INSURANCE

I. CONSTRCUTION OF THE INSURANCE CODE

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

Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for Accidental Death. He
designated Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional
benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary therein, although she
admited that she and the insured were merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one
entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the proceeds. The court
declared Carponia as disqualified.

Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim
the proceeds in case of death of the latter?

Held: No. Petition

Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the proper interest of
the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a
contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the
general rules of the civil law regulating contracts. And under Article 2012 of the same Code, any person who is
forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the
person who cannot make a donation to him. Common-law spouses are barred from receiving donations from each
other.
Article 739 provides that void donations are those made between persons who were guilty of adultery or concubinage
at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate
ones should be enforced in life insurance policies since the same are based on similar consideration. So long as
marriage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship.
A conviction for adultery or concubinage isnt required exacted before the disabilities mentioned in Article 739 may
effectuate. The article says that in the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the
same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. The law
plainly states that the guilt of the party may be proved in the same acting for declaration of nullity of donation. And, it
would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was also living in with his
common-law wife with whom he has two children.

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

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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 common-
wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3
and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim
with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for
the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action
against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the
Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by
the insured in the policy is Carponia Ebrado and the insured made reservation to change the
beneficiary but although the insured made the option to change the beneficiary, same was never
changed up to the time of his death and the wife did not have any opportunity to write the company that
there was reservation to change the designation of the parties agreed that a decision be rendered
based on and stipulation of facts as to who among the two claimants is entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the
receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified
from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance
proceeds to the estate of the deceased insured. The trial court held: +.wph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it
also necessary that a finding of such guilt or commission of those acts be made in a separate
independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to declare the nullity of the
donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist
and that it is only necessary that such fact be established by preponderance of evidence in the trial.
Since it is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia
T. Ebrado were living together as husband and wife without being legally married and that the marriage
of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time
the insurance in question was purchased there is no question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the insured.
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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.
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 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.

2. Qua Chee Gan V. Law Union And Rock Insurance Co., Ltd. (1955)

Lessons Applicable: Ambiguous Provisions Interpreted Against Insurer (Insurance)

FACTS:
Qua Chee Gan, a merchant of Albay, owned four bodegas which he insured with Law Union &
Rock Insurance Co., Ltd (Law Union) since 1937 and the lose made payable to the Philippine
National Bank (PNB) as mortgage of the hemp and crops, to the extent of its interest
July 21, 1940 morning: fire broke out in bodegas 1,2 and 4 which lasted for almost a week.
Qua Chee Gan informed Law Union by telegram
Law Union rejected alleging that it was a fraudulent claim that the fire had been deliberately
caused by the insured or by other persons in connivance with him
Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and
tried in 1940 for the crime of arson but was subsequently acquitted
During the pendency of the suit, Que Chee Gan paid PNB
Law Union states that ff. assignment of errors:
1. memo of warranty requires 11 hydrants instead of 2
2. violation of hemp warranty against storage of gasoline since it prohibits oils
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 3. fire was due to fraud
4. burned bodegas could not possibly have contained the quantities of copra and hemp
stated in the fire claims
ISSUE: W/N Qua Chee Gan should be allowed to claim.

HELD: YES. Affirmed.

1. It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat
a policy as no longer in force, receives and accepts a preium on the policy, estopped to take
advantage of the forfeiture
2. oils (animal and/or vegetable and/or mineral and/or their liquid products having a flash point
below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils"
mean "lubricants" and not gasoline or kerosene
by reason of the exclusive control of the insurance company over the terms and
phraseology of the contract, the ambiguity must be held strictly against the insurer and liberraly in
favor of the insured, specially to avoid a forfeiture
3. trial Court found that the discrepancies were a result of the insured's erroneous interpretation
of the provisions of the insurance policies and claim forms, caused by his imperfect knowledge of
English, and that the misstatements were innocently made and without intent to defraud.
4. Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was explained by the
insured as caused by his belief that he was entitled to include in the claim his expected profit on the
70 per cent of the hemp, because the same was already contracted for and sold to other parties
before the fire occurred

REYES, J. B. L., J.:

Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance of said province,
seeking to recover the proceeds of certain fire insurance policies totalling P370,000, issued by the Law Union & Rock
Insurance Co., Ltd., upon certain bodegas and merchandise of the insured that were burned on June 21, 1940. The
records of the original case were destroyed during the liberation of the region, and were reconstituted in 1946. After a
trial that lasted several years, the Court of First Instance rendered a decision in favor of the plaintiff, the dispositive part
whereof reads as follows:

Wherefore, judgment is rendered for the plaintiff and against the defendant condemning the latter to pay the
former

(a) Under the first cause of action, the sum of P146,394.48;

(b) Under the second cause of action, the sum of P150,000;

(c) Under the third cause of action, the sum of P5,000;

(d) Under the fourth cause of action, the sum of P15,000; and

(e) Under the fifth cause of action, the sum of P40,000;

all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of the Insurance Act from
September 26, 1940, until each is paid, with costs against the defendant.

The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on Appeal, 166-167.)

From the decision, the defendant Insurance Company appealed directly to this Court.

The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas (designated as
Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled
and loose, in which the appellee dealth extensively. They had been, with their contents, insured with the defendant
Company since 1937, and the lose made payable to the Philippine National Bank as mortgage of the hemp and crops,
to the extent of its interest. On June, 1940, the insurance stood as follows:

Policy No. Property Insured Amount

5
 2637164 (Exhibit
Bodega No. 1 (Building) P15,000.00
"LL")
Bodega No. 2 (Building) 10,000.00

2637165 (Exhibit Bodega No. 3 (Building) 25,000.00

"JJ") Bodega No. 4 (Building) 10,000.00
Hemp Press moved by steam engine 5,000.00
Merchandise contents (copra and empty sacks of
2637345 (Exhibit "X") 150,000.00
Bodega No. 1)
2637346 (Exhibit "Y") Merchandise contents (hemp) of Bodega No. 3 150,000.00
2637067 (Exhibit
Merchandise contents (loose hemp) of Bodega No. 4 5,000.00
"GG")

Total P370,000.00

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one week, gutted
and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-appellee informed
the insurer by telegram on the same date; and on the next day, the fire adjusters engaged by appellant insurance
company arrived and proceeded to examine and photograph the premises, pored over the books of the insured and
conducted an extensive investigation. The plaintiff having submitted the corresponding fire claims, totalling
P398,562.81 (but reduced to the full amount of the insurance, P370,000), the Insurance Company resisted payment,
claiming violation of warranties and conditions, filing of fraudulent claims, and that the fire had been deliberately
caused by the insured or by other persons in connivance with him.

With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother, Qua Chee Pao,
and some employees of his, were indicted and tried in 1940 for the crime of arson, it being claimed that they had set
fire to the destroyed warehouses to collect the insurance. They were, however, acquitted by the trial court in a final
decision dated July 9, 1941 (Exhibit WW). Thereafter, the civil suit to collect the insurance money proceeded to its trial
and termination in the Court below, with the result noted at the start of this opinion. The Philippine National Bank's
complaint in intervention was dismissed because the appellee had managed to pay his indebtedness to the Bank
during the pendecy of the suit, and despite the fire losses.

In its first assignment of error, the insurance company alleges that the trial Court should have held that the policies
were avoided for breach of warranty, specifically the one appearing on a rider pasted (with other similar riders) on the
face of the policies (Exhibits X, Y, JJ and LL). These riders were attached for the first time in 1939, and the pertinent
portions read as follows:

Memo. of Warranty. The undernoted Appliances for the extinction of fire being kept on the premises insured
hereby, and it being declared and understood that there is an ample and constant water supply with sufficient
pressure available at all seasons for the same, it is hereby warranted that the said appliances shall be
maintained in efficient working order during the currency of this policy, by reason whereof a discount of 2 1/2
per cent is allowed on the premium chargeable under this policy.

Hydrants in the compound, not less in number than one for each 150 feet of external wall measurement of
building, protected, with not less than 100 feet of hose piping and nozzles for every two hydrants kept under
cover in convenient places, the hydrants being supplied with water pressure by a pumping engine, or from
some other source, capable of discharging at the rate of not less than 200 gallons of water per minute into the
upper story of the highest building protected, and a trained brigade of not less than 20 men to work the same.'

It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the appellee
should have eleven (11) fire hydrants in the compound, and that he actually had only two (2), with a further pair nearby,
belonging to the municipality of Tabaco.

We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to claim violation of
the so-called fire hydrants warranty, for the reason that knowing fully all that the number of hydrants demanded therein
never existed from the very beginning, the appellant neverthless issued the policies in question subject to such
warranty, and received the corresponding premiums. It would be perilously close to conniving at fraud upon the insured
to allow appellant to claims now as void ab initio the policies that it had issued to the plaintiff without warning of their

6
fatal defect, of which it was informed, and after it had misled the defendant into believing that the policies were
effective.

The insurance company was aware, even before the policies were issued, that in the premises insured there were only
two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the municipality of TAbaco, contrary to
the requirements of the warranty in question. Such fact appears from positive testimony for the insured that appellant's
agents inspected the premises; and the simple denials of appellant's representative (Jamiczon) can not overcome that
proof. That such inspection was made is moreover rendered probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was entitled, since the discount depended on the number of hydrants,
and the fire fighting equipment available (See "Scale of Allowances" to which the policies were expressly made
subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) to
be as follows:

It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of
existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable enough to assume, in the
absence of any showing to the contrary, that an insurance company intends to executed a valid contract in
return for the premium received; and when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have intended to waive the conditions
and to execute a binding contract, rather than to have deceived the insured into thinking he is insured when in
fact he is not, and to have taken his money without consideration. (29 Am. Jur., Insurance, section 807, at pp.
611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's money for a
policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured
believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to the abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the preium on it, and leave it at liberty to repudiate it the next moment. This
cannot be deemed to be the real intention of the parties. To hold that a literal construction of the policy
expressed the true intention of the company would be to indict it, for fraudulent purposes and designs which we
cannot believe it to be guilty of (Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543-544).

The inequitableness of the conduct observed by the insurance company in this case is heightened by the fact that after
the insured had incurred the expense of installing the two hydrants, the company collected the premiums and issued
him a policy so worded that it gave the insured a discount much smaller than that he was normaly entitledto. According
to the "Scale of Allowances," a policy subject to a warranty of the existence of one fire hydrant for every 150 feet of
external wall entitled the insured to a discount of 7 1/2 per cent of the premium; while the existence of "hydrants, in
compund" (regardless of number) reduced the allowance on the premium to a mere 2 1/2 per cent. This schedule was
logical, since a greater number of hydrants and fire fighting appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so worded the policies that while exacting the greater number of fire
hydrants and appliances, it kept the premium discount at the minimum of 2 1/2 per cent, thereby giving the insurance
company a double benefit. No reason is shown why appellant's premises, that had been insured with appellant for
several years past, suddenly should be regarded in 1939 as so hazardous as to be accorded a treatment beyond the
limits of appellant's own scale of allowances. Such abnormal treatment of the insured strongly points at an abuse of
the insurance company's selection of the words and terms of the contract, over which it had absolute control.

These considerations lead us to regard the parol evidence rule, invoked by the appellant as not applicable to the
present case. It is not a question here whether or not the parties may vary a written contract by oral evidence; but
whether testimony is receivable so that a party may be, by reason of inequitable conduct shown, estopped from
enforcing forfeitures in its favor, in order to forestall fraud or imposition on the insured.

Receipt of Premiums or Assessments afte Cause for Forfeiture Other than Nonpayment. It is a well settled
rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force,
receives and accepts a preium on the policy, estopped to take advantage of the forfeiture. It cannot treat the
policy as void for the purpose of defense to an action to recover for a loss thereafter occurring and at the same
time treat it as valid for the purpose of earning and collecting further premiums." (29 Am. Jur., 653, p. 657.)

It would be unconscionable to permit a company to issue a policy under circumstances which it knew rendered
the policy void and then to accept and retain premiums under such a void policy. Neither law nor good morals
would justify such conduct and the doctrine of equitable estoppel is peculiarly applicable to the situation.
(McGuire vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.)
7
Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted aganst the
prty that caused them, 1the "memo of warranty" invoked by appellant bars the latter from questioning the existence of
the appliances called for in the insured premises, since its initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, . . . it is hereby warranted . . .", admists of interpretation as
an admission of the existence of such appliances which appellant cannot now contradict, should the parol evidence
rule apply.

The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally rejected, since the
appellant's argument thereon is based on the assumption that the insured was bound to maintain no less than eleven
hydrants (one per 150 feet of wall), which requirement appellant is estopped from enforcing. The supposed breach of
the wter pressure condition is made to rest on the testimony of witness Serra, that the water supply could fill a 5-gallon
can in 3 seconds; appellant thereupon inferring that the maximum quantity obtainable from the hydrants was 100
gallons a minute, when the warranty called for 200 gallons a minute. The transcript shows, however, that Serra
repeatedly refused and professed inability to estimate the rate of discharge of the water, and only gave the "5-gallon
per 3-second" rate because the insistence of appellant's counsel forced the witness to hazard a guess. Obviously, the
testimony is worthless and insufficient to establish the violation claimed, specially since the burden of its proof lay on
appellant.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was organized, and
drilled, from time to give, altho not maintained as a permanently separate unit, which the warranty did not require.
Anyway, it would be unreasonable to expect the insured to maintain for his compound alone a fire fighting force that
many municipalities in the Islands do not even possess. There is no merit in appellant's claim that subordinate
membership of the business manager (Co Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not necessarily adept at fire fighting, the qualities
required being different for both activities.

Under the second assignment of error, appellant insurance company avers, that the insured violated the "Hemp
Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since appellee admitted that
there were 36 cans (latas) of gasoline in the building designed as "Bodega No. 2" that was a separate structure not
affected by the fire. It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in
the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or
mineral and/or their liquid products having a flash point below 300o Fahrenheit", and is decidedly ambiguous and
uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it
may well be wondered, are in a position to understand or determine "flash point below 003o Fahrenheit. Here, again,
by reason of the exclusive control of the insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of the insured, specially to avoid a forfeiture (44
C. J. S., pp. 1166-1175; 29 Am. Jur. 180).

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts
who know and can anticipate the hearing 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, 264).

We see no reason why the prohibition of keeping gasoline in the premises could not be expressed clearly and
unmistakably, in the language and terms that the general public can readily understand, without resort to obscure
esoteric expression (now derisively termed "gobbledygook"). We reiterate the rule stated in Bachrach vs. British
American Assurance Co. (17 Phil. 555, 561):

If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in
the policy.

This rigid application of the rule on ambiguities has become necessary in view of current business practices. The
courts cannot ignore that nowadays monopolies, cartels and concentrations of capital, endowed with overwhelming
economic power, manage to impose upon parties dealing with them cunningly prepared "agreements" that the weaker
party may not change one whit, his participation in the "agreement" being reduced to the alternative to take it or leave
it" labelled since Raymond Baloilles" contracts by adherence" (con tracts d'adhesion), in contrast to these entered into
by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading
are prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a view to

8
protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwarry (New Civil
Coee, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).

Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad, habra de ser tenido
en cuenta que al seguro es, practicamente un contrato de los llamados de adhesion y por consiguiente en
caso de duda sobre la significacion de las clausulas generales de una poliza redactada por las compafijas
sin la intervencion alguna de sus clientes se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil,
la interpretacion mas favorable al asegurado, ya que la obscuridad es imputable a la empresa aseguradora,
que debia haberse explicado mas claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)

The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for the
insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility.

Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental to his
business, being no more than a customary 2 day's supply for the five or six motor vehicles used for transporting of the
stored merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of inflammable oils on the premises
though prohibited by the policy does not void it if such keeping is incidental to the business." Bachrach vs. British
American Ass. Co., 17 Phil. 555, 560); and "according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the policy will not be avoided by a violation of
these prohibitions, if the prohibited articles are necessary or in customary use in carrying on the trade or business
conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section 966b). It should also be noted
that the "Hemp Warranty" forbade storage only "in the building to which this insurance applies and/or in any building
communicating therewith", and it is undisputed that no gasoline was stored in the burned bodegas, and that "Bodega
No. 2" which was not burned and where the gasoline was found, stood isolated from the other insured bodegas.

The charge that the insured failed or refused to submit to the examiners of the insurer the books, vouchers, etc.
demanded by them was found unsubstantiated by the trial Court, and no reason has been shown to alter this finding.
The insured gave the insurance examiner all the date he asked for (Exhibits AA, BB, CCC and Z), and the examiner
even kept and photographed some of the examined books in his possession. What does appear to have been rejected
by the insured was the demand that he should submit "a list of all books, vouchers, receipts and other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well justified, since the demand for a list of all the
vouchers (which were not in use by the insured) and receipts was positively unreasonable, considering that such listing
was superfluous because the insurer was not denied access to the records, that the volume of Qua Chee Gan's
business ran into millions, and that the demand was made just after the fire when everything was in turmoil. That the
representatives of the insurance company were able to secure all the date they needed is proved by the fact that the
adjuster Alexander Stewart was able to prepare his own balance sheet (Exhibit L of the criminal case) that did not differ
from that submitted by the insured (Exhibit J) except for the valuation of the merchandise, as expressly found by the
Court in the criminal case for arson. (Decision, Exhibit WW).

How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the decision of the arson
case (Exhibit WW) acquiting Qua Choc Gan, appellee in the present proceedings. The decision states (Exhibit WW, p.
11):

Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asi como su
existencia de copra y abaca en las bodega al tiempo del incendio durante el periodo comprendido desde el 1.o
de enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de P1,750.76 en
su negocio en Tabaco. Segun Steward al llegar a este conclusion el ha tenidoen cuenta el balance de
comprobacion Exhibit 'J' que le ha entregado el mismo acusado Que Choc Gan en relacion con sus libros y lo
ha encontrado correcto a excepcion de los precios de abaca y copra que alli aparecen que no estan de
acuerdo con los precios en el mercado. Esta comprobacion aparece en el balance mercado exhibit J que fue
preparado por el mismo testigo.

In view of the discrepancy in the valuations between the insured and the adjuster Stewart for the insurer, the Court
referred the controversy to a government auditor, Apolonio Ramos; but the latter reached a different result from the
other two. Not only that, but Ramos reported two different valuations that could be reached according to the methods
employed (Exhibit WW, p. 35):

La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos para promovar el comercio y
la finanza, pero en el caso presente ha resultado un tanto cumplicada y acomodaticia, como lo prueba el
resultado del examen hecho por los contadores Stewart y Ramos, pues el juzgado no alcanza a ver como
habiendo examinado las mismas partidas y los mismos libros dichos contadores hayan de llegara dos
conclusiones que difieron sustancialmente entre si. En otras palabras, no solamente la comprobacion hecha
por Stewart difiere de la comprobacion hecha por Ramos sino que, segun este ultimo, su comprobacion ha
dado lugar a dos resultados diferentes dependiendo del metodo que se emplea.
9
Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurer attempted to bolster
its case with alleged photographs of certain pages of the insurance book (destroyed by the war) of insured Qua Chee
Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal purchases of hemp and copra from June 11 to June 20,
1940. The Court below remained unconvinced of the authenticity of those photographs, and rejected them, because
they were not mentioned not introduced in the criminal case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson charged, and the absence of adequate explanation for
their omission in the criminal case, we cannot say that their rejection in the civil case constituted reversible error.

The next two defenses pleaded by the insurer, that the insured connived at the loss and that the fraudulently inflated
the quantity of the insured stock in the burnt bodegas, are closely related to each other. Both defenses are
predicted on the assumption that the insured was in financial difficulties and set the fire to defraud the insurance
company, presumably in order to pay off the Philippine National Bank, to which most of the insured hemp and copra
was pledged. Both defenses are fatally undermined by the established fact that, notwithstanding the insurer's refusal to
pay the value of the policies the extensive resources of the insured (Exhibit WW) enabled him to pay off the National
Bank in a short time; and if he was able to do so, no motive appears for attempt to defraud the insurer. While the
acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge
from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since the
proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less
convincing than that required in order to convict the insured of the crime of arson"(Bachrach vs. British American
Assurance Co., 17 Phil. 536).

As to the defense that the burned bodegas could not possibly have contained the quantities of copra and hemp stated
in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and conclusionsAs to the
defense that the burned bodegas could not possibly have contained the quantities of copra and hemp stated in the fire
claims, the insurer's case rests almost exclusively on the estimates, inferences and conclusions of its adjuster
investigator, Alexander D. Stewart, who examined the premises during and after the fire. His testimony, however, was
based on inferences from the photographs and traces found after the fire, and must yield to the contradictory testimony
of engineer Andres Bolinas, and specially of the then Chief of the Loan Department of the National Bank's Legaspi
branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw the contents of the bodegas shortly
before the fire, while inspecting them for the mortgagee Bank. The lower Court was satisfied of the veracity and
accuracy of these witnesses, and the appellant insurer has failed to substantiate its charges aganst their character. In
fact, the insurer's repeated accusations that these witnesses were later "suspended for fraudulent transactions" without
giving any details, is a plain attempt to create prejudice against them, without the least support in fact.

Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hemp burned (t. s. n.,
pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below to accept its inferences from the
remains shown in the photographs of the burned premises. It appears, likewise, that the adjuster's calculations of the
maximum contents of the destroyed warehouses rested on the assumption that all the copra and hemp were in sacks,
and on the result of his experiments to determine the space occupied by definite amounts of sacked copra. The error in
the estimates thus arrived at proceeds from the fact that a large amount of the insured's stock were in loose form,
occupying less space than when kept in sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964, 1967) due to the weight of the overlying stock,
as shown by engineer Bolinas. It is probable that the errors were due to inexperience (Stewart himself admitted that
this was the first copra fire he had investigated); but it is clear that such errors render valueles Stewart's computations.
These were in fact twice passed upon and twice rejected by different judges (in the criminal and civil cases) and their
concordant opinion is practically conclusive.

The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, since the opinions stated
therein were based on ex parte investigations made at the back of the insured; and the appellant did not present at the
trial the original testimony and documents from which the conclusions in the report were drawn.lawphi1.net

Appellant insurance company also contends that the claims filed by the insured contained false and fraudulent
statements that avoided the insurance policy. But the trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the insurance policies and claim forms, caused by his imperfect
knowledge of English, and that the misstatements were innocently made and without intent to defraud. Our review of
the lengthy record fails to disclose reasons for rejecting these conclusions of the Court below. For example, the
occurrence of previous fires in the premises insured in 1939, altho omitted in the claims, Exhibits EE and FF, were
nevertheless revealed by the insured in his claims Exhibits Q (filed simultaneously with them), KK and WW.
Considering that all these claims were submitted to the smae agent, and that this same agent had paid the loss
caused by the 1939 fire, we find no error in the trial Court's acceptance of the insured's explanation that the omission
in Exhibits EE and FF was due to inadvertance, for the insured could hardly expect under such circumstances, that the
1939 would pass unnoticed by the insurance agents. Similarly, the 20 per cent overclaim on 70 per cent of the hemo
stock, was explained by the insured as caused by his belief that he was entitled to include in the claim his expected
profit on the 70 per cent of the hemp, because the same was already contracted for and sold to other parties before

10
the fire occurred. Compared with other cases of over-valuation recorded in our judicial annals, the 20 per cent excess
in the case of the insured is not by itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South British Ins.
Co., 41 Phil. 134, the claim was fourteen (14) times (1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire
Insurance Co., 43 Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6)
times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalled P31,860.85 while the goods insured
were inventoried at O13,113. Certainly, the insured's overclaim of 20 per cent in the case at bar, duly explained by him
to the Court a quo, appears puny by comparison, and can not be regarded as "more than misstatement, more than
inadvertence of mistake, more than a mere error in opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance
Office, ante) that would entitle the insurer to avoid the policy. It is well to note that the overchange of 20 per cent was
claimed only on a part (70 per cent) of the hemp stock; had the insured acted with fraudulent intent, nothing prevented
him from increasing the value of all of his copra, hemp and buildings in the same proportion. This also applies to the
alleged fraudulent claim for burned empty sacks, that was likewise explained to our satisfaction and that of the trial
Court. The rule is that to avoid a policy, the false swearing must be wilful and with intent to defraud (29 Am. Jur., pp.
849-851) which was not the cause. Of course, the lack of fraudulent intent would not authorize the collection of the
expected profit under the terms of the polices, and the trial Court correctly deducte the same from its award.

We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed. Costs against the
appellant. So ordered.

3. Filipinas Compania De Seguros V. Christern Henefeld And Co. (1951)

Lessons Applicable: Disqualification: Public Enemy (Insurance)

FACTS:
October 1, 1941: Christern Huenefeld and co., inc. (Christern), a company whose major
stockholders are German, paid P1M and obtained a fire policy fromFilipinas Cia. de Seguros
(Filipinas)
December 10, 1941: U.S. declared a war against Germany
February 27, 1942 (during the japanese occupation): the building and insured merchandise were
burned
their claimed from Filipinas and the salvage goods were auctioned for P92,650 who
refused since Christen was organized under the Philippine laws, it was under American jurisdiction
which is an enemy of the Germans
April 9, 1943: The Director of Bureau of Financing ordered Filipinas to pay the P92,650 to
Christen and it did.
Filipinas filed with the CFI the P92,650 paid to Christern
CA affirmed CFI: dismissed the action
Filed a petition for certiorari
ISSUE: W/N Christern is a public enemy and therefore ceased to be insured

HELD: YES. Ordered to pay Filipinas P77,208.33, Philippine currency, less the amount of the premium,
in Philippine currency, that should be returned by the Filipinas for the unexpired term of the policy in
question, beginning December 11, 1941
Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except
a public enemy may be insured
Effect of war, generally. All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes all
negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its protection;
also all acts concerning the transmission of money or goods; and all contracts relating thereto are
thereby nullified. It further prohibits insurance upon trade with or by the enemy, upon the life or
lives of aliens engaged in service with the enemy; this for the reason that the subjects of one
country cannot be permitted to lend their assistance to protect by insurance the commerce or
property of belligerent, alien subjects, or to do anything detrimental too their country's interest.
The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay in insurance the value
of what has been so destroyed, or that it should in such manner increase the resources of the
enemy, or render it aid, and the commencement of war determines, for like reasons, all trading
intercourse with the enemy, which prior thereto may have been lawful. All individuals therefore,

11
 who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and are
public enemies
In the case of an ordinary fire policy, which grants insurance only from year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is broken
and the contractual rights of the parties, so far as not vested.
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

BARRERA, J.:

These are appeals instituted by Diosdado C. Ty from a single decision of the Court of First Instance of Manila (in Civ.
Cases Nos. 26343, 26344, 26404, 26405, 26406, 26442, which were tried together), dismissing the six separate
complaints he filed against six insurance companies (Filipinas Compaia de Seguros, People's Surety & Insurance
Co., Inc., South Sea Surety & Insurance Co., Inc., The Philippine Guaranty Company, Inc., Universal Insurance &
Indemnity Co., and Plaridel Surety & Insurance Co., Inc.) for collection from each of them, of the sum of P650.00, as
compensation for the disability of his left hand.

