Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later,
he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim
was rejected. The petitioner agreed that there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10 o'clock in
the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing
with his handgun, from which he had previously removed the magazine. As she watched television, he stood in front of her
and pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then pointed it to
his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was
sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as
moral damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as
attorney's fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was
denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and the
award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance
contract are to be construed and considered according to the ordinary understanding and common usage and speech of
people generally. In-substance, the courts are practically agreed that the words "accident" and "accidental" mean that which
happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place without one's foresight
or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected. 4

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

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

The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the private
petitioner's claim is barred by such provision. It is there stated:
Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to needless peril except in
an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully
exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify
a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the
second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act
is nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the
exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself to needless
peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled
cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and
believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency to show off or for
his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and jump
from the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have wilfully
exposed myself to peril and must accept the consequences of my act. If I drown I cannot go to the insurance
company to ask them to compensate me for my failure to swim as well as I thought I could. The insured in
the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to
peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That might
frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary would not be
able to collect on the insurance policy for it is clear that when he braved the currents below, he deliberately exposed himself
to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's hypothetical
swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By contrast, Lim did not know
that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering
from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most
accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no
reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this case is,
as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith then it
resisted the private respondent's claim on the ground that the death of the insured was covered by the exception. The issue
was indeed debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be disapproved.

In order that a person may be made liable to the payment of moral damages, the law requires that his act
be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or
to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate;
such right is so precious that moral damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the action
wrongful because in most cases one party will lose; we would be imposing an unjust condition or limitation
on the right to litigate. We hold that the award of moral damages in the case at bar is not justified by the
facts had circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact
of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated
in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the
private respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal
rate from the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for
damages, including attorney's fees, except the costs of the suit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.

Agustin M. Gramata for plaintiff and appellee.

BARRERA, J.:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of First Instance of
Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death of the latter's son,
to pay the burial expenses, and attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of an accident insurance
policy (No. ITO-BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for the period beginning November 13,
1956 to November 12, 1957. On January 1, 1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the insured Eduardo de la Cruz, a non-professional boxer
participated. In the course of his bout with another person, likewise a non-professional, of the same height, weight, and size,
Eduardo slipped and was hit by his opponent on the left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring. He was brought to the Baguio General Hospital the following day. The cause of death was reported
as hemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon filed a claim with the
insurance company for payment of the indemnity under the insurance policy. As the claim was denied, De la Cruz instituted
the action in the Court of First Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the
death of the insured, caused by his participation in a boxing contest, was not accidental and, therefore, not covered by
insurance. After due hearing the court rendered the decision in favor of the plaintiff which is the subject of the present appeal.

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which was unintentional. At
this opportunity, his opponent landed on Eduardo's head a blow, which sent the latter to the ropes. That must have caused
the cranial injury that led to his death. Eduardo was insured "against death or disability caused by accidental means". Appellant
insurer now contends that while the death of the insured was due to head injury, said injury was sustained because of his
voluntary participation in the contest. It is claimed that the participation in the boxing contest was the "means" that produced
the injury which, in turn, caused the death of the insured. And, since his inclusion in the boxing card was voluntary on the part
of the insured, he cannot be considered to have met his death by "accidental means".1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning, and are
construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An
accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause,
or is an unusual effect of a known cause and, therefore, not expected. 1

Appellant however, would like to make a distinction between "accident or accidental" and "accidental means", which is the
term used in the insurance policy involved here. It is argued that to be considered within the protection of the policy, what is
required to be accidental is the means that caused or brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in recent years is to eliminate the fine distinction between
the terms "accidental" and "accidental means" and to consider them as legally synonymous. 2 But, even if we take appellant's
theory, the death of the insured in the case at bar would still be entitled to indemnification under the policy. The generally
accepted rule is that, death or injury does not result from accident or accidental means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death
or injury.3 There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings about the result of injury or death.4 In other words, where the death
or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of
the act which produces the injury, the resulting death is within the protection of policies insuring against death or injury from
accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was sustained when he
slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate
incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and
would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received
in the course of the game not accidental. In boxing as in other equally physically rigorous sports, such as basketball or baseball,
death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced
by some unforeseen happening or event as what occurred in this case.

Furthermore, the policy involved herein specifically excluded from its coverage —

(e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking, steeplechasing,
polo-playing, racing of any kind, mountaineering, or motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of the protection of the insurance
contract. Failure of the defendant insurance company to include death resulting from a boxing match or other sports among
the prohibitive risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.5

Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with costs against appellant.
so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

Aquino and Associates for petitioner.

Public Attorney's Office for private respondent.

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory injunction to
annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990
of the Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation to pay private respondent Julia
Surposa the proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman General
Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No.
08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all
surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988 as a result of a
stab wound inflicted by one of the three (3) unidentified men without provocation and warning on the part of the former as he
and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after
attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of claim with the
petitioner insurance company which denied said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which subsequently rendered a
decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with interest. As no evidence was submitted to prove the claim for
mortuary aid in the sum of P1,000.00, the same cannot be entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of
P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in applying the principle
of "expresso unius exclusio alterius" in a personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death of the insured was not accidental but rather
a deliberate and intentional act of the assailant in killing the former as indicated by the location of the lone stab wound on the
insured. Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance
policy, cannot be indemnified.
We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have
been taken to mean that which happen by chance or fortuitously, without intention and design, and which
is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight
or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected.

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

As correctly pointed out by the respondent appellate court in its decision:

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

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

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly
against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of
its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition for certiorari with
restraining order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12189 April 29, 1960

FRANCISCA GALLARDO, plaintiff-appellee,

vs.
HERMENEGILDA S. MORALES, defendant-appellant.

Cajulis and Dolorfino for appellee.

Filemon Cajator for appellant.

CONCEPCION, J.:

The issue before us is whether a personal accident insurance which "insures for injuries and/or death as a result of murder or
assault or attempt thereat" is a life insurance, within the purview of Rule 39, section 12, subdivision (k) of the Rules of Court,
exempting from execution.

All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance, if the annual
premiums paid do not exceed five hundred pesos, and if they exceed that sum a like exemption shall exist which
shall bear the same proportion to the moneys, benefits, privileges, and annuities so accruing or growing out of such
insurance that said five hundred pesos bears to the whole annual premiums paid.

In accordance with a compromise agreement between the parties in the above-entitled case, a decision was rendered therein
by the Court of First Instance of Manila, on February 3, 1956, sentencing defendant Hermenegilda S. Morales to pay to plaintiff
Francisca Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due course, the corresponding writ of execution was
issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished and levied execution on the sum of P7,000.00,
out of the P30,000.00 a due from the Capital Insurance & Surety Co., Inc., to said defendant, as beneficiary under a personal
accident policy issued by said company to defendant's husband, Luis Morales, who died, on August 26, 1950, by assassination.
Invoking the above-quoted provision of the Rules of Court, defendant asked the sheriff to quash and lift said garnishment or
levy on execution. Upon denial of this request by the sheriff, defendant filed a motion praying that the aforementioned sum of
P7,000.00 be declared exempt from execution under said provision of the Rules of Court, and that the Sheriff of Manila be
ordered to quash or lift said garnishment or levy on execution. This motion was denied by an order dated October 18, 1956.
Hence, the present appeal by the defendant, who maintains that the policy in question is a life insurance policy, within the
purview of the aforementioned exemption, for it insured her husband ". . . for injuries and/or death as a result of murder or
assault or attempt thereat."

In its order denying the claim for exemption set up by the defendant, the lower court expressed itself as follows:

Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a fundamental
distinction between life insurance, and accident insurance, and the insurance policy issued to Luis G. Morales,
husband of herein defendant, was undoubtedly an accident insurance, as distinguished from a life insurance. As
conceded by the facts appearing in the pleadings, the personal accident policy, part of the proceeds of which is
under garnishment, was for P50,000.00 and yet the annual premium was for P15.00. If it were an ordinary life
insurance policy, taking into account that the insured, Luis G. Morales, was 38 years of age and the amount of the
policy was for P50,000.00 the annual premium would have been around P1,206.00. Besides, the period for the policy
was stipulated for one year, and considerations as to age, health, occupation and other personal circumstances
were not taken into account in an accident insurance policy. Even the certification issued by the insurance
commissioner on August 23, 1956, marked as Annex "1" of the opposition, shows that the Capital Insurance and
Surety Company Inc. is a non-life insurance company and that the only authority granted to it to transact business
covers fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance, except life insurance. From
this circumstance alone, not to mention many others, there are abundant indications that there exists a fundamental
distinction between life insurance and accident insurance. As counsel for oppositor has clearly pointed out, an
accident policy merely insures the person from injury and or death resulting from murder, assault, or an attempt
thereat, while in life insurance policy, what is insured is the life of the subject for a definite number of years. From
the authorities quoted by the oppositor, this Court is fully convinced that an accident policy is fundamentally different
from a life insurance policy, especially if this Court takes into account that accident insurance is an indemnity or
casualty contract, while life insurance is an investment contract.
It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance. However, when
one of the risks insured in the latter is the death of the insured by accident, then there are authorities to the effect that such
accident insurance may, also, be regarded as a life insurance.

"Life insurance" is a contract whereby one party insures a person against loss by the death of another. Petition of
Robbins, 140 A. 366, 367, 126 Me. 555.

An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain amount of
money if another dies within the time limited by the policy. Cason vs. Owens, 26 S. E. 75, 76, 100 Ga. 142.

Life insurance includes in which the payment of the insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.

A contract for life insurance is really a contract for insurance for one year in consideration of an advanced premium,
with the right of assured to continue it from year to year upon payment of a premium as stipulated. Mutual Life Ins.
Co. 100 Pa 172, 180.

In its broader sense, "life insurance" includes accident insurance, since life is insured under either contract. American
Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.

Under statute providing that 'any life insurance' on life of husband shall insure to benefit of widow and children
exempt from husband's debt, proceeds of policy insuring against death by accident insured to widow's benefit free
from husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly, 106 S.W. 2d 551, 171 Tenn.
511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidental death, is "life insurance policy" to such extent within
state statue prescribing in-contestable period for policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co.
of California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.

"Life insurance" includes all policies of insurance in which payment of insurance money is contingent upon loss of
life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.

Insurance policy including a death benefit and a health or accident disability benefit constituted a "life insurance
policy" within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance companies with different
rates as between life insurance companies and other companies, in view of provisions of Code 1906, ss 2576, 2598
(Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c. 191, s I (Hemingway's Code 1927, s 5995); it being
immaterial that in some policy forms the health and disability feature was more valuable asent a showing that death
provision was inserted to avoid the higher tax. Universal Life Ins. Co. vs.State, 121 So. 849, 850, 155 Miss. 358."
(25 Words & Phrases 260, 261, 262.)

When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life Assurance Society,
for $10,000, payable upon proof of death, with a provision that upon death by accident the amount of insurance
payable would be increased to $20,000. The plaintiff insisted that this was life insurance, a disclosure of which was
not called for in question 10, while the defendant insisted it was accident insurance that should have been disclosed
and further insisted that, it being a fact material to the risk the failure to disclose the policy in the Equitable Life
Assurance Society rendered the policy issued to the applicant void. . . .

The court might have gone further and held that the failure of the applicant to characterize the insurance in the
Equitable Life Assurance Society as accident insurance did not constitute a false answer to the inquiry of what
accident or health insurance he was carrying. The policy in the Equitable Life Assurance Society covered loss of life
from natural as well as external and accidental causes, and was life insurance. The mere addition of the double
indemnity clause providing for increased insurance upon proof of death by accident did not divest the policy of its
character of insurance on life, or make the contract other than life insurance, for insurance on life includes all policies
of insurance in which the payment of the insurance money is contingent upon the loss of life. Logan vs. Fidelity &
Casualty Co., 146 Mo. 114, 47 S.W. 948. See also Johnson vs.Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W.
593, L.R.A. 1916A, 475; Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003; Wright vs. Fraternities Health
& Accident Ass'n. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass.
386, 94 N.E. 477; Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194; Wahl vs. Interstate Business
Men's Accident Ass'n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377." (Provident Life & Accident Ins. Co. vs. Rimmer,
12 S. W. 2d Series, 365, 367.)
For this reason, and because the above-quoted provision of the Rules of Court makes reference to "any life insurance," we
are inclined to believe that the exemption there established applies to ordinary life insurance contracts, as well as to thos e
which, although intended primarily to indemnify for risks arising from accident, likewise, insure against loss of life due, either
to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature. Indeed, it
has been held that statutes of this nature seek to enable the head of the family to secure his widow and children from becoming
a burden upon the community and, accordingly, should merit a liberal interpretation.

The object of this statue was to enable a husband, when death deprived wife and children of his support, to secure
them from want and to prevent them from becoming a charge upon the public. Necessities of the wife and children
and the public interest are none the less if the death of the husband be brought about by accident rather than by
disease. The intent of the legislature in the enactment of this statute would not be advanced by the construction of
the law upon which the petitioners insist. (American Trust & Banking Co. vs.Lessly et al., Supreme Court of Tenn.,
106 S.W. 2d, 551, 552.)

Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of creditors, a
limitation being sometimes imposed as to amount, see infra Sec. 40, or as to the beneficiaries entitled to the
exemption, see infra subdivision of this section. Statutes exempting life insurance are regarded as exemption laws,
and not as part of the insurance from law of the state, nor as designed simply to protect insurer from harassing
litigation. Such statutes should be construed liberally and in the light of, and to give effect to, their purpose of enabling
an individual to provide a fund after his death for his family which will be free from the claims of creditors . The
exemption privilege is created not by contract but by legislative grant, and grounds for the exemption of the proceeds
of insurance policies must be found in the statutes. (35 C.J.S. pp. 53-54.)

By weight of authority, exemption statutes or rules should be liberally construed with a view to giving effect to their
beneficent and humane purpose. To this end, every reasonable doubt as to whether a given property is or is not
exempt should be resolved in favor of exemption. (Comments on the Rules of Court by Moran [1957 ed.] Vol. 1, p.
564.)

Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and quashed, with the costs
of this instance against plaintiff Francisca Gallardo. It is so ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Endencia, Barrera and Gutierrez David, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA
LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-G.R. SP
No. 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.

12
On 10 October 1991, the public respondent rendered a decision, 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 1986 18and 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.

Cruz, Bellosillo and Quiason, JJ., concur.

Griño-Aquino, J., is on leave.

https://business.inquirer.net/268472/insurance-commission-38-9m-filipinos-covered-by-microinsurance-in-2018
https://businessmirror.com.ph/2016/02/17/mutual-benefit-associations-and-microinsurance/
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12189 April 29, 1960

FRANCISCA GALLARDO, plaintiff-appellee,

vs.
HERMENEGILDA S. MORALES, defendant-appellant.

Cajulis and Dolorfino for appellee.

Filemon Cajator for appellant.

