G.R. No.

L-39419 April 12, 1982

MAPALAD AISPORNA, petitioner,

vs.
THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

DE CASTRO, J.:

In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the decision
dated August 14, 1974 1in CA-G.R. No. 13243-CR entitled "People of the Philippines, plaintiff-
appellee, vs. Mapalad Aisporna, defendant-appellant" of respondent Court of Appeals
affirming the judgment of the City Court of Cabanatuan 2 rendered on August 2, 1971 which
found the petitioner guilty for having violated Section 189 of the Insurance Act (Act No. 2427,
as amended) and sentenced her to pay a fine of P500.00 with subsidiary imprisonment in
case of insolvency, and to pay the costs.

Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of Section 189
of the Insurance Act on November 21, 1970 in an information 3 which reads as follows:

That on or before the 21st day of June, 1969, in the City of Cabanatuan,
Republic of the Philippines, and within the jurisdiction of this Honorable Court,
the above-named accused, did then and there, wilfully, unlawfully and
feloniously act as agent in the solicitation or procurement of an application for
insurance by soliciting therefor the application of one Eugenio S. Isidro, for and
in behalf of Perla Compania de Seguros, Inc., a duly organized insurance
company, registered under the laws of the Republic of the Philippines, resulting
in the issuance of a Broad Personal Accident Policy No. 28PI-RSA 0001 in the
amount not exceeding FIVE THOUSAND PESOS (P5,000.00) dated June 21,
1969, without said accused having first secured a certificate of authority to act
as such agent from the office of the Insurance Commissioner, Republic of the
Philippines.

CONTRARY TO LAW.

The facts, 4
as found by the respondent Court of Appeals are quoted hereunder:

IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21

June, 1969, appellant's husband, Rodolfo S. Aisporna was duly licensed by
Insurance Commission as agent to Perla Compania de Seguros, with license to
expire on 30 June, 1970, Exh. C; on that date, at Cabanatuan City, Personal
Accident Policy, Exh. D was issued by Perla thru its author representative,
Rodolfo S. Aisporna, for a period of twelve (12) months with beneficiary as Ana
M. Isidro, and for P5,000.00; apparently, insured died by violence during
lifetime of policy, and for reasons not explained in record, present information
was filed by Fiscal, with assistance of private prosecutor, charging wife of
Rodolfo with violation of Sec. 189 of Insurance Law for having, wilfully,
unlawfully, and feloniously acted, "as agent in the solicitation for insurance by
soliciting therefore the application of one Eugenio S. Isidro for and in behalf of
Perla Compaña de Seguros, ... without said accused having first secured a
 certificate of authority to act as such agent from the office of the Insurance
Commission, Republic of the Philippines."

and in the trial, People presented evidence that was hardly disputed, that
aforementioned policy was issued with active participation of appellant wife of
Rodolfo, against which appellant in her defense sought to show that being the
wife of true agent, Rodolfo, she naturally helped him in his work, as clerk, and
that policy was merely a renewal and was issued because Isidro had called by
telephone to renew, and at that time, her husband, Rodolfo, was absent and
so she left a note on top of her husband's desk to renew ...

Consequently, the trial court found herein petitioner guilty as charged. On appeal, the trial
court's decision was affirmed by the respondent appellate court finding the petitioner guilty
of a violation of the first paragraph of Section 189 of the Insurance Act. Hence, this present
recourse was filed on October 22, 1974. 5

In its resolution of October 28, 1974, 6 this Court resolved, without giving due course to this
instant petition, to require the respondent to comment on the aforesaid petition. In the
comment 7 filed on December 20, 1974, the respondent, represented by the Office of the
Solicitor General, submitted that petitioner may not be considered as having violated Section
189 of the Insurance Act. 8 On April 3, 1975, petitioner submitted his Brief 9 while the Solicitor
General, on behalf of the respondent, filed a manifestation 10 in lieu of a Brief on May 3, 1975
reiterating his stand that the petitioner has not violated Section 189 of the Insurance Act.

In seeking reversal of the judgment of conviction, petitioner assigns the following

errors 11 allegedly committed by the appellate court:

1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT

OF COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME DEFINED
BY THE FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE ACT.

2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO

EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH
PETITIONER'S GUILT BEYOND REASONABLE DOUBT.

3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN

PETITIONER.

We find the petition meritorious.

The main issue raised is whether or not a person can be convicted of having violated the first
paragraph of Section 189 of the Insurance Act without reference to the second paragraph of
the same section. In other words, it is necessary to determine whether or not the agent
mentioned in the first paragraph of the aforesaid section is governed by the definition of an
insurance agent found on its second paragraph.

The pertinent provision of Section 189 of the Insurance Act reads as follows:

No insurance company doing business within the Philippine Islands, nor any
agent thereof, shall pay any commission or other compensation to any person
for services in obtaining new insurance, unless such person shall have first
 procured from the Insurance Commissioner a certificate of authority to act as
an agent of such company as hereinafter provided. No person shall act as
agent, sub-agent, or broker in the solicitation of procurement of applications
for insurance, or receive for services in obtaining new insurance, any
commission or other compensation from any insurance company doing
business in the Philippine Islands, or agent thereof, without first procuring a
certificate of authority so to act from the Insurance Commissioner, which must
be renewed annually on the first day of January, or within six months
thereafter. Such certificate shall be issued by the Insurance Commissioner only
upon the written application of persons desiring such authority, such application
being approved and countersigned by the company such person desires to
represent, and shall be upon a form approved by the Insurance Commissioner,
giving such information as he may require. The Insurance Commissioner shall
have the right to refuse to issue or renew and to revoke any such certificate in
his discretion. No such certificate shall be valid, however, in any event after the
first day of July of the year following the issuing of such certificate. Renewal
certificates may be issued upon the application of the company.

Any person who for compensation solicits or obtains insurance on behalf of any
insurance company, or transmits for a person other than himself an application
for a policy of insurance to or from such company or offers or assumes to act
in the negotiating of such insurance, shall be an insurance agent within the
intent of this section, and shall thereby become liable to all the duties,
requirements, liabilities, and penalties to which an agent of such company is
subject.

Any person or company violating the provisions of this section shall be fined in
the sum of five hundred pesos. On the conviction of any person acting as agent,
sub-agent, or broker, of the commission of any offense connected with the
business of insurance, the Insurance Commissioner shall immediately revoke
the certificate of authority issued to him and no such certificate shall thereafter
be issued to such convicted person.

A careful perusal of the above-quoted provision shows that the first paragraph thereof
prohibits a person from acting as agent, sub-agent or broker in the solicitation or procurement
of applications for insurance without first procuring a certificate of authority so to act from
the Insurance Commissioner, while its second paragraph defines who is an insurance agent
within the intent of this section and, finally, the third paragraph thereof prescribes the penalty
to be imposed for its violation.

The respondent appellate court ruled that the petitioner is prosecuted not under the second
paragraph of Section 189 of the aforesaid Act but under its first paragraph. Thus —

... it can no longer be denied that it was appellant's most active endeavors that
resulted in issuance of policy to Isidro, she was there and then acting as agent,
and received the pay thereof — her defense that she was only acting as helper
of her husband can no longer be sustained, neither her point that she received
no compensation for issuance of the policy because

any person who for compensation solicits or obtains insurance on

behalf of any insurance company or transmits for a person other
than himself an application for a policy of insurance to or from
 such company or offers or assumes to act in the negotiating of
such insurance, shall be an insurance agent within the intent of
this section, and shall thereby become liable to all the duties,
requirements, liabilities, and penalties, to which an agent of such
company is subject. paragraph 2, Sec. 189, Insurance Law,

now it is true that information does not even allege that she had obtained the
insurance,

for compensation

which is the gist of the offense in Section 189 of the Insurance Law in its 2nd
paragraph, but what appellant apparently overlooks is that she is prosecuted
not under the 2nd but under the 1st paragraph of Sec. 189 wherein it is
provided that,

No person shall act as agent, sub-agent, or broker, in the

solicitation or procurement of applications for insurance, or
receive for services in obtaining new insurance any commission
or other compensation from any insurance company doing
business in the Philippine Island, or agent thereof, without first
procuring a certificate of authority to act from the insurance
commissioner, which must be renewed annually on the first day
of January, or within six months thereafter.

therefore, there was no technical defect in the wording of the charge, so that
Errors 2 and 4 must be overruled. 12

From the above-mentioned ruling, the respondent appellate court seems to imply that the
definition of an insurance agent under the second paragraph of Section 189 is not applicable
to the insurance agent mentioned in the first paragraph. Parenthetically, the respondent court
concludes that under the second paragraph of Section 189, a person is an insurance agent if
he solicits and obtains an insurance for compensation, but, in its first paragraph, there is no
necessity that a person solicits an insurance for compensation in order to be called an
insurance agent.

We find this to be a reversible error. As correctly pointed out by the Solicitor General, the
definition of an insurance agent as found in the second paragraph of Section 189 is intended
to define the word "agent" mentioned in the first and second paragraphs of the aforesaid
section. More significantly, in its second paragraph, it is explicitly provided that the definition
of an insurance agent is within the intent of Section 189. Hence —

Any person who for compensation ... shall be an insurance agent within the
intent of this section, ...

Patently, the definition of an insurance agent under the second paragraph holds true with
respect to the agent mentioned in the other two paragraphs of the said section. The second
paragraph of Section 189 is a definition and interpretative clause intended to qualify the term
"agent" mentioned in both the first and third paragraphs of the aforesaid section.
Applying the definition of an insurance agent in the second paragraph to the agent mentioned
in the first and second paragraphs would give harmony to the aforesaid three paragraphs of
Section 189. Legislative intent must be ascertained from a consideration of the statute as a
whole. The particular words, clauses and phrases should not be studied as detached and
isolated expressions, but the whole and every part of the statute must be considered in fixing
the meaning of any of its parts and in order to produce harmonious whole. 13 A statute must
be so construed as to harmonize and give effect to all its provisions whenever possible. 14 The
meaning of the law, it must be borne in mind, is not to be extracted from any single part,
portion or section or from isolated words and phrases, clauses or sentences but from a general
consideration or view of the act as a whole. 15 Every part of the statute must be interpreted
with reference to the context. This means that every part of the statute must be considered
together with the other parts, and kept subservient to the general intent of the whole
enactment, not separately and independently. 16 More importantly, the doctrine of associated
words (Noscitur a Sociis) provides that where a particular word or phrase in a statement is
ambiguous in itself or is equally susceptible of various meanings, its true meaning may be
made clear and specific by considering the company in which it is found or with which it is
associated. 17

Considering that the definition of an insurance agent as found in the second paragraph is also
applicable to the agent mentioned in the first paragraph, to receive a compensation by the
agent is an essential element for a violation of the first paragraph of the aforesaid section.
The appellate court has established ultimately that the petitioner-accused did not receive any
compensation for the issuance of the insurance policy of Eugenio Isidro. Nevertheless, the
accused was convicted by the appellate court for, according to the latter, the receipt of
compensation for issuing an insurance policy is not an essential element for a violation of the
first paragraph of Section 189 of the Insurance Act.

We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor
for any person for direct or indirect compensation to solicit insurance without a certificate of
authority to act as an insurance agent, an information, failing to allege that the solicitor was
to receive compensation either directly or indirectly, charges no offense. 18 In the case of
Bolen vs. Stake, 19 the provision of Section 3750, Snyder's Compiled Laws of Oklahoma 1909
is intended to penalize persons only who acted as insurance solicitors without license, and
while acting in such capacity negotiated and concluded insurance contracts for compensation.
It must be noted that the information, in the case at bar, does not allege that the negotiation
of an insurance contracts by the accused with Eugenio Isidro was one for compensation. This
allegation is essential, and having been omitted, a conviction of the accused could not be
sustained. It is well-settled in Our jurisprudence that to warrant conviction, every element of
the crime must be alleged and proved. 20

After going over the records of this case, We are fully convinced, as the Solicitor General
maintains, that accused did not violate Section 189 of the Insurance Act.

WHEREFORE, the judgment appealed from is reversed and the accused is acquitted of the
crime charged, with costs de oficio.

SO ORDERED.

G.R. No. 73887 December 21, 1989

GREAT PACIFIC LIFE ASSURANCE CORPORATION, petitioner,
vs.
HONORATO JUDICO and NATIONAL LABOR RELATIONS COMMISSION, respondents.

G.A. Fortun and Associates for petitioner.

Corsino B. Soco for private respondent.

PARAS J.:

Before us is a Petition for certiorari to review the decision of the National Labor Relations
Commission (NLRC, for brevity) dated September 9, 1985 reversing the decision of Labor
Arbiter Vito J. Minoria, dated June 9, 1983, by 1) ordering petitioner insurance company,
Great Pacific Life Assurance Corporation (Grepalife, for brevity) to recognize private
respondent Honorato Judico, as its regular employee as defined under Art. 281 of the Labor
Code and 2) remanding the case to its origin for the determination of private respondent
Judico's money claims.

The records of the case show that Honorato Judico filed a complaint for illegal dismissal
against Grepalife, a duly organized insurance firm, before the NLRC Regional Arbitration
Branch No. VII, Cebu City on August 27, 1982. Said complaint prayed for award of money
claims consisting of separation pay, unpaid salary and 13th month pay, refund of cash bond,
moral and exemplary damages and attorney's fees.

Both parties appealed to the NLRC when a decision was rendered by the Labor Arbiter
dismissing the complaint on the ground that the employer-employee relations did not exist
between the parties but ordered Grepalife to pay complainant the sum of Pl,000.00 by reason
of Christian Charity.

On appeal, said decision was reversed by the NLRC ruling that complainant is a regular
employee as defined under Art. 281 of the Labor Code and declaring the appeal of Grepalife
questioning the legality of the payment of Pl,000.00 to complainant moot and academic.
Nevertheless, for the purpose of revoking the supersedeas bond of said company it ruled that
the Labor Arbiter erred in awarding Pl,000.00 to complainant in the absence of any legal or
factual basis to support its payment.

Petitioner company moved to reconsider, which was denied, hence this petition for review
raising four legal issues to wit:

I. Whether the relationship between insurance agents and their principal, the
insurance company, is that of agent and principal to be governed by the
Insurance Code and the Civil Code provisions on agency, or one of employer-
employee, to be governed by the Labor Code.

II. Whether insurance agents are entitled to the employee benefits prescribed
by the Labor Code.
 III. Whether the public respondent NLRC has jurisdiction to take cognizance of
a controversy between insurance agent and the insurance company, arising
from their agency relations.

IV. Whether the public respondent acted correctly in setting aside the decision
of Labor Arbiter Vito J. Minoria and in ordering the case remanded to said Labor
Arbiter for further proceedings.(p. 159, Rollo)

The crux of these issues boil down to the question of whether or not employer-employee
relationship existed between petitioner and private respondent.

Petitioner admits that on June 9, 1976, private respondent Judico entered into an agreement
of agency with petitioner Grepalife to become a debit agent attached to the industrial life
agency in Cebu City. Petitioner defines a debit agent as "an insurance agent selling/servicing
industrial life plans and policy holders. Industrial life plans are those whose premiums are
payable either daily, weekly or monthly and which are collectible by the debit agents at the
home or any place designated by the policy holder" (p. 156, Rollo). Such admission is in line
with the findings of public respondent that as such debit agent, private respondent Judico had
definite work assignments including but not limited to collection of premiums from policy
holders and selling insurance to prospective clients. Public respondent NLRC also found out
that complainant was initially paid P 200. 00 as allowance for thirteen (13) weeks regardless
of production and later a certain percentage denominated as sales reserve of his total
collections but not lesser than P 200.00. Sometime in September 1981, complainant was
promoted to the position of Zone Supervisor and was given additional (supervisor's) allowance
fixed at P110.00 per week. During the third week of November 1981, he was reverted to his
former position as debit agent but, for unknown reasons, not paid so-called weekly sales
reserve of at least P 200.00. Finally on June 28, 1982, complainant was dismissed by way of
termination of his agency contract.

Petitioner assails the findings of the NLRC that private respondent is an employee of the
former. Petitioner argues that Judico's compensation was not based on any fixed number of
hours he was required to devote to the service of petitioner company but rather it was the
production or result of his efforts or his work that was being compensated and that the so-
called allowance for the first thirteen weeks that Judico worked as debit agent, cannot be
construed as salary but as a subsidy or a way of assistance for transportation and meal
expenses of a new debit agent during the initial period of his training which was fixed for
thirteen (13) weeks. Stated otherwise, petitioner contends that Judico's compensation, in the
form of commissions and bonuses, was based on actual production, (insurance plans sold and
premium collections).

Said contentions of petitioner are strongly rejected by private respondent. He maintains that
he received a definite amount as his Wage known as "sales reserve" the failure to maintain
the same would bring him back to a beginner's employment with a fixed weekly wage of P
200.00 regardless of production. He was assigned a definite place in the office to work on
when he is not in the field; and in addition to canvassing and making regular reports, he was
burdened with the job of collection and to make regular weekly report thereto for which an
anemic performance would mean dismissal. He earned out of his faithful and productive
service, a promotion to Zone Supervisor with additional supervisor's allowance, (a definite or
fixed amount of P110.00) that he was dismissed primarily because of anemic performance
and not because of the termination of the contract of agency substantiate the fact that he
was indeed an employee of the petitioner and not an insurance agent in the ordinary meaning
of the term.
That private respondent Judico was an agent of the petitioner is unquestionable. But, as We
have held in Investment Planning Corp. vs. SSS, 21 SCRA 294, 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. The agents who belong to the second
category are not required to report for work at anytime, they do not have to devote their time
exclusively to or work solely for the company since the time and the effort they spend in their
work depend entirely upon their own will and initiative; they are not required to account for
their time nor submit a report of their activities; they shoulder their own selling expenses as
well as transportation; and they are paid their commission based on a certain percentage of
their sales. One salient point in the determination of employer-employee relationship which
cannot be easily ignored is the fact that the compensation that these agents on commission
received is not paid by the insurance company but by the investor (or the person insured).
After determining the commission earned by an agent on his sales the agent directly deducts
it from the amount he received from the investor or the person insured and turns over to the
insurance company the amount invested after such deduction is made. The test therefore is
whether the "employer" controls or has reserved the right to control the "employee" not only
as to the result of the work to be done but also as to the means and methods by which the
same is to be accomplished.

Applying the aforementioned test to the case at bar, We can readily see that the element of
control by the petitioner on Judico was very much present. The record shows that petitioner
Judico received a definite minimum amount per week as his wage known as "sales reserve"
wherein the failure to maintain the same would bring him back to a beginner's employment
with a fixed weekly wage of P 200.00 for thirteen weeks regardless of production. He was
assigned a definite place in the office to work on when he is not in the field; and in addition
to his canvassing work he was burdened with the job of collection. In both cases he was
required to make regular report to the company regarding these duties, and for which an
anemic performance would mean a dismissal. Conversely faithful and productive service
earned him a promotion to Zone Supervisor with additional supervisor's allowance, a definite
amount of P110.00 aside from the regular P 200.00 weekly "allowance". Furthermore, his
contract of services with petitioner is not for a piece of work nor for a definite period.

On the other hand, an ordinary commission insurance agent works at his own volition or at
his own leisure without fear of dismissal from the company and short of committing acts
detrimental to the business interest of the company or against the latter, whether he produces
or not is of no moment as his salary is based on his production, his anemic performance or
even dead result does not become a ground for dismissal. Whereas, in private respondent's
case, the undisputed facts show that he was controlled by petitioner insurance company not
only as to the kind of work; the amount of results, the kind of performance but also the power
of dismissal. Undoubtedly, private respondent, by nature of his position and work, had been
a regular employee of petitioner and is therefore entitled to the protection of the law and
could not just be terminated without valid and justifiable cause.

Premises considered, the appealed decision is hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 80750-51 July 23, 1990

GREAT PACIFIC LIFE ASSURANCE CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ERNESTO RUIZ and RODRIGO
RUIZ, respondents.

G.A. Fortun and Associates for petitioner.

Antonio P. Espinosa for private respondents.

CORTES, J.:

Brothers Rodrigo and Ernesto Ruiz (private respondents herein) entered into individual agency
agreements with petitioner Grepalife in 1977, each starting out as trainee-agents and later
promoted to higher positions. On July 6,1981, Ernesto was designated as district manager
under a three-year Agreement of Managership [Annex 'A', Rollo, p. 341. However, he was
dismissed from service on November 30, 1983, before the lapse of the period fixed in the
contract, when upon audit he was found to have delayed the remittance of premium
collections in his possession and to have appropriated for his own use the sum of Twelve
Thousand Eight Hundred Eighteen Pesos and Seventy-Three Centavos (P12,818.73) by
remitting smaller amounts of premiums than that actually paid by policy holders. Grepalife
then designated Rodrigo as officer-in charge to take over the functions of district manager in
the Butuan district effective December 5, 1983, in addition to his responsibilities then as zone
supervisor. Unfortunately, Rodrigo proved to be made of the same stuff as his brother. After
his designation as officer-in-charge was recalled in January 1984, he instigated the other zone
supervisors and debit agents of the Butuan district not to submit their weekly reports of
business and not to remit the premium collections. Rodrigo's insistent violation despite
warnings from the Vice-President for VisMin Sales prompted Grepalife to terminate his
employment effective March 5, 1984 in a letter dated March 8, 1984. Although the ground for
Rodrigo's dismissal was not given in said letter, petitioner maintained that it was for
substantially the same infractions committed by Ernesto.

In the consolidated illegal dismissal cases (NLRC RAB X Case Nos. 4-0210-84 and 2-0103-85)
filed by the brothers, the labor arbiter found that Rodrigo and Ernesto: (1) were employees of
Grepalife; (2) committed acts inimical to Grepalife's business; and (3) were dismissed without
first being afforded due process by way of a notice in writing of the grounds for their
dismissal.

However, despite such findings, the labor arbiter ordered their reinstatement without
backwages [Rollo, pp. 51-52].

Upon appeal, the National Labor Relations Commission (NLRC) affirmed the factual findings
of the labor arbiter but reversed the order of reinstatement on the ground that Grepalife
cannot ' be compelled to retain an employee found guilty of acts inimical to its interest.
Nevertheless, 'separation pay" was awarded in favor of private respondents for petitioner's
failure to observe due process prior to their termination from employment. The dispositive
portion of the decision reads:

... for failure of respondents [Grepalife and the branch manager] to give timely
notice in writing to complainants of the acts constituting the grounds for their
 dismissal pursuant to Section 2, Rule XIV, of Batas Pambansa Blg. 130,
respondent should be ordered to pay complainants Rodrigo Ruiz and Ernesto
Ruiz separation pay, equivalent to one-half month's salary for every year of
service. [NLRC Resolution, p. 5; Rollo, p. 9; Emphasis supplied.]

Hence, the present petition.

The Solicitor General filed its comment on behalf of public respondent. Petitioner filed a reply
thereto. Subsequently, the Court resolved to give the petition due course and to require the
parties to submit their memoranda. Petitioner and public respondent complied and duly
submitted their respective memoranda. On the other hand, private respondents did not file
their comment and memorandum.

The existence of valid grounds for private respondents' dismissal is not disputed herein, and
therefore the finding that the Ruiz brothers were dismissed for just cause is final. The only
issues in this petition are (1) Whether or not there was grave abuse of discretion on the part
of public respondent in holding that Ernesto and Rodrigo are employees of Grepalife; and (2)
Whether or not there was grave abuse of discretion on the part of public respondent in
ordering the award of separation pay to private respondents as sanction for Grepalife's failure
to accord them due process even though there was finding of just cause for their dismissal.

With respect to the first issue, the Court finds no grave abuse of discretion.

Grepalife contends that Rodrigo and Ernesto are agents, not employees, of the company by
alleging that they were hired under agency agreements, that they were not among the
company's "organic personnel" who handled technical and administrative functions of the
company, that they were paid on the basis of production/output (by way of commissions and
bonuses, and not salaries), and that they were neither under any form of control whatsoever
as to hours of work nor were they "on call" by the company. On the basis of the foregoing,
Grepalife concluded that the relationship was one of principal-agent and therefore,
necessarily, it is the Civil Code and the Insurance Code which properly govern the relationship,
to the exclusion of the Labor Code.

This contention is devoid of merit.

Article 280 of the Labor Code provides that "[the provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreements of the parties, an
employment shall be deemed to be regular where the employee has been engaged to perform
activities which are usually necessary or desirable in the usual business or trade of the
employer. ..." Furthermore, in determining who is considered an "employee', the Court has
time and again applied the "four-fold" test,* with control being the most crucial and
determinative indicator of an employer-employee relationship. The 'employer" must have
control (or must have reserved the right to control) not only over the result of the
"employee's" work but also the means and methods by which it is to be accomplished
[Investment Planning Corp. of the Philippines v. SSS, G.R. No. L-19124, November 18, 1967,
21 SCRA 924; Mafinco Trading Corp. v. Ople, G.R. No. L-37790, March 25, 1976, 70 SCRA
139; Rosario Brothers, Inc. v. Ople, G.R. No. 53590, July 31, 1984, 131 SCRA 72;
Brotherhood Labor Unity Movement of the Philippines v. Zamora, G.R. No.
L-48645, January 7, 1987,147 SCRA 49; Grepalife v. NLRC, G.R. No. 73887, December 21,
1989].
Applying the above, the Court finds that, as correctly held by public respondent, the
relationships of the Ruiz brothers and Grepalife were those of employer-employee.

First, their work at the time of their dismissal as zone supervisor and district manager are
necessary and desirable to the usual business of the insurance company. They were entrusted
with supervisory, sales and other functions to guard Grepalife's business interests and to bring
in more clients to the company, and even with administrative functions to ensure that all
collections, reports and data are faithfully brought to the company.

Furthermore, it cannot be gainsaid that Grepalife had control over private respondents'
performance as well as the result of their efforts. A cursory reading of their respective
functions as enumerated in their contracts reveals that the company practically dictates the
manner by which their jobs are to be carried out. For instance, the District Manager must
properly account, record and document the company's funds spot-check and audit the work
of the zone supervisors, conserve the company's business in the district through
'reinstatements', follow up the submission of weekly remittance reports of the debit agents
and zone supervisors, preserve company property in good condition, train understudies for
the position of district manager, and maintain his quota of sales (the failure of which is a
ground for termination). On the other hand, a zone supervisor must direct and supervise the
sales activities of the debit agents under him, conserve company property through
"reinstatements", undertake and discharge the functions of absentee debit agents, spot-check
the records of debit agents, and insure proper documentation of sales and collections by the
debit agents.

True, it cannot be denied that based on the definition of an "insurance agent" in the Insurance
Code [Art. 300] some of the functions performed by private respondents were those of
insurance agents. Nevertheless, it does not follow that they are not employees of Grepalife.
The Insurance Code may govern the licensing requirements and other particular duties of
insurance agents, but it does not bar the application of the Labor Code with regard to labor
standards and labor relations.

Moreover, it is well-settled that the existence of an employer-employee relationship is

ultimately a question of fact, and such findings of fact of the labor arbiter and the NLRC shall
be accorded not only respect but even finality when supported by substantial evidence [RJL
Martinez Fishing Corporation v. NLRC, G.R. Nos. 63550-51, January 31, 1984, 127 SCRA 454;
Asim v. Castro, G.R. Nos. 75063-64, June 30, 1988, 163 SCRA 344; Murillo v. Sun Valley
Realty, Inc., G.R. No. 67272, June 30, 1988, 163 SCRA 271], as in this case.

With respect to the second issue, petitioner argues that private respondents are not entitled
to separation pay since there was clear finding of just cause for dismissal, and furthermore
"neither the law nor the rules implementing the same authorizes the award of separation pay
as 'penalty." [Petition, p. 8; Rollo, p. 25.]

Again, the contention is devoid of merit.

It must be emphasized that the monetary award fixed by public respondent, although
erroneously termed as "separation pay', was in fact a sanction for the employer's failure to
observe the procedural requirements of due process provided under Rule XIV, Secs. 2, 5 and
6 of the rules implementing Batas Pambansa Blg. 130, and the parties' own covenant [Annex
"A", Rollo, p. 38.] The imposition of such a sanction is in consonance with the ruling in the
case of Wenphil v. NLRC, [G.R. No. 80587, February 8,1989,170 SCRA 69). The Court held
therein that an indemnity, not "separation pay", must be imposed on the employer for failure
to observe the procedural requirements of notice and hearing prior to the dismissal of an
employee for just cause. Considering the circumstances of the case at bar, petitioner must
indemnify private respondents in the amount of One Thousand Pesos (P1,000.00) each [See
also Shoemart, Inc. v. NLRC, G.R. No. 74229, August 11, 1989].

IN VIEW OF THE FOREGOING, the decision of the NLRC is hereby MODIFIED insofar as the
award of "separation pay" is concerned. In lieu of "separation pay" petitioner Grepalife is
hereby ordered to indemnify private respondents Rodrigo Ruiz and Ernesto Ruiz the amount
of One Thousand Pesos (P1,000.00) each.

SO ORDERED.

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO,

CELIA CALUMBAG and LUCIA LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY,
LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent
Court of Appeals in CA-G.R. SP No. 229501 and its Resolution denying the petitioners' motion
for reconsideration.2 The challenged decision modified the decision of the Insurance
Commission in IC Case
No. RD-058. 3

The petitioners were the complainants in IC Case No. RD-058, an administrative complaint
against private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life),
which was filed with the Insurance Commission on 20 September 1989. 4 They prayed therein
that after due proceedings, Insular Life "be ordered to pay the claimants their insurance
claims" and that "proper sanctions/penalties be imposed on" it "for its deliberate, feckless
violation of its contractual obligations to the complainants, and of the Insurance
Code." 5 Insular Life's motion to dismiss the complaint on the ground that "the claims of
complainants are all respectively beyond the jurisdiction of the Insurance Commission as
provided in Section 416 of the Insurance Code," 6 having been denied in the Order of 14
November 1989, 7 it filed its answer on 5 December 1989. 8 Thereafter, hearings were
conducted on various dates.

On 20 June 1990, the Commission rendered its decision 9 in favor of the complainants, the
dispositive portion of which reads as follows:
 WHEREFORE, this Commission merely orders the respondent company to:

a) Pay a fine of FIVE HUNDRED PESOS (P500.00) a day from the receipt of a
copy of this Decision until actual payment thereof;

b) Pay and settle the claims of DINA AYO and LUCIA LONTOK, for P50,000.00
and P40,000.00, respectively;

c) Notify henceforth it should notify individual beneficiaries designated under

any Group Policy, in the event of the death of insured(s), where the
corresponding claims are filed by the Policyholder;

d) Show cause within ten days why its other responsible officers who have
handled this case should not be subjected to disciplinary and other
administrative sanctions for deliberately releasing to Capt. Nuval the check
intended for spouses ALARCON, in the absence of any Special Power of Attorney
for that matter, and for negligence with respect to the release of the other five
checks.

SO ORDERED. 10

In holding for the petitioners, the Insurance Commission made the following findings and
conclusions:

After taking into consideration the evidences [sic], testimonial and

documentary for the complainants and the respondent, the Commission finds
that; First: The respondent erred in appreciating that the powers of attorney
executed by five (5) of the several beneficiaries convey absolute authority to
Capt. Nuval, to demand, receive, receipt and take delivery of insurance
proceeds from respondent Insular Life. A cursory reading of the questioned
powers of authority would disclosed [sic] that they do not contain in
unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt
from respondent company insurance proceeds arising from the death of the
seaman-insured. On the contrary, the said powers of attorney are couched in
terms which could easily arouse suspicion of an ordinary
man. . . .

Second: The testimony of the complainants' rebuttal witness,

Mrs. Trinidad Alarcon, who declared in no uncertain terms that neither she nor
her husband, executed a special power of attorney in favor of Captain Rosendo
Nuval, authorizing him to claim, receive, receipt and take delivery of any
insurance proceeds from Insular Life arising out of the death of their
insured/seaman son, is not convincingly refuted.

Third: Respondent Insular Life did not observe Section 180 of the Insurance
Code, when it issued or released two checks in the amount of P150,000.00 for
the three minor children (P50,000.00 each) of complainant, Dina Ayo and
another check of P40,000.00 for minor beneficiary Marissa Lontok, daughter of
another complainant Lucia Lontok, there being no showing of any court
authorization presented or the requisite bond posted.
 Section 180 is quotes [sic] partly as follows:

. . . In the absence of a judicial guardian, the father, or in the

latter's absence or incapacity, the mother of any minor, who is
an insured or a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of said minor, any
right, under the policy, without necessity of court authority or
the giving of a bond where the interest of the minor in the
particular act involved does not exceed twenty thousand pesos .
. . . 11

Insular Life appealed the decision to the public respondent which docketed the case as CA-
G.R. SP No. 22950. The appeal urged the appellate court to reverse the decision because the
Insurance Commission (a) had no jurisdiction over the case considering that the claims
exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular Life were insufficient
to convey absolute authority to Capt. Nuval to demand, receive and take delivery of the
insurance proceeds pertaining to the petitioners, (c) erred in not giving credit to the version
of Insular Life that the power of attorney supposed to have been executed in favor of the
Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180 of the Insurance Code
for having released to the surviving mothers the insurance proceeds pertaining to the
beneficiaries who were still minors despite the failure of the former to obtain a court
authorization or to post a bond.

On 10 October 1991, the public respondent rendered a decision, 12

the decretal portion of
which reads:

WHEREFORE, the decision appealed from is modified by eliminating therefrom

the award to Dina Ayo and Lucia Lontok in the amounts of P50,000.00 and
P40,000.00, respectively. 13

It found the following facts to have been duly established:

It appears that on 23 September 1983, Prime Marine Services, Inc. (PMSI, for
brevity), a crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular Life Assurance Co., Ltd. to
provide life insurance coverage to its sea-based employees enrolled under the
plan. On 17 February 1986, during the effectivity of the policy, six covered
employees of the PMSI perished at sea when their vessel, M/V Nemos, a Greek
cargo vessel, sunk somewhere in El Jadida, Morocco. They were survived by
complainants-appellees, the beneficiaries under the policy.

Following the tragic demise of their loved ones, complainants-appellees sought

to claim death benefits due them and, for this purpose, they approached the
President and General Manager of PMSI, Capt. Roberto Nuval. The latter
evinced willingness to assist complainants-appellees to recover Overseas
Workers Welfare Administration (OWWA) benefits from the POEA and to work
for the increase of their PANDIMAN and other benefits arising from the deaths
of their husbands/sons. They were thus made to execute, with the exception of
the spouses Alarcon, special powers of attorney authorizing Capt. Nuval to,
among others, "follow up, ask, demand, collect and receive" for their benefit
 indemnities of sums of money due them relative to the sinking of M/V Nemos.
By virtue of these written powers of attorney, complainants-appellees were able
to receive their respective death benefits. Unknown to them, however, the
PMSI, in its capacity as employer and policyholder of the life insurance of its
deceased workers, filed with respondent-appellant formal claims for and in
behalf of the beneficiaries, through its President, Capt. Nuval. Among the
documents submitted by the latter for the processing of the claims were five
special powers of attorney executed by complainants-appellees. On the basis
of these and other documents duly submitted, respondent-appellant drew
against its account with the Bank of the Philippine Islands on 27 May 1986 six
(6) checks, four for P200,00.00 each, one for P50,000.00 and another for
P40,00.00, payable to the order of complainants-appellees. These checks were
released to the treasurer of PMSI upon instructions of
Capt. Nuval over the phone to Mr. Mariano Urbano, Assistant Department
Manager for Group Administration Department of respondent-appellant. Capt.
Nuval, upon receipt of these checks from the treasurer, who happened to be
his son-in-law, endorsed and deposited them in his account with the
Commercial Bank of Manila, now Boston Bank.

On 3 July 1989, after complainants-appellees learned that they were entitled,

as beneficiaries, to life insurance benefits under a group policy with respondent-
appellant, they sought to recover these benefits from Insular Life but the latter
denied their claim on the ground that the liability to complainants-appellees
was already extinguished upon delivery to and receipt by PMSI of the six (6)
checks issued in their names.14

On the basis thereof, the public respondent held that the Insurance Commission had
jurisdiction over the case on the ground that although some of the claims exceed
P100,000.00, the petitioners had asked for administrative sanctions against Insular Life which
are within the Commission's jurisdiction to grant; hence, "there was merely a misjoinder of
causes of action . . . and, like misjoinder of parties, it is not a ground for the dismissal of the
action as it does not affect the other reliefs prayed for." 15 It also rejected Insular Life's claim
that the Alarcons had submitted a special power of attorney which they (Insular Life) later
misplaced.

On the other hand, the public respondent ruled that the powers of attorney, Exhibits "1" to
"5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds
of the insurance pertaining to the beneficiaries. It stated:

When the officers of respondent-appellant read these written powers, they

must have assumed Capt. Nuval indeed had authority to collect the insurance
proceeds in behalf of the beneficiaries who duly affixed their signatures therein.
The written power is specific enough to define the authority of the agent to
collect any sum of money pertaining to the sinking of the fatal vessel.
Respondent-appellant interpreted this power to include the collection of
insurance proceeds in behalf of the beneficiaries concerned. We believe this is
a reasonable interpretation even by an officer of respondent-appellant
unschooled in the law. Had respondent appellant, consulted its legal
department it would not have received a contrary view. There is nothing in the
law which mandates a specific or special power of attorney to be executed to
collect insurance proceeds. Such authority is not included in the enumeration
of Art. 1878 of the New Civil Code. Neither do we perceive collection of
 insurance claims as an act of strict dominion as to require a special power of
attorney. Moreover, respondent-appellant had no reason to doubt Capt. Nuval.
Not only was he armed with a seemingly genuine authorization, he also
appeared to be the proper person to deal with respondent-appellant being the
President and General Manager of the PMSI, the policyholder with whom
respondent-appellant always dealt. The fact that there was a verbal agreement
between complainants-appellees and Capt. Nuval limiting the authority of the
latter to claiming specified death benefits cannot prejudice the insurance
company which relied on the terms of the powers of attorney which on their
face do not disclose such limitation. Under the circumstances, it appearing that
complainants-appellees have failed to point to a positive provision of law or
stipulation in the policy requiring a specific power of attorney to be presented,
respondents-appellant's reliance on the written powers was in order and it
cannot be penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok were concerned, it ruled that the
requirement in Section 180 of the Insurance Code which provides in part that:

In the absence of a judicial guardian, the father, or in the latter's absence or

incapacity, the mother, of any minor, who is an insured or a beneficiary under
a contract of life, health or accident insurance, may exercise, in behalf of said
minor, any right under the policy, without necessity of court authority or the
giving of a bond, where the interest of the minor in the particular act involved
does not exceed twenty thousand pesos. Such a right, may include, but shall
not be limited to, obtaining a policy loan, surrendering the policy, receiving the
proceeds of the policy, and giving the minor's consent to any transaction on
the policy.

has been amended by the Family Code 17 which grants the father and mother joint
legal guardianship over the property of their unemancipated common child without the
necessity of a court appointment; however, when the market value of the property or
the annual income of the child exceeds P50,000.00, the parent concerned shall be
required to put up a bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due course after the private
respondent had filed the required comment thereon and the petitioners their reply to the
comment.

We rule for the petitioners.

We have carefully examined the specific powers of attorney, Exhibits "1" to "5," which were
executed by petitioners Luz Pineda, Lucia B. Lontok, Dina Ayo, Celia Calumag, and Marilyn
Montenegro, respectively, on 14 May 198618and uniformly granted to Capt. Rosendo Nuval
the following powers:

To follow-up, ask, demand, collect and receipt for my benefit indemnities or

sum of money due me relative to the sinking of M.V. NEMOS in the vicinity of
El Jadida, Casablanca, Morocco on the evening of February 17, 1986; and

To sign receipts, documents, pertinent waivers of indemnities or other writings

of whatsoever nature with any and all third persons, concerns and entities,
upon terms and conditions acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of attorney "do not contain
in unequivocal and clear terms authority to Capt. Nuval to obtain, receive, receipt from
respondent company insurance proceeds arising from the death of the seaman-insured. On
the contrary, the said powers of attorney are couched in terms which could easily arouse
suspicion of an ordinary man." 19 The holding of the public respondent to the contrary is
principally premised on its opinion that:

[t]here is nothing in the law which mandates a specific or special power of

attorney to be executed to collect insurance proceeds. Such authority is not
included in the enumeration of art. 1878 of the New Civil Code. Neither do we
perceive collection of insurance claims as an act of strict dominion as to require
a special power of attorney.

If this be so, then they could not have been meant to be a general power of attorney
since Exhibits "1" to "5" are special powers of attorney. The execution by the principals
of special powers of attorney, which clearly appeared to be in prepared forms and only
had to be filled up with their names, residences, dates of execution, dates of
acknowledgment and others, excludes any intent to grant a general power of attorney
or to constitute a universal agency. Being special powers of attorney, they must be
strictly construed.

Certainly, it would be highly imprudent to read into the special powers of attorney in question
the power to collect and receive the insurance proceeds due the petitioners from Group Policy
No. G-004694. Insular Life knew that a power of attorney in favor of Capt. Nuval for the
collection and receipt of such proceeds was a deviation from its practice with respect to group
policies. Such practice was testified to by Mr. Marciano Urbano, Insular Life's Assistant
Manager of the Group Administrative Department, thus:

ATTY. CAGUIOA:

Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?

WITNESS:

a The practice of our company in claim pertaining to group

insurance, the policyholder is the one who files the claim for the
beneficiaries of the deceased. At that time, Capt. Noval [sic] is
the President and General Manager of Prime Marine.

q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of
the policyholders?

a Yes because group insurance is normally taken by the employer

as an employee-benefit program and as such, the benefit should
be awarded by the policyholder to make it appear that the benefit
really is given by the employer. 20

On cross-examination, Urbano further elaborated that even payments, among other things,
are coursed through the policyholder:
 q What is the corporate concept of group insurance insofar as
Insular Life is concerned?

WITNESS:

a Group insurance is a contract where a group of individuals are

covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company.
In our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is
between Prime Marine and Insular Life.

q And so it is part of that concept that all inquiries, follow-up,

payment of claims, premium billings, etc. should always be
coursed thru the policyholder?

a Yes that is our practice.

q And when you say claim payments should always be coursed

thru the policyholder, do you require a power of attorney to be
presented by the policyholder or not?

a Not necessarily.

q In other words, under a group insurance policy like the one in

this case, Insular Life could pay the claims to the policyholder
himself even without the presentation of any power of attorney
from the designated beneficiaries?

xxx xxx xxx

WITNESS:

a No. Sir.

ATTY. AMPIL:

q Why? Is this case, the present case different from the cases
which you answered that no power of attorney is necessary in
claims payments?

WITNESS:

a We did not pay Prime Marine; we paid the beneficiaries.

q Will you now tell the Honorable Commission why you did not
pay Prime Marine and instead paid the beneficiaries, the
designated beneficiaries?
 xxx xxx xxx

ATTY. AMPIL:

I will rephrase the question.

q Will you tell the Commission what circumstances led you to pay
the designated beneficiaries, the complainants in this case,
instead of the policyholder when as you answered a while ago, it
is your practice in group insurance that claims payments, etc.,
are coursed thru the policyholder?

WITNESS:

a It is coursed but, it is not paid to the policyholder.

q And so in this case, you gave the checks to the policyholder

only coursing them thru said policyholder?

a That is right, Sir.

q Not directly to the designated beneficiaries?

a Yes, Sir. 21

This practice is usual in the group insurance business and is consistent with the jurisprudence
thereon in the State of California — from whose laws our Insurance Code has been mainly
patterned — which holds that the employer-policyholder is the agent of the insurer.

Group insurance is a comparatively new form of insurance. In the United States, the first
modern group insurance policies appear to have been issued in 1911 by the Equitable Life
Assurance Society. 22 Group insurance is essentially a single insurance contract that provides
coverage for many individuals. In its original and most common form, group insurance
provides life or health insurance coverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a master agreement or policy
that is issued by the insurer to a representative of the group or to an administrator of the
insurance program, such as an employer. 23 The employer acts as a functionary in the
collection and payment of premiums and in performing related duties. Likewise falling within
the ambit of administration of a group policy is the disbursement of insurance payments by
the employer to the employees. 24 Most policies, such as the one in this case, require an
employee to pay a portion of the premium, which the employer deducts from wages while the
remainder is paid by the employer. This is known as a contributory plan as compared to a
non-contributory plan where the premiums are solely paid by the employer.

Although the employer may be the titular or named insured, the insurance is actually related
to the life and health of the employee. Indeed, the employee is in the position of a real party
to the master policy, and even in a non-contributory plan, the payment by the employer of
the entire premium is a part of the total compensation paid for the services of the
employee. 25 Put differently, the labor of the employees is the true source of the benefits,
which are a form of additional compensation to them.
It has been stated that every problem concerning group insurance presented to a court should
be approached with the purpose of giving to it every legitimate opportunity of becoming a
social agency of real consequence considering that the primary aim is to provide the employer
with a means of procuring insurance protection for his employees and their families at the
lowest possible cost, and in so doing, the employer creates goodwill with his employees,
enables the employees to carry a larger amount of insurance than they could otherwise, and
helps to attract and hold a permanent class of employees. 26

In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme Court explicitly
ruled that in group insurance policies, the employer is the agent of the insurer. Thus:

We are convinced that the employer is the agent of the insurer in performing
the duties of administering group insurance policies. It cannot be said that the
employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if
the employer relieves the insurer of these tasks, and this, of course, is
advantageous to both the employer and the employees, the insurer also enjoys
significant advantages from the arrangement. The reduction in the premium
which results from employer-administration permits the insurer to realize a
larger volume of sales, and at the same time the insurer's own administrative
costs are markedly reduced.

xxx xxx xxx

The most persuasive rationale for adopting the view that the employer acts as
the agent of the insurer, however, is that the employee has no knowledge of
or control over the employer's actions in handling the policy or its
administration. An agency relationship is based upon consent by one person
that another shall act in his behalf and be subject to his control. It is clear from
the evidence regarding procedural techniques here that the insurer-employer
relationship meets this agency test with regard to the administration of the
policy, whereas that between the employer and its employees fails to reflect
true agency. The insurer directs the performance of the employer's
administrative acts, and if these duties are not undertaken properly the insurer
is in a position to exercise more constricted control over the employer's
conduct.

In Neider vs. Continental Assurance Company, 28

which was cited in Elfstrom, it was held
that:

[t]he employer owes to the employee the duty of good faith and due care in
attending to the policy, and that the employer should make clear to the
employee anything required of him to keep the policy in effect, and the time
that the obligations are due. In its position as administrator of the policy, we
feel also that the employer should be considered as the agent of the insurer,
and any omission of duty to the employee in its administration should
be attributable to the insurer.

The ruling in Elfstrom was subsequently reiterated in the cases of Bass vs. John Hancock
Mutual Life Insurance Co. 29 and Metropolitan Life Insurance Co. vs. State Board of
Equalization.30
In the light of the above disquisitions and after an examination of the facts of this case, we
hold that PMSI, through its President and General Manager, Capt. Nuval, acted as the agent
of Insular Life. The latter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the
petitioners. Unfortunately, through its official, Mr. Urbano, it acted imprudently and
negligently in the premises by relying without question on the special power of attorney.
In Strong vs. Repide, 31 this Court ruled that it is among the established principles in the civil
law of Europe as well as the common law of American that third persons deal with agents at
their peril and are bound to inquire as to the extent of the power of the agent with whom they
contract. And in Harry E. Keller Electric Co. vs. Rodriguez, 32 this Court, quoting Mechem on
Agency, 33 stated that:

The person dealing with an agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that
the agent is exceeding his authority, he cannot claim protection. So if the
suggestions of probable limitations be of such a clear and reasonable quality,
or if the character assumed by the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to exercise is of such an unusual or
improbable character, as would suffice to put an ordinarily prudent man upon
his guard, the party dealing with him may not shut his eyes to the real state of
the case, but should either refuse to deal with the agent at all, or should
ascertain from the principal the true condition of affairs. (emphasis supplied)

Even granting for the sake of argument that the special powers of attorney were in due form,
Insular Life was grossly negligent in delivering the checks, drawn in favor of the petitioners,
to a party who is not the agent mentioned in the special power of attorney.

Nor can we agree with the opinion of the public respondent that since the shares of the minors
in the insurance proceeds are less than P50,000.00, then under Article 225 of the Family Code
their mothers could receive such shares without need of either court appointments as
guardian or the posting of a bond. It is of the view that said Article had repealed the third
paragraph of Section 180 of the Insurance Code. 34 The pertinent portion of Article 225 of the
Family Code reads as follows:

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

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

It is clear from the said Article that regardless of the value of the unemancipated common
child's property, the father and mother ipso jure become the legal guardian of the child's
property. However, if the market value of the property or the annual income of the child
exceeds P50,000.00, a bond has to be posted by the parents concerned to guarantee the
performance of the obligations of a general guardian.
It must, however, be noted that the second paragraph of Article 225 of the Family Code
speaks of the "market value of the property or the annual income of the child," which means,
therefore, the aggregate of the child's property or annual income; if this exceeds P50,000.00,
a bond is required. There is no evidence that the share of each of the minors in the proceeds
of the group policy in question is the minor's only property. Without such evidence, it would
not be safe to conclude that, indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of

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

Costs against the private respondent.

SO ORDERED.

G.R. No. 76452 July 26, 1994

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS

REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON
MONTILLA PATERNO, JR., respondents.

Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.

Oscar Z. Benares for private respondent.

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 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 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.

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.

G.R. No. 102253 June 2, 1995

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner,

vs.
HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY,
INC., respondents.

RESOLUTION

VITUG, J.:

Two issues on the subject of insurance are raised in this petition, that assails the decision,
that assails the decision of the Court of Appeals. (in CA-G.R. NO. CV-20156), the first dealing
on the requirement of premium payment and the second relating to the agency relationship
of parties under that contract.

The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc.
("Hardwood"), filed with the Regional, Trial Court of the National Capital Judicial Region,
Branch l71 in Valenzuela, Metro Manila, a complaint for the recovery of the value of lost logs
and freight charges from Seven Brothers Shipping Corporation or, to the extent of its alleged
insurance cover, from South Sea Surety and insurance Company.

The factual backdrop is described briefly by the appellate court thusly:

It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and

Industrial Supply, Inc.] entered into an agreement with the defendant Seven
Brothers whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs, against loss and/or, damage
with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00
end the latter issued its Marine Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium
on the insurance policy to Mr. Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January
1984 resulting in the loss of the plaintiffs insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the
premium and documentary stamps due on the policy was tendered to the
insurer but was not accepted. Instead, the South Sea Surety and Insurance
Co., Inc. cancelled the insurance policy it issued as of the date of inception for
non-payment of the premium due in accordance with Section 77 of the
Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter
denied liability under the policy. Plaintiff likewise filed a formal claim with
defendant Seven Brothers Shipping Corporation for the value of the lost logs
but the latter denied the claim.1
In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff
Hardwood.

On appeal perfected by both the shipping firm and the insurance company, the Court of
Appeals affirmed the judgment of the court a quo only against the insurance corporation; in
absolving the shipping entity from liability, the appellate court ratiocinated:

The primary issue to be resolved before us is whether defendants shipping

corporation and the surety company are liable to the plaintiff for the latter's
lost logs.

It appears that there is a stipulation in the charter party that the ship owner
would be exempted from liability in case of loss.

The court a quo erred in applying the provisions of the Civil Code on common
carriers to establish the liability of the shipping corporation. The provisions on
common carriers should not be applied where the carrier is not acting as such
but as a private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special

or chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for
the negligence of its agent is valid (Home Insurance Company, Inc. vs.
American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the
logs.2

In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc.,
petitioner argues that it likewise should have been freed from any liability to Hardwood. It
faults the appellate court (a) for having Supposedly disregarded Section 77 of the insurance
Code and (b) for holding Victorio Chua to have been an authorized representative of the
insurer.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement
to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.

Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case
the insurance coverage relates to life or industrial life (health) insurance when a grace period
applies and (b) when the insurer makes a written acknowledgment of the receipt of premium,
this acknowledgment being declared by law to be then conclusive evidence of the premium
payment (Secs. 77-78, Insurance Code). The appellate court, contrary to what the petition
suggests, did not make any pronouncement to the contrary. Indeed, it has said:
 Concerning the issue as to whether there is a valid contract of insurance
between plaintiff-appellee and defendant-appellant South Sea Surety and
Insurance Co., Inc., Section 77 of the Insurance Code explicitly provides that
notwithstanding any agreement to the contrary, no policy issued by an
insurance company is valid and binding unless and until premium thereof has
been paid. It is therefore important to determine whether at the time of the
loss, the premium was already paid.3

No attempt becloud the issues can disguise the fact that the sole question raised in the instant
petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the
check for the insurance premium prior to the occurrence of the risk insured against has so
acted as an agent of petitioner. The appellate court, like the trial court, has found in the
affirmative. Said the appellate court:

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued
by defendant insurance company on 20 January 1984. At the time the vessel
sank on 25 January 1984 resulting in the loss of the insured logs, the insured
had already delivered to Victorio Chua the check in payment of premium. But,
as Victorio Chua testified, it was only in the morning of 30 January 1984 or 5
days after the vessel sank when his messenger tendered the check to defendant
South Sea Surety and Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22 October
1985).

The pivotal issue to be resolved to determine the liability, of the surety

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

Appellant surety company insists that Mr. Chua is an administrative assistant

for the past ten years and an agent for less than ten years of the Columbia
Insurance Brokers, Ltd. He is paid a salary as a administrative assistant and a
commission as agent based on the premiums he turns over to the broker.
Appellant therefore argues that Mr. Chua, having received the insurance
premiums as an agent of the Columbia Insurance Broker, acted as an agent of
the insured under Section 301 of the Insurance Code which provides as follows:

Sec. 301. Any person who for any compensation, commission or

other thing of value, acts, or aids in soliciting, negotiating or
procuring the making of any insurance contract or in placing risk
or taking out insurance, on behalf of an insured other than
himself, shall be an insurance broker within the intent of this
Code, and shall thereby become liable to all the duties
requirements, liabilities and penalties to which an insurance
broker is subject.

The appellees, upon the other hand, claim that the second paragraph of Section
306 of the Insurance Code provide as follows:

Sec. 306. . . . Any insurance company which delivers to an

insurance agent or insurance broker a policy or contract of
insurance shall be deemed to have authorized such agent or
broker to receive on its behalf payment of any premium which is
 due on such policy of contract of insurance at the time of its
issuance or delivery or which becomes due thereon.

On cross-examination in behalf of South Sea Surety and Insurance Co., Inc.

Mr. Chua testified that the marine cargo insurance policy for the plaintiff's logs
was delivered to him on 21 January 1984 at his office to be delivered to the
plaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr.
Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed to
have been authorized by the South Sea Surety and Insurance Co., Inc. to
receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the
premium to an agent of the South Sea Surety and Insurance Co., Inc., which
is consequently liable to pay the insurance proceeds under the policy it issued
to the insured.4

We see no valid reason to discard the factual conclusions of the appellate court. Just as so
correctly pointed out by private respondent, it is not the function of this Court to assess and
evaluate all over again the evidence, testimonial and documentary, adduced by the parties
particularly where, such as here, the findings of both the trial court and the appellate court
on the matter coincide.

WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is
RECALLED, and the petition is DENIED. Costs against petitioner.

SO ORDERED.

G.R. No. 110668 February 6, 1997

SMITH, BELL & CO., INC., Petitioner, v. COURT OF APPEALS and JOSEPH BENGZON
CHUA, 1respondents.

PANGANIBAN, J.:

The main issue raised in this case is whether a local claim or settling agent is personally
and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal.

This is a petition for review on certiorariof the Decision of respondent Court 2promulgated on
January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court 4 which
disposed as follows: 5

Wherefore, the Court renders judgment condemning the defendants (petitioner and First
Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent) the amount
of US$7,359.78. plus 24% interest thereon annually until the claim is fully paid, 10% as and
for attorney's fees, and the cost.

The Facts
The facts are undisputed by the parties, 6and are narrated by respondent Court, quoting the
trial court, as follows: 7

The undisputed facts of the case have been succintly (sic) summarized by the lower court(,)
as follows:

. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer,
bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan,
50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF
Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan
on Board S.S. "GOLDEN WEALTH" for the Port on (sic) Manila. On July 27, 1982, this shipment
was insured by the defendant First Insurance Co. for US$19,500.00 "against all risks" at port
of departure under Marine Policy No. 1000M82070033219, with the note "Claim, if any,
payable in U.S. currency at Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith,
Bell, and Co. stamped at the lower left side of the policy as "Claim Agent."

The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned
carrying vessel and landed at port on September 2, 1982. thereafter, the entire cargo was
discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo
in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of
a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by
plaintiff's broker on said date to the plaintiffs premises at 12th Avenue, Grace Park, Caloocan
City. The surveyor's report (Exh. "E") showed that of the 1,250 bags of the imported material,
600 were damaged by tearing at the sides of the container bags and the contents partly
empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg
short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc.
a formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of the
corresponding value of the losses, in the sum of US$7,357.78.00. (sic) After purportedly
conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter
dated February 15, 1983 (Exh."G-2") that its principal offered only 50% of the claim or
US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts
contained in the shipping agent's reply to the claimant of only US$90.48 with that of
Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co.
expressing his refusal to the "redress" offer. contending that the discrepancy was a result of
loss from vessel to arrastre to consignees' warehouse\which losses were still within the "all
risk" insurance cover. No settlement of the claim having been made, the plaintiff then caused
the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).

Denying any liability, defendant-appellant averred in its answer that it is merely a settling or
claim agent of defendant insurance company and as SUCH agent, it is not personally liable
under the policy in which it has not even taken part of. It then alleged that plaintiff-appellee
has no cause of action against it.

Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default.

After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-
appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm
on the subject insurance contract as the former presented concrete evidence of the amount
of losses resulting from the risks insured against which were supported, by reliable report and
assessment of professional cargo surveyor. As regards defendant-appellant, the lower court
held that since it is admittedly a claim agent of the foreign insurance firm doing business in
the Philippines justice is better served if said agent is made liable without prejudice to its right
of action against its principal, the insurance firm. . . .

The Issue

"Whether or not a local settling or claim agent of a disclosed principal - a foreign insurance
company - can be held jointly and severally liable with said principal under the latter's marine
cargo insurance policy, given that the agent is not a party to the insurance contract" 8 - is the
sole issue-raised by petitioner.

Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an
agent and thus not personally liable to the party with whom it contracts on behalf of its
principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not
brought against the real party-in-interest. 9

On the other hand, respondent Court in ruling against petitioner disposed of the main issue
by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case,
respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was
"authorized to settle claims against its principal. Its defense that its authority excluded
personal liability must be proven satisfactorily. There is a complete dearth of evidence
supportive of appellant's non-responsibility as resident agent." The ruling continued with the
statement that "the interest of justice is better served by holding the settling or claim agent
jointly and severally liable with its principal." 11

Likewise, private respondent disputed the applicability of the cases of E Macias &
Co. vs. Warner, Barnes & Co. 12 and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by
petitioner in its appeal. According to private respondent, these two cases impleaded only the
"insurance agent" and did not include the principal. While both the foreign principal - which
was declared in default by the trial court - and petitioner, as claim agent, were found to be
solidarily liable in this case, petitioner still had "recourse" against its foreign principal. Also,
being a contract of adhesion, an insurance agreement must be strictly construed against the
insurer. 14

The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence

Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be
held personally and/or solidarily liable for the obligations of its disclosed principal merely
because there is allegedly a need for a speedy settlement of the claim of private respondent.
In the leading case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled in this wise: 15

We agree with counsel for the appellee that the defendant is a settlement and adjustment
agent of the foreign insurance company and that as such agent it has the authority to settle
all the losses and claims that may arise under the policies that may be issued by or in behalf
of said company in accordance with the instructions it may receive from time to time from its
principal, but we disagree with counsel in his contention that as such adjustment and
settlement agent, the defendant has assumed personal liability under said policies, and,
therefore, it can be sued in its own right. An adjustment and settlement agent is no different
from any other agent from the point of view of his responsibility (sic), for he also acts in a
representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his
principal, and his action is binding not upon himself but upon his principal. And here again,
the ordinary rule of agency applies. The following authorities bear this out:

"An insurance adjuster is ordinarily a special agent for the person or company for whom he
acts, and his authority is prima facie coextensive with the business intrusted to him. . . ."

"An adjuster does not discharge functions of a quasi-judicial nature, but represents his
employer, to whom he owes faithful service, and for his acts, in the employer's interest, the
employer is responsible so long as the acts are done while the agent is acting within the scope
of his employment." (45 C.J.S., 1338- 1340.)

It, therefore, clearly appears that the scope and extent of the functions of an adjustment and
settlement agent do not include personal liability. His functions are merely to settle and
adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the
claim is disputed or is disapproved by the principal, like in the instant case, the agent does
not assume any personal liability. The recourse of the insured is to press his claim against the
principal. (Emphasis supplied).

The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of
time has not eroded its value or merit. It still applies with equal force and vigor.

Private respondent's contention that Salonga does not apply simply because only the agent
was sued therein while here both agent and principal were impleaded and found solidarily
liable is without merit.

Such distinction is immaterial. The agent can not be sued nor held liable whether singly or
solidarily with its principal.

Every cause of action ex contractu must be founded upon a contract, oral or written, either
express or implied. 16 The only "involvement" of petitioner in the subject contract of insurance
was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without
anything else to back it up, such stamp cannot even be deemed by the remotest interpretation
to mean that petitioner participated in the preparation of said contract. Hence, there is no
privity of contract, and correspondingly there can be no obligation or liability, and thus no
Cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code, contracts
are binding only upon the parties (and their assigns and heirs) who execute them. The subject
cargo insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd.,
both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance
Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in
the contract which mentions the personal liability of petitioner.

Second Reason: Absence of Solidarity Liability

May then petitioner, in its capacity as resident agent (as found in the case cited by the
respondent Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil
Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity." The well-
entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and
clearly expressed. The contention that, in the end, it would really be First Insurance Company,
Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict
injustice upon petitioner which would be made to advance the funds to settle the claim without
any assurance that it can collect from the principal which disapproved such claim, in the first
place. More importantly, such ,position would have absolutely no legal basis.

The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such agent,
as a representative of the foreign insurance company, is tasked only to receive legal processes
on behalf of its principal and not to answer personally for any insurance claims. We quote:

Sec. 190. The Commissioner must require as a condition precedent to the transaction of
insurance business in the Philippines by any foreign insurance company, that such company
file in his office a written power of attorney designating some person who shall be a resident
of the Philippines as its general agent, on whom any notice provided by law or by any
insurance policy, proof summons and other legal processes may be served in all actions or
other legal proceedings against such company, and consenting that service upon such general
agent shall be admitted and held as valid as if served upon the foreign company at its home
office. Any such foreign company shall, as further condition precedent to the transaction of
insurance business in the Philippines, make and file with the Commissioner an agreement or
stipulation, executed by the proper authorities of said company in form and substance as
follows:

The (name of company) does hereby stipulate and agree in consideration of the permission
granted by the Insurance Commissioner to transact business in the Philippines, that if at any
time such company shall leave the Philippines, or cease to transact business therein, or shall
be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal
process may be served, then in any action or proceeding arising out of any business or
transaction which occurred in the Philippines, service of any notice provided by law, or
insurance policy, proof of loss, summons, or other legal process may be made upon the
Insurance Commissioner shall have the same force and effect as if made upon the company.

Whenever such service of notice, proof of loss, summons or other legal process shall be made
upon the Commissioner he must, within ten days thereafter, transmit by mail, postage paid,
a copy of such notice, proof of loss, summons, or other legal process to the company at its
home or principal office. The sending of such copy of the Commissioner shall be necessary
part of the service of the notice, proof of loss, or other legal process. (Emphasis supplied).

Further, we note that in the case cited by respondent Court, petitioner was found to be a
resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to
order the service of summons upon First Insurance Co., Ltd. which would not have been
necessary if petitioner was its resident agent. Indeed, from our reading of the records of this
case, we find no factual and legal bases for the finding of respondent Court that petitioner is
the resident agent of First Insurance Co., Ltd.

Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest
in this case. An action is brought for a practical purpose, that is, to obtain actual and positive
relief. If the party sued is not the proper party, any decision that may be rendered against
him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the
Rules of Court identifies who the real parties-in-interest are, thus:
Sec. 2. Parties in interest. - Every action must be prosecuted and defended in the name of
the real party in interest. All persons having an interest in the subject of the action and in
obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest
in the controversy or the subject thereof adverse to the, plaintiff, or who are necessary to a
complete determination or settlement of the questions involved therein shall be joined as
defendants.

The cause of action of private respondent is based on a contract of insurance which as already
shown was not participated in by petitioner. It is not a "person who claim(s) an interest
adverse to the plaintiff" nor is said respondent "necessary to a complete determination or
settlement of the questions involved" in the controversy. Petitioner is improperly impleaded
for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 20

Resort to Equity Misplaced

Finally, respondent Court also contends that "the interest of justice is better served by holding
the settling agent jointly and severally liable with its principal." As no law backs up such
pronouncement, the appellate Court is thus resorting to equity. However, equity which has
been aptly described as "justice outside legality," is availed of only in the absence of, and
never against, statutory law or judicial pronouncements. 21 Upon the other hand the liability
of agents is clearly provided for by our laws and existing jurisprudence.

WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the
Decision appealed from is REVERSED and SET ASIDE.

No costs.

SO ORDERED.