basis
whatever. Neither can it be said that he exceeded his authority nor that he
abused his discretion.
In this connection it may be stated that the Postal Law contains no provision for
judicial review of the decision of the Postmaster General. This Court, however,
in Reyes vs. Topacio
6
had stated that the action of the Director of Posts (now
Postmaster General) is subject to revision by the courts in case he exceeded his
authority or his act is palpably wrong. And in "El Debate" Inc. vs. Topacio
7
this
Court said that the courts will not interfere with the decision of the Director of
Post (Postmaster General) as to what is, and what is not, mailable matter unless
clearly of opinion that it was wrong. In other words, the courts will interfere
with the decision of the Postmaster General if it clearly appears that the decision
is wrong. This Court, by said rulings, recognizes the availability of judicial review
over the action of the Postmaster General, notwithstanding the absence of
statutory provision for judicial review of his action. It may not be amiss to state
that said rulings are in consonance with American jurisprudence to the effect
that the absence of statutory provisions for judicial review does not necessarily
mean that access to the courts is barred. The silence of the Congress is not to be
construed as indicating a legislative intent to preclude judicial
review.
8
In American School of Magnetic Healing vs. McAnnulty,
9
the U.S.
Supreme Court, speaking on the power of the courts to review the action of the
Postmaster General under a statute similar to our Postal Law,
10
said:
That the conduct of the post office is a part of the administrative department of
the government is entirely true, but that does not necessarily and always oust
the courts of jurisdiction to grant relief to a party aggrieved by any action by the
head, or one of the subordinate officials, of that Department, which is
unauthorized by the statute under which he assumes to act. The acts of all its
officers must be justified by some law, and in case an official violates the law to
the injury of an individual the courts generally have jurisdiction to grant relief.
Appellant also invokes the doctrine of exhaustion of administrative remedies,
and asserts that the action of the appellee in the present case was premature
because he had not first appealed the fraud order to higher administrative
authorities. This assertion of appellant has no merit. The rule on exhaustion of
administrative remedies is not a hard and fast one. It admits of exceptions,
amongst which are: (1) where the question involved is purely a legal one,
11
and
(2) where there are circumstances indicating the urgency of judicial
intervention.
12
The question involved in the present case is legal whether or
not the "Grand Christmas Bonus Award" plan of appellee, based upon the facts
as stipulated, is a lottery or gift enterprise. We take note that the Grand
Christmas Sweepstakes draw in conjunction with which appellee's plan was
offered, was scheduled for December 15, 1963, or barely five days from
December 10, 1963, the date when appellee learned of the issuance of the fraud
order. Time was of the essence to the appellee.
We now resolve the main question in this case, namely, whether or not
appellee's "Grand Christmas Bonus Award" plan constitutes a lottery or a gift
enterprise. There is no statutory definition of the terms "lottery" and "gift
enterprise". This Court, in the case of "El Debate" Inc. vs. Topacio, supra,
referring to lottery, said:
... while countless definitions of lottery have been attempted, the authoritative
one for this jurisdiction is that of the United States Supreme Court, in analogous
cases having to do with the power of the United States Postmaster General, viz:
The term "lottery" extends to all schemes for the distribution of prizes by
chance, such as policy playing, gift exhibitions, prize concerts, raffles at fairs,
etc., and various forms of gambling. The three essential elements of a lottery
are: First, consideration; second, prize; and third. chance (Horner vs. United
States [1902] 147 U.S. 449; Public Clearing House vs. Coyne [1903] 194 U.S., 497;
U.S. vs. Filart and Singson [1915] 30 Phil. 80; U.S. vs. Olsen and Marker [1917] 36
Phil. 395; U.S. Vs. Baguio [1919] 39 Phil. 962: Valhalla Hotel Construction
Company vs. Carmona, p. 233, ante.)
Thus, for lottery to exist, three elements must concur, namely: consideration,
prize, and chance.
Appellant maintains that all the elements are present in the "Grand Christmas
Bonus Award" plan of the appellee, to wit: "(1) consideration, because to
participate and win in the contest one must buy and resell (in case of sub-
agents) or buy (in case of ticket buyers) only 'Manuel Uy' tickets; (2) prize,
because of the goods to be awarded to the winners; and (3) chance, because the
determination of the winners depends upon the results of the sweepstakes
draw which is decidedly a game of chance."
13
With particular emphasis on the
element of consideration, appellant likens this case to the "El Debate"
case, supra, and paraphrasing the ruling therein says that "By analogy there is
consideration with respect to persons who will buy 'Manuel Uy' tickets (in
preference to tickets sold by other authorized agents, like Tagumpay, Pelagia
Viray, Marcela Meer Millar, etc.) merely to win prizes in addition to the regular
sweepstakes prizes (and it is to such persons that the scheme is directed);
moreover, the persons patronizing the Manuel Uy Sweepstakes Agency do not
all receive same amount and some may receive more than the value paid for
their tickets through chance and the prizes awarded by the Philippine Charity
Sweepstakes Office."
14

16

As against this contention, appellee maintains that there is absence of the
element of consideration because except for paying the authorized purchase
price of the corresponding sweepstakes tickets, those entitled to participate in
and to benefit from appellee's "Grand Christmas Bonus Award" plan do not part
with any other consideration for the right to take part and benefit therefrom,
which fact is admitted by the appellant.
15
Further, appellee contends that even
under the test laid down in the "El Debate" case, the element of consideration is
lacking because appellee's sub-agents would have continued to sell and the
general public would have continued to buy 'Manuel Uy' tickets regardless of
appellee's "Grand Christmas Bonus Award" plan.
16
Moreover, appellee advances
the view that under another test adopted by American courts as shown by a
review of comparative case law in the United States, there can be no
consideration under the plan in question because the participants pay no money
or its equivalent into a fund which pays for the prize.
17

Speaking of the element of consideration, this Court in the aforementioned "El
Debate" case, and quoted in Caltex (Phil.) Inc. vs. Postmaster General,
18
said:
In respect to the last element of consideration, the law does not condemn the
gratuitous distribution of property by chance, if no consideration is derived
directly or indirectly from the party receiving the chance, but does condemn as
criminal, schemes in which a valuable consideration of some kind is paid directly
or indirectly for the chance to draw a prize.
In the "Grand Christmas Bonus Award" plan of the appellee We do not see the
presence of the element of consideration, that is, payment of something of
value, or agreement to pay, for the chance to win the bonus or award offered.
True, that to be a participant in said plan, one must have to buy a whole
sweepstakes ticket (8 shares) sold by the Manuel Uy Sweepstakes Agency or by
its sub-agents. But the payment for the price of the sweepstakes ticket is the
consideration for the chance to win any of the prizes offered by the PCSO in the
sweepstakes draw of December 15, 1963. Wholly or partly, said payment cannot
be deemed as a consideration also for the chance to win the prizes offered by
the appellee. For nothing is asked of, or received from, the buyer of the ticket
more than the authorized price thereof, and which price appears on the face of
the ticket. In fact, appellant admits that except for the price of the ticket, those
entitled to participate and benefit from the plan do not part with any other
consideration for the right to take part and benefit therefrom.
19
Indeed, as
correctly observed by the lower court, "there is absolutely no separate
consideration for the right to win any of the offered bonuses or awards."
The analogy drawn by the appellant from the "El Debate" case is not persuasive.
On the contrary, the "reason" or "inducement" test laid down in said case in
determining the presence of the element of consideration seems to favor the
appellee. Paraphrased, the test as expressed in the "El Debate" case is: if the
reason for the subscription of the "El Debate" was the desire to subscribe
regardless of any prize offered, then there was no consideration insofar as the
prize plan is concerned; upon the other hand, if the reason for the subscription
was to win the prize offered, then the payment of the subscription fee
constituted a consideration for the chance to win the prize. In the instant case,
there are two groups of participants, in appellee's plan, namely: the sub-agents
and the ticket buyers. It cannot be denied that the sub-agents who, as stated in
the stipulation of facts, are responsible for not less than 70% of appellee's total
sales for every draw, would have continued to be appellee's sub-agents and
would have sold "Manuel Uy" tickets regardless of the plan in question. Anyway,
they stood to receive 50% of the agent's prize for any of the prize-winning ticket
they could sell. Upon the other hand, the probability is that the general public
would have purchased "Manuel Uy" tickets in their desire to win any of the
prizes offered by the PCSO regardless of the inducement offered by the appellee
to win additional prizes. This conclusion finds support from the admitted fact
that the appellee has consistently sold the greatest number of tickets among the
PCSO'S authorized agents.
20
And undoubtedly, every person who purchased
sweepstakes tickets from the Manuel Uy Sweepstakes Agency for the December
15, 1963 draw must have been induced, not by the prizes offered by the appellee
but by the substantial prizes offered by the PCSO to wit: First prize,
P700,000.00; Second prize P350,000.00; and Third prize, P175,000.00.
It may not be amiss to state at this juncture that the comparative case law in the
United States indicates that there is another test for determining whether or not
the element of consideration exists in a given scheme or plan so as to constitute
the same a lottery under parallel antilottery legislation. In Post Publishing Co. vs.
Murray,
21
it was held:
The advertisement or scheme in question does not seem to be like any of the
kinds or types of wrong against which the Act of Congress was directed. It did
not present a lottery scheme because a lottery involves a scheme for raising money
by selling chances to share in the distribution of prizes a scheme for the
distribution of prizes by chance among persons purchasing tickets. It was not a
gift enterprise because a gift enterprise contemplates a scheme in which
publishers or sellers give presents as inducements to members of the public to
part with their money. (Emphasis supplied.)
The more recent case of Garden City Chamber of Commerce vs. Wagnet
22
laid
down the test in more definitive terms, as follows:
The examination of authorities made in the present case induces the belief that
the consideration requisite to a lottery is a contribution in kind to the fund or
property to be distributed. (Emphasis supplied)
The test indicated in the foregoing rulings simply means that unless the
participants pay money or its equivalent into a fund which pays for the prizes,
there is no lottery. Stated differently, there is consideration or price paid if it
appears that the prizes offered, by whatever name they may be called, came out
of the fund raised by the sale of chances among the participants in order to win
the prizes. Conversely, if the prizes do not come out of the fund or contributions
by the participants, no consideration has been paid, and consequently there is
no lottery.
In the instant case, as stated by the lower court, the prizes offered by the
appellee were to be taken from his share in the agent's prize
23
, which was 10%
of the amount of the prize won by each ticket sold.
24
Therefore, since none of
the prizes (awards and bonuses) offered in appellee's plan were to come directly
17

from the aggregate price of the sweepstakes tickets sold by appellee, as a part
thereof, no consideration exists for the chance to win said prizes, there being no
"contribution in kind to the fund or property to be distributed."
Appellant, however, urges that the patronage of "Manuel Uy" tickets
constitutes a consideration because from the increased sales, appellee would
derive benefits in the form of "returns on his quite substantial investment." This
suggestion is without merit. The question of consideration is not to be
determined from the standpoint of the appellee, or the proponent of the
scheme, but rather from that of the sub-agents and the ticket buyers. Said this
Court in Caltex (Phil.) case, supra, on this point:
Off-tangent, too, is the suggestion that the scheme, being admittedly for sales
promotion, would naturally benefit the sponsor in the way of increased
patronage by those who will be encouraged to prefer Caltex products "if only to
get the chance to draw a prize by securing entry blanks". The required element
of consideration does not consist of the benefit derived by the proponent of the
contest. The true test, as laid down in People vs. Cardas 28 P. 2d. 99, 137 Cal. App.
(Supp.) 788, is whether the participant pays a valuable consideration for the
chance, and not whether those conducting the enterprise received something of
value in return for the distribution of the prize. Perspective properly oriented,
the standpoint of the contestant is all that matters, not that of the sponsor. The
following, culled from Corpus Juris Secundum, should set the matter at rest:
The fact that the holder of the drawing expects thereby to receive, some benefit
in the way of patronage or otherwise, as a result of the drawing, does not supply
the element of consideration. Griffith Amusement Co. v. Morgan, Tex. Civ
App., 98 S.W. 2d., 844. (54 C.J.S., p. 849).
Equally enlightening in this connection is the following dissertation of the court
in the case of State vs. Hundling:
25

The question is not whether the donor of the prize makes a profit in some
remote and indirect way, but, rather, whether those who have a chance at the
prize pay anything of value for that chance. Every scheme of advertising,
including the giving away of premiums and prizes, naturally has for its objects,
not purely a philanthropic purpose, but increased business. Even the corner
grocer who gives candy to the children of the neighborhood may be prompted
by that motive, but that does not make the gift unlawful. And if the grocery
instead of giving candy to all the children, gives it only to some as determined by
lot, that circumstance does not make the gift made unlawful by the further
circumstance that the business of the grocer in the neighborhood may be
thereby increased. Profit accruing remotely and indirectly to the person who gives
the prize is not a substitute for the requirement that he who has the chance to win
the prize must pay a valuable consideration therefor, in order to make the scheme
a lottery. (Emphasis supplied.)
Based on the foregoing rulings, therefore, it is clear that there is no
consideration or price for the chance to win any of the prizes offered by the
appellee in his "Grand Christmas Bonus Award" plan. There being no
consideration, there is no lottery.
26

Even in the light of the mischief or evil sought to be redressed by the Postal Law,
or the ratio legis, the appellee's scheme cannot be condemned as a lottery. It is
merely a scheme set up to promote the sale of tickets for the Grand Christmas
Sweepstakes Draw held on December 15, 1963. Should any question be raised it
would be: whether or not sweepstakes draws cultivate or stimulate the
gambling spirit among the people. It should be so, because it cannot be doubted
that sweepstakes tickets purchasers are induced to buy said tickets because of
the desire to win any of the substantial prizes offered by the PCSO. This
question, however, is at once rendered moot and academic because
sweepstakes draws are authorized by law.
But appellant presents as an alternative argument the contention that even if
assuming that "the element of consideration is lacking the scheme is still a gift
enterprise which is also prohibited by the Postal Law." And in support of this
contention or proposition, appellant relies solely on Opinion No. 217, series of
1953 of the Secretary of Justice, which, according to the appellant, "ruled that
the elements of gift enterprise, as distinguished from the lottery, are only
chance and prize."
In the Caltex (Phil.) case, supra, this Court, rejecting a similar contention of the
appellant, emphatically held:
[W]e note that in the Postal Law the term in question (gift enterprise) is used in
association with the word "lottery". With the meaning of lottery settled, and
consonant to the well-known principle of legal hermeneutics noscitu a sociis
which Opinion 217 aforesaid also relied upon although only in so far as the
clement of chance is concerned it is only logical that the term under
construction should be accorded no other meaning than that which is consistent
with the nature of the word associated therewith. Hence, if lottery is prohibited
only if it involves a consideration, so also must the term "gift enterprise" be so
construed. Significantly, there is not in the law the slightest indicium of any
intent to eliminate that element of consideration from the "gift enterprise"
therein included.
This conclusion firms up in the light of the mischief sought to be remedied by the
law, resort to the determination thereof being an accepted extrinsic aid in
statutory construction. Mail fraud orders, it is axiomatic, are designed to prevent
the use of the mails as a medium for disseminating printed matters which on
grounds of public policy are declared non-mailable. As applied to lotteries, gift
enterprises and similar schemes, justification lies in the recognized necessity to
suppress their tendency to inflame the gambling spirit and to corrupt public
morals (Com. vs. Lund 15 A. 2d., 839, 143 Pa. Super. 208). Since in gambling it is
inherent that something of value be hazarded for a chance to gain a larger
amount, it follows ineluctably that where no consideration is paid by the
contestant to participate, the reason behind the law can hardly be said to
obtain. If, as it has been held
Gratuitous distribution of property by lot or chance does not constitute
"lottery", if it is not resorted to as a device to evade the law and no consideration
is derived, directly or indirectly, from the party receiving the chance, gambling
18

spirit not being cultivated or stimulated thereby. (City of Roswell vs. Jones, 67 P.
2d., 286, 41 N.M., 258.') (25 Words and Phrases, perm. ed., p. 695, emphasis)
We find no obstacle in saying the same respecting a gift enterprise. In the end,
we are persuaded to hold that, under the prohibitive provisions of the Postal
Law which we have heretofore examined, gift enterprise and similar schemps
therein contemplated are condemnable only if, like lotteries, they involve the
element of consideration....
Considered in the light of the foregoing elucidations the conclusion is irresistible
that since in the instant case the element of consideration is lacking, the plan or
scheme in question is also not a "gift enterprise" or a "similar scheme"
proscribed by the Postal Law.
Not being a lottery, gift enterprise or similar scheme, appellee's "Grand
Christmas Bonus Award" plan can be considered a scheme for the gratuitous
distribution of personal property by chance which the Postal Law does not
condemn. Thus, in labelling said scheme as a lottery or gift enterprise when it is
not, appellant not only committed a palpable error of law but also exceeded his
statutory authority in issuing the fraud order in question. The power of the
appellant to issue a fraud order under the Postal Law is dependent upon the
existence of a lottery, gift enterprise or similar scheme.
Accordingly, the lower court did not err in declaring the fraud order in question
contrary to law and in substituting its judgement for that of the appellant. The
lower court did not also err in issuing the writ of injunction, the remedy
adequate, speedy and appropriate under the circumstances.lawphi1.nt
... The Postmaster General's order being the result of a mistaken view of the law,
could not operate as a defense to his action on the part of the defendant,
though it might justify his obedience thereto until some action of the court. In
such a case as the one before us there is no adequate remedy at law, the
injunction to prohibit the further withholding of the mail from complaint being
the only remedy at all adequate to the full relief to which the complainants are
entitled....
27

WHEREFORE, the decision appealed from should be, as it is hereby, affirmed. No
pronouncement as to costs. It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Fernando, Capistrano,
Teehankee and Barredo, JJ., concur.
Sanchez, J., took no part.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a
face value of P200,000.00. Two months later, he was dead with a bullet wound
in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy
but her claim was rejected. The petitioner agreed that there was no suicide. It
argued, however that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened
on October 6, 1982, at about 10 o'clock in the evening, after his mother's
birthday party. According to Nalagon, Lim was in a happy mood (but not drunk)
and was playing with his handgun, from which he had previously removed the
magazine. As she watched television, he stood in front of her and pointed the
gun at her. She pushed it aside and said it might he loaded. He assured her it was
not and then pointed it to his temple. The next moment there was an explosion
and Lim slumped to the floor. He was dead before he fell.
1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and
was sustained.
2
The petitioner was sentenced to pay her P200,000.00,
representing the face value of the policy, with interest at the legal rate;
P10,000.00 as moral damages; P5,000.00 as exemplary damages; P5,000.00 as
actual and compensatory damages; and P5,000.00 as attorney's fees, plus the
costs of the suit. This decision was affirmed on appeal, and the motion for
reconsideration was denied.
3
The petitioner then came to this Court to fault the
Court of Appeals for approving the payment of the claim and the award of
damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be construed
and considered according to the ordinary understanding and common usage
and speech of people generally. In-substance, the courts are practically agreed
that the words "accident" and "accidental" mean that which happens by chance
or fortuitously, without intention or design, and which is unexpected, unusual,
and unforeseen. The definition that has usually been adopted by the courts is
that an accident is an event that takes place without one's foresight or
expectation an event that proceeds from an unknown cause, or is an unusual
effect of a known case, and therefore not expected.
4

An accident is an event which happens without any human agency or, if
happening through human agency, an event which, under the circumstances, is
unusual to and not expected by the person to whom it happens. It has also been
defined as an injury which happens by reason of some violence or casualty to the
injured without his design, consent, or voluntary co-operation.
5

In light of these definitions, the Court is convinced that the incident that resulted
in Lim's death was indeed an accident. The petitioner, invoking the case of De la
Cruz v. Capital Insurance,
6
says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There
was such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured
person's death.
19

The petitioner also cites one of the four exceptions provided for in the insurance
contract and contends that the private petitioner's claim is barred by such
provision. It is there stated:
Exceptions
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully exposing himself
to needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the
petitioner contends that the insured willfully exposed himself to needless peril
and thus removed himself from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless
peril are in pari materia because they both signify a disregard for one's life. The
only difference is in degree, as suicide imports a positive act of ending such life
whereas the second act indicates a reckless risking of it that is almost suicidal in
intent. To illustrate, a person who walks a tightrope one thousand meters above
the ground and without any safety device may not actually be intending to
commit suicide, but his act is nonetheless suicidal. He would thus be considered
as "willfully exposing himself to needless peril" within the meaning of the
exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip temple,
Lim had willfully exposed himself to needless peril and so came under the
exception. The theory is that a gun is per se dangerous and should therefore be
handled cautiously in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim
had removed the magazine from the gun and believed it was no longer
dangerous. He expressly assured her that the gun was not loaded. It is
submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun
was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide
for contingencies. Hence, when I miscalculate and jump from the Quezon Bridge
into the Pasig River in the belief that I can overcome the current, I have wilfully
exposed myself to peril and must accept the consequences of my act. If I drown
I cannot go to the insurance company to ask them to compensate me for my
failure to swim as well as I thought I could. The insured in the case at bar
deliberately put the gun to his head and pulled the trigger. He wilfully exposed
himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance
company to ask for compensation. That might frighten the insurance people to
death. We also agree that under the circumstances narrated, his beneficiary
would not be able to collect on the insurance policy for it is clear that when he
braved the currents below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the
analogy fails. The petitioner's hypothetical swimmer knew when he dived off the
Quezon Bridge that the currents below were dangerous. By contrast, Lim did
not know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But
it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves
the insurer of the responsibility to pay the indemnity agreed upon if the insured
is shown to have contributed to his own accident. Indeed, most accidents are
caused by negligence. There are only four exceptions expressly made in the
contract to relieve the insurer from liability, and none of these exceptions is
applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the
petitioner. The basic issue raised in this case is, as the petitioner correctly
observed, one of first impression. It is evident that the petitioner was acting in
good faith then it resisted the private respondent's claim on the ground that the
death of the insured was covered by the exception. The issue was indeed
debatable and was clearly not raised only for the purpose of evading a
legitimate obligation. We hold therefore that the award of moral and exemplary
damages and of attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral damages, the
law requires that his act be wrongful. The adverse result of an action does
not per se make the act wrongful and subject the act or to the payment of moral
damages. The law could not have meant to impose a penalty on the right to
litigate; such right is so precious that moral damages may not be charged on
those who may exercise it erroneously. For these the law taxes costs.
7

The fact that the results of the trial were adverse to Barreto did not alone make
his act in bringing the action wrongful because in most cases one party will lose;
we would be imposing an unjust condition or limitation on the right to litigate.
We hold that the award of moral damages in the case at bar is not justified by
the facts had circumstances as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation
expenses, since it is not the fact of winning alone that entitles him to recover
such damages of the exceptional circumstances enumerated in Art. 2208.
Otherwise, every time a defendant wins, automatically the plaintiff must pay
attorney's fees thereby putting a premium on the right to litigate which should
not be so. For those expenses, the law deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so
far as it holds the petitioner liable to the private respondent in the sum of
P200,000.00 representing the face value of the insurance contract, with interest
at the legal rate from the date of the filing of the complaint until the full amount
20

is paid, but MODIFIED with the deletion of all awards for damages, including
attorney's fees, except the costs of the suit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 89741 March 13, 1991
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
COURT OF APPEALS and EMILIO TAN, respondents.
Alfonso Felix, Jr., for petitioner.
William B. Devilles for private respondent.