CONCEPCION, J.:

The issue before us is whether a personal accident insurance which "insures for injuries and/or death as a result of murder or
assault or attempt thereat" is a life insurance, within the purview of Rule 39, section 12, subdivision (k) of the Rules of Court,
exempting from execution.

All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance, if the annual
premiums paid do not exceed five hundred pesos, and if they exceed that sum a like exemption shall exist which
shall bear the same proportion to the moneys, benefits, privileges, and annuities so accruing or growing out of such
insurance that said five hundred pesos bears to the whole annual premiums paid.

In accordance with a compromise agreement between the parties in the above-entitled case, a decision was rendered therein
by the Court of First Instance of Manila, on February 3, 1956, sentencing defendant Hermenegilda S. Morales to pay to plaintiff
Francisca Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due course, the corresponding writ of execution was
issued and delivered to the Sheriff of Manila, who, on August 8, 1956, garnished and levied execution on the sum of P7,000.00,
out of the P30,000.00 a due from the Capital Insurance & Surety Co., Inc., to said defendant, as beneficiary under a personal
accident policy issued by said company to defendant's husband, Luis Morales, who died, on August 26, 1950, by assassination.
Invoking the above-quoted provision of the Rules of Court, defendant asked the sheriff to quash and lift said garnishment or
levy on execution. Upon denial of this request by the sheriff, defendant filed a motion praying that the aforementioned sum of
P7,000.00 be declared exempt from execution under said provision of the Rules of Court, and that the Sheriff of Manila be
ordered to quash or lift said garnishment or levy on execution. This motion was denied by an order dated October 18, 1956.
Hence, the present appeal by the defendant, who maintains that the policy in question is a life insurance policy, within the
purview of the aforementioned exemption, for it insured her husband ". . . for injuries and/or death as a result of murder or
assault or attempt thereat."

In its order denying the claim for exemption set up by the defendant, the lower court expressed itself as follows:

Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a fundamental
distinction between life insurance, and accident insurance, and the insurance policy issued to Luis G. Morales,
husband of herein defendant, was undoubtedly an accident insurance, as distinguished from a life insurance. As
conceded by the facts appearing in the pleadings, the personal accident policy, part of the proceeds of which is
under garnishment, was for P50,000.00 and yet the annual premium was for P15.00. If it were an ordinary life
insurance policy, taking into account that the insured, Luis G. Morales, was 38 years of age and the amount of the
policy was for P50,000.00 the annual premium would have been around P1,206.00. Besides, the period for the policy
was stipulated for one year, and considerations as to age, health, occupation and other personal circumstances
were not taken into account in an accident insurance policy. Even the certification issued by the insurance
commissioner on August 23, 1956, marked as Annex "1" of the opposition, shows that the Capital Insurance and
Surety Company Inc. is a non-life insurance company and that the only authority granted to it to transact business
covers fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance, except life insurance. From
this circumstance alone, not to mention many others, there are abundant indications that there exists a fundamental
distinction between life insurance and accident insurance. As counsel for oppositor has clearly pointed out, an
accident policy merely insures the person from injury and or death resulting from murder, assault, or an attempt
thereat, while in life insurance policy, what is insured is the life of the subject for a definite number of years. From
the authorities quoted by the oppositor, this Court is fully convinced that an accident policy is fundamentally different
from a life insurance policy, especially if this Court takes into account that accident insurance is an indemnity or
casualty contract, while life insurance is an investment contract.
It is not disputed that a life insurance is, generally speaking, distinct and different from an accident insurance. However, when
one of the risks insured in the latter is the death of the insured by accident, then there are authorities to the effect that such
accident insurance may, also, be regarded as a life insurance.

"Life insurance" is a contract whereby one party insures a person against loss by the death of another. Petition of
Robbins, 140 A. 366, 367, 126 Me. 555.

An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain amount of
money if another dies within the time limited by the policy. Cason vs. Owens, 26 S. E. 75, 76, 100 Ga. 142.

Life insurance includes in which the payment of the insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.

A contract for life insurance is really a contract for insurance for one year in consideration of an advanced premium,
with the right of assured to continue it from year to year upon payment of a premium as stipulated. Mutual Life Ins.
Co. 100 Pa 172, 180.

In its broader sense, "life insurance" includes accident insurance, since life is insured under either contract. American
Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.

Under statute providing that 'any life insurance' on life of husband shall insure to benefit of widow and children
exempt from husband's debt, proceeds of policy insuring against death by accident insured to widow's benefit free
from husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly, 106 S.W. 2d 551, 171 Tenn.
511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidental death, is "life insurance policy" to such extent within
state statue prescribing in-contestable period for policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co.
of California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.

"Life insurance" includes all policies of insurance in which payment of insurance money is contingent upon loss of
life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.

Insurance policy including a death benefit and a health or accident disability benefit constituted a "life insurance
policy" within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance companies with different
rates as between life insurance companies and other companies, in view of provisions of Code 1906, ss 2576, 2598
(Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c. 191, s I (Hemingway's Code 1927, s 5995); it being
immaterial that in some policy forms the health and disability feature was more valuable asent a showing that death
provision was inserted to avoid the higher tax. Universal Life Ins. Co. vs.State, 121 So. 849, 850, 155 Miss. 358."
(25 Words & Phrases 260, 261, 262.)

When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life Assurance Society,
for $10,000, payable upon proof of death, with a provision that upon death by accident the amount of insurance
payable would be increased to $20,000. The plaintiff insisted that this was life insurance, a disclosure of which was
not called for in question 10, while the defendant insisted it was accident insurance that should have been disclosed
and further insisted that, it being a fact material to the risk the failure to disclose the policy in the Equitable Life
Assurance Society rendered the policy issued to the applicant void. . . .

The court might have gone further and held that the failure of the applicant to characterize the insurance in the
Equitable Life Assurance Society as accident insurance did not constitute a false answer to the inquiry of what
accident or health insurance he was carrying. The policy in the Equitable Life Assurance Society covered loss of life
from natural as well as external and accidental causes, and was life insurance. The mere addition of the double
indemnity clause providing for increased insurance upon proof of death by accident did not divest the policy of its
character of insurance on life, or make the contract other than life insurance, for insurance on life includes all policies
of insurance in which the payment of the insurance money is contingent upon the loss of life. Logan vs. Fidelity &
Casualty Co., 146 Mo. 114, 47 S.W. 948. See also Johnson vs.Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W.
593, L.R.A. 1916A, 475; Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003; Wright vs. Fraternities Health
& Accident Ass'n. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins. Co. vs. Ins. Com'r 208 Mass.
386, 94 N.E. 477; Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194; Wahl vs. Interstate Business
Men's Accident Ass'n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377." (Provident Life & Accident Ins. Co. vs. Rimmer,
12 S. W. 2d Series, 365, 367.)
For this reason, and because the above-quoted provision of the Rules of Court makes reference to "any life insurance," we
are inclined to believe that the exemption there established applies to ordinary life insurance contracts, as well as to thos e
which, although intended primarily to indemnify for risks arising from accident, likewise, insure against loss of life due, either
to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature. Indeed, it
has been held that statutes of this nature seek to enable the head of the family to secure his widow and children from becoming
a burden upon the community and, accordingly, should merit a liberal interpretation.

The object of this statue was to enable a husband, when death deprived wife and children of his support, to secure
them from want and to prevent them from becoming a charge upon the public. Necessities of the wife and children
and the public interest are none the less if the death of the husband be brought about by accident rather than by
disease. The intent of the legislature in the enactment of this statute would not be advanced by the construction of
the law upon which the petitioners insist. (American Trust & Banking Co. vs.Lessly et al., Supreme Court of Tenn.,
106 S.W. 2d, 551, 552.)

Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of creditors, a
limitation being sometimes imposed as to amount, see infra Sec. 40, or as to the beneficiaries entitled to the
exemption, see infra subdivision of this section. Statutes exempting life insurance are regarded as exemption laws,
and not as part of the insurance from law of the state, nor as designed simply to protect insurer from harassing
litigation. Such statutes should be construed liberally and in the light of, and to give effect to, their purpose of enabling
an individual to provide a fund after his death for his family which will be free from the claims of creditors . The
exemption privilege is created not by contract but by legislative grant, and grounds for the exemption of the proceeds
of insurance policies must be found in the statutes. (35 C.J.S. pp. 53-54.)

By weight of authority, exemption statutes or rules should be liberally construed with a view to giving effect to their
beneficent and humane purpose. To this end, every reasonable doubt as to whether a given property is or is not
exempt should be resolved in favor of exemption. (Comments on the Rules of Court by Moran [1957 ed.] Vol. 1, p.
564.)

Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and quashed, with the costs
of this instance against plaintiff Francisca Gallardo. It is so ordered.

Paras, C.J., Bengzon, Bautista Angelo, Labrador, Endencia, Barrera and Gutierrez David, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC, petitioner, vs.COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
CO., respondents.

BAUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering accidental death which
was secured by one Melencio Basilio from the Philippine American Life Insurance Company. The case originated in the
Municipal Court of Manila and judgment being favorable to the plaintiff it was appealed to the court of first instance. The latter
court affirmed the judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now before us
on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and Zurbaran. He secured
a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached
a supplementary contract covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of
a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow,
was paid the sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of P2,000
representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an
officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company
from liability.

The pertinent facts which need to be considered for the determination of the questions raised are those reproduced in the
decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed at about seven o'clock in the night
of January 25, 1951, he was on duty as watchman of the Manila Auto Supply at the corner of Avenida Rizal and Zurbaran;
that it turned out that Atty. Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away from
Basilio's station, had come home that night and found that his house was well-lighted, but with the windows closed; that getting
suspicious that there were culprits in his house, Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki
uniform, asked him to accompany him to the house with the latter refusing on the ground that he was not a policeman, but
suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty.
Ojeda went to the traffic policeman at said corner and reported the matter, asking the policeman to come along with him, to
which the policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and
somehow or other invited the latter to come along; that as the tree approached the Ojeda residence and stood in front of the
main gate which was covered with galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was
fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the policeman, at the request of Atty.
Ojeda, left the premises to look for reinforcement; that it turned out afterwards that the special watchman Melencio Basilio was
hit in the abdomen, the wound causing his instantaneous death; that the shot must have come from inside the yard of Atty.
Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda found out that
the savings of his children in the amount of P30 in coins kept in his aparador contained in stockings were taken away, the
aparador having been ransacked; that a month thereafter the corresponding investigation conducted by the police authorities
led to the arrest and prosecution of four persons in Criminal Case No. 15104 of the Court of First Instance of Manila for
'Robbery in an Inhabited House and in Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law" or as a result
of an "assault or murder" committed in the place and therefore his death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability. This contention was upheld by the Court of Appeals and,
in reaching this conclusion, made the following comment:

From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto Supply, and, as such, he was
not boud to leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred in
the house of Atty. Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in uniform asked him to
accompany him to his house, but the latter refused on the ground that he was not a policeman and suggested to Atty. Ojeda
to ask help from the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the
help of the traffic policeman, the deceased went with Ojeda and said traffic policeman to the residence of Ojeda, and while
the deceased was standing in front of the main gate of said residence, he was shot and thus died. The death, therefore, of
Basilio, although unexpected, was not caused by an accident, being a voluntary and intentional act on the part of the one wh
robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio,
though unexpected, cannot be considered accidental, for his death occurred because he left his post and joined policeman
Magsanoc and Atty. Ojeda to repair to the latter's residence to see what happened thereat. Certainly, when Basilio joined
Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he was exposing himself, yet, instead of
remaining in his place, he went with Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house
and thus he was fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of the Manila Auto Supply
which was a block away from the house of Atty. Ojeda where something suspicious was happening which caused the latter to
ask for help. While at first he declied the invitation of Atty. Ojeda to go with him to his residence to inquire into what was going
on because he was not a regular policeman, he later agreed to come along when prompted by the traffic policeman, and upon
approaching the gate of the residence he was shot and died. The circumstance that he was a mere watchman and had no
duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to danger
considering the fact that the place he was in duty-bound to guard was only a block away. In volunteering to extend help under
the situation, he might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it being a
matter that affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing that errand, but
that risk always existed it being inherent in the position he was holding. He cannot therefore be blamed solely for doing what
he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be considered as making an arrest
as an officer of the law, as contended, simply because he went with the traffic policeman, for certainly he did not go there for
that purpose nor was he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature of these
crimes. In the first place, there is no proof that the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now pending in court as
regards the incident but before that is done anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the
people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not excempt
the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the
victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at
the deceased precisely because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary contract which enumerates the
cases which may exempt the company from liability. While as a general rule "the parties may limit the coverage of the policy
to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom"
(45 C. J. S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly expressed
so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of
necessity be interpreted or resolved aganst the one who has caused the obscurity. (Article 1377, new Civil Code) And so it
has bene generally held that the "terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be
construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason
for this rule is that he "insured usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and
can anticipate the bearings and possible complications of every contingency. So long as insurance companies insist upon the
use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts
must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very purpose for which the
policy was procured. (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not warrant the finding that
the death of the unfortunate victim comes within the purview of the exception clause of the supplementary policy and, hence,
do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-appellant the amount of
P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J. B. L., JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and GRACIA T.
BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance Company under Policy No. 398075
for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit Clause, for an additional
sum of P5,000.00 if "the death of the Insured resulted directly from bodily injury effected solely through external and violent
means sustained in an accident ... and independently of all other causes." The clause, however,expressly provided that it
would not apply where death resulted from an injury"intentionally inflicted by another party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered the house of the insured
Juan S. Biagtan. What happened then is related in the decision of the trial court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and
supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by
a band of robbers who were charged in and convicted by the Court of First Instance of Pangasinan for
robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing on
the second floor, rushed towards the door of the second floor room, where they suddenly met a person
near the door of oneof the rooms who turned out to be the insured Juan S. Biagtan who received thrusts
from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his
death at about 7 a.m. on the same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basic amount of
P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death benefit clause, on the ground that
the insured's death resulted from injuries intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed
suit to recover, and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds received by the insured
at the hands of the robbers — nine in all, five of them mortal and four non-mortal — were inflicted intentionally. The court, in
ruling negatively on the issue, stated that since the parties presented no evidence and submitted the case upon stipulation,
there was no "proof that the act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare away any person so as to ward off any resistance
or obstacle that might be offered in the pursuit of their main objective which was robbery."

