Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15895

November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave
judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the
manager of the company's Manila office and was given a receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia solicitada por dicho
Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina Central de la Compaia.
The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26,
1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received
notice was sent by the Manila office of Herrer that the application had been accepted, is a disputed point, which will be
discussed later.) On December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A.
Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day
the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on
December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of acceptance of his
application. To resolve this question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial testified that he
prepared the letter introduced in evidence as Exhibit 3, of date November 26, 1917, and handed it to the local manager,
Mr. E. E. White, for signature. The witness admitted on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on November 26, 1917. He said that on the same day he
signed a letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after being signed, were sent to
the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had every actually
been placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For
the defense, attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr.
Herrer mentioned his application for a life annuity, and that he said that the only document relating to the transaction in his
possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone through
the effects of the deceased and had found no letter of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his
application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the
ordinary channels for transmission, but as far as we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be applied to the facts.
In order to reach our legal goal, the obvious signposts along the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the Code of Commerce
and the Civil Code. In the Code of the Commerce, there formerly existed Title VIII of Book III and Section III of Title III of
Book III, which dealt with insurance contracts. In the Civil Code there formerly existed and presumably still exist, Chapters
II and IV, entitled insurance contracts and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915,
there was, however, in force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The
Act expressly repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The law of
insurance is consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be followed in order that
there may be a contract of insurance. On the other hand, the Civil Code, in article 1802, not only describes a contact of
life annuity markedly similar to the one we are considering, but in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil Code provides that "In matters which are governed by special
laws, any deficiency of the latter shall be supplied by the provisions of this Code." On the supposition, therefore, which is
incontestable, that the special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article
1262 providing that "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the
place where the offer was made." This latter article is in opposition to the provisions of article 54 of the Code of
Commerce.
If no mistake has been made in announcing the successive steps by which we reach a conclusion, then the only duty
remaining is for the court to apply the law as it is found. The legislature in its wisdom having enacted a new law on
insurance, and expressly repealed the provisions in the Code of Commerce on the same subject, and having thus left a
void in the commercial law, it would seem logical to make use of the only pertinent provision of law found in the Civil code,
closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to
his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement
avoids uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, let it be
noticed that it is identical with the principles announced by a considerable number of respectable courts in the United
States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said,
completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the
control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code
providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his
knowledge. The pertinent fact is, that according to the provisional receipt, three 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; (2) there had
to be approval of the application by the head office of the company; and (3) this approval had in some way to be
communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept
the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to
the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and
delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and
mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it
could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to
appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee
unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22 C.J., 96, and 49 L. R.
A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved
satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with legal interest
from November 20, 1918, until paid, without special finding as to costs in either instance. So ordered.
Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.
Johnson, J., dissents.
Enriquez v. SunLife- Insurance Policy
41 PHIL 269
Facts:
> On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity.
> 2 days later, he paid the sum of 6T to the companys anager in its Manila office and was given a receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date, the Manila office
prepared a letter notifying Herrer that his application has been accepted and this was placed in the ordinary channels of
transmission, but as far as known was never actually mailed and never received by Herrer.
> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this action to recover the 6T paid
by the deceased.
Issue:
Whether or not the insurance contract was perfected.
Held:
NO.
The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the acceptance of the
application ever came to the knowledge of the applicant. An acceptance of an offer of insurance NOT actually or
constructively communicated to the proposer does NOT make a contract of insurane, as the locus poenitentiae is ended
when an acceptance has passed beyond the control of the party.
NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the insurance company, and
if after a certain period of time the insured is stil living, he is entitled to regular smaller amounts for the rest of his life.
Examples of Life annuity are pensions. Life Insurance on the other hand, the insured during the period of the coverage
makes small regular payments and upon his death, the insurer pays a big amount to his beneficiaries.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As
the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid
premiums and interest thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without
the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one
entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced
an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was
entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial
and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co.
Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for
accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and
Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his commonwife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal wife;
4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the
police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life
Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6)
that in view ofthe adverse claims the insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the
policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the
insured made reservation to change the beneficiary but although the insured made the option to change the
beneficiary, same was never changed up to the time of his death and the wife did not have any opportunity to