PARAS, J.:p
This is a petition for review on certiorari of the June 20, 1989 decision
1
of the
Court of Appeals in CA-G.R. SP. Case No. 13848 affirming the November 3, 1987
and January 14, 1988 orders of the Regional Trial Court
2
of Iloilo, Branch 27, in
Civil Case No. 16817, denying the motion to dismiss and the subsequent motion
for reconsideration; and the August 22, 1989 resolution of the same court
denying the motion for reconsideration.
On August 15, 1983, herein private respondent Emilio Tan took from herein
petitioner a P300,000.00 property insurance policy to cover his interest in the
electrical supply store of his brother housed in a building in Iloilo City. Four (4)
days after the issuance of the policy, the building was burned including the
insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner,
but on February 29, 1984, petitioner wrote Tan denying the latter's claim. On
April 3, 1984, Tan wrote petitioner, seeking reconsideration of the denial of his
claim. On September 3, 1985, Tan's counsel wrote the Insurer inquiring about the
status of his April 3, 1984 request for reconsideration. Petitioner answered the
letter on October 11, 1985, advising Tan's counsel that the Insurer's denial of
Tan's claim remained unchanged, enclosing copies of petitioners' letters of
February 29, 1984 and May 17, 1985 (response to petition for reconsideration).
On November 20, 1985, Tan filed Civil Case No. 16817 with the Regional Trial
Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the alleged
ground that the action had already prescribed. Said motion was denied in an
order dated November 3, 1987; and petitioner's motion for reconsideration was
also denied in an order dated January 14, 1988.
Petitioner went to the Court of Appeals and sought the nullification of the said
Nov. 3, 1987 and January 14, 1988 orders, but the Court of Appeals, in its June 20,
1989 decision denied the petition and held that the court a quomay continue
until its final termination.
A motion for reconsideration was filed, but the same was denied by the Court of
Appeals in its resolution of August 22, 1989 (Rollo, pp. 42-43).
Hence, the instant petition.
The Second Division of this Court, in its resolution of December 18, 1989 resolved
to give due course to the petition and to require the parties to submit
simultaneous memoranda (Ibid., p. 56).
Petitioner raised two (2) issues which may be stated in substance, as follows:
I
WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION
INTERRUPTS THE TWELVE (12) MONTHS PRESCRIPTIVE PERIOD TO CONTEST
THE DENIAL OF THE INSURANCE CLAIM; and
II
WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL
ONLY IF IT CONTAINS WORDS TO THE EFFECT THAT THE DENIAL IS FINAL.
The answer to the first issue is in the negative.
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 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 (Pacific Banking
Corp. v. Court of Appeals, 168 SCRA 1 [1988]).
Condition 27 of the Insurance Policy, which is the subject of the conflicting
contentions of the parties, reads:
27. Action or suit clause If a claim be made and rejected and an action or suit
be not commenced either in the Insurance Commission or in any court of
competent jurisdiction within twelve (12) months from receipt of notice of such
rejection, or in case of arbitration taking place as provided herein, within twelve
(12) months after due notice of the award made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be deemed to have been
abandoned and shall not thereafter be recoverable hereunder.
As the terms are very clear and free from any doubt or ambiguity whatsoever, it
must be taken and understood in its plain, ordinary and popular sense pursuant
to the above-cited principle laid down by this Court.
Respondent Tan, in his letter addressed to the petitioner insurance company
dated April 3, 1984 (Rollo, pp. 50-52), admitted that he received a copy of the
letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period started
to run from the said date of April 2, 1984, for such is the plain meaning and
intention of Section 27 of the insurance policy.
While the question of whether or not the insured was definitely advised of the
rejection of his claim through the letter (Rollo, pp. 48-49) of petitioner dated
February 29, 1984, may arise, the certainty of the denial of Tan's claim was
clearly manifested in said letter, the pertinent portion of which reads:
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz,
Iloilo City.
We now have the report of our adjusters and after a thorough and careful
review of the same and the accompanying documents at hand, we are rejecting,
much to our regrets, liability for the claim under our policies for one or more of
the following reasons:
21

1. xxx xxx xxx
2. xxx xxx xxx
For your information, we have referred all these matters to our lawyers for their
opinion as to the compensability of your claim, particularly referring to the
above violations. It is their opinion and in fact their strong recomendation to us
to deny your claim. By this letter, we do not intend to waive or relinquish any of
our rights or defenses under our policies of insurance.
It is also important to note the principle laid down by this Court in the case
of Ang v. Fulton Fire Insurance Co., (2 SCRA 945 [1961]), to wit:
The condition contained in an insurance policy that claims must be presented
within one year after rejection is not merely a procedural requirement but an
important matter essential to a prompt settlement of claims against insurance
companies as it demands that insurance suits be brought by the insured while
the evidence as to the origin and cause of destruction have not yet disappeared.
In enunciating the above-cited principle, this Court had definitely settled the
rationale for the necessity of bringing suits against the Insurer within one year
from the rejection of the claim. The contention of the respondents that the one-
year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer, runs counter to the declared
purpose for requiting that an action or suit be filed in the Insurance Commission
or in a court of competent jurisdiction from the denial of the claim. To uphold
respondents' contention would contradict and defeat the very principle which
this Court had laid down. Moreover, it can easily be used by insured persons as a
scheme or device to waste time until any evidence which may be considered
against them is destroyed.
It is apparent that Section 27 of the insurance policy was stipulated pursuant to
Section 63 of the Insurance Code, which states that:
Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one year
from the time when the cause of action accrues, is void.
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent's view, two rulings of this Court have been
cited, namely, the case of Eagle Star Insurance Co. vs. Chia Yu (96 Phil. 696
(1955]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening
of the loss. However, the cause of action in an insurance contract does not
accrue until the insured's claim is finally rejected by the insurer. This is because
before such final rejection there is no real necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968],
holding that:
Since "cause of action" requires as essential elements not only a legal right of
the plaintiff and a correlated obligation of the defendant in violation of the said
legal right, the cause of action does not accrue until the party obligated (surety)
refuses, expressly or impliedly, to comply with its duty (in this case to pay the
amount of the bond).
Indisputably, the above-cited pronouncements of this Court may be taken to
mean that the insured's cause of action or his right to file a claim either in the
Insurance Commission or in a court of competent jurisdiction commences from
the time of the denial of his claim by the Insurer, either expressly or impliedly.
But as pointed out by the petitioner insurance company, the rejection referred
to should be construed as the rejection, in the first instance, for if what is being
referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated.
Thus, to allow the filing of a motion for reconsideration to suspend the running
of the prescriptive period of twelve months, a whole new body of rules on the
matter should be promulgated so as to avoid any conflict that may be brought
by it, such as:
a) whether the mere filing of a plea for reconsideration of a denial is sufficient or
must it be supported by arguments/affidavits/material evidence;
b) how many petitions for reconsideration should be permitted?
While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final
rejection", the same cannot be taken to mean the rejection of a petition for
reconsideration as insisted by respondents. Such was clearly not the meaning
contemplated by this Court. The Insurance policy in said case provides that the
insured should file his claim, first, with the carrier and then with the insurer. The
"final rejection" being referred to in said case is the rejection by the insurance
company.
PREMISES CONSIDERED, the questioned decision of the Court of Appeals is
REVERSED and SET ASIDE, and Civil Case No. 16817 filed with the Regional Trial
Court is hereby DISMISSED.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21574 June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee,
vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.
Achacoso, Nera and Ocampo for defendant and appellant.
Agustin M. Gramata for plaintiff and appellee.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the
decision of the Court of First Instance of Pangasinan (in Civ Case No. U-265),
ordering it to indemnify therein plaintiff Simon de la Cruz for the death of the
latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in
Baguio, was the holder of an accident insurance policy (No. ITO-BFE-170)
underwritten by the Capital Insurance & Surety Co., Inc., for the period
22

beginning November 13, 1956 to November 12, 1957. On January 1, 1957, in
connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc.
sponsored a boxing contest for general entertainment wherein the insured
Eduardo de la Cruz, a non-professional boxer participated. 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. He was brought to the Baguio General Hospital the following day. The
cause of death was reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary
under the policy, thereupon filed a claim with the insurance company for
payment of the indemnity under the insurance policy. As the claim was denied,
De la Cruz instituted the action in the Court of First Instance of Pangasinan for
specific performance. Defendant insurer set up the defense that the death of
the insured, caused by his participation in a boxing contest, was not accidental
and, therefore, not covered by insurance. After due hearing the court rendered
the decision in favor of the plaintiff which is the subject of the present appeal.
It is not disputed that during the ring fight with another non-professional boxer,
Eduardo slipped, which was unintentional. At this opportunity, his opponent
landed on Eduardo's head a blow, which sent the latter to the ropes. That must
have caused the cranial injury that led to his death. Eduardo was insured
"against death 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 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, in turn, caused the death of the insured. And, since his inclusion in
the boxing card was voluntary on the part of the insured, he cannot be
considered to have met his death by "accidental means".1wph1.t
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 happen by chance or fortuitously, without intention and design, and
which is unexpected, unusual, and unforeseen. An accident is an event that
takes place without one's foresight or expectation an event that proceeds
from an unknown cause, or is an unusual effect of a known cause and, therefore,
not expected.
1

Appellant however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the insurance
policy involved here. It is argued that to be considered within the protection of
the policy, what is required to be accidental is the means that caused or brought
the death and not the death itself. It may be mentioned in this connection, that
the tendency of court decisions in the United States in recent years is to
eliminate the fine distinction between the terms "accidental" and "accidental
means" and to consider them as legally synonymous.
2
But, even if we take
appellant's theory, the death of the insured in the case at bar would still be
entitled to indemnification under the policy. The generally accepted rule is that,
death or injury does not result from accident or accidental means within the
terms of an
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
accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces or
brings about the result of injury or death.
4
In other words, where the death or
injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury,
the resulting death is within the protection of policies insuring against death or
injury from accident.
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 his opponent of the blow that threw him to the ropes of the ring.
Without this unfortunate incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that blow in the head and would
not have died. The fact 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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon,
Dela cruz
Chris, a boxer, is a holder of an accident insurance policy. In a boxing match, he died after
being knocked out by the opponent. Can his father who is a beneficiary under said
insurance policy successfully claim indemnity from the insurance company?

23

Yes. Clearly, the proximate cause of death was the boxing contest. Death sustained in a
boxing contest is an accident. (De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-
21574, June 30, 1966)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.

NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order and
preliminary mandatory injunction to annul and set aside the decision of the Court of
Appeals dated July 11, 1991,
1
affirming the decision dated March 20, 1990 of the Insurance
Commission
2
in ordering petitioner Finman General Assurance Corporation to pay private
respondent Julia Surposa the proceeds of the personal accident Insurance policy with
interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with
petitioner Finman General Assurance Corporation under Finman General Teachers
Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents,
spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton,
all surnamed, Surposa, as beneficiaries.
3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on
October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified
men without provocation and warning on the part of the former as he and his cousin,
Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets,
Bacolod City after attending the celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy filed a
written notice of claim with the petitioner insurance company which denied said claim
contending that murder and assault are not within the scope of the coverage of the
insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of which
reads:
In the light of the foregoing. we find respondent liable to pay
complainant the sum of P15,000.00 representing the proceeds of the
policy with interest. As no evidence was submitted to prove the claim
for mortuary aid in the sum of P1,000.00, the same cannot be
entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay
complainant the sum of P15,000.00 with legal interest from the date of
the filing of the complaint until fully satisfied. With costs.
4

On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the
appellate court in applying the principle of "expresso unius exclusio alterius" in a personal
accident insurance policy since death resulting from murder and/or assault are impliedly
excluded in said insurance policy considering that the cause of death of the insured was
not accidental but rather a deliberate and intentional act of the assailant in killing the
former as indicated by the location of the lone stab wound on the insured. Therefore, said
death was committed with deliberate intent which, by the very nature of a personal
accident insurance policy, cannot be indemnified.
We do not agree.
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 happen by chance or fortuitously,
without intention and design, and which is unexpected, unusual, and
unforeseen. An accident is an event that takes place without one's
24

foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not
expected.
. . . The generally accepted rule is that, death or injury does not result
from accident or accidental means within the terms of an accident-
policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury.
There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening
occurs which produces or brings about the result of injury or death. In
other words, where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs
in the doing of the act which produces the injury, the resulting death is
within the protection of the policies insuring against death or injury
from accident.
5

As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in
the course of an assault or murder as a result of his voluntary act
considering the very nature of these crimes. In the first place, the
insured and his companion were on their way home from attending a
festival. They were confronted by unidentified persons. The record is
barren of any circumstance showing how the stab wound was inflicted.
Nor can it be pretended that the malefactor aimed at the insured
precisely because the killer wanted to take his life. In any event, while
the act may not exempt the unknown perpetrator from criminal
liability, the fact remains that the happening was a pure accident on
the part of the victim. The insured died from an event that took place
without his foresight or expectation, an event that proceeded from an
unusual effect of a known cause and, therefore, not expected. Neither
can it be said that where was a capricious desire on the part of the
accused to expose his life to danger considering that he was just going
home after attending a festival.
6

Furthermore, the personal accident insurance policy involved herein specifically
enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a result of
any of the stimulated causes. The principle of " expresso unius exclusio alterius" the
mention of one thing implies the exclusion of another thing is therefore applicable in
the instant case since murder and assault, not having been expressly included in the
enumeration of the circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner insurance company from
liability for, any injury, disability or loss suffered by the insured. Thus, the failure of the
petitioner insurance company to include death resulting from murder or assault among
the prohibited risks leads inevitably to the conclusion that it did not intend to limit or
exempt itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall
not favor the party who caused the obscurity.
Moreover,
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.
7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of
Appeals, the petition forcertiorari with restraining order and preliminary injunction is
hereby DENIED for lack of merit.
SO ORDERED.
G.R. No. L-21574 June 30, 1966
Lessons Applicable: Liability of Insurer for Suicide and Accidental Death (Insurance)
Laws Applicable:


FACTS:
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio,
was the holder of an accident insurance policy "against death or disability caused by
accidental means"
January 1, 1957: For the celebration of the New Year, the Itogon-Suyoc Mines, Inc.
sponsored a boxing contest for general entertainment wherein Eduardo, a non-
professional boxer participated
25

In the course of his bout with another non-professional boxer 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 hittingthe rope of the ring
He was brought to the Baguio General Hospital the following day. He died due
to hemorrhage, intracranial.
Simon de la Cruz, the father of the insured and who was named beneficiary under
the policy, thereupon filed a claim with the insurance company
The Capital Insurance and Surety co., inc denied stating that the death caused by his
participation in a boxing contest was not accidental
RTC: favored Simon
ISSUE: W/N the cause of death was accident

HELD:YES.
Eduardo slipped, which was unintentional
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
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen
event that takes place without one's foresight or expectation
event that proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected
where the death or injury is not the natural or probable result of the insured's
voluntary act, or if something unforeseen occurs in the doing of the act which
produces the injury, the resulting death is within the protection of policies insuring
against death or injury from accident
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 his opponent of the
blow that threw him to the ropes of the ring is not
The fact 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
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-12189 April 29, 1960
FRANCISCA GALLARDO, plaintiff-appellee,
vs.
HERMENEGILDA S. MORALES, defendant-appellant.
Cajulis and Dolorfino for appellee.
Filemon Cajator for appellant.
CONCEPCION, J.:
The issue before us is whether a personal accident insurance which "insures for
injuries and/or death as a result of murder or assault or attempt thereat" is a life
insurance, within the purview of Rule 39, section 12, subdivision (k) of the Rules
of Court, exempting from execution.
All moneys, benefits, privileges, or annuities accruing or in any manner growing
out of any life insurance, if the annual premiums paid do not exceed five
hundred pesos, and if they exceed that sum a like exemption shall exist which
shall bear the same proportion to the moneys, benefits, privileges, and annuities
so accruing or growing out of such insurance that said five hundred pesos bears
to the whole annual premiums paid.
In accordance with a compromise agreement between the parties in the above-
entitled case, a decision was rendered therein by the Court of First Instance of
Manila, on February 3, 1956, sentencing defendant Hermenegilda S. Morales to
pay to plaintiff Francisca Gallardo the sum of Seven Thousand Pesos
(P7,000.00). In due course, the corresponding writ of execution was issued and
delivered to the Sheriff of Manila, who, on August 8, 1956, garnished and levied
26

execution on the sum of P7,000.00, out of the P30,000.00 a due from the
Capital Insurance & Surety Co., Inc., to said defendant, as beneficiary under a
personal accident policy issued by said company to defendant's husband, Luis
Morales, who died, on August 26, 1950, by assassination. Invoking the above-
quoted provision of the Rules of Court, defendant asked the sheriff to quash and
lift said garnishment or levy on execution. Upon denial of this request by the
sheriff, defendant filed a motion praying that the aforementioned sum of
P7,000.00 be declared exempt from execution under said provision of the Rules
of Court, and that the Sheriff of Manila be ordered to quash or lift said
garnishment or levy on execution. This motion was denied by an order dated
October 18, 1956. Hence, the present appeal by the defendant, who maintains
that the policy in question is a life insurance policy, within the purview of the
aforementioned exemption, for it insured her husband ". . . for injuries and/or
death as a result of murder or assault or attempt thereat."
In its order denying the claim for exemption set up by the defendant, the lower
court expressed itself as follows:
Upon a perusal of the authorities cited by the parties, this Court is fully
convinced that there is a fundamental distinction between life insurance, and
accident insurance, and the insurance policy issued to Luis G. Morales, husband
of herein defendant, was undoubtedly an accident insurance, as distinguished
from a life insurance. As conceded by the facts appearing in the pleadings, the
personal accident policy, part of the proceeds of which is under garnishment,
was for P50,000.00 and yet the annual premium was for P15.00. If it were an
ordinary life insurance policy, taking into account that the insured, Luis G.
Morales, was 38 years of age and the amount of the policy was for P50,000.00
the annual premium would have been around P1,206.00. Besides, the period for
the policy was stipulated for one year, and considerations as to age, health,
occupation and other personal circumstances were not taken into account in an
accident insurance policy. Even the certification issued by the insurance
commissioner on August 23, 1956, marked as Annex "1" of the opposition, shows
that the Capital Insurance and Surety Company Inc. is a non-life insurance
company and that the only authority granted to it to transact business covers
fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance,
except life insurance. From this circumstance alone, not to mention many
others, there are abundant indications that there exists a fundamental
distinction between life insurance and accident insurance. As counsel for
oppositor has clearly pointed out, an accident policy merely insures the person
from injury and or death resulting from murder, assault, or an attempt thereat,
while in life insurance policy, what is insured is the life of the subject for a
definite number of years. From the authorities quoted by the oppositor, this
Court is fully convinced that an accident policy is fundamentally different from a
life insurance policy, especially if this Court takes into account that accident
insurance is an indemnity or casualty contract, while life insurance is an
investment contract.
It is not disputed that a life insurance is, generally speaking, distinct and
different from an accident insurance. However, when one of the risks insured in
the latter is the death of the insured by accident, then there are authorities to
the effect that such accident insurance may, also, be regarded as a life
insurance.
"Life insurance" is a contract whereby one party insures a person against loss by
the death of another. Petition of Robbins, 140 A. 366, 367, 126 Me. 555.
An insurance on life is a contract by which the insurer, for a stipulated sum,
engages to pay a certain amount of money if another dies within the time
limited by the policy. Cason vs. Owens, 26 S. E. 75, 76, 100 Ga. 142.
Life insurance includes in which the payment of the insurance money is
contingent upon the loss of life. Bowless vs. Mutual Ben. Health & Accident
Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.
A contract for life insurance is really a contract for insurance for one year in
consideration of an advanced premium, with the right of assured to continue it
from year to year upon payment of a premium as stipulated. Mutual Life Ins. Co.
100 Pa 172, 180.
In its broader sense, "life insurance" includes accident insurance, since life is
insured under either contract. American Trust & Banking Co. vs. Lessly, 106 S.W.
2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.
Under statute providing that 'any life insurance' on life of husband shall insure to
benefit of widow and children exempt from husband's debt, proceeds of policy
insuring against death by accident insured to widow's benefit free from
husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly, 106
S.W. 2d 551, 171 Tenn. 511 III A.L.R. 59.
Insurance policy, providing for payment in case of accidental death, is "life
insurance policy" to such extent within state statue prescribing in-contestable
period for policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co. of
California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.
"Life insurance" includes all policies of insurance in which payment of insurance
money is contingent upon loss of life. . . . Smith vs. Equitable Life Assur. Soc. of
U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.
Insurance policy including a death benefit and a health or accident disability
benefit constituted a "life insurance policy" within meaning of laws 1926, c. 118,
S. 134, imposing privilege tax on insurance companies with different rates as
between life insurance companies and other companies, in view of provisions of
Code 1906, ss 2576, 2598 (Hemingway's Code 1927, ss 5830, 5856), and Law 1924,
c. 191, s I (Hemingway's Code 1927, s 5995); it being immaterial that in some
policy forms the health and disability feature was more valuable asent a showing
that death provision was inserted to avoid the higher tax. Universal Life Ins.
Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25 Words & Phrases 260, 261, 262.)
When the application was made, Harris W. Rimmer carried life insurance with
the Equitable Life Assurance Society, for $10,000, payable upon proof of death,
with a provision that upon death by accident the amount of insurance payable
would be increased to $20,000. The plaintiff insisted that this was life insurance,
a disclosure of which was not called for in question 10, while the defendant
insisted it was accident insurance that should have been disclosed and further
insisted that, it being a fact material to the risk the failure to disclose the policy
27

in the Equitable Life Assurance Society rendered the policy issued to the
applicant void. . . .
The court might have gone further and held that the failure of the applicant to
characterize the insurance in the Equitable Life Assurance Society as accident
insurance did not constitute a false answer to the inquiry of what accident or
health insurance he was carrying. The policy in the Equitable Life Assurance
Society covered loss of life from natural as well as external and accidental
causes, and was life insurance. The mere addition of the double indemnity clause
providing for increased insurance upon proof of death by accident did not divest
the policy of its character of insurance on life, or make the contract other than
life insurance,for insurance on life includes all policies of insurance in which the
payment of the insurance money is contingent upon the loss of life.
Logan vs. Fidelity & Casualty Co., 146 Mo. 114, 47 S.W. 948. See also
Johnson vs. Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W. 593, L.R.A. 1916A,
475; Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003;
Wright vs. Fraternities Health & Accident Ass'n. 107 Me. 418, 78A. 475, 32 L.R.A.
(N.S.)461; Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass. 386, 94 N.E. 477;
Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194;
Wahl vs. Interstate Business Men's Accident Ass'n 201 Iowa; 1355, 207 N.W. 395,
50 A.L.R. 1377." (Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. W. 2d Series,
365, 367.)
For this reason, and because the above-quoted provision of the Rules of Court
makes reference to "any life insurance," we are inclined to believe that the
exemption there established applies to ordinary life insurance contracts, as well
as to those which, although intended primarily to indemnify for risks arising from
accident, likewise, insure against loss of life due, either to accidental causes, or
to the willful and criminal act of another, which, as such, is not strictly accidental
in nature. Indeed, it has been held that statutes of this nature seek to enable the
head of the family to secure his widow and children from becoming a burden
upon the community and, accordingly, should merit a liberal interpretation.
The object of this statue was to enable a husband, when death deprived wife and
children of his support, to secure them from want and to prevent them from
becoming a charge upon the public. Necessities of the wife and children and the
public interest are none the less if the death of the husband be brought about by
accident rather than by disease. The intent of the legislature in the enactment of
this statute would not be advanced by the construction of the law upon which
the petitioners insist. (American Trust & Banking Co. vs.Lessly et al., Supreme
Court of Tenn., 106 S.W. 2d, 551, 552.)
Under statutes providing to that effect, the proceeds of life insurance are
exempt from the claims of creditors, a limitation being sometimes imposed as to
amount, see infra Sec. 40, or as to the beneficiaries entitled to the exemption,
see infra subdivision of this section. Statutes exempting life insurance are
regarded as exemption laws, and not as part of the insurance from law of the
state, nor as designed simply to protect insurer from harassing litigation. Such
statutes should be construed liberally and in the light of, and to give effect to, their
purpose of enabling an individual to provide a fund after his death for his family
which will be free from the claims of creditors. The exemption privilege is created
not by contract but by legislative grant, and grounds for the exemption of the
proceeds of insurance policies must be found in the statutes. (35 C.J.S. pp. 53-
54.)
By weight of authority, exemption statutes or rules should be liberally construed
with a view to giving effect to their beneficent and humane purpose. To this
end, every reasonable doubt as to whether a given property is or is not exempt
should be resolved in favor of exemption. (Comments on the Rules of Court by
Moran [1957 ed.] Vol. 1, p. 564.)
Wherefore, the order appealed from is reversed, and the garnishment in dispute
hereby set aside and quashed, with the costs of this instance against plaintiff
Francisca Gallardo. It is so ordered.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Endencia, Barrera and Gutierrez
David, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
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.
Mariano V. Ampil, Jr. for petitioners.
Ramon S. Caguiao for private respondent.

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,
7
it filed its
28

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;
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
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
29

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 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
To sign receipts, documents, pertinent waivers of indemnities or other writings
of whatsoever nature with any and all third persons, concerns and entities, upon
terms and conditions acceptable to my said attorney.
30

We agree with the Insurance Commission that the special powers of attorney
"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."
19
The holding of the public respondent to the contrary is principally
premised on its opinion that:
[t]here 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.
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 the principals of special powers of attorney, which clearly appeared to be in
prepared forms and only had to be filled up with their names, residences, dates
of execution, dates of acknowledgment and others, excludes any intent to grant
a general power of attorney or to constitute a universal agency. Being special
powers of attorney, they must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers of
attorney in question the power to collect and receive the insurance proceeds
due the 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 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:
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a certain Capt.
Noval [sic]?
WITNESS:
a The practice of our company in claim pertaining to group insurance, the
policyholder is the one who files the claim for the beneficiaries of the deceased.
At that time, Capt. Noval [sic] is the President and General Manager of Prime
Marine.
q What is the reason why policyholders are the ones who file the claim and not
the designated beneficiaries of the employees of the policyholders?
a Yes because group insurance is normally taken by the employer as an
employee-benefit program and as such, the benefit should be awarded by the
policyholder to make it appear that the benefit really is given by the employer.
20

On cross-examination, Urbano further elaborated that even payments, among
other things, are coursed through the policyholder:
q What is the corporate concept of group insurance insofar as Insular Life is
concerned?
WITNESS:
a Group insurance is a contract where a group of individuals are covered under
one master contract. The individual underwriting characteristics of each
individual is not considered in the determination of whether the individual is
insurable or not. The contract is between the policyholder and the insurance
company. In our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between Prime
Marine and Insular Life.
q And so it is part of that concept that all inquiries, follow-up, payment of claims,
premium billings, etc. should always be coursed thru the policyholder?
a Yes that is our practice.
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?
a Not necessarily.
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?
xxx xxx xxx
WITNESS:
a No. Sir.
ATTY. AMPIL:
q Why? Is this case, the present case different from the cases which you
answered that no power of attorney is necessary in claims payments?
WITNESS:
a We did not pay Prime Marine; we paid the beneficiaries.
q Will you now tell the Honorable Commission why you did not pay Prime Marine
and instead paid the beneficiaries, the designated beneficiaries?
xxx xxx xxx
ATTY. AMPIL:
I will rephrase the question.
q Will you tell the Commission what circumstances led you to pay the designated
beneficiaries, the complainants in this case, instead of the policyholder when as
you answered a while ago, it is your practice in group insurance that claims
payments, etc., are coursed thru the policyholder?
WITNESS:
a It is coursed but, it is not paid to the policyholder.
q And so in this case, you gave the checks to the policyholder only coursing them
thru said policyholder?
a That is right, Sir.
q Not directly to the designated beneficiaries?
a Yes, Sir.
21

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 Code has been mainly patterned which holds that the employer-
policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the United States,
the first modern group insurance policies appear to have been issued in 1911 by
31

the 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 employees of one employer.
The coverage terms for group insurance are usually stated in a master
agreement or policy that is issued by the insurer to a representative of the group
or to an administrator of the insurance program, such as an employer.
23
The
employer acts as a functionary in the collection and payment of premiums and in
performing related duties. Likewise falling within the ambit of administration of
a group policy is the disbursement of insurance payments by the employer to
the employees.
24
Most policies, such as the one in this case, require an
employee to pay a portion of the premium, which the employer deducts from
wages while the remainder is paid by the employer. This is known as a
contributory plan as compared to a non-contributory plan where the premiums
are solely paid by the employer.
Although the employer may be the titular or named insured, the insurance is
actually related to the life and health of the employee. Indeed, the employee is
in the position of a real party to the master policy, and even in a non-
contributory plan, the payment by the employer of the entire premium is a part
of the total compensation paid for the services of the employee.
25
Put
differently, the labor of the employees is the true source of the benefits, which
are a form of additional compensation to them.
It has been stated that every problem concerning group insurance presented to
a 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
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 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.
xxx xxx xxx
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.
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
32

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:
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.
Cruz, Bellosillo and Quiason, JJ., concur.
Grio-Aquino, J., is on leave.