The facts of these cases are not controverted:

Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, working as mechanic
operator, with monthly salary of P185.00. In the latter part of 1953, he took Personal Accident Policies from several
insurance companies, among which are herein defendants-appellees, on different dates, 1 effective for 12 months.
During the effectivity of these policies, or on December 24, 1953, a fire broke out in the factory where plaintiff was
working. As he was trying to put out said fire with the help of a fire extinguisher, a heavy object fell upon his left hand.
Plaintiff received treatment at the National Orthopedic Hospital from December 26, 1953 to February 8, 1954, for the
following injuries, to wit:

(1) Fracture, simple, oraximal phalanx, index finger, left;

(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx simple;

(3) Fracture, compound, communite 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.

which injuries, the attending surgeon certified, would cause temporary total disability of appellant's left hand.

As the insurance companies refused to pay his claim for compensation under the policies by reason of the said
disability of his left hand, Ty filed motions in the Municipal Court of Manila, which rendered favorable decision. On
appeal to the Court of First Instance by the insurance companies, the cases were dismissed on the ground that under
the uniform terms of the insurance policies, partial disability of the insured caused by loss of either hand to be
compensable, the loss must result in the amputation of that hand. Hence, these appeals by the insured.1wph1.t

Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract, uniform in all the
cases, which reads:

"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.

xxx xxx xxx

PARTIAL DISABILITY
12
 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.

Appellant contends that to be entitled to indemnification under the foregoing provision, it is enough that the insured is
disabled to such an extent that he cannot substantially perform all acts or duties of the kind necessary in the
prosecution of his business. It is argued that what is compensable is the disability and not the amputation of the hand.
The definition of what constitutes loss of hand, placed in the contract, according to appellant, consequently, makes the
provision ambiguous and calls for the interpretation thereof by this Court.

This is not the first time that the proper construction of this provision, which is uniformly carried in personal accident
policies, has been questioned. Herein appellant himself has already brought this matter to the attention of this Court in
connection with the other accident policies which he took and under which he had tried to collect indemnity, for the
identical injury that is the basis of the claims in these cases. And, we had already ruled:

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 definite 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 fractures 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.2

We find no reason to depart from the foregoing ruling on the matter.

Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the contract. The provision is
clear enough to inform the party entering into that contract that the loss to be considered a disability entitled to
indemnity, must be severance or amputation of that affected member from the body of the insured.

Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without costs. So ordered.

4. Del Rosario V. Equitable Ins. And Casualty Co., Inc. (1963)

Lessons Applicable: Ambiguous Provisions Interpreted Against Insurer (Insurance)

FACTS:
April 13, 1957: Simeon del Rosario, father of the insured who died from drowning filed a claim
for payment with Equitable Ins. and Casualty Co., Inc. but it refused to pay more than P1,000 php
so a case was filed with the RTC for the P2,000 balance stating that under the policy they are
entitled to P1,000 to P3,000 as indemnity
RTC: entitled to recover P3,000 - policy does not positively state any definite amount, there is
an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the
insured and strictly against the insurer so as to allow greater indemnity
ISSUE: W/N Simeon is entitled to recover P3,000

13
HELD: YES.
terms in an insurance policy, which are ambiguous, equivocal or uncertain are to be construed
strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where a forfeiture is involved
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 expert and legal advisers employed by, and acting exclusively in the interest of, the
insurance company

PAREDES, J.:

On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy No.
7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to pay the
sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the Policy, recite:

Part I. Indemnity For Death

If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental
means, and which shall result, independently of all other causes and within sixty (60) days from the occurrence
thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury:

Section 1. Injury sustained other than those specified

below unless excepted hereinafter. . . . . . . . P1,000.00
Section 2. Injury sustained by the wrecking or disablement
of a railroad passenger car or street railway car in or on
which the Insured is travelling as a farepaying
passenger. . . . . . . . P1,500.00
Section 3. Injury sustained by the burning of a church,
theatre, public library or municipal administration building
while the Insured is therein at the commencement of the
fire. . . . . . . . P2,000.00
Section 4. Injury sustained by the wrecking or disablement
of a regular passenger elevator car in which the Insured is
being conveyed as a passenger (Elevator in mines
excluded) P2,500.00
Section 5. Injury sustained by a stroke of lightning or by a
cyclone. . . . . . . . P3,000.00

xxx xxx xxx

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or
Loss of Time, caused to the insured:

. . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a
passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived
by the company, and to form a part of the provision covered by the policy.

14
On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch
"ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off
said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and
beneficiary in the waters of Jolo. 1wph1.t

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with
defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00,
pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads

RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE
THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands
against said Company as a result of an accident which occurred on February 26, 1957, insured under
out ACCIDENT Policy No. 7136, causing the death of the Assured.

In view of the foregoing, this policy is hereby surrendered and CANCELLED.

LOSS COMPUTATION

Amount of Insurance P1,000.00

__________
vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging receipt
by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the correct one.
Atty. Francisco claimed

The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1 of
the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an
opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the policy
(Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than P1,000.00. In
the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00 which the
Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00 more was instituted with the
Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of P10,000.00 as attorney's fees,
expenses of litigation and costs.

Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the
complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per
opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other
pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion to
dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the Answer
to the complaint, defendant company practically admitted all the allegations therein, denying only those which stated
that under the policy its liability was P3,000.00.

On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read

xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the
payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as
releasing the defendant completely from its liability on the policy in question, said intention of the parties should
prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code).

". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity
for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the
pertinent provisions of which reads as follows:

xxx xxx xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily injury
which is effected solely thru violence, external, visible and accidental means" but, Part I of the Policy is
15
 not applicable in case of death by drowning because death by drowning is not one resulting from
"bodily injury which is affected solely thru violent, external, visible and accidental means" as "Bodily
Injury" means a cut, a bruise, or a wound and drowning is death due to suffocation and not to any cut,
bruise or wound."

xxx xxx xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death for
bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although the
latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound itself to
pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not positively state
any definite amount that may be recovered in case of death by drowning, there is an ambiguity in this respect
in the policy, which ambiguity must be interpreted in favor of the insured and strictly against the insurer so as to
allow greater indemnity.

xxx xxx xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of P1,000.00
to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is entitled to
recover under the policy Exhibit "A".

The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it is
evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot award
plaintiff's claim for attorney's fees and expenses of litigation.

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21, 1958
and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand (P2,000.00)
Pesos and to pay the costs.

The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated
September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature.

All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We
believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken,
for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where there
is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the one
responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any, participation in
the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation of obscure
stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at
bar, is the insurance company.

. . . . 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 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 expert and legal advisers employed by, and acting exclusively in the interest of, the insurance
company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.

. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that which
allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67
LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and the appellant
insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.

In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal.

The judgment appealed from is hereby affirmed. Without costs.

16
5. Misamis Lumber Corp. V. Capital Ins. And Surety Co., Inc. (1966)

Lessons Applicable: Judicial Construction Cannot Alter Terms (Insurance)

FACTS:
Misamis Lumber Corporation (Misamis), formerly Lanao Timber Mills, Inc., insured its Ford
Falcon motor car with Capital Insurance & Surety Company (Capital)
November 25, 1961 11 pm: The car broke when it hit a hollow block lying alongside the water
hole which the driver did not see because the on-coming car did not dim its light
The car was towed and repaired by Morosi Motors costing P302.27
November 29, 1961: After the repairs were made, Misamis made a report to Capital who only
admits liability of P150
CFI: paragraph 4 of the policy is clear and specific and leaves no room for interpretation that the
repair liability is limited to P150
ISSUE: W/N Misamis is entitled to an amount exceeding P150

HELD: NO.
insurance contract may be rather onerous (one-sided) but that in itself does not justify the
abrogation of its express terms, terms which the insured accepted or adhered to and which is the
law between the contracting parties

Facts:

> Misamis lumber insured its motor car for P14T with Capital Insurance. The policy stipulated
that the insured may authorize the repair of the vehicle necessitated by damage and the
liability of the insured is limited to 150.

> Car met an accident and was repaired by Morosi Motors at a total cost of P302.27. Misamis
made a report of the accident to Capital who refused to pay the cost of the repairs.

Issue:

Whether or not the insurer is liable for the total amount of the repair.

Held: NO.

The insurance policy stipulated that if it is the insured who authorized the repair, the liability of
the insurer is limited to 150. The literal meaning of the stipulation must control, it being the
actual contract, expressly and plainly provided for in the policy.

REYES, J.B.L., J.:

Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc., insured its Ford
Falcon motor car for the amount of P14,000 with the defendant-appellant, Capital Insurance & Surety Company, Inc.
The pertinent provisions of the policy provided, as follows:

1. The Company will subject to the Limits of Liability indemnify the Insured against loss or damage to the Motor
Vehicle and its accessories and spare parts whilst thereon.

2. (a) by accidental collision or overturning or collision or overturning consequent when mechanical breakdown
or consequent upon wear and tear.

xxx xxx xxx

17
 3. At its 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 lost or damaged and the reasonable cost of fitting such parts or the
value of the Motor Vehicle at the time of the loss or damage whichever is the loss. The Insured's estimate of
value stated in the schedule shall be the maximum amount payable by the Company in respect of any claim for
loss or damage.1wph1.t

xxx xxx xxx

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.

and providing also that the authorized repair limit is P150.00.

At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned insurance policy was in
force, the insured car, while traveling along in Aurora Boulevard in front of the Pepsi-Cola plant in Quezon City, passed
over a water hole which the driver did not see because an oncoming car did not dim its light. The crankcase and
flywheel housing of the car broke when it hit a hollow block lying alongside the water hole. At the instance of the
plaintiff-appellee, the car was towed and repaired by Morosi Motors at its shop at 1906 Taft Avenue Extension at a total
cost of P302.27.

On 29 November 1961, when the repairs on the car had already been made, the plaintiff-appellee made a report of the
accident to the defendant-appellant Capital Insurance & Surety Company.

Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed in the municipal
court originally.

The case before Us is now a direct appeal on a point of law from the judgment of the Court of First Instance of Manila
finding for the plaintiff and against the defendant-insurer in its Civil Case No. 51757. Per our resolution on 13 February
1964, it was resolved to proceed with the case without the appellee's brief, which was filed late.

The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.

The lower court did not exonerate the said appellant for the excess because, according to it, the company's absolution
would render the insurance contract one-sided and that the said insurer had not shown that the cost of repairs in the
sum of P302.27 is unreasonable, excessive or padded, nor had it shown that it could have undertaken the repairs itself
at less expense.

The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4 that if the insured
authorizes the repair the liability of the insurer, per its sub-paragraph (a), is limited to P150.00. The literal meaning of
this stipulation must control, it being the actual contract, expressly and plainly provided for in the policy (Art. 1370, Civil
Code; Young vs. Midland Textile Ins. Co., 30 Phil. 617; Ty vs. First Nat. Surety & Assur. Co., Inc., L-16138-45, 29 April
1961).

The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear and
specific and leaves no room for interpretation. The interpretation given is even unjustified because it opposes what was
specifically stipulated. Thus, it will be observed that the policy drew out not only the limits of the insurer's liability but
also the mechanics that the insured had to follow to be entitled to full indemnity of repairs. The option to undertake the
repairs is accorded to the insurance company per paragraph 2. The said company was deprived of the option because
the insured took it upon itself to have the repairs made, and only notified the insurer when the repairs were done. As a
consequence, paragraph 4, which limits the company's liability to P150.00, applies.

The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in itself does not justify
the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the
contracting parties.

Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is unreasonable, as the
appealed decision does, when the insurer was not given an opportunity to inspect and assess the damage before the
repairs were made, strikes Us as contrary to elementary justice and equity.
18
For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-appellant Capital
Insurance & Surety Company, Inc. to pay not more than P150.00 to the plaintiff-appellee Misamis Lumber Corporation.
Each party shall bear its own costs and attorney's fees.

6. Verendia V CA G.R. No. 75605 January 22, 1993

Lessons Applicable: Exception to Ambiguous Provisions Interpreted Against Insurer (Insurance)

FACTS:
Rafael (Rex) Verendia's residential building was insured with Fidelity and Surety Insurance
Company, Country Bankers Insurance and Development Insurance with Monte de Piedad & Savings
Bank as beneficiary
December 28, 1980 early morning: the building was completely destroyed by fire
Fidelity refused the claim stating that there was a misrepresentation since the lessee was
not Roberto Garcia but Marcelo Garcia
trial court: favored Fidelity
CA: reversed
ISSUE: W/N there was false declaration which would forfeit his benefits under Section 13 of the policy

HELD: YES.
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits
under the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any fraudulent means or devises are used by
the Insured or anyone acting in his behalf to obtain any benefit under the policy"
Robert Garcia then executed an affidavit before the National Intelligence and Security Authority
(NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the
contract of lease was a complete forgery.
Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the principle
that insurance contracts are uberrimae fidae and demand the most abundant good faith

Issue:

Whether or not Verendia can claim on the insurance despite the misrepresentation as to the
lessee and the overinsurance.

Held:

NOPE.

The contract of lease upon which Verendia relies to support his claim for insurance benefits,
was entered into between him and one Robert Garcia, a couple of days after the effectivity of
the insurance policy. When the rented residential building was razed to the ground, it appears
that Robert Garcia was still within the premises. However, according to the investigation by the
police, the building appeared to have "no occupants" and that Mr. Roberto Garcia was "renting
on the otherside of said compound" These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia whom he considered as the real lessee, was occupying the
building when it was burned.

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the
lease contract but it was Marcelo Garcia cousin of Robert, who had also been paying the
rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's
name when he in fact he was paying for the rent and why he (Verendia) himself, the lessor,
allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have

19
sufficient bases: Verendia concocted the lease contract to deflect responsibility for the fire
towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of
P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's fair market
value to be only P40,300.00, insured the same property with two other insurance companies for
a total coverage of around P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties. Its
terms and conditions constitute the measure of the insurer's liability and compliance therewith
is a condition precedent to the insured's right to recovery from the. As it is also a contract of
adhesion, an insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim under Fire Insurance Policy, the terms of the policy should
be strictly construed against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and unambiguous,
that all benefits under the policy shall be forfeited "if the claim be in any respect fraudulent, or
if any false declaration be made or used in support thereof, or if any fraudulent means or
devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the
policy". Verendia, having presented a false declaration to support his claim for benefits in the
form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of
the policy in the absence of proof that Fidelity waived such provision

There is also no reason to conclude that by submitting the subrogation receipt as evidence in
court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration
of the amount of P142,685.77. While the said receipt appears to have been a filled-up form of
Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces
for a witness and his address are not filled up. More significantly, the same receipt states that
Verendia had received the aforesaid amount. However, that Verendia had not received the
amount stated therein, is proven by the fact that Verendia himself filed the complaint for the full
amount of P385,000.00 stated in the policy. It might be that there had been efforts to settle
Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement
had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational
basis but would be substituting the will of the Court for that of the parties

MELO, J.:

The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance Company of
the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and June
23, 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in
the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also
insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 under
Policy No. PDB-80-1913 expiring on May 12, 1981, and The Development Insurance for P400,000.00 under Policy No.
F-48867 expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early
morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment
under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City,
praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint
was later amended to include Monte de Piedad as an "unwilling defendant" (P. 16, Record).

20
Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-
insurance; that Verendia maliciously represented that the building at the time of the fire was leased under a contract
executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining
the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by Verendia in that
the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development
Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31, 1986, (CA-
G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following
reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the
name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other
contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia (pp.
32-33, Rollo of G.R. No. 76399).

Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a motion for
reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days within which
to file a motion for reconsideration. The motion for extension was not filed on April 19, 1986 which was the 15th day
after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday (p.
14., Rollo of G.R. No. 75605). The motion for extension was granted by the appellate court on April 30, 1986 (p.
15. ibid.), but Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).

Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion
for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was
ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration was similarly
brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was initiated.
Subsequently, or more specifically on October 21, 1986, the appellate court denied Fidelity's motion for reconsideration
and account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now docketed as G.R. No.
76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case which is the petition for review on certiorari, we must
first determine whether the decision of the appellate court may still be reviewed, or whether the same is beyond further
judicial scrutiny. Stated otherwise, before anything else, inquiry must be made into the issue of whether Fidelity could
have legally asked for an extension of the 15-day reglementary period for appealing or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the running of the period sought to be extended (Garcia vs.
Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).

The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a motion for
extension of time to file a motion for reconsideration in regard to a final order or judgment, magistrates, including those
in the Court of Appeals, held sharply divided opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not definitely settled until this Court issued its
Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986

. . . the rule shall be strictly enforced that no motion for extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)

In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of course,
Verendia's motion to expunge the motion for reconsideration was not finally disposed until July 22, 1986, or after the
dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for extension came before its
formal proscription under Habaluyas, for which reason we now turn our attention to G.R. No. 76399.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of lease submitted by
Verendia to support his claim on the fire insurance policy constitutes a false declaration which would forfeit his benefits

21
under Section 13 of the policy and (b) whether or not, in submitting the subrogation receipt in evidence, Fidelity had in
effect agreed to settle Verendia's claim in the amount stated in said receipt. 1

Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better resolved by the
appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of this Court is limited to the
review of errors of law. The appellate court's findings of fact are, therefore, conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures; (2)
when the inference made is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of discretion in
the appreciation of facts; (4) when the judgment is premised on a misapprehension of facts; (5) when the findings of
fact are conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433
[1991]). In view of the conflicting findings of the trial court and the appellate court on important issues in these
consolidated cases and it appearing that the appellate court judgment is based on a misapprehension of facts, this
Court shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between
him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after the
effectivity of the insurance policy. When the rented residential building was razed to the ground on December 28, 1980,
it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation
report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and
that Mr. Roberto Garcia was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10).

Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate him.
Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect
that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery.
Thus, on the strength of these facts, the adjuster submitted a report dated December 4, 1981 recommending the
denial of Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to
Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals all the while. Verendia,
however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why
he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore,
to have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged
"lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial
Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with
two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by
the disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking Corporation vs.
Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental Assurance
Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals,
185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be liberally construed in favor
of the insured and strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs.
Court of Appeals, 187 SCRA 652 [1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support
his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed against the
insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms
that are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are
used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented
a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits
therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith
(Velasco vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound
itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the said
receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even
incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt
22
states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount stated
therein, is proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the
policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself
does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the
subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but
would be substituting the will of the Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the
decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial
court is hereby REINSTATED and UPHELD.

SO ORDERED.

II. THE CONTRACT OF INSURANCE: ITS ELEMENTS

1. Phil. American Life Insurance Company V. Ansaldo (1994)

Lessons Applicable: Doing an Insurance Business (Insurance)

FACTS:
Ramon M. Paterno, Jr. sent a letter dated April 17, 1986 to Insurance Commissioner alleging
certain problems encountered by agents, supervisors, managers and public consumers of the
Philippine American Life Insurance Company (Philamlife)
During the hearing Ramon stated that the contract of agency is illegal
Philamlife through its president De los Reyes contended that the Insurance Commissioner as a
quasi-judicial body cannot rule on the matter
ISSUE:
1. W/N the Insurance Commissioner has the authority to regulate the business of insurance - YES
2. W/N the business of insurance covers the contract of agency - NO

HELD: petition is GRANTED

1. YES.

Insurance Code
Sec. 414
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating
to insurance, insurance companies and other insurance matters, mutual benefit
associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to
the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in section two hundred thirty-two and to provide for the
licensing of persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.

The Commissioner may issue such rulings, instructions, circulars, orders and decision as
he may deem necessary to secure the enforcement of the provisions of this Code,
subject to the approval of the Secretary of Finance. Except as otherwise specified,
decisions made by the Commissioner shall be appealable to the Secretary of Finance.
Sec. 415
Sec. 415. In addition to the administrative sanctions provided elsewhere in this Code,
the Insurance Commissioner is hereby authorized, at his discretion, to impose upon the
insurance companies, their directors and/or officers and/or agents, for any willful failure
or refusal to comply with, or violation of any provision of this Code, or any order,
instruction, regulation, or ruling of the Insurance Commissioner, or any commission or

23
irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Insurance Commissioner, the following:

(a) fines not in excess of five hundred pesos a day; and

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

Insurance Commissioner has the authority to regulate the business of insurance

2. NO.
power does not cover the relationship affecting the insurance company and its agents but is
limited to adjudicating claims and complaints filed by the insured against the insurance company
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the
Insurance Code, the provisions of said Chapter speak only of the licensing requirements and
limitations imposed on insurance agents and brokers.
Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989):
insurance company may have two classes of agents who sell its insurance policies:
(1) salaried employees who keep definite hours and work under the control and
supervision of the company - governed by the Contract of Employment and the provisions of the
Labor Code
(2) registered representatives, who work on commission basis. - governed by the
Contract of Agency and the provisions of the Civil Code on the Agency

QUIASON, J.:

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

We grant the petition.

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April 17, 1986, to
respondent Commissioner, alleging certain problems encountered by agents, supervisors, managers and public
consumers of the Philippine American Life Insurance Company (Philamlife) as a result of certain practices by said
company.

In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in his capacity
as Philamlife's president, to comment on respondent Paterno's letter.

In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that private
respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts, dates, figures, provisions of
law, rules and regulations, and all other pertinent data which are necessary to enable him to prepare an intelligent
reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance Commissioner to private respondent for his
comments thereon.

On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that his letter-
complaint of April 17, 1986 was sufficient in form and substance, and requested that a hearing thereon be conducted.

Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his claim that private
respondent's letter of May 16, 1986 did not supply the information he needed to enable him to answer the letter-
complaint.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of the Contract of
Agency complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the provisions of the agency
contract which he claimed to be illegal.

On August 4, private respondent submitted a letter of specification to respondent Commissioner dated July 31, 1986,
reiterating his letter of April 17, 1986 and praying that the provisions on charges and fees stated in the Contract of
Agency executed between Philamlife and its agents, as well as the implementing provisions as published in the agents'
handbook, agency bulletins and circulars, be declared as null and void. He also asked that the amounts of such

24
charges and fees already deducted and collected by Philamlife in connection therewith be reimbursed to the agents,
with interest at the prevailing rate reckoned from the date when they were deducted.

Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's letter of July 31,
1986, and requested his answer thereto.

Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:

(1) Private respondent's letter of August 11, 1986 does not contain any of the particular information
which Philamlife was seeking from him and which he promised to submit.

(2) That since the Commission's quasi-judicial power was being invoked with regard to the complaint,
private respondent must file a verified formal complaint before any further proceedings.

In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings on his complaint.

On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, and July 31, 1986.

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

On October 27, respondent Commissioner notified both parties of the hearing of the case on November 5, 1986.

On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;

1. The Subpoena/Notice has no legal basis and is premature because:

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

(2) No summons has been issued nor received by the

respondent De los Reyes, and hence, no jurisdiction has
been acquired over his person;

(3) No answer has been filed, and hence, the hearing

scheduled on November 5, 1986 in the
Subpoena/Notice, and wherein the respondent is
required to appear, is premature and lacks legal basis.

II. The Insurance Commission has no jurisdiction over;

(1) the subject matter or nature of the action; and

(2) over the parties involved (Rollo, p. 102).

In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The dispositive portion
of said Order reads:

NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the fact
that the instant case is an informal administrative litigation falling outside the operation of the aforecited
memorandum circular but cognizable by this Commission, the hearing officer, in open session ruled as
it is hereby ruled to deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).

Hence, this petition.

II

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

Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the complaint in
the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of the Insurance
25
Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the Commissioner has authority to
nullify the alleged illegal provisions of the Contract of Agency.

III

The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code, to
wit:

The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations and trusts for charitable uses are
faithfully executed and to perform the duties imposed upon him by this Code, . . .

On the other hand, Section 415 provides:

In addition to the administrative sanctions provided elsewhere in this Code, the Insurance
Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their
directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of any
provision of this Code, or any order, instruction, regulation or ruling of the Insurance Commissioner, or
any commission of irregularities, and/or conducting business in an unsafe and unsound manner as may
be determined by the the Insurance Commissioner, the following:

(a) fines not in excess of five hundred pesos a day; and

(b) suspension, or after due hearing, removal of

directors and/or officers and/or agents.

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to regulate the
business of insurance, which is defined as follows:

(2) The term "doing an insurance business" or "transacting an insurance business," within the meaning
of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety; (c) doing any kind of business,
including a reinsurance business, specifically recognized as constituting the doing of an insurance
business within the meaning of this Code; (d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade the provisions of this
Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).

Since the contract of agency entered into between Philamlife and its agents is not included within the meaning of an
insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to the
Insurance Commissioner. Expressio unius est exclusio alterius.

With regard to private respondent's contention that the quasi-judicial power of the Insurance Commissioner under
Section 416 of the Insurance Code applies in his case, we likewise rule in the negative. Section 416 of the Code in
pertinent part, provides:

The Commissioner shall have the power to adjudicate claims and complaints involving any loss,
damage or liability for which an insurer may be answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable under a contract of suretyship, or for which a
reinsurer may be used under any contract or reinsurance it may have entered into, or for which a
mutual benefit association may be held liable under the membership certificates it has issued to its
members, where the amount of any such loss, damage or liability, excluding interest, costs and
attorney's fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any single claim one hundred thousand pesos.

A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is limited by law "to
claims and complaints involving any loss, damage or liability for which an insurer may be answerable under any kind of
policy or contract of insurance, . . ." Hence, this power does not cover the relationship affecting the insurance company
and its agents but is limited to adjudicating claims and complaints filed by the insured against the insurance company.

26
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance Code, the
provisions of said Chapter speak only of the licensing requirements and limitations imposed on insurance agents and
brokers.

The Insurance Code does not have provisions governing the relations between insurance companies and their agents.
It follows that the Insurance Commissioner cannot, in the exercise of its quasi-judicial powers, assume jurisdiction over
controversies between the insurance companies and their agents.

We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989),
and Investment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA 904 (1962), that an
insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees who keep
definite hours and work under the control and supervision of the company; and (2) registered representatives, who
work on commission basis.

Under the first category, the relationship between the insurance company and its agents is governed by the Contract of
Employment and the provisions of the Labor Code, while under the second category, the same is governed by the
Contract of Agency and the provisions of the Civil Code on the Agency. Disputes involving the latter are cognizable by
the regular courts.

WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance Commission is SET
ASIDE.

SO ORDERED.

2. Filipinas Cia de Seguros v. Christern Huenfeld & Co. - Enemy Corporation

Facts:

> Oct. 1, 1941, Domestic Corp Christern, after payment of the premium, obtained from Filipinas,
fire policy no. 29333 for P100T covering merchandise contained in a building located in
Binondo.