write the company that there was reservation to change the designation of the parties agreed that a decision be
rendered based on and stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of
this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to
the estate of the deceased insured. The trial court held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for
adultery or concubinage is not essential in order to establish the disqualification mentioned
therein. Neither is it also necessary that a finding of such guilt or commission of those acts be
made in a separate independent action brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of evidence in the same proceeding (the action
brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time defendant Carponia
T. Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to
exist and that it is only necessary that such fact be established by preponderance of evidence in
the trial. Since it is agreed in their stipulation above-quoted that the deceased insured and
defendant Carponia T. Ebrado were living together as husband and wife without being legally
married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado
was valid and still existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the
policy in question and as such she is not entitled to the proceeds of the insurance upon the death
of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court
certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the
Insurance Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in
whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest"
highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is
personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will
be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil
law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of
insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this
Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by
the general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the
person who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of
donation;
Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse
of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in
the same action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary
in the life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family
There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that
court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants
because of and undue and improper pressure and influence upon the donor, a prejudice deeply
rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que
han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No
Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et
uxorem); then there is very reason to apply the same prohibitive policy to persons living together
as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater influence of one party over the other, so that
the danger that the law seeks to avoid is correspondingly increased. Moreover, as already
pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations
should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So long
as marriage remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other
conclusion cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a
failure to apply a laudable rule to a situation which in its essentials cannot be distinguished.
Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted
notion of what is just and what is right would be nullified if such irregular relationship instead of
being visited with disabilities would be attended with benefits. Certainly a legal norm should not
be susceptible to such a reproach. If there is every any occasion where the principle of statutory
construction that what is within the spirit of the law is as much a part of it as what is written, this is
it. Otherwise the basic purpose discernible in such codal provision would not be attained.
Whatever omission may be apparent in an interpretation purely literal of the language used must
be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides: +.wph!1
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse
of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence
in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that
the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if

evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is
not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon
and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom
she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife,
Carponia Ebrado, with whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a
judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur
The Insular Life Assurance Company vs Ebrado, 80 SCRA 181
Fact:
On September 1, 1968, Buenaventura Ebrado issued by the Insular Life Assurance Policy No 009929 a whole-life plan
with a rider for Accidental Death. Buenaventura designated Carponia Ebrado as the revocable beneficiary in his policy. He
referred her as his wife.
On October 21, 1969, Buenaventura Ebrad died as a result of an accident when he was hit by a falling tree. Carponia filed
with the insurer a claim for the proceeds of the policy as the designated beneficiary therein. Although she admits that she
and the insured Buenaventura were merely living as husband and wife without the benefits of marriage. Pascuala de
Ebrado, valid wife, also filed her claim as the widow of the deceased insured.
Issue: Can a common-law wife named as beneficiary in the life insurance policy of legally married man claim the
proceeds thereof in case of death of the latter?
Ruling:
In essence, a life insurance is no different from a civil donation insofar as the beneficiary is concerned. Both are founded
upon the same consideration: liberality. A beneficiary is like a donee because from the premiums of the policy which the
insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article739 of the New Civil Code should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot be named a beneficiary in the life insurance
policy of the persons who cannot make the donation.

Note following Articles from the Civil Code:

Article 2011 - "The contract of insurance is governed by special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code."
Article 2012 - "Any person who in forbidden from receiving any donation under Article 739 cannot be named beneficiary of
a life insurance policy by the person who cannot be make a donation to him."
Article 739- "The donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the title of donation.xx

In the case provided to in No.1, the action for declaration of nullity may be brought by the spouse of the donor or donee;
and the guilt of the donee may be provided by preponderance of evidence in same action."
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-1669

August 31, 1950

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-1670

August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
Mariano Lozada for appellant Constantino.
Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.
BENGZON, J.:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether the
beneficiary in a life insurance policy may recover the amount thereof although the insured died after repeatedly failing to
pay the stipulated premiums, such failure having been caused by the last war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a
foreign corporation incorporated under the laws of Delaware, U.S.A.), issued on September 27, 1941, its Policy No. 93912
for P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the
period up to September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy
contained these stipulations, among others:
This POLICY OF INSURANCE is issued in consideration of the written and printed application here for a
copy of which is attached hereto and is hereby made a part hereof made a part hereof, and of the
payment in advance during the lifetime and good health of the Insured of the annual premium of One
Hundred fifty-eight and 4/100 pesos Philippine currency1 and of the payment of a like amount upon each
twenty-seventh day of September hereafter during the term of Twenty years or until the prior death of the
Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall
cause this policy to lapse unless and except as kept in force by the Grace Period condition or under
Option 4 below. (Grace of 31 days.)
After that first payment, no further premiums were paid. The insured died on September 22, 1944.