Lessons Applicable: Who Exercises Rights of Minor Insured or Beneficiaries (Insurance)
Laws Applicable: Art. 225 Family Code


FACTS:
Prime Marine Services, Inc. (PMSI), a crewing/manning outfit, procured Group PoIicy
from Insular Life Assurance Co., Ltd. to provide life insurance coverage to its sea-
based employees enrolled under the plan.
February 17 1986: 6 employees of the PMSI perished at sea when M/V Nemos, a
Greek cargo vessel, sunk somewhere in El Jadida, Morocco
The beneficiaries asked President and General Manager of PMSI, Capt. Roberto Nuval
and issued him special powers of attorney authorizing him to "follow up, ask,
demand, collect and receive" for their benefit indemnities. It only verbally pertained
to the sinking of the fatal vessel
Unknown to them, however, the PMSI, in its capacity as employer and policyholder
of the life insurance of its deceased workers, filed with formal claims with their
special power of attorney
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
Upon learning that they are entitled to the claim, they sought to recover from Insular
Life but it denied on the ground that they already delivered to PMSI
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
Section 180 of the Insurance Code 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
33

exceeds P50,000.00, the parent concerned shall be required to put up a bond in such
amount as the court may determine.
Insurance Commission: favored petitioners
The Insular Life Assurance Company appealed stating that
(a) had no jurisdiction over the case considering that the claims exceeded P100,000
(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
ofattorney 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 insuranceproceeds
pertaining to the beneficiaries who were still minors despite the failure of the former
to obtain a court authorization or to post a bond.
CA: eliminated the award to minor beneficiaries Dina Ayo and Lucia Lontok
ISSUE: W/N the minor beneficiaries award should be eliminated


HELD: YES. petition is GRANTED. CA Reversed. Insurance Commission Reinstated.
Being special powers of attorney, they must be strictly construed. Insular Life knew
that a power of attorney in favor of Capt. Nuval for the collection and receipt of such
proceeds was a deviation from its practice with respect to group policies.
Group Insurance
coverage terms for group insurance are usually stated in a master agreementor
policy that is issued by the insurer to a representative of the group or to an
administrator of the insurance program
employer acts as a functionary in the collection and payment of premiums and in
performing related duties
falling within the ambit of administration of a group policy is the disbursement of
insurance payments by the employer to the employees
employee is in the position of a real party to the master policy
employees is the true source of the benefits, which are a form of additional
compensation to them
enables the employees to carry a larger amount of insurance than they could
otherwise, and helps to attract and hold a permanent class of employees
Even granting for the sake of argument that the special powers of attorneywere 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
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
34

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.
Republic of the Philippines
SUPREME COURT
Manila
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.
Lucio Javillonar for petitioner.
J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for
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 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
35

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.
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.
Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion,
and Reyes, J. B. L., JJ., concur.
36

Republic of the Philippines
SUPREME COURT
Manila
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.
Tanopo, Millora, Serafica, and Saez for plaintiff-appellees.
Araneta, Mendoza and Papa for 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;
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, regardless of
whether they prove fatal or not. As it was, in the present case they did prove
fatal, and the robbers have been accused and convicted of the crime of robbery
with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial
court in support of its decision. The facts in that case, however, are different
from those obtaining here. The insured there was a watchman in a certain
company, who happened to be invited by a policeman to come along as the
latter was on his way to investigate a reported robbery going on in a private
house. As the two of them, together with the owner of the house, approached
and stood in front of the main gate, a shot was fired and it turned out
afterwards that the watchman was hit in the abdomen, the wound causing his
death. Under those circumstances this Court held that it could not be said that
37

the killing was intentional for there was the possibility that the malefactor had
fired the shot to scare people around for his own protection and not necessarrily
to kill or hit the victim. A similar possibility is clearly 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 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 such
intent is concerned. The manner of execution of the crime permits no other
conclusion.
Court decisions in the American jurisdiction, where similar provisions in
accidental death benefit clauses in insurance policies have been construed, may
shed light on 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 accidental, "the clause of the proviso that excludes the
(insurer's) liability, in case death or injury is intentionally inflicted by another
person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811,
the insured was shot three times by a person unknown late on a dark and
stormy night, while working in the coal shed of a railroad company. The policy
did not cover death resulting from "intentional injuries inflicted by the insured or
any other person." The inquiry was as to the question whether the shooting that
caused the insured's death was accidental or intentional; and the Court found
that under the facts, showing that the murderer knew his victim and that he
fired with intent to kill, there could be no recovery under the policy which
excepted death from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint
dismissed, without pronouncement as to costs.
Zaldivar, Castro, Fernando and Villamor, JJ., concur.
Makasiar, J., reserves his vote.



Separate Opinions

BARREDO, J., concurring
During the deliberations in this case, I entertained some doubts as to the
correctness and validity of the view upheld in the main opinion penned by
Justice Makalintal. Further reflection has convinced me, however, that there are
good reasons to support it.
At first blush, one would feel that every death not suicidal should be considered
accidental, for the purposes of an accident insurance policy or a life insurance
policy with a double indemnity clause in case death results from accident.
Indeed, it is quite logical to think that any event whether caused by fault,
negligence, intent of a third party or any unavoidable circumstance, normally
unforeseen by the insured and free from any possible connivance on his part, is
an accident in the generally accepted sense of the term. And if I were convinced
that in including in the policy the provision in question, both the insurer and the
insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard
the American decisions cited and quoted in the main opinion as not even
persuasive authorities. But examining the unequivocal language of the provision
in controversy and considering that the insured accepted the policy without
asking that it be made clear that the phrase "injury intentionally inflicted by a
third party" should be understood to refer only to injuries inflicted by a third
party without any wilful intervention on his part (of the insured) or, in other
words, without any connivance with him (the insured) in order to augment the
proceeds of the policy for his benificiaries, I am inclined to agree that death
caused by criminal assault is not covered by the policies of the kind here in
question, specially if the assault, as a matter of fact, could have been more or
less anticipated, as when the insured happens to have violent enemies or is
found in circumstances that would make his life fair game of third parties.
As to the rest, I have no doubt that the killing of the insured in this case is as
intentional as any intentional act can be, hence this concurrence.
TEEHANKEE, J., dissenting:
The sole issue at bar is the correctness in law of the lower court's appealed
decision adjudging defendant insurance company liable, under its
supplementary contract denominated "Accidental Death Benefit Clause" with
the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T.
Biagtan) in an additional amount of P5,000.00 (with corresponding legal
interest) and ruling that defendant company had failed to present any evidence
to substantiate its defense that the insured's death came within the stipulated
exceptions.
Defendant's accidental death benefit clause expressly provides:
ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily
injury effected solely through external and violent means sustained in an
accident, within ninety days after the date of sustaining such injury, and
independently of all other causes, this Company shall pay, in addition to the sum
insured specified on the first page of this Policy, a further sum equal to said sum
38

insured payable at the same time and in the same manner as said sum insured,
provided, that such death occurred during the continuance of this Clause and of
this Policy and before the sixtieth birthday of the Insured."
1

A long list of exceptions and an Automatic Discontinuance clause immediately
follow thereafter, thus:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:
(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or
insane;
(2) Bodily or mental infirmity or disease of any kind;
(3) Poisoning or infection, other than infection occurring simultaneously with and
in consequence of a cut or wound sustained in an accident;
(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;
(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in anyriot, civil commotion, insurrection or war or any act
incident thereto; (c) while travelling as a passenger or otherwise in any form of
submarine transportation, or while engaging in submarine operations; (d) in any
violation of the law by the Insured or assault provoked by the Insured; (e) that has
beeninflicted 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;
(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any
kind of training or instruction or has any duties aboard the aircraft or requiring
descent therefrom; and
(7) Atomic energy explosion of any nature whatsoever.
The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.
AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and
the additional premium therefor shall cease to be payable when and if:
(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or
(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or
(3) The Insured engages in military, naval or aeronautic service in time of war; or
(4) The policy anniversary immediately preceding the sixtieth birthday of the
Insured is reached.
2

It is undisputed that, as recited in the lower court's decision, the insured met his
death, 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 of the second floor, rushed towards the doors of
the second floor room, where they suddenly met a person near the door of one
of the rooms who turned out to be the insured Juan S. Biagtan who received
thrust 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." 3
Defendant company, while admitting the above-recited circumstances under
which the insured met his death, disclaimed liability under its accidental death
benefit clause under paragraph 5 of its stipulated "Exceptions" on its theory that
the insured's death resulted from injuries "intentionally inflicted by a third
party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.
The case was submitted for decision upon the parties' stipulation of facts that (1)
insurance companies such as the Lincoln National Life Insurance Co. and Sun Life
Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was
also insured for much larger sums under similar contracts with accidental death
benefit provisions have promptly paid the benefits thereunder to plaintiffs-
beneficiaries; (2) the robbers who caused the insured's death were charged in
and convicted by the Court of First Instance of Pangasinan for the crime of
robbery with homicide; and (3) the injuries inflicted on the insured by the
robbers consisted of five mortal and four non-mortal wounds.
4

The lower court thereafter rendered judgment against defendant, as follows:
There is no doubt that the insured, Juan S. Biagtan, met his death as a result of
the wounds inflicted upon him by the malefactors on the early morning of May
21, 1964 by means of thrusts from sharp-pointed instruments delivered upon his
person, and there is likewise no question that the thrusts were made on the
occasion of the robbery. However, it is defendants' position that the killing of
the insured was intentionally done by the malefactors, who were charged with
and convicted of the crime of robbery with homicide by the Court of First
Instance of Pangasinan.
It must be noted here that no evidence whatsoever was presented by the parties
who submitted the case for resolution upon the stipulation of facts presented by
them. Thus, the court does not have before it proof that the act of receiving
thrust(s) from the sharp-pointed instrument of the robbers wasintended 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. It was held
that where a provision of the policy excludes intentional injury, it is the intention of
the person inflicting the injury that is controlling ... and to come within the
exception, the act which causes the injury must be wholly intentional, not merely
partly.
The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme
Court ruled that "the shot (which killed the insured) was merely to scare away
the people around for his own protection and not necessarily to kill or hit the
victim."
In the Calanoc case, one Melencio Basilio, a watchman of a certain company,
took out life insurance from the Philippine American Life Insurance Company in
39

the amount of P2,000.00 to which was attached a supplementary contract
covering death by accident. Calanoc died of gunshot wounds on the occasion of
a robbery committed in the house of a certain Atty. Ojeda in Manila. The
insured's widow was paid P2,000.00, the face value of the policy, but when she
demanded payment of the additional sum of P2,000.00 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 (as in this case) expressly excluded in the contract
and have the effect of exempting the company from liability.
The facts in the Calanoc case insofar as pertinent to this case are, as found by
the Court of Appeals in its decision which findings of fact were adopted by the
Supreme Court, as follows:
"...that on the way to the Ojeda residence (which was then being robbed by
armed men), the policeman and Atty. Ojeda passed by Basilio (the insured) and
somehow or other invited the latter to come along; that as the three
approached the Ojeda residence and stood in front of the main gate which was
covered by galvanized iron, the fence itself being partly concrete and partly
adobe stone, a shot was fired; ... that it turned out afterwards that the special
watchman Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."
The Court of Appeals arrived at the conclusion that the death of Basilio,
although unexpected, was not caused by an accident, being a voluntary and
intentional act on the part of the one who robbed, or one of those who robbed,
the house of Atty. Ojeda.
In reversing this conclusion of the Court of Appeals, the Supreme Court said in
part:
"... Nor can it be said that the killing was intentional for there is the possibility
that the malefactors 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 exempt the triggerman from ability for the damage
done, the fact remains that the happening was a pure accidentt on the part of the
victim."
With this ruling of the Supreme Court, and the utter absence of evidence in this
case as to the real intention of the malefactors in making a thrust with their sharp-
pointed instrument on any person, the victim in particular, the case falls squarely
within the ruling in the Calanoc vs. Court of Appeals case.
It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens
by chance or fortuitously, without intention or design, and which is unexpected,
unusual and unforeseen, or that which takes place without one's foresight or
expectation an event that proceeds from an unknown cause, or is an unusual
effect of a known cause, and therefore not expected. (29 Am. Jur. 706).
There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary
contract. However, there is no evidence here that the thrusts with sharp-pointed
instrument (which led to the death of the insured) was "intentional," (sic) so as to
exempt the company from liability. It could safely be assumed that it was purely
accidentalconsidering that the principal motive of the culprits was robbery, the
thrusts being merely intended to scare away persons who might offer resistance
or might obstruct them from pursuing their main objective which was robbery.
5

It is respectfully submitted that the lower court committed no error in law in
holding defendant insurance company liable to plaintiffs-beneficiaries under its
accidental death benefit clause, by virtue of the following considerations:
1. The case of Calanoc cited by the lower court is indeed controlling here.
6
This
Court, there construing a similar clause, squarely ruled that fatal injuries inflicted
upon an insured by a malefactor(s) during the latter's commission of a crime are
deemed accidental and within the coverage of such accidental death benefit
clauses and the burden of proving that the killing was intentional so as to have it
fall within the stipulated exception of having resulted from injuries "intentionally
inflicted by a third party" must be discharged by the insurance company. This
Court there clearly held that in such cases where the killing does not amount to
murder, it must be held to be a "pure accident" on the part of the victim,
compensable with double-indemnity, even though the malefactor is criminally
liable for his act. This Court rejected the insurance-company's contrary claim,
thus:
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 a 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 exempt 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. 7
2. Defendant company patently failed to discharge its burden of proving that the
fatal injuries were inflicted upon the deceased intentionally, i.e. deliberately. The
lower court correctly held that since the case was submitted upon the parties'
stipulation of facts which did not cover the malefactors' intent at all, there was
an "utter absence of evidence in this case as to the real intention of the
malefactors in making a thrust with their sharp-pointed instrument(s) on any
person, the victim in particular." From the undisputed facts, supra,
8
the robbers
had "rushed towards the doors of the second floor room, where they suddenly
met a person ... who turned out to be the insured Juan S. Biagtan who received
40

thrusts from their pointed instruments." The thrusts were indeed properly
termed "purely accidental" since they seemed to be a reflex action on the
robbers' part upon their being surprised by the deceased. To argue, as
defendant does, that the robbers' intent to kill must necessarily be deduced
from the four mortal wounds inflicted upon the deceased is to beg the question.
Defendant must suffer the consequences of its failure to discharge its burden of
proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony,
that the fatal injuries were intentionally inflicted upon the insured so as to
exempt itself from liability.
3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole
error assigned by defendant company, to wit, that the fatal injuries were not
accidental as held by the lower court but should be held to have
been intentionally inflicted, raises a question of fact which defendant is now
barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal,
9
Defendant is therefore confined
to "raising only questions of law" and "no other questions" under Rule 42,
section 2 of the Rules of Court
10
and is deemed to have conceded the findings of
fact of the trial court, since he thereby waived all questions of facts.
11

4. It has long been an established rule of construction of so-called contracts of
adhesion such as insurance contracts, where the insured is handed a printed
insurance policy whose fine-print language has long been selected with great
care and deliberation by specialists and legal advisers employed by and acting
exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly
expressed so as to be easily understood by the insured and any "ambiguous,
equivocal or uncertain terms" 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.
The Court so expressly held in Calanoc that:
... 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 against the one who has caused the obscurity. (Article 1377, new Civil
Code) And so it has been generally held that the "terms in an insurance policy,
which are ambiguous, equivocal, 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 the "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
bearing 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.)
"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, 164).
12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS
13
and
again applied the provisions of Article 1377 of our Civil Code that "The
interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity."
5. The accidental death benefit clause assuring the insured's beneficiaries of
double indemnity, upon payment of an extra premium, in the event that the
insured meets violent accidental death is contractually stipulated as follows in
the policy: "that the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in
an accident," supra. The policy then lists numerous exceptions, which may be
classified as follows:
Injuries effected through non-external means which are excepted: self-
destruction, bodily or mental infirmity or disease, poisoning or infection, injuries
with no visible contusions or exterior wounds (exceptions 1 to 4 of policy
clause);
Injuries caused by some act of the insured which is proscribed by the policy, and
are therefore similarly exepted: injuries received while on police duty, while
travelling in any form of submarine transportation, or in any violation of law by
the insured or assault provoked by the insured, or in any aircraft if the insured is a
pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause];
and
Accidents expressly excluded: where death resulted in any riot, civil
commotion, insurrection or war or atomic energy explosion. (Exceptions 5[b]
and 7 of policy clause).
The only exception which is not susceptible of classification is that provided in
paragraph 5 (e), the very exception herein involved, which would also except
injuries "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."
This ambiguous clause conflicts with all the other four exceptions in the same
paragraph 5 particularly that immediately preceding it in item (d) which excepts
injuries received where the insured has violated the law or provoked the injury,
while this clause, construed as the insurance company now claims, would
seemingly except also all other injuries, intentionally inflicted by a third party,
regardless of any violation of law or provocation by the insured, and defeat the
very purpose of the policy of giving the insured double indemnity in case of
41

accidental death by "external and violent means" in the very language of the
policy."
It is obvious from the very classification of the exceptions and applying the rule
of noscitus a sociis that the double-indemnity policy covers the insured against
accidental death, whether caused by fault, negligence or intent of a third party
which is unforeseen and unexpected by the insured. All the associated words
and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by
some proscribed act of the insured or are incurred in some expressly excluded
calamity such as riot, war or atomic explosion.
Finally, the untenability of herein defendant insurer's claim that the insured's
death fell within the exception is further heightened by the stipulated fact that
two other insurance companies which likewise covered the insured for which
larger sums under similar accidental death benefit clauses promptly paid the
benefits thereof to plaintiffs-beneficiaries.
I vote accordingly for the affirmance in toto of the appealed decision, with costs
against defendant-appellant.
Concepcion, C.J. and Reyes, J.B.L., J., concur.


Separate Opinions
BARREDO, J., concurring
During the deliberations in this case, I entertained some doubts as to the
correctness and validity of the view upheld in the main opinion penned by
Justice Makalintal. Further reflection has convinced me, however, that there are
good reasons to support it.
At first blush, one would feel that every death not suicidal should be considered
accidental, for the purposes of an accident insurance policy or a life insurance
policy with a double indemnity clause in case death results from accident.
Indeed, it is quite logical to think that any event whether caused by fault,
negligence, intent of a third party or any unavoidable circumstance, normally
unforeseen by the insured and free from any possible connivance on his part, is
an accident in the generally accepted sense of the term. And if I were convinced
that in including in the policy the provision in question, both the insurer and the
insured had in mind to exclude thereby from the coverage of the policy only
suicide whether unhelped or helped somehow by a third party, I would disregard
the American decisions cited and quoted in the main opinion as not even
persuasive authorities. But examining the unequivocal language of the provision
in controversy and considering that the insured accepted the policy without
asking that it be made clear that the phrase "injury intentionally inflicted by a
third party" should be understood to refer only to injuries inflicted by a third
party without any wilful intervention on his part (of the insured) or, in other
words, without any connivance with him (the insured) in order to augment the
proceeds of the policy for his benificiaries, I am inclined to agree that death
caused by criminal assault is not covered by the policies of the kind here in
question, specially if the assault, as a matter of fact, could have been more or
less anticipated, as when the insured happens to have violent enemies or is
found in circumstances that would make his life fair game of third parties.
As to the rest, I have no doubt that the killing of the insured in this case is as
intentional as any intentional act can be, hence this concurrence.
TEEHANKEE, J., dissenting:
The sole issue at bar is the correctness in law of the lower court's appealed
decision adjudging defendant insurance company liable, under its
supplementary contract denominated "Accidental Death Benefit Clause" with
the deceased insured, to plaintiffs-beneficiaries (excluding plaintiff Emilia T.
Biagtan) in an additional amount of P5,000.00 (with corresponding legal
interest) and ruling that defendant company had failed to present any evidence
to substantiate its defense that the insured's death came within the stipulated
exceptions.
Defendant's accidental death benefit clause expressly provides:
ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily
injury effected solely through external and violent means sustained in an
accident, within ninety days after the date of sustaining such injury, and
independently of all other causes, this Company shall pay, in addition to the sum
insured specified on the first page of this Policy, a further sum equal to said sum
insured payable at the same time and in the same manner as said sum insured,
provided, that such death occurred during the continuance of this Clause and of
this Policy and before the sixtieth birthday of the Insured."
1

A long list of exceptions and an Automatic Discontinuance clause immediately
follow thereafter, thus:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:
(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or
insane;
(2) Bodily or mental infirmity or disease of any kind;
(3) Poisoning or infection, other than infection occurring simultaneously with and
in consequence of a cut or wound sustained in an accident;
(4) Injuries of which there is no visible contusions or wound on the exterior of the
body, drowning and internal injuries revealed by autopsy excepted;
(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in anyriot, civil commotion, insurrection or war or any act
incident thereto; (c) while travelling as a passenger or otherwise in any form of
submarine transportation, or while engaging in submarine operations; (d) in any
violation of the law by the Insured or assault provoked by the Insured; (e) that has
beeninflicted 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;
(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any
kind of training or instruction or has any duties aboard the aircraft or requiring
descent therefrom; and
42

(7) Atomic energy explosion of any nature whatsoever.
The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.
AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and
the additional premium therefor shall cease to be payable when and if:
(1) This Policy is surrendered for cash, paid-up insurance or extended term
insurance; or
(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or
(3) The Insured engages in military, naval or aeronautic service in time of war; or
(4) The policy anniversary immediately preceding the sixtieth birthday of the
Insured is reached.
2

It is undisputed that, as recited in the lower court's decision, the insured met his
death, 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 of the second floor, rushed towards the doors of
the second floor room, where they suddenly met a person near the door of one
of the rooms who turned out to be the insured Juan S. Biagtan who received
thrust 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." 3
Defendant company, while admitting the above-recited circumstances under
which the insured met his death, disclaimed liability under its accidental death
benefit clause under paragraph 5 of its stipulated "Exceptions" on its theory that
the insured's death resulted from injuries "intentionally inflicted by a third
party," i.e. the robbers who broke into the insured's house and inflicted fatal
injuries on him.
The case was submitted for decision upon the parties' stipulation of facts that (1)
insurance companies such as the Lincoln National Life Insurance Co. and Sun Life
Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was
also insured for much larger sums under similar contracts with accidental death
benefit provisions have promptly paid the benefits thereunder to plaintiffs-
beneficiaries; (2) the robbers who caused the insured's death were charged in
and convicted by the Court of First Instance of Pangasinan for the crime of
robbery with homicide; and (3) the injuries inflicted on the insured by the
robbers consisted of five mortal and four non-mortal wounds.
4

The lower court thereafter rendered judgment against defendant, as follows:
There is no doubt that the insured, Juan S. Biagtan, met his death as a result of
the wounds inflicted upon him by the malefactors on the early morning of May
21, 1964 by means of thrusts from sharp-pointed instruments delivered upon his
person, and there is likewise no question that the thrusts were made on the
occasion of the robbery. However, it is defendants' position that the killing of
the insured was intentionally done by the malefactors, who were charged with
and convicted of the crime of robbery with homicide by the Court of First
Instance of Pangasinan.
It must be noted here that no evidence whatsoever was presented by the parties
who submitted the case for resolution upon the stipulation of facts presented by
them. Thus, the court does not have before it proof that the act of receiving
thrust(s) from the sharp-pointed instrument of the robbers wasintended 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. It was held
that where a provision of the policy excludes intentional injury, it is the intention of
the person inflicting the injury that is controlling ... and to come within the
exception, the act which causes the injury must be wholly intentional, not merely
partly.
The case at bar has some similarity with the case of Virginia Calanoc vs. Court of
Appeals, et al., L-8151, promulgated December 16, 1965, where the Supreme
Court ruled that "the shot (which killed the insured) was merely to scare away
the people around for his own protection and not necessarily to kill or hit the
victim."
In the Calanoc case, one Melencio Basilio, a watchman of a certain company,
took out life insurance from the Philippine American Life Insurance Company in
the amount of P2,000.00 to which was attached a supplementary contract
covering death by accident. Calanoc died of gunshot wounds on the occasion of
a robbery committed in the house of a certain Atty. Ojeda in Manila. The
insured's widow was paid P2,000.00, the face value of the policy, but when she
demanded payment of the additional sum of P2,000.00 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 (as in this case) expressly excluded in the contract
and have the effect of exempting the company from liability.
The facts in the Calanoc case insofar as pertinent to this case are, as found by
the Court of Appeals in its decision which findings of fact were adopted by the
Supreme Court, as follows:
"...that on the way to the Ojeda residence (which was then being robbed by
armed men), the policeman and Atty. Ojeda passed by Basilio (the insured) and
somehow or other invited the latter to come along; that as the three
approached the Ojeda residence and stood in front of the main gate which was
covered by galvanized iron, the fence itself being partly concrete and partly
adobe stone, a shot was fired; ... that it turned out afterwards that the special
watchman Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death ..."
The Court of Appeals arrived at the conclusion that the death of Basilio,
although unexpected, was not caused by an accident, being a voluntary and
intentional act on the part of the one who robbed, or one of those who robbed,
the house of Atty. Ojeda.
43

In reversing this conclusion of the Court of Appeals, the Supreme Court said in
part:
"... Nor can it be said that the killing was intentional for there is the possibility
that the malefactors 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 exempt the triggerman from ability for the damage
done, the fact remains that the happening was a pure accidentt on the part of the
victim."
With this ruling of the Supreme Court, and the utter absence of evidence in this
case as to the real intention of the malefactors in making a thrust with their sharp-
pointed instrument on any person, the victim in particular, the case falls squarely
within the ruling in the Calanoc vs. Court of Appeals case.
It is the considered view of this Court that the insured died because of an
accident which happened on the occasion of the robbery being committed in his
house. His death was not sought (at least no evidence was presented to show it
was), and therefore was fortuitous. "Accident" was defined as that which happens
by chance or fortuitously, without intention or design, and which is unexpected,
unusual and unforeseen, or that which takes place without one's foresight or
expectation an event that proceeds from an unknown cause, or is an unusual
effect of a known cause, and therefore not expected. (29 Am. Jur. 706).
There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary
contract. However, there is no evidence here that the thrusts with sharp-pointed
instrument (which led to the death of the insured) was "intentional," (sic) so as to
exempt the company from liability. It could safely be assumed that it was purely
accidentalconsidering that the principal motive of the culprits was robbery, the
thrusts being merely intended to scare away persons who might offer resistance
or might obstruct them from pursuing their main objective which was robbery.
5