> On Feb. 27, 1942, during the Jap occupation, the building and the insured merchandise were
burned. Christern submitted to Filipinas its claim.

> Salvaged goods were sold and the total loss of Christern was P92T.

> Filipinas denied liability on the ground that Christern was an enemy corporation and cannot
be insured.

Issue:

Whether or not Filipinas is liable to Christern, Huenfeld & Co.

Held:

NO.

Majority of the stockholders of Christern were German subjects. This being so, SC ruled that
said corporation became an enemy corporation upon the war between the US and Germany.
The Phil Insurance Law in Sec. 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 purpose of the war is to cripple the power ad exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy property and repay in insurance the

27
value of what has been so destroyed, or that it should in such manner increase the resources of
the enemy or render it aid.

All individuals who compose the belligerent powers, exist as to each other, in a state of utter
exclusion and are public enemies. Christern having become an enemy corporation on Dec. 10.
1941, the insurance policy issued in his favor on Oct. 1, 1941 by Filipinas had ceased to be valid
and enforceable, and since the insured goods were burned after Dec. 10, 1941, and during the
war, Christern was NOT entitled to any indemnity under said policy from Filipinas.

Elementary rules of justice require that the premium paid by Christern for the period covered by
the policy from Dec. 10, 1941 should be returned by Filipinas.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding
premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000,
covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February 27,
1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the
respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public auction and,
after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to
pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United
States declared war against Germany, the respondent Corporation (though organized under and by virtue of the laws
of the Philippines) being controlled by the German subjects and the petitioner being a company under American
jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the
Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum
of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering
from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise
were burned up after the policy issued in 1941 in favor of the respondent corporation has ceased to be effective
because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military occupation was under
pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs.
Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs.
The case is now before us on appeal by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy
when the United States declared war against Germany, relying on English and American cases which held that a
corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected
the theory that nationality of private corporation is determine by the character or citizenship of its controlling
stockholders.

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. The English and American cases relied upon by the Court of Appeals have lost their force
in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation,
decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been
adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the
Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations, themselves considered as
enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after
the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused to
recognized the concept whereby American-registered corporations could be considered as enemies and thus
subject to domestic legislation and administrative measures regarding enemy property.
28
 World War II revived the problem again. It was known that German and other enemy interests were cloaked by
domestic corporation structure. It was not only by legal ownership of shares that a material influence could be
exercised on the management of the corporation but also by long term loans and other factual situations. For
that reason, legislation on enemy property enacted in various countries during World War II adopted by
statutory provisions to the control test and determined, to various degrees, the incidents of control. Court
decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as
did other legislations the applications of the control test and again, as in World War I, courts refused to apply
this concept whereby the enemy character of an American or neutral-registered corporation is determined by
the enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the
treatment of foreign-owned property in the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such
administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8,
1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee
Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court:
"The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property
Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which masqueraded under
those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country
or national so that no innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision.
However, we may add that, in Haw Pia vs. China Banking Corporation, * 45 Off Gaz., (Supp. 9) 299, we already held
that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with the Enemy
Acts of civilized countries not only because it was incorporated under the laws of an enemy country but because it was
controlled by enemies.

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.

Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent with a
state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading
with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary
submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all
contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy,
upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one
country cannot be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to
cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should
destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should
in such manner increase the resources of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful.
All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter
exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it
is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of
the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

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.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in
question became null and void upon the declaration of war between the United States and Germany on December 10,
1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not
cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the
29
respondent was involuntary, its action is not tenable in view of the ruling on the validity of the policy. As a matter of fact,
the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful
right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to
the effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no
doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely
obeyed the instruction of the Japanese Military Administration, as may be seen from the following: "In view of the
findings and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of
which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military
Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs.
Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check."
(Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case.
However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on
April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner
the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be
returned by the petitioner for the unexpired term of the policy in question, beginning December 11, 1941. Without
costs. So ordered.

3. San Miguel Brewery V. Law Union And Rock Insurance Co. (1920)

Lessons Applicable:
Mortgagor (Insurance)
Measure of Insurable Interest (Insurance)
Effect of Change of Interest in Thing Insured (Insurance)
Effect of transfer of thing insured (Insurance)
Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all
old law)

FACTS:

In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the policies in such manner as to authorize the
Brewery Company to receive the proceeds in case of loss and to retain such part thereof as might
be necessary to satisfy the remainder then due upon the mortgage debt. Instead, however, of
effecting the insurance himself Dunn authorized and requested the Brewery Company to procure
insurance on the property in the amount of P15,000 at Dunn's expense.
San Miguel insured the property only as mortgagee.
Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.
When it was destroyed by fire, the two companies settled with San Miguelto the extent of the
mortgage credit.
RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the
difference between the mortgage credit and the face value of the policies.
Henry Harding appealed.
ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO

HELD: affirmed
section 19 of the Insurance Act:
a change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are vested in the same person
section 55:
the mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured
Undoubtedly these policies of insurance might have been so framed as to have been "payable to
the San Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during
30
 the continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No.
2427.) Such a clause would have proved an intention to insure the entire interest in the property,
not merely the insurable interest of the San Miguel Brewery, and would have shown exactly to
whom the money, in case of loss, should be paid. But the policies are not so written.
The blame for the situation thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that the insurance companies
were requested to write insurance upon the insurable interest of the owner or intended to make
themselves liable to that extent
If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the parties are entitled to have it reformed. But to justify the reformation of a contract, the
proof must be of the most satisfactory character, and it must clearly appear that the contract failed
to express the real agreement between the parties
In the case now before us the proof is entirely insufficient to authorize reformation.

STREET, J.:

This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by the plaintiff, the San
Miguel Brewery, for the purpose of recovering upon two policies of insurance underwritten respectively by Law Union
and Rock Insurance Company (Ltd.), and the "Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring
certain property which has been destroyed by fire. The plaintiff, the San Miguel Brewery, is named as the party
assured in the two policies referred to, but it is alleged in the complaint that said company was in reality interested in
the property which was the subject of insurance in the character of a mortgage creditor only, and that the owner of said
property upon the date the policies were issued was one D. P. Dunn who was later succeeded as owner by one Henry
Harding. Accordingly said Harding was made a defendant, as a person interested in the subject of the litigation.

The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two companies named for
the sum of P15,000, with interest and costs, and further that upon satisfaction of the balance of P4,505.30 due to the
plaintiff upon the mortgage debt, and upon the cancellation of the mortgage, the plaintiff be absolved from liability to
the defendants or any of them. The peculiar form of the latter part of the prayer is evidently due to the design of the
plaintiff to lay a foundation for Harding to recover the difference between the plaintiff's credit and the amount for which
the property was insured. Accordingly, as was to be expected, Harding answered, admitting the material allegations of
the complaint and claiming for himself the right to recover the difference between the plaintiff's mortgage credit and the
face value of the policies. The two insurance companies also answered, admitting in effect their liability to the San
Miguel Brewery to the extent of its mortgage credit, but denying liability to Harding on the ground that under the
contracts of insurance the liability of the insurance companies was limited to the insurable interest of the plaintiff
therein. Soon after the action was begun the insurance companies effected a settlement with the San Miguel Brewery
by paying the full amount of the credit claimed by it, with the result that the litigation as between the original plaintiff
and the two insurance companies came to an end, leaving the action to be prosecuted to final judgement by the
defendant Harding with respect to the balance claimed to be due to him upon the policies.

Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of action whatever against
the companies and absolved them from liability without special finding as to costs. From this decision the said Henry
Harding has appealed.

The two insurance companies who are named as defendants do not dispute their liability to the San Miguel Brewery, to
the extent already stated, and the only question here under discussion is that of the liability of the insurance
companies to Harding. It is therefore necessary to take account of such facts only as bear upon this aspect of the
case.

In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the property to which the
insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of P10,000. In the contract of
mortgage Dunn agreed to keep the property insured at his expense to the full amount of its value in companies to be
selected by the Brewery Company and authorized the latter in case of loss to receive the proceeds of the insurance
and to retain such part as might be necessary to cover the mortgage debt. At the same time, in order more
conveniently to accomplish the end in view, Dunn authorized and requested the Brewery Company to effect said
insurance itself. Accordingly on the same date Antonio Brias, general manager of the Brewery, made a verbal
application to the Law Union and Rock Insurance Company for insurance to the extent of P15,000 upon said property.
In reply to a question of the company's agent as to whether the Brewery was the owner of the property, he stated that
the company was interested only as a mortgagee. No information was asked as to who was the owner of the property,
and no information upon this point was given.

31
It seems that the insurance company to whom this application was directed did not want to carry more than one-half
the risk. It therefore issued its own policy for P7,500 and procured a policy in a like amount to be issued by the
"Filipinas" Compania de Seguros. Both policies were issued in the name of the San Miguel Brewery as the assured,
and contained no reference to any other interest in the property. Both policies contain the usual clause requiring
assignments to be approved and noted on the policy. The premiums were paid by the Brewery and charged to Dunn. A
year later the policies were renewed, without change, the renewal premiums being paid by the Brewery, supposedly for
the account of the owner. In the month of March of the year 1917 Dunn sold the insured property to the defendant
Henry Harding, but not assignment of the insurance, or of the insurance policies, was at any time made to him.

We agree with the trial court that no cause of action in Henry Harding against the insurance companies is show. He is
not a party to the contracts of insurance and cannot directly maintain an action thereon. (Uy Tam and Uy
Yet vs.Leonard, 30 Phil. Rep., 471.) His claim is merely of an equitable and subsidiary nature and must be made
effective, if at all, through the San Miguel Brewery in whose name the contracts are written. Now the Brewery, as
mortgagee of the insured property, undoubtedly had an insurable interest therein; but it could not, in any event, recover
upon these policies an amount in excess of its mortgage credit. In this connection it will be remembered that Antonio
Brias, upon making application for the insurance, informed the company with which the insurance was placed that the
Brewery was interested only as a mortgagee. It would, therefore, be impossible for the Brewery mortgage on the
insured property.

This conclusion is not only deducible from the principles governing the operation and effect of insurance contracts in
general but the point is clearly covered by the express provisions of sections 16 and 50 of the Insurance Act (Act No.
2427). In the first of the sections cited, it is declared that "the measure of an insurable interest in property is the extent
to which the insured might be damnified by loss or injury thereof" (sec. 16); while in the other it is stated that "the
insurance shall be applied exclusively to the proper interest of the person in whose name it is made unless otherwise
specified in the policy" (sec. 50).

These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the ownership of the property
had continued in him up to the time of the loss; and as regards Harding, an additional insuperable obstacle is found in
the fact that the ownership of the property had been charged, prior to the loss, without any corresponding change
having been effected in the policy of insurance. In section 19 of the Insurance Act we find it stated that "a change of
interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance,
suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person." Again in section 55 it is declared that "the mere transfer of a thing insured does not
transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured."

Undoubtedly these policies of insurance might have been so framed as to have been "payable to the Sane Miguel
Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the continuance of the risk, may
become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a clause would have proved an intention to
insure the entire interest in the property, not merely the insurable interest of the San Miguel Brewery, and would have
shown exactly to whom the money, in case of loss, should be paid. But the policies are not so written.

It is easy to collect from the facts stated in the decision of the trial judge, no less than from the testimony of Brias, the
manager of the San Miguel Brewery, that, as the insurance was written up, the obligation of the insurance companies
was different from that contemplated by Dunn, at whose request the insurance was written, and Brias. In the contract
of mortgage Dunn had agreed, at his own expense, to insure the mortgaged property for its full value and to indorse
the policies in such manner as to authorize the Brewery Company to receive the proceeds in case of loss and to retain
such part thereof as might be necessary to satisfy the remainder then due upon the mortgage debt. Instead, however,
of effecting the insurance himself Dunn authorized and requested the Brewery Company to procure insurance on the
property in the amount of P15,000 at Dunn's expense. The Brewery Company undertook to carry this mandate into
effect, and it of course became its duty to procure insurance of the character contemplated, that is, to have the policies
so written as to protect not only the insurable interest of the Brewery, but also the owner. Brias seems to have
supposed that the policies as written had this effect, but in this he was mistaken. It was certainly a hardship on the
owner to be required to pay the premiums upon P15,000 of insurance when he was receiving no benefit whatever
except in protection to the extent of his indebtedness to the Brewery. The blame for the situation thus created rests,
however, with the Brewery rather than with the insurance companies, and there is nothing in the record to indicate that
the insurance companies were requested to write insurance upon the insurable interest of the owner or intended to
make themselves liable to that extent.

If during the negotiations which resulted in the writing of this insurance, it had been agreed between the contracting
parties that the insurance should be so written as to protect not only the interest of the mortgagee but also the
residuary interest of the owner, and the policies had been, by inadvertence, ignorance, or mistake written in the form in
which they were issued, a court would have the power to reform the contracts and give effect to them in the sense in
which the parties intended to be bound. But in order to justify this, it must be made clearly to appear that the minds of
the contracting parties did actually meet in agreement and that they labored under some mutual error or mistake in
32
respect to the expression of their purpose. Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it
appeared that a mortgage desiring to insure his own insurable interest only, correctly stated his interest, and asked that
the same be insured. The insurance company agreed to accept the risk, but the policy was issued in the name of the
owner, because of the mistaken belief of the company's agent that the law required it to be so drawn. It was held that a
court of equity had the power, at the suit of the mortgage, to reform the instrument and give judgment in his favor for
the loss thereunder, although it had been exactly as it was. Said the court: "If the applicant correctly states his interest
and distinctly asks for an insurance thereon, and the agent of the insurer agrees to comply with his request, and
assumes to decide upon the form of the policy to be written for that purpose, and by mistake of law adopts the wrong
form, a court of equity will reform the instrument so as to make it insurance upon the interest named." (See
also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa, 334; 16 Am. St. Rep., 443;
Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31 Conn., 517; Balen vs. Hanover Fire Insurance Co., 67
Mich., 179.)

Similarly, in cases where the mortgage is by mistake described as owner, the court may grant reformation and permit a
recovery by the mortgage in his character as such. (Dalton vs. Milwaukee etc. Insurance Co., 126 Iowa, 377;
Spare vs. Home Mutual Insurance Co., 17 Fed., 568.) In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L.
3d., 408), it appeared that one Kearney made application to an insurance company for insurance on certain property in
his hands as receiver and it was understood between him and the company's agent that, in case of loss, the proceeds
of the policy should accrue to him and his successors as receiver and to others whom it might concern. However, the
policy, as issued, was so worded as to be payable only to him as receiver. In an action brought on the policy by a
successor of Kearney, it was alleged that the making of the contract in this form was due to inadvertence, accident,
and mistake upon the part of both Kearney and the company.

Said the court:

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the policy, the
plaintiff is entitled to have it reformed.

In another case the same court said:

We have before us a contract from which by mistake, material stipulations have been omitted, whereby the true intent
and meaning of the parties are not fully or accurately expressed. There was a definite concluded agreement as to
insurance, which, in point of time, preceded the preparation and delivery of the policy, and this is demonstrated by
legal and exact evidence, which removes all doubt as to the sense and undertaking of the parties. In the agreement
there has been a mutual mistake, caused chiefly by that contracting party who now seeks to limit the insurance to an
interest in the property less than that agreed to be insured. The written agreement did not effect that which the parties
intended. That a court of equity can afford relief in such a case, is, we think, well settled by the authorities.
(Smell vs. Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L. ed., 52.)

But to justify the reformation of a contract, the proof must be of the most satisfactory character, and it must clearly
appear that the contract failed to express the real agreement between the parties. (Philippine Sugar Estates
Development Company vs. Government of the Philippine Islands, 62 L. ed., 1177, reversing Government of Philippine
Island vs. Philippine Sugar Estates Development Co., 30 Phil. Rep., 27.)

In the case now before us the proof is entirely insufficient to authorize the application of the doctrine state in the
foregoing cases, for it is by means clear from the testimony of Brias and none other was offered that the parties
intended for the policy to cover the risk of the owner in addition to that of the mortgagee. It results that the defendant
Harding is not entitled to relief in any aspect of the case.

The judgment is therefore affirmed, with costs against the appellant. So ordered.

4. Saura Import & Export Co., Inc. V. Philippine International Surety Co., Inc. (1963)

Lessons Applicable: Mortgagor (Insurance)

Laws Applicable:

FACTS:

Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land.
The mortgage was amended to guarantee an increased amount, bringing the total mortgaged
debt to P37,000
33
 On the land mortgage is a building owned by Saura Import & Export Co Inc. which was insured
with Philippine International Surety (Insurer) even before the mortgage contract so it was required
to endorse to mortgagee PNB
October 15, 1954: Barely 13 days after the issuance of the fire insurance policy, the insurer
cancelled it. Notice of the cancellation was given to PNB (mortgagee). But Saura (insured) was not
informed.
April 6, 1955: The building and all its contents worth P40,685.69 were burned so Saura filed a
claim with the Insurer and mortgagee Bank
RTC: dismissed
ISSUE: W/N Philippine International Surety should be held liable for the claim because notice to only
the mortgagee is not substantial

HELD:YES. Appealed from is hereby reversed. Philippine International Surety Co., Inc., to pay Saura
Import & Export Co., Inc., P29,000
It was the primary duty of Philippine International Surety to notify the insured, but it did not
If a mortgage or lien exists against the property insured, and the policy contains a clause stating
that loss, if any, shall be payable to such mortgagee or the holder of such lien as interest may
appear, notice of cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of
the policy to the owner of the property.
liability attached principally the insurance company, for its failure to give notice of the
cancellation of the policy to Saura
it is unnecessary to discuss the errors assigned against appellee bank

Issue:

Whether or not there was proper cancellation of the policy?

Held:

NO.

The policy in question does NOT provide for the notice of cancellation, its form or period. The
Insurance Law does not likewise provide for such notice. This being the case, it devolves upon
the Court to apply the generally accepted principles of insurance, regarding cancellation of the
insurance policy by the insurer.

Actual notice of cancellation in a clear and unequivocal manner, preferably in writing should be
given by the insurer to the insured so that the latter might be given an opportunity to obtain
other insurance for his own protection. The notice should be personal to the insurer and not to
and/or through any unauthorized person by the policy. Both the PSIC and the PNB failed,
wittingly or unwittingly to notify Saura of the cancellation made.

The insurer contends that it gave notice to PNB as mortgagee of the property and that was
already substantial compliance with its duty to notify the insured of the cancellation of the
policy. But notice to the bank, as far as Saura herein is concerned, is not effective notice.
PISC is then ordered to pay Saura P29T, the amount involved in the policy subject matter of this
case.

PAREDES, J.:

Instant case was certified by the Court of Appeals to Us, it appearing that the issues involved are purely of law.

34
On December 26, 1952, the Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land
covered by T.C.T. No. 40445 of the Registry of Deeds of Davao, issued in its name, to secure the payment of
promissory note of P27,000.00 (Exhs. P, B-2). On April 30, 1953, the mortgage was amended to guarantee an
increased amount, bringing the total mortgaged debt to P37,000.00 (Exhs. P-2, B-3). The provisions of the mortgaged
contact, pertinent to the resolution of the present case, provide as follows

2. . . . he shall insure the mortgaged property at all times against fire and earthquake for an amount and with
such company satisfactory to the Mortgagee, indorsing to the latter the corresponding policies; he shall keep
the mortgaged property in good condition, making repairs and protecting walls that may be necessary; . . .

xxx xxx xxx

Erected on the land mortgaged, was a building of strong materials owned by the mortgagor Saura Import & Export Co.,
Inc., which had always been covered by insurance, many years prior to the mortgage contract. Pursuant to the
requirement, Saura insured the building and its contents with the Philippine International Surety, an insurance firm
acceptable to mortgagee Bank, for P29,000.00 against fire for the period of one year from October 2, 1954. As
required therefor, the insurance policy was endorsed to the mortgagee PNB, in a Memo which states

Loss if any, payable to the Philippine National Bank as their interest may appear, subject to the terms,
conditions and warranties of this policy (Exh. A).

The policy was delivered to the mortgagee Bank by Saura. On October 15, 1954, barely thirteen (13) days after the
issuance of the fire insurance policy (October 2, 1954), the insurer cancelled the same, effective as of the date of issue
(Exh. A-2). Notice of the cancellation was given to appellee bank in writing, sent by Registered Mail and personally
addressed to Fortunato Domingo, Branch Manager of the appellee Bank's Davao Branch, and was received by the
Bank on November 8, 1954. On April 6, 1955, the building and its contents, worth P40,685.69 were burned. On April
11, 1955, Saura filed a claim with the Insurer and mortgagee Bank. Upon the presentation of notice of loss with the
PNB, Saura learned for the first time that the policy had previously been cancelled on October 2, 1954, by the insurer,
when Saura's folder in the Bank's filed was opened and the notice of cancellation (original and duplicate) sent by the
Insurer to the Bank, was found. Upon refusal of the Insurer Philippine International Surety to pay the amount of the
insurance, Civil Case No. 26847 was filed with the Manila CFI against the Insurer, and the PNB was later included as
party defendant, after it had refused to prosecute the case jointly with Saura Import & Export Co., Inc.

At the trial, it was established that neither the Insurer nor the mortgagee Bank informed the plaintiff Saura of the
cancellation of the policy. On April 30, 1957, the court a quo rendered the following judgment

. . . IN VIEW WHEREOF, complaint dismissed; costs against the plaintiff; but as there is no proof on the
counterclaim of the Philippines International Surety, the same is also dismissed.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by
this stipulation of facts. 1wph1.t

A motion to reconsider the above judgment, seasonably presented on May 14, 1957, was subsequently denied. The
decision rendered and the resolution denying the motion for reconsideration constitute the subject of the instant appeal
by plaintiff Saura on the three alleged errors, which converge on the correctness of the ruling, wholly dismissing the
complaint absolving both the insurance company and the bank from liability.

In the determination of liabilities of the parties herein, let us look into the general principles of insurance, in matters of
cancellations of policy by the insurer. Fire insurance policies and other contracts of insurance upon property, in addition
to the common provision for cancellation of the policy upon request of the insured, generally provide for cancellation by
the insurer by notice to the insured for a prescribed period, which is usually 5 days, and the return of the unearned
portion of the premium paid by the insured, such provision for cancellation upon notice being authorized by statutes in
some jurisdiction, either specifically or as a provision of an adopted standard form of policy. The purpose of provisions
or stipulations for notice to the insured, is to prevent the cancellation of the policy, without allowing the insured ample
opportunity to negotiate for other insurance in its stead. The form and sufficiency of a notice of cancellation is
determined by policy provisions. In order to form the basis for the cancellation of a policy, notice to the insured n not be
in any particular form, in the absence of a statute or policy provision prescribing such form, and it is sufficient, so long
as it positively and unequivocally indicates to the insured, that it is the intention of the company that the policy shall
cease to be binding. Where the policy contains no provisions that a certain number of days notice shall be given, a
reasonable notice and opportunity to obtain other insurance must be given. Actual personal notice to the insured is
essential to a cancellation under a provision for cancellation by notice. The actual receipt by the insured of a notice of
cancellation is universally recognized as a condition precedent to a cancellation of the policy by the insurer, and

35
consequently a letter containing notice of cancellation which is mailed by the insurer but not received by the insured, is
ineffective as cancellation (29 Am. Jur. pp. 732-741).

The policy in question (Exh. A), does not provide for the notice, its form or period. The Insurance Law, Act No. 2427,
does not likewise provide for such notice. This being the case, it devolves upon the Court to apply the generally
accepted principles of insurance, regarding cancellation of the insurance policy by the insurer. From what has been
heretofore stated, actual notice of cancellation in a clear and unequivocal manner, preferably in writing, in view of the
importance of an insurance contract, should be given by the insurer to the insured, so that the latter might be given an
opportunity to obtain other insurance for his own protection. The notice should be personal to the insured and not to
and/or through any unauthorized person by the policy. In the case at bar, the defendant insurance company, must have
realized the paramount importance of sending a notice of cancellation, when it sent the notice of cancellation of the
policy to the defendant bank (as mortgagee), but not to the insured with which it (insurance company) had direct
dealing. It was the primary duty of the defendant-appellee insurance company to notify the insured, but it did not. It
should be stated that the house and its contents were burned on April 6, 1955, at the time when the policy was
enforced (October 2, 1954 to October 2, 1955); and that under the facts, as found by the trial court, to which We are
bound, it is evident that both the insurance company and the appellee bank failed, wittingly or unwittingly, to notify the
insured appellant Saura of the cancellation made.

Of course, the defendant insurance company contends that it gave notice to the defendant-appellee bank as
mortgagee of the property, and that was already a substantial compliance with its duty to notify the insured of the
cancellation of the policy. But notice to the bank, as far appellant herein is concerned, is not effective notice.

If a mortgage or lien exists against the property insured, and the policy contains a clause stating that loss, if
any, shall be payable to such mortgagee or the holder of such lien as interest may appear, notice of
cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of the policy to the owner of
the property. (Connecticut Ins. Co. v. Caumisar, 218 Ky. 378, 391 SW 776, cited in 29 Am. Jur. p. 743).

Upon authority of the above case, therefore, the liability of the insurance company becomes a fact.

It may be argued that in the appeal brief of appellant, no error has been assigned against the insurance company and
no prayer is found therein asking that it be made liable. It must be noted, however, that the case was dismissed the
lower court and the main object of the appeal is to secure a reversal of the said judgment. This Court is clothed with
ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their
consideration is necessary in arriving at a just decision of the case. Thus it was held:

While an assignment of error which is required by law or rule of court has been held essential to appellate
review, only those assigned will be considered, there are a number of cases which appear to accord to the
appellate court a broad discretionary power to waive the lack of proper assignment of errors and consider
errors not assigned. And an unassigned error closely related to an error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be considered by the
appellate court notwithstanding the failure to assign it as error. (Hernandez v. Andal, 78 Phil. 198-199).

Although assigned errors apparently appear to be directed against the appellee bank alone, they in essence, seek a
reversal of the decision on dismissal, entered by the lower court, which in the main has for its purpose the finding of
liability on the policy. In the course of our examination of the records of the case, the decision and the errors assigned,
We found that liability attached principally the insurance company, for its failure to give notice of the cancellation of the
policy to herein appellant itself.

Because of the conclusions reached, We find it unnecessary to discuss the errors assigned against appellee bank.

WHEREFORE, the decision appealed from is hereby reversed, and another is entered, condemning the defendant-
appellee Philippine International Surety Co., Inc., to pay Saura Import & Export Co., Inc., appellant herein, the sum of
P29,000.00, the amount involved in Policy No. 429, subject-matter of the instant case. Without costs.

5. CHERIE PALILEO, plaintiff-appellee,

vs.
BEATRIZ COSIO, defendant-appellant.

Lessons Applicable: Mortgagor (Insurance)

Laws Applicable:

36
FACTS:

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

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

BAUTISTA ANGELO, J.:

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that (1) the transaction
entered into between them on December 18, 1951 be declared as one of loan, and the document executed covering
the transaction as one of equitable mortgage to secure the payment of said loan; (2) the defendant be ordered to credit
to the plaintiff with the necessary amount from the sum received by the defendant from the Associated Insurance &
Surety Co., Inc. and to apply the same to the payment of plaintiff's obligation thus considering it as fully paid; and (3)
the defendant be ordered to pay to plaintiff the difference between the alleged indebtedness of plaintiff and the sum
received by defendant from the aforementioned insurance company, plus the sum allegedly paid to defendant as
interest on the alleged indebtedness.

On December 19, 1952, defendant filed her answer setting up as special defense that the transaction entered into
between the plaintiff and defendant is one of sale with option to repurchase but that the period for repurchase had
expired without plaintiff having returned the price agreed upon as a result of which the ownership of the property had
become consolidated in the defendant. Defendant also set up certain counterclaims which involve a total amount of
P4,900.

On April 7, 1953, the case was set for trial on the merits, but because of several postponements asked by the parties,
the same has to be set anew for trial on January 12, 1954. On this date, neither the defendant nor her counsel
appeared, even if the latter had been notified of the postponement almost a month earlier, and so the court received
the evidence of the plaintiff. On January 18, 1954, the court, having in view the evidence presented, rendered
judgment granting the relief prayed for in the complaint.

On February 2, 1954, the original counsel for the defendant was substituted and the new counsel immediately moved
that the judgment be set aside on the ground that, due to mistake or excusable negligence, defendant was unable to
present her evidence and the decision was contrary to law, and this motion having been denied, defendant took the
present appeal.

The important issue to be determined in this appeal is whether the lower court committed a grave abuse of discretion
in not reopening the case to give defendant an opportunity to present her evidence considering that the failure of her
original counsel to appear was due to mistake or execusable negligence which ordinary prudence could not have
guarded against.

37
The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953, said counsel showed
interest in the early disposal of this case by moving the court to have it set for trial. The first date set was April 7, 1953,
but no hearing was had on that date because plaintiff had moved to postpone it. The case was next set for hearing on
April 28, 1953, but on motion again of plaintiff, the hearing was transferred to November 6, 1953. Then, upon petition
of defendant, the trial had to be moved to December 15, 1953, and because Atty. Guerrero could not appear on said
date because of a case he had in Cebu City, the hearing was postponed to January 18, 1954.

And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero was appointed
Undersecretary of Foreign Affairs. It is now contended that the appointment was so sudden and unexpected that Atty.
Guerrero, after taking his oath, was unable to wind up his private cases or make any preparation at all. It is averred
that "The days that followed his appointment were very busy days for defendant's former counsel. There was an
immediate need for clearing the backlog of official business, including the reorganization of the Department of Foreign
Affairs and our Foreign Service, and more importantly, he had to assist the Secretary of Foreign Affairs in negotiations
of national importance like the Japanese reparations, and the revision of the trade agreement with the United States,
that, Atty. Guerrero had to work as much as fourteen hours daily . . . Because of all these unavoidable confusion that
followed in the wake of Atty. Guerrero's sudden and unexpected appointment, the trial of this case scheduled for
January 18, 1954 escaped his memory, and consequently, Atty. Guerrero and the defendant were unable to appear
when the case was called for trial." These reasons, it is intimated, constitute excusable negligence which
ordinary prudence could not have guarded against and should have been considered by the trial court as sufficient
justification to grant the petition of defendant for a rehearing.

It is a well-settled rule that the granting of a motion to set aside a judgment or order on the ground of mistake or
excusable negligence is addressed to the sound discretion of the court (see Coombs vs. Santos, 24 Phil., 446;
Daipan vs. Sigabu, 25, Phil., 184). And an order issued in the exercise of such discretion is ordinarily not to be
disturbed unless it is shown that the court has gravely abused such discretion. (See Tell vs. Tell, 48 Phil., 70;
Macke vs. Camps, 5 Phil., 185; Calvo vs. De Gutierrez, 4 Phil., 203; Manzanares vs. Moreta, 38 Phil., 821;
Salva vs.Palacio and Leuterio, 90 Phil., 731.) In denying the motion for reopening the trial court said: "After going over
the same arguments, this Court is of the opinion, and so holds that the decision of this Court of January 18, 1954
should not be disturbed." Considering the stature, ability and experience of counsel Leon Ma. Guerrero, and the fact
that he was given almost one month notice before the date set for trial, we are persuaded to conclude that the trial
court did not abuse its discretion in refusing to reconsider its decision.

Coming now to the merits of the case, we note that the lower court made the following findings: On December 18,
1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the following conditions: (a) that plaintiff
shall pay to defendant an interest in the amount of P250 a month; (b) that defendant shall deduct from the loan certain
obligations of plaintiff to third persons amounting to P4,550, plus the sum of P250 as interest for the first month; and (c)
that after making the above deductions, defendant shall deliver to plaintiff only the balance of the loan of P12,000.

Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00 corresponding to
nine months from December 18, 1951, on the basis of P250.00 a month, which is more than the maximum interest
authorized by law. To secure the payment of the aforesaid loan, defendant required plaintiff to sign a document known
as "Conditional Sale of Residential Building", purporting to convey to defendant, with right to repurchase, a two-story
building of strong materials belonging to plaintiff. This document did not express the true intention of the parties which
was merely to place said property as security for the payment of the loan.

After the execution of the aforesaid document, defendant insured the building against fire with the Associated
Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued in the name of
defendant. The building was partly destroyed by fire and, after proper demand, defendant collected from the insurance
company an indemnity of P13,107.00. Plaintiff demanded from defendant that she be credited with the necessary
amount to pay her obligation out of the insurance proceeds but defendant refused to do so. And on the strength of
these facts, the court rendered decision the dispositive part of which reads as follows:

Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff and defendant, as
shown in Exhibit A, an equitable mortgage to secure the payment of the sum of P12,000 loaned by the
defendant to plaintiff; ordering the defendant to credit the sum of P13,107 received by the defendant from the
Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in the sum of P12,000.00 as
stated in the complaint, thus considering the agreement of December 18, 1951 between the herein plaintiff and
defendant completely paid and leaving still a balance in the sum of P1,107 from the insurance collected by
defendant; that as plaintiff had paid to the defendant the sum of P2,250.00 for nine months as interest on the
sum of P12,000 loaned to plaintiff and the legal interest allowed by law in this transaction does not exceed 12
per cent per annum, or the sum of P1,440 for one year, so the herein plaintiff and overpaid the sum of P810 to
the defendant, which this Court hereby likewise orders the said defendant to refund to herein plaintiff, plus the
balance of P1,107 representing the difference of the sum loan of P12,000 and the collected insurance of

38
 P13,107 from the insurance company abovementioned to which the herein plaintiff is entitled to receive, and to
pay the costs.

The question that now arises is: Is the trial court justified in considering the obligation of plaintiff fully compensated by
the insurance amount and in ordering defendant to refund to plaintiff the sum of P1,107 representing the difference of
the loan of P12,000 and the sum of P13,107 collected by said defendant from the insurance company notwithstanding
the fact that it was not proven that the insurance was taken for the benefit of the mortgagor?

Is is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an insurance
taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee, independently of the
mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance
proceeds in case of loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed by
subrogation to the insurer to the extent of the money paid." (Vance on Insurance, 2d ed., p. 654)Or, stated in another
way, "the mortgagee may insure his interest in the property independently of the mortgagor. In that event, upon the
destruction of the property the insurance money paid to the mortgagee will not inure to the benefit of the
mortgagor, and the amount due under the mortgage debt remains unchanged. The mortgagee, however, is not
allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the
insurance money paid." (Vance on Insurance, 3rd ed., pp. 772-773) This is the same rule upheld by this Court in a
case that arose in this jurisdiction. In the case mentioned, an insurance contract was taken out by the mortgagee upon
his own interest, it being stipulated that the proceeds would be paid to him only and when the case came up for
decision, this Court held that the mortgagee, in case of loss, may only recover upon the policy to the extent of his
credit at the time of the loss. It was declared that the mortgaged had no right of action against the mortgagee on the
policy. (San Miguel Brewery vs. Law Union, 40 Phil., 674.)

It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate interest at his
own expense and for his own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor
has no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of the mortgage
debt" (19 R.C.L., p. 405), and that, furthermore, the mortgagee "has still a right to recover his whole debt of the
mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also
Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut. F. Ins.
Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the
minority view (See case note, 3 Lawyers' Report Annotated, new series, p. 79). "The general rule and the weight of
authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under the mortgage. This is put
upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages, Vol. I, pp. 671-672.)

Considering the foregoing rules, it would appear that the lower court erred in declaring that the proceeds of the
insurance taken out by the defendant on the property mortgaged inured to the benefit of the plaintiff and in ordering
said defendant to deliver to the plaintiff the difference between her indebtedness and the amount of insurance received
by the defendant, for, in the light of the majority rule we have above enunciated, the correct solution should be that the
proceeds of the insurance should be delivered to the defendant but that her claim against the plaintiff should be
considered assigned to the insurance company who is deemed subrogated to the rights of the defendant to the extent
of the money paid as indemnity.

Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as follows:(1) the
transaction had between the plaintiff and defendant as shown in Exhibit A is merely an equitable mortgage intended to
secure the payment of the loan of P12,000;(2) that the proceeds of the insurance amounting to P13,107.00 was
properly collected by defendant who is not required to account for it to the plaintiff; (3) that the collection of said
insurance proceeds shall not be deemed to have compensated the obligation of the plaintiff to the defendant, but bars
the latter from claiming its payment from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00
representing the overpayment made by plaintiff by way of interest on the loan. No pronouncement as to costs.

6. Grepalife v. CA

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.

39
> 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.

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.

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision [1] dated May 17, 1993, of the Court of
Appeals and its Resolution[2] dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the judgment
of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific
Life Assurance Co. The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer
under its Group policy No. G-1907, in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK
OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO
40
HUNDRED PESOS (P86,200.00); dismissing the claims for damages, attorneys fees and litigation expenses in the complaint and
counterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs, other than the widow-
beneficiary, for lack of cause of action.[3]

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or
stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension,
which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the
Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for Specific Performance with Damages. [5] During the trial,
Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information
given by the respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17,
1993, the Court of Appeals sustained the trial courts decision. Hence, the present petition.Petitioners interposed the following
assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE DEVELOPMENT
BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE
PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND
WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE
AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF JURISDICTION OVER THE
SUBJECT OR NATURE OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP THE AMOUNT OF
P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT
PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial
court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial courts judgment, Grepalife
was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit.
41
 To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption insurance, is a
device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation.[7] In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event
of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness.
[8]
Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to
the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of
policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating
that: In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to
the beneficiary/ies designated by the debtor. [10]When DBP submitted the insurance claim against petitioner, the latter denied
payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. [11] In Gonzales La O vs. Yek
Tong Lin Fire & Marine Ins. Co.[12] we held:

Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * * * Subject to
some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. * * * Although a policy
issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon
in his own name, especially where the mortgagees interest is less than the full amount recoverable under the policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has
assigned as collateral security any judgment he may obtain. [13]

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever the insured might have recovered, [14] the widow of the decedent
Dr. Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance
contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his
death. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. [15]
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information
given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio was
a duly documented hospital record, and that the widows declaration that her husband had possible hypertension several years ago
should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the
decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital
confinement.[16] Dr. Leuterios death certificate stated that hypertension was only the possible cause of death. The private
respondents statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a
doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this report, the appellant

42
insurance company refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that he had
hypertension.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the
statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant
had not proven nor produced any witness who could attest to Dr. Leuterios medical history...

xxx

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot refuse
payment of the claim.[17]

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.
[18]
Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense
by satisfactory and convincing evidence rests upon the insurer. [19] In the case at bar, the petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the
amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the mortgagors death.Hence, for private respondents
failure to establish the same, the action for specific performance should be dismissed. Petitioners claim is without merit. A life
insurance policy is a valued policy.[20] Unless the interest of a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. [21] The mortgagor paid the
premium according to the coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtors death during the terms of this insurance, a death benefit in the
amount of P86,200.00 shall be paid.

In the event of the debtors death before his indebtedness with the creditor shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall then be paid to
the beneficiary/ies designated by the debtor.[22] (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In private respondents
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagors outstanding
loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another ( Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterios heirs represented by his widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV
18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-
six thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of
proof of prior settlement of mortgagors indebtedness to Development Bank of the Philippines. Costs against petitioner.
SO ORDERED.
III. PARTIES TO AN INSURANCE CONTRACT

1. DELFIN NARIO vs. PHILIPPINE AMERICAN LIFE INSURANCE COMPANY

FACTS:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine American
Life Insurance Co., a life insurance policy under a 20-year endowment plan, with a face value of P5,000.00.
She designated thereon her husband, Delfin Nario, and their unemancipated minor son, Ernesto Nario, as
her irrevocable beneficiaries. About the middle of June, 1963, She then applied for a loan on the above
policy with PHILAMLIFE w/c she is entitled to as policy holder, after the policy has been in force for 3 years.
The purpose of such loan was for the school expenses of Ernesto.The application bore the written signature
and consent of Delfin Nario in two capacities first, as one of the irrevocable beneficiaries of the policy; and
the other, as the father-guardian of said minor son and irrevocable beneficiary, Ernesto Nario, and as the
legal administrator of the minors properties, pursuant to Article 320 of the Civil Code of the Philippines.

43
PHILAMLIFE denied the loan application contending that written consent of the minor son must not only be
given by his father as legal guardian but it must also be authorized by the court in a competent
guardianship proceeding. Mrs. Nario then signified her decision to surrender her policy and demand its
cash value which then amounted to P 520. The Insurance Company also denied the surrender of the policy
on the same ground as that given in disapproving the loan application. Mrs. Nario sued PHILAMLIFE praying
that the latter grant their loan application and/or accept the surrender of said policy in exchange for its
cash value. On September 10, 1963, Mrs. Nario and her husband, Delfin, sued PHILAMLIFE praying that the
latter grant their loan application and/or accept the surrender of said policy in exchange for its cash value.
Defendant PHILAMLIFE contends that the loan application and the surrender of the policy involved acts of
disposition and alienation of the property rights of the minor, said acts are not within the power of
administrator granted under Art. 320 in relation to art. 326 CC, hence, mere written consent given by the
father-guardian, for and in behalf of the minor son, without any court authority therefor, was not a
sufficient compliance of the law. The lower court ruled agreeing with defendants contention, sustained
defendants affirmative defense, and rendered, on January 28, 1964, its decision dismissing plaintiffs
complaint. Unable to secure reconsideration of the trial Courts ruling, petitioner appealed directly to this
Court, contending that the minors interest amounted to only one-half of the policys cash surrender value
of P520.00; that under Rule 96, Section 2 of the Revised Rules of Court, payment of the wards debts is
within the powers of the guardian, where no realty is involved; hence, there is no reason why the father may
not validly agree to the proposed transaction on behalf of the minor without need of court authority.

ISSUE:

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

HELD:

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

SC agreed with the lower court that the vested interest or right of the beneficiaries in the policy should be
measured on its full face value and not on its cash surrender value, for in case of death of the insured, said
beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying
premiums, the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up
insurance options, etc. and that said vested right under the policy cannot be divisible at any given time. SC
likewise agreed with the conclusion of the lower court that the proposed transactions in question constitute
acts of disposition or alienation of property rights and not merely of management or administration
because they involve the incurring or termination of contractual obligations. The full face value of the policy
is P5,000.00 and the minors vested interest therein, as one of the two (2) irrevocable beneficiaries,
consists of one-half () of said amount or P2,500.00. Applying laws (CC and rules of Court),the father a
must file a petition for guardianship and post a guardianship bond.

In the case at bar, the father did not file any petition for guardianship nor post a guardianship bond, and as
such cannot possibly exercise the powers vested on him as legal administrator of the minors property. The
consent gives for and in behalf of the son without prior court authorization to the loan application and the
surrender was insufficient and ineffective and PHILAMLIFE was justified in disapproving the said
applications. Assuming that the property of the ward was less than P2,000, the effect would be the same,
44
since the parents would only be exempted from filing a bond and judicial authorization, but their acts as
legal administrators are only limited to acts of management or administration and not to acts of
encumbrance or disposition

ISSUE: W/N parents as guardians can enter into transactions for the benefit of minor irrevocable
beneficiaries.

HELD: NO. Affirmed.

SEC. 7. Parents as guardians. When the property of the child under parental authority is worth
two thousand pesos or less, the father or the mother, without the necessity of court appointment,
shall be his legal guardian. When the property of the child is worth more than two thousand pesos,
the father or the mother shall be considered guardian of the child's property, with the duties and
obligations of guardians under these rules, and shall file the petition required by Section 2 hereof.
For good reasons the court may, however, appoint another suitable person.
even if worth less than P2,000 parent's authority over the estate of the ward as a legal-guardian
would not extend to acts of encumbrance or disposition, as distinguished from acts of management
or administration.

REYES, J.B.L., J.:

Direct appeal, on pure question of law, from a decision of the Court of First Instance of Manila, in its Civil Case No.
54942, dismissing plaintiffs' complaint as well as from a later order of the same court, denying a motion to set aside
and/or reconsider said decision of dismissal.

The facts of this case may be stated briefly as follows:

Mrs. Alejandra Santos-Mario was, upon application, issued, on June 12, 1959, by the Philippine American Life
Insurance Co., a life insurance policy (No. 503617) under a 20-year endowment plan, with a face value of P5,000.00.
She designated thereon her husband, Delfin Nario, and their unemancipated minor son, Ernesto Nario, as her
irrevocable beneficiaries.

About the middle of June, 1963, Mrs. Nario applied for a loan on the above stated policy with the Insurance Company,
which loan she, as policy-holder, has been entitled to avail of under one of the provisions of said policy after the same
has been in force for three (3) years, for the purpose of using the proceeds thereof for the school expenses of her
minor son, Ernesto Nario. Said application bore the written signature and consent of Delfin Nario in two capacities:
first, as one of the irrevocable beneficiaries of the policy; and the other, as the father-guardian of said minor son and
irrevocable beneficiary, Ernesto Nario, and as the legal administrator of the minor's properties, pursuant to Article 320
of the Civil Code of the Philippines.

The Insurance Company denied said application, manifesting to the policy holder that the written consent for the minor
son must not only be given by his father as legal guardian but it must also be authorized by the court in a competent
guardianship proceeding.

After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her policy to the Insurance
Company, which she was also entitled to avail of under one of the provisions of the same policy, and demanded its
cash value which then amounted to P520.00.

The Insurance Company also denied the surrender of the policy, on the same ground as that given in disapproving the
policy loan application; hence, on September 10, 1963, Mrs. Alejandra Santos-Nario and her husband, Delfin Nario,
brought suit against the Philippine American Life Insurance Co. in the above mentioned court of first instance, seeking
to compel the latter (defendant) to grant their policy loan application and/or to accept the surrender of said policy in
exchange for its cash value.1wph1.t

45
Defendant Insurance Company answered the complaint, virtually admitting its material allegations, but it set up the
affirmative defense that inasmuch as the policy loan application and the surrender of the policy involved acts of
disposition and alienation of the property rights of the minor, said acts are not within the powers of the legal
administrator, under article 320 in relation to article 326 of the Civil Code; hence, mere written consent given by the
father-guardian, for and in behalf of the minor son, without any court authority therefor, was not a sufficient compliance
of the law, and it (defendant Insurance Company) was, therefore, justified in refusing to grant and in disapproving the
proposed transactions in question.

There having been no substantial disagreement or dispute as to any material fact, the parties, upon joint motion which
the lower court granted, dispensed with the presentation of evidence and submitted their respective memoranda, after
which the case was considered submitted for decision.

The lower court found and opined that since the parties expressly stipulated in the endorsement attached to the policy
and which formed part thereof that

It is hereby understood and agreed that, notwithstanding the provisions of this Policy to the contrary, inasmuch
as the designation of the beneficiaries have been made by the Insured without reserving the right to change
said beneficiaries, the Insured may not designate a new beneficiary or assign, release or surrender this Policy
to the Company and exercise any and all other rights and privileges hereunder or agree with the Company to
any change in or amendment to this Policy, without the consent of the beneficiaries originally designated;

that under the above quoted provision, the minor son, as one of the designated irrevocable beneficiaries, "acquired a
vested right to all benefits accruing to the policy, including that of obtaining a policy loan to the extent stated in the
schedule of values attached to the policy (Gercio vs. Sun Life Assurance of Canada, 48 Phil. 53, 58)"; that the
proposed transactions in question (policy loan and surrender of policy) involved acts of disposition or alienation of the
minor's properties for which the consent given by the father-guardian for and in behalf of the minor son, must be with
the requisite court authority (U.S.V.A. vs. Bustos, 92 Phil. 327; Visaya vs. Suguitan, G.R. No. L-8300, November 18,
1955; 99 Phil. 1004 [unrep] and in the case at bar, such consent was given by the father-guardian without any judicial
authority; said court, agreeing with defendant's contention, sustained defendant's affirmative defense, and rendered,
on January 28, 1964, its decision dismissing plaintiffs' complaint.

Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court, contending that
the minor's interest amounted to only one-half of the policy's cash surrender value of P520.00; that under Rule 96,
Section 2 of the Revised Rules of Court, payment of the ward's debts is within the powers of the guardian, where no
realty is involved; hence, there is no reason why the father may not validly agree to the proposed transaction on behalf
of the minor without need of court authority.

The appeal is unmeritorious. We agree with the lower court that the vested interest or right of the beneficiaries in the
policy should be measured on its full face value and not on its cash surrender value, for in case of death of the insured,
said beneficiaries are paid on the basis of its face value and in case the insured should discontinue paying premiums,
the beneficiaries may continue paying it and are entitled to automatic extended term or paid-up insurance options, etc.
and that said vested right under the policy cannot be divisible at any given time. We likewise agree with the conclusion
of the lower court that the proposed transactions in question (policy loan and surrender of policy) constitute acts of
disposition or alienation of property rights and not merely of management or administration because they involve the
incurring or termination of contractual obligations.

As above noted, the full face value of the policy is P5,000.00 and the minor's vested interest therein, as one of the two
(2) irrevocable beneficiaries, consists of one-half () of said amount or P2,500.00.

Article 320 of the Civil Code of the Philippines provides

The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under
parental authority. If the property is worth more than two thousand pesos, the father or mother shall give a
bond subject to the approval of the Court of First Instance.

and article 326 of the same Code reads

When the property of the child is worth more than two thousand pesos, the father or mother shall be
considered a guardian of the child's property, subject to the duties and obligations of guardians under the
Rules of Court.

The above quoted provisions of the Civil Code have already been implemented and clarified in our Revised Rules of
Court which provides

46
 SEC. 7. Parents as guardians. When the property of the child under parental authority is worth two thousand
pesos or less, the father or the mother, without the necessity of court appointment, shall be his legal guardian.
When the property of the child is worth more than two thousand pesos, the father or the mother shall be
considered guardian of the child's property, with the duties and obligations of guardians under these rules, and
shall file the petition required by Section 2 hereof. For good reasons the court may, however, appoint another
suitable person. (Rule 93).

It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand pesos (P2,000.00);
that plaintiffs did not file any guardianship bond to be approved by the court; and as later implemented in the
abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs should have, but, had not, filed a formal
application or petition for guardianship, plaintiffs-parents cannot possibly exercise the powers vested on them, as legal
administrators of their child's property, under articles 320 and 326 of the Civil Code. As there was no such petition and
bond, the consent given by the father-guardian, for and in behalf of the minor son, without prior court authorization, to
the policy loan application and the surrender of said policy, was insufficient and ineffective, and defendant-appellee
was justified in disapproving the proposed transactions in question.

The American cases cited by appellants are not applicable to the case at bar for lack of analogy. In those cases, there
were pending guardianship proceedings and the guardians therein were covered by bonds to protect the wards'
interests, which circumstances are wanting in this case.

The result would be the same even if we regarded the interest of the ward to be worth less than P2,000.00. While the
father or mother would in such event be exempt from the duty of filing a bond, and securing judicial appointment, still
the parent's authority over the estate of the ward as a legal-guardian would not extend to acts of encumbrance or
disposition, as distinguished from acts of management or administration. The distinction between one and the other
kind of power is too basic in our law to be ignored. Thus, under Article 1877 of the Civil Code of the Philippines, an
agency in general terms does not include power to encumber or dispose of the property of the principal; and the Code
explicitly requires a special power or authority for the agent "to loan or borrow money, unless the latter act be urgent or
indispensable for the preservation of the thing under administration" (Art. 1878 no. 7). Similarly, special powers are
required to required to effect novations, to waive any obligation gratuitously or obligate the principal as a guarantor or
surety (Do., nos. 2, 4 and 11). By analogy, since the law merely constitutes the parent as legal administrator of the
child's property (which is a general power), the parent requires special authority for the acts above specified, and this
authority can be given only by a court. This restricted interpretation of the parent's authority becomes all the more
necessary where as in the case before us, there is no bond to guarantee the ward against eventual losses.

Appellants seek to bolster their petition by invoking the parental power (patria potestas) under the Civil Code of 1889,
which they claim to have been revived by the Civil Code of the Philippines (Rep. Act 386). The appeal profits them
nothing. For the new Civil Code has not effected a restitutio in integrum of the Spanish patria potestas; the revival has
been only in part. And, significantly, the Civil Code now in force did not reenact Article 164 of the Civil Code of 1889,
that prohibited the alienation by the parents of the real property owned by the child without court authority and led the
commentators and interpreters of said Code to infer that the parents could by themselves alienate the child's movable
property. The omission of any equivalent precept in the Civil Code now in force proves the absence of any authority in
the parents to carry out now acts of disposition or alienation of the child's goods without court approval, as contended
by the appellee and the court below.

Wherefore, the decision appealed from is affirmed. Costs against appellants Nario. So ordered.

3. Villanueva V. Oro (1948)

Lessons Applicable: Insured Outlives Policy (Insurance)

Laws Applicable:

FACTS:
West Coast Life Insurance Company issued 2 policies of insurance on the life of Esperanza J.
Villanueva:
2,000 php - maturing on April 1, 1943
if living, on the 1st day of April 1943 - to insured
upon death during the continuance of this policy - to the beneficiary Bartolome
Villanueva, father of the insured, with right on the part of the insured to change the beneficiary
1940: Bartolome Villanueva died, Mariano J. Villanueva duly substituted as
beneficiary, a brother of the insured
3,000 php - maturing on March 31, 1943
47
 Esperanza J. Villanueva survived the insurance period, for she died only on October 15, 1944,
without, however, collecting the insurance proceeds.
CFI: estate of the insured Esperanza is entitled to the insurance proceeds
ISSUE: W/N the estate of insured Esperanza should be entitled to the insurance proceeds since she
outlived the insurance policy

HELD: YES. appealed order is, therefore, hereby affirmed

To sustain the beneficiary's claim would be altogether eliminate from the policies the condition
that the insurer "agrees to pay . . . to the insured hereunder, if living
Upon the insured's death, within the period, the beneficiary will take, as against the personal
representative or the assignee of the insured. Upon the other hand, if the insured survives the
endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary
is designated in the policy

ssue:

Whether or not the beneficiary is entitled to the proceeds.

Held:

NO.

Under the policies, the insurer obligated itself to pay the insurance proceeds to: (1) the insured
if the latter lived on the dates of maturity; or (2) the beneficiary if the insured died during the
continuance of the policies. The first contingency excludes the second, and vice versa. In
other words, as the insured Esperanza was living on April 1 and March 31, 1943, the proceeds
are payable exclusively to her or to her estate unless she had before her death otherwise
assigned the matured policies.

The beneficiary could be entitled to said proceeds only in default of the first contingency. To
sustain the beneficiarys claim would be to altogether eliminate from the policies the condition
that the insurer agrees to pay to the insured if living.

This conclusion tallies with American Authorities who say that: The interest of the insured in
the proceeds of the insurance depends upon his survival of the expiration of the endowment
period. Upon the insureds death, within the period, the beneficiary will take, as against the
personal representatives the endowment period, the benefits are payable to him or to his
assignee, notwithstanding a beneficiary is designated in the policy. (AmJur and Couch
Cyclopedia of Insurance Law)

PARAS, J.:

The West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza J. Villanueva, one
for two thousand pesos and maturing on April 1, 1943, and the other for three thousand pesos and maturing on March
31, 1943. In both policies (with corresponding variation in amount and date of maturity) the insurer agreed "to pay two
thousand pesos, at the home office of the Company, in San Francisco, California, to the insured hereunder, if living, on
the 1st day of April 1943, or to the beneficiary Bartolome Villanueva, father of the insured, immediately upon receipt of
due proof of the prior death of the insured, Esperanza J. Villanueva, of La Paz, Philippine Islands, during the
continuance of this policy, with right on the part of the insured to change the beneficiary.

After the death of Bartolome Villanueva in 1940, the latter was duly substituted as beneficiary under the policies by
Mariano J. Villanueva, a brother of the insured. Esperanza J. Villanueva survived the insurance period, for she died

48
only on October 15, 1944, without, however, collecting the insurance proceeds. Adverse claims for said proceeds were
presented by the estate of Esperanza J. Villanueva on the one hand and by Mariano J. Villanueva on the other, which
conflict was squarely submitted in the intestate proceedings of Esperanza J. Villanueva pending in the Court of First
Instance of Iloilo. From an order, dated February 26, 1947, holding the estate of the insured is entitled to the insurance
proceeds, to the exclusion of the beneficiary, Mariano J. Villanueva, the latter has interposed the present appeal.

The lower court committed no error. Under the policies, the insurer obligated itself to pay the insurance proceeds (1) to
the insured if the latter lived on the dates of maturity or (2) to the beneficiary if the insured died during the continuance
of the policies. The first contingency of course excludes the second, and vice versa. In other words, as the insured
Esperanza J. Villanueva was living on April 1, and March 31, 1943, the proceeds are payable exclusively to her estate
unless she had before her death otherwise assigned the matured policies. (It is not here pretended and much less
proven, that there was such assignment.) The beneficiary, Mariano J. Villanueva, could be entitled to said proceeds
only in default of the first contingency. To sustain the beneficiary's claim would be altogether eliminate from the policies
the condition that the insurer "agrees to pay . . . to the insured hereunder, if living".

There is nothing there in the Insurance Law (Act No. 2427) that militates against the construction placed by the lower
court on the disputed condition appearing in the two policies now under advisement. On the contrary, said law provides
that "an insurance upon life may be made payable on the death of the death of the person, or on his surviving a
specified period, or otherwise, contingently on the continuance or cessation of life" (section 165), and that "a policy of
insurance upon life or health mat pass by transfer, will, or succession, to any person, whether he has an insurable
interest or not, and such person may recover upon it whatever the insured might have recovered" (section 166).

Counsel for the beneficiary invokes the decision in Del Val vs. Del Val, 29 Phil., 534, 540, in which it was held that "the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual property of the beneficiary, and not of the heirs of
the person whose life was insured." This citation is clearly not controlling, first, because it does not appear therein that
the insurance contract contained the stipulation appearing in the policies issued on the life of Esperanza J. Villanueva
and on which the appealed order in the case at bar is based; and, secondly, because the Del Val doctrine was made
upon the authority of the provisions of the Code of Commerce relating to insurance (particularly section 428) which had
been expressly repealed by the present Insurance Act No. 2427.

Our pronouncement is not novel, since it tallies with the following typical American authorities: "If a policy of insurance
provides that the proceeds shall be payable to the assured, if he lives to a certain date, and, in case of his death
before that date, then they shall be payable to the beneficiary designated, the interest of the beneficiary is a contingent
one, and the benefit of the policy will only inure to such beneficiary in case the assured dies before the end of the
period designated in the policy." (Couch, Cyclopedia of Insurance Law, Vol. 2, sec. 343. p. 1023.) "Under endowment
of tontine policies payable to the insured at the expiration of a certain period, if alive, but providing for the payment of a
stated sum to a designated beneficiary in case of the insured death during the period mentioned, the insured and the
beneficiary take contingent interests. The interest of the insured in the proceeds of the insurance depends upon his
survival of the expiration of endowment period. Upon the insured's death, within the period, the beneficiary will take, as
against the personal representative or the assignee of the insured. Upon the other hand, if the insured survives the
endowment period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in
the policy." (29 Am. Jur., section 1277, pp. 952, 953.).

The appealed order is, therefore, hereby affirmed, and it is so ordered with costs against the appellant.

4. Philamlife v. Pineda - Life Insurance

Facts:

> On Jan. 15 1963, Dimayuga processed an ordinary life insurance policy from Philamlife and
designated his wife and children as irrevocable beneficiaries.

> On Feb. 22, 1980, Dimayuga filed a petition in court to amend the designation of the
beneficiaries in his policy from irrevocable to revocable.

> Lower Court granted the petition.

Issue:

Whether or not the court erred in granting Dimayugas petition.

49
Held:

YES.

Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be
changed without the consent of the beneficiary because he has a vested interest in the policy.
The policy contract states that the designation of the beneficiaries is irrevocable. Therefore,
based on the said provision of the contract, not to mention the law then applicable, it is only
with the consent of all the beneficiaries that any change or amendment in the poicy may be
legally and validly effected. The contract between the parties is the law binding on them. (This
case rule is no longer controlling under the Insurance Code.)
Issues:
1. WON the designation of the irrevocable beneficiaries could be changed or amended without the consent of all the
irrevocable beneficiaries.
2. WON the irrevocable minor beneficiaries could give consent to the change in designation

Held: No to both. Petition dismissed.

Ratio:
Under the Insurance Act, the beneficiary designated in a life insurance contract cannot be changed without the consent
of the beneficiary because he has a vested interest in the policy.
There was an express stipulation to this effect: It is hereby understood and agreed that, notwithstanding the provisions
of this policy to the contrary, inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this
Policy has been made without reserving the right to change said beneficiary/ beneficiaries, such designation may not
be surrendered to the Company, released or assigned; and no right or privilege under the Policy may be exercised, or
agreement made with the Company to any change in or amendment to the Policy, without the consent of the said
beneficiary/beneficiaries.
The alleged acquiescence of the six (6) children beneficiaries of the policy cannot be considered an effective
ratification due to the fact that they were minors. Neither could they act through their father insured since their interests
are quite divergentfrom one another.
Therefore, the parent-insured cannot exercise rights and/or privileges pertaining to the insurance contract, for
otherwise, the vested rights of the irrevocable beneficiaries would be rendered inconsequential.
Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them and
for so many times, this court has consistently issued pronouncements upholding the validity and effectivity of contracts.
Likewise, contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense
of their stipulations, for contracts are obligatory, no matter in what form they may be, whenever the essential requisites
for their validity are present
The change in the designation of was not within the contemplation of the parties. The lower court instead made a new
contract for them. It acted in excess of its authority when it did so.

PARAS, J.:

Challenged before Us in this petition for review on certiorari are the Orders of the respondent Judge dated March 19,
1980 and June 10, 1980 granting the prayer in the petition in Sp. Proc. No. 9210 and denying petitioner's Motion for
Reconsideration, respectively.

The undisputed facts are as follows:

On January 15, 1968, private respondent procured an ordinary life insurance policy from the petitioner company and
designated his wife and children as irrevocable beneficiaries of said policy.

Under date February 22, 1980 private respondent filed a petition which was docketed as Civil Case No. 9210 of the
then Court of First Instance of Rizal to amend the designation of the beneficiaries in his life policy from irrevocable to
revocable.

Petitioner, on March 10, 1980 filed an Urgent Motion to Reset Hearing. Also on the same date, petitioner filed its
Comment and/or Opposition to Petition.

50
When the petition was called for hearing on March 19, 1980, the respondent Judge Gregorio G. Pineda, presiding
Judge of the then Court of First Instance of Rizal, Pasig Branch XXI, denied petitioner's Urgent Motion, thus allowing
the private respondent to adduce evidence, the consequence of which was the issuance of the questioned Order
granting the petition.

Petitioner promptly filed a Motion for Reconsideration but the same was denied in an Order June 10, 1980. Hence, this
petition raising the following issues for resolution:

WHETHER OR NOT THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES COULD BE

CHANGED OR AMENDED WITHOUT THE CONSENT OF ALL THE IRREVOCABLE
BENEFICIARIES.

II

WHETHER OR NOT THE IRREVOCABLE BENEFICIARIES HEREIN, ONE OF WHOM IS ALREADY

DECEASED WHILE THE OTHERS ARE ALL MINORS, COULD VALIDLY GIVE CONSENT TO THE
CHANGE OR AMENDMENT IN THE DESIGNATION OF THE IRREVOCABLE BENEFICIARIES.

We are of the opinion that his Honor, the respondent Judge, was in error in issuing the questioned Orders.

Needless to say, the applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427 as
amended, the policy having been procured in 1968. Under the said law, the beneficiary designated in a life insurance
contract cannot be changed without the consent of the beneficiary because he has a vested interest in the policy
(Gercio v. Sun Life Ins. Co. of Canada, 48 Phil. 53; Go v. Redfern and the International Assurance Co., Ltd., 72 Phil.
71).

In this regard, it is worth noting that the Beneficiary Designation Indorsement in the policy which forms part of Policy
Number 0794461 in the name of Rodolfo Cailles Dimayuga states that the designation of the beneficiaries is
irrevocable (Annex "A" of Petition in Sp. Proc. No. 9210, Annex "C" of the Petition for Review on Certiorari), to wit:

It is hereby understood and agreed that, notwithstanding the provisions of this policy to the contrary,
inasmuch as the designation of the primary/contingent beneficiary/beneficiaries in this Policy has been
made without reserving the right to change said beneficiary/ beneficiaries, such designation may not be
surrendered to the Company, released or assigned; and no right or privilege under the Policy may be
exercised, or agreement made with the Company to any change in or amendment to the Policy, without
the consent of the said beneficiary/beneficiaries. (Petitioner's Memorandum, p. 72, Rollo)

Be it noted that the foregoing is a fact which the private respondent did not bother to disprove.

Inevitably therefore, based on the aforequoted provision of the contract, not to mention the law then applicable, it is
only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable
beneficiaries may be legally and validly effected. Both the law and the policy do not provide for any other exception,
thus, abrogating the contention of the private respondent that said designation can be amended if the Court finds a
just, reasonable ground to do so.

Similarly, the alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife predeceased
the insured) cannot be considered an effective ratification to the change of the beneficiaries from irrevocable to
revocable. Indubitable is the fact that all the six (6) children named as beneficiaries were minors at the time,** for
which reason, they could not validly give their consent. Neither could they act through their father insured since their
interests are quite divergent from one another. In point is an excerpt from the Notes and Cases on Insurance Law by
Campos and Campos, 1960, reading-

The insured ... can do nothing to divest the beneficiary of his rights without his consent. He cannot
assign his policy, nor even take its cash surrender value without the consent of the beneficiary. Neither
can the insured's creditors seize the policy or any right thereunder. The insured may not even add
another beneficiary because by doing so, he diminishes the amount which the beneficiary may recover
and this he cannot do without the beneficiary's consent.

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

51
Of equal importance is the well-settled rule that the contract between the parties is the law binding on both of them and
for so many times, this court has consistently issued pronouncements upholding the validity and effectivity of contracts.
Where there is nothing in the contract which is contrary to law, good morals, good customs, public policy or public
order the validity of the contract must be sustained. Likewise, contracts which are the private laws of the contracting
parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room
for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter in what form they may be,
whenever the essential requisites for their validity are present (Phoenix Assurance Co., Ltd. vs. United States Lines, 22
SCRA 675, Phil. American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22.)

In the recent case of Francisco Herrera vs. Petrophil Corporation, 146 SCRA 385, this Court ruled that:

... it is settled that the parties may establish such stipulations, clauses, terms, and conditions as they
may want to include; and as long as such agreements are not contrary to law, good morals, good
customs, public policy or public order, they shall have the force of law between them.

Undeniably, the contract in the case at bar, contains the indispensable elements for its validity and does not in any way
violate the law, morals, customs, orders, etc. leaving no reason for Us to deny sanction thereto.

Finally, the fact that the contract of insurance does not contain a contingency when the change in the designation of
beneficiaries could be validly effected means that it was never within the contemplation of the parties. The lower court,
in gratuitously providing for such contingency, made a new contract for them, a proceeding which we cannot tolerate.
Ergo, We cannot help but conclude that the lower court acted in excess of its authority when it issued the Order dated
March 19, 1980 amending the designation of the beneficiaries from "irrevocable" to "revocable" over the
disapprobation of the petitioner insurance company.

WHEREFORE, premises considered, the questioned Orders of the respondent Judge are hereby nullified and set
aside.

SO ORDERED.

6. Southern Luzon Employees' Ass. V. Golpeo, Et Al. (1954)

Lessons Applicable: Invalid Designation (Insurance)

FACTS:
Roman A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr.,
Estela M. Concepcion, Rolando M. Concepcion and Robin M. Concepcion for the death benefit of
an association amounting to P2,505
Two sets of claimants presented themselves:
Juanita Golpeo, legal wife and her children, named beneficiaries by the deceased
Marcelino and Josefina Concepcion intervened in their own right aligning
themselves Juanita Golpeo and her minor children
Elsie Hicban, another common law wife and her child
RTC:Aquilina Maloles and her children the sole beneficiaries
Only the Juanita Golpeo and her minor children and the intervenors Marcelino and Josefina
Concepcion have appealed to this court
ISSUE: W/N Aquilina Molales common-law wife and her illegitimate children can claim the benefits

HELD: YES.
Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her
husband and appellee Aquilina Maloles
new Civil Code recognized certain successional rights of illegitimate children
Separate Opinions:
REYES, J.B.L., J., concurring
I concur in the result for the reason that the contract here involved was perfected before
the new Civil Code took effect, and hence its provisions cannot be made to apply retroactively

PARAS, C.J.:

52
The plaintiff, Southern Luzon Employees' Association is composed of laborers and employees of Laguna tayabas Bus
Co., and Batangas Transportation Company, and one of its purposes is mutual aid of its members and their defendants
in case of death. Roman A. Concepcion was a member until his death on December 13, 1950. The association
adopted on September 17, 1949 the following resolution:

RESOLVED: That a family record card of each member be printed wherein the members will put down his
dependents and/or beneficiaries.

BE IT RESOLVED, FURTHER, that a member may, if he chooses, put down his common-law wife as his
beneficiary and/or children had with her as the case may be; that in case of a widower, he may put down his
legitimate children with the first marriage who are below 21 years of age, single, and may at the same time,
also name his common-law wife, if he has any, as dependents and/or beneficiaries; and

BE IT RESOLVED: That such person so named by the member will be sole persons to be recognized by the
Association regarding claims for condolence contributions.

In the form required by the association to be accomplished by its members, with reference to the death benefit, Roman
A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr., Estela M. Concepcion, Rolando
M. Concepcion and Robin M. Concepcion. After the death of Roman A. Concepcion, the association was able to collect
voluntary contributions from its members amounting to P2,5055. Three sets of claimants presented themselves,
namely, (1) Juanita Golpeo, legal wife of Roman A. Concepcion, and her children, named beneficiaries by the
deceased; and (3) Elsie Hicban, another common law wife of Roman A. Concepcion, and her child. The plaintiff
association was accordingly constrained to institute in the Court of First Instance of Laguna the present action for
interpleading against the three conflicting claimants as defendants. Marcelino and Josefina Concepcion, children of the
deceased Roman A. Concepcion with Juanita Golpeo, intervened in their own rights, aligning themselves with the
defendants, Juanita Golpeo and her minor children. After hearing, the court rendered a decision, declaring the
defendants Aquilina Maloles and her children the sole beneficiaries of the sum of P2,505.00, and ordering the plaintiff
to deliver said amount to them. From this decision only the defendants Juanita Golpeo and her minor children and the
intervenors Marcelino and Josefina Concepcion have appealed to this court.

The decision is based mainly on the theory that the contract between the plaintiff and the deceased Roman A.
Concepcion partook of the nature of an insurance and that, therefore, the amount in question belonged exclusively to
the beneficiaries, invoking the following pronouncements of this Court in the case of Del Val vs. Del Val, 29 Phil., 534:

With the finding of the trial court that the proceeds of the life-insurance policy belongs exclusively to the
defendant as his individual and separate property, we agree. That the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such
proceeds are the separate and individual property of the beneficiary, and not of the heirs of the person whose
life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue
of section 428 of the Code of Commerce, which reads:

"The amounts which the underwriter must deliver to the person insured, in fulfillment of the contract, shall be
the property creditors of any kind whatsoever of the person who effected the insurance in favor of the formers."

It is claimed by the attorney for the plaintiffs that the section just quoted in subordinated to the provisions of the
civil code as found in article 10035. This article reads:

"An heir by force of law surviving with others of the same character to a succession must bring into the
hereditary estate the property or securities he may bring into the hereditary estate the property or securities he
may have been received from the deceased during the life of the same, by way of dowry, gift, or for any good
consideration, in order to compute it in fixing the legal portions and in the amount of the division."

Counsel also claims that the proceed of the insurance policy were donation or gift made by the father during
his lifetime to the defendant and that, as such, its ultimate destination is determined by those provisions of the
Civil Code which relate to donations, especially article 819. This article provides that "gifts made to children
which are not betterments shall be considered as part of their legal portion."

We cannot agree with these contention. The contract of life insurance is a special contract and the destination
of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code
has no provisions which relate directly and specifically to life-insurance contract or to the destination of life-
insurance proceeds. That subject is regulate exclusively by the Code of Commerce which provides for the
terms of the contract, the relations of the parties and the destination of the proceeds of the policy. (Supra, pp.
540-541.)

53
It is argued for the appellants, however, that the Insurance Law is not applicable because the plaintiff is a mutual
benefit association as defined in section 1628 of the Revised Administrative Code. This argument evidently ignore the
fact that the trial court has no considered the plaintiff as a regular insurance company but merely ruled that the death
benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised Administrative Code defines a
mutual benefit association as one, among others, "providing for any method of accident or life insurance among its
members out of dues or assessments collected from the membership." The comparison made in the appealed decision
is, therefore, well taken.

Appellant also contend that the stipulation between the plaintiff and the deceased Roman A. Concepcion regarding the
specification of the latter's beneficiaries, and the resolution of September 17, 1949, are void for the being contrary to
law, moral or public policy. Specifically, the appellants cite article 2012 of the new Civil Code providing that "Any person
who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy
and by the person who cannot make any donation to him, according to said article." Inasmuch as, according to article
739 of the new Civil Code, a donation is valid when made "between persons who are guilty or adultery or concubinage
at the time of the donation," it is alleged that the defendant-appellee Aquilina Maloles, cannot be named a beneficiary,
every assuming that the insurance law is applicable. Without considering the intimation in the brief for the defendant
appellees that appellant Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her
husband and appellee Aquilina Maloles, appellant argument would certainly not apply to the children of Aquilina
likewise named beneficiaries by the deceased Roman A. Concepcion. As a matter of a fact the new Civil Code
recognized certain successional rights of illegitimate children. (Article 287.)

The other contention advanced rather exhaustively by counsel for appellants, and the citations in support there of are
either negative or rendered inapplicable by the decisive considerations already stated. In this connection it is
noteworthy that the estate of the deceased Roman A. Concepcion was not entirely left without anything legally due it
since it is an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus Co., employer of the deceased to
the appellants under the Workmen's Compensation Act. Wherefore, the appealed decision is affirmed, and it is so
ordered without costs.

7. Social Security System V. Davac (1966)

Lessons Applicable: Invalid Designation (Insurance)

FACTS:
Petronilo Davac, a former employee of Lianga Bay Logging Co., Inc. became a member of the
Social Security System (SSS) he designated Candelaria Davac as his beneficiary and indicated his
relationship to her as that of "wife"
Lourdes Tuplano his legal wife and their son Romeo Davac and Candelaria Davac and their minor
daughter Elizabeth Davac filed their claims
Social Security Commission: Candelaria Davac
ISSUE: W/N Candelaria Davac can claim and New Civil Code 739 is not applicable

HELD: YES.
she was not guilty of concubinage, there being no proof that she had knowledge of the previous
marriage of her husband Petronilo
The amounts that may thus be received cannot be considered as property earned by the member
during his lifetime
if there is a named beneficiary and the designation is not invalid (as it is not so in this case), it is
not the heirs of the employee who are entitled to receive the benefits (unless they are the
designated beneficiaries themselves). It is only when there is no designated beneficiaries or when
the designation is void, that the laws of succession are applicable. And we have already held that
the Social Security Act is not a law of succession.

ssue: Whether or not the Social Security Commission acted correctly in declaring respondent Candelaria Davac as the
person entitled to receive the death benefits in question.

Held: Yes. SSS resolution affirmed.

Ratio:
Section 13, Republic Act No. 1161, provides:

54
1. SEC. 13. Upon the covered employee's death or total and permanent disability under such conditions as the
Commission may define, his beneficiaries, shall be entitled to the following benefit
The beneficiary "as recorded" by the employee's employer is the one entitled to the death benefits.
The appellant contends that the designation made in the person of the second and bigamous wife is null and void,
because (1) it contravenes the provisions of the Civil Code, and (2) it deprives the lawful wife of her share in
the conjugal property as well as of her own and her child's legitime in the inheritance.
As to the first point, appellant argues that a beneficiary under the Social Security System partakes of the nature of a
beneficiary in life insurance policy and, therefore, the same qualifications and disqualifications should be applied.
Article 739 and 2012 of the civil code prohibits persons whoi cannot receive donations from being beneficiaries of a
policy.
The provisions mentioned in Article 739 are not applicable to Candelaria Davac because she was not guilty of
concubinage, there being no proof that she had knowledge of the previous marriage of her husband Petronilo.
Regarding the second point raised by appellant, the benefits accruing from membership in the Social Security System
do not form part of the properties of the conjugal partnership of the covered member. They are disbursed from a public
special fund created by Congress in pursuance to the declared policy of the Republic "to develop, establish gradually
and perfect a social security system which ... shall provide protection against the hazards of disability, sickness, old
age and death."
The sources of this special fund are from salary contributions.
Under other provisions, if there is a named beneficiary and the designation is not invalid, it is not the heirs of the
employee who are entitled to receive the benefits (unless they are the designated beneficiaries themselves). It is only
when there is no designated beneficiaries or when the designation is void, that the laws of succession are applicable.
The Social Security Act is not a law of succession.

BARRERA, J.:

This is an appeal from the resolution of the Social Security Commission declaring respondent Candelaria Davac as the
person entitled to receive the death benefits payable for the death of Petronilo Davac.

The facts of the case as found by the Social Security Commission, briefly are: The late Petronilo Davac, a former
employee of Lianga Bay Logging Co., Inc. became a member of the Social Security System (SSS for short) on
September 1, 1957. As such member, he was assigned SS I.D. No. 08-007137. In SSS form E-1 (Member's Record)
which he accomplished and filed with the SSS on November 21, 1957, he designated respondent Candelaria Davac as
his beneficiary and indicated his relationship to her as that of "wife". He died on April 5, 1959 and, thereupon, each of
the respondents (Candelaria Davac and Lourdes Tuplano) filed their claims for death benefit with the SSS. It appears
from their respective claims and the documents submitted in support thereof, that the deceased contracted two
marriages, the first, with claimant Lourdes Tuplano on August 29, 1946, who bore him a child, Romeo Davac, and the
second, with Candelaria Davac on January 18, 1949, with whom he had a minor daughter Elizabeth Davac. Due to
their conflicting claims, the processing thereof was held in abeyance, whereupon the SSS filed this petition praying that
respondents be required to interpose and litigate between themselves their conflicting claims over the death benefits in
question.1wph1.t

On February 25, 1963, the Social Security Commission issued the resolution referred to above, Not satisfied with the
said resolution, respondent Lourdes Tuplano brought to us the present appeal.

The only question to be determined herein is whether or not the Social Security Commission acted correctly in
declaring respondent Candelaria Davac as the person entitled to receive the death benefits in question.

Section 13, Republic Act No. 1161, as amended by Republic Act No. 1792, in force at the time Petronilo Davac's death
on April 5, 1959, provides:

1. SEC. 13. Upon the covered employee's death or total and permanent disability under such conditions as the
Commission may define, before becoming eligible for retirement and if either such death or disability is not
compensable under the Workmen's Compensation Act, he or, in case of his death, his beneficiaries, as
recorded by his employer shall be entitled to the following benefit: ... . (emphasis supplied.)

Under this provision, the beneficiary "as recorded" by the employee's employer is the one entitled to the death
benefits. In the case of Tecson vs. Social Security System, (L-15798, December 28, 1961), this Court, construing said
Section 13, said:

It may be true that the purpose of the coverage under the Social Security System is protection of the employee
as well as of his family, but this purpose or intention of the law cannot be enforced to the extent of contradicting
the very provisions of said law as contained in Section 13, thereof, ... . When the provision of a law are clear

55
 and explicit, the courts can do nothing but apply its clear and explicit provisions (Velasco vs. Lopez, 1 Phil, 270;
Caminetti vs. U.S., 242 U.S. 470, 61 L. ed. 442).

But appellant contends that the designation herein made in the person of the second and, therefore, bigamous wife is
null and void, because (1) it contravenes the provisions of the Civil Code, and (2) it deprives the lawful wife of her
share in the conjugal property as well as of her own and her child's legitime in the inheritance.

As to the first point, appellant argues that a beneficiary under the Social Security System partakes of the nature of a
beneficiary in life insurance policy and, therefore, the same qualifications and disqualifications should be applied.

Article 2012 of the New Civil Code provides:

ART. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make any donation to him according to said
article.

And Article 739 of the same Code prescribes:

ART. 739. The following donations shall be void:

(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;

xxx xxx xxx

Without deciding whether the naming of a beneficiary of the benefits accruing from membership in the Social Security
System is a donation, or that it creates a situation analogous to the relation of an insured and the beneficiary under a
life insurance policy, it is enough, for the purpose of the instant case, to state that the disqualification mentioned in
Article 739 is not applicable to herein appellee Candelaria Davac because she was not guilty of concubinage, there
being no proof that she had knowledge of the previous marriage of her husband Petronilo. 1

Regarding the second point raised by appellant, the benefits accruing from membership in the Social Security System
do not form part of the properties of the conjugal partnership of the covered member. They are disbursed from a public
special fund created by Congress in pursuance to the declared policy of the Republic "to develop, establish gradually
and perfect a social security system which ... shall provide protection against the hazards of disability, sickness, old
age and death."2

The sources of this special fund are the covered employee's contribution (equal to 2- per cent of the employee's
monthly compensation);3 the employer's contribution (equivalent to 3- per cent of the monthly compensation of the
covered employee);4 and the Government contribution which consists in yearly appropriation of public funds to assure
the maintenance of an adequate working balance of the funds of the System. 5 Additionally, Section 21 of the Social
Security Act, as amended by Republic Act 1792, provides:

SEC. 21. Government Guarantee. The benefits prescribed in this Act shall not be diminished and to
guarantee said benefits the Government of the Republic of the Philippines accepts general responsibility for
the solvency of the System.

From the foregoing provisions, it appears that the benefit receivable under the Act is in the nature of a special privilege
or an arrangement secured by the law, pursuant to the policy of the State to provide social security to the workingmen.
The amounts that may thus be received cannot be considered as property earned by the member during his lifetime.
His contribution to the fund, it may be noted, constitutes only an insignificant portion thereof. Then, the benefits are
specifically declared not transferable,6 and exempted from tax legal processes, and lien.7Furthermore, in the settlement
of claims thereunder the procedure to be observed is governed not by the general provisions of law, but by rules and
regulations promulgated by the Commission. Thus, if the money is payable to the estate of a deceased member, it is
the Commission, not the probate or regular court that determines the person or persons to whom it is payable. 8 that the
benefits under the Social Security Act are not intended by the lawmaking body to form part of the estate of the covered
members may be gathered from the subsequent amendment made to Section 15 thereof, as follows:

SEC. 15. Non-transferability of benefit. The system shall pay the benefits provided for in this Act to such
persons as may be entitled thereto in accordance with the provisions of this Act. Such benefits are not
transferable, and no power of attorney or other document executed by those entitled thereto in favor of any
agent, attorney, or any other individual for the collection thereof in their behalf shall be recognized except when
they are physically and legally unable to collect personally such benefits: Provided, however, That in the case

56
 of death benefits, if no beneficiary has been designated or the designation there of is void, said benefits shall
be paid to the legal heirs in accordance with the laws of succession. (Rep. Act 2658, amending Rep. Act 1161.)

In short, if there is a named beneficiary and the designation is not invalid (as it is not so in this case), it is not the heirs
of the employee who are entitled to receive the benefits (unless they are the designated beneficiaries themselves). It is
only when there is no designated beneficiaries or when the designation is void, that the laws of succession are
applicable. And we have already held that the Social Security Act is not a law of succession. 9

Wherefore, in view of the foregoing considerations, the resolution of the Social Security Commission appealed from is
hereby affirmed, with costs against the appellant.

So ordered.

8. Consuegra v GSIS G.R. No. L-28093 January 30, 1971

Facts:
Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March 7,
1967, in its Special Proceeding No. 1720.
The late Jose Consuegra was employed as a shop foreman in the province of Surigao del Norte. He contracted two
marriages, the first with Rosario Diaz and the second, which was contracted in good faith while the first marriage was
subsisting, with Basilia Berdin.
Consuegra died, while the proceeds of his GSIS life insurance were paid to petitioner Basilia Berdin and
her children who were the beneficiaries named in the policy. They received Php 6,000.
Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him.
Respondent Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement
insurance benefits be paid to her as the only legal heir of Consuegra, considering that the deceased did not designate
any beneficiary with respect to his retirement insurance benefits.
Petitioner Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being
the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive the
retirement insurance benefits due the deceased Consuegra.
The GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who
is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by
the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16.
Basilia Berdin didnt agree. She filed a petition declaring her and her children to be the legal heirs and
exclusive beneficiariesof the retirement insurance.
The trial court affirmed stating that: "when two women innocently and in good faith are legally united in holy matrimony
to the same man, they and their children, born of said wedlock, will be regarded as legitimate children and each family
be entitled to one half of the estate.
Hence the present appeal by Basilia Berdin and her children.

Issue: To whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not designate
the beneficiary of his retirement insurance?

Held: No. Petition denied.

Ratio:
Berdin averred that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement
insurance, the appellants who were the beneficiaries named in the life insurance should automatically be considered
the beneficiaries to receive the retirement insurance benefits.
The GSIS offers two separate and distinct systems of benefits to its members one is the life insurance and the other
is the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds
that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life
insurance policy. As in the case of a life insurance provided for in the Insurance Act, the beneficiary in a life insurance
under the GSIS may not necessarily be a heir of the insured. The insured in a life insurance may designate any person
as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary
named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.
Retirement insurance is primarily intended for the benefit of the employee, to provide for his old age, or incapacity,
after rendering service in the government for a required number of years. If the employee reaches the age of
retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in
his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the
retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the
beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal
heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

57
GSIS had correctly acted when it ruled that the proceeds should be divided equally between his first living wife and his
second. The lower court has correctly applied the ruling of this Court in the case of Lao v Dee.
Gomez vs. Lipana- in construing the rights of two women who were married to the same man, held "that since the
defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that
marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the
new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether
as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in
the property here in dispute....
With respect to the right of the second wife, although the second marriage can be presumed to be void ab initio as it
was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And
inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its
nullity, "the only lust and equitable solution in this case would be to recognize the right of the second wife to her share
of one-half in the property acquired by her and her husband and consider the other half as pertaining to
the conjugal partnership of the first marriage."

ZALDIVAR, J.:

Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del Norte, dated March 7,
1967, in its Special Proceeding No. 1720.

The pertinent facts, culled from the stipulation of facts submitted by the parties, are the following:

The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the District
Engineer in the province of Surigao del Norte. In his lifetime, Consuegra contracted two marriages, the first with herein
respondent Rosario Diaz, solemnized in the parish church of San Nicolas de Tolentino, Surigao, Surigao, on July 15,
1937, out of which marriage were born two children, namely, Jose Consuegra, Jr. and Pedro Consuegra, but both
predeceased their father; and the second, which was contracted in good faith while the first marriage was subsisting,
with herein petitioner Basilia Berdin, on May 1, 1957 in the same parish and municipality, out of which marriage were
born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, all surnamed Consuegra.

Being a member of the Government Service Insurance System (GSIS, for short) when Consuegra died on September
26, 1965, the proceeds of his life insurance under policy No. 601801 were paid by the GSIS to petitioner Basilia Berdin
and her children who were the beneficiaries named in the policy. Having been in the service of the government for
22.5028 years, Consuegra was entitled to retirement insurance benefits in the sum of P6,304.47 pursuant to Section
12(c) of Commonwealth Act 186 as amended by Republic Acts 1616 and 3836. Consuegra did not designate any
beneficiary who would receive the retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by
the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only
legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement
insurance benefits. Petitioner Basilia Berdin and her children, likewise, filed a similar claim with the GSIS, asserting
that being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive
the retirement insurance benefits due the deceased Consuegra. Resolving the conflicting claims, the GSIS ruled that
the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who is entitled to one-
half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by the second
marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of them
to receive an equal share of 1/16.

Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her children 1 filed on
October 10, 1966 a petition for mandamus with preliminary injunction in the Court of First Instance of Surigao, naming
as respondents the GSIS, the Commissioner of Public Highways, the Highway District Engineer of Surigao del Norte,
the Commissioner of Civil Service, and Rosario Diaz, praying that they (petitioners therein) be declared the legal heirs
and exclusive beneficiaries of the retirement insurance of the late Jose Consuegra, and that a writ of preliminary
injunction be issued restraining the implementation of the adjudication made by the GSIS. On October 26, 1966, the
trial court issued an order requiring therein respondents to file their respective answers, but refrained from issuing the
writ of preliminary injunction prayed for. On February 11, 1967, the parties submitted a stipulation of facts, prayed that
the same be admitted and approved and that judgment be rendered on the basis of the stipulation of facts. On March
7, 1967, the court below rendered judgment, the pertinent portions of which are quoted hereunder:

This Court, in conformity with the foregoing stipulation of facts, likewise is in full accord with the parties
with respect to the authority cited by them in support of said stipulation and which is herein-below cited
for purposes of this judgment, to wit:

"When two women innocently and in good faith are legally united in holy matrimony to the same man,
they and their children, born of said wedlock, will be regarded as legitimate children and each family be
58
 entitled to one half of the estate. Lao & Lao vs. Dee Tim, 45 Phil. 739; Estrella vs. Laong Masa, Inc.,
(CA) 39 OG 79; Pisalbon vs. Bejec, 74 Phil. 88.

WHEREFORE, in view of the above premises, this Court is of the opinion that the foregoing stipulation
of facts is in order and in accordance with law and the same is hereby approved. Judgment, therefore,
is hereby rendered declaring the petitioner Basilia Berdin Vda. de Consuegra and her co-petitioners
Juliana, Pacita, Maria Lourdes, Jose, Jr., Rodrigo, Lenida and Luis, all surnamed Consuegra,
beneficiary and entitled to one-half (1/2) of the retirement benefit in the amount of Six Thousand Three
Hundred Four Pesos and Fourty-Seven Centavos (P6,304.47) due to the deceased Jose Consuegra
from the Government Service Insurance System or the amount of P3,152.235 to be divided equally
among them in the proportional amount of 1/16 each. Likewise, the respondent Rosario Diaz Vda. de
Consuegra is hereby declared beneficiary and entitled to the other half of the retirement benefit of the
late Jose Consuegra or the amount of P3,152.235. The case with respect to the Highway District
Engineer of Surigao del Norte is hereby ordered dismissed.

Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children.

It is the contention of appellants that the lower court erred in not holding that the designated beneficiaries in the life
insurance of the late Jose Consuegra are also the exclusive beneficiaries in the retirement insurance of said
deceased. In other words, it is the submission of appellants that because the deceased Jose Consuegra failed to
designate the beneficiaries in his retirement insurance, the appellants who were the beneficiaries named in the life
insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits, to the
exclusion of respondent Rosario Diaz. From the arguments adduced by appellants in their brief We gather that it is
their stand that the system of life insurance and the system of retirement insurance, that are provided for in
Commonwealth Act 186 as amended, are simply complementary to each other, or that one is a part or an extension of
the other, such that whoever is named the beneficiary in the life insurance is also the beneficiary in the retirement
insurance when no such beneficiary is named in the retirement insurance.

The contention of appellants is untenable.

It should be noted that the law creating the Government Service Insurance System is Commonwealth Act 186 which
was enacted by the National Assembly on November 14, 1936. As originally approved, Commonwealth Act 186
provided for the compulsory membership in the Government Service Insurance System of all regularly and
permanently appointed officials and employees of the government, considering as automatically insured on life all such
officials and employees, and issuing to them the corresponding membership policy under the terms and conditions as
provided in the Act.2

Originally, Commonwealth Act 186 provided for life insurance only. Commonwealth Act 186 was amended by Republic
Act 660 which was enacted by the Congress of the Philippines on June 16, 1951, and, among others, the amendatory
Act provided that aside from the system of life insurance under the Government Service Insurance System there was
also established the system of retirement insurance. Thus, We will note in Republic Act 660 that there is a chapter on
life insurance and another chapter on retirement insurance. 3 Under the chapter on life insurance are sections 8, 9 and
10 of Commonwealth Act 186, as amended; and under the chapter on retirement insurance are sections 11, 12, 13 and
13-A. On May 31, 1957, Republic Act 1616 was enacted by Congress, amending section 12 of Commonwealth Act 186
as amended by Republic Act 660, by adding thereto two new subsections, designated as subsections (b) and (c). This
subsection (c) of section 12 of Commonwealth Act 186, as amended by Republic Acts 660, 1616 and 3096, was again
amended by Republic Act 3836 which was enacted on June 22, 1963.lwph1.t The pertinent provisions of
subsection (c) of Section 12 of Commonwealth Act 186, as thus amended and reamended, read as follows:

(c) Retirement is likewise allowed to a member, regardless of age, who has rendered at least twenty
years of service. The benefit shall, in addition to the return of his personal contributions plus interest
and the payment of the corresponding employer's premiums described in subsection (a) of Section 5
hereof, without interest, be only a gratuity equivalent to one month's salary for every year of service,
based on the highest rate received, but not to exceed twenty-four months; Provided, That the retiring
officer or employee has been in the service of the said employer or office for at least four years,
immediately preceding his retirement.

xxx xxx xxx

The gratuity is payable by the employer or office concerned which is hereby authorized to provide the
necessary appropriation to pay the same from any unexpended items of appropriations.

59
 Elective or appointive officials and employees paid gratuity under this subsection shall be entitled to the
commutation of the unused vacation and sick leave, based on the highest rate received, which they
may have to their credit at the time of retirement.

Jose Consuegra died on September 26, 1965, and so at the time of his death he had acquired rights under the above-
quoted provisions of subsection (c) of Section 12 of Com. Act 186, as finally amended by Rep. Act 3836 on June 22,
1963. When Consuegra died on September 26, 1965, he had to his credit 22.5028 years of service in the government,
and pursuant to the above-quoted provisions of subsection (c) of Section 12 of Com. Act 186, as amended, on the
basis of the highest rate of salary received by him which was P282.83 per month, he was entitled to receive retirement
insurance benefits in the amount of P6,304.47. This is the retirement benefits that are the subject of dispute between
the appellants, on the one hand, and the appellee Rosario Diaz, on the other, in the present case. The question posed
is: to whom should this retirement insurance benefits of Jose Consuegra be paid, because he did not, or failed to,
designate the beneficiary of his retirement insurance?

If Consuegra had 22.5028 years of service in the government when he died on September 26, 1965, it follows that he
started in the government service sometime during the early part of 1943, or before 1943. In 1943 Com. Act 186 was
not yet amended, and the only benefits then provided for in said Com. Act 186 were those that proceed from a life
insurance. Upon entering the government service Consuegra became a compulsory member of the GSIS, being
automatically insured on his life, pursuant to the provisions of Com. Act 186 which was in force at the time. During
1943 the operation of the Government Service Insurance System was suspended because of the war, and the
operation was resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could
not have intended those beneficiaries of his life insurance as also the beneficiaries of his retirement insurance because
the provisions on retirement insurance under the GSIS came about only when Com. Act 186 was amended by Rep.
Act 660 on June 16, 1951. Hence, it cannot be said that because herein appellants were designated beneficiaries in
Consuegra's life insurance they automatically became the beneficiaries also of his retirement insurance. Rep. Act 660
added to Com. Act 186 provisions regarding retirement insurance, which are Sections 11, 12, and 13 of Com. Act 186,
as amended. Subsection (b) of Section 11 of Com. Act 186, as amended by Rep. Act 660, provides as follows:

(b) Survivors benefit. Upon death before he becomes eligible for retirement, his beneficiaries as
recorded in the application for retirement annuity filed with the System shall be paid his own premiums
with interest of three per centum per annum, compounded monthly. If on his death he is eligible for
retirement, then the automatic retirement annuity or the annuity chosen by him previously shall be paid
accordingly.

The above-quoted provisions of subsection (b) of Section 11 of Commonwealth Act 186, as amended by Rep. Act 660,
clearly indicate that there is need for the employee to file an application for retirement insurance benefits when he
becomes a member of the GSIS, and he should state in his application the beneficiary of his retirement insurance.
Hence, the beneficiary named in the life insurance does not automatically become the beneficiary in the retirement
insurance unless the same beneficiary in the life insurance is so designated in the application for retirement insurance.

Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, provides for a life insurance fund and for a
retirement insurance fund. There was no such provision in Com. Act 186 before it was amended by Rep. Act 660.
Thus, subsections (a) and (b) of Section 24 of Commonwealth Act 186, as amended by Rep. Act 660, partly read as
follows:

(a) Life insurance fund. This shall consist of all premiums for life insurance benefit and/or earnings
and savings therefrom. It shall meet death claims as they may arise or such equities as any member
may be entitled to, under the conditions of his policy, and shall maintain the required reserves to the
end of guaranteeing the fulfillment of the life insurance contracts issued by the System ...

(b) Retirement insurance fund. This shall consist of all contributions for retirement insurance benefit
and of earnings and savings therefrom. It shall meet annuity payments and establish the required
reserves to the end of guaranteeing the fulfillment of the contracts issued by the System. ...

Thus, We see that the GSIS offers two separate and distinct systems of benefits to its members one is the life
insurance and the other is the retirement insurance. These two distinct systems of benefits are paid out from two
distinct and separate funds that are maintained by the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life
insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as amended), the
beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured. The insured in a life
insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil
Code.4 And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go
to the estate of the insured.
60
Retirement insurance is primarily intended for the benefit of the employee to provide for his old age, or incapacity,
after rendering service in the government for a required number of years. If the employee reaches the age of
retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his
application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the
retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the
beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal
heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of the retirement
insurance of the late Jose Consuegra should be divided equally between his first living wife Rosario Diaz, on the one
hand, and his second wife Basilia Berdin and his children by her, on the other; and the lower court did not commit error
when it confirmed the action of the GSIS, it being accepted as a fact that the second marriage of Jose Consuegra to
Basilia Berdin was contracted in good faith. The lower court has correctly applied the ruling of this Court in the case of
Lao, et al. vs. Dee Tim, et al., 45 Phil. 739 as cited in the stipulation of facts and in the decision appealed from. 5 In the
recent case of Gomez vs. Lipana, L-23214, June 30, 1970,6 this Court, in construing the rights of two women who were
married to the same man a situation more or less similar to the case of appellant Basilia Berdin and appellee
Rosario Diaz held "that since the defendant's first marriage has not been dissolved or declared void the conjugal
partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her status as
putative heir of her husband under the new Civil Code, entitled to share in his estate upon his death should she survive
him. Consequently, whether as conjugal partner in a still subsisting marriage or as such putative heir she has an
interest in the husband's share in the property here in dispute.... " And with respect to the right of the second wife, this
Court observed that although the second marriage can be presumed to be void ab initio as it was celebrated while the
first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal
partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "[t]he only lust and
equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the
property acquired by her and her husband and consider the other half as pertaining to the conjugal partnership of the
first marriage."

WHEREFORE, the decision appealed from is affirmed, with costs against petitioners-appellants. It is so ordered

9. RE: CLAIMS FOR BENEFITS OF THE HEIRS OF THE LATE MARIO V. CHANLIONGCO, FIDELA B.
CHANLIONGCO, MARIO B. CHANLIONGCO II, MA. ANGELINA C. BUENAVENTURA and MARIO C.
CHANLIONGCO, JR., claimants.+.wph!1

MAKASIAR, J.:t.hqw

This matter refers to the claims for retirement benefits filed by the heirs of the late ATTY. MARIO V. CHANLIONGCO
an attorney in this Court, under the provisions of R.A. No. 1616, as amended by R.A. No. 4986, which was approved
by this Court in its resolution of August 19, 1976, effective on July 12, 1976 it a g from the records that at the time of
his death on July 12, 1976, Atty. Chanliongco was more than 63 years of age, with more than 38 years of service in the
government. He did not have any pending criminal administrative or not case against him, neither did he have any
money or property accountability. The highest salary he received was P18,700.00 per annum.

The above named flied the appellants for benefits with the accruing and with the Government Service System.

Aside from his widow, Dra. Fidel B. Chanliongco and an only Intimate Mario it appears that there are other deceased to
namely, Mrs. Angelina C. , Jr., both born out of wedlock to Angelina R Crespo, and duly recognized by the deceased.
Except Mario, Jr., who is only 17 years of age, all the claimants are of legal age.

According to law, the benefits accruing to the deceased consist of: (1) retirement benefits; (2) money value of terminal
leave; (3) life insurance and (4) refund of retirement premium.

From the records now before US, it appears that the GSIS had already the release the life insurance proceeds; and
the refund of rent to the claimants.

What, therefore, to be settled are the retirement benefits and the money value of leave, both of which are to be paid by
this court as the deceased's last employer.

The record also shows that the late Atty. Chanliongco died ab intestato and that he filed or over to state in his
application for membership with the GSIS the beneficiary or benefits of his retirement benefits, should he die before
retirement. Hence, the retirement benefits shall accrue to his estate and will be distributed among his Legal heirs in
with the benefits on intestate s , as in the caw of a fife if no benefit is named in the policy (Vda. de vs. GSIS, L-28093,
Jan. 30, 1971, 37 SCRA 315, 325).
61
Insofar therefore as the retirement benefits are WE adopt in toto, for being in accordance with law, the GSIS
determination of the amount of the retirement the kill heirs and their e shares as indicated in its letter to US, dated
March 15, 1977, to wit: +.wph!1

(a) Amount of retirement grautity:

1
. Total 37.57169 years
creditable
service

2. Pl,558.33333/mo.
Highest
rate of
salary

3. 50.14338 months
Gratuity
in terms
of months

4.
Amount
of gratuity
(highest

salary) x P78,140,10
(No. of
grautity
months)

(b) Legal heirs:

1
. Fidela B. widow
Chanliongco.

2. Mario B. legitimate
Chanliongco II. son

3. Ma. Angelina illegitimate

C. child
Buenaventura

4. Mario illegitimate
Chanliongco Jr. child

(c) Distribution

(1) 8/16 share P39,070.050

to Mario II

(2) 4/16 share 19,535.025

to the widow,
Fidela B.
Chanliongco

(3) 2/16 share, 19 535 25

or P9,767.5125
each to the two
illegitimate
children Ma.
Angelina C.
Buenaventura
and Mario
Chanliongco,

62
 Jr.

TOTAL P78.140.100

Coming now to the money value of the terminal leave, unpaid salary and 10% adjustment pursuant to Budget Circular
No. 240, dated July 22, 1974, this Court's Finance Officer, in a memorandum dated March 23, 1977, indicated the
breakdown of these items as follows:

Unpaid salary for July 8-12,

1976 @

P1,416.66/mo. P228.49

10% salary adj. for July 1- 54.84

12, 1976

Money value of terminal

leave for the

period from July 13, 1976 to

September

14,1977 @ P1,558.33 21,962.54

Sub-Total P22,9245.87

Less:

Withholding Tax P1,400.00

Supreme Court

Savings & Loan

Association 7,340.42 8.740.42

NET P13,505.45
PROCEEDS

It further appears that at the time of his death the late Atty. Chanliongco had an outstanding account with the Supreme
Court Savings & Loans Association in the sum of P7,340.42. Deduction this amount plus another sum of P1,400.00,
representing withhold tax due from him, or a total of P8,740.42, from above sub-total sum of P22,245.87. WE have at the
net sum P13,505.45, available for distribute to the claimants as follows:

1
. Fidela B.
Chanliongco

a. As her P 6,752.72
conjugal
share

b. As a P 1,688.18
legal
heir

2. Mario P 3,376.36
Chanliongco II

3. Ma. 844.10
Angelina C.
Buenaventura

4. Mario Jr. 844.09

63
 T O TA P13,505.45
L

It will be seen from the f distribution that the money value of the unused vacation and sick leave, unpaid will and 10%
adjustment due to the has been treated as conjugal property. Accordingly, one-half (l/2) goes to the widow as her share
in the conjugal hip and the other half P6,752.725 is to be distributed to the deceased's kill him, using the same one WE
used in distributing the retirement benefits. This is so because "Vacation with pay is not a gratuity but is compensation
for services rendered." (Ramey vs. State, 296 NW 323, 296 Mich. 449).

WHEREFORE, THE CLAIMS ARE HEREBY APPROVED. THE FINANCE AND/OR DISBURSING OFFICER OF THIS COURT IS
ORDERED To pay IMMEDIATELY TO EACH AND EVERY CLAIMANT HE VARIOUS SUMS HEREUNDER INDICATED OPPOSITE
THEIR NAMES, AS FOLLOWS:

1
. FIDELA B. CHANLIONGCO

A. HER 4/16 SHARE OF P19,535.025

RETIREMENT GRATUITY

B. HER SHARE FROM MONEY

VALUE OF TEAL LEAVE, UNPAID
SALARY AND 10% ADJUSTMENT:

(1) AS HER CONJUGAL SHARE 6,752.72

(2) AS A LEGAL HEIR P1,688.18

TOTAL AMOUNT DUE HER P27,975.93

2. MARIO CHANLIONGCO II

A. HIS 8/16 SHARE OF P39,070.05

RETIREMENT GRATUITY

B. HIS SHARE FROM MONEY 3,376.36

VALUE OF TERMINAL LEAVE,
UNPAID SALARY AND 10%
ADJUSTMENT

TOTAL AMOUNT DUE HIM P42,446.41

3. MA. ANGELINA C.
BUENAVENTURA:

A. HER 2/16 SHARE OF P9,767.51

RETIREMENT GRATUITY

B. HER SHARE FROM MONEY 844.10

VALUE OF TERMINAL LEAVE,
UNPAID SALARY AND 10%
ADJUSTMENT

TOTAL AMOUNT DUE HER P10,611.61

4. MARIO CHANLIONGCO JR. TO

BE PAID THROUGH HIS MOTHER
AND NATURAL GUARDIAN,
ANGELINA CRESPO):

A. HIS 2/16 SHARE OF P9,767.51

RETIREMENT GRATUITY

B. HIS SHARE FROM MONEY 844.10

VALUE OF TERMINAL LEAVE,
UNPAID SALARY AND 10%
ADJUSTMENT
64
 TOTAL AMOUNT DUE HIM P10,611.61

SO ORDERED.

IV. INSURABLE INSTEREST

1. Col. C. Castro v. Insurance Commissioner - Insurable Interest

Facts:

> Castro applied for insurance on the life of his driver. On the basis of such application, Insular
Life issued policy No. 934943 effective July 18, 1979.

> The policy applied for and issued was on a 20-yr endowment plan for the sum of P25T with
double indemnity in case of accidental death.

> Castro paid the first quarterly premium of P309.95. About 3 months later, on Oct. 16, 1959,
the insured driver was allegedly shot to death by unknown persons. (hmmm sounds fishy)

> Castro then filed a claim for the total benefits of 50T under the policy.

> Insular life denied the claim on the ground that the policy was VOID. Insular instead refunded
to Castro the premiums he had paid.

Issue:

Whether or not Castro has an insurable interest in his driver.

Held:

NO.

The requirement of insurable interest to support a contract of insurance is based upon

consideration of public policy which renders wager policies INVALID. To sustain a contract of
this character it must appear that there is a real concern in the life of the party whose death
would be the cause of substantial loss to those who are named as a beneficiary.

Mere relationship of uncle and nephew, employer and employee is NOT sufficient to provide an
insurable interest on the life of the insured. It must be shown that the destruction of the life of
the insured would cause pecuniary loss to the complainant. This, Castro failed to prove.

2. Lincoln National Life v. San Juan - Life Insurance

Facts:

> An employer insured the life of the employee with two insurance companies.

> The insurance totaled 200T and the only beneficiaries were the employer and his wife.

> A severed head was later found, purportedly that of the insured employee.

> The insurance companies refused to pay on the ground that the employer had no insurable
interest in the life of the employee.

65
Issue:

Whether or not the employer can recover the proceeds of a life insurance policy of his
employee.

Held:

NO.

The insured was a tenant in a coconut land owned by the employer and his earning were barely
that of a farm laborer. It was established that the insured could not have afforded the
insurance policies drawn on his life. Many more policies were found to have been issued with
the employee/tenant as insured and the employer and his wife as beneficiaries.

The policies were also found to have been acquired in quick succession. It was found that the
various postal money orders issued in payment of the premiums were made by the employer. It
appears that, based on the circumstances and evidence, the insurance was really taken out by
the employer.

3. Gercio V. Sun Life Assurance Co. Of Canada (1925)

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

HELD: NO. Dismissed.

The wife has an insurable interest in the life of her husband.
The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. So
when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a
subsisting interest in the policy
applies to a policy to which there are attached the incidents of a loan value, cash surrender value, an
automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance
policy.
If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the
policy.
But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's
consent, the insured cannot make such change.
Accordingly, it is held that a life insurance policy of a husband made payable to the wife as beneficiary, is the
separate property of the beneficiary and beyond the control of the husband.
effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that the
decree of divorce shall dissolve the community property as soon as such decree becomes final

66
 absence of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is named
as beneficiary therein, a subsequent divorce does not destroy her rights under the policy
Neither the husband, nor the wife, nor both together had power to destroy the vested interest of the children in
the policy.
Separate Opinion:
Johnson, Concurring Opinion:
I agree with the majority of the court, that the judgment of the lower court should be
revoked, but for a different reason. In my judgment, the action is premature and should have been
dismissed.

MALCOLM, J.:

The question of first impression in the law of life insurance to be here decided is whether the insured the husband
has the power to change the beneficiary the former wife and to name instead his actual wife, where the
insured and the beneficiary have been divorced and where the policy of insurance does not expressly reserve to the
insured the right to change the beneficiary. Although the authorities have been exhausted, no legal situation exactly
like the one before us has been encountered.

Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the insurer, and Andrea Zialcita, the
beneficiary, are the defendants. The complaint is in the nature of mandamus. Its purpose is to compel the defendant
Sun Life Assurance Co. of Canada to change the beneficiary in the policy issued by the defendant company on the life
of the plaintiff Hilario Gercio, with one Andrea Zialcita as beneficiary.

A default judgment was taken in the lower court against the defendant Andrea Zialcita. The other defendant, the Sun
Life Assurance Co. of Canada, first demurred to the complaint and when the demurrer was overruled, filed an answer
in the nature of a general denial. The case was then submitted for decision on an agreed statement of facts. The
judgment of the trial court was in favor of the plaintiff without costs, and ordered the defendant company to eliminate
from the insurance policy the name of Andrea Zialcita as beneficiary and to substitute therefor such name as the
plaintiff might furnish to the defendant for that purpose.

The Sun Life Assurance Co. of Canada has appealed and has assigned three errors alleged to have been committed
by the lower court. The appellee has countered with a motion which asks the court to dismiss the appeal of the
defendant Sun Life Assurance Co. of Canada, with costs.

As the motion presented by the appellee and the first two errors assigned by the appellant are preliminary in nature,
we will pass upon the first. Appellee argues that the "substantial defendant" was Andrea Zialcita, and that since she
was adjudged in default, the Sun Life Assurance Co. of Canada has no interest in the appeal. It will be noticed,
however, that the complaint prays for affirmative relief against the insurance company. It will be noticed further that it is
stipulated that the insurance company has persistently refused to change the beneficiary as desired by the plaintiff. As
the rights of Andrea Zialcita in the policy are rights which are enforceable by her only against the insurance company,
the defendant insurance company will only be fully protected if the question at issue is conclusively determined.
Accordingly, we have decided not to accede to the motion of the appellee and not to order the dismissal of the appeal
of the appellant.

This brings us to the main issue. Before, however, discussing its legal aspects, it is advisable to have before us the
essential facts. As they are stipulated, this part of the decision can easily be accomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No. 161481 on the life of Hilario
Gercio. The policy was what is known as a twenty-year endowment policy. By its terms, the insurance company agreed
to insure the life of Hilario Gercio for the sum of P/2,000, to be paid him on February 1, 1930, or if the insured should
die before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors,
administrators, or assigns of the insured. The policy also contained a schedule of reserves, amounts in cash, paid-up
policies, and renewed insurance, guaranteed. The policy did not include any provision reserving to the insured the right
to change the beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end of the year
1919, she was convicted of the crime of adultery. On September 4, 1920, a decree of divorce was issued in civil case
no. 17955, which had the effect of completely dissolving the bonds of matrimony contracted by Hilario Gercio and
Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that he had revoked his
donation in favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio,

67
as the beneficiary of the policy. Gercio requested the insurance company to eliminate Andrea Zialcita as beneficiary.
This, the insurance company has refused and still refuses to do.

With all of these introductory matters disposed of and with the legal question to the forefront, it becomes our first duty
to determine what law should be applied to the facts. In this connection, it should be remembered that the insurance
policy was taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and that the effort to change
the beneficiary was made in 1922. Should the provisions of the Code of Commerce and the Civil Code in force in
1910, or the provisions of the Insurance Act now in force, or the general principles of law, guide the court in its
decision?

On the supposition, first, that the Code of Commerce is applicable, yet there can be found in it no provision either
permitting or prohibiting the insured to change the beneficiary.

On the supposition, next, that the Civil Code regulates insurance contracts, it would be most difficult, if indeed it is
practicable, to test a life insurance policy by its provisions. Should the insurance contract, whereby the husband names
the wife as the beneficiary, be denominated a donation inter vivos, a donation causa mortis, a contract in favor of a
third person, or an aleatory contract? The subject is further complicated by the fact that if an insurance contract should
be considered a donation, a husband may then never insure his life in favor of his wife and vice versa, inasmuch as
article 1334 prohibits all donations between spouses during marriage. It would seem, therefore, that this court was
right when in the case of Del Val vs. Del Val ([1915]), 29 Phil., 534), it declined to consider the proceeds of the
insurance policy as a donation or gift, saying "the contract of life insurance is a special contract and the destination of
the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no
provisions which relate directly and specifically to life-insurance contracts or to the destination of life-insurance
proceeds. . . ." Some satisfaction is gathered from the perplexities of the Louisiana Supreme Court, a civil law
jurisdiction, where the jurists have disagreed as to the classification of the insurance contract, but have agreed in their
conclusions as will hereafter see. (Re Succession of Leone Desforges [1914], 52 L.R.A. [N.S.], 689; Lambert vs Penn
Mutual Life Insurance Company of Philadelphia and L'Hote & Co. [1898], 50 La. Ann., 1027.)

On the further supposition that the Insurance Act applies, it will be found that in this Law, there is likewise no provision
either permitting or prohibiting the insured to change the beneficiary.

We must perforce conclude that whether the case be considered as of 1910, or 1914, or 1922, and whether the case
be considered in the light of the Code of Commerce, the Civil Code, or the Insurance Act, the deficiencies in the law
will have to be supplemented by the general principles prevailing on the subject. To that end, we have gathered the
rules which follow from the best considered American authorities. In adopting these rules, we do so with the purpose of
having the Philippine Law of Insurance conform as nearly as possible to the modern Law of Insurance as found in the
United States proper.

The wife has an insurable interest in the life of her husband. The beneficiary has an absolute vested interest in the
policy from the date of its issuance and delivery. So when a policy of life insurance is taken out by the husband in
which the wife is named as beneficiary, she has a subsisting interest in the policy. And this applies to a policy to which
there are attached the incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and
to an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes to retain to himself the
control and ownership of the policy he may so provide in the policy. But if the policy contains no provision authorizing a
change of beneficiary without the beneficiary's consent, the insured cannot make such change. Accordingly, it is held
that a life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of the
beneficiary and beyond the control of the husband.

As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that
the decree of divorce shall dissolve the community property as soon as such decree becomes final. Unlike the statutes
of a few jurisdictions, there is no provision in the Philippine Law permitting the beneficiary in a policy for the benefit of
the wife of the husband to be changed after a divorce. It must follow, therefore, in the absence of a statute to the
contrary, that if a policy is taken out upon a husband's life the wife is named as beneficiary therein, a subsequent
divorce does not destroy her rights under the policy.

These are some of the pertinent principles of the Law of Insurance. To reinforce them, we would, even at the expense
of clogging the decision with unnecessary citation of authority, bring to notice certain decisions which seem to us to
have controlling influence.

To begin with, it is said that our Insurance Act is mostly taken from the statute of California. It should prove of interest,
therefore, to know the stand taken by the Supreme Court of that State. A California decision oft cited in the
Cyclopedias is Yore vs. Booth ([1895]), 110 Cal., 238; 52 Am. St. Rep., 81), in which we find the following:

68
 . . . It seems to be the settled doctrine, with but slight dissent in the courts of this country, that a person who
procures a policy upon his own life, payable to a designated beneficiary, although he pays the premiums
himself, and keeps the policy in his exclusive possession, has no power to change the beneficiary, unless the
policy itself, or the charter of the insurance company, so provides. In policy, although he has parted with
nothing, and is simply the object of another's bounty, has acquired a vested and irrevocable interest in the
policy, which he may keep alive for his own benefit by paying the premiums or assessments if the person who
effected the insurance fails or refuses to do so.

As carrying great weight, there should also be taken into account two decisions coming from the Supreme Court of the
United States. The first of these decisions, in point of time, is Connecticut Mutual Life Insurance Company vs
Schaefer ([1877]), 94 U.S., 457). There, Mr. Justice Bradley, delivering the opinion of the court, in part said:

This was an action on a policy of the court, in part said: July 25, 1868, on the joint lives of George F. and
Francisca Schaefer, then husband and wife, payable to the survivor on the death of either. In January, 1870,
they were divorced, and alimony was decreed and paid to the wife, and there was never any issue of the
marriage. They both subsequently married again, after which, in February, 1871, George F. Schaefer died. This
action was brought by Francisca, the survivor.

xxx xxx xxx

The other point, relating to the alleged cessation of insurable interest by reason of the divorce of the parties, is
entitled to more serious consideration, although we have very little difficulty in disposing of it.

It will be proper, in the first place, to ascertain what is an insurable interest. It is generally agreed that mere
wager policies, that is, policies in which the insured party has no interest in its loss or destruction, are void, as
against public policy. . . . But precisely what interest is necessary, in order to take a policy out of the category of
mere wager, has been the subject of much discussion. In marine and fire insurance the difficulty is not so great,
because there insurance is considered as strictly an indemnity. But in life insurance the loss can seldom be
measured by pecuniary values. Still, an interest of some sort in the insured life must exist. A man cannot take
out insurance on the life of a total stranger, nor on that of one who is not so connected with him as to make the
continuance of the life a matter of some real interest to him.

It is well settled that a man has an insurable interest in his own life and in that of his wife and children; a
woman in the life of her husband; and the creditor in the life of his debtor. Indeed it may be said generally that
any reasonable expectation of pecuniary benefit or advantage from the continued life of another creates an
insurable interest in such life. And there is no doubt that a man may effect an insurance on his own life for the
benefit of a relative or fried; or two or more persons, on their joint lives, for the benefit of the survivor or
survivors. The old tontines were based substantially on this principle, and their validity has never been called in
question.

xxx xxx xxx

The policy in question might, in our opinion, be sustained as a joint insurance, without reference to any other
interest, or to the question whether the cessation of interest avoids a policy good at its inception. We do not
hesitate to say, however, that a policy taken out in good faith and valid at its inception, is not avoided by the
cessation of the insurable interest, unless such be the necessary effect of the provisions of the policy itself. . . .

. . . .In our judgment of life policy, originally valid, does not cease to be so by the cessation of the assured
party's interest in the life insured.

Another controlling decision of the United States Supreme Court is that of the Central National Bank of Washington
City vs. Hume ([1888], 128 U.S., 134). Therein, Mr. Chief Justice Fuller, as the organ of the court, announced the
following doctrines:

We think it cannot be doubted that in the instance of contracts of insurance with a wife or children, or both,
upon their insurable interest in the life of the husband or father, the latter, while they are living, can exercise no
power of disposition over the same without their consent, nor has he any interest therein of which he can avail
himself; nor upon his death have his personal representatives or his creditors any interest in the proceeds of
such contracts, which belong to the beneficiaries to whom they are payable.

It is indeed the general rule that a policy, and the money to become due under it, belong, the moment it is
issued, to the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in

69
 the person procuring the insurance, by any act of his, by deed or by will, to transfer to any other person the
interest of the person named.

A jurisdiction which found itself in somewhat the same situation as the Philippines, because of having to reconcile the
civil law with the more modern principles of insurance, is Louisiana. In a case coming before the Federal Courts, In re
Dreuil & Co. ([1915]), 221 Fed., 796), the facts were that an endowment insurance policy provided for payment of the
amount thereof at the expiration of twenty years to the insured, or his executors, administrators, or assigns, with the
proviso that, if the insured die within such period, payment was to be made to his wife if she survive him. It was held
that the wife has a vested interest in the policy, of which she cannot be deprived without her consent. Foster, District
Judge, announced:

In so far as the law of Louisiana is concerned, it may also be considered settled that where a policy is of the
semitontine variety, as in this case, the beneficiary has a vested right in the policy, of which she cannot be
deprived without her consent. (Lambert vs Penn Mutual Life Ins. Co., 50 La. Ann., 1027; 24 South., 16.) (See in
same connection a leading decision of the Louisiana Supreme Court, Re Succession of Leonce Desforges,
[1914], 52 L.R.A. [N.S.], 689.)

Some question has arisen as to the power of the insured to destroy the vested interest of the beneficiary in the policy.
That point is well covered in the case of Entwistle vs. Travelers Insurance Company ([1902], 202 Pa. St., 141). To
quote:

. . . The interest of the wife was wholly contingent upon her surviving her husband, and she could convey no
greater interest in the policy than she herself had. The interest of the children of the insured, which was created
for them by the contract when the policy was issued; vested in them at the same time that the interest of the
wife became vested in her. Both interests were contingent. If the wife die before the insured, she will take
nothing under the policy. If the insured should die before the wife, then the children take nothing under the
policy. We see no reason to discriminate between the wife and the children. They are all payees, under the
policy, and together constitute the assured.

The contingency which will determine whether the wife, or the children as a class will take the proceeds, has
not as yet happened; all the beneficiaries are living, and nothing has occurred by which the rights of the parties
are in any way changed. The provision that the policy may be converted into cash at the option of the holder
does not change the relative rights of the parties. We agree entirely with the suggestion that "holder" or
"holders", as used in this connection, means those who in law are the owners of the policy, and are entitled to
the rights and benefits which may accrue under it; in other words, all the beneficiaries; in the present case, not
only the wife, by the children of the insured. If for any reason, prudence required the conversion of the policy
into cash, a guardian would have no special difficulty in reasonable protecting the interest of his wards. But
however that may be, it is manifest that the option can only be exercised by those having the full legal interest
in the policy, or by their assignee. Neither the husband, nor the wife, nor both together had power to destroy
the vested interest of the children in the policy.

The case most nearly on all fours with the one at bar is that of Wallace vs Mutual Benefit Life Insurance Co. ([1906], 97
Minn., 27; 3 L.R.A. [N.S.], 478). The opinion there delivered also invokes added interest when it is noted that it was
written by Mr. Justice Elliott, the author of a text on insurance, later a member of this court. In the Minnesota case
cited, one Wallace effected a "twenty-year endowment" policy of insurance on his life, payable in the event of his death
within twenty years to Emma G. Wallace, his wife, but, if he lived, to himself at the end of twenty years. If Wallace died
before the death of his wife, within the twenty years, the policy was payable to the personal representatives of the
insured. During the pendency of divorce proceedings, the parties signed a contract by which Wallace agreed that, if a
divorce was granted to Mrs. Wallace, the court might award her certain specified property as alimony, and Mrs.
Wallace agreed to relinquish all claim to any property arising out of the relation of husband and wife. The divorce was
granted. An action was brought by Wallace to compel Mrs. Wallace to relinquish her interest in the insurance policy. Mr.
Justice Elliott said:

As soon as the policy was issued Mrs. Wallace acquired a vested interest therein, of which she could not be
deprived without her consent, except under the terms of the contract with the insurance company. No right to
change the beneficiary was reserved. Her interest in the policy was her individual property, subject to be
divested only by her death, the lapse of time, or by the failure of the insured to pay the premiums. She could
keep the policy alive by paying the premiums, if the insured did not do so. It was contingent upon these events,
but it was free from the control of her husband. He had no interest in her property in this policy, contingent or
otherwise. Her interest was free from any claim on the part of the insured or his creditors. He could deprive her
of her interest absolutely in but one way, by living more than twenty years. We are unable to see how the
plaintiff's interest in the policy was primary or superior to that of the husband. Both interests were contingent,
but they were entirely separate and distinct, the one from the other. The wife's interest was not affected by the

70
 decree of court which dissolved the marriage contract between the parties. It remains her separate property,
after the divorce as before. . .

. . . . The fact that she was his wife at the time the policy was issued may have been, and undoubtedly was, the
reason why she was named as beneficiary in the event of his death. But her property interest in the policy after
it was issued did not in any reasonable sense arise out of the marriage relation.

Somewhat the same question came before the Supreme Court of Kansas in the leading case of Filley vs. Illinois Life
Insurance Company ([1914]), 91 Kansas, 220; L.R.A. [1915 D], 130). It was held, following consideration extending to
two motions for rehearing, as follows:

The benefit accruing from a policy of life insurance upon the life of a married man, payable upon his death to
his wife, naming her, is payable to the surviving beneficiary named, although she may have years thereafter
secured a divorce from her husband, and he was thereafter again married to one who sustained the relation of
wife to him at the time of his death.

The rights of a beneficiary in an ordinary life insurance policy become vested upon the issuance of the policy,
and can thereafter, during the life of the beneficiary, be defeated only as provided by the terms of the policy.

If space permitted, the following corroborative authority could also be taken into account: Joyce, The Law of Insurance,
second edition, vol. 2, pp. 1649 et seq.; 37 Corpus Juris, pp. 394 et seq.; 14 R.C.L., pp. 1376 et seq.; Green vs.
Green ([1912], 147 Ky., 608; 39 L.R.A. [N.S.], 370); Washington Life Insurance Co. vs. Berwald ([1903], 97 Tex.,
111); Begley vs. Miller ([1907]), 137 Ill., App., 278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8 L.R.A.
[N.S.], 923; Union Central Life Ins. Co. vs. Buxer ([1900], 62 Ohio St., 385; 49 L.R.A., 737); Griffith vs. New York Life
Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep., 96); Preston vs. Conn. Mut. L. Ins. Co. of Hartford([1902]); 95 Md.,
101); Snyder vs. Supreme Ruler of Fraternal Mystic Circle ([1909], 122 Tenn. 248; 45 L.R.A. [N.S.], 209); Lloyd vs.
Royal Union Mut. L. Ins. Co. ([1917], 245 Fed., 162); Phoenix Mut. L. Ins. Co. vs. Dunham ([1878], 46 Conn., 79; 33
Am. Rep., 14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep., 129); Supreme Council American
Legion of Honor vs. Smith and Smith ([1889], 45 N.J. Eq., 466); Overhiser vs. Overhiser ([1900], 63 Ohio St., 77; 81
Am. St. Rep., 612; 50 L.R.A., 552); Condon vs. New York Life Insurance Co. ([1918], 183 Iowa, 658); with which
compare Foster vs. Gile ([1880], 50 Wis., 603) and Hatch vs. Hatch ([1904], 35 Tex. Civ. App., 373).

On the admitted facts and the authorities supporting the nearly universally accepted principles of insurance, we are
irresistibly led to the conclusion that the question at issue must be answered in the negative.

The judgment appealed from will be reversed and the complaint ordered dismissed as to the appellant, without special
pronouncement as to the costs in either instance. So ordered.

4. 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.

71
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 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.

MALCOLM, J.:

The issue in this case is whether 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.

The parties submitted the case to the Court of First Instance of Manila for decision upon the following agreed
statement of facts:

1. That the plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippine Islands, having its principal office at No. 732 Calle Evangelista, Manila, P.I.; and that the defendant is
the duly appointed, qualified and acting Collector of Internal Revenue of the Philippine Islands.

2. That on March 18, 1925, plaintiff, 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 Philippine Islands, and whose death would be a serious loss to the plaintiff,
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.

3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy
on the life of its said manager.
72
 4. That during the time the life insurance policy hereinbefore referred to was in force and effect plaintiff paid
from its funds all the insurance premiums due thereon.

5. That the plaintiff 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 by the defendant
upon a showing made by the plaintiff that such premiums were legitimate expenses of its (plaintiff's) business.

6. That the said A. Velhagen, the insured, had no interest or participation in the proceeds of said life insurance
policy.

7. That upon the death of said A. Velhagen in the year 1929, the plaintiff received all the proceeds of the said
life insurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88.

8. That over the protest of the plaintiff, which claimed exemption under section 4 of the Income Tax Law, the
defendant Collector of Internal Revenue assessed and levied the sum of P3,148.74 as income tax on the
proceeds of the insurance policy mentioned in the preceding paragraph, which tax the plaintiff paid under
instant protest on July 2, 1930; and that defendant overruled said protest on July 9, 1930.

Thereupon, a decision was handed down which absolved the defendant from the complaint, with costs against the
plaintiff. From this judgment, the plaintiff appealed, and its counsel now allege that:

1. That trial court erred in holding that section 4 of the Income Tax Law (Act No. 2833) is not applicable to the
present case.

2. The trial court erred in reading into the law certain exceptions and distinctions not warranted by its clear and
unequivocal provisions.

3. The trial court erred in assuming that the proceeds of the life insurance policy in question represented a net
profit to the plaintiff when, as a matter of fact, it merely represented an indemnity, for the loss suffered by it thru
the death of its manager, the insured.

4. The trial court erred in refusing to hold that the proceeds of the life insurance policy in question is not taxable
income, and in absolving the defendant from the complaint.

The Income Tax Law for the Philippines is Act No. 2833, as amended. It is divided into four chapters: Chapter I On
Individuals, Chapter II On Corporations, Chapter III General Administrative Provisions, and Chapter IV General
Provisions. In chapter I On Individuals, 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 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.

The situation will be better elucidated by a brief reference to laws on the same subject in the United States. The
Income Tax Law of 1916 extended to the Philippine Legislature, when it came to enact Act No. 2833, to copy the
American statute. Subsequently, the Congress of the United States enacted its Income Tax Law of 1919, in which
certain doubtful subjects were clarified. Thus, as to the point before us, it was made clear, when not only in the part of
the law concerning individuals were exemptions provided for beneficiaries, but also in the part concerning
corporations, specific reference was made to the exemptions in favor of individuals, thereby making the same
applicable to corporations. This was authoritatively pointed out and decided by the United States Supreme Court in the
case of United States vs. Supplee-Biddle Hardware Co. ( [1924], 265 U.S., 189), which involved facts quite similar to
those before us. We do not think the decision of the higher court in this case is necessarily controlling on account of
the divergences noted in the federal statute and the local statute, but we find in the decision certain language of a
general nature which appears to furnish the clue to the correct disposition of the instant appeal. Conceding, therefore,
without necessarily having to decide, the assignments of error Nos. 1 and 2 are not well taken, we would turn to the
third assignment of error.

73
It will be recalled that El Oriente, Fabrica de Tabacos, Inc., 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 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.

To quote the exact words in the cited case of Chief Justice Taft delivering the opinion of the court:

It is earnestly pressed upon us that proceeds of life insurance paid on the death of the insured are in fact
capital, and cannot be taxed as income under the Sixteenth Amendment. Eisner vs. Macomber, 252 U.S., 189,
207; Merchants' Loan & Trust Co. vs. Smietanka, 255 U.S., 509, 518. We are not required to meet this
question. It is enough to sustain our construction of the act to say that proceeds of a life insurance policy paid
on the death of the insured are not usually classed as income.

. . . Life insurance in such a case is like that of fire and marine insurance, a contract of indemnity. Central
Nat. Bank vs. Hume, 128 U.S., 195. The benefit to be gained by death has no periodicity. It is a substitution of
money value for something permanently lost, either in a house, a ship, or a life. Assuming, without deciding,
that Congress could call the proceeds of such indemnity income, and validly tax it as such, we think that, in
view of the popular conception of the life insurance as resulting in a single addition of a total sum to the
resources of the beneficiary, and not in a periodical return, such a purpose on its part should be express, as it
certainly is not here.

Considering, therefore, the purport of the stipulated facts, considering the uncertainty of Philippine law, and
considering the lack of express legislative intention to tax the proceeds of life insurance policies paid to corporate
beneficiaries, particularly when in the exemption in favor of individual beneficiaries in the chapter on this subject, the
clause is inserted "exempt from the provisions of this law," we deem it reasonable to hold the proceeds of the life
insurance policy in question as representing an indemnity and not taxable income.

The foregoing pronouncement will result in the judgment being reversed and in another judgment being rendered in
favor of the plaintiff and against the defendant for the sum of P3,148.74. So ordered, without costs in either instance.

5. Philamcare Health Systems, Inc. V. CA (2002)

Lessons Applicable:
Elements (Insurance)
Blood Relationship (Insurance)

FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with
Philamcare Health Systems, Inc.
He answered the standard application form: 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). - NO
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.
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for 1 month beginning March 9, 1990.
While her husband was in the hospital, Julina Trinos tried to claim the benefits under the
health care agreement.

74
 Philamcare denied her claim saying that the Health Care Agreement was void
for concealing Ernanis medical history so she paid the hospitalization expenses of P76,000.00
herself.
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.
After being 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, he was brought home again.
April 13, 1990 morning: Ernani had fever and was feeling very weak
He was brought to Chinese General Hospital where he died
July 24, 1990: She brought action for damages against Philamcare Health Systems Inc. and its
president, Dr. Benito Reverente
RTC: Philamcare and Dr. Benito Reverent to pay and reimburse P76k plus interest, moral
damages, exemplary damages, attorney's fees and cost of suit
CA: affirmed the decision of RTC but deleted all awards for damages and absolved Philamcare
Philamcare brought an instant petition for review arguing that:
health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code does not apply.
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
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
since Health Care Agreements are only for a period of one year, as compared to insurance
contracts which last longer; incontestability clause does not apply, as the same requires an
effectivity period of at least two years
insurance company is governed by the Insurance Commission, but a Health Maintenance
Organization under the authority of the Department of Health
ISSUE:

1. W/N the health care agreement is a contract of insurance. - YES

2. W/N the spouse being "not" legal wife can claim - YES

HELD: Petition is DENIED. CA AFFIRMED.

1. YES.

P.D. 612 Insurance Code

Sec. 2 (1)
(1) 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.
Sec. 3
Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a
person having an insurable interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.

The consent of the husband is not necessary for the validity of an insurance policy taken
out by a married woman on her life or that of her children.

Any minor of the age of eighteen years or more, may, notwithstanding such minority,
contract for life, health and accident insurance, with any insurance company duly
authorized to do business in the Philippines, provided the insurance is taken on his own
life and the beneficiary appointed is the minor's estate or the minor's father, mother,
husband, wife, child, brother or sister.

The married woman or the minor herein allowed to take out an insurance policy may
exercise all the rights and privileges of an owner under a policy.

All rights, title and interest in the policy of insurance taken out by an original owner on
the life or health of a minor shall automatically vest in the minor upon the death of the
75
original owner, unless otherwise provided for in the policy.

In the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health.
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 contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
The answer in response to the question relating to the medical history of the applicant largely
depends on opinion rather than fact, especially coming from respondent's 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.
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract.
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.
P.D. 612 Insurance Code
Sec. 27
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance.
cancellation of health care agreements as in insurance policies require the concurrence of the
following conditions: - none of these was made
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.
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.
(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.
2. YES.

P.D. 612 Insurance Code

Sec. 10
Sec. 10. 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.

not the legal wife (deceased was previously married to another woman who was still alive)
health care agreement is in the nature of a contract of indemnity.
payment should be made to the party who incurred the expenses

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:

76
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
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]

77
 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, 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

78
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.
V. INSURABLE INTEREST PROPERTY

1. Harvardian Colleges v. Country Bankers Insurance Corp.

Facts:

> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King
Yap and their children.

79
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school
building. Although at first reluctant, Harvardian agreed.

> Country Banks sent an inspector to inspect the school building and agreed to insure the
same for P500,000 for which Harvardian paid an annual premium of P2,500.

> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12,
1980, (39 days before I was born hehehehe )during the effectivity of said insurance policy, the
insured property was totally burned rendering it a total loss.

> A claim was made by plaintiff upon defendant but defendant denied it contending that
plaintiff had no insurable interest over the building constructed on the piece of land in the name
of the late Ildefonso Yap as owner.

> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by
the Harvardian Colleges.

Issue:

Whether or not Harvardian colleges has a right to the proceeds.

Held:

Harvardian has a right to the proceeds.

Regardless of the nature of the title of the insured or even if he did not have title to the property
insured, the contract of fire insurance should still be upheld if his interest in or his relation to
the property is such that he will be benefited in its continued existence or suffer a direct
pecuniary loss from its destruction or injury. The test in determining insurable interest in
property is whether one will derive pecuniary benefit or advantage from its preservation, or will
suffer pecuniary loss or damage from its destruction, termination or injury by the happening of
the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for
several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume
that had the building not been burned, Harvardian would have been allowed the continued use
of the same as the site of its operation as an educational institution. Harvardian therefore
would have been directly benefited by the preservation of the property, and certainly suffered a
pecuniary loss by its being burned.

MAKALINTAL, J.:

This is an action to recover actual, moral and exemplary damages aggregating P210,000.00, dismissed by the Court a
quo and on appeal certified to us by the Court of Appeals in view of the amount claimed.

Appellant Ildefonso D. Yap was the president and operator of the Philippine Harvardian College, an educational
institution with its main office in Manila and branches in the provinces. Two of these were the San Fernando Branch in
San Fernando, Pampanga, and the St. John's College in Calumpit, Bulacan. At the time of the act complained of,
appellee Manuel L. Carreon was the Director of Private Schools.

In 1950 appellants applied to the Bureau of Private Schools for permission to offer the Elementary course (grade
school), a Junior Normal Course (E.T.C.) and a Liberal Arts course (A.A.) in the St. John's College; and a Law course
and a one-year postgraduate course in Education in the San Fernando Branch. On June 29, 1951 Bureau supervisors
found, on inspection, that the latter branch had already opened the postgraduate course which was still under
application. On September 10, 1951 the Assistant Director of Private Schools, Daniel M. Salcedo, informed Yap by
letter that in connection with the proposed courses in the St. John's College a representative of the Bureau had found

80
a number of deficiencies which, if not thoroughly corrected, would be cause for the denial of the corresponding permit
applied for. On October 16, 1956 informed Yap, again by letter, that the petition for offering a postgraduate course in
the San Fernando branch was disapproved by reason of deficiencies found in a general survey thereof. And on June 3,
1952 similar action was taken by Salcedo on the petition to offer the three courses applied for in St. John's College, the
deficiencies previously pointed out not having been corrected.

On June 30, 1952 Director Carreon sent to the Secretary of Education a partial list of private school courses that had
been disauthorized for the school year 1952-1953, together with the names of the respective schools offering them.
The Secretary approved the list, which was then published the next day in The Manila Chronicle, The Evening
News and other metropolitan papers. Among those included were:

19. Philippine Harvardian College, San Fernando Pampanga: One Year Post-graduate Course in Education.

xxx xxx xxx

25. St. John's College, Calumpit, Bulacan: Complete Elementary, Two Year Junior Normal College and Liberal
Arts.

Three months afterwards appellants filed this suit against Director Carreon in the Court of First Instance of Manila, for
damages allegedly suffered by them because of the aforementioned publication. Defendant filed his answer, with
counterclaim; and after trial the court rendered judgement dismissing both the complaint and counterclaim. Hence this
appeal.

Appellants maintain the appellee had no authority to issue the press release in question. On the other hand, the
appellee justifies his action under Section 11, Act No. 2706, which provides:

Section 11. The Secretary of Public Instruction ( now Secretary of Education) shall be authorized to appoint a
Commissioner of Private Schools, who shall:

xxx xxx xxx

5. Under the direction of the Secretary of Public Instruction, caused to be published information of the
public, a list of the approved private schools or colleges, setting forth what courses have been
recognizedin each school or college.

Appellants" position is that the abovequoted provision authorizes the Director of Private Schools to issue for
publication only lists of approved private educational institutions and the courses they are authorized to offer, but not of
the courses that have been disapproved and the schools offering them. This interpretation of the statute is much to
literal and narrow, and at times impractical for the purpose sought to be attained. Indeed there is no congent reason to
hold that the authority therein given is restrictive in the sense of prohibiting the publication of any other information
relevant to the supervision of private educational institutions. Even without statutory authority of any kind, the issuance
of press releases informative of official action is normal procedure in our democratic system, and should generate no
liability, civil or criminal, unless clearly against some legal provision.

In the case at bar, the publication authorized by Act No. 2706 is expressly"for the information of the public." It is
obviously intended for the benefit of students and, of course, of their parents. Without proper information and warning,
students might enroll in schools not duly authorized or take courses for which later on they might not be duly credited.
The resulting loss in time, money and effort would be incalculable. The manner outlined in the law, if strictly and literally
construed, may easily prove in adequate to prevent such result. For the fact that a school or course is not included in
an approved list would not necessarily lead a prospective student to conclude that it has been disapproved. Such lists
are published from time to time, and a check of all of them would be a task very few would care to undertake. Indeed
the procedure observed by appellee could be certain instances the only effective means of providing information to the
public. It appears that a school may offer a course even while its petition for permit is still pending in the Bureau of
Private Schools. If only lists of approved courses are published of lists of disapproved ones are not, the public would
not know the permit for a given course is still pending approval or has been definitely disapproved. Again a duly
recognized private school may have been permitted to offer a certain number of courses, which are then included for
publication in the approved list. Later on, however, the standard of the school deteriorates, or it so incurs deficiencies
in some of its courses that their corresponding permits are cancelled. If no list of such disapproved courses is
published the public would continue to believe that they are still valid. It is true that a school may be penalized for
maintaining courses that have been disapproved, but the penalty would not redress the prejudice already caused to
the students.

81
In the particular case of appellants, they applied for permits to offer four new courses. The investigation conducted by
the supervisors of the Bureau of Private Schools revealed certain deficiencies. They were brought to the attention of
the appellants, but the deficiencies were not corrected. When the applications were denied for that reason, the Director
of Private Schools acted within his authority including the said courses in the list released for publication.

Appellant Yap claims that prior to the release of the list he sent letters to appellee informing him (on November 11,
1951) that the postgraduate course in the San Fernando branch had been discontinued and (on March 19, 1952) that
the elementary and collegiate courses in the St. John's College would not be offered for the coming school year.
Appellee denied having alleged letters, Exhibits B and C, and there is no proof that he had. It may be noted that the
exhibits are not duplicates or carbon copies, but appear to be unsigned originals a circumstance which casts serious
doubt on the claim that the letter had actually been sent to appellee.1wph1.t

Appellants invoke the precept in Article 19 of the Civil Code that "every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." The record
shows that the appellee acted in the conformity therewith It does not appear that he sought to cause damage to
appellants.He did not single out the schools they were operating; they were only two in a list of 66 private educational
institutions whose applications for permit had been disapproved.

Appellants say that appellee branded said schools as "diploma mills." Reference is made to the following portions of
the news items carried by The Evening News of July 1, 1952:

This was announced yesterday by Private Schools Director Manuel Carreon who also disclosed that the action
taken by the bureau aimed at weedingout diploma mills.

and the following news excerpt which appeared in another paper:

Basis for the order to close, which was finally given after a long delay, were the reports received from private
school supervisors in the field as well as from records available in the bureau. Screening of schools had been
going on for the past several months in line with the bureau of private schools drive against "diploma mills."

There is no evidence that appellee himself applied the epithet objected to.What is certain is that he made the list
public. Whether the release was accompanied by a personal statement of his or whether he used the term "diploma
mills" has not been satisfactorily shown. He did not write the news stories; the newspapermen did. The imputation was
at best hearsay, or was merely the reporters' own interpretation of the action taken by theBureau of Private Schools.

Appellee, it is pointed out, issued no denial of one statement attributed to him by The Evening News. From this fact,
however, no presumption arises that he did make such statement. He was not supposed to scan all the newspapers
and deny statements therein that might have been attributed to him. In the absence of more reliable evidene that
appellee himself used the term "diploma mills," responsibility therefor cannot be laid at his door.

The judgement appealed from is affirmed, with costs against appellants.

2. Traders Insurance & Surety Co. V. Golangco, Et Al (1954)

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Sec. 13 of the Insurance Code

FACTS:

Tomas Lianco and the Archbishop entered into a contract of lease on a parcel of landowned by
church
As lessee, Lianco erected a building on the leased portion of the churchs land.
Lianco transferred ownership of this building to Kaw Eng
Si,who later transferred the same to Golangco.
Transfers were made without the consent of the Archbishop
The Archbishop filed an ejectment case against Lianco, who appears to be occupants of the
premises building with others paying rent to Golangco.
The right of Golangco to receive rent on the building was judicially recognized in a case
decided between Lianco and others occupying the premises pursuant to a compromise agreement.
The Archbishop did not exercise his option to question Golangcos rights as lessee
82
 April 7,1949: Golangco applied for fire insurance with Traders Insurance and Surety Co.
fire insurance policy states: "that all insurancecovered under said policy, includes the 'rent
or othersubject matter of insurance in respect of or inconnection with any building or any property
contained in any building"
June 5, 1949: the building premises was burned so Golangco requested
Traders Insurance to pay the insurance amount of 10,000 including the amount of rent P1,100
monthly.
Traders insurance refused to pay the insurance for the rent averring that Golangco has
no insurable interest
ISSUE: W/N Golangco has insurable interest on the rent of the building premises which may
lawfully/validly be subject of insurance?

HELD: YES.
Sec. 13 of the Insurance Code
Every interest in the property, whether real or personal, or any relation thereto, or liability in respect
thereof of such nature that a contemplated peril might directly damnify the insured, is an insurable
interest.
Both at the time of the issuance of the policy and at the time of the fire,
Golangco was in legal possession of the premises, collecting rentals from its occupant.
The argument of Traders Insurance that a policy of insurance must specify the interest of the
insured in the property insured, if he is not the absolute owner thereof, is not meritorious because
it was the Traders, not Golangco, who prepared that policy, and it cannot take advantage of its
own acts to plaintiff's detriment; and, in any case, this provisionwas substantially complied with by
Golangco when he made a full and clear statement of his interests to Trader's manager.
The contract between Lianco and the Archbishop only forbade Lianco from transferring 'his
rights as LESSEE but the contracts Lianco made in favor of Kaw Eng Siand plaintiff Golangco did not
transfer such rights; hence no written consent thereto was necessary. At worst, the contract would
be voidable, but not a void contract, at the option of the Archbishop and it does not appear that it
was ever exercised
3. Filipino Merchants Insurance v CA G.R. No. 85141 November 28, 1989

Facts:
Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok, Thailand to Manila against all risks
under warehouse to warehouse terms. What was imported in the SS Bougainville was 59.940 metric tons at $395.42 a
ton. The cargo was unloaded from the ship and 227 bags were found to be in bad condition by the arrastre.
Choa made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 He also
presented a claim against the ship, but the defendant Filipino Merchants Insurance Company refused to pay the
claim. The plaintiff brought an action against the company and presented a third party complaint against the vessel and
the arrastre contractor.
The court below, after trial on the merits, rendered judgment in favor of private respondent, for the sum of P51,568.62
with interest at legal rate.
The common carrier, Compagnie, was ordered to pay as a joint debtor.
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for
reconsideration of the aforesaid decision was denied. The AC made Filipino Merchants pay but absolved the common
carrier, Compagnie. Hence this petition.

Issues:
1. WON the "all risks" clause of the marine insurance policy held the petitioner liable to the private respondent for the
partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental
cause to which the loss is attributable.
2. WON The Court of Appeals erred in not holding that the private respondent had no insurable interest in the
subject cargo, hence, the marine insurance policy taken out by private respondent is null and void.

Held: No. No. Petition denied.

Ratio:
1. The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no case be deemed to
extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter
insured. Claims recoverable hereunder shall be payable irrespective of percentage.

83
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental
cause of any kind. Accident is construed by the courts in their ordinary and common acceptance.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other
than a willful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give
protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or
damage to property.
Institute Cargo Clauses extends to all damages/losses suffered by the insured cargo except (a) loss or damage or
expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or
nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all
risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks
compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in
good condition when the policy attached and that the cargo was damaged when unloaded from the vessel. The burden
then shifts to the insurer to show the exception to the coverage. This creates a special type of insurance
which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the loss from coverage.
Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of any
kind, and there is no necessity to point to any particular cause.
2. Section 13 of the Insurance Code- anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction
Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Choa, as vendee/consignee of the goods in transit, has such existing interest as may be the subject of a valid contract
of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale
between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before
conditions have been performed.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized
or required to send the goods to the buyer, delivery of the goods to a carrier, for the purpose of transmission to the
buyer is deemed to be a delivery of the goods to the buyer. The Court has heretofore ruled that the delivery of the
goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers
assumed the risks of loss of the goods and paid the insurance premium covering them.

Issues & Resolutions:

Filipino contends that an "all risks" marine policy has a technical meaning in insurance in that
before a claim can be compensable it is essential that there must be "some fortuity,"
"casualty" or "accidental cause" to which the alleged loss is attributable and the failure of
herein private respondent, upon whom lay the burden, to adduce evidence showing that the
alleged loss to the cargo in question was due to a fortuitous event precludes his right to
recover from the insurance policy.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning all
risks whatsoever and covering all losses by an accidental cause of any kind. The terms
"accident" and "accidental", as used in insurance contracts, have not acquired any technical
meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the
terms have been taken to mean that which happens 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.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon
the insured the burden of establishing that the loss was due to the peril falling within the
policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision
expressly excludes the loss from coverage. A marine insurance policy providing that the
insurance was to be "against all risks" must be construed as creating a special insurance and
extending to other risks than are usually contemplated, and covers all losses except such as
84
arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely
that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden
is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage would be inconsistent
with the broad protective purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted
perils, the insurer is liable under the policy

Filipino contends that Chao does not have insurable interest, being only a consignee of the
goods.

Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as consignee of
the goods in transit under an invoice containing the terms under "C & F Manila," has insurable
interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured. In principle, anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from
its destruction whether he has or has not any title in, or lien upon or possession of the
property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate
interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest
in that out of which the expectancy arises.

Chao, as vendee/consignee of the goods in transit has such existing interest therein as may be
the subject of a valid contract of insurance. His interest over the goods is based on the
perfected contract of sale. The perfected contract of sale between him and the shipper of the
goods operates to vest in him an equitable title even before delivery or before he performed the
conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in
this case, is immaterial in the determination of whether the vendee has an insurable interest or
not in the goods in transit. The perfected contract of sale even without delivery vests in the
vendee an equitable title, an existing interest over the goods sufficient to be the subject of
insurance

REGALADO, J.:

This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part of which
reads:

WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant Filipino
Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with interest at legal rate
from the date of filing of the complaint, and is modified with respect to the third party complaint in that
(1) third party defendant E. Razon, Inc. is ordered to reimburse third party plaintiff the sum of
P25,471.80 with legal interest from the date of payment until the date of reimbursement, and (2) the
third-party complaint against third party defendant Compagnie Maritime Des Chargeurs Reunis is
dismissed. 1

The facts as found by the trial court and adopted by the Court of Appeals are as follows:

This is an action brought by the consignee of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about December 11, 1976 and seeks to recover

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 from the defendant insurance company the amount of P51,568.62 representing damages to said
shipment which has been insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants Compagnie Maritime Des
Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case
Judgment is rendered against the third party plaintiff. It appears from the evidence presented that in
December 1976, plaintiff insured said shipment with defendant insurance company under said cargo
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal
in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under
warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at
$395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on
December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor
ascertained and certified that in such discharge 105 bags were in bad order condition as jointly
surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected
in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting
of three (3) pages which are also Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the
arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such
delivery was reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a
total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and detailed
survey of the cargo in the warehouse for which he prepared a survey report Exhibit F with the findings
on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos,
Exhibit F-1. Based on said computation the plaintiff made a formal claim against the defendant Filipino
Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of which claim is contained
therein. A formal claim statement was also presented by the plaintiff against the vessel dated
December 21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to
pay the claim. Consequently, the plaintiff brought an action against said defendant as adverted to
above and defendant presented a third party complaint against the vessel and the arrastre contractor. 2

The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal portion
whereof reads:

WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff and against
the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants to pay the plaintiff the
following amount:

The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;

On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and
third party defendant E. Razon, Inc. are ordered to pay to the third party plaintiff jointly and severally
reimbursement of the amounts paid by the third party plaintiff with legal interest from the date of such
payment until the date of such reimbursement.

Without pronouncement as to costs.3

On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for
reconsideration of the aforesaid decision was denied, hence this petition with the following assignment of errors:

1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of the marine
insurance policy when it held the petitioner liable to the private respondent for the partial loss of the
cargo, notwithstanding the clear absence of proof of some fortuitous event, casualty, or accidental
cause to which the loss is attributable, thereby contradicting the very precedents cited by it in its
decision as well as a prior decision of the same Division of the said court (then composed of Justices
Cacdac, Castro-Bartolome, and Pronove);

2. The Court of Appeals erred in not holding that the private respondent had no insurable interest in the
subject cargo, hence, the marine insurance policy taken out by private respondent is null and void;

3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud in not
disclosing the fact, it being bound out of utmost good faith to do so, that it had no insurable interest in
the subject cargo, which bars its recovery on the policy. 4

On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical meaning in
insurance in that before a claim can be compensable it is essential that there must be "some fortuity, " "casualty" or
"accidental cause" to which the alleged loss is attributable and the failure of herein private respondent, upon whom lay
86
the burden, to adduce evidence showing that the alleged loss to the cargo in question was due to a fortuitous event
precludes his right to recover from the insurance policy. We find said contention untenable.

The "all risks clause" of the Institute Cargo Clauses read as follows:

5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no
case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent
vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable
irrespective of percentage. 5

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental
cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any
technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have
been taken to mean that which happens 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. 6

The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other
than a willful and fraudulent act of the insured. 7 This is pursuant to the very purpose of an "all risks" insurance to give
protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or
damage to property. 8 An "all asks" policy has been evolved to grant greater protection than that afforded by the "perils
clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor
creating liability in the ship; it is written against all losses, that is, attributable to external causes. 9

The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo
Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo
except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately
caused by the inherent vice or nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all
risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks
compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in
good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter,
the burden then shifts to the insurer to show the exception to the coverage. 10 As we held in Paris-Manila Perfumery
Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is that the insurance company has the burden of proving that the
loss is caused by the risk excepted and for want of such proof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends
coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss
was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a
specific provision expressly excludes the loss from coverage. 12 A marine insurance policy providing that the insurance
was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are
usually contemplated, and covers all losses except such as arise from the fraud of the insured. 13 The burden of the
insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated.
Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the insurer is liable
under the policy. As aptly stated by the respondent Court of Appeals, upon due consideration of the authorities and
jurisprudence it discussed

... it is believed that in the absence of any showing that the losses/damages were caused by an
excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no
such showing, the lower court did not err in holding that the loss was covered by the policy.

There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was
packed was such that they could not hold their contents in the course of the necessary transit, much
less any evidence that the bags of cargo had burst as the result of the weakness of the bags
themselves. Had there been such a showing that spillage would have been a certainty, there may have
been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited
in Marine Insurance Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there

87
 was damage occasioned by some accidental cause of any kind, and there is no necessity to point to
any particular cause. 14

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement
has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such
terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. 15

Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent, as
consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in
said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence
or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the
property y. 16 Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on
an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 17

Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein as may be
the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of
sale. 18The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable
title even before delivery or before be performed the conditions of the sale. 19 The contract of shipment, whether under
F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable
interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized
or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for,
the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said
rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the
carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of
loss of the goods and paid the insurance premium covering them. 20

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the
goods and freight to the named destination. 21 It simply means that the seller must pay the costs and freight necessary
to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to
the buyer when the goods pass the ship's rail in the port of shipment. 22

Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer. It was
neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the trial in the court
below. It is a settled rule that an issue which has not been raised in the court a quo cannot be raised for the first time
on appeal as it would be offensive to the basic rules of fair play, justice and due process. 23 This is but a permuted
restatement of the long settled rule that when a party deliberately adopts a certain theory, and the case is tried and
decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit
him to do so, would be unfair to the adverse party. 24

If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the issue of
insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case and also
to dispose of petitioner's third assignment of error which consequently needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.

SO ORDERED.

4. Cha V. CA (1997)

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

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Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the lessor. But it insured against loss by fire their merchandise
inside the leased premises for P500,000 with the United Insurance Co., Inc. without the written
consent of CKS
On the day the lease contract was to expire, fire broke out inside the leased premises and CKS
learning that the spouses procured an insurance wrote to United to have the proceeds be paid
directly to them. But United refused so CKS filed against Spouses Cha and United.
RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as
exemplary damages, P20,000 as attorneys fees and costs of suit
CA: deleted exemplary damages and attorneys fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over
their merchandise is primarily a contract of indemnity. Insurable interest in the property insured
must exist a t the time the insurance takes effect and at the time the loss occurs. The basis of
such requirement of insurable interest in property insured is based on sound public policy: to
prevent a person from taking out an insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code.
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering, is void
Section 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof
The automatic assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for
violating their lease contract in that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve
in this case.

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of
respondent Court of Appeals.
The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store
or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s)
the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its
own benefit; x x x[1]

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3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise inside
the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the
written consent of private respondents CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS
the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and
costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the
trial court decision, deleting however the awards for exemplary damages and attorneys fees. A motion for reconsideration by
United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE
CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND
VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE
ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION
THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO

APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON

THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING
TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION.[2]

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract
entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained
by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to
the lessor (CKS) if said policy is obtained without the prior written of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy.[3]
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having
an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes
effect and at the time the loss occurs.[4] The basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract
of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:
90
 SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has
not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside
the leased premises under the provisions of Section 17 of the Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by
loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise
remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer
(United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable
interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do
not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision
is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
SO ORDERED.

5. Sharuff & Co. V. Baloise Fire Insurance Co. (1937)

FACTS:

Salomon Sharruf and Elias Eskenazi were doing business under the firm name of Sharruf & Co.
They insured their stocks with aloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield
Insurance Co. raising it to P40,000. Elias Eskenazi having paid the corresponding premiums
Soon they changed the name of their partnership to Sharruf & Eskenazi
September 22, 1933: A fire ensued at their building at Muelle de la Industria street where
petroleum was spilt lasting 27 minutes
Sharruf & Co. claimed 40 cases when only 10 or 11 partly burned and scorched cases were
found
RTC: ordered Baloise Fire Insurance Co., Sun Insurance Office Ltd., and Springfield Insurance Co.,
to pay the partners Salomon Sharruf and Elias Eskenazi P40,000 plus 8% interest
ISSUE: W/N Sharruf & Eskenazi has juridical personality and insurable interest

HELD: YES. Reversd. Insurance companies are absolved.

It does not appear that in changing the title of the partnership they had the intention of
defrauding the insurance companies
fire which broke out in the building at Nos. 299-301 Muelle de la Industria, occupied by Sharruf &
Eskenazi but no evidence sufficient to warrant a finding that they are responsible for the fire
So great is the difference between the amount of articles insured, which the plaintiffs claim to
have been in the building before the fire, and the amount thereof shown by the vestige of the fire to
have been therein, that the most liberal human judgment can not attribute such difference to a
mere innocent error in estimate or counting but to a deliberate intent to demand of the insurance
companies payment of an indemnity for goods not existing at the time of the fire, thereby
91
 constituting the so-called "fraudulent claim" which, by express agreement between the insurers and
the insured, is a ground for exemption of the insurers from civil liability
acted in bad faith in presenting a fraudulent claim, they are not entitled to the indemnity claimed
when the partners of a general partnership doing business under the firm name of "Sharruf &
Co." obtain insurance policies issued to said firm and the latter is afterwards changed to "Sharruf &
Eskenazi", which are the names of the same and only partners of said firm "Sharruf & Co.",
continuing the same business, the new firm acquires the rights of the former under the same
policies;

92