It is admitted that the defendant, being an American corporation , had to close its branch office in Manila by reason of the
Japanese occupation, i.e. from January 2, 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20Year Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina
Peralta, for the sum of P3,000. The annual premium stipulated in the policy was regularly paid from August 1, 1938, up to
and including September 30, 1941. Effective August 1, 1941, the mode of payment of premiums was changed from annual
to quarterly, so that quarterly premiums were paid, the last having been delivered on November 18, 1941, said payment
covering the period up to January 31, 1942. No further payments were handed to the insurer. Upon the Japanese
occupation, the insured and the insurer became separated by the lines of war, and it was impossible and illegal for them
to deal with each other. Because the insured had borrowed on the policy an mount of P234.00 in January, 1941, the cash
surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died
on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant's
refusal, grounded on non-payment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a
copy of which is attached hereto and is hereby made apart hereof, and of the payment in advance during
the life time and good health of the Insured of the annual premium of Two hundred and 43/100 pesos
Philippine currency and of the payment of a like amount upon each first day of August hereafter during
the term of Twenty years or until the prior death of either of the Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall
cause this policy to lapse unless and except as kept in force by the Grace Period condition or under
Option 4 below. (Grace of days.) . . .
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for
premiums in arrears. They allege that non-payment of the premiums was caused by the closing of defendant's offices in
Manila during the Japanese occupation and the impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the
contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive
and exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it
affects the interest of thousands of policy-holders and the obligations of many insurance companies operating in this
country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2 Act
No. 2427 was largely copied from the Civil Code of California. 3 And this court has heretofore announced its intention to
supplement the statutory laws with general principles prevailing on the subject in the United State. 4
In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity
upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the
time of the making of the contract as they may deem wise and necessary. The rate of premium is measured by the
character of the risk assumed. The insurance company, for a comparatively small consideration, undertakes to guarantee
the insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called
upon to pay, in case of loss, the insurer, therefore, may justly insists upon a fulfillment of these terms. If the insured cannot
bring himself within the conditions of the policy, he is not entitled for the loss. The terms of the policy constitute the
measure of the insurer's liability, and in order to recover the insured must show himself within those terms; and if it
appears that the contract has been terminated by a violation, on the part of the insured, of its conditions, then there can
be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right of
recovery."

Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments
are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it
would seem that pursuant to the express terms of the policy, non-payment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the parties
and should be enforced by the courts, if the evidence brings the case clearly within their meaning and
intent. It tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain case is
attempted to be taken without the operation of a clear, reasonable and material obligation of the contract.
Mack vs. Rochester German Ins. Co., 106 N.Y., 560, 564. (Young vs. Midland Textile Ins. Co., 30 Phil.,
617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not
been paid within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day
period of grace, ipso facto caused the policy to lapse. This goes to show that although we take the view that insurance
policies should be conserved5 and should not lightly be thrown out, still we do not hesitate to enforce the agreement of the
parties.
Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce
an insurance contract according to its meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it
should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of
premiums occasioned by war, the American cases may be divided into three groups, according as they support the socalled Connecticut Rule, the New York Rule, or the United States Rule.
The first holds the view that "there are two elements in the consideration for which the annual premium is paid First, the
mere protection for the year, and second, the privilege of renewing the contract for each succeeding year by paying the
premium for that year at the time agreed upon. According to this view of the contract, the payment of premiums is a
condition precedent, the non-performance would be illegal necessarily defeats the right to renew the contract."
The second rule, apparently followed by the greater number of decisions, hold that "war between states in which the
parties reside merely suspends the contracts of the life insurance, and that, upon tender of all premiums due by the
insured or his representatives after the war has terminated, the contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended, but is abrogated by reason of non-payments is
peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the
reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when
the policy had been in force. This rule was announced in the well-known Statham 6 case which, in the opinion of Professor
Vance, is the correct rule.7
The appellants and some amici curiae contend that the New York rule should be applied here. The appellee and other
amici curiae contend that the United States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different theories. Besides the respect and high regard we
have always entertained for decisions of the Supreme Court of the United States, we cannot resist the conviction that the
reasons expounded in its decision of the Statham case are logically and judicially sound. Like the instant case, the policy
involved in the Statham decision specifies that non-payment on time shall cause the policy to cease and determine.
Reasoning out that punctual payments were essential, the court said:
. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the
calculations of the insurance company are based on the hypothesis of prompt payments. They not only
calculate on the receipt of the premiums when due, but on compounding interest upon them. It is on this
basis that they are enabled to offer assurance at the favorable rates they do. Forfeiture for non-payment
is an necessary means of protecting themselves from embarrassment. Unless it were enforceable, the
business would be thrown into confusion. It is like the forfeiture of shares in mining enterprises, and all
other hazardous undertakings. There must be power to cut-off unprofitable members, or the success of
the whole scheme is endangered. The insured parties are associates in a great scheme. This associated
relation exists whether the company be a mutual one or not. Each is interested in the engagements of all;