It is respectfully submitted that the lower court committed no error in law in
holding defendant insurance company liable to plaintiffs-beneficiaries under its
accidental death benefit clause, by virtue of the following considerations:
1. The case of Calanoc cited by the lower court is indeed controlling here.
6
This
Court, there construing a similar clause, squarely ruled that fatal injuries inflicted
upon an insured by a malefactor(s) during the latter's commission of a crime are
deemed accidental and within the coverage of such accidental death benefit
clauses and the burden of proving that the killing was intentional so as to have it
fall within the stipulated exception of having resulted from injuries "intentionally
inflicted by a third party" must be discharged by the insurance company. This
Court there clearly held that in such cases where the killing does not amount to
murder, it must be held to be a "pure accident" on the part of the victim,
compensable with double-indemnity, even though the malefactor is criminally
liable for his act. This Court rejected the insurance-company's contrary claim,
thus:
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 a 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 exempt 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. 7
2. Defendant company patently failed to discharge its burden of proving that the
fatal injuries were inflicted upon the deceased intentionally, i.e. deliberately. The
lower court correctly held that since the case was submitted upon the parties'
stipulation of facts which did not cover the malefactors' intent at all, there was
an "utter absence of evidence in this case as to the real intention of the
malefactors in making a thrust with their sharp-pointed instrument(s) on any
person, the victim in particular." From the undisputed facts, supra,
8
the robbers
had "rushed towards the doors of the second floor room, where they suddenly
met a person ... who turned out to be the insured Juan S. Biagtan who received
thrusts from their pointed instruments." The thrusts were indeed properly
termed "purely accidental" since they seemed to be a reflex action on the
robbers' part upon their being surprised by the deceased. To argue, as
defendant does, that the robbers' intent to kill must necessarily be deduced
from the four mortal wounds inflicted upon the deceased is to beg the question.
Defendant must suffer the consequences of its failure to discharge its burden of
proving by competent evidence, e.g. the robbers' or eyewitnesses' testimony,
that the fatal injuries were intentionally inflicted upon the insured so as to
exempt itself from liability.
3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole
error assigned by defendant company, to wit, that the fatal injuries were not
accidental as held by the lower court but should be held to have
been intentionally inflicted, raises a question of fact which defendant is now
barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal,
9
Defendant is therefore confined
to "raising only questions of law" and "no other questions" under Rule 42,
section 2 of the Rules of Court
10
and is deemed to have conceded the findings of
fact of the trial court, since he thereby waived all questions of facts.
11

4. It has long been an established rule of construction of so-called contracts of
adhesion such as insurance contracts, where the insured is handed a printed
insurance policy whose fine-print language has long been selected with great
care and deliberation by specialists and legal advisers employed by and acting
exclusively in the interest of the insurance company, that the terms and
phraseology of the policy, particularly of any exception clauses, must be clearly
expressed so as to be easily understood by the insured and any "ambiguous,
equivocal or uncertain terms" are to be "construed strictly and most strongly
44

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.
The Court so expressly held in Calanoc that:
... 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 against the one who has caused the obscurity. (Article 1377, new Civil
Code) And so it has been generally held that the "terms in an insurance policy,
which are ambiguous, equivocal, 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 the "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
bearing 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.)
"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, 164).
12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS
13
and
again applied the provisions of Article 1377 of our Civil Code that "The
interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity."
5. The accidental death benefit clause assuring the insured's beneficiaries of
double indemnity, upon payment of an extra premium, in the event that the
insured meets violent accidental death is contractually stipulated as follows in
the policy: "that the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in
an accident," supra. The policy then lists numerous exceptions, which may be
classified as follows:
Injuries effected through non-external means which are excepted: self-
destruction, bodily or mental infirmity or disease, poisoning or infection, injuries
with no visible contusions or exterior wounds (exceptions 1 to 4 of policy
clause);
Injuries caused by some act of the insured which is proscribed by the policy, and
are therefore similarly exepted: injuries received while on police duty, while
travelling in any form of submarine transportation, or in any violation of law by
the insured or assault provoked by the insured, or in any aircraft if the insured is a
pilot or crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause];
and
Accidents expressly excluded: where death resulted in any riot, civil
commotion, insurrection or war or atomic energy explosion. (Exceptions 5[b]
and 7 of policy clause).
The only exception which is not susceptible of classification is that provided in
paragraph 5 (e), the very exception herein involved, which would also except
injuries "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."
This ambiguous clause conflicts with all the other four exceptions in the same
paragraph 5 particularly that immediately preceding it in item (d) which excepts
injuries received where the insured has violated the law or provoked the injury,
while this clause, construed as the insurance company now claims, would
seemingly except also all other injuries, intentionally inflicted by a third party,
regardless of any violation of law or provocation by the insured, and defeat the
very purpose of the policy of giving the insured double indemnity in case of
accidental death by "external and violent means" in the very language of the
policy."
It is obvious from the very classification of the exceptions and applying the rule
of noscitus a sociis that the double-indemnity policy covers the insured against
accidental death, whether caused by fault, negligence or intent of a third party
which is unforeseen and unexpected by the insured. All the associated words
and concepts in the policy plainly exclude the accidental death from the
coverage of the policy only where the injuries are self-inflicted or attended by
some proscribed act of the insured or are incurred in some expressly excluded
calamity such as riot, war or atomic explosion.
Finally, the untenability of herein defendant insurer's claim that the insured's
death fell within the exception is further heightened by the stipulated fact that
two other insurance companies which likewise covered the insured for which
larger sums under similar accidental death benefit clauses promptly paid the
benefits thereof to plaintiffs-beneficiaries.
I vote accordingly for the affirmance in toto of the appealed decision, with costs
against defendant-appellant.
Concepcion, C.J. and Reyes, J.B.L., J., concur.
Footnotes
Can you take out a life insurance and then commit suicide? Will the insurer have
to pay if you kill yourself? It depends.
What about if the insured was killed in a robbery? Is there a possibility the
insurer will not have to pay the beneficiaries of the life insurance policy? Again,
45

the answer is, it depends. Here are several digests of cases we had to read for
our insurance class this semester.
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 supplementary contract covering death by accident. The insurance company
said he was killed by someone participating in a robbery and while making an
arrest, two contingencies expressly excluded in the contract.
Basilio was killed as he stood outside the iron gate of Atty Ojeda, as they tried to
get into the house where they suspected a robber had broken into.
The Court of Appeals upheld the company, that said Basilios killing was not an
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 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 not the one he was guarding, and he had earlier refused to go
to the house without a policeman. Insurer ordered to pay.
BIAGTAN v CA (G.R. L-25579): Biagtan was killed as his house was being robbed.
The insurance company paid the basic amount of P5,000 but refused to pay the
additional P5,000 under the accidental death benefit clause, on the ground that
his death was the result of injuries intentionally inflicted by third parties and was
not covered. The trial court ruled that there was no proof that the robbers
intended to kill Biagtan, or just to scare him away by thrusting at him with their
knives. The Supreme Court held otherwise, pointing out that there were nine
wounds in all. The exception in the accidental benefit clause 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. Nine
wounds inflicted with bladed weapons at close range cannot be considered
innocent insofar as intent is concerned. The manner of execution of the crime
permits no other conclusion.
Dissent: The case of Calanoc is controlling. The thrusts seemed to be a reflex
action on the part of the robbers upon being surprised by Biagtan. The
accidental death benefit clause carries several exceptions, with an ambiguous
fifth paragraph saying that injuries inflicted intentionally by a third party were
among the exceptions. The ambiguous clause conflicts with all the other four
exceptions and seemingly except all other injuries, intentionally inflicted by a
third party, regardless of any violation of law or provocation by the insured, and
defeat the very purpose of the policy of giving the insured double indemnity in
case of accidental death by external and violent means.
Applying the rule of noscitus a sociis, the double indemnity policy covers the
insured against accidental death, whether caused by fault, negligence or intent
of a third party which is unforeseen and unexpected by the insured. All the
associated words and concepts in the policy plainly exclude the accidental death
from the coverage of the policy only where the injuries are self-inflicted or
attended by some proscribed act of the insured or incurred in some expressly
included calamity such as riot, war or atomic explosion. Besides, two other
insurance companies which also covered the insured paid the benefits.
SIMON DE LA CRUZ(**cant remember the exact case): Eduardo de la Cruz, a
mucker at the Itogon-Suyoc Mines, was killed in a boxing bout. The insurer
refused to pay, saying that his death was caused by his participation in the
boxing bout, which was voluntary and not accidental. The trial court ruled in
favor of de la Cruz. The Court upheld the decision.
1. An accident is an event that takes place without ones foresight or expectation
an event that proceeds from an unknown cause, or is an unusual effect of a
known cause. The fact 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 it ever does,
the injury or death can only be accidental or produced by some unforeseen
happening or event.
2. Death or injury does not result from accident or accidental means within the
terms of an accident policy if it is the natural result of the insureds voluntary act,
unaccompanied by anything unforeseen except the death or injury. Where the
death or injury is not the natural or probable result of the insureds voluntary
act, or if something unforeseen occurs in the doing of the act which produces
the injury, the resulting death is within the protection of policies insuring against
death or injury from accident. In this case, de la Cruz slipped which gave his
opponent the chance to land the head blow that eventually killed him.
3. The policy specifically excluded from its coverage several sports but did not
mention boxing. The court held that failure of the insurer to expressly include
boxing among the prohibitive risks meant it did not intend to exempt itself from
liability for such death.
SUN INSURANCE OFFICE LTD v CA: Felix Lim Jr shot himself dead and the family
tried to claim on the policy. The insurer refused, saying that when he put a gun
46

to his head, though thinking it was not loaded, he willfully exposed himself to
needless peril and removed himself from the coverage of the insurance policy.
The family said that Lim had removed the magazine before and fully believed
that the gun was not loaded. As such, it was an accident that should be covered
by the policy. The court held that while Lim was unquestionably negligent, that
should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves
the insurer of the responsibility to pay the indemnity agreed upon if the insured
is shown to have contributed to his own accident.
FINMAN GENERAL ASSURANCE CORP v CA (G.R. 100970): Carlie Suposa was
killed while on his way home from a party. When his family tried to collect on the
insurance proceeds, the insurer denied the claim saying that murder and assault
were not within the scope of coverage of the insurance policy, because it was
not accidental but a deliberate and intentional act of the assailant. The Insurance
Commission said the death was covered by the policy, a decision upheld by the
CA.
The CA pointed out that:
1. The record is barren of how the stab wound was inflicted
2. While the act may not exempt the unknown perpetrator from criminal liability,
the happening was a pure accident on the part of the victim
3. The personal accident policy enumerated 10 circumstances wherein no liability
attaches to insurer and murder and assault were not expressly mentioned.
Failure of the insurer to include these leads to the conclusion that it did not
intend to exempt itself from liability for such death.
ETERNAL GARDENS MEMORIAL PARK CORP v PHILAMLIFE (G.R. 166245):
Eternal Gardens took out a group life policy insurance for customers buying its
memorial plots on installment basis. When it tried to claim on behalf of one of its
lot buyers, John Chuang, Philam Life denied the claim, saying that at the time
Chuang died, it had yet to receive an application for group insurance for Chuang,
and so could not have approved any. Premiums, though paid, do not connote
approval of the insurance coverage but are held by the insurer in trust for the
payor until the prerequisites for insurance coverage are met. The trial court
decided in favor of Eternal, holding that the application for insurance was
accomplished before Chuang died. The CA reversed, finding instead that the
application was not submitted and that non-accomplishment of the submitted
application form violated sec 26 of the Insurance Code.
The Supreme Court ruled in favor of Eternal, finding that Philamlife received a
letter stating that the insurance forms are attached to the letter. Although
Philam did not approve the application, an ambiguous provision saying that the
insurance of any eligible lot purchaser shall be effective on the date he contracts
a loan with the assured. However, there shall be no insurance if the application
of the lot purchaser is not approved by the company.
The first sentence appears to state that insurance coverage of clients of Eternal
become effective upon contracting a loan with Eternal while the second
sentence implies that Philamlifes approval of the contract is required first. The
vague provision must be construed in favor of the insured, and the provisions
harmonized to mean that upon a partys purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective and valid until terminated by Philamlife by
disapproving the insurance application. In order to protect the interest of
insurance applicants, insurance companies must be obligated to act with haste
upon insurance applications, to either deny or approve the same, or otherwise
be bound to honor the application as valid, binding, and effective insurance
contract.
GREAT PACIFIC LIFE ASSURANCE CORP v CA (G.R. 113899): Dr. Wilfredo Leuterio,
a housing debtor of DBP, applied for membership in Grepalifes group life
insurance plan DBP housing loan mortgagors. Grepalife insured him to the
extent of his DBP mortgage indebtedness, P86,200. When Eleuterio died of
massive cerebral hemorrhage the following year, Grepalife denied the claim
alleging that Leuterio failed to disclose he was suffering from hypertension, and
that the non-disclosure constituted concealment that justified the denial.
Because of Grepalifes refusal to pay, DBP foreclosed on the mortgage on the
property to satisfy the outstanding loan.
Grepalife raised several issues on appeal:
1.Leuterios widow filed the suit, not DBP, which was the party in interest.
Leuterio assigned the proceeds to DBP, but in a mortgage redemption
insurance, the mortgagors remains the party in interest because the insurance
also protects his interests. (so widow, as heir, may succeed him as party in
interest).
MORTGAGE REDEMPTION INSURANCE. A device to protect both mortgagee and
mortgagor. In case the mortgagor dies, the proceeds of the insurance are used
to pay the mortgage debt, relieving the heirs of the mortgagor from paying it.
The mortgage obligation is extinguished by the application of the insurance
proceeds to the mortgage indebtedness. Where the mortgagor pays the
47

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. The insured may
still be regarded as the 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. However, where the mortgagee under a mortgage redemption
insurance has already foreclosed on the mortgage, it cannot collect the
insurance proceeds these rightly belong to the heirs of the mortgagor.
Sec. 8. 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. Since a policy of insurance upon life or health may pass by
transfer, will or succession to any person, whether he has insurable interest or
not, and such person may recover it whatever the insured might have recovered,
the widow of Dr. Leuterio may file the suit against the insurer.
2. CONCEALMENT. The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract. 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. Petitioner failed to clearly and satisfactorily establish its defense, and is
therefore liable to pay the proceeds of the insurance. (No autopsy proving that
Eleuterio died of hypertension. Death certificate said cerebral hemorrhage,
probably secondary to hypertension. )
3. PECUNIARY ESTIMATION. A life insurance is a valued policy. 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.
Rate this:
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-32986 November 11, 1930
FRANCISCO JARQUE, plaintiff-appellee,
vs.
SMITH, BELL & CO., LTD., ET AL., defendants.
UNION FIRE INSURANCE CO., appellant.
Benj. S. Ohnick for appellant.
Vicente Pelaez for appellee.

OSTRAND, J.:
The plaintiff was the owner of the motorboat Pandan and held a marine
insurance policy for the sum of P45,000 on the boat, the policy being issued by
the National Union Fire Insurance Company and according to the provisions of a
"rider" attached to the policy, the insurance was against the "absolute total loss
of the vessel only." On October 31, 1928, the ship ran into very heavy sea off the
Islands of Ticlin, and it became necessary to jettison a portion of the cargo. As a
result of the jettison, the National Union Fire Insurance Company was assessed
in the sum of P2,610.86 as its contribution to the general average. The insurance
company, insisting that its obligation did not extend beyond the insurance of the
"absolute total loss of the vessel only, and to pay proportionate salvage of the
declared value," refused to contribute to the settlement of the general average.
The present action was thereupon instituted, and after trial the court below
rendered judgment in favor of the plaintiff and ordered the defendant National
Union Fire Insurance Company to pay the plaintiff the sum of P2,610.86 as its
part of the indemnity for the general average brought about by the jettison of
cargo. The insurance company appealed to this court and assigns as errors (1)
"that the lower court erred in disregarding the typewritten clause endorsed
upon the policy, Exhibit A, expressly limiting insurer's liability thereunder of the
total loss of the wooden vessel Pandanand to proportionate salvage charges,"
and (2) "that the lower court erred in concluding that defendant and appellant,
National Union Fire Insurance Company is liable to contribute to the general
average resulting from the jettison of a part of said vessel's cargo."
I. As to the first assignment of error, little need be said. The insurance contract,
Exhibit A, is printed in the English common form of marine policies. One of the
clauses of the document originally read as follows:
Touching the Adventures and Perils which the said National Union Fire Insurance
Company is content to bear, and to take upon them in this Voyage; they are of
the Seas, Men-of-War, Fire, Pirates, Rovers, Thieves, Jettison, Letters of Mart
and Countermart, Surprisals, and Takings at Sea. Arrest, Restraint and
Detainments, of all Kings Princes and People of what Nation, Condition or
Quality so ever; Barratry of the Master and Marines, and of all other Perils,
Losses and Misfortunes, that have or shall come to the Hurt, Detriment, or
Damage of the said Vessel or any part thereof; and in case of any Loss or
48

Misfortunes, it shall be lawful for the Assured, his or their Factors, Servants, or
assigns, to sue, labour and travel for, in and about the Defense. Safeguard, and
recovery of the said Vessel or any Charges whereof the said Company, will
contribute, according to the rate and quantity of the sum herein assured shall be
of as much force and Virtue as the surest Writing or Policy of Insurance made in
LONDON.
Attached to the policy over and above the said clause is a "rider" containing
typewritten provisions, among which appears in capitalized type the following
clause:
AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY, AND TO PAY
PROPORTIONATE SALVAGE CHARGES OF TEH DECLARED VALUE.
At the bottom of the same rider following the type written provisions therein
set forth are the following words: "Attaching to and forming part of the National
Union Fire Insurance Co., Hull Policy No. 1055."
It is a well settled rule that in case repugnance exists between written and
printed portions of a policy, the written portion prevails, and there can be no
question that as far as any inconsistency exists, the above-mentioned typed
"rider" prevails over the printed clause it covers. Section 291 of the Code of Civil
Procedure provides that "when an instrument consists partly of written words
and partly of a printed form and the two are inconsistent, the former controls
the latter." (See also Joyce on Insurance, 2d ed., sec. 224, page 600; Arnould on
Marine Insurance, 9th ed., sec. 73; Marine Equipment Corporation vs.
Automobile Insurance Co., 24 Fed. (2d), 600; and Marine Insurance Company vs.
McLahanan, 290 Fed., 685, 688.)
II. In the absence of positive legislation to the contrary, the liability of the
defendant insurance company on its policy would, perhaps, be limited to
"absolute loss of the vessel only, and to pay proportionate salvage of the
declared value." But the policy was executed in this jurisdiction and "warranted
to trade within the waters of the Philippine Archipelago only." Here the liability
for contribution in general average is not based on the express terms of the
policy, but rest upon the theory that from the relation of the parties and for
their benefit, a quasi contract is implied by law. Article 859 of the Code of
Commerce is still in force and reads as follows:
ART. 859. The underwriters of the vessel, of the freight, and of the cargo shall be
obliged to pay for the indemnity of the gross average in so far as is required of
each one of these objects respectively.
The article is mandatory in its terms, and the insurers, whether for the vessel or
for the freight or for the cargo, are bound to contribute to the indemnity of the
general average. And there is nothing unfair in that provisions; it simply places
the insurer on the same footing as other persons who have an interest in the
vessel, or the cargo therein at the time of the occurrence of the general average
and who are compelled to contribute (art. 812, Code of Commerce).
In the present case it is not disputed that the ship was in grave peril and that the
jettison of part of the cargo was necessary. If the cargo was in peril to the extent
of call for general average, the ship must also have been in great danger,
possibly sufficient to cause its absolute loss. The jettison was therefore as much
to the benefit of the underwriter as to the owner of the cargo. The latter was
compelled to contribute to the indemnity; why should not the insurer be
required to do likewise? If no jettison had take place and if the ship by reason
thereof had foundered, the underwriter's loss would have been many times as
large as the contribution now demanded. lawphil.net
The appealed judgment is affirmed with the cost against the appellant. So
ordered.
Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.



Separate Opinions

JOHNSON and STREET, JJ., dissenting:
In view of the fact that the policy of marine insurance which is the subject of this
action contained a provision to the effect that the risk insured against was "the
absolute total loss of the vessel only," the undersigned are of the opinion that
the defendant insurance company is not liable to contribute to the gross
average incident to the jettison of some of the freight embarked on the vessel
which was the subject of insurance. It is true that article 859 of the Code of
Commerce declares that the underwriters of the vessel, of the freight, and of
the cargo shall be obliged to pay for the indemnity of the gross average in so far
as is required of each one of these objects respectively, but that provision
evidently states a general rule to be applied where there are no words in the
contract in any wise qualifying the risk. This article, we think, should not be
interpreted as abridging the freedom of contract between insurer and the
insured; and where, as in the case before us, the words defining the risk plainly
show that the risk is limited so as to exclude the obligation to contribute in case
of jettison, the intention expressed in the contract ought to be given effect. If
the insurance had been written upon the cargo, the case for the plaintiff would
have been stronger; but it is certainly anomalous that an insurer of "the vessel
only" should be held liable for the jettison of cargo, to which a contract of
insurance done not extend. The language used in the policy of insurance in this
case clearly limits the risk affirmatively to the vessel only, and the contract
should be given effect according to the intention of the parties.
The opinion of the court appears to proceed in part at least upon the idea that
the insurer had a real interest in the vessel, and that the insurance company was
necessarily benefited by a jettison of cargo, since the act may possibly have
resulted in saving the vessel from destruction. This idea appears to us to ignore
the most fundamental conception underlying the law of insurance, which is that
the contract of insurance is of an aleatory nature. By this is meant that the
contract is essentially a wager. It results that the insurer has no real interest
whatever in the thing insured; and the question of the liability of the insurer
limits itself to the question whether the contingency insured may have been
saved by jettison of the cargo is irrelevant to the risk. We are of the opinion that
49

the judgment appealed from should be reversed and the defendant absolved
from the complaint.

EL ORIENTE V. POSADAS - TAXABILITY OF INSURANCE PROCEEDS
56 PHIL 147 (1931)
Facts:
> El Oriente in order to protect itself against the loss that it might suffer by reason of the
death of its manager, A. Velhagen, who had had more than thirty-five (35) years of
experience in the manufacture of cigars in the Philippines, procured from the
Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E. E. Elser, an
insurance policy on the life of the said A. Velhagen for the sum of $50,000, United States
currency designating itself as the beneficiary.
> El Oriente paid for the premiums due thereon and charged as expenses of its business
all the said premiums and deducted the same from its gross incomes as reported in its
annual income tax returns, which deductions were allowed upon a showing that such
premiums were legitimate expenses of its business.
> Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the
said life insurance policy, together with the interests and the dividends accruing thereon,
aggregating P104,957.88
> CIR assessed El Oriente for deficiency taxes because El Oriente did not include as
income the proceeds received from the insurance.
Issue:
Whether or not the proceeds of insurance taken by a corporation on the life of an
important official to indemnify it against loss in case of his death, are taxable as income
under the Philippine Income Tax Law
Held:
NOT TAXABLE.
In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following
incomes shall be exempt from the provisions of this law: (a) The proceeds of life insurance
policies paid to beneficiaries upon the death of the insured . . ." Section 10, as amended, in
Chapter II On Corporations, provides that, "There shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding calendar year from all
sources by every corporation . . .a tax of three per centum upon such income . . ." Section 11
in the same chapter, provides the exemptions under the law, but neither here nor in any
other section is reference made to the provisions of section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to
the anomalous and vague condition of the law. It is certain that the proceeds of life
insurance policies paid to individual beneficiaries upon the death of the insured are
exempt. It is not so certain that the proceeds of life insurance policies paid to corporate
beneficiaries upon the death of the insured are likewise exempt. But at least, it may be
said that the law is indefinite in phraseology and does not permit us unequivocally to hold
that the proceeds of life insurance policies received by corporations constitute income
which is taxable

It will be recalled that El Oriente, took out the insurance on the life of its manager, who
had had more than thirty-five years' experience in the manufacture of cigars in the
Philippines, to protect itself against the loss it might suffer by reason of the death of its
manager. We do not believe that this fact signifies that when the plaintiff received
50

P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit
in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries,
speaks of the proceeds of life insurance policies as income, but this is a very slight
indication of legislative intention. In reality, what the plaintiff received was in the nature
of an indemnity for the loss which it actually suffered because of the death of its manager.
Facts: On June 29, 1987, Producers Bank of the Philippines armored vehicle was robbed,
in transit, of seven hundred twenty-five thousand pesos (Php 725,000.00) that it was
transferring from its branch in Pasay to its main branch in Makati. To mitigate their loss,
they claim the amount from their insurer, namely Fortune Insurance and Surety Co..

Fortune Insurance, however, assails that the general exemptionclause in the Casualty
Insurance coverage had a general exemptionclause, to wit:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others. . . .

And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were
charged with three others as liable for the robbery, Fortune denies Producers Bank of its
insurance claim.

The trial court and the court appeals ruled in favor of recovery, hence, the case at bar.

Issue: Whether recovery is precluded under the general exemptionclause.

Held: Yes, recovery is precluded under the general exemptionclause.