The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine wounds were inflicted upon
the deceased, all by means of thrusts with sharp-pointed instruments wielded by the robbers. This is a physical fact as to
which there is no dispute. So is the fact that five of those wounds caused the death of the insured. Whether the robbers had
the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act itself of
inflicting the injuries was intentional. It should be noted that the exception in the accidental benefit clause invoked by the
appellant does not speak of the purpose — whether homicidal or not — of a third party in causing the injuries, but only of the
fact that such injuries have been "intentionally" inflicted — this obviously to distinguish them from injuries which, although
received at the hands of a third party, are purely accidental. This construction is the basic idea expressed in the coverage of
the clause itself, namely, that "the death of the insured resulted directly from bodily injury effected solely through external and
violent means sustained in an accident ... and independently of all other causes." A gun which discharges while being cleaned
and kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive game involving
physical effort who collides with an opponent and fatally injures him as a result: these are instances where the infliction of the
injury is unintentional and therefore would be within the coverage of an accidental death benefit clause such as thatin question
in this case. But where a gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab
him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether
they prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and convicted
of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of its decision. The facts in
that case, however, are different from those obtaining here. The insured there was a watchman in a certain company, who
happened to be invited by a policeman to come along as the latter was on his way to investigate a reported robbery going on
in a private house. As the two of them, together with the owner of the house, approached and stood in front of the main gate,
a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the wound causing his death. Under
those circumstances this Court held that it could not be said that the killing was intentional for there was the possibility that
the malefactor had fired the shot to scare people around for his own protection and not necessarrily to kill or hit the victim. A
similar possibility is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a distance, and
by a person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine
wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is
concerned. The manner of execution of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in insurance policies
have been construed, may shed light on the issue before Us. Thus, it has been held that "intentional" as used in an accident
policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoni ng
faculties, consciousness and volition. 1 Where a provision of the policy excludes intentional injury, it is the intention of the
person inflicting the injury that is controlling. 2 If the injuries suffered by the insured clearly resulted from the intentional act of
a third person the insurer is relieved from liability as stipulated. 3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the insured was waylaid
and assassinated for the purpose of robbery. Two (2) defenses were interposed to the action to recover indemnity, namely:
(1) that the insured having been killed by intentional means, his death was not accidental, and (2) that the proviso in the policy
expressly exempted the insurer from liability in case the insured died from injuries intentionally inflicted by another person. In
rendering judgment for the insurance company the Court held that while the assassination of the insured was as to him an
unforeseen event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or
injury is intentionally inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot three times by a
person unknown late on a dark and stormy night, while working in the coal shed of a railroad company. The policy did not
cover death resulting from "intentional injuries inflicted by the insured or any other person." The inquiry was as to the question
whether the shooting that caused the insured's death was accidental or intentional; and the Court found that under the facts,
showing that the murderer knew his victim and that he fired with intent to kill, there could be no recovery under the policy which
excepted death from intentional injuries inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without pronouncement as to costs.

Zaldivar, Castro, Fernando and Villamor, JJ., concur.

Makasiar, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of the view upheld in the
main opinion penned by Justice Makalintal. Further reflection has convinced me, however, that there are good reasons to
support it.
At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes of an accident
insurance policy or a life insurance policy with a double indemnity clause in case death results from accident. Indeed, it is
quite logical to think that any event whether caused by fault, negligence, intent of a third party or any unavoidable circumstance,
normally unforeseen by the insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question, both the insurer and the
insured had in mind to exclude thereby from the coverage of the policy only suicide whether unhelped or helped somehow by
a third party, I would disregard the American decisions cited and quoted in the main opinion as not even persuasive authorities.
But examining the unequivocal language of the provision in controversy and considering that the insured accepted the policy
without asking that it be made clear that the phrase "injury intentionally inflicted by a third party" should be understood to refer
only to injuries inflicted by a third party without any wilful intervention on his part (of the insured) or, in other words, without
any connivance with him (the insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to
agree that death caused by criminal assault is not covered by the policies of the kind here in question, specially if the assault,
as a matter of fact, could have been more or less anticipated, as when the insured happens to have violent enemies or is
found in circumstances that would make his life fair game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional act can be, hence
this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging defendant insurance company
liable, under its supplementary contract denominated "Accidental Death Benefit Clause" with the deceased insured, to
plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal
interest) and ruling that defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and approval of due proof
that the death of the Insured resulted directly from bodily injury effected solely through external and violent
means sustained in an accident, within ninety days after the date of sustaining such injury, and
independently of all other causes, this Company shall pay, in addition to the sum insured specified on the
first page of this Policy, a further sum equal to said sum insured payable at the same time and in the same
manner as said sum insured, provided, that such death occurred during the continuance of this Clause and
of this Policy and before the sixtieth birthday of the Insured." 1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly or indirectly,
from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in consequence of a cut
or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the body, drowning and
internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police organization; (b) in
any riot, civil commotion, insurrection or war or any act incident thereto; (c) while travelling as a passenger
or otherwise in any form of submarine transportation, or while engaging in submarine operations; (d) in any
violation of the law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the Insured, and whether or
not the attack or the defense by the third party was caused by a violation of the law by the Insured;
 (6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot, officer or member
of the crew of the aircraft or is giving or receiving any kind of training or instruction or has any duties aboard
the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and opportunity to
examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the additional premium
therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is granted to the
insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is reached. 2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows: "that on the night of May
20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract were in full force and effect,
the house of insured Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of
First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase
landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the
door of one of the rooms who turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May
21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met his death, disclaimed
liability under its accidental death benefit clause under paragraph 5 of its stipulated "Exceptions" on its theory that the insured's
death resulted from injuries "intentionally inflicted by a third party," i.e. the robbers who broke into the insured's house and
inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance companies such as the Lincoln
National Life Insurance Co. and Sun Life Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was
also insured for much larger sums under similar contracts with accidental death benefit provisions have promptly paid the
benefits thereunder to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and convicted
by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and (3) the injuries inflicted on the insured
by the robbers consisted of five mortal and four non-mortal wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds inflicted upon
him by the malefactors on the early morning of May 21, 1964 by means of thrusts from sharp-pointed
instruments delivered upon his person, and there is likewise no question that the thrusts were made on the
occasion of the robbery. However, it is defendants' position that the killing of the insured was intentionally
done by the malefactors, who were charged with and convicted of the crime of robbery with homicide by
the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who submitted the case
for resolution upon the stipulation of facts presented by them. Thus, the court does not have before it
proof that the act of receiving thrust(s) from the sharp-pointed instrument of the robbers was intended to
inflict injuries upon the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective which
was robbery. It was held that where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling ... and to come within the exception, the act which causes
the injury must be wholly intentional, not merely partly.
 The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals, et al., L-8151,
promulgated December 16, 1965, where the Supreme Court ruled that "the shot (which killed the insured)
was merely to scare away the people around for his own protection and not necessarily to kill or hit the
victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life insurance from
the Philippine American Life Insurance Company in the amount of P2,000.00 to which was attached a
supplementary contract covering death by accident. Calanoc died of gunshot wounds on the occasion of a
robbery committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was paid P2,000.00,
the face value of the policy, but when she demanded payment of the additional sum of P2,000.00
representing the value of the supplemental policy, the company refused alleging, as main defense, that the
deceased died because he was murdered by a person who took part in the commission of the robbery and
while making an arrest as an officer of the law which contingencies were (as in this case) expressly
excluded in the contract and have the effect of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court of Appeals in its
decision which findings of fact were adopted by the Supreme Court, as follows:

"...that on the way to the Ojeda residence (which was then being robbed by armed men),
the policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or other
invited the latter to come along; that as the three approached the Ojeda residence and
stood in front of the main gate which was covered by galvanized iron, the fence itself
being partly concrete and partly adobe stone, a shot was fired; ... that it turned out
afterwards that the special watchman Melencio Basilio was hit in the abdomen, the
wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although unexpected, was not
caused by an accident, being a voluntary and intentional act on the part of the one who robbed, or one of
those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the possibility that the
malefactors had fired the shot merely to scare away the people around for his own
protection and not necessarily to kill or hit the victim. In any event, while the act may
not exempt the triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to the real intention
of the malefactors in making a thrust with their sharp-pointed instrument on any person, the victim in
particular, the case falls squarely within the ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an accident which happened on the
occasion of the robbery being committed in his house. His death was not sought (at least no evidence was
presented to show it was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual and unforeseen, or
that which takes place without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of those included among
the risks excluded in the supplementary contract. However, there is no evidence here that the thrusts with
sharp-pointed instrument (which led to the death of the insured) was "intentional," (sic) so as to exempt the
company from liability. It could safely be assumed that it was purely accidental considering that the principal
motive of the culprits was robbery, the thrusts being merely intended to scare away persons who might
offer resistance or might obstruct them from pursuing their main objective which was robbery. 5

It is respectfully submitted that the lower court committed no error in law in holding defendant insurance company liable to
plaintiffs-beneficiaries under its accidental death benefit clause, by virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court, there construing a similar clause,
squarely ruled that fatal injuries inflicted upon an insured by a malefactor(s) during the latter's commission of a crime are
deemed accidental and within the coverage of such accidental death benefit clauses and the burden of proving that the killing
was intentional so as to have it fall within the stipulated exception of having resulted from injuries "intentionally inflicted by a
third party" must be discharged by the insurance company. This Court there clearly held that in such cases where the killing
does not amount to murder, it must be held to be a "pure accident" on the part of the victim, compensable with double-
indemnity, even though the malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary
claim, thus:

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very
nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either
crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may
be clarified in the criminal case now pending in court a regards the incident but before that is done anything
that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional
for there is the possibility that the malefactor had fired the shot merely to scare away the people around for
his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt
the triggerman from liability for the damage done, the fact remains that the happening was a pure accident
on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be
pretended that the malefactor aimed at the deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted upon the
deceased intentionally, i.e. deliberately. The lower court correctly held that since the case was submitted upon the parties'
stipulation of facts which did not cover the malefactors' intent at all, there was an "utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument(s) on any person, the victim in
particular." From the undisputed facts, supra,8 the robbers had "rushed towards the doors of the second floor room, where
they suddenly met a person ... who turned out to be the insured Juan S. Biagtan who received thrusts from their pointed
instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex action on the
robbers' part upon their being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill must
necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the question. Defendant must suffer
the consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses'
testimony, that the fatal injuries were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by defendant company, to wit,
that the fatal injuries were not accidental as held by the lower court but should be held to have been intentionally inflicted,
raises a question of fact — which defendant is now barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and "no other
questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have conceded the findings of fact of the trial
court, since he thereby waived all questions of facts. 11

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

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain particular accidents
and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C.J.S.
781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly
expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one who has caused the
obscurity. (Article 1377, new Civil Code) And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity
or payment to the insured, especially where a forfeiture is involved" (29 AM. Jur., 181), and the reason for
this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and
that the language of the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44 C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the bearing and possible complications of every contingency. So long
as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal
 rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase
insurance construe every ambiguity in favor of the insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash.
324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co., LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the provisions of Article 1377 of
our Civil Code that "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon payment of an extra
premium, in the event that the insured meets violent accidental death is contractually stipulated as follows in the policy: "that
the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in
an accident," supra. The policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or mental infirmity or disease,
poisoning or infection, injuries with no visible contusions or exterior wounds (exceptions 1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore similarly exepted: injuries
received while on police duty, while travelling in any form of submarine transportation, or in any violation of law by the insured
or assault provoked by the insured, or in any aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d),
and 6 of the policy clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or war or atomic energy
explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the very exception herein
involved, which would also except injuries "inflicted intentionally by a third party, either with or without provocation on the part
of the insured, and whether or not the attack or the defense by the third party was caused by a violation of the law by the
insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that immediately
preceding it in item (d) which excepts injuries received where the insured has violated the law or provoked the injury, while
this clause, construed as the insurance company now claims, would seemingly except also all other injuries, intentionally
inflicted by a third party, regardless of any violation of law or provocation by the insured, and defeat the very purpose of the
policy of giving the insured double indemnity in case of accidental death by "external and violent means" — in the very
language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis that the double-indemnity
policy covers the insured against accidental death, whether caused by fault, negligence or intent of a third party which is
unforeseen and unexpected by the insured. All the associated words and concepts in the policy plainly exclude the accidental
death from the coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of the insured
or are incurred in some expressly excluded calamity such as riot, war or atomic explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the exception is further
heightened by the stipulated fact that two other insurance companies which likewise covered the insured for which larger sums
under similar accidental death benefit clauses promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions
BARREDO, J., concurring —

During the deliberations in this case, I entertained some doubts as to the correctness and validity of the view upheld in the
main opinion penned by Justice Makalintal. Further reflection has convinced me, however, that there are good reasons to
support it.

At first blush, one would feel that every death not suicidal should be considered accidental, for the purposes of an accident
insurance policy or a life insurance policy with a double indemnity clause in case death results from accident. Indeed, it is
quite logical to think that any event whether caused by fault, negligence, intent of a third party or any unavoidable circumstance,
normally unforeseen by the insured and free from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision in question, both the insurer and the
insured had in mind to exclude thereby from the coverage of the policy only suicide whether unhelped or helped somehow by
a third party, I would disregard the American decisions cited and quoted in the main opinion as not even persuasive authorities.
But examining the unequivocal language of the provision in controversy and considering that the insured accepted the policy
without asking that it be made clear that the phrase "injury intentionally inflicted by a third party" should be understood to refer
only to injuries inflicted by a third party without any wilful intervention on his part (of the insured) or, in other words, without
any connivance with him (the insured) in order to augment the proceeds of the policy for his benificiaries, I am inclined to
agree that death caused by criminal assault is not covered by the policies of the kind here in question, specially if the assault,
as a matter of fact, could have been more or less anticipated, as when the insured happens to have violent enemies or is
found in circumstances that would make his life fair game of third parties.

As to the rest, I have no doubt that the killing of the insured in this case is as intentional as any intentional act can be, hence
this concurrence.

TEEHANKEE, J., dissenting:

The sole issue at bar is the correctness in law of the lower court's appealed decision adjudging defendant insurance company
liable, under its supplementary contract denominated "Accidental Death Benefit Clause" with the deceased insured, to
plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an additional amount of P5,000.00 (with corresponding legal
interest) and ruling that defendant company had failed to present any evidence to substantiate its defense that the insured's
death came within the stipulated exceptions.

Defendant's accidental death benefit clause expressly provides:

ACCIDENTAL DEATH BENEFIT. (hereinafter called the benefit). Upon receipt and approval of due proof
that the death of the Insured resulted directly from bodily injury effected solely through external and violent
means sustained in an accident, within ninety days after the date of sustaining such injury, and
independently of all other causes, this Company shall pay, in addition to the sum insured specified on the
first page of this Policy, a further sum equal to said sum insured payable at the same time and in the same
manner as said sum insured, provided, that such death occurred during the continuance of this Clause and
of this Policy and before the sixtieth birthday of the Insured." 1

A long list of exceptions and an Automatic Discontinuance clause immediately follow thereafter, thus:

EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either directly or indirectly,
from any one of the following causes:

(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;

(2) Bodily or mental infirmity or disease of any kind;

(3) Poisoning or infection, other than infection occurring simultaneously with and in consequence of a cut
or wound sustained in an accident;

(4) Injuries of which there is no visible contusions or wound on the exterior of the body, drowning and
internal injuries revealed by autopsy excepted;

(5) Any injuries received (a) while on police duty in any military, naval or police organization; (b) in
any riot, civil commotion, insurrection or war or any act incident thereto; (c) while travelling as a passenger
or otherwise in any form of submarine transportation, or while engaging in submarine operations; (d) in any
 violation of the law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the Insured, and whether or
not the attack or the defense by the third party was caused by a violation of the law by the Insured;

(6) Operating or riding in or descending from any kind of aircraft if the Insured is a pilot, officer or member
of the crew of the aircraft or is giving or receiving any kind of training or instruction or has any duties aboard
the aircraft or requiring descent therefrom; and

(7) Atomic energy explosion of any nature whatsoever.