for out of the co-existence of many risks arises the law of average, which underlies the whole business.
An essential feature of this scheme is the mathematical calculations referred to, on which the premiums
and amounts assured are based. And these calculations, again, are based on the assumption of average
mortality, and of prompt payments and compound interest thereon. Delinquency cannot be tolerated nor
redeemed, except at the option of the company. This has always been the understanding and the practice
in this department of business. Some companies, it is true, accord a grace of thirty days, or other fixed
period, within which the premium in arrear may be paid, on certain conditions of continued good health,
etc. But this is a matter of stipulation, or of discretion, on the part of the particular company. When no
stipulation exists, it is the general understanding that time is material, and that the forfeiture is absolute if
the premium be not paid. The extraordinary and even desperate efforts sometimes made, when an
insured person is in extremes to meet a premium coming due, demonstrates the common view of this
matter.
The case, therefore, is one in which time is material and of the essence and of the essence of the
contract. Non-payment at the day involves absolute forfeiture if such be the terms of the contract, as is
the case here. Courts cannot with safety vary the stipulation of the parties by introducing equities for the
relief of the insured against their own negligence.
In another part of the decision, the United States Supreme Court considers and rejects what is, in effect, the New York
theory in the following words and phrases:
The truth is, that the doctrine of the revival of contracts suspended during the war is one based on
considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust
or inequitable to revive.
In the case of Life insurance, besides the materiality of time in the performance of the contract, another
strong reason exists why the policy should not be revived. The parties do not stand on equal ground in
reference to such a revival. It would operate most unjustly against the company. The business of
insurance is founded on the law of average; that of life insurance eminently so. The average rate of
mortality is the basis on which it rests. By spreading their risks over a large number of cases, the
companies calculate on this average with reasonable certainty and safety. Anything that interferes with it
deranges the security of the business. If every policy lapsed by reason of the war should be revived, and
all the back premiums should be paid, the companies would have the benefit of this average amount of
risk. But the good risks are never heard from; only the bar are sought to be revived, where the person
insured is either dead or dying. Those in health can get the new policies cheaper than to pay arrearages
on the old. To enforce a revival of the bad cases, whilst the company necessarily lose the cases which are
desirable, would be manifestly unjust. An insured person, as before stated, does not stand isolated and
alone. His case is connected with and co-related to the cases of all others insured by the same company.
The nature of the business, as a whole, must be looked at to understand the general equities of the
parties.
The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as alleged, the
consequences of war should not prejudice the insured, neither should they bear down on the insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured to pay premiums
was excused during the war owing to impossibility of performance, and that consequently no unfavorable consequences
should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the first, is not an
obligation of the insured, so much so that it is not a debt enforceable by action of the insurer.
Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which the
insurer can maintain an action against insured; nor is its settlement governed by the strict rule controlling
payments of debts. So, the court in a Kentucky case declares, in the opinion, that it is not a debt. . . . The
fact that it is payable annually or semi-annually, or at any other stipulated time, does not of itself constitute
a promise to pay, either express or implied. In case of non-payment the policy is forfeited, except so far as
the forfeiture may be saved by agreement, by waiver, estoppel, or by statute. The payment of the
premium is entirely optional, while a debt may be enforced at law, and the fact that the premium is agreed
to be paid is without force, in the absence of an unqualified and absolute agreement to pay a specified