Howsoever viewed, Producers entrusted the three with the specific duty to safely
transfer the money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to
provide the needed security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded under the general
51

exceptions clause thereof. Both the trial court and the Court of Appeals held that there
should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro
Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers)
against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a
complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The
sum was allegedly lost during a robbery of Producer's armored vehicle while it was in
transit to transfer the money from its Pasay City Branch to its head office in Makati. The
case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the
following stipulation of facts:
1. The plaintiff was insured by the defendants and
an insurance policy was issued, the duplicate
original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the
process of transferring cash in the sum of
P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its
Head Office at 8737 Paseo de Roxas, Makati, Metro
Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car
was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin
Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was
assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on
August 7, 1983, a duplicate original copy of which is
hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by
Unicorn Security Services, Inc. with the plaintiff by
virtue of a contract of Security Service executed on
October 25, 1982, a duplicate original copy of which
is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay
police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe,
with violation of P.D. 532 (Anti-Highway Robbery
Law) before the Fiscal of Pasay City. A copy of the
complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information
charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of
Pasay City. A copy of the said information is hereto
attached as Exhibit "E." The case is still being tried
as of this date;
7. Demands were made by the plaintiff upon the
defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the
loss is excluded from the coverage of the insurance
policy, attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions" Section
(b), which is marked as Exhibit "A-1," and which
reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in
report of
xxx xxx xxx
(b) any loss caused by any
dishonest, fraudulent or criminal
act of the insured or any
officer, employee, partner,
director, trustee or authorized
representative of the Insured
whether acting alone or in
conjunction with others. . . .
8. The plaintiff opposes the contention of the
defendant and contends that Atiga and Magalong
are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the
robbery.
1

52

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive
portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and
against defendant, and
(a) orders defendant to pay
plaintiff the net amount of
P540,000.00 as liability under
Policy No. 0207 (as mitigated by
the P40,000.00 special clause
deduction and by the recovered
sum of P145,000.00), with
interest thereon at the legal rate,
until fully paid;
(b) orders defendant to pay
plaintiff the sum of P30,000.00
as and for attorney's fees; and
(c) orders defendant to pay
costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED.
2

The trial court ruled that Magalong and Atiga were not employees or representatives of
Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and
as security guard having been merely offered by PRC Management and
by Unicorn Security and which latter firms assigned them to plaintiff.
The wages and salaries of both Magalong and Atiga are presumably
paid by their respective firms, which alone wields the power to dismiss
them. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as
such in a context which does not impress the Court as translating
into plaintiff's power to control the conduct of any assigned driver or
security guard, beyond perhaps entitling plaintiff to request are
replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's
"employees" in avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from
plaintiff's Pasay Branch to its Makati Head Office. Quite plainly it
was teller Maribeth Alampay who had "custody" of the P725,000.00
cash being transferred along a specified money route, and hence
plaintiff's then designated "messenger" adverted to in the policy.
3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-
G.R. CV No. 32946. In its decision
4
promulgated on 3 May 1994, it affirmed in toto the
appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and
Atiga were neither employees nor authorized representatives of Producers and
ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of
the insured and strictly against the insurance company (New Life
Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office,
Ltd. vs. Court of Appeals, 211 SCRA 554). 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 (New Life Enterprises
Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195
SCRA 193).
The language used by defendant-appellant in the above quoted
stipulation is plain, ordinary and simple. No other interpretation is
necessary. The word "employee" must be taken to mean in the
ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-
employee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it
intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the
insurance policy.
53

Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss
said driver and security guard under the contracts (Exhs. 8 and C)
except only to ask for their replacements from the contractors.
5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial
court and the Court of Appeals erred in holding it liable under the insurance policy
because the loss falls within the general exceptions clause considering that driver
Magalong and security guard Atiga were Producers' authorized representatives or
employees in the transfer of the money and payroll from its branch office in Pasay City to
its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers.
It asserts that the existence of an employer-employee relationship "is determined by law
and being such, it cannot be the subject of agreement." Thus, if there was in reality an
employer-employee relationship between Producers, on the one hand, and Magalong and
Atiga, on the other, the provisions in the contracts of Producers with PRC Management
System for Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as an employer,
would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards:
(1) the manner of selection and engagement of the putative employee; (2) the mode of
payment of wages; (3) the presence or absence of a power to dismiss; and (4) the
presence and absence of a power to control the putative employee's conduct. Of the
four, the right-of-control test has been held to be the decisive factor.
6
It asserts that the
power of control over Magalong and Atiga was vested in and exercised by Producers.
Fortune further insists that PRC Management System and Unicorn Security Services are
but "labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only"
contracting where the person supplying workers to an employer does
not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to the workers in
the same manner and extent as if the latter were directly employed by
him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following
the ruling in International Timber Corp. vs. NLRC
7
that a finding that a contractor is a
"labor-only" contractor is equivalent to a finding that there is an employer-employee
relationship between the owner of the project and the employees of the "labor-only"
contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees
since it had nothing to do with their selection and engagement, the payment of their
wages, their dismissal, and the control of their conduct. Producers argued that the rule
in International Timber Corp. is not applicable to all cases but only when it becomes
necessary to prevent any violation or circumvention of the Labor Code, a social legislation
whose provisions may set aside contracts entered into by parties in order to give
protection to the working man.
Producers further asseverates that what should be applied is the rule in American
President Lines vs. Clave,
8
to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's
conduct.
Since under Producers' contract with PRC Management Systems it is the latter which
assigned Magalong as the driver of Producers' armored car and was responsible for his
faithful discharge of his duties and responsibilities, and since Producers paid the monthly
compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong,
it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on
the provision of its contract with Unicorn Security Services which provides that the guards
of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or
robbery insurance policy which is a form of casualty insurance. Section 174 of the
Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law
or custom are considered as falling exclusively within the scope of
insurance such as fire or marine. It includes, but is not limited to,
employer's liability insurance, public liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance
54

companies, and other substantially similar kinds of insurance.
(emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable
to all types of insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its purpose and
always in accordance with the general principles of insurance law.
9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity
to defraud the insurer the moral hazard is so great that insurers have found it
necessary to fill up their policies with countless restrictions, many designed to reduce this
hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured
against."
10
Persons frequently excluded under such provisions are those in the insured's
service and employment.
11
The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the property.
12
In
such cases, the terms specifying the excluded classes are to be given their meaning as
understood in common speech.
13
The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation.
14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer,
15
or it should be construed liberally in favor of the insured
and strictly against the insurer.
16
Limitations of liability should be regarded with extreme
jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation.
17
It goes
without saying then that if the terms of the contract are clear and unambiguous, there is
no room for construction and such terms cannot be enlarged or diminished by judicial
construction.
18

An insurance contract is a contract of indemnity upon the terms and conditions specified
therein.
19
It is settled that the terms of the policy constitute the measure of the insurer's
liability.
20
In the absence of statutory prohibition to the contrary, insurance companies
have the same rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives of Producers under paragraph (b) of
the general exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone
or in conjunction with others. . . . (emphases
supplied)
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or
criminal acts of persons granted or having unrestricted access to Producers' money or
payroll. When it used then the term "employee," it must have had in mind any person who
qualifies as such as generally and universally understood, or jurisprudentially established
in the light of the four standards in the determination of the employer-employee
relationship,
21
or as statutorily declared even in a limited sense as in the case of Article 106
of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the
employer.
22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees, it
may, in fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to submit the
case for judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management Systems
and Unicorn Security Services, the complaint for violation of P.D. No. 532, and
the information therefor filed by the City Fiscal of Pasay City, there is a paucity of
evidence as to whether the contracts between Producers and PRC Management
Systems and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay.
55

Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer
the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to
provide the needed security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."
23

In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the
Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The
complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15774 November 29, 1920
PILAR C. DE LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Sanz and Luzuriaga for appellant.
Cohn and Fisher for appellee.

MALCOLM, J.:
This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga
sustaining a demurrer to plaintiff's complaint upon the ground that it fails to state a cause
of action.
As the demurrer had the effect of admitting the material facts set forth in the complaint,
the facts are those alleged by the plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga
made application to the Sun Life Assurance Company of Canada for a policy of insurance
on his life in the sum of P5,000. In his application Lim designated his wife, Pilar C. de Lim,
the plaintiff herein, as the beneficiary. The first premium of P433 was paid by Lim, and
upon such payment the company issued what was called a "provisional policy." Luis Lim y
Garcia died on August 23, 1917, after the issuance of the provisional policy but before
approval of the application by the home office of the insurance company. The instant
action is brought by the beneficiary, Pilar C. de Lim, to recover from the Sun Life
Assurance Company of Canada the sum of P5,000, the amount named in the provisional
policy.
The "provisional policy" upon which this action rests reads as follows:
Received (subject to the following stipulations and agreements) the sum of four
hundred and thirty-three pesos, being the amount of the first year's premium for
a Life Assurance Policy on the life of Mr. Luis D. Lim y Garcia of Zamboanga for
P5,000, for which an application dated the 6th day of July, 1917, has been made
to the Sun Life Assurance Company of Canada.
The above-mentioned life is to be assured in accordance with the terms and
conditions contained or inserted by the Company in the policy which may be
granted by it in this particular case for four months only from the date of the
application, provided that the Company shall confirm this agreement by issuing
a policy on said application when the same shall be submitted to the Head Office
in Montreal. Should the Company not issue such a policy, then this agreement
shall be null and void ab initio, and the Company shall be held not to have been
on the risk at all, but in such case the amount herein acknowledged shall be
returned.
[SEAL.] (Sgd.) T. B. MACAULAY, President.
(Sgd.) A. F. Peters, Agent.
Our duty in this case is to ascertain the correct meaning of the document above quoted. A
perusal of the same many times by the writer and by other members of the court leaves a
decided impression of vagueness in the mind. Apparently it is to be a provisional policy
"for four months only from the date of this application." We use the term "apparently"
advisedly, because immediately following the words fixing the four months period comes
the word "provided" which has the meaning of "if." Otherwise stated, the policy for four
months is expressly made subjected to the affirmative condition that "the company shall
confirm this agreement by issuing a policy on said application when the same shall be
submitted to the head office in Montreal." To reenforce the same there follows the
negative condition
56

Should the company not issue such a policy, then this agreement shall be null and void ab
initio, and the company shall be held not to have been on the risk." Certainly, language
could hardly be used which would more clearly stipulate that the agreement should not
go into effect until the home office of the company should confirm it by issuing a policy.
As we read and understand the so-called provisional policy it amounts to nothing but an
acknowledgment on behalf of the company, that it has received from the person named
therein the sum of money agreed upon as the first year's premium upon a policy to be
issued upon the application, if the application is accepted by the company.
It is of course a primary rule that a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as an application
for insurance has not been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be done, nothing to be completed,
nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement. Our view is,
that a contract of insurance was not here consummated by the parties.lawph!l.net
Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states
the general rule concerning the agent's receipt pending approval or issuance of policy.
The first rule which Joyce lays down is this: If the act of acceptance of the risk by the
agent and the giving by him of a receipt, is within the scope of the agent's authority, and
nothing remains but to issue a policy, then the receipt will bind the company. This rule
does not apply, for while here nothing remained but to issue the policy, this was made an
express condition to the contract. The second rule laid down by Joyce is this: Where an
agreement is made between the applicant and the agent whether by signing an
application containing such condition, or otherwise, that no liability shall attach until the
principal approves the risk and a receipt is given buy the agent, such acceptance is merely
conditional, and it subordinated to the act of the company in approving or rejecting; so in
life insurance a "binding slip" or "binding receipt" does not insure of itself. This is the rule
which we believe applies to the instant case. The third rule announced by Joyce is this:
Where the acceptance by the agent is within the scope of his authority a receipt
containing a contract for insurance for a specific time which is not absolute but
conditional, upon acceptance or rejection by the principal, covers the specified period
unless the risk is declined within that period. The case cited by Joyce to substantiate the
last principle is that a Goodfellow vs. Times & Beacon Assurance Com. (17 U. C. Q. B., 411),
not available.
The two cases most nearly in point come from the federal courts and the Supreme Court
of Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489} the facts were
that the amount of the first premium had been paid to an insurance agent and a receipt
given therefor. The receipt, however, expressly declared that if the application was
accepted by the company, the insurance shall take effect from the date of the application
but that if the application was not accepted, the money shall be returned. The trite
decision of the circuit court of appeal was, "On the conceded facts of this case, there was
no contract to life insurance perfected and the judgment of the circuit court must be
affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person
applying for the life insurance paid and amount equal to the first premium, but the
application and the receipt for the money paid, stipulated that the insurance was to
become effective only when the application was approved and the policy issued. The
court held that the transaction did not amount to an agreement for preliminary or
temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies in the operation of the
business, upon receipt of an application for insurance, to enter into a contract with the
applicant in the shape of a so-called "binding receipt" for temporary insurance pending
the consideration of the application, to last until the policy be issued or the application
rejected, and such contracts are upheld and enforced when the applicant dies before the
issuance of a policy or final rejection of the application. It is held, too, that such contracts
may rest in parol. Counsel for appellant insists that such a preliminary contract for
temporary insurance was entered into in this instance, but we do not think so. On the
contrary, the clause in the application and the receipt given by the solicitor, which are to
be read together, stipulate expressly that the insurance shall become effective only when
the "application shall be approved and the policy duly signed by the secretary at the head
office of the company and issued." It constituted no agreement at all for preliminary or
temporary insurance; Mohrstadt vs. Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675;
Steinle vs. New York Life Ins. Co., 81 Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs.
Mutual Reserve Fund Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs. Mutual Life Insurance
Co. [1902], 115 Fed., 81; Insurance co. vs. Young's Administrator [1875], 90 U. S., 85;
Chamberlain vs. Prudential Insurance Company of America [1901], 109 Wis., 4; Shawnee
Mut. Fire Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs. Connecticut Fire Ins. Co.
[1914], 51 contra, Starr vs. Mutual Life Ins. Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in sustaining the demurrer
and dismissing the case. It is to be noted, however, that counsel for appellee admits the
liability of the company for the return of the first premium to the estate of the deceased.
It is not to be doubted but that the Sun Life Assurance Company of Canada will
immediately, on the promulgation of this decision, pay to the estate of the late Luis Lim y
Garcia the of P433.
The order appealed from, in the nature of a final judgment is affirmed, without special
finding as to costs in this instance. So ordered.
G.R. No. L-15895 November 29, 1920
Lessons Applicable: Perfection (Insurance)
57



FACTS:
September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance
Companyof Canada through its office in Manila for a life annuity
2 days later: he paid P6,000 to the manager of the company's Manila office and was
given a receipt
according to the provisional receipt, 3 things had to be accomplished by the
insurance company before there was a contract:
(1) There had to be a medical examination of the applicant; -check
(2) there had to be approval of the application by the head office of the company;
and - check
(3) this approval had in some way to be communicated by the company to the
applicant - ?
November 26, 1917: The head office at Montreal, Canada gave notice of acceptance
by cable to Manila but this was not mailed
December 4, 1917: policy was issued at Montreal
December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the
company stating that Herrer desired to withdraw his application
December 19, 1917: local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26, 1917
December 21, 1917 morning: received by Mr. Torres
December 20, 1917: Mr. Herrer died
Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed to
recover from Sun Life Assurance Company of Canada through its office in Manila for
a life annuity
RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his application thereby
perfecting his life annuity


HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from the Sun
Lifethe sum of P6,000 with legal interest from November 20, 1918, until paid, without
special finding as to costs in either instance. So ordered.


Civil Code
Art. 1319 (formerly Art.1262)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
not perfected because it has not been proved satisfactorily that the acceptance of
theapplication ever came to the knowledge of the applicant
LIM V. SUN LIFE
41 PHIL 263
Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance
with Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid
by Lim and company issued a provisional policy
> Such policy contained the following provisions xx the abovementioned life is to be
assured in accordance with the terms and conditions contained or inserted by the Company
in the policy which may be granted by it in this particular case for 4 months only from the
date of the application, PROVIDED that the company shall confirm this agreement by issuing
a policy on said application xxx. Should the company NOT issue such a policy, then this
58

agreement shall be null and void ab initio and the Company shall be held not to have been on
the risk at all, but in such case, the amount herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the
approval of the application by the home office of the insurance company.
> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:
Whether or not the beneficiary can collect the 5T.

Held:
NO.
The contract of insurance was not consummated by the parties. The above quoted
agreement clearly stated that the agreement should NOT go into effect until the home
office of the Company shall confirm it by issuing a policy. It was nothing but an
acknowledgment by the Company that it has received a sum of money agreed upon as the
first years premium upon a policy to be issued upon the application if it is accepted by the
Company.

When an agreement is made between the applicant and the agent whether by signing an
application containing such condition or otherwise, that no liability shall attach until the
principal approves the risk and a receipt is given by the agent, such acceptance is merely
conditional and is subordinated to the companys act in approving or rejecting; so in life
insurance a binding slip or receipt does not insure itself.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 3069 January 23, 1907
VIOLA BADGER, plaintiff-appellant,
vs.
THE NEW YORK LIFE INSURANCE COMPANY, defendant-appellee.
Condert Brothers for appellant.
Hartigan, Rohde & Gutierrez for appellee.
WILLARD, J.:
On July 5, 1902, William H. Badger made out a written application for a policy of insurance
upon his life for $5,000 in favor of his wife, Harriet Viola Badger. The first premium on this
policy amounted to $312.50. Badger sent the application and $297.60 to R. E. Herdman,
who received the application and the money on the 9th of July, 1902.
Herdman sent the papers on July 24 to the office of the defendant company in Shanghai,
where they were received on August 11. Badger executed a promissory note for $14.90,
the balance of the first premium, which was sent to Herdman on July 17, 1902. On the 31st
of July, Mrs. Badger, acting for her husband, sent to Herdman $14.90, cash, in payment of
said note. Badger died on the 1st day of August, 1902, of cholera. No policy was ever
issued upon his application.
The plaintiff brought this action to recover the sum of $5,000, alleging that a contract of
insurance had been made by the company with Badger. Judgment was rendered in the
court below in favor of the defendant to the effect that no such contract was ever made,
from which judgment the plaintiff appealed.
The only person who acted in any way for the company in this transaction was Herdman.
The only evidence in the case to show what his powers were is found in an admission in
the answer which states that he was "a special agent and cashier of the defendant
company in Manila," and in his evidence, testifying as a witness, he said that at the time of
the trial on September 6, 1905, he was the agency director of the defendant company in
the city of Manila.
The action can not be maintained unless the plaintiff proves a contract between the
company and Badger, made by a person authorized to act for the company. The authority
59

of this person must, of course, be proven. There is no evidence in the case to show that
Herdman had any authority to make any contract, either parol or in writing, that would
bind the company. There is no evidence to show that he had any policies in his possession.
Nor is there any evidence that Herdman ever undertook to make any parol contract with
Badger for this insurance. There had been some correspondence between the parties
prior to the making of the application on July 5. On that day Herdman, writing to Badger in
regard to the medical examination, said:
I will send you an official receipt when your remittance reaches the office, and
then a new examination will not be necessary when the policies are delivered;
otherwise this would be necessary.
After Badger had received the receipt of Herdman for the money sent to him and on July
11, he wrote to Herdman, saying:
Yours of the 9th instant received. Is the receipt you sent official or not? I do not
wish to take another examination, and so desire an official receipt.
xxx xxx xxx
Shall I be obliged to wait until you receive an answer from the office in New
York, or do you have authority to issue policies at the Manila office?
xxx xxx xxx
If my application is accepted does insurance begin July 5, 1902?
In reply to this letter, Herdman, on July 15, wrote, saying:
The receipt I sent you is official, being signed by me as cashier and not
personally, and of course there will not be another examination required.
xxx xxx xxx
We issue an interim policy from our Shanghai office, which stands until the
definite policy comes from New York. We hope soon to have an advisory board
here in Manila, so that we will be entirely free from Shanghai, all our other
business being transacted directly with the home officer at New York.
If your examination is acceptable, your policy will date from July 5, the date of
your application.
This evidence shows conclusively that there was no parol agreement between the parties
that the insurance had commenced on July 5, 1902. In fact, the claim of the appellant
reduced to its lowest terms is that the mere signing of an application for life insurance and
the payment of a first premium, without any parol agreement as to when the insurance
shall commence, constitutes a contract between the parties binding from that date. Such
a contention as this can not be sustained.
Moreover, there is evidence in the case in addition to that already referred to, showing
that the company expressly refused to be bound until the application had been accepted
either by its office in Shanghai or its office in New York. In the application which Badger
signed on the 5th day of July it is said:
I agree, on behalf of myself and of any person who shall have or claim any
interest in any policy issued under this application, as follows: That inasmuch as
only the officers at the home office of the company in the city of New York have
authority to determine whether or nor a policy shall issue on any application, no
statements, etc., shall be binding on the company.
In the report of the medical examiner there is found this printed statement:
The examiner is requested to send direct to the company in New York City any
information which, for any reason, he prefers not to embody in this report. He
can also mail this report direct to the company if he prefers.
Herdman testifies that when he sent to Badger a receipt for the money paid, it was on one
of two printed blanks, which one he could not say. The court below found that the receipt
was sent upon the blank which contained a reference to the Shanghai office. Whether it
was upon this form of receipt or upon the other one is of no consequence. In one of them
it is stated "that the company shall incur no liability under the application until it has been
received, approved by the resident board of the company at Shanghai, and a policy issued
thereon by the resident board, and the full premium has actually been paid to and
accepted by the company or its authorized agent during the lifetime and good health of
the person upon whose life the insurance is applied for. The company reserves the
absolute right of disapproval of such application."
The other form contains the statement that "the company shall incur no liability under the
application until it has been received, approved at the house office of the company, and a
policy issued thereon." This is then followed by the words of the first form. Upon both of
these forms are printed the words "conditional receipt."
It seems very clear that no liability was incurred by the company in this case. The
judgment of the court below is accordingly affirmed, with the costs of this instance
against the appellant.
60

After expiration of twenty days let judgment be entered in accordance herewith and ten
days thereafter the record remanded to the court below for proper action. So ordered.
Arellano, C.J., Torres, Mapa, Carson and Tracey, JJ., concur.

The Lawphil Project - Arellano Law Foundation
Facts: Plaintiff is estate administrator for late Joaquin Herrer. Herrer has pending
application with defendant Sun Life Assurance Co (sun Life) evidenced by a provisional
receipt. The provisional receipt reads payment of Php6, 000 for life annuity received 26
September 1917. The application was received by Sun Life head office a month after.

04 December 1917, the policy was issued in Montreal. A petition forwithdrawal of
application was filed by Herrers lawyer 18 December 1917. Herrer died 20 December. A
letter from Sun Life was received 21 December stating policy was issued and reminds the
party of anotification of acceptance of the application dated 26 November.

Plaintiff testified that he had found no letter of notification from the Sun Life.

Lower Court decides in favor of respondent. Appeal was taken.

Issue: Whether or not the there has been a valid offer and acceptance??

Held: None. The Civil Code provides that the acceptance made by letter binds the person
making the offer only from the date it has came to its knowledge. The contract of life
annuity was not perfected. There was no satisfactory evidence that the
applicationacceptance came to the knowledge of Herrer.

Article 16 of the civil code provides that any deficiency in the special law shall be supplied
by the Code. The Insurance Code does not provide for law on the principle of acceptance,
thus the Civil Code shall govern.

Article 1262 provides that consent is shown by concurrence of offer and acceptance with
the thing and the consideration to the contract. The acceptance by letter shall not bind
the person making the offer except from the time It came to his knowledge.

American Courts held that acceptance of offer not actually communicated does not
complete the contract but the mailing of the acceptance. Locus Poenitrntiae is ended
when acceptance has passed beyond partys control.

Furthermore, the provisional receipt provides for conditions before a contract is deemed
final. 1. Medical examination. 2. Approval byhead office of the application. 3. the company
communicates approval to the applicant.

In the case, there was no letter of notification. No evidence of knowledge. Judgment
reversed. Php6000 with interest is to be returned.

SINDAYEN V. INSULAR LIFE- POLICY OF INSURANCE
62 PHIL 9
Facts:
> Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his wife
Fortunat went to Camiling to spend Christmas with his aunt Felicidad Estrada.
> On Dec. 26, 1932, while still in Camiling, he made a written application to Insular Life,
through its agent, Cristobal Hendoza, for a policy of insurance on his life in the sum of
1,000.
> He paid the agent P15 as part of the first premium. It was agreed that the policy, when
and if issued, should be delivered to Felicidad with whom Sindayen left the sum P25.06 to
complete the payment of the first annual premium of P40.06.
> On Jan 1, 1933, Sindayen was examined by Insulars doctor who made a favorable report
to Insular.
61

> The next day, Sindayen returned to Manila and resumed his work. On Jan. 11, 1933,
Insular accepted the risk and issued a policy, and mailed the same to its agent for delivery
to the insured.
> On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933, he called
a physician who found that Sindayen was suffering from acute nephritis and uremia. His
illness did not yield to treatment and on Jan. 19, 1933, he died.
> The policy which the company issued and mailed in manila on Jan. 11 1933 was received
by its agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in accordance with his
agreement with the insured delivered the policy to Felicided upon her payment of the
balance of the 1
st
years premium.
> The agent asked Felicidad if her nephew was in good health and she replied that she
believed so because she had no information that he was sick, and thereupon , the policy
was handed to her by the agent.
> On Jan. 20, 1933, the agent learned of the death of Sindayen, afterwhich he called upon
Felicidad and asked her to return the policy. Felicidad did so.
> On Feb. 4, 1933, the company obtained from Sindayens widow Fortunata (also the
beneficiary), her signature on a legal document whereby in consideration of the sum
40.06 representing the amount of premium paid, Fortunata thereby releases forever and
discharges Insular from any and all claims and obligations she may have against the latter.
> A check for the above-mentioned amount was drawn in the name of Fortunata, but the
same was never encashed.
> Instead, it was returned to Insular and this complaint to enforce payment under the
policy was instituted.
> The application which Sindayen signed in Camiling contained the following provisions:
xxx
(3) That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.

> The main defense of the company is the policy never took effect because of par. 3 of
the application, since at the time of the delivery of the agent, the insured was not in good
health.

Issue:
Whether or not the policy took effect.

Held:
YES.
There is one line of American cases which holds that the stipulation contained par. 3 is in
the nature of a condition precedent, that is to say, that there can be no valid delivery to
the insured unless he is in good health at that time; that this condition precedent goes to
the very essence of the contract and cannot be waived by the agent making delivery of
the policy; HOWEVER, there is also a number of American decision which state the
contrary.

These decisions say that an agent to whom a life insurance policy (similar to the one at
bar) was sent with instruction to deliver it to the insured, has authority to bind the
company by making such delivery, ALTHOUGH the insured was NOT in good health at the
time of delivery, on the theory that the delivery of the policy being the final act to the
62

consummation of the contract, the condition as to the insureds good health was WAIVED
by the company.

These same cases further hold that the delivery of the policy by the agent to the insured
consummates the contract even though the agent knew that the insured was NOT in
good health at the time, the theory being, that his knowledge is the companys
knowledge; and his delivery is the companys delivery; that when the delivery is made
notwithstanding this knowledge of the defect, the company is deemed to have WAIVED
such defect.

The agent, Mendoza was duly licensed by the Insurance Commission to act for Insular
Life. He had the authority given by him by the company to withhold the delivery of the
policy to the insured until the first premium has been paid and the policy has been
delivered to and accepted by the insured while he is in good health. Whether that
condition had been met or not plainly calls for the exercise of discretion. Mendozas
decision that the condition had been met by the insured and that it was proper to make
delivery of the policy to him is just as binding on the company as if the decision had been
made by its Board of Directors. Admittedly, Mendoza made a mistake of judgment
because he acted on insufficient evidence as to the state of health of the insured, and this
mistake cannot be said to be induced by any misconduct on the part of the insured.