The Company, before making any payment under this Clause, shall have the right and opportunity to
examine the body and make an autopsy thereof.

AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the additional premium
therefor shall cease to be payable when and if:

(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance; or

(2) The benefit under the Total and Permanent Disability Waiver of Premium Certificate is granted to the
insured; or

(3) The Insured engages in military, naval or aeronautic service in time of war; or

(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured is reached. 2

It is undisputed that, as recited in the lower court's decision, the insured met his death, as follows: "that on the night of May
20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract were in full force and effect,
the house of insured Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of
First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase
landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the
door of one of the rooms who turned out to be the insured Juan S. Biagtan who received thrust from their sharp-pointed
instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May
21, 1964." 3

Defendant company, while admitting the above-recited circumstances under which the insured met his death, disclaimed
liability under its accidental death benefit clause under paragraph 5 of its stipulated "Exceptions" on its theory that the insured's
death resulted from injuries "intentionally inflicted by a third party," i.e. the robbers who broke into the insured's house and
inflicted fatal injuries on him.

The case was submitted for decision upon the parties' stipulation of facts that (1) insurance companies such as the Lincoln
National Life Insurance Co. and Sun Life Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was
also insured for much larger sums under similar contracts with accidental death benefit provisions have promptly paid the
benefits thereunder to plaintiffs-beneficiaries; (2) the robbers who caused the insured's death were charged in and convicted
by the Court of First Instance of Pangasinan for the crime of robbery with homicide; and (3) the injuries inflicted on the insured
by the robbers consisted of five mortal and four non-mortal wounds.4

The lower court thereafter rendered judgment against defendant, as follows:

There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the wounds inflicted upon
him by the malefactors on the early morning of May 21, 1964 by means of thrusts from sharp-pointed
instruments delivered upon his person, and there is likewise no question that the thrusts were made on the
occasion of the robbery. However, it is defendants' position that the killing of the insured was intentionally
done by the malefactors, who were charged with and convicted of the crime of robbery with homicide by
the Court of First Instance of Pangasinan.

It must be noted here that no evidence whatsoever was presented by the parties who submitted the case
for resolution upon the stipulation of facts presented by them. Thus, the court does not have before it
proof that the act of receiving thrust(s) from the sharp-pointed instrument of the robbers was intended to
inflict injuries upon the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective which
was robbery. It was held that where a provision of the policy excludes intentional injury, it is the intention
of the person inflicting the injury that is controlling ... and to come within the exception, the act which causes
the injury must be wholly intentional, not merely partly.

The case at bar has some similarity with the case of Virginia Calanoc vs. Court of Appeals, et al., L-8151,
promulgated December 16, 1965, where the Supreme Court ruled that "the shot (which killed the insured)
was merely to scare away the people around for his own protection and not necessarily to kill or hit the
victim."

In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took out life insurance from
the Philippine American Life Insurance Company in the amount of P2,000.00 to which was attached a
supplementary contract covering death by accident. Calanoc died of gunshot wounds on the occasion of a
robbery committed in the house of a certain Atty. Ojeda in Manila. The insured's widow was paid P2,000.00,
the face value of the policy, but when she demanded payment of the additional sum of P2,000.00
representing the value of the supplemental policy, the company refused alleging, as main defense, that the
deceased died because he was murdered by a person who took part in the commission of the robbery and
while making an arrest as an officer of the law which contingencies were (as in this case) expressly
excluded in the contract and have the effect of exempting the company from liability.

The facts in the Calanoc case insofar as pertinent to this case are, as found by the Court of Appeals in its
decision which findings of fact were adopted by the Supreme Court, as follows:

"...that on the way to the Ojeda residence (which was then being robbed by armed men),
the policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or other
invited the latter to come along; that as the three approached the Ojeda residence and
stood in front of the main gate which was covered by galvanized iron, the fence itself
being partly concrete and partly adobe stone, a shot was fired; ... that it turned out
afterwards that the special watchman Melencio Basilio was hit in the abdomen, the
wound causing his instantaneous death ..."

The Court of Appeals arrived at the conclusion that the death of Basilio, although unexpected, was not
caused by an accident, being a voluntary and intentional act on the part of the one who robbed, or one of
those who robbed, the house of Atty. Ojeda.

In reversing this conclusion of the Court of Appeals, the Supreme Court said in part:

"... Nor can it be said that the killing was intentional for there is the possibility that the
malefactors had fired the shot merely to scare away the people around for his own
protection and not necessarily to kill or hit the victim. In any event, while the act may
not exempt the triggerman from ability for the damage done, the fact remains that the
happening was a pure accidentt on the part of the victim."

With this ruling of the Supreme Court, and the utter absence of evidence in this case as to the real intention
of the malefactors in making a thrust with their sharp-pointed instrument on any person, the victim in
particular, the case falls squarely within the ruling in the Calanoc vs. Court of Appeals case.

It is the considered view of this Court that the insured died because of an accident which happened on the
occasion of the robbery being committed in his house. His death was not sought (at least no evidence was
presented to show it was), and therefore was fortuitous. "Accident" was defined as that which happens by
chance or fortuitously, without intention or design, and which is unexpected, unusual and unforeseen, or
that which takes place without one's foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause, and therefore not expected. (29 Am. Jur. 706).

There is no question that the defense set up by the defendant company is one of those included among
the risks excluded in the supplementary contract. However, there is no evidence here that the thrusts with
sharp-pointed instrument (which led to the death of the insured) was "intentional," (sic) so as to exempt the
company from liability. It could safely be assumed that it was purely accidental considering that the principal
motive of the culprits was robbery, the thrusts being merely intended to scare away persons who might
offer resistance or might obstruct them from pursuing their main objective which was robbery. 5
It is respectfully submitted that the lower court committed no error in law in holding defendant insurance company liable to
plaintiffs-beneficiaries under its accidental death benefit clause, by virtue of the following considerations:

1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This Court, there construing a similar clause,
squarely ruled that fatal injuries inflicted upon an insured by a malefactor(s) during the latter's commission of a crime are
deemed accidental and within the coverage of such accidental death benefit clauses and the burden of proving that the killing
was intentional so as to have it fall within the stipulated exception of having resulted from injuries "intentionally inflicted by a
third party" must be discharged by the insurance company. This Court there clearly held that in such cases where the killing
does not amount to murder, it must be held to be a "pure accident" on the part of the victim, compensable with double-
indemnity, even though the malefactor is criminally liable for his act. This Court rejected the insurance-company's contrary
claim, thus:

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very
nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either
crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may
be clarified in the criminal case now pending in court a regards the incident but before that is done anything
that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional
for there is the possibility that the malefactor had fired the shot merely to scare away the people around for
his own protection and not necessarily to kill or hit the victim. In any event, while the act may not exempt
the triggerman from liability for the damage done, the fact remains that the happening was a pure accident
on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be
pretended that the malefactor aimed at the deceased precisely because he wanted to take his life. 7

2. Defendant company patently failed to discharge its burden of proving that the fatal injuries were inflicted upon the
deceased intentionally, i.e. deliberately. The lower court correctly held that since the case was submitted upon the parties'
stipulation of facts which did not cover the malefactors' intent at all, there was an "utter absence of evidence in this case as to
the real intention of the malefactors in making a thrust with their sharp-pointed instrument(s) on any person, the victim in
particular." From the undisputed facts, supra,8 the robbers had "rushed towards the doors of the second floor room, where
they suddenly met a person ... who turned out to be the insured Juan S. Biagtan who received thrusts from their pointed
instruments." The thrusts were indeed properly termed "purely accidental" since they seemed to be a reflex action on the
robbers' part upon their being surprised by the deceased. To argue, as defendant does, that the robbers' intent to kill must
necessarily be deduced from the four mortal wounds inflicted upon the deceased is to beg the question. Defendant must suffer
the consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or eyewitnesses'
testimony, that the fatal injuries were intentionally inflicted upon the insured so as to exempt itself from liability.

3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error assigned by defendant company, to wit,
that the fatal injuries were not accidental as held by the lower court but should be held to have been intentionally inflicted,
raises a question of fact — which defendant is now barred from raising, since it expressly limited its appeal to this Court purely
"on questions of law", per its noitice of appeal,9 Defendant is therefore confined to "raising only questions of law" and "no other
questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have conceded the findings of fact of the trial
court, since he thereby waived all questions of facts. 11

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

The Court so expressly held in Calanoc that:

... While as a general rule "the parties may limit the coverage of the policy to certain particular accidents
and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C.J.S.
781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly
expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved against the one who has caused the
obscurity. (Article 1377, new Civil Code) And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity
or payment to the insured, especially where a forfeiture is involved" (29 AM. Jur., 181), and the reason for
this rule is that the "insured usually has no voice in the selection or arrangement of the words employed and
 that the language of the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44 C.J.S., p. 1174)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the bearing and possible complications of every contingency. So long
as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal
rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase
insurance construe every ambiguity in favor of the insured." (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash.
324 LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured." (Moore vs. Aetna Life Insurance Co., LRA 1915D, 164). 12

The Court has but recently reiterated this doctrine in Landicho vs. GSIS 13 and again applied the provisions of Article 1377 of
our Civil Code that "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity."

5. The accidental death benefit clause assuring the insured's beneficiaries of double indemnity, upon payment of an extra
premium, in the event that the insured meets violent accidental death is contractually stipulated as follows in the policy: "that
the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in
an accident," supra. The policy then lists numerous exceptions, which may be classified as follows:

— Injuries effected through non-external means which are excepted: self-destruction, bodily or mental infirmity or disease,
poisoning or infection, injuries with no visible contusions or exterior wounds (exceptions 1 to 4 of policy clause);

— Injuries caused by some act of the insured which is proscribed by the policy, and are therefore similarly exepted: injuries
received while on police duty, while travelling in any form of submarine transportation, or in any violation of law by the insured
or assault provoked by the insured, or in any aircraft if the insured is a pilot or crew member; [exceptions 5 (a), (c) and (d),
and 6 of the policy clause]; and

— Accidents expressly excluded: where death resulted in any riot, civil commotion, insurrection or war or atomic energy
explosion. (Exceptions 5[b] and 7 of policy clause).

The only exception which is not susceptible of classification is that provided in paragraph 5 (e), the very exception herein
involved, which would also except injuries "inflicted intentionally by a third party, either with or without provocation on the part
of the insured, and whether or not the attack or the defense by the third party was caused by a violation of the law by the
insured."

This ambiguous clause conflicts with all the other four exceptions in the same paragraph 5 particularly that immediately
preceding it in item (d) which excepts injuries received where the insured has violated the law or provoked the injury, while
this clause, construed as the insurance company now claims, would seemingly except also all other injuries, intentionally
inflicted by a third party, regardless of any violation of law or provocation by the insured, and defeat the very purpose of the
policy of giving the insured double indemnity in case of accidental death by "external and violent means" — in the very
language of the policy."

It is obvious from the very classification of the exceptions and applying the rule of noscitus a sociis that the double-indemnity
policy covers the insured against accidental death, whether caused by fault, negligence or intent of a third party which is
unforeseen and unexpected by the insured. All the associated words and concepts in the policy plainly exclude the accidental
death from the coverage of the policy only where the injuries are self-inflicted or attended by some proscribed act of the insured
or are incurred in some expressly excluded calamity such as riot, war or atomic explosion.

Finally, the untenability of herein defendant insurer's claim that the insured's death fell within the exception is further
heightened by the stipulated fact that two other insurance companies which likewise covered the insured for which larger sums
under similar accidental death benefit clauses promptly paid the benefits thereof to plaintiffs-beneficiaries.

I vote accordingly for the affirmance in toto of the appealed decision, with costs against defendant-appellant.

Concepcion, C.J. and Reyes, J.B.L., J., concur

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

Achacoso, Nera and Ocampo for defendant and appellant.

Agustin M. Gramata for plaintiff and appellee.

BARRERA, J.:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of First Instance of
Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death of the latter's son,
to pay the burial expenses, and attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of an accident insurance
policy (No. ITO-BFE-170) underwritten by the Capital Insurance & Surety Co., Inc., for the period beginning November 13,
1956 to November 12, 1957. On January 1, 1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the insured Eduardo de la Cruz, a non-professional boxer
participated. In the course of his bout with another person, likewise a non-professional, of the same height, weight, and size,
Eduardo slipped and was hit by his opponent on the left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring. He was brought to the Baguio General Hospital the following day. The cause of death was reported
as hemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon filed a claim with the
insurance company for payment of the indemnity under the insurance policy. As the claim was denied, De la Cruz instituted
the action in the Court of First Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the
death of the insured, caused by his participation in a boxing contest, was not accidental and, therefore, not covered by
insurance. After due hearing the court rendered the decision in favor of the plaintiff which is the subject of the present appeal.

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which was unintentional. At
this opportunity, his opponent landed on Eduardo's head a blow, which sent the latter to the ropes. That must have caused
the cranial injury that led to his death. Eduardo was insured "against death or disability caused by accidental means". Appellant
insurer now contends that while the death of the insured was due to head injury, said injury was sustained because of his
voluntary participation in the contest. It is claimed that the participation in the boxing contest was the "means" that produced
the injury which, in turn, caused the death of the insured. And, since his inclusion in the boxing card was voluntary on the part
of the insured, he cannot be considered to have met his death by "accidental means".1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning, and are
construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An
accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause,
or is an unusual effect of a known cause and, therefore, not expected. 1

Appellant however, would like to make a distinction between "accident or accidental" and "accidental means", which is the
term used in the insurance policy involved here. It is argued that to be considered within the protection of the policy, what is
required to be accidental is the means that caused or brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in recent years is to eliminate the fine distinction between
the terms "accidental" and "accidental means" and to consider them as legally synonymous.2 But, even if we take appellant's
theory, the death of the insured in the case at bar would still be entitled to indemnification under the policy. The generally
accepted rule is that, death or injury does not result from accident or accidental means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death
or injury.3 There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings about the result of injury or death. 4 In other words, where the death
or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of
the act which produces the injury, the resulting death is within the protection of policies insuring against death or injury from
accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the injury was sustained when he
slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring. Without this unfortunate
incident, that is, the unintentional slipping of the deceased, perhaps he could not have received that blow in the head and
would not have died. The fact that boxing is attended with some risks of external injuries does not make any injuries received
in the course of the game not accidental. In boxing as in other equally physically rigorous sports, such as basketball or baseball,
death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental or produced
by some unforeseen happening or event as what occurred in this case.

Furthermore, the policy involved herein specifically excluded from its coverage —

(e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking, steeplechasing,
polo-playing, racing of any kind, mountaineering, or motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of the protection of the insurance
contract. Failure of the defendant insurance company to include death resulting from a boxing match or other sports among
the prohibitive risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.5

Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with costs against appellant.
so ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later,
he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim
was rejected. The petitioner agreed that there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10 o'clock in
the evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing
with his handgun, from which he had previously removed the magazine. As she watched television, he stood in front of her
and pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then pointed it to
his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was
sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as
moral damages; P5,000.00 as exemplary damages; P5,000.00 as actual and compensatory damages; and P5,000.00 as
attorney's fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was
denied. 3 The petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and the
award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance
contract are to be construed and considered according to the ordinary understanding and common usage and speech of
people generally. In-substance, the courts are practically agreed that the words "accident" and "accidental" mean that which
happens by chance or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes place without one's foresight
or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected. 4

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

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

The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the private
petitioner's claim is barred by such provision. It is there stated:
Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to needless peril except in
an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully
exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify
a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the
second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act
is nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the
exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully exposed himself to needless
peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled
cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and
believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency to show off or for
his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and jump
from the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have wilfully
exposed myself to peril and must accept the consequences of my act. If I drown I cannot go to the insurance
company to ask them to compensate me for my failure to swim as well as I thought I could. The insured in
the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to
peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That might
frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary would not be
able to collect on the insurance policy for it is clear that when he braved the currents below, he deliberately exposed himself
to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's hypothetical
swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By contrast, Lim did not know
that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering
from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most
accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no
reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this case is,
as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith then it
resisted the private respondent's claim on the ground that the death of the insured was covered by the exception. The issue
was indeed debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore
that the award of moral and exemplary damages and of attorney's fees is unjust and so must be disapproved.

In order that a person may be made liable to the payment of moral damages, the law requires that his act
be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or
to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate;
such right is so precious that moral damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the action
wrongful because in most cases one party will lose; we would be imposing an unjust condition or limitation
on the right to litigate. We hold that the award of moral damages in the case at bar is not justified by the
facts had circumstances as well as the law.

If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact
of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated
in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the
private respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal
rate from the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for
damages, including attorney's fees, except the costs of the suit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 34774 September 21, 1931

EL ORIENTE FABRICA DE TABACOS, INC., plaintiff-appellant, vs.

JUAN POSADAS, Collector of Internal Revenue, defendant-appellee.

MALCOLM, J.:
The issue in this case is whether the proceeds of insurance taken by a corporation on the life of an important official to
indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law.
The parties submitted the case to the Court of First Instance of Manila for decision upon the following agreed statement of
facts:

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

2. That on March 18, 1925, plaintiff, in order to protect itself against the loss that it might suffer by reason of the death of its
manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of cigars in the Philippine
Islands, and whose death would be a serious loss to the plaintiff, procured from the Manufacturers Life Insurance Co., of
Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000,
United States currency.

3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy on the life of
its said manager.

4. That during the time the life insurance policy hereinbefore referred to was in force and effect plaintiff paid from its funds all
the insurance premiums due thereon.

5. That the plaintiff charged as expenses of its business all the said premiums and deducted the same from its gross incomes
as reported in its annual income tax returns, which deductions were allowed by the defendant upon a showing made by the
plaintiff that such premiums were legitimate expenses of its (plaintiff's) business.

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

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

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

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

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

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

3. The trial court erred in assuming that the proceeds of the life insurance policy in question represented a net profit to the
plaintiff when, as a matter of fact, it merely represented an indemnity, for the loss suffered by it thru the death of its manager,
the insured.
4. The trial court erred in refusing to hold that the proceeds of the life insurance policy in question is not taxable income, and
in absolving the defendant from the complaint.

The Income Tax Law for the Philippines is Act No. 2833, as amended. It is divided into four chapters: Chapter I On Individuals,
Chapter II On Corporations, Chapter III General Administrative Provisions, and Chapter IV General Provisions. In chapter I
On Individuals, is to be found section 4 which provides that, "The following incomes shall be exempt from the provisions of
this law: (a) The proceeds of life insurance policies paid to beneficiaries upon the death of the insured ... ." Section 10, as
amended, in Chapter II On Corporations, provides that, There shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar year from all sources by every corporation ... a tax of three per centum
upon such income ... ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in any
other section is reference made to the provisions of section 4 in Chapter I.

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

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

It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager, who had had
more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss it might
suffer by reason of the death of its manager. We do not believe that this fact signifies that when the plaintiff received
P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit in this amount. It is true that the
Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is
a very slight indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity for the
loss which it actually suffered because of the death of its manager.

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

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

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

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

The foregoing pronouncement will result in the judgment being reversed and in another judgment being rendered in favor of
the plaintiff and against the defendant for the sum of P3,148.74. So ordered, without costs in either instance.
Avanceña, C.J., Street, Villamor, Ostrand, Romualdez, Villa-Real, and Imperial, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-32986 November 11, 1930

FRANCISCO JARQUE, plaintiff-appellee,

vs.
SMITH, BELL & CO., LTD., ET AL., defendants.
UNION FIRE INSURANCE CO., appellant.

Benj. S. Ohnick for appellant.

Vicente Pelaez for appellee.

OSTRAND, J.:

The plaintiff was the owner of the motorboat Pandan and held a marine insurance policy for the sum of P45,000 on the boat,
the policy being issued by the National Union Fire Insurance Company and according to the provisions of a "rider" attached
to the policy, the insurance was against the "absolute total loss of the vessel only." On October 31, 1928, the ship ran into
very heavy sea off the Islands of Ticlin, and it became necessary to jettison a portion of the cargo. As a result of the jettison,
the National Union Fire Insurance Company was assessed in the sum of P2,610.86 as its contribution to the general average.
The insurance company, insisting that its obligation did not extend beyond the insurance of the "absolute total loss of the
vessel only, and to pay proportionate salvage of the declared value," refused to contribute to the settlement of the general
average. The present action was thereupon instituted, and after trial the court below rendered judgment in favor of the plaintiff
and ordered the defendant National Union Fire Insurance Company to pay the plaintiff the sum of P2,610.86 as its part of the
indemnity for the general average brought about by the jettison of cargo. The insurance company appealed to this court and
assigns as errors (1) "that the lower court erred in disregarding the typewritten clause endorsed upon the policy, Exhibit A,
expressly limiting insurer's liability thereunder of the total loss of the wooden vessel Pandan and to proportionate salvage
charges," and (2) "that the lower court erred in concluding that defendant and appellant, National Union Fire Insurance
Company is liable to contribute to the general average resulting from the jettison of a part of said vessel's cargo."

I. As to the first assignment of error, little need be said. The insurance contract, Exhibit A, is printed in the English common
form of marine policies. One of the clauses of the document originally read as follows:

Touching the Adventures and Perils which the said National Union Fire Insurance Company is content to bear, and
to take upon them in this Voyage; they are of the Seas, Men-of-War, Fire, Pirates, Rovers, Thieves, Jettison, Letters
of Mart and Countermart, Surprisals, and Takings at Sea. Arrest, Restraint and Detainments, of all Kings Princes
and People of what Nation, Condition or Quality so ever; Barratry of the Master and Marines, and of all other Perils,
Losses and Misfortunes, that have or shall come to the Hurt, Detriment, or Damage of the said Vessel or any part
thereof; and in case of any Loss or Misfortunes, it shall be lawful for the Assured, his or their Factors, Servants, or
assigns, to sue, labour and travel for, in and about the Defense. Safeguard, and recovery of the said Vessel or any
Charges whereof the said Company, will contribute, according to the rate and quantity of the sum herein assured
shall be of as much force and Virtue as the surest Writing or Policy of Insurance made in LONDON.

Attached to the policy over and above the said clause is a "rider" containing typewritten provisions, among which appears in
capitalized type the following clause:

AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL ONLY, AND TO PAY PROPORTIONATE SALVAGE
CHARGES OF TEH DECLARED VALUE.

At the bottom of the same rider following the type written provisions therein set forth are the following words: "Attaching to and
forming part of the National Union Fire Insurance Co., Hull Policy No. 1055."

It is a well settled rule that in case repugnance exists between written and printed portions of a policy, the written portion
prevails, and there can be no question that as far as any inconsistency exists, the above-mentioned typed "rider" prevails over
the printed clause it covers. Section 291 of the Code of Civil Procedure provides that "when an instrument consists partly of
written words and partly of a printed form and the two are inconsistent, the former controls the latter." (See also Joyce on
Insurance, 2d ed., sec. 224, page 600; Arnould on Marine Insurance, 9th ed., sec. 73; Marine Equipment Corporation vs.
Automobile Insurance Co., 24 Fed. (2d), 600; and Marine Insurance Company vs. McLahanan, 290 Fed., 685, 688.)

II. In the absence of positive legislation to the contrary, the liability of the defendant insurance company on its policy would,
perhaps, be limited to "absolute loss of the vessel only, and to pay proportionate salvage of the declared value." But the policy
was executed in this jurisdiction and "warranted to trade within the waters of the Philippine Archipelago only." Here the liability
for contribution in general average is not based on the express terms of the policy, but rest upon the theory that from the
relation of the parties and for their benefit, a quasi contract is implied by law. Article 859 of the Code of Commerce is still in
force and reads as follows:

ART. 859. The underwriters of the vessel, of the freight, and of the cargo shall be obliged to pay for the indemnity of
the gross average in so far as is required of each one of these objects respectively.

The article is mandatory in its terms, and the insurers, whether for the vessel or for the freight or for the cargo, are bound to
contribute to the indemnity of the general average. And there is nothing unfair in that provisions; it simply places the insurer
on the same footing as other persons who have an interest in the vessel, or the cargo therein at the time of the occurrence of
the general average and who are compelled to contribute (art. 812, Code of Commerce).

In the present case it is not disputed that the ship was in grave peril and that the jettison of part of the cargo was necessary.
If the cargo was in peril to the extent of call for general average, the ship must also have been in great danger, possibly
sufficient to cause its absolute loss. The jettison was therefore as much to the benefit of the underwriter as to the owner of the
cargo. The latter was compelled to contribute to the indemnity; why should not the insurer be required to do likewise? If no
jettison had take place and if the ship by reason thereof had foundered, the underwriter's loss would have been many times
as large as the contribution now demanded. lawphil.net

The appealed judgment is affirmed with the cost against the appellant. So ordered.

Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

Separate Opinions

JOHNSON and STREET, JJ., dissenting:

In view of the fact that the policy of marine insurance which is the subject of this action contained a provision to the effect that
the risk insured against was "the absolute total loss of the vessel only," the undersigned are of the opinion that the defendant
insurance company is not liable to contribute to the gross average incident to the jettison of some of the freight embarked on
the vessel which was the subject of insurance. It is true that article 859 of the Code of Commerce declares that the underwriters
of the vessel, of the freight, and of the cargo shall be obliged to pay for the indemnity of the gross average in so far as is
required of each one of these objects respectively, but that provision evidently states a general rule to be applied where there
are no words in the contract in any wise qualifying the risk. This article, we think, should not be interpreted as abridging the
freedom of contract between insurer and the insured; and where, as in the case before us, the words defining the risk plainly
show that the risk is limited so as to exclude the obligation to contribute in case of jettison, the intention expressed in t he
contract ought to be given effect. If the insurance had been written upon the cargo, the case for the plaintiff would have been
stronger; but it is certainly anomalous that an insurer of "the vessel only" should be held liable for the jettison of cargo, to which
a contract of insurance done not extend. The language used in the policy of insurance in this case clearly limits the risk
affirmatively to the vessel only, and the contract should be given effect according to the intention of the parties.

The opinion of the court appears to proceed in part at least upon the idea that the insurer had a real interest in the vessel, and
that the insurance company was necessarily benefited by a jettison of cargo, since the act may possibly have resulted in
saving the vessel from destruction. This idea appears to us to ignore the most fundamental conception underlying the law of
insurance, which is that the contract of insurance is of an aleatory nature. By this is meant that the contract is essentially a
wager. It results that the insurer has no real interest whatever in the thing insured; and the question of the liability of the insurer
limits itself to the question whether the contingency insured may have been saved by jettison of the cargo is irrelevant to the
risk. We are of the opinion that the judgment appealed from should be reversed and the defendant absolved from the complaint.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money,
Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is precluded under
the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there should be recovery. The
petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers
Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune)
of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during
a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head
office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of
which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under
the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de
Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while
the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff
by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached
as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of
a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto
attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga
were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of
P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint is hereto
attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto
attached as Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00,
but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, attached
 hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section (b), which is marked
as Exhibit "A-1," and which reads as follows:

GENERAL EXCEPTIONS

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

xxx xxx xxx

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

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its
"officer, employee, . . . trustee or authorized representative . . . at the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability
under Policy No. 0207 (as mitigated by the P40,000.00 special clause
deduction and by the recovered sum of P145,000.00), with interest thereon at
the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga,
their services as armored car driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the
power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide
driving services and property protection as such — in a context which does not impress the Court as
translating into plaintiff's power to control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability
under the policy, particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head
Office. Quite plainly — it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated "messenger" adverted to
in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In its
decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor
authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the
insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd.
vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have used. If such terms
are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense
(New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA
193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple.
No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and
therefore its definition as to employer-employee relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-
appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

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

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred
in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering that driver
Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of the money and
payroll from its branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to another,
they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that
they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the
existence of an employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga,
on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn
Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an
employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and
engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to dismiss;
and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-control test
has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and
exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "labor-
only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International Timber
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an employer-
employee relationship between the owner of the project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their
selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers argued
that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any
violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of
Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers
paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that
Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of
casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)

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

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

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

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the terms
of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon
their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized
representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for easy reference, is
again quoted:

GENERAL EXCEPTIONS

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

xxx xxx xxx

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

There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized
representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage
losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers'
money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the
Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not
of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding
such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because
the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to submit the case for judgment on the basis of
their stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC Management
Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor filed
by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and
PRC Management Systems and Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management
Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were,
in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with
the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of another; one who represents others or another in
a special capacity, as an agent, and is interchangeable with "agent." 23

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

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946
dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED
and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur.

Padilla, J., took no part.

Quiason, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15774 November 29, 1920

PILAR C. DE LIM, plaintiff-appellant,

vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Sanz and Luzuriaga for appellant.