sum at some certain time. In the ordinary policy there is no promise to pay, but it is optional with the
insured whether he will continue the policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the insured by an observance of the
conditions may hold the insurer to his contract, the latter has not the power or right to compel the insured
to maintain the contract relation with it longer than he chooses. Whether the insured will continue it or not
is optional with him. There being no obligation to pay for the premium, they did not constitute a debt.
(Noble vs. Southern States M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis ours.)
It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the
policies contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties
contemplated uninterrupted operation of the contract even if armed conflict should ensue.
For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the Statham decision,
it could now be relaxed and even disregarded. It is stated "that the relaxation of rules relating to insurance is in direct
proportion to the growth of the business. If there were only 100 men, for example, insured by a Company or a mutual
Association, the death of one will distribute the insurance proceeds among the remaining 99 policy-holders. Because the
loss which each survivor will bear will be relatively great, death from certain agreed or specified causes may be deemed
not a compensable loss. But if the policy-holders of the Company or Association should be 1,000,000 individuals, it is
clear that the death of one of them will not seriously prejudice each one of the 999,999 surviving insured. The loss to be
borne by each individual will be relatively small."
The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be considered will not be
the death of one but the death of ten thousand, since the proportion of 1 to 100 should be maintained. And certainly such
losses for 10,000 deaths will not be "relatively small."
After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a vital defense of
insurance companies that since the very beginning, said Act no. 2427 expressly preserved it, by providing that after the
policy shall have been in force for two years, it shall become incontestable (i.e. the insurer shall have no defense) except
for fraud, non-payment of premiums, and military or naval service in time of war (sec. 184 [b], Insurance Act). And when
Congress recently amended this section (Rep. Act No. 171), the defense of fraud was eliminated, while the defense of
nonpayment of premiums was preserved. Thus the fundamental character of the undertaking to pay premiums and the
high importance of the defense of non-payment thereof, was specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a variation
of the Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no reserve value, and
that the equitable values of the second had been practically returned to the insured in the form of loan and advance for
premium.
For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies in question, is
hereby affirmed, without costs.
Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur
Constantino v. Asia Life- Non-payment of Insurance Premiums
87 PHIL 248
Facts:
> Appeal consolidates two cases.
> Asia life insurance Company (ALIC) was incorporated in Delaware.
> For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No. 93912 whereby it insured the life of
Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary.

First premium covered the period up to Sept. 26, 1942. No further premiums were paid after the first premium
and Arcadio died on Sept. 22, 1944.

> Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 1942-1945.
> On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and Agustina Peralta for the
sum of P3T for 20 years. The annual premium stipulated was regularly paid from Aug. 1, 1938 up to and including Sept.
30, 1940.

Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such quarterly
premiums were paid until Nov. 18, 1941.

Last payment covered the period until Jan. 31, 1942.

Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.

> Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside from this the insured
borrowed from the policy P234.00 such that the cash surrender value of the policy was sufficient to maintain the policy in
force only up to Sept. 7, 1942.
> Both policies contained this provision: All premiums are due in advance and any unpunctuality in making such payment
shall cause this policy to lapse unless and except as kept in force by the grace period condition.
> Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive the proceeds of the
policies less all sums due for premiums in arrears. They also allege that non-payment of the premiums were caused by
the closing of ALICs offices during the war and the impossible circumstances by the war, therefore, they should be
excused and the policies should not be forfeited.
> Lower court ruled in favor of ALIC.

Issue:

May a beneficiary in a life insurance policy recover the amount thereof although the insured died after repeatedly failing to
pay the stipulated premiums, such failure being caused by war?

Held:
NO.
Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga v. Sun Life, it
was held that a life policy was avoided because the premium had not been paid within the time fixed; since by its express
terms, non-payment of any premium when due or within the 31 day grace period ipso fact caused the policy to lapse.

When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war does NOT excuse nonpayment and does not avoid forfeiture. Essentially, the reason why punctual payments are important is that the insurer
calculates on the basis of the prompt payments. Otherwise, malulugi sila.