It is in the interest of not only of the applicant but of all insurance companies as well that
there should be some act which gives the applicant the definite assurance that the
contract has been consummated. This sense of security and of piece of mind that ones
dependents are provided for without risk of either loss or of litigation is the bedrock of
life insurance.

A cloud will be thrown over the entire insurance business if the condition of health of the
insured at the time of the delivery of the policy may be inquired into years afterwards with
the view of avoiding the policy on the ground that it never took effect because of an
alleged lack of good health at the time of delivery.

It is therefore in the public interest that we are constrained to hold, as we do, that the
delivery of the policy to the insured by an agent of the company who is authorized to
make delivery or withhold delivery is the final act which binds the company and the
insured, in the absence of fraud or other legal grounds for rescission. The fact that the
agent to whom it has entrusted this duty is derelict or negligent or even dishonest in the
performance of the duty which has been entrusted to him would create an obligation
based upon the authorized acts of the agent toward a third party who was not in collusion
with the agent.
May 18, 2008
Great Pacific Life vs. CA
316 SCRA 677 (1999)

INSURANCE LAW: Parties in Insurance Contract

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
63

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 deathclaim 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.

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
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 theapplication 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 thecontract.

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.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek
similar relief, through these petitions for certiorari by way of appeal, from the amended
decision of respondent Court of Appeals which affirmed in toto the decision of the Court
of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe
Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private
64

respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the
filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year
old daughter Helen Go. Said respondent supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote
the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he
reatined the amount of P1,317.00 as his commission for being a duly authorized agebt of
Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt
(Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life disapproving the insurance application
(Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated
by petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-
year endowment insurance plan to children, pointing out that since 1954 the customers,
especially the Chinese, were asking for such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza
with complication of bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in his effort, he filed the
action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life insurance in question; and (2) whether private
respondent Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium
deposit ... and the insurance application, ON or PRIOR to the date of
medical examination ... said insurance shan be in force and in effect from
the date of such medical examination, for such period as is covered by
the deposit ...,PROVIDED the company shall be satisfied that on said date
the applicant was insurable on standard rates under its rule for the
amount of insurance and the kind of policy requested in the
application.
D. If the Company does not accept the application on standard rate for
the amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan
and/or amount ..., the insurance shall not be in force and in effect until
the applicant shall have accepted the policy as issued or offered by the
Company and shall have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above,
and the Company declines to approve the application the insurance
applied for shall not have been in force at any time and the sum paid be
returned to the applicant upon the surrender of this receipt. (Emphasis
Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter's branch
office had received from the applicant the insurance premium and had accepted the
application subject for processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is "insurable on
standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force
at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The acceptance is merely conditional
and is subordinated to the act of the company in approving or rejecting the application.
65

Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De
Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the insurance application in question on the ground
that it is not offering the twenty-year endowment insurance policy to children less than
seven years of age. What it offered instead is another plan known as the Juvenile Triple
Action, which private respondent failed to accept. In the absence of a meeting of the
minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year
old daughter, and with the non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt, there could have been no insurance contract duly
perfected between thenl Accordingly, the deposit paid by private respondent shall have
to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or by
their agents ... The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be dione, nothing to be
completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said company does
not offer the life insurance applied for. When he filed the insurance application in dispute,
private respondent was, therefore, only taking the chance that Pacific Life will approve
the recommendation of Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts to offer the 20-year
endowment insurance plan for children less than seven years. Nonetheless, the record
discloses that Pacific Life had rejected the proposal and recommendation. Secondly,
having an insurable interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon, private respondent
Ngo Hing must have known and followed the progress on the processing of such
application and could not pretend ignorance of the Company's rejection of the 20-year
endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not
quite conninced that this was so. Ngo Hing, as father of the applicant
herself, was precisely the "underwriter who wrote this case" (Exhibit
H-1). The unchallenged statement of appellant Mondragon in his letter
of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing
was "our associate" and that it was the latter who "insisted that the
plan be placed on the 20-year endowment plan." Under these
circumstances, it is inconceivable that the progress in the processing of
the application was not brought home to his knowledge. He must have
been duly apprised of the rejection of the application for a 20-year
endowment plan otherwise Mondragon would not have asserted that
it was Ngo Hing himself who insisted on the application as originally
filed, thereby implictly declining the offer to consider the application
under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to know
what kind of policies are available in the company for minors below 7
years old. What he and Mondragon were apparently trying to do in the
premises was merely to prod the company into going into the business
of issuing endowment policies for minors just as other insurance
companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been
bound at all under the binding slip for a plan of insurance that it could
not have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that
private respondent had deliberately concealed the state of health and piysical condition
of his daughter Helen Go. Wher private regpondeit supplied the required essential data
for the insurance application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never be ensconced
nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fact
materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility
to such a material fact. Had he diamond said significant fact in the insurance application
fom Pacific Life would have verified the same and would have had no choice but to
disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but
equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
66

concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu
Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is
hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and ordering
the aforesaid insurance company to reimburse the amount of P1,077.75, without interest,
to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.
Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48563 May 25, 1979
VICENTE E. TANG, petitioner,
vs.
HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
Ambrosio D. Go for petitioner.
Ferry, De la Rosa, Deligero Salonga & Associates for private respondent.

ABAD SANTOS, J.:
This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R.
No. 55407-R, June 8, 1978) which affirmed the decision of the Court of First Instance of
Manila in Civil Case No. 90062 wherein the petitioner herein was the plaintiff and
Philippine American Life Insurance Co. the herein respondent was the defendant. The
action was for the enforcement of two insurance policies that had been issued by the
defendant company under the following circumstances.
On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke
only Chinese, applied for an insurance on her life for P60,000 with the respondent
Company. The application consisted of two parts, both in the English language. The
second part of her application dealt with her state of health and because her answers
indicated that she was healthy, the Company issued her Policy No. 0690397, effective
October 23, 1965, with her nephew Vicente E. Tang, herein Petitioner, as her beneficiary,
On November 15, 1965, Lee See Guat again applied with the respondent Company for an
additional insurance on her life for P40,000. Considering that her first application had just
been approved, no further medical examination was made but she was required to
accomplish and submit Part I of the application which reads: "I/WE HEREBY DECLARE AND
AGREE that all questions, statements answers contained herein, as well as those made to
or to be made to the Medical Examiner in Part II are full, complete and true and bind all
parties in interest under the policy herein applied for; that there shall be no contract of
insurance unless a policy is issued on this application and the fun first premium thereon,
according to the mode of payment specified in answer to question 4D above, actually paid
during the lifetime and good health of the Proposed Insured." Moreover, her answers in
Part II of her previous application were used in appraising her insurability for the second
insurance. On November 28, 1965, Policy No. 695632 was issued to Lee See Guat with the
same Vicente E. Tang as her beneficiary.
On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two
policies, Vicente E. Tang claimed for their face value in the amount of P100,000 which the
insurance company refused to pay on the ground that the insured was guilty of
concealment and misrepresentation at the time she applied for the two policies. Hence,
the filing of Civil Case No. 90062 in the Court of First Instance of Manila which dismissed
the claim because of the concealment practised by the insured in violation of the
Insurance Law.
On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of
Appeals stated, inter alia: "There is no doubt that she deliberately concealed material facts
about her physical condition and history and/or conspired with whoever assisted her in
relaying false information to the medical examiner, assuming that the examiner could not
communicate directly with her."
The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:
Art. 1332. When one of the parties is unable to read, or if the contract is
in a language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms thereof
have been fully explained to the former.
67

According to the Code Commission: "This rule is especially necessary in the Philippines
where unfortunately there is still a fairly large number of illiterates, and where documents
are usually drawn up in English or Spanish." (Report of the Code Commission, p. 136.) Art.
1332 supplements Art. 24 of the Civil Code which provides that " In all contractual,
property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap,
the court must be vigilant for his protection.
It is the position of the petitioner that because Lee See Guat was illiterate and spoke only
Chinese, she could not be held guilty of concealment of her health history because the
applications for insurance were in English and the insurer has not proved that the terms
thereof had been fully explained to her.
It should be noted that under Art. 1332 above quoted, the obligation to show that the
terms of the contract had been fully explained to the party who is unable to read or
understand the language of the contract, when fraud or mistake is alleged, devolves on
the party seeking to enforce it. Here the insurance company is not seeking to enforce the
contracts; on the contrary, it is seeking to avoid their performance. It is petitioner who is
seeking to enforce them even as fraud or mistake is not alleged. Accordingly, respondent
company was under no obligation to prove that the terms of the insurance contracts were
fully explained to the other party. Even if we were to say that the insurer is the one
seeking the performance of the contracts by avoiding paying the claim, it has to be noted
as above stated that there has been no imputation of mistake or fraud by the illiterate
insured whose personality is represented by her beneficiary the petitioner herein. In sum,
Art. 1332 is inapplicable to the case at bar. Considering the findings of both the CFI and
Court of Appeals that the insured was guilty of concealment as to her state of health, we
have to affirm.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special
pronouncement as to costs.
SO ORDERED.
Concepcion, Jr., and Santos, JJ., concur.
Aquino, J., concurs in the result.

Separate Opinions

ANTONIO, J., concurring:
I concur.
In a contract of insurance each party "must communicate to the other, in good faith, all
facts within his knowledgewhich are material to the contract, and which the other has not
the means of ascertaining ... (section 27, Act 2427, as amended. Emphasis supplied). As a
general rule, a failure by the insured to disclose conditions affecting the risk, of which he
is aware makes the contract voidable at the option of the insurer (45 C.J.S. 153). The
reason for this rule is that insurance policies are traditionally contracts "ubemae fidei"
which means most abundant good faith absolute and perfect candor or openness and
honesty; the absence of any concealment or deception however slight. Here, the Court of
Appeals found that the insured "deliberately concealed material facts about her physical
condition and history and/or concealed with whoever assisted her in relaying false
information to the medical examiner ... "
Certainly, petitioner cannot assume inconsistent positions by attempting to enforce the
contract of insurance for the purpose of collecting the proceeds of the policy and at the
same time nullify the contract by claiming that he executed the same thru fraud or
mistake.

TANG V. CA- INSURANCE FRAUD OR MISTAKE
90 SCRA 236
Facts:
> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only
Chinese, applied for life insurance for 60T with Philamlife. The application was in two
parts, both in English.
> The second part dealt with her state of health. Her answers having shown that she was
health, Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang
as beneficiary.
68

> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it
was only recent from the time she first applied, no further medical exam was made but
she accomplished Part 1 (which certified the truthfulness of statements made in Part. 2)
> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.
> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the
insured was guilty of concealment and misrepresentation.
> Both trial court and CA ruled that Lee was guilty of concealment.
> Tangs position, however, is that because Lee was illiterate and spoke only Chinese, she
could not be held guilty of concealment of her health history because the application for
insurance was English, and the insurer has not proven that the terms thereof had been
fully explained to her as provided by Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:
NO.
Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of
the contract had been fully explained to the party who is unable to read or understand the
language of the contract, when fraud or mistake is alleged, devolves on the party seeking
to enforce it. Here, the insurance company is NOT seeking to enforce the contract; on the
contrary, it is seeking to avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged.
Accordingly, Philamlife was under no obligation to prove that the terms of the insurance
contract were fully explained to the other party. Even if we were to say that the insurer is
the one seeking the performance of the cont contracts by avoiding paying the claim, it has
to be noted as above stated that there has been NO imputation of mistake of fraud by the
illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is
inapplicable, and considering the findings of both the trial court and the CA as to the
Concealment of Lee, the SC affirms their decisions.

Concurring: J., Antonio
In a contract of insurance, each party must communicate to the other, in good faith, all
facts within his knowledge which are material to the contract, and which the other has no
means of ascertaining. As a general rule, the failure by the insured to disclose conditions
affecting the risk of which he is aware makes the contract voidable at the option of the
insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae
fidei, which means most abundant good faith, absolute and perfect candor or
openness and honesty, absence of any concealment or deception however slight.
Here the CA found that the insured deliberately concealed material facts about her
physical condition and history and/or concealed with whoever assisted her in relaying
false information to the medical examiner. Certainly, the petitioner cannot assume
inconsistent positions by attempting to enforce the contract of insurance for the purpose
69

of collecting the proceeds of the policy and at the same time nullify the contract by
claiming that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained to him.
G.R. No. L-18529, Aleja, Gamboa-Aleja and Aleja v. GSIS, 13 SCRA 212
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
February 26, 1965
G.R. No. L-18529
FRANCISCO G. ALEJA, FELICITACION GAMBOA-ALEJA and DOMINADOR ALEJA,plaintiffs-
appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
Restituto L. Joson for plaintiffs-appellants.
Bartolome S. Palma for defendant-appellee.
BARRERA, J.:
This is an appeal by Francisco G. Aleja, et al., from the decision of the Court of First
Instance of Nueva Ecija (in Civil Case No. 3335) dismissing their complaint against the
Government Service Insurance System (GSIS) and denying their claim to the proceeds of
the insurance policy No. 310973 issued to the late Rosauro G. Aleja, on the ground that the
deceased was not yet covered by insurance at the time of his death.
As found by the lower court, the deceased Rosauro G. Aleja was appointed as temporary
classroom teacher in the Bureau of Public Schools, Division of Nueva Ecija, on July 8, 1958.
Thereafter, a compulsory term insurance policy, No. 310973, was issued in his name, said
policy to take effect on February 1, 1959. The corresponding premium therefor was
deducted for the first time from his salary on January 31, 1959. However, two days before
that or on January 29, 1959, while guarding the rice stack in front of their house, Rosauro
Aleja died of a gunshot wound inflicted by his own gun. Plaintiffs, as beneficiaries named
in the policy, filed a claim with the GSIS to collect the proceeds of the said policy, but the
same was denied allegedly because at the time of Aleja's death, the policy was not yet
effective and the latter was, therefore, not covered by insurance. Hence, the institution of
this case and the consequent promulgation of the decision by the lower court which is the
subject of the present appeal.
In denying plaintiffs-appellants' claim, the GSIS contends that although Aleja became a
permanent employee and entitled to membership in the System 6 months after his
original appointment, or on January 8, 1959, yet as specified in the policy issued to him,
the same shall become effective only on February 1, 1959. And this latter date was fixed in
accordance with the provisions of Commonwealth Act 186, as amended byRepublic Act
660, which read:
SEC. 4. Scope of application of System. (a) Membership to the System shall be
compulsory upon all regularly and permanently appointed employees, including those
70

whose tenure of office is fixed or limited by law; upon all teachers except only those who
are substitutes; ..
SEC. 8. (a) Compulsory membership insurance. An employee whose membership in the
System is compulsory shall be automatically insured on the first day of the seventh
calendar month following the month he was appointed or on the first day of the sixth
calendar month if the date of his appointment is the first day of the month: Provided, That
his medical examination, if required, has been approved by the System.
It is not controverted that the deceased had rendered services to the government for 6
months and 21 days before his death; that he was insured and in fact a policy was already
issued in his favor at the time of his death; that the death fixed for the effectivity of said
policy was made pursuant to the aforequoted provisions of the GSIS Charter. Appellants,
however, maintain that section 8 of Commonwealth Act 186, insofar as it fixes the date of
compulsory membership therein, is absurd and discriminatory, in that, whereas those
whose appointments are dated on the first day of the month become covered by
insurance on the first day of the sixth month following their appointment, those who
were appointed on other dates become insured only on the first day of the seventh
calendar month from their original appointment. In other words, if an employee is
appointed on January 1, he will be covered by insurance on June 1, whereas one who gets
appointed in January 2 becomes insured only on July 1. This arrangement, appellants
claim, was made only to facilitate office transactions or for office procedure, and should
not be construed to defeat the purpose for which the System was established, i.e., to
promote the welfare of the employees. It is, therefore, urged that the coverage of
compulsory insurance should commence on the date when the employee becomes
entitled to membership in the System, or upon completion of six months' service.
It may be admitted that as thus worded, the disputed provision makes a distinction, in the
matter of effectivity of their insurance coverage, between those appointed to the service
on the first day of the month and those who receive their appointments on any other
date. But classification or class legislation, assuming this to be one, does not ipso
facto make a statutory provision invalid. Classification will not constitute an infringement
of the individual's right to constitutional guarantees of equality if it is not unreasonable,
arbitrary or capricious. To be reasonable, the classification must be based on substantial
distinctions which make real differences; must be germane to the purposes of the law;
must not be limited to existing conditions only, and must apply equally to each member of
the class, under similar conditions.
[[
1
]]

In the instant case, it may be true that the disputed provision must have been
incorporated in the law to promote efficiency and convenience in office procedure of the
System. Taking into account the volume of business that the System handles, the
providing of this measure which ultimately may redound to the benefit of the members in
the form of efficient and prompt service, cannot be considered capricious or arbitrary.
Furthermore, it appears that the policy issued and accepted by Aleja during his lifetime
specifically provides that the effective date of the insurance contract is February 1, 1959.
Additionally, it is not denied that the first premium on said insurance contract was
deducted from Aleja's salary only on January 31, 1959 or after his death. Clearly, at the
time of his said death, there was no existing contract between him and the appellee GSIS,
there being no consideration for the risk sought to be enforced against the insurance
system. The offer of the latter to refund the amount collected after Aleja's death, is
proper.
71

WHEREFORE, the decision of the lower court appealed from is hereby modified in the
sense that the defendant-appellee shall return to the plaintiffs the amount deducted from
the deceased's salary in the form of premium. No costs. So ordered.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P.,
and Zaldivar, JJ., concur.
Bautista Angelo, J., took no part.
Areola vs. CA
Reciprocal Obligations on Contract of Insurance

Issues
1. W/N erroneous cancellation of insurance policy entitle petitioner-insured to payment
of damages?
2. W/N reinstatement of insurance policy in order to rectify the error, obliterate the
liability for damages?

Facts
A Personal Accident Insurance Policy was issued to the petitioner by respondent company
Private respondent cancelled the same since company records revealed that P failed to
pay his premiums
t was submitted that the fraudulent act of Malapit, manager of PR's branch office in
Baguio in misappropriating funds is the proximate cause of cancellation of the policy
PR ordered for reinstatement of insurance policy
However, complaint for breach of contract with damages had already been filed by P

Ruling
Contract of insurance creates reciprocal obligations for both insurer and insured
Under Art. 1191 (2), the injured party is given a choice between fulfillment or rescission of
obligation in case one of the obligors fails to comply with what is incumbent upon him.
Said article entitles injured party to payment of damages whether he demands fulfillment
or rescission. Untenable then is PR's argument, namely reinstatement being equivalent to
fulfillment of its obligation, divests petitioner's rightful claim over damages
P should be awarded with damages- nominal damages since no substantial injury or actual
damages have been shown
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 95641 September 22, 1994
SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents-appellees.
Gutierrez, Cortes & Gonzales for petitioners.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:
On June 29, 1985, seven months after the issuance of petitioner Santos Areola's
Personal Accident Insurance Policy No. PA-20015, respondent insurance
company unilaterally cancelled the same since company records revealed that
petitioner-insured failed to pay his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same
policy it had previously cancelled and even proposed to extend its lifetime to
December 17, 1985, upon a finding that the cancellation was erroneous and that
the premiums were paid in full by petitioner-insured but were not remitted by
Teofilo M. Malapit, respondent insurance company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages
due to breach of contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-
insured to payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance
policy by respondent insurance company, in an effort to rectify such error,
obliterate whatever liability for damages it may have to bear, thus absolving it
therefrom?
From the factual findings of the trial court, it appears that petitioner-insured,
Santos Areola, a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter
referred to as Prudential), a personal accident insurance policy covering the one-
year period between noon of November 28, 1984 and noon of November 28,
1985.
1
Under the terms of the statement of account issued by respondent
insurance company, petitioner-insured was supposed to pay the total amount of
P1,609.65 which included the premium of P1,470.00, documentary stamp of
P110.25 and 2% premium tax of P29.40.
2
At the lower left-hand corner of the
statement of account, the following is legibly printed:
This Statement of Account must not be considered a receipt. Official Receipt will
be issued to you upon payment of this account.
If payment is made to our representative, demand for a Provisional Receipt and
if our Official Receipts is (sic) not received by you within 7 days please notify us.
If payment is made to our office, demand for an OFFICIAL RECEIPT.
72

On December 17, 1984, respondent insurance company issued collector's
provisional receipt No. 9300 to petitioner-insured for the amount of
P1,609.65
3
On the lower portion of the receipt the following is written in capital
letters:
Note: This collector's provisional receipt will be confirmed by our official receipt.
If our official receipt is not received by you within 7 days, please notify us.
4

On June 29, 1985, respondent insurance company, through its Baguio City
manager, Teofilo M. Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment
of premium effective as of inception dated."
5
The same endorsement also
credited "a return premium of P1,609.65 plus documentary stamps and premium
tax" to the account of the insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito
Ang, agent of respondent insurance company, and demanded the issuance of an
official receipt. Ang told petitioner-insured that the cancellation of the policy
was a mistake but he would personally see to its rectification. However,
petitioner-insured failed to receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a
letter demanding that he be insured under the same terms and conditions as
those contained in Policy No. PA-BG-20015 commencing upon its receipt of his
letter, or that the current commercial rate of increase on the payment he had
made under provisional receipt No. 9300 be returned within five days.
6
Areola
also warned that should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit
informing him that the "partial payment" of P1,000.00 he had made on the
policy had been "exhausted pursuant to the provisions of the Short Period Rate
Scale" printed at the back of the policy. Malapit warned Areola that should be
fail to pay the balance, the company's liability would cease to operate.
7

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance
company, through its Assistant Vice-President Mariano M. Ampil III, wrote
Areola a letter dated July 25, 1985 stating that the company was verifying
whether the payment had in fact been issued therefor. Ampil emphasized that
the official receipt should have been issued seven days from the issuance of the
provisional receipt but because no official receipt had been issued in Areola's
name, there was reason to believe that no payment had been made. Apologizing
for the inconvenience, Ampil expressed the company's concern by agreeing "to
hold you cover (sic) under the terms of the referenced policy until such time that
this matter is cleared."
8

On August 3, 1985, Ampil wrote Areola another letter confirming that the
amount of P1,609.65 covered by provisional receipt No. 9300 was in fact
received by Prudential on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to
December 17, 1985 or one year from the date when payment was received."
Apologizing again for the inconvenience caused Areola, Ampil exhorted him to
indicate his conformity to the proposal by signing on the space provided for in
the letter.
9

The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985
10
but unfortunately, Areola and his wife, Lydia, as early as
August 6, 1985 had filed a complaint for breach of contract with damages before
the lower court.
In its Answer, respondent insurance company admitted that the cancellation of
petitioner-insured's policy was due to the failure of Malapit to turn over the
premiums collected, for which reason no official receipt was issued to him.
However, it argued that, by acknowledging the inconvenience caused on
petitioner-insured and after taking steps to rectify its omission by reinstating the
cancelled policy prior to the filing of the complaint, respondent insurance
company had complied with its obligation under the contract. Hence, it
concluded that petitioner-insured no longer has a cause of action against it. It
insists that it cannot be held liable for damages arising from breach of contract,
having demonstrated fully well its fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-
insured, ordering respondent insurance company to pay the former the
following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00;
and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company
acted in bad faith in unilaterally cancelling subject insurance policy, having done
so only after seven months from the time that it had taken force and effect and
despite the fact of full payment of premiums and other charges on the issued
insurance policy. Cancellation from the date of the policy's inception, explained
the lower court, meant that the protection sought by petitioner-insured from
the risks insured against was never extended by respondent insurance company.
Had the insured met an accident at the time, the insurance company would
certainly have disclaimed any liability because technically, the petitioner could
not have been considered insured. Consequently, the trial court held that there
was breach of contract on the part of respondent insurance company, entitling
petitioner-insured to an award of the damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying
bad faith on its part in unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the
decision of the trial court, convinced that the latter had erred in finding
respondent insurance company in bad faith for the cancellation of petitioner-
insured's policy. According to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice or bad faith in cancelling
subject policy. Rather, the cancellation of the insurance policy was based on
73

what the existing records showed, i.e., absence of an official receipt issued to
petitioner-insured confirming payment of premiums. Bad faith, said the Court of
Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior
purpose, proof of which must be established convincingly. On the contrary, it
further observed, the following acts indicate that respondent insurance
company did not act precipitately or willfully to inflict a wrong on petitioner-
insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-
insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming
that the premium had been paid on December 17, 1984; (c) the reinstatement of
the policy with a proposal to extend its effective period to December 17, 1985;
and (d) respondent insurance company's apologies for the "inconvenience"
caused upon petitioner-insured. The appellate court added that respondent
insurance company even relieved Malapit, its Baguio City manager, of his job by
forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the
Court of Appeals denied. Hence, this petition for review on certiorari anchored
on these arguments:
I
Respondent Court of Appeals is guilty of grave abuse of discretion and
committed a serious and reversible error in not holding Respondent Prudential
liable for the cancellation of the insurance contract which was admittedly
caused by the fraudulent acts and bad faith of its own officers.
II
Respondent Court of Appeals committed serious and reversible error and
abused its discretion in ruling that the defenses of good faith and honest
mistake can co-exist with the admitted fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a reversible error in not finding that
even without considering the fraudulent acts of its own officer in
misappropriating the premium payment, the act itself in cancelling the insurance
policy was done with bad faith and/or gross negligence and wanton attitude
amounting to bad faith, because among others, it was
Mr. Malapit the person who committed the fraud who sent and signed the
notice of cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to
law and applicable decision of the Supreme Court when it refused to award
damages in favor of herein Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager
of respondent insurance company's branch office in Baguio, in misappropriating
his premium payments is the proximate cause of the cancellation of the
insurance policy. Petitioner-insured theorized that Malapit's act of signing and
even sending the notice of cancellation himself, notwithstanding his personal
knowledge of petitioner-insured's full payment of premiums, further reinforces
the allegation of bad faith. Such fraudulent act committed by Malapit, argued
petitioner-insured, is attributable to respondent insurance company, an artificial
corporate being which can act only through its officers or employees. Malapit's
actuation, concludes petitioner-insured, is therefore not separate and distinct
from that of respondent-insurance company, contrary to the view held by the
Court of Appeals. It must, therefore, bear the consequences of the erroneous
cancellation of subject insurance policy caused by the non-remittance by its own
employee of the premiums paid. Subsequent reinstatement, according to
petitioner-insured, could not possibly absolve respondent insurance company
from liability, there being an obvious breach of contract. After all, reasoned out
petitioner-insured, damage had already been inflicted on him and no amount of
rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where
reinstatement, the equitable relief sought by petitioner-insured was granted at
an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured
is left without a cause of action on which to predicate his claim for damages.
Reinstatement, it further explained, effectively restored petitioner-insured to all
his rights under the policy. Hence, whatever cause of action there might have
been against it, no longer exists and the consequent award of damages ordered
by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of
misappropriating the premiums paid by petitioner-insured is beyond doubt
directly imputable to respondent insurance company. A corporation, such as
respondent insurance company, acts solely thru its employees. The latters' acts
are considered as its own for which it can be held to account.
11
The facts are
clear as to the relationship between private respondent insurance company and
Malapit. As admitted by private respondent insurance company in its
answer,
12
Malapit was the manager of its Baguio branch. It is beyond doubt that
he represented its interest and acted in its behalf. His act of receiving the
premiums collected is well within the province of his authority. Thus, his receipt
of said premiums is receipt by private respondent insurance company who, by
provision of law, particularly under Article 1910 of the Civil Code, is bound by the
acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense
for private respondent insurance company; no exoneration from liability could
result therefrom. The fact that private respondent insurance company was itself
defrauded due to the anomalies that took place in its Baguio branch office, such
as the non-accrual of said premiums to its account, does not free the same from
its obligation to petitioner Areola. As held in Prudential Bank v. Court of
Appeals
13
citing the ruling in McIntosh v. Dakota Trust Co.:
14