Cohn and Fisher for appellee.

MALCOLM, J.:

This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga sustaining a demurrer to plaintiff's
complaint upon the ground that it fails to state a cause of action.

As the demurrer had the effect of admitting the material facts set forth in the complaint, the facts are those alleged by the
plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga made application to the Sun Life Assurance Company of Canada
for a policy of insurance on his life in the sum of P5,000. In his application Lim designated his wife, Pilar C. de Lim, the plaintiff
herein, as the beneficiary. The first premium of P433 was paid by Lim, and upon such payment the company issued what was
called a "provisional policy." Luis Lim y Garcia died on August 23, 1917, after the issuance of the provisional policy but before
approval of the application by the home office of the insurance company. The instant action is brought by the beneficiary, Pilar
C. de Lim, to recover from the Sun Life Assurance Company of Canada the sum of P5,000, the amount named in the
provisional policy.

The "provisional policy" upon which this action rests reads as follows:

Received (subject to the following stipulations and agreements) the sum of four hundred and thirty-three
pesos, being the amount of the first year's premium for a Life Assurance Policy on the life of Mr. Luis D.
Lim y Garcia of Zamboanga for P5,000, for which an application dated the 6th day of July, 1917, has been
made to the Sun Life Assurance Company of Canada.

The above-mentioned life is to be assured in accordance with the terms and conditions contained or
inserted by the Company in the policy which may be granted by it in this particular case for four months
only from the date of the application, provided that the Company shall confirm this agreement by issuing a
policy on said application when the same shall be submitted to the Head Office in Montreal. Should the
Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company
shall be held not to have been on the risk at all, but in such case the amount herein acknowledged shall
be returned.

[SEAL.] (Sgd.) T. B. MACAULAY, President.

(Sgd.) A. F. Peters, Agent.

Our duty in this case is to ascertain the correct meaning of the document above quoted. A perusal of the same many times by
the writer and by other members of the court leaves a decided impression of vagueness in the mind. Apparently it is to be a
provisional policy "for four months only from the date of this application." We use the term "apparently" advisedly, because
immediately following the words fixing the four months period comes the word "provided" which has the meaning of "if."
Otherwise stated, the policy for four months is expressly made subjected to the affirmative condition that "the company shall
confirm this agreement by issuing a policy on said application when the same shall be submitted to the head office in Montreal."
To reenforce the same there follows the negative condition —

Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall be
held not to have been on the risk." Certainly, language could hardly be used which would more clearly stipulate that the
agreement should not go into effect until the home office of the company should confirm it by issuing a policy. As we read and
understand the so-called provisional policy it amounts to nothing but an acknowledgment on behalf of the company, that it has
received from the person named therein the sum of money agreed upon as the first year's premium upon a policy to be issued
upon the application, if the application is accepted by the company.

It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by both parties either in
person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an
offer or proposal to make a contract. The contract, to be binding from the date of the application, must have been a completed
contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement. Our view is,
that a contract of insurance was not here consummated by the parties.

Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states the general rule concerning the
agent's receipt pending approval or issuance of policy. The first rule which Joyce lays down is this: If the act of acceptance of
the risk by the agent and the giving by him of a receipt, is within the scope of the agent's authority, and nothing remains but
to issue a policy, then the receipt will bind the company. This rule does not apply, for while here nothing remained but to issue
the policy, this was made an express condition to the contract. The second rule laid down by Joyce is this: Where an agreement
is made between the applicant and the agent whether by signing an application containing such condition, or otherwise, that
no liability shall attach until the principal approves the risk and a receipt is given buy the agent, such acceptance is merely
conditional, and it subordinated to the act of the company in approving or rejecting; so in life insurance a "binding slip" or
"binding receipt" does not insure of itself. This is the rule which we believe applies to the instant case. The third rule announced
by Joyce is this: Where the acceptance by the agent is within the scope of his authority a receipt containing a contract for
insurance for a specific time which is not absolute but conditional, upon acceptance or rejection by the principal, covers the
specified period unless the risk is declined within that period. The case cited by Joyce to substantiate the last principle is that
a Goodfellow vs. Times & Beacon Assurance Com. (17 U. C. Q. B., 411), not available.

The two cases most nearly in point come from the federal courts and the Supreme Court of Arkansas.

In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489} the facts were that the amount of the first premium
had been paid to an insurance agent and a receipt given therefor. The receipt, however, expressly declared that if the
application was accepted by the company, the insurance shall take effect from the date of the application but that if the
application was not accepted, the money shall be returned. The trite decision of the circuit court of appeal was, "On the
conceded facts of this case, there was no contract to life insurance perfected and the judgment of the circuit court must be
affirmed."

In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person applying for the life insurance paid and
amount equal to the first premium, but the application and the receipt for the money paid, stipulated that the insurance was to
become effective only when the application was approved and the policy issued. The court held that the transaction did not
amount to an agreement for preliminary or temporary insurance. It was said:

It is not an unfamiliar custom among life insurance companies in the operation of the business, upon receipt of an application
for insurance, to enter into a contract with the applicant in the shape of a so-called "binding receipt" for temporary insurance
pending the consideration of the application, to last until the policy be issued or the application rejected, and such contracts
are upheld and enforced when the applicant dies before the issuance of a policy or final rejection of the application. It is held,
too, that such contracts may rest in parol. Counsel for appellant insists that such a preliminary contract for temporary insurance
was entered into in this instance, but we do not think so. On the contrary, the clause in the application and the receipt given
by the solicitor, which are to be read together, stipulate expressly that the insurance shall become effective only when the
"application shall be approved and the policy duly signed by the secretary at the head office of the company and issued." It
constituted no agreement at all for preliminary or temporary insurance; Mohrstadt vs. Mutual Life Ins. Co., 115 Fed., 81, 52 C.
C. A., 675; Steinle vs. New York Life Ins. Co., 81 Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual Reserve Fund
Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs. Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance co. vs. Young's
Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential Insurance Company of America [1901], 109 Wis., 4; Shawnee
Mut. Fire Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs. Connecticut Fire Ins. Co. [1914], 51 contra, Starr vs. Mutual
Life Ins. Co. [1905], 41 Wash., 228.)

We are of the opinion that the trial court committed no error in sustaining the demurrer and dismissing the case. It is to be
noted, however, that counsel for appellee admits the liability of the company for the return of the first premium to the estate of
the deceased. It is not to be doubted but that the Sun Life Assurance Company of Canada will immediately, on the
promulgation of this decision, pay to the estate of the late Luis Lim y Garcia the of P433.

The order appealed from, in the nature of a final judgment is affirmed, without special finding as to costs in this instance. So
ordered.

Mapa, C.J., Johnson, Araullo, Avanceña and Villamor, JJ., concur

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 3069 January 23, 1907

VIOLA BADGER, plaintiff-appellant,

vs.
THE NEW YORK LIFE INSURANCE COMPANY, defendant-appellee.

Condert Brothers for appellant.

Hartigan, Rohde & Gutierrez for appellee.

WILLARD, J.:

On July 5, 1902, William H. Badger made out a written application for a policy of insurance upon his life for $5,000 in favor of
his wife, Harriet Viola Badger. The first premium on this policy amounted to $312.50. Badger sent the application and $297.60
to R. E. Herdman, who received the application and the money on the 9th of July, 1902.

Herdman sent the papers on July 24 to the office of the defendant company in Shanghai, where they were received on August
11. Badger executed a promissory note for $14.90, the balance of the first premium, which was sent to Herdman on July 17,
1902. On the 31st of July, Mrs. Badger, acting for her husband, sent to Herdman $14.90, cash, in payment of said note. Badger
died on the 1st day of August, 1902, of cholera. No policy was ever issued upon his application.

The plaintiff brought this action to recover the sum of $5,000, alleging that a contract of insurance had been made by the
company with Badger. Judgment was rendered in the court below in favor of the defendant to the effect that no such contract
was ever made, from which judgment the plaintiff appealed.

The only person who acted in any way for the company in this transaction was Herdman. The only evidence in the case to
show what his powers were is found in an admission in the answer which states that he was "a special agent and cashier of
the defendant company in Manila," and in his evidence, testifying as a witness, he said that at the time of the trial on September
6, 1905, he was the agency director of the defendant company in the city of Manila.

The action can not be maintained unless the plaintiff proves a contract between the company and Badger, made by a person
authorized to act for the company. The authority of this person must, of course, be proven. There is no evidence in the case
to show that Herdman had any authority to make any contract, either parol or in writing, that would bind the company. There
is no evidence to show that he had any policies in his possession.

Nor is there any evidence that Herdman ever undertook to make any parol contract with Badger for this insurance. There had
been some correspondence between the parties prior to the making of the application on July 5. On that day Herdman, writing
to Badger in regard to the medical examination, said:

I will send you an official receipt when your remittance reaches the office, and then a new examination will not be
necessary when the policies are delivered; otherwise this would be necessary.

After Badger had received the receipt of Herdman for the money sent to him and on July 11, he wrote to Herdman, saying:

Yours of the 9th instant received. Is the receipt you sent official or not? I do not wish to take another examination,
and so desire an official receipt.

xxx xxx xxx

Shall I be obliged to wait until you receive an answer from the office in New York, or do you have authority to issue
policies at the Manila office?

xxx xxx xxx

 If my application is accepted does insurance begin July 5, 1902?

In reply to this letter, Herdman, on July 15, wrote, saying:

The receipt I sent you is official, being signed by me as cashier and not personally, and of course there will not be
another examination required.

xxx xxx xxx

We issue an interim policy from our Shanghai office, which stands until the definite policy comes from New York. We
hope soon to have an advisory board here in Manila, so that we will be entirely free from Shanghai, all our other
business being transacted directly with the home officer at New York.

If your examination is acceptable, your policy will date from July 5, the date of your application.

This evidence shows conclusively that there was no parol agreement between the parties that the insurance had commenced
on July 5, 1902. In fact, the claim of the appellant reduced to its lowest terms is that the mere signing of an application for life
insurance and the payment of a first premium, without any parol agreement as to when the insurance shall commence,
constitutes a contract between the parties binding from that date. Such a contention as this can not be sustained.

Moreover, there is evidence in the case in addition to that already referred to, showing that the company expressly refused to
be bound until the application had been accepted either by its office in Shanghai or its office in New York. In the applicati on
which Badger signed on the 5th day of July it is said:

I agree, on behalf of myself and of any person who shall have or claim any interest in any policy issued under this
application, as follows: That inasmuch as only the officers at the home office of the company in the city of New York
have authority to determine whether or nor a policy shall issue on any application, no statements, etc., shall be
binding on the company.

In the report of the medical examiner there is found this printed statement:

The examiner is requested to send direct to the company in New York City any information which, for any reason,
he prefers not to embody in this report. He can also mail this report direct to the company if he prefers.

Herdman testifies that when he sent to Badger a receipt for the money paid, it was on one of two printed blanks, which one
he could not say. The court below found that the receipt was sent upon the blank which contained a reference to the Shanghai
office. Whether it was upon this form of receipt or upon the other one is of no consequence. In one of them it is stated "that
the company shall incur no liability under the application until it has been received, approved by the resident board of the
company at Shanghai, and a policy issued thereon by the resident board, and the full premium has actually been paid to and
accepted by the company or its authorized agent during the lifetime and good health of the person upon whose life the
insurance is applied for. The company reserves the absolute right of disapproval of such application."

The other form contains the statement that "the company shall incur no liability under the application until it has been received,
approved at the house office of the company, and a policy issued thereon." This is then followed by the words of the first form.
Upon both of these forms are printed the words "conditional receipt."

It seems very clear that no liability was incurred by the company in this case. The judgment of the court below is accordingly
affirmed, with the costs of this instance against the appellant.

After expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter the record remanded
to the court below for proper action. So ordered.

Arellano, C.J., Torres, Mapa, Carson and Tracey, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave judgment
for the defendant. Plaintiff appeals.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company
of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the
company's Manila office and was given a receipt reading as follows:

MANILA, I. F., 26 de septiembre, 1917.

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina Central
de la Compañia.

The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26, 1917,
the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was
sent by the Manila office of Herrer that the application had been accepted, is a disputed point, which will be discussed later.)
On December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the
Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied
to Mr. Torres, stating that the policy had been issued, and called attention to the notification of November 26, 1917. This letter
was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of acceptance of his application.
To resolve this question, we propose to go directly to the evidence of record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial testified that he
prepared the letter introduced in evidence as Exhibit 3, of date November 26, 1917, and handed it to the local manager, Mr.
E. E. White, for signature. The witness admitted on cross-examination that after preparing the letter and giving it to he manager,
he new nothing of what became of it. The local manager, Mr. White, testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on November 26, 1917. He said that on the same day he signed a letter notifying
Mr. Herrer of this acceptance. The witness further said that letters, after being signed, were sent to the chief clerk and placed
on the mailing desk for transmission. The witness could not tell if the letter had every actually been placed in the mails. Mr.
Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres
testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for a life
annuity, and that he said that the only document relating to the transaction in his possession was the provisional receipt.
Rafael Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found
no letter of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his
application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the
ordinary channels for transmission, but as far as we know, was never actually mailed and thus was never received by the
applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be applied to the facts. In
order to reach our legal goal, the obvious signposts along the way must be noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the Code of Commerce and
the Civil Code. In the Code of the Commerce, there formerly existed Title VIII of Book III and Section III of Title III of Book III,
which dealt with insurance contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV,
entitled insurance contracts and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was,
however, in force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act expressly
repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The law of insurance is consequently
now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be followed in order that
there may be a contract of insurance. On the other hand, the Civil Code, in article 1802, not only describes a contact of life
annuity markedly similar to the one we are considering, but in two other articles, gives strong clues as to the proper disposition
of the case. For instance, article 16 of the Civil Code provides that "In matters which are governed by special laws, any
deficiency of the latter shall be supplied by the provisions of this Code." On the supposition, therefore, which is incontestable,
that the special law on the subject of insurance is deficient in enunciating the principles governing acceptance, the subject-
matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article 1262 providing that "Consent is
shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the
contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge.
The contract, in such case, is presumed to have been entered into at the place where the offer was made." This latter article
is in opposition to the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion, then the only duty remaining
is for the court to apply the law as it is found. The legislature in its wisdom having enacted a new law on insurance, and
expressly repealed the provisions in the Code of Commerce on the same subject, and having thus left a void in the commercial
law, it would seem logical to make use of the only pertinent provision of law found in the Civil code, closely related to the
chapter concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his
knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids
uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, let it be noticed that
it is identical with the principles announced by a considerable number of respectable courts in the United States. The courts
who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated
to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance,
as the locus poenitentiae is ended when the acceptance has passed beyond the control of the party. (I Joyce, The Law of
Insurance, pp. 235, 244.)

In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code
providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his
knowledge. The pertinent fact is, that according to the provisional receipt, three things had to be accomplished by the insurance
company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval
of the application by the head office of the company; and (3) this approval had in some way to be communicated by the
company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable
the Manila office to that effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of
notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus
fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced
by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a
rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance,
a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office,
properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily
that the acceptance of the application ever came to the knowledge of the applicant.

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with legal interest from
November 20, 1918, until paid, without special finding as to costs in either instance. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 41702 September 4, 1935

FORTUNATA LUCERO VIUDA DE SINDAYEN, plaintiff-appellant,

vs.
THE INSULAR LIFE ASSURANCE CO., LTD., defendant-appellee.

Jos. N. Wolfson for appellant.

Araneta, Zaragoza and Araneta for appellee.

BUTTE, J.:

This if, an appeal from a judgment of the Court of First Instance of Manila in an action brought by the plaintiff-appellant as
beneficiary to recover P1,000 upon a life insurance policy issued by the defendant on the life of her deceased husband, Arturo
Sindayen.

The essential facts upon which this case turns are not in dispute and may be stated as follows:

Arturo Sindayen, up to the time of his death on January 19, 1933, was employed as a linotype operator in the Bureau of
Printing at Manila and had been such for eleven years prior thereto. He and his wife went to Camiling, Tarlac, to spend the
Christmas vacation with his aunt, Felicidad Estrada. While there he made a written application on December 26, 1932, to the
defendant Insular Life Assurance Co., Ltd., through its agent, Cristobal Mendoza, for a policy of insurance on his life in the
sum of P1,000 and he paid to the agent P15 cash as part of the first premium. It was agreed with the agent that the policy,
when and if issued, should be delivered to his aunt. Felicidad Estrada, with whom Sindayen left the sum of P26.06 to complete
the payment of the first annual premium of P40.06. On January 1, 1933, Sindayen, who was then twenty-nine years of age,
was examined by the company's doctor who made a favorable report, to the company. On January 2, 1933, Sindayen returned
to Manila and resumed his work a linotype operator in the Bureau of Printing. On January 11, 1933, The company accepted
the risk and issued policy No. 47710 dated back to December 1, 1932, and mailed the same to its agent, Cristobal Mendoza,
in Camiling, Tarlac, for delivery to the insured. On January 11, 1933, Sindayen was at work in the Bureau of Printing. On
January 12, he complained of a severe headache and remained at home. On January 15, he called a physician who found
that he was suffering from acute nephritis and uremia. His illness did not yield to treatment and on January 19, 1933, he died.

The policy which the company issued and mailed in Manila on January 11, 1933, was received by its agent in Camiling, Tarlac,
on January 16, 1933. On January 18, 1933, the agent, in accordance with his agreement with the insured, delivered the policy
to Felicidad Estrada upon her payment of the balance of the first year's annual premium. The agent asked Felicidad Estrada
if her nephew was in good health and she replied that she believed so because she had no information that he was sick and
he thereupon delivered to her the policy.

On January 20, 1933, the agent learned of the death of Arturo Sindayen and called on Felicidad Estrada and asked her to
return the policy. He testified: "pedia a ella que me devolviera a poliza para traerla a Manila para esperar la de decision de la
compañia" (t. s. n. p. 19). But he did not return or offer to return the premium paid. Felicidad Estrada on his aforesaid statement
gave him the policy.

On February 4, 1933, under circumstances which it is not necessary to relate here, the company obtained from the beneficiary,
the widow of Arturo Sindayen, her signature to a legal document entitled "ACCORD, SATISFACTION AND RELEASE"
whereby in consideration of the sum of P40.06 paid to her by a check of the company, she "assigns, releases and forever
discharges said Isular Life Assurance Co., Ltd., its successors and assigns, of all claims, obligation in or indebtedness which
she, as such beneficiary ever had or now has, hereafter ca, shall, or may have, for, upon, or by reason of said policy of life
insurance numbered 47710 upon the life of said Arturo Sindayen, the latter now deceased, or arising therefrom or connected
therewith in any manner", which appears in the record as Exhibit A, attached to the deposition of the notary who executed th
fraudulent acknowledgment to Exhibit A. The said check for P40.06 was never cashed but returned to the company and
appears in the record of this case as Exhibit D. Thereupon this action was brought to enforce payment of the policy.

By the terms of the policy, an annual premium of P40.06 is due on the first day of December of each year, the first premium
already paid by the insured covering the period from December 1, 1932. It is to December 1, 1933. It is to be noted that the
policy was not issued and the company assumed no actual risk prior to January 11, 1933.
The policy contains the following paragraph:

THE CONTRACT. This Policy and the application herefor constitute the entire contract between the parties hereto.
All statements made by the Insured shall, in the absence of fraud, be deemed representations and not warranties,
and no such statement shall void the Policy unless it is contained in the written application, a copy of which is
attached to this Policy. Only the President, or the Manager, acting jointly with the Secretary or Assistant Secretary
(and then only in writing signed by them) have power in behalf of the Company to issue permits, or to modify this or
any contract, or to extend the time for making any premium payment, and the Company shall t bound by any promise
or representation heretofore hereafter given by any person other than the above-named officials, and by them only
in writing and signed conjointly as stated.".

The application which the insured signed in Camiling, Tarlac, on December 26, 1932, contained among others the following
provisions:

2. That if this application is accepted and a policy issued in my favor, I bind myself to accept the same and to pay at
least the first year's premium thereon in the City of Manila.

3. That the said policy shall not take effect until the first premium has been paid and the policy has been delivered
to and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, or to waive any of
the Company's right or requirements.".

The insurance company does not set up any defense of fraud, misconduct or omission of duty of the insured or his agent,
Felicidad Estrada or of the beneficiary. In its answer it pleads the "ACCORD, SATISFACTION AND RELEASE" (Exhibit A)
signed by the widow of Arturo Sindayen, the plaintiff-appellant. With respect to Exhibit A, it suffices to say that this release is
so inequitable, not to say fraudulent, that we are pleased to note that counsel for the defendant company, on page 51 of their
brief, state: "si resultara que la poliza aqui en cuestion es valida la apelada seria la primera en no dar validez alguno al
documento Exhibit A aunque la apelante hubiera afirmado que lo otorgo con conocimiento de causa."

It is suggested in appellee's brief that fhere was no delivery of the policy in this case because the policy was not delivered to
and accepted by the insured in person. Delivery to the insured in person is not necessary. Delivery may be made by mail or
to a duly constituted agent. Appellee cites no authorities to support its proposition and none need be cited to refute it.

We come now to the main defense of the company in this case, namely, that the said policy never took effect because of
paragraph 3 of the application above quoted, for at the time of its delivery by the agent as aforesaid the insured was not in
good health. We have not heretofore been called upon to interpret and apply this clause in life insurance application, but
identical or substantially identical clauses have been construed and applied in a number of cases in the United States and the
decisions thereon are far from uniform or harmonious. We do not find it practicable to attempt to determine where the weight
of the authority lies and propose to resolve this case on its own facts.

There is one line of cases which holds that the stipulation contained in paragraph 3 is in the nature of a condition precedent,
that is to say, that there can be no valid delivery to the insured unless he is in good health at the time; that this condition
precedent goes to the very essence of the contract and cannot be waived by the agent making delivery of the policy, (Rathbun
is. New York Life Insurance Co., 30 Idaho, 34; 165 Pac., 997; American Bankers Insurance Co. vs. Thomas, 53 Okla., 11; 154
Pac., 44; Gordon vs. Prudential Insurance Co., 231 Pa., 404; Reliance Life Insurance Co. vs. Hightower, 148 Ga., 843; 98
S.E., 469.)

On the other hand, a number of American decisions hold that an agent to whom a life insurance policy similar to the one here
involved was sent with instructions to deliver it to the insured has authority to bind the company by making such delivery,
although the insured was not in good health at the time of delivery, on the theory that the delivery of the policy being the final
act to the consummation of the contract, the condition as to the insurer's good health was waived by the company. (Kansas
City Life Insurance Co. vs. Ridout, 147 Ark., 563; 228 S.W., 55; Metropolitan Life Insurance Co. vs. Willis, 37 Ind. App., 48;
76 N.E., 560; Grier vs. Mutual Life Insurance Co. of New York, 132 N.C., 543; 44 S.E., 38; Bell vs. Missouri State Life
Insurance Co., 166 Mo. App., 390; 149 S.W., 33.)

A number of these cases go to the of holding that the delivery of the policy by the agent to the insured consummates the
contract even though the agent knew that the insured was not in good health at the time, the theory being that his knowledge
is the company's knowledge and his delivery of the policy is the company's delivery; that when the delivery is made
notwithstanding this knowledge of the defect, the company is deemed to have waived the defect. Although that appears to be
the prevailing view in the American decisions (14 R.C.L., 900) and leads to the same conclusion, namely, that the act of
delivery of the policy in the absence of fraud or other ground for recission consummates the insurance, we are inclined to the
view that it is more consonant with the well known practice of life insurance companies and the evidence in the present case
to rest our decision on the proposition that Mendoza was authorized by the company to make the delivery of the policy when
he received the payment of the first premium and he was satisfied that the insured was in good health. As was well said in the
case of MeLaurin vs. Mutual Life Insurance Co. (115 S.C., 59; 104 S.E., 327):

So much comes from the necessity of the case; the president, the vice-president, and the secretary cannot solicit,
or collect, or deliver; they must commit that to others, and along with it the discretions we have adverted to. . . . The
power in the local agent to withhold the policy involves the power to deliver it; there is no escape from that conclusion.

But the appellant says, even though the local agent should have concluded that the applicant was in good health,
yet, if the fact be the contrary, then the policy never operated. The parties intended to make a contract, and that
involved the doing of everything necessary to carry it into operation, to wit, the acceptance of the applicant as a
person in good health. They never intended to leave open that one essential element of the contract, when the
parties dealth fairly one with the other. It is plain, therefore, that upon the facts it is not necessarily a case of waiver
or of estoppel, but a case where the local agents, in the exercise of the powers lodged in them, accepted the premium
and delivered the policy. That act binds their principal, the defendant.

Mendoza was duly licensed by the Insurance Commissioner to act as the agent of the defendant insurance company. The
well known custom of the insurance business and the evidence in this case prove that Mendoza was not regarded by the
company as a mere conduit or automaton for the performance of the physical act of placing the policy in the hands of the
insured. If Mendoza were only an automaton then the legally effective delivery of the policy and the consummation of the
contract occurred when the company expressed its will to release the policy by mailing it to its agent, namely, on January 11,
1933. In such a case the agent would perform a purely ministerial act and have no discretion. He could do nothing but make
unconditional delivery. The legal result would be the same as if the company had mailed the policy on January 11, 1933, to
the insured directly using the post-office as its conduit for delivery. On January 11, 1933, the insured was in good health
performing his regular duties in the Bureau of Printing.

But we are not inclined to take such a restrictive view of the agent's authority because the evidence in the record shows that
Mendoza had the authority, given him by the company, to withhold the delivery of the policy to the insured "until the first
premium has been paid and the policy has been delivered to and accepted by me (the insured) while I am in good health".
Whether that condition had been met or not plainly calls for the exercise of discretion. Granted that Mendoza's decision that
the condition had been met by the insured and that it was proper to make a delivery of the policy to him is just as binding on
the company as if the decision had been made by its board of directors. Granted that Mendoza made a mistake of judgement
because he acted on insufficient evidence as to the state of health of the insured. But it is not charged that the mistake was
induced by any misconduct or omission of duty of the insured.

It is the interest not only the applicant but of all insurance companies as well that there should be some act which gives the
applicant the definite assurance that the contract has been consummated. This sense of security and of peace of mind that
one's defendants are provided for without risk either of loss or of litigation is the bedrock of life insurance. A cloud will be
thrown over the entire insurance business if the condition of health of the the insured at the time of delivery of the policy may
be required into years afterwards with the view to avoiding the policy on the ground that it never took effect because of an
alleged lack of good health, at the time of delivery. Suppose in the present instance that Sindayen had recovered his health,
but was killed in an automobile accident six months after the delivery of the policy; and that when called on to pay the loss,
the company learns of Sindayen's grave illness on January 18, 1933, and alleges that the policy had never taken effect. It is
difficult to imagine that the insurance company would take such a position in the face of the common belief of the insuring
public that when the policy is delivered, in the absence of fraud or other grounds for rescission, the contract of insurance is
consummated. The insured rests and acts on that faith. So does the insurance company, for that matter, for from the date of
delivery of the policy it appropriates to its own use the premium paid by the insured. When the policy is issued and delivered,
in the absence of fraud or other grounds for rescission, it is plainly not within the intention of the parties that there should be
any questions held in abeyance or reserved for future determination that leave the very existence of the contract in suspense
and doubt. If this were not so, the entire business world which deals so voluminously in insurance would be affected by this
uncertainly. Policies that have been delivered to the insured are constantly being assigned for credit and other purposes.
Although such policies are not negotiable instruments and are subject to defenses for fraud, it would be a most serious
handicap to business if the very existence of the contract remains in doubt even though the policy has been issued and
delivered with all the formalities required by the law. It is therefore in the public interest, for the public is profoundly and
generally interested in life insurance, as well as in the interest of the insurance companies themselves by giving certainly and
security to their policies, that we are constrained to hold, as we, do, that the delivery of the policy to the insured by an agent
of the company who is authorized to make delivery or without delivery is the final act which binds the company (and the insured
as well) in the absence of fraud or other legal ground for rescission. The fact that the agent to whom it has entrusted this duty
(and corporation can only act through agents) is derelict or negligent or even dishonest in the performance of the duty which
has been entrusted to him would create a liability of the agent to the company but does not resolve the company's obligation
based upon the authorized acts of the agent toward a third party who was not in collusion with the agent.
Paragraph 4 of the application to the effect "that the agent taking this application has no authority to make, modify or discharge
contracts or to waive any of the company's rights or requirements" is not in point. Mendoza neither waived nor pretended to
waive any right or requirement of the company. In fact, his inquiry as to the state of health of the insured discloses that he was
endeavoring to assure himself that this requirement of the company had been satisfied. In doing so, he acted within the
authority conferred on him by his agency and his acts within that authority bind the company. The company therefore having
decided that all the conditions precedent to the taking effect of the policy had been complied with and having accepted the
premium and delivered the policy thereafter to the insured, the company is now estopped to assert that it never intended that
the policy should take effect. (Cf. Northwestern Life Association vs. Findley, 29 Tex. Civ. App., 494; 68 S.W, 695;
McLaurin vs. Mutual Life Insurance Co., 115 S.C., 59; 104 S.E., 327; 14 Aal. Jur., par. 12, pages 425-427.)

In view of the premises, we hold that the defendant company assumed the risk covered by policy No. 47710 on the life of
Arturo Sindayen on January 18, 1933, the date when the policy was delivered to the insured. The judgment appealed from is
therefore reversed with directions to enter judgment against the appellee in the sum of P1,000 together with interest at the
legal rate from and after May 4, 1933, with costs in both instances against the appellee.

Malcolm. Villa-Real, Abad Santos, Hull, Vickers, Goddard, and Recto, JJ., concur.

Separate Opinions

AVANCEÑA, C.J., concurring:

I concur in the result of this decision. I agree with the conclusion arrived in the majority opinion in the sense that the contract
in question was consummated. I am of the opinion, however, that this contract was consummated by the defendant due to an
error regarding an essential condition, to wit: the the good health of the insured. There is no doubt but that the defendant
would not have consummated the contract had it known that the insured was hopelessly ill, inasmuch as this consideration is
essential in this kind of contracts. It is not true that the defendant or its agent had waived this condition inasmuch as it
consummated the contract in the belief that this condition had been compiled with, in view of the information given to it in good
faith by the agent of the insured to the effect that the latter might continue to be in good health for the reason that she had not
received any information from him to the contrary. This being so, the defendant's consent is vitiated by error, and, inasmuch
as it affects an essential condition of the contract, it may give rise to the nullity thereof.

However, inasmuch as the nullity of the contract has not been set up as a a defense in this case, I concur with the majority in
the result.

IMPERIAL, J., dissenting:

The plaintiff, as beneficiary brought this action recover from the defendant, an insurance Company, the sum of P1,000, the
value of a life insurance policy issued the name of Arturo Sindayen, the plaintiff's husband.

The plaintiff appealed from the judgment dismissing the complaint, without special pronouncement as to costs.

On December 26, 1932, Arturo Sindayen signed Exhibit 6 wherein he applied for life insurance in the sum of P1,000 under
certain conditions, among others, the following:

3. That the said policy shall not take effect until the first premium has been paid and the policy has been delivered
to and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, or to waive any of
the company's right or requirements.

On the back of the policy said conditions were endorsed as follows:

THE CONTRACT. This Policy and the application herefor constitute the entire contract between the parties hereto.
All statements made by the Insured shall, in the absence of fraud, be deemed representations and not warranties,
and no such statement shall void the Policy unless it is contained in the written application, a copy of which is
attached to this Policy. Only the President, or the Manager, acting jointly with the Secretary or Assistant Secretary
(and then only in writing signed by them) have power in behalf of the Company to issue permits, or to modify this or
any contract, or to extend the time for making any premium payment, and the Company shall not be bound by any
promise or representation heretofore or hereafter given by any person other than the above-named officials, and by
them only in writing and signed conjointly as stated.
The insurance was secured by the defendant's agent Cristobal Mendoza in Camiling, Tarlac. The first premium to be paid by
the insured amounted to P40.06 and on account of this sum he paid the agent P15 after he signed the application, with the
understanding between them that the balance of P25.06 would be paid in the same town on the date the policy would be
delivered. The insured designated his aunt Felicidad Estrada to act as his representative and to receive in his name the policy
and to pay the balance of the premium. On January 11, 1933, the defendant issued insurance policy No. 47710, dated
December 1, 1932 and sent it by registered mail to its agent in Camiling, Tarlac. On January 16th the agent got the policy
from the post office and on the 18th he looked for the insured, but Felicidad Estrada informed him that the insured had returned
to Manila. The agent asked her whether the insured continued to be sound and in good health, to which she replied that she
believed that he was in good health inasmuch as she received no information that he was sick, whereupon the agent delivered
the policy to Felicidad Estrada with instruction to hand it to the insured and, after receiving the sum of P25.06, he issued the
receipt for the payment of the premium of P40.06, signing it as defendant's agent. On January 19th Felicidad Estrada came
to Manila, to the home of the insured at No. 14 Teresa Street, to deliver the policy, but she found that he died a few hours
before her arrival and there she saw his lifeless body. Felicidad Estrada delivered the policy to the plaintiff as beneficiary. On
January 20th of the same year the agent had knowledge of the death of the insured and went to see Felicidad Estrada whom
be requested to return the policy so that the defendant would decide what was to be done. On that occasion the agent
conveyed to Felicidad Estrada his belief that the insured was not in good health when he delivered the policy to her. Felicidad
Estrada returned the policy to the agent on the afternoon of said date. The agent gave notice to the defendant of the death of
the insured and of the circumstances under which, he had delivered the policy, and the defendant on February 4th of the same
year returned to the plaintiff by check all the premium theretofore received, and furthermore secured from her Exhibit A (Accord,
Satisfaction and Release), by virtue of which said plaintiff acknowledged having received the aforesaid premium and that in
further consideration thereof she formally waived whatever right she might have, as beneficiary, in the insurance policy issued
in the name of her deceased husband.

With respect to the sickness of the deceased, it appears that on January 1, 1933 he was examined by the physician of the
defendant company. On the 12th of the same month he felt ill and consulted Dr. Alfredo L. Guerrero who, after an examination,
found him suffering from nephritis. On the 15th he was treated for the second time by the physician, who found him seriously
ill and with fever. In the afternoon of January 19, 1933, he died from nephritis and uremia in his home in Manila.

In its answer the defendant set up two special defenses:

(1) That the plaintiff bas lost any and an right to collect the value of the policy because at the time the first premium was paid
and the policy was delivered to the insured, the latter was not in good health, thus violating clause 3 of the application which
he signed and was made an integral part of the policy as one of the conditions thereof; and (2) that the plaintiff by means of
the document known as "Accord, Satisfaction and Release" has waived whatever right she might derive from the insurance
policy.

A stipulation or contract between the company and the applicant in the sense that the insurance policy will produce no effect
or will not be binding on the company unless the first premium shall have been paid while the applicant is alive and in good
health, is valid will will be enforced in accordance with the terms thereof; it is a condition precedent to the liability of the
company, and compliance therewith or its waiver are necessary for the enforcement and fulfillment of the insurance contract,
unless the case should come under the provisions of an uncontestable clause. ([Perry vs. Security L., etc., Co., 150 N.C., 143;
63 S.E., 679; Rathbun vs. New York L. Ins. Co, 30 Ida., 34; 165 P., 997; Hawley vs. Michigan Mut. L. Ins. Co., 92 Iowa, 593;
61 N.W., 201; Whiting vs. Massachusetts Mut. L. Ins. Co., 129 Mass., 240; 37 Am. Rep., 317; Missouri State L. Ins.
Co. vs. Salisbury, 279 Mo., 40; 213 S.W., 786; Ormond vs.Fidelity Life Assoc., 96 N.C., 158; 1 S.E., 796; Bowen vs. New York
Mut. L. Ins. Co., 20 S.D., 103; 104 N.W., 1040; Rositer vs. Aetna L. Ins. Co., 91 Wis., 121; 64 N.W., 876; Anders vs. Life Ins.
Clearing Co., 62 Neb., 585; 87 N.W., 331; Reliance L. Ins. Co. vs. Hightower, 148 Ga., 843; 98 S. E., 469; Clark vs. Mutual L.
Ins. Co., 129 Ga., 571; 59 S.E., 283; Reese vs. Fidelity Mut. Life Assoc., 111 Ga., 482; 36 S.E., 637 [foll. Williams vs. Empire
L. Ins. Co., 146 Ga., 246; 91 S.E., 44); Oliver vs. New York Mut. L. Ins. Co., 97 Va., 134; 33 S.E., 526; Reese vs. Fidelity Mut.
Life Assoc., 111 Ga., 482; 36 S.E., 637; Anders vs. Life Ins. Clearing Co., 62 Neb., 585; 87 N.W., 331; Perry vs. Security L.
etc., Co., 150 N.C., 143; 63 S.E., 679; Strigham vs. Mutual Ins. Co., 44 Ore., 447; 75 Pac., 822; Dibble vs.Reliance L. Ins. Co.,
170 Cal., 199; 149 Pac., 171.] Ann. Cas. 1917E, 34.)

In the case of Reliance Life Ins. Co. vs. Hightower, supra, the Supreme Court of Georgia, in a similar case, said the following:

. . . An application for life insurance, signed by the applicant, contained a provision as follows:

"I hereby declare and agree that all statements and answers written in this application . . . are true, full, and complete,
and are offered to the company as a consideration for the contract of insurance, which I hereby agree to accept, and
which shall not take effect until the first premium shall have been actually paid while I am in good health and the
policy shall have been signed by the duly authorized officers of the company and issued."

The policy itself contained, among others, the following provisions:

 "Agents are not authorized to modify this policy or to extend the time for paying a premium . . .. All insurance provided
by this policy is based upon the application therefore, a copy of which is hereto attached and made a part of this
policy."

xxx xxx xxx

Applying to the facts above stated the principles recognized in Reese vs. Fidelity Mutual Life Association (111 Ga., 482; 36 S.
E., 637), it must be ruled: (1) It was within the power of the insurance company, as between itself and its agent, to define and
limit the powers of the latter. Limitations upon the power of the agent affect all third persons dealing with him, who have
knowledge or notice thereof; and any notice of limitations upon the agent's power which a prudent man is bound to regard, is
the equivalent of knowledge to the insured; (2) the stipulation in the signed application, that the insurance "shall not take effect
until the first premium shall have been actually paid while I am in good health," coupled with the words in the policy, "Agents
are not authorized to modify this policy or to extend the time for paying a premium," were sufficient to charge the applicant
with notice that he was dealing with a special agent with limited powers; (3) the actual payment of the first premium during the
good health of the applicant was a condition precedent to liability under the policy, and the agent of the company could not
waive such condition.

In the case of Missouri State Life Ins. Co. vs. Salisbury, supra, the Supreme Court of Missouri, in another similar case, said:

The application has this clause:

"6. That the insurance hereby applied for shall not take effect unless the first premium is paid and the policy delivered to and
accepted by me during and lifetime and good health."

Another reason why the contract was never completed was because the first premium was na paid nor tendered during the
good health of Mrs. Salisbury, as required by the stipulation in the application quoted above.

A stipulation of that character, requiring the payment of a first premium in advance as a condition upon which the
policy was to take effect, is is always recognized and enforced by the courts. The policy, in such case, is not effective
until that condition is complied with. (Kilcullen vs. Life Ins. Co., 108 Mo. App., 61; 82 S.W., 966; Wallingford vs. Home
Mut. Fire & Marine Ins. Co., 30 Mo., 46; Ormond vs. Insurance Co., 96 N.C., 158; 1 S.E., 796; Bowen vs. Mutual Life
Ins. Co., 20 S.D., 103; 104 N.W., 1040.)

In the case of Rathbun vs. New York Life Ins. Co., supra, the Supreme Court of Idaho said:

In its answer and on the trial of the case, the main contention of the insurance company were: First, that under, the
terms of the contract the first premium was to be paid in cash; and, second, the policy was not to take effect until the
insured was in good health at the time it was delivered to him. Said contentions are partly based upon the stipulations
above quoted from the application for said insurance.

The court in its findings of fact, among other things, found as follows.

"The court further finds that Ernest C. Rathbun, the applied in writing for insurance on his life, that the insurance
thereby applied for effect unless the first premium was paid and the policy was delivered to and received by him
during his lifetime and good health. After applying for the policy and before its delivery, the applicant was taken with
appendicitis, from which he died. While he was in the hospital, the soliciting agent at Spoken, in total ignorance of
the changed condition of the applicant's health, mailed him the policy. The applicant's friends thereafter paid the first
premium, which the company promptly returned when it discovered facts."

The evidence is clearly sufficient to sustain this finding of fact.

Then if the parties understood and agreed that the policy should not become effective unless the first premium was
paid and the policy was delivered to and received by the applicant during his lifetime and while he was in good health,
and both of those conditions failed, the contract of insurance was never completed, and the policy was of no force
and effect. It is a well-recognized rule that life insurance results from contract, and that the true rule is that no other
or different rule is to be applied to a contract of insurance than is applied to other contracts. (Quinlan vs. Providence-
Washington Ins. Co., 133 N.Y., 356; 28 Am. St. Rep., 645; 31 N.E., 31.) In life insurance contracts, the assent of
both parties is required as in any other contract. (Stephens vs. Capital Ins. Co., 87 Iowa, 283; 54 N.W., 136;
Weidenaar vs. N.Y. Life Ins. Co., 36 Mont., 592; 122 Am. St., 330; 94 Pac., 1.)
 In the determination of this case, the application and the policy itself must be examined and considered in order to
ascertain the true situation of the parties under the negotiations and agreements between them. (Iowa Life Ins.
Co. vs. Lewis, 187 U.S., 335; 23 Sup. Ct., 126; 47 Law. ed. 204; Behling vs. N.W. Nat. Life Ins. Co., 117 Wis., 24;
93 N.W., 80O.)

If we concede in this case that the premium was paid by the payment of the $5 and the delivery of the insured's
promissory note to the agent of the company for the balance, the plaintiffs would not be entitled to recover, for the
reason that the policy was not delivered to and received by the applicant while he was in good health, but hen he
was fatally ill. He became ill with appendicitis on the 28th of April, 1913, was operated on that day and thereafter
died on the 10th day of May, 1918, five days after receiving the policy.

In the case of Gordon vs. Prudential Insurance Company (231 Pa., 404), the Supreme Court of Pennsylvania said:

. . . In the case at bar, the policy was issued and handed to the agent, who delivered it to the insured before payment
of the premium, and upon the insured giving a receipt, in which it was stated that the policy was "received for the
purpose of inspection only and upon the understanding that it is not to be in force until the first premium payable
thereunder has been paid by me and the official receipt of the company delivered to me during my lifetime and in
good health, as provided in my application upon which the above numbered policy was issued." This, therefore, was
a conditional delivery of the policy and the contract could not be consummated except upon performance of that
condition, namely, payment of the premium, thereafter, while the insured was alive and in good health, as provided
in both the application and receipt for the policy.

xxx xxx xxx

It is therefore undisputed that on the day of the payment of the premium, Mr. Gordon was ill of the disease which
caused his death within sixty-four hours after such payment. There was no dispute, nor contradictory testimony as
to the condition of Mr. Gordon's health on the day of payment, and, therefore, nothing for the jury to pass upon in
this respect.

xxx xxx xxx

In the case at bar, there was no question of the condition of the health of the insured on the day of the payment of
the premium, and and no conflicting testimony as to the serious nature of his illness on that day, nor as to any other
material fact in the cause. No person testified that Mr. Gordon was in "good health" on Saturday, May 16, the day
the premium was paid, but on the witness who had knowledge of his condition and who was asked the question,
including the, plaintiff herself, said that he was not in "good health" on that day. How, then, can a jury be permitted
to find that he was in "good heath" at the time of the payment of the premium in the absence of any evidence to
warrant or support such finding?

xxx xxx xxx

In this case it is impossible to find from the evidence that on Saturday, May 16, the day of the payment of the premium,
and at the time of such payment, the applicant had no grave, important or serious disease, or that he was free from
any ailment that seriously affected the general soundness and healthfulness of his system, or that he suffered a
mere temporary indisposition which did not tend to weaken or undermine his constitution at the