It should be noted that the parties contracted not only as to peace time conditions but also as to war-time conditions since
the policies contained provisions applicable expressly to wartime days. The logical inference therefore is that the parties
contemplated the uninterrupted operation of the contract even if armed conflict should ensue.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 198174

September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31,
2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with
petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay
the respondent the amount of Six Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said
vehicle during the period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the
above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to
respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the
insurance proceeds in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the
culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy under
Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSUREDS
SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to
damage of the motor vehicle and not to its loss. However, petitioners denial of respondents insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial
Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant
ordering the latter as follows:

To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the
amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008,
of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August
10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY
ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE
PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS
OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES
THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE
CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF
DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondents vehicle is excluded under the insurance
policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule
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;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)
by malicious act;

(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway,
lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every
loss for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insureds
estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insureds service. 6
In denying respondents claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of
"Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should be construed to
cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondents vehicle as a result of it being stolen by the
latters driver is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the
insured is not an exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who
would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this
case. This is evident from the very provision of Section III "Loss or Damage." The insurance company, subject to the
limits of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to who would commit
the theft. Thus, even if the same is committed by the driver of the insured, there being no categorical declaration of
exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of
loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning of language in
the policy. Where restrictive provisions are open to two interpretations, that which is most favorable to the insured is
adopted." The defendant would argue that if the person employed by the insured would commit the theft and the insurer
would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the insured
would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured
himself, the same would be an exception to the coverage since in that case there would be fraud on the part of the
insured or breach of material warranty under Section 69 of the Insurance Code. 7
Moreover, 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. 8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given their meaning as understood in common speech. 9
Adverse to petitioners claim, the words "loss" and "damage" mean different things in common ordinary usage. The word
"loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or
injury to property.1wphi1
Therefore, petitioner cannot exclude the loss of respondents vehicle under the insurance policy under paragraph 4 of
"Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor
vehicle caused by a person under the insureds service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from
coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his family, and
any person in the insureds service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate
between the terms "loss" and "damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it
should have used the term "damage" alone in the entire policy or otherwise included a clear definition of the said term as
part of the provisions of the said insurance contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III thereof, which is one of the crucial parts in the
insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went
specific by using the word "damage" only in the policys exception regarding "malicious damage." Now, the defendantappellant would like this Court to believe that it really intended the word "damage" in the term "malicious damage" to
include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the
sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the
evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and
provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous, equivocal or
uncertain, such that the parties themselves disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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.
Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company,11 this Court ruled
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of
the insured and strictly against the insurer in order to safeguard the latters interest. Thus, in Malayan Insurance
Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer. 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 obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating
that:
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. 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. 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. 12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision
dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.
ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
G.R. No. 198174, September 2, 2013 (PERALTA, J.)

FACTS:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX DSL with Alpha Insurance and Surety
Co (Alpha). The contract of insurance obligates the petitioner to pay the respondent the amount of P630,000 in case of
loss or damage to said vehicle during the period covered.
On April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza to bring the vehicle to nearby auto-shop for
a tune up. However, Lanuza no longer returned the motor vehicle and despite diligent efforts to locate the same, said
efforts proved futile. Resultantly, respondent promptly reported the incident to the police and concomitantly notified
petitioner of the said loss and demanded payment of the insurance proceeds.
Alpha, however, denied the demand of Castor claiming that they are not liable since the culprit who stole the vehicle is
employed with Castor. Under the Exceptions to Section III of the Policy, the Company shall not be liable for (4) any
malicious damage caused by the insured, any member of his family or by A PERSON IN THE INSUREDS SERVICE.
Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional Trial Court of Quezon City.
The trial court rendered its decision in favor of Castor which decision is affirmed in toto by the Court of Appeals. Hence,
this Petition for Review on Certiorari.
ISSUE:
Whether or not the loss of respondents vehicle is excluded under the insurance policy
HELD:
NO. The words loss and damage mean different things in common ordinary usage. The word loss refers to the act or
fact of losing, or failure to keep possession, while the word damage means deterioration or injury to property. Therefore,
petitioner cannot exclude the loss of Castors vehicle under the insurance policy under paragraph 4 of Exceptions to
Section III, since the same refers only to malicious damage, or more specifically, injury to the motor vehicle caused by
a person under the insureds service. Paragraph 4 clearly does not contemplate loss of property.
A contract of insurance is a contract of adhesion. So, when the terms of the 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.
Thus, in Eternal Gardens Memorial Park Corporation vs. Philippine American Life Insurance Company, this Court ruled
that it must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor
of the insured and strictly against the insurer in order to safeguard the latters interest.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16138

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16139

April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16140

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
UNITED INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16141