74

A bank is liable for wrongful acts of its officers done in the interests of the bank
or in the course of dealings of the officers in their representative capacity but
not for acts outside the scope of their authority. A bank holding out its officers
and agent as worthy of confidence will not be permitted to profit by the frauds
they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom. Accordingly, a
banking corporation is liable to innocent third persons where the representation
is made in the course of its business by an agent acting within the general scope
of his authority even though, in the particular case, the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for
the fraudulent acts committed by Malapit that gave occasion to the erroneous
cancellation of subject insurance policy. Its earlier act of reinstating the
insurance policy can not obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a contract of insurance creates
reciprocal obligations for both insurer and insured. Reciprocal obligations are
those which arise from the same cause and in which each party is both a debtor
and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.
15

Under the circumstances of instant case, the relationship as creditor and debtor
between the parties arose from a common cause: i.e., by reason of their
agreement to enter into a contract of insurance under whose terms, respondent
insurance company promised to extend protection to petitioner-insured against
the risk insured for a consideration in the form of premiums to be paid by the
latter. Under the law governing reciprocal obligations, particularly the second
paragraph of Article 1191,
16
the injured party, petitioner-insured in this case, is
given a choice between fulfillment or rescission of the obligation in case one of
the obligors, such as respondent insurance company, fails to comply with what
is incumbent upon him. However, said article entitles the injured party to
payment of damages, regardless of whether he demands fulfillment or
rescission of the obligation. Untenable then is reinstatement insurance
company's argument, namely, that reinstatement being equivalent to fulfillment
of its obligation, divests petitioner-insured of a rightful claim for payment of
damages. Such a claim finds no support in our laws on obligations and contracts.
The nature of damages to be awarded, however, would be in the form of
nominal damages
17
contrary to that granted by the court below. Although the
erroneous cancellation of the insurance policy constituted a breach of contract,
private respondent insurance company, within a reasonable time took steps to
rectify the wrong committed by reinstating the insurance policy of petitioner.
Moreover, no actual or substantial damage or injury was inflicted on petitioner
Areola at the time the insurance policy was cancelled. Nominal damages are
"recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind, or
where there has been a breach of contract and no substantial injury or actual
damages whatsoever have been or can be shown.
18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the
decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990,
REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972
rendered on June 30, 1987 is hereby REINSTATED subject to the following
modifications: (a) that nominal damages amounting to P30,000.00 be awarded
petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the
satisfaction of the damages awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest computed from date of filing of
complaint until final payment thereof.
SO ORDERED.
Constantino vs. Asia Life Insurance Co. [GR# L-1669 August 31, 1950] Peralta vs.
Asia Life Insurance Co. [GR# L-1670 August 31, 1950]
Post under case digests, Commercial Law at Tuesday, February 21, 2012 Posted
by Schizophrenic Mind
Facts: FIRST CASE: Respondent Corporation was paid P 176.04 as annual
premium by Arcadio Constantino in exchange for policy no. 93212 on 1941 for P
3,000 which lasted for 20 years. Petitioner Paz Constantino was made
beneficiary. However after the first payment, no further premiums were made.
Thereafter the insured died on 1944. Later, due to the war (Japanese
occupation) Respondent Corporation had to close down its branch in the
country.

SECOND CASE: Similarly, Respondent Corporation issued on 1938 another
insurance policy no. 78145 for Spouses Ruiz and Peralta also for P 3,000, lasting
for 20 years. Regular payments were made however due also to the war, it
became impossible to transact furtherpayments. The insured nevertheless was
able to borrow P 234 from the policy. Ruiz died on 1945. Peralta was the
beneficiary.

75

In both cases the plaintiffs demanded payment but was refused due to
Respondent Corporations refusal on the ground of non-payment of the
premiums. The lower court favored Respondent.

Issues:
(1) Whether or not the beneficiaries are entitled to recover the amount insured
despite non-payment caused by the Japanese occupation.

(2) Whether or not the periodic payments of the premiums, those after the first,
is not an obligation of the insured so that it is not a debt enforceable by the
action of the insurer.

Held:
(1) The beneficiaries are not entitled to recover for non-payment despite the
presence of war.

Contracts of insurance are contracts of indemnity within the terms and condition
found therein. An insurance company for certain considerations guarantee the
insured against loss or damage as may be stipulated, and when called to pay, the
insurer may insist on the fulfillment of said stipulations. Failure of the insured to
do so disqualifies recovery for the loss. Thus the terms of the policy determines
the insurers liability. Compliance to the terms of the policy is a must as it is a
condition precedent to the right of recovery. Therefore, from the terms of the
policy it is clear that non-payment of premium produces avoidance (forfeiture of
the policy).

Moreover, since act 2427, Philippine law on insurance and the Civil Code) are
mostly based from the Civil Code of California, An intention to supplement our
laws with the prevailing principles of the US arises. Thus, Prof. Vance of Yaled
declares that the United States Rule must be followed, where the contract is
not merely suspended but is abrogated by reason of non-payment of premiums
since the time of payments is peculiar to the essence of the contract. Further it
would be unjust to permit the insurer to retain the reserve value of the policy or
the excess of premiums paid over the actual risk when the policy was still
effective as held in the Statham Case which was more logical and juridically
sound. In said case it was hold that promptness of payment is essential in the
business oflife insurance since all calculations of the company is based on the
hypothesis of prompt payments. Forfeiture for non-payment is necessary to
protect said business from embarrassment otherwise confusion would abound.
And that delinquency cannot be tolerated nor redeemed except at the option of
the company. Lastly parties contracted both for peace and war times since the
policies contained also wartime days. It follows that the parties contemplated
uninterrupted operation of the contract even if armed conflict ensues.

(2) The annual premium is not a debt, nor is it an obligation which the insurer can
maintain an action against the insured; nor its settlement governed by the rules
on payment of debts.

A contract of insurance is sui generis. This means though the insured may hold
the insurer to the contract by the fulfillment of the condition, the latter has no
power or right to compel the insured to maintain the contract relation longer
than the insured may desire. It is optional upon the insured.
76

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-602 March 31, 1947
ADELAIDA OCAMPO VDA. DE GOMEZ, demandante-apelante,
vs.
THE GOVERNMENT INSURANCE BOARD, demandado-apelado.
Sres. Artemio C. Macalino y Rodrigo G. Pagan en representacion de la apelante.
Abogado Auxiliar de Corporaciones D. Federico C. Alikpala en representacion del
apelado.
BRIONES, J.:
Andres A. Gomez estuvo sirviendo en el gobierno provincial de la Pampanga
como tasador provincial delegado por un periodo continuo de 25 aos, desde el
8 de Agosto de 1914 en que fue nombrado por primera vez, hasta el 28 de
Febrero de 1938 en que fallecio. Segun el convenio dehechos, no cabe duda de
que su nombramiento era de empleado temporero temporary al tenor de
la fraseologia legal. No era elegible en el servicio civil: esto explica porque
durante tan largo tiempo de servicio no se le habia podido expedir un
nombramiento regular y permanente. El sueldo que percibia al morir era de P90
al mes.
Tampoco hay controversia entre las partes, bajo el convenio, acerca de los
siguientes hechos: (a) que el gobierno provincial de la Pampanga, para
aprovecharse delos beneficios de la ley del Commonwealth No. 186, aprobo el 8
de Agosto, 1937, por medio de su junta provincial, una resolucion en que
significaba su intencion de afiliarse al Sistema de Seguro de Vida del Gobierno
nacional llamado "Government Service Insurance System"; (b) que despues de
recibir dicha resolucion, la junta que regenta y administra dicho Sistema de
Seguro la aprobo debidamente, haciendo efectiva la afiliacion desde el 28 de
Febrero, 1938; (c) que Andres A. Gomez, antes de sumuerte, juntamente con
otros empleados del gobierno provincial de la Pampanga habia llenado un
formulario del referido Sistema de Seguro llamado "Information for membership
insurance," en el que nombraba a suesposa Adelaida Ocampo como beneficiaria,
enviando luego el formulario asi llenado al "Government Service Insurance
System" que lo recibio y guardo en su archivo; (d) que el 28 de Febrero, 1938, el
tesorero provincia lde la Pampanga, como pagador oficial, dedujo del sueldode
Gomez correspondiente a la segunda mitad de dichomes la cantidad de P2.70
como su parte en la primera prima, aportando la provincia una suma igual como
su contribucion; (e) que la prima fue enviada a la oficina del "Government
Service Insurance System" en Manila, y dicha oficina la recibio el 10 de marzo,
1938, librando el correspondiente recibo al gobierno provincial de la Pampanga;
(f) que el 7 de Marzo, 1938, el tesorero provincial de la Pampanga envio a la
oficina del "Government Service Insurance System," en nombre de la viuda de
Andres Gomez, Adelaida Ocampo, una reclamacion por el importe dela poliza de
seguro en la suma de P1,052, pero la juntadirectiva del Sistema la rechazo por el
fundamento de queAndres Gomez era solo un empleado temporero
temporary bajo las reglas del Servicio Civil, y, por tanto, no era asegurable
cuando murio el 28 de Febrero, 1938; (g) finalmente, que la oficina del
"Government Service Insurance System" devolvio al gobierno provincial de la
Pampanga el importe de la prima pagada, o sea la cantidad de P5.40, por medio
de la libranza de la Tesoreria No. 58162.
La viuda interpuso la presente accion ante el Juzgado de Primera Instancia de la
Pampanga contra la Junta Directiva del "Government Service Insurance System,"
pidiendoel cobro del importe de la poliza. El Juzgado, estimandola defensa de
que Andres Gomez era solo un temporero, sinhaberse cualificado en el servicio
civil mediante el correspondiente examen para merecer un nombramiento como
empleado regular y permanente, y, por tanto, sin derechoa ser asegurado
automaticamente bajo la ley que rige el Sistema, dicto sentencia contra la
demandante, sobrese y endola demanda. De ahi la presente apelacion.
Establecido y convenido que el nombramiento de Gomez era de temporero, la
cuestion que tenemos que resolver essi al tiempo de su muerte tenia tales
cualificaciones quepodia ser considerado como empleado regular y
permanente para los efectos del cobro del importe de su poliza de seguro por la
beneficiaria. Decidimos que si, tenia tales cualificaciones.
Resulta establecido en autos, sin discusion, que Gomez, acogiendose a las
disposiciones del articulo 672 del Codigo Administrativo tal como fue
enmendado por la ley del Commonwealth No. 177, se sometio a examen de
2.ogrado enel servicio civil el 16 de Octubre, 1937, y fue aprobado enaquel
examen, si bien este favorable resultado no se anunciosino despues ya de su
muerte. Es obvio que los efectos de la aprobacion deben retrotraerse a la fecha
del examen. La prueba de la competencia, de la idoneidad del examinando, se
realizo antes de su muerte; por tanto, hay que darle efectividad desde la fecha
en que tuvo lugar laprueba. Hasta parece superfluo que esto se discuta.
Sin embargo, se arguye que no cabe dar efecto retroactivo a la aprobacion de
Gomez en su examen, puesto que el articulo 663 (d) del Codigo Administrativo
Revisado, tal como ha sido enmendado, dispone que "a period of trial service
shall be required before appointment or employmentis made permanent;" y es
claro que Gomez, habien domuerto despues del examen y antes de que su
resultado seanunciara, mal pudo ser sometido a dicho periodo de pruebapor 6
meses.
Esta manera de interpretar la ley tiene el defecto deser demasiado literal, y "la
letra mata (a veces), mientrasque el espiritu vivifica." Tengase en cuenta que
Gomez habia servido como tasador provincial delegado por 25 aos
consecutivos hasta el dia de su muerte. Cuando portan largo tiempo pudo
superar la prueba de su competencia, en el ejercicio cotidiano de sus deberes,
hay que presumir que sus superiores estaban satisfechos de su idoneidad. Por
tanto, el periodo de prueba de 6 meses no rezabacon el. Para los efectos, por lo
menos, de la validez de su poliza de seguro, se debe concluir que el exito desu
examen le capacitaba y cualificaba automaticamente para un nombramiento
regular y permanente desde la fechade dicho examen. Por tanto, el era
asegurable y, dehecho, estaba asegurado en el dia de su muerte, bajo
77

losterminos de la Ley No. 186. Esta conclusion es tanto masjusta cuanto que el
"Government Service Insurance System" acepto practicamente la prima pagada,
librando porella el correspondiente recibo.
Nos sentimos perfectamente autorizados para interpretarla ley lo mas
liberalmente posible, toda vez que, prescindiendo ya de que en el presente caso
se trata de la viuday familia de un pequeo empleado, es evidente que el
Sistema Nacional de Seguro de Vida del Gobierno se hacreado para fines sociales
y humanitarios, siendo parte deese generoso movimiento universal que tiende a
mejorarcada dia la suerte de los hijos del trabajo mediante la promulgacion en
todos los paises cultos y civilizados de leyes progresivas y liberales sobre
seguridad social y economica. El articulo 3 de la ley del Commonwealth No. 186
que crea y reglamenta dicho Sistema, dice positivamente que el mismose
establece "en orden a promover la eficiencia y bien estarde los empleados del
Gobierno de Filipinas y reemplazar los sistemas de pensiones actualmente
establecidos . . .". Como se sabe, aquellos sistemas de pensioneseran
fundamentalmente de beneficencia, tanto que si noha sido posible continuarlos
era porque el gobierno no disponia de tanto dinero para capitalizarlos y sostener
lospor si solo. Asi que se ha ideado el Sistema Nacional de Seguro sobre bases
mas cientificas y con adecuadas aportaciones de los empleados mismos. Con
todo, es innegableque el sucesor ha heredado parte de los rasgos beneficos y
humanitarios de sus antecesores.
En meritos de lo expuesto, se revoca la sentencia del Juzgado y se condena a la
demandada y apelada a pagara la demandante y apelante la suma de P1,052,
importe de la poliza de seguro del difunto Andres A. Gomez, maslos intereses
legales desde la interposicion de la demanda, y las costas del juicio. Asi se
ordena.
Moran, Pres., Paras, Feria, Pablo, Hilado, Bengzon, Padilla, and Tuason , MM., estan
conformes.

Separate Opinions
PERFECTO, J., concurring:
We agree with the decision penned by Mr. Justice Briones, reversing the
judgment of the lower court and ordering defendant to pay plaintiff the
insurance of her deceased husband Andres Gomez in the sum of P1,052,
including legal interest and costs. Under the provisions of Commonwealth Act
No. 177, amending the Civil Service Law, Andres Gomez was a regular and
permanent employee of the government, because he had been occupying for
twenty-five years a classified position and had passed the examination as
provided for by the above mentioned act, the pertinent, provisions of which are
as follows:
No person shall be appointed to or employed in any position in the classified
service until he passes the examination provided therefor. Provided,
however, that persons now regularly and permanently employed in any branch
or subdivision of the Government, whose positions are or may hereafter be
classified by operation of the Constitution and of this Act may, unless separated
by proper authority, continue in the service for the term of three years from
January first, nineteen hundred and thirty-seven; Provided, that they shall be
given three chances to qualify; and Provided, finally, That all employees who,
upon the approval of this act, have rendered ten or more years of continuous
and satisfactory service in a classified position or in any position which may be
subject to classification, shall be given practical examination in which their
length of service shall be accorded preferred consideration.
The deceased, having rendered ten or more years of continuous and satisfactory
service in a classified position and passed the corresponding examination,
became a permanent and regular employee and his membership in the insurance
system became compulsory under section 4 (g), of Commonwealth Act No. 186,
known as the Government Service Insurance Act.
Having had the privilege of initiating the amendment to the Civil Service Law
which was later embodied in Commonwealth Act No. 117, as above quoted, we
are in a position to state, as member of the National Assembly which approved
the act and as author of the provisions, that the same covered perfectly the case
of Andres Gomez to make him a permanent and regular employee.
We are also in a position to state that the main purpose of the Government
Service Insurance Act was to replace the several pension laws then effective, in
order to eliminate the discrimination resulting from the fact that, while a small
number of government employees were enjoying the benefits of special pension
laws, those benefits were denied to a great majority of government employees.
To uphold the position taken by the lower court is to deprive the widow of
Andres Gomez of the benefits clearly intended for her by Commonwealth Act
No. 186.
Even if Andres Gomez had been only a temporary employee he was still
insurable. The fact that membership in the Government Insurance System is
compulsory upon permanent and regular employees, is no reason to deprive
other employees of the benefits of the system as, otherwise, it will defeat the
very social purpose for which it was established by the National Assembly.
The system was established "in order to promote the efficiency and welfare of
the employees of the Government of the Philippines and to replace the present
pension systems established," as stated in section 3 of Commonwealth Act No.
186. There is absolutely no principle of justice which can justify circumscribing
the benefits of the system only to permanent and regular employees, when it
was expressly intended for all employees, and to continue the hateful
discrimination which compelled the National Assembly to abolish the then
existing special pension systems. If there should be any doubt on this question,
the doubt should be resolved in favor of the general intent of the law.
Courts are justified to do violence to the words of the statute to carry out "the
judge-discovered intent" (Judge Baldwin, The American Judiciary, p. 84); that
construction of statutes must be done to avoid absurdity, and that general
terms must not lead to "injustice, oppression, or an absurd consequence,"
because "the reason of the law in such cases should prevail over its letter" (The
Church of the Holy Trinity vs. U.S., 36 Law. ed. [U.S.], 232); that our judges can go
78

further to diagnose the intent of the law and give it fulgour and effect and that
the judge-made law is recognized in the Philippines (In re Shoop, 41 Phil., 213);
that lawyers who deny the power of courts to legislate in the Philippines are
sadly mistaken (Bocobo, The Cult of Legalism); that courts are "the great
laboratories of the law" (Justice Cardozo, The Nature of Judicial Process); while
Holland said in The Elements of Jurisprudence:
The State in general has two, and only two, articulate organs for law-making
purposes the Legislature and the Tribunals. The first organ makes new law,
the second attests and confirms old law, though under cover of so doing it
introduces many new principles.
. . . For statutes and judicial decisions alike come into being and grow out of the
same common roots, the supreme good of society. It is a consecrated legal
axiom that the reason of the law is the life of the law. The reason lies in the soil
of the common welfare." (Bocobo, Cult of Legalism.)
. . . Consequently, if the judge limits himself to the printed page of the statute,
and does not go out into the open spaces o factuality and dig down deep into
this common soil, he fails in his noble calling, and becomes subservient to
formalism. (Bocobo, Cult of Legalism.)
In Samuels, Special C.J., in Wortham vs. Walker Tex. ([1939], 127 S.W. [2nd], 1138,
1150), we have the following liberal construction of the law:
A liberal interpretation of a statute which denies to it the historical
circumstances under which it has drawn is to make mummery of its provisions.
A statute should not be construed in a spirit of detachment as if it were a
protoplasm floating around a space . . .. "Generally it may be said that in
determining the meaning, intent, and purpose of a law or constitutional
provisions, the history of the times out of which it grew and to which it may be
rationally supposed to bear some direct relationship, the evils intended to be
remedied, and the good to be accomplished are proper subjects of inquiry" . . ..
Law is not a water-tight compartment sealed or shut off from the contract with
the drama of life which unfolds before our eyes. It is in no sense a cloistered
realm but a busy state in which events are held up to our vision and touch at our
elbows.
If the above principles of interpretation are not enough in support of the theory
that all employees of the government are entitled to the benefits of the
Government Insurance System, there is the principle of social justice embodied
in the Constitution which supports the position, and with more emphasis if we
take into consideration the fact that Commonwealth Act No. 186 was enacted
after the Constitution came into effect.
Is the mandate addressed only to the legislative department? No: it is meant for
the three departments; legislative, executive, and judicial, because the latter
two are no less the agencies of the State than the first. For what use would it be
for the National Assembly to pass laws calculated to enhance social justice if the
executive officials should enforce them in such a way, and the courts should give
them such an interpretation, as to defeat social justice?
Certainly, this principle of social justice in our Constitution as generously
conceived and so tersely phrased, was not included in the fundamental law as a
mere popular gesture. It was meant to a vital, articulate, compelling principle of
public policy. It should be observed in the interpretation not only of future
legislation, but also of all laws already existing on November 15, 1935. It was
intended to change the spirit of our laws, present and future. Thus, all the laws
which on the great historic event when the Commonwealth of the Philippines
was born, were susceptible of two interpretations strict or liberal, against or
in favor of social justice, now have to be construed broadly in order to promote
and achieve social justice. This may seem novel to our friends, the advocates of
legalism, but it is the only way to give life and significance to the above-quoted
principle of the Constitution. If it was not designed to apply to these existing
laws, then it would be necessary to wait for generations until all our codes and
all our statutes shall have been completely changed by removing every provision
inimical to social justice, before the policy of social justice can become really
effective. That would be an absurd conclusion. It is more reasonable to hold that
this constitutional principle applies to all legislation in force on November 15,
1935, and all laws thereafter passed. (Bocobo, Cult of Legalism.)
Law, being a manifestation of social culture and progress, must be interpreted
taking into consideration the stage of said culture and progress including all the
concomitant circumstances. It must be interpreted by drawing inspiration, not
only from the teachings of history, from precedents and traditions, but from
inventions of science, discoveries of art, ideals of thinkers, dreams of poets, that
is, all the sources from which may spring guidance and help to form a truthful
idea of the human relations regulated by the law to be interpreted and applied.
Broadmindedness and vision are essential for men presiding tribunals to reach
correct and just conclusions.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-42874 October 22, 1935
THE INSULAR LIFE ASSURANCE CO., LTD., plaintiff-appellant,
vs.
MARIA NARCISA SUVA, as administratrix of the intestate estate of Benito
Patrocinio Suva, defendant-appellee.
FELICIDAD CRUZ, intervenor-appellant,
MARIA, NARCISA SUVA, intervenor-appellee.
Araneta, Zaragoza and Araneta for plaintiff.
Jose Gutierrez David for intervenors.

BUTTE, J.:
This is an appeal from a judgment of the Court of First Instance of Manila in an
action brought by the Insular Life Assurance Co., Ltd,, for the cancellation of two
policies each issued and delivered by it upon the life of Benito Patrocinio Suva,
79

now deceased. The action was originally brought by against the administratrix of
the estate of the insured, but by leave of court, Maria Narcisa Suva, in her own
right, and Felicidad Cruz filed their interventions claiming to be the beneficiaries
of the two policies involved in this action.
The first of the policies, numbered 47726, bears date of December 1, 1932, and
names as beneficiary Isabel Simbulan, the wife of the insured. The second of the
said policies, numbered 48819, bears date of February 1, 1933, and names as
beneficiary the appellee, Maria Narcisa Suva, sister of the, insured. The company
acknowledges having received the premium due on said policies for the first
year and tenders the return of the same in its petition. The intervenors, besides
praying for judgment for the amount due on said policies, also pray for P1,000
each as damages.
The ground alleged by the plaintiff for the cancellation of said policies is that the
insured made false statements as to the past and present state of his health in
his applications which, by the terms of the policies themselves, are made a part
of the contract. The applicant was examined on October 17, 1932, by Dr. G.
Ocampo, one of the physicians of the company. He was again examined on
December 28, 1932, by Dr. M. Llora, a physician of the company sent out from
the home office for that purpose. In connection with his first application for
policy No. 47726, among the numerous questions with relation to specific
diseases, the following question and answers appear in the report of Dr.
Ocampo (Exhibit B):
Ha padecido V. alguna vez de las siguientes enfermedades . . . del pulmon,
pleuresia, pulmonia, asma? No.
Ha escupido V. sangre? Por que causa? No. No doubt is raised as to the
correctness of any other statements of the applicant.
The report of Dr. Ocampo is a detailed account of the complete examination
made by him. Item No. 30 of his report is as follows: "Encuentra V. despues de
una dadosa interrogacion y reconocimiento, algun sintoma de pedecimiento
actual o anterior . . . de los pulmones? to which the doctor answered "No". Item
33 of his report is as follows: "Ha revisado V. cuidadosamente todas las
contestaciones de este reconocimiento y estil V. seguro de que son claras y
completas?" to which the doctor answered "Si". Item 34 is as follows: "Cree V.
que los informes dados por el solicitante son verdaderos y completos en todos
los conceptos?" to which the doctor answered "Si". Item 35 is as follows:
"Recomienda V., como representante fiel de la compaia, que se acepte este
riesgo como excelente bueno, o que no se acepte?" to which the doctor
answered "Si, que se acepte como excelente."
On December 28, 1932, when the applicant was examined by Dr. M. Llora, he was
asked the same questions as were put to him by Dr. Ocampo. In the questions
relating to his clinical history he was asked: "Have you ever suffered from any
ailment or disease of (c) the lungs, pleurisy, pneumonia or asthma? The applicant
answered "Yes, trancazo 1918" and (h) "Have you ever spat blood? What was it
due to?" to which the applicant answered "No". No other answers made by him
are called in question in this litigation.
In Dr. Llora's detailed report which appears on the back of said application,
Exhibit C, appear the following:
Item 30: Do you find after careful inquiry and physical examination any evidence
of past or present disease . . . (d) of the lungs?
Answer: No.
Item 34: Do you believe the party has given full and true information in all
respects?
Answer: Si
Item 35: Would you classify applicant as first class, good, average or poor risk?
Answer Creo que es acceptable. His report concludes with the following
certificate:
I CERTIFY that I have carefully examined Benito Patrocinio Suva of Arayat,
Pampanga, in private and in not in the presence of any third person, at Arayat,
Pampanga, his 28th day of December, 1932, at 5:15 o'clock P.M. for an insurance
of P5,000 for 20 C.P. years on the applicant's life; that I have asked each
question exactly as set forth on the other side of this sheet and that the
applicant's answers thereto are in my handwriting, and are exactly as made by
the applicant to me and that the applicant signed them in my presence.
(Sgd.) M. LLORA. Med. Ex.
The insured died of pulmonary tuberculosis in the Chinese General Hospital in
Manila on September 23, 1933.
The substance of the plaintiff's cause of action is that the statements made by
the insured in his applications as above quoted, were false and that the applicant
was not in good health either at the time he presented his applications or on the
date when said policies were delivered.lawphil.net
Upon this issue of fact the learned trial judge made a complete and careful
analysis of the evidence. We accept his conclusions as to the credibility of the
witnesses. We have carefully re-examined the entire record and see no reason to
disturb his findings of fact. It seems to us the company's physicians were entirely
warranted in their conclusion that the insured was an acceptable risk. The
preponderance of the evidence discloses that the applicant, a young man 27
years of age and recently married, was devoted to vigorous athletic sports and
regularly carried on his business as a farmer and contractor up to May, 1933.
In reply to the question in the printed application, "Are you in good health? he
replied "Yes". If two qualified physicians, not selected by him, independently
examine a man with critical attention and in the interest of their employer, the
insurance company, and they pronounce him, to be in good health. We should
find it difficult to declare that he knowingly made a false statement when he said
he believed the same thing himself. "Good health" is a relative term. A person
with sound body may honestly believe himself to be in "good health" although
at the moment he may have a terrific headache, or a running cold, or an attack
of diarrhea, or indigestion, or any other of a host of minor common ailments
which may possibly develop later into a serious illness. A hemorrhage may be
due to any one of a variety of causes, grave or slight, having no necessary
80

relation with pulmonary tuberculosis. Even if we gave credence to the testimony
that Benito Patrocinio Suva spat blood on one occasion in May, 1932, and
another in August, 1932, there is no evidence whatever in the record as to the
cause of the alleged hemorrhage. We have no right to jump at the conclusion
that it was grave and could only be due to pulmonary tuberculosis, especially as
it left no trace, for Drs. Ocampo and Llora found nothing wrong with the
applicant in October or December, 1932. No serious illness prior to May, 1933, is
established by the evidence. We agree with the trial court that the applicant was
in good health when the policies were delivered and that it is not proved that he
made any material false statement in his said applications for insurance.
The appellant company complains that the trial court failed to consider the
death certificate signed by Dr. Tablante. This certificate (Exhibit J) states that
Suva died in the Chinese General Hospital of Manila on September 23, 1933; that
the cause of the death was pulmonary tuberculosis: that the duration of the
disease was one year and five months. The source of information of the latter
statement is not mentioned. Suva entered the hospital in Au gust, 1933, and the
certificate itself recites that Dr. Tablante treated him only from August 18, 1933,
to September 23, 1933. The plaintiff did not offer Dr. Tablante as a witness and
none of the hospital records were put in evidence. The statement of Dr.
Tablante as to the duration of the disease is apparently hearsay and, under the
circumstances, we cannot give the recital in the certificate of death the
conclusiveness which the plaintiff claims for it. (U.S. vs. Que Ping, 40 Phil., 17.)
Felicidad Cruz appeals from that part of the judgment which holds that the
insured, Benito Suva, having renounced in his application the right to change the
beneficiary in policy No. 47726, his wife, Isabel Simbulan, acquired a vested
interest in the policy which neither the insured nor the company could take from
her without her consent. The conclusion of the trial court is sustained by our
decision in the case of Gercio vs. Sun Life Assurance Co. of Canada (48 Phil., 53)
and the American authorities therein cited. We think that the attempted change
of beneficiary made by the insured on August 16, 1933, and endorsed by the
company on the back of the policy on August 24, 1933, was due to a mutual
mistake. The application in which the insured, over his personal signature,
renounced the right to change the beneficiary, should prevail over the printed
phrase "WITH RIGHT OF REVOCATION" which occurs in the policy. It is to be
noted that the application itself is made a part of the contract.
In view of the premises, the judgment is affirmed with costs against the
appellant insurance company as to the appellee Maria Narcisa Suva and without
special pronouncement as to costs in the appeal of Felicidad Cruz.
Malcolm, Imperial, Goddard, and Diaz, JJ., concur.
FILIPINAS COMPAIA DE SEGUROS, petitioner, vs. CHRISTERN HUENEFELD and CO., INC.,
respondent.

G.R. No. L-2294
May 25, 1951


FACTS:

Christern Huenefeld Corporation bought a fire insurance policy from Filipinas Compania
de Seguros to cover merchandise contained in a building. During the Japanese military
occupation, this same merchandise and the building were burned, so Huenefeld filed a
claim under the policy.

However, Filipinas Compania de Seguros refused to pay alleging that the policy had
ceased to be in force when the United States declared war against Germany. Filipinas
Compania contended that although organized and created under Philippine laws,
Huenefeld is a German subject, and hence, a public enemy, since majority of its
stockholders are Germans. On the other hand, Filipinas Compania is under American
jurisdiction.

The Director of Bureau of Financing, Philippine Executive Commission ordered Filipinas
Compania to pay, so Filipinas Compania did pay. The case at bar is about the recovery of
that sum paid.

ISSUES:
1. Whether or not Christern Huenefeld is a German subject.
2. Whether the fire insurance policy is enforceable against an enemy state.

HELD:

1. There is no question that majority of the stockholders of the respondent corporation
were German subjects. This being so, we have to rule that said respondent became an
enemy corporation upon the outbreak of the war between the United States and
Germany.


2. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy.

The respondent having become an enemy corporation on December 10, 1941, the
insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine
corporation) had ceased to be valid and enforcible, and since the insured goods were
burned after December 10, 1941, and during the war, the respondent was not entitled to
any indemnity under said policy from the petitioner. However, elementary rules of justice
(in the absence of specific provision in the Insurance Law) require that the premium paid
by the respondent for the period covered by its policy from December 11, 1941, should be
returned by the petitioner.
81

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-l0874 January 28, 1958
RUFINO D. ANDRES, plaintiff-appellant,
vs.
THE CROWN LIFE INSURANCE COMPANY, defendant-appellee.
Esteban Aguinaldo and Santiago D. Andres for appellant.
Nicodemus L. Dasig for appellee.
REYES, J.B.L., J.:
On April 20, 1952, Rufino D. Andres filed a complaint in the Court of First Instance of Ilocos
Norte against the Crown Life Insurance Company for the recovery of the amount of
P5,000, as the face value of a joint 20-year endowment insurance policy issued in favor of
the plaintiff Rufino D. Andres and his wife Severa G. Andres on the 13th of February, 1950,
by said insurance company. On Jun 7, 1951, Rufino Andres presented his death claim as
survivor-beneficiary of the deceased Severa G. Andres, who died May 3, 1951. Payment
having been denied by the insurance company on April 20, 1952, this case was instituted.
Defendant Company filed its answer in due time disclaiming liability and setting forth the
special defense that the aforementioned policy had already lapsed. Later, on March 25,
1954, the parties submitted the case for decision by the lower court upon a stipulation of
facts, fully quoted hereunder:
1. That on October 20, 1949, plaintiff and Severa G. Andres filed an application
for insurance No. 536,423, which are marked as common Exhibits "1" and "l-A",
respectively;
2. That on February 13, 1950, defendant isssued Crown Life Policy No. 536,423 for
the sum of P5,000, in the name of Rufino D. Andres, plaintiff, and Severa G.
Andres, which is hereto marked as common Exhibit "2";
3. That the premiums are to be paid as called for in the policy Exhibit '2", semi-
annually, and the amount of P165.15 for the first semester beginning November
25, 1949 to May 25, 1950 was paid on November 25, 1949, which is hereby
marked as common Exhibit "3", and the premium likewise in the sum of P165.15
for the second semester beginning May 25, 1950 to November 25, 1950, was paid
on June 24, 1950, as evidenced by common Exhibit "3-A"; and the premium for
the third semester beginning November 25, 1950 to May 25, 1951 was not paid;
4. That on January 6, 1951,the defendant, thru Mr. I.B. Melendres, wrote to Mr.
and Mrs. Rufino D. Andres advising them that the said Policy No. 536,423 lapsed
on December 25, 1950 and the amount overdue was P165.15, giving them a
period of sixty (60) days from the date of lapse to file an application for
reinstatement, which letter is made as common Exhibit "4";
5. That on February 12, 1951, the said Mr. I.B. Melendres, branch secretary of the
defendant, wrote Mr. and Mrs. Rufino D. Andres, telling the latter that Policy No.
536,423 was no longer in force and it lapsed on December 25, 1950, which letter
is herewith made as common Exhibit "5";
6. That in the month of February, 1951, plaintiff executed a Statement of Health
which is at the same time an Application for Reinstatement of the aforesaid
policy, which application is herewith made as common Exhibit "6" (Note: Exhibit
"6" is the reverse side of Exhibit "4"). and Severa G. Andres also executed in the
month of February, 1951, an Application for Reinstatement, which Application
for Reinstatement is made as common Exhibit "7";
7. That on February 20, 1951, plaintiff wrote a letter to the defendant and
enclosed therewith a money order for P100, which letter was received by the
defendant on February 26, 1951, wherein it is stated that the balance unpaid is
the sum of P65.15, which letter is hereby made as common Exhibit "8";
8. That on April 14, 1951, the said Mr. I.B. Melendres, as branch secretary for the
defendant; wrote plaintiff advising him that the Home Office has approved the
reinstatement of the lapsed policy, subject to the payment of P65.15 due on
November, 1950 premium, a duplicate original copy of the said letter is hereby
made as common Exhibit "9";
9. That on April 27, 1951, said Mr. I.B. Melendres, branch secretary, again wrote
the plaintiff requesting the remittance of the balance of P65.15 due on the semi-
annual premium for November, 195O, and upon receipt of the said amount,
there will be sent to him the Certificate of Reinstatement of the policy, a
duplicate original copy of the said letter is hereto made as common Exhibit "10";
10. That on May 5, 1951, plaintiff sent a letter to the defendant and enclosed
therewith a Money Order in the amount of P65.00 for the balance due on the
Crown Life Policy No. 536,423, which letter has been received in the office of the
defendant on May 11, 1951, which letter is herewith made as common Exhibit
"11";
82

11. That on May 15, 1951, said Mr. I.B. Melendres wrote a letter to Mr. and Mrs.
Rufino D. Andres, enclosing an Official Receipt for the receipt of P165.15, which
Official Receipt is hereby made as common Exhibit "12", and also enclosed
therewith a Certificate of Reinstatement dated April 2, 1951, which is herewith
made as common Exhibit "13" and the duplicate original copy of the aforesaid
letter dated May 15, 1951 is herewith made as common Exhibit "14", and
premium notice addressed to Mr. and Mrs. Rufino D. Andres, wherein it is shown
that the semi-annual premium in the sum of P165.15 on the said policy would be
due on May 15, 1951, which premium notice is herwith made as common Exhibit
"14-A";
12. That on June 7, 1951, plaintiff presented his Death Claim as survivor-
beneficiary of the deceased Severa G. Andres which has been received in the
office of the defendant on June 11, 1951, which letter is herewith made as
common Exhibit "15", and there were therein enclosed in the said letter an
affidavit dated June 6, 1951 of the plaintiff, which is herewith made as common
Exhibit "15-A", and a Certificate of Death dated May 29, 1951, issued by the Local
Civil Registrar of the municipality of Sarrat, wherein it is shown that Mrs. Severa
G. Andres died on May 3, 1951 of dystocia, second degree, contracted pelvis,
which Certificate of Death is herewith made as common Exhibit "15-B", and a
medical certificate of Dr. R. de la Cuesta, senior resident physician of the Ilocos
Norte Provincial Hospital, dated May 20, 1951, showing the cause of death of the
said deceased, Mrs. Severa G. Andres, which medical certificate is herewith
made as common Exhibit "15-C";
13. That on June 30, 1951, Mr. I.B. Melendres wrote to plaintiff stating
defendant's reasons for its refusal to pay the death claim of the plaintiff which
letter is herewith made as common Exhibit "16", in which there was therein
enclosed a Death Claim Discharge to be signed by the plaintiff but the plaintiff
refused to sign, which Death Claim Discharge is herewith made as common
Exhibit "16-A";
14. That on November 23, 1951, the said Mr. I.B. Melendres wrote plaintiff
enclosing therewith a National City Bank of New York Check No. D-115356 for
P165.00 payable to plaintiff, dated June 21, 1951, an original duplicate copy of
which is herewith made as common Exhibit "17";
15. That on December 1, 1951, the plaintiff wrote defendant company and
enclosed therewith the aforesaid National City Bank of New York Check No. D-
115356 dated June 21, 1951, which letter is herewith made as Common Exhibit
"18", and the check returned to the defendant company as Exhibit "18-A";
16. That with the approval of this stipulation of facts, the parties hereby submit
the same and do hereby request the Honorable Court to give them twenty (20)
days within which to file simultaneously their corresponding memoranda and
another fifteen (15) days for a reply memorandum." (Rec. App., pp. 17-22).
On August 5, 1954, Judge Julio Villamor rendered decision absolving the defendant from
any liability on the ground that the policy having lapsed, it was not reinstated at the time
the plaintiff's wife died. Not satisfied with the decision, plaintiff appealed to the Court of
Appeals, but the appeal was later certified to this Court, for there is no question of fact
involved therein.
As has been correctly stated by the lower court, the resolution of the issues in this case
centers on whether or not policy No. 536423 (Exhibit "2") which has been in a state of
lapse before May 3, 1951, has been validly and completely reinstated after said date. In
other words, was there a perfected contract of reinstatement after the policy lapsed due
to non-payment of premiums?
The stipulation of facts and accompanying exhibits render it undisputable that the original
policy No. 536423 lapsed for non-payment of premiums on December 26, 1950, upon
expiration of the customary 31-day period of grace. The subsequent reinstatement of the
policy was provided for in the contract itself in the following terms:
If this policy lapses, it may be reinstated upon application made within three
years from the date of lapse, and upon production of evidence of the good
health of the injured (and also of the Beneficiary, if the rate of premium depends
upon the age of the Beneficiary), and such other evidence of insurability at the
date of application for reinstatement as would then satisfy the Company to issue
a new Policy on the same terms as this Policy, and upon payment of all overdue
premiums and other indebtedness in respect of this Policy, together with
interest at six per cent, compounded annually, and provided also that no change
has taken place in such good health and insurability subsequent to the date of
such application and before this Policy is reinstated.
As stated by the lower court, the conditions set forth in the policy for reinstatement are
the following: (a) application shall be made within three years from the date of lapse; (b)
there should be a production of evidence of the good health of the insured: (c) if the rate
of premium depends upon the age of the Beneficiary, there should likewise be a
production of evidence of his or her good health; (d) there should be presented such
other evidence of insurability at the date of application for reinstatement; (e) there
should be no change which has taken place in such good health and insurability
subsequent to the date of such application and before the policy is reinstated; and (f) all
overdue premiums and other indebtedness in respect of the policy, together with interest
at six per cent, compounded annually, should first be paid.
The plaintiff-appellant did not comply with the last condition; for he only paid P100 (on
account of the over due semi-annual premium of P165.15) on February 20, 1951, before his
wife's death (Stipulation, par. 7) ; and, despite the Company's reminders on April 14 and
83

27, he remitted the balance of P65 on May 5, 1951 (received by the Company's agency on
May 11), two days after his wife died. On the face of such facts, the Company had the right
to treat the contract as lapsed and refuse payment of the policy.
Appellant, however, contends that the condition regarding payment of the premium was
waived by the insurance Company by its letters (signed by I. B. Melendres, cashier)
Exhibits 4 and 5 wherein the Company manifested to appellant:
If you can not pay the full amount immediately, send as large an amount as
possible and advise us how soon you expect to be able to pay the balance. Every
consideration will be given to your request consistent with the company's
regulations (Exhibit 4).
If you are unable to cover this amount in full, send us as big an amount as you
are able and we will work out an adjustment most beneficial to you. (Exhibit 5)
We see nothing in these expressions that would indicate an intention on the insurer's part
to waive the full payment of the overdue premium as prerequisite to the reinstatement of
the lapsed policy, considering the well settled rule that a waiver must be clear and
positive, and intent to waive shown clearly and convincingly (Fernandez vs. Sebido, 70
Phil. 151, 159; Lang vs. Sheriff
*
49 Off. Gaz. 3323, 3329; Jocson vs. Capitol Subdivision, Inc.
G.R. L-6573, February 28, 1955). The promise to give plaintiff's case every consideration
does not import any decision to renounce the insurer's rights; and as to the "working out
of an adjustment most beneficial" to the insured, the proposal is obviously so vague and
indefinite as to require further negotiations between the parties, for their criteria might
differ as to what would be the most beneficial arrangement.
Upon the other hand, the subsequent letters of the insurance Company (Exhibits 9 and
10) patently indicated that the Company insisted on the full payment of the premium
before the policy was reinstated.
We take this opportunity of advising you that our Home Office has approved the
reinstatement of your lapsel policy subject to the payment of the balance of
P65.15 due on your November 1950 premium. Kindly remitthis amount in order
that you may once more enjoy the benefits of insurance protection" (Exibit 9,
April 14, 1951).
We may now reinstate your policy if you will kindly remit to us the balance of
P65.15 due on your semi-annual premium for November, 1950. Please send us
this amount by return mail and upon its receipt we will in turn send the
Certificate of Reinstatement of your policy, thus rendering it once again in full
force and effect, (Exhibit 10, April 21, 1951) (Emphasis supplied).
Clearly the Company did not consider the partial payment as sufficient consideration for
the reinstatement. Appellant's failure to remit the balance before the death of his wife
operated to deprive him of any right to waive the policy and recover the face value
thereof.
This Court, in the case of James McGuire vs. The Manufacturer's Life Insurance Co. (87
Phil,. 370, 48 Off. Gaz. [1], 114), said.
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 Company has the
right to deny the reinstatement if it is not satisfied as to the insurability of the
insured and if the latter does no pay all overdue premium and all other
indebtedness to the Company. 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.
Wherefore, finding no error in the judgment appealed from, we hereby affirm the same,
with costs against appellant. So ordered.
Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Endencia,
and Felix, JJ.,concur.
Sun Life v Ingersoll G.R. No. 16475 November 8, 1921
J. Street

Facts:
Sun Life issued a policy on Dy Pocos life for US$12,500. The contract stipulated that it
would be payable to the said assured or his assigns on the 21st day of February, 1938, and
if he should die before that date, then it would be given to his legal representatives.
The payment of a stipulated annual premium during the period of the policy, or until
the premiums had been completely paid for twenty years,
Dy Poco, was adjudged an insolvent by the trial court and Frank B. Ingersoll was
appointed assignee of his estate. Poco died, and Tan Sit, was appointed as the
administratrix of his intestate estate.
Both Ingersoll, as assignee, and Tan Sit, as administratix of Dy Poco's estate, asserted
claims to the proceeds of the policy. The lower court found that Ingersoll had a better
right and ordered Sun Life to pay.
84

The polic stipulated that after the payment of three full premiums, the assured could
surrender the policy to the company for a "cash surrender value." Butno more than two
premiums had been paid upon the policy up to the time of the death of the assured.
Hence this provision had not become effective. It must therefore be accepted that this
policy had no cash surrender value, at the time of the assured's death, either by contract
or by convention practice of the company in such cases.

Issue:
WON Ingersoll, as assignee, has a right to the proceeds of the insurance

Held: No. Sunlife must pay to the administratrix.

Ratio:
The property and interests of the insolvent which become vested in the assignee of the
insolvent are specified in section 32 of the Insolvency Law.
Sec 32 declares that the assignment to be made by the clerk of the court "shall operate to
vest in the assignee all of the estate of the insolvent debtor not exempt by law from
execution."
Moreover, by section 24, the court is required, upon making an order adjudicating any
person insolvent, to stay any civil proceedings pending against him; and it is declared in
section 60 that no creditor whose debt is provable under the Act shall be allowed, after
the commencement of proceedings in insolvency, to prosecute to final judgment any
action therefor against the debtor. In connection with the foregoing may be mentioned
subsections 1 and 2 of section 36, as well as the opening words of section 33, to the effect
that the assignee shall have the right and power to recover and to take into his
possession, all of the estate, assets, and claims belonging to the insolvent, except such as
are exempt by law from execution.
These provisions clearly evince an intention to vest in the assignee, for the benefit of all
the creditors of the insolvent, such elements of property and property right as could be
reached and subjected by process of law by any single creditor suing alone. "leviable
assets" and "assets in insolvency" are practically coextensive terms. Hence, in
determining what elements of value constitute assets in insolvency, the court is at liberty
to consider what elements of value are subject to be taken upon execution, and vice
versa.
Section 48 of the Insolvency Law, didnt declare items from the ownership of which the
assignee is excluded. Moreover, all life insurance policies are declared by law to be
assignable, regardless of whether the assignee has an insurable interest in the life of the
insured or not.
The assignee in insolvency acquired no beneficial interest in the policy of insurance in
question; that its proceeds are not liable for any of the debts provable against the
insolvent in the pending proceedings, and that said proceeds should therefore be
delivered to his administratrix.
In re McKinney: no beneficial interest in this policy had ever passed to the assignee over
and beyond what constituted the surrender value, and that the legal title to the policy
was vested in the assignee merely in order to make the surrender value available to him.
The conclusion therefore was that the assignee should surrender the policy upon
the payment to him of said value, as he was in fact directed to do.
A surrender value of a policy "arises from the fact that the fixed annual premiums is much
in excess of the annual risk during the earlier years of the policy, an excess made
necessary in order to balance the deficiency of the same premium to meet the annual risk
during the latter years of the policy. This is the practical, though not the legal, relation of
the company to this fund. "Upon the surrender of the policy before the death of the
assured, the company, to be relieved from all responsibility for the increased risk, which is
represented by this accumulating reserve, could well afford to surrender a considerable
part of it to the assured, or his representative. A return of a part in some form or other is
now Usually made."
The stipulation providing for a cash surrender value is a comparatively recent innovation
in life insurance. Furthermore, the practice is common among insurance companies even
now to concede nothing in the character of cash surrender value, until three full
premiums have been paid, as in this case.
The courts are therefore practically unanimous in refusing to permit the assignee in
insolvency to wrest from the insolvent a policy of insurance which contains in it no
present realizable assets.
GREPALIFE vs. CA AND LEUTERIO
G.R. No. 113899
October 13, 1999
FACTS: A contract of group life insurance was executed between petitioner Grepalife and
DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
85

Leuterio, a physician and a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form,. 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?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
Grepalife then issued a Certificate, as insurance coverage of Leuterio, to the extent of his
DBP mortgage indebtedness amounting to P86,200.00
Later, Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted
a death claim to Grepalife. Grepalife denied the claim alleging that. Leuterio was not
physically healthy when he applied for an insurance coverage. Grepalife insisted that
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.
Tthe widow of the. Leuterio, respondent Medarda, filed a complaint with the RTC, against
Grepalife for Specific Performance with Damages. During the trial, Dr. 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 Leuterio complained of
headaches presumably due to high blood pressure. The inference was not conclusive
because Leuterio was not autopsied, hence, other causes were not ruled out.
The trial court rendered a decision in favor of respondent widow and against Grepalife.
The CA sustained the trial courts decision. Hence, the present petition.
ISSUE:

1. who is the proper party to bring the suit, the widow or the mortgagee (DBP)?

2. WON there was concealment as to justify Grepalifes non-payment of the insurance
proceeds

HELD: petition denied

1. 1. WIDOW

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. 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.
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.
Sec. 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.
86

the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does
not make the mortgagee a party to the contract.
Sec. 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.
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.
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.
2. 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.

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
On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. Hence, the statement of the physician
was properly considered by the trial court as hearsay.
The CAs stand is that contrary to appellants allegations, there was no sufficient proof
that the insured had suffered from hypertension.

Appellant insurance company had failed to establish that there was concealment made by
the insured, hence, it cannot refuse payment of the claim

The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. 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. 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. 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. 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.
87

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.
However, we noted that the CA decision was promulgated in 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 on the mortgage. The proceeds now rightly belong
to Leuterios heirs represented by his widow.
GREPALIFE V. CA
89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr
endowment policy for 50T on the life of his one year old daughter Helen Go.
> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon,
the branch manager of Grepalife-Cebu. Mondragon then typed the data on the
application form which was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued to him.
The binding receipt contained the following provision: If the applicant shall not have been
insurable xxx and the Company declines to approve the application, the insurance applied for
shall not have been in force at any time and the sum paid shall be returned to the applicant
upon the surrender of this receipt.
> Mondragon wrote on the bottom of the application form his strong recommendation
for the approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving
the insurance application of Ngo for the simple reason that the 20yr endowment plan is
not available for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the approval of
the endowment plan on the life of Helen, adding that Grepalife was the only insurance
company NOT selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo
filed a claim with Gepalife, but the latter denied liability on the ground that there was no
contract between the insurer and the insured and a binding receipt is NOT evidence of
such contract.

Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life
insurance.

Held:
NO.
The binding receipt in question was merely an acknowledgement on behalf of the
company, that the latters branch office had received from the applicant, the insurance
premium and had accepted the application subject for processing by the insurance
company, and that the latter will either approve or reject the same on the basis of
whether or not the applicant is insurable on standard rates.

88

Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt
had never became on force at any time, pursuant to par. E of the said receipt. A binding
receipt is manifestly merely conditional and does NOT insure outright. Where an
agreement is made between the applicant and the agent, NO liability shall attach until the
principal approves the risk and a receipt is given by the agent.

The acceptance is merely conditional, and is subordinated to the act of the company in
approving or rejecting the application. Thus in life insurance, a binding slip or binding
receipt does NOT insure by itself.