April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant,

vs.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16142

April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16143

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16144

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16145

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
V. B. Gesunundo for plaintiff-appellant.
M. Perez Cardenas for defendant-appellee.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa, presiding, dismissing the
actions filed in the above-entitled cases.
The facts found by the trial court, which are not disputed in this appeal, are as follows:
At different times within a period of two months prior to December 24, 1953, the plaintiff herein Diosdado
C. Ty, employed as operator mechanic foreman in the Broadway Cotton Factory, in Grace Park,
Caloocan, Rizal, at a monthly salary of P185.00, insured himself in 18 local insurance companies, among
which being the eight above named defendants, which issued to him personal accident policies, upon
payment of the premium of P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway
Cotton Factory, which paid the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting
his way out of the factory, plaintiff was injured on the left hand by a heavy object. He was brought to the
Manila Central University hospital, and after receiving first aid there, he went to the National Orthopedic
Hospital for treatment of his injuries which were as follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment in the
Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above-described physical injuries
have caused temporary total disability of plaintiff's left hand. Plaintiff filed the corresponding notice of
accident and notice of claim with all of the abovenamed defendants to recover indemnity under Part II of
the policy, which is similarly worded in all of the policies, and which reads pertinently as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and
accidental means, and which shall not prove fatal but shall result, independently of all other causes and
within sixty (60) days from the occurrence thereof, in Total or Partial Disability of the Insured, the
Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such
injury:

PARTIAL DISABILITY
LOSS OF:
xxx

xxx

xxx

Either hand ............................................................................ P650.00

xxx

xxx

xxx

... The loss of a hand shall mean the loss by amputation through the bones of the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that there being no severance of
amputation of the left hand, the disability suffered by him was not covered by his policy. Hence, plaintiff
sued the defendants in the Municipal Court of this City, and from the decision of said Court dismissing his
complaints, plaintiff appealed to this Court. (Decision of the Court of First Instance of Manila, pp. 223-226,
Records).
In view of its finding, the court absolved the defendants from the complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may recover on the insurance policies issued him
for the loss of his left hand, it is not necessary that there should be an amputation thereof, but that it is sufficient if the
injuries prevent him from performing his work or labor necessary in the pursuance of his occupation or business.
Authorities are cited to the effect that "total disability" in relation to one's occupation means that the condition of the
insurance is such that common prudence requires him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or stipulations should be interpreted against the person
who caused the obscurity, and the ones which caused the obscurity in the cases at bar are the defendant insurance
companies.
While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can not go beyond
the clear and express conditions of the insurance policies, all of which define partial disability as loss of either hand by
amputation through the bones of the wrist." There was no such amputation in the case at bar. All that was found by the
trial court, which is not disputed on appeal, was that the physical injuries "caused temporary total disability of plaintiff's left
hand." Note that the disability of plaintiff's hand was merely temporary, having been caused by fracture of the index, the
middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties. As the terms of the
policies are clear, express and specific that only amputation of the left hand should be considered as a loss thereof, an
interpretation that would include the mere fracture or other temporary disability not covered by the policies would certainly
be unwarranted.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiff-appellant.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ., concur.

DIOSDADO C. TY vs. FIRST NATIONAL SURETY & ASSURANCE CO., INC.,

FACTS:

2 months prior to December 24, 1953: Diosdado C. Ty, employed as operator mechanic foreman in the Broadway
Cotton Factory insured himself in 18 local insurance companies with Broadway Cotton Factory as his beneficiary

December 24, 1953: fire broke out at the Broadway Cotton Factory where Ty, fighting his way out, injured his left
hand by a heavy object.

He was brought to the Manila Central University hospital, and after receiving first aid there, he went to the
National Orthopedic Hospital for treatment of his injuries.

His injuries caused temporary total disability on his left hand so he filed a claim against all defendants who
rejected the claim reasoning that there it was not covered in his policy because there was no severance of amputation of
the left hand

Trial Court: absolved the defendants

ISSUE: W/N Ty can claim
HELD: NO. Affirmed.

can not go beyond the clear and express conditions of the insurance policies, all of which define partial disability
as loss of either hand by amputation through the bones of the wrist

Note that the disability of plaintiff's hand was merely temporary, having been caused by fracture of the index, the
middle and the fourth fingers of the left hand

agreement contained in the insurance policies is the law between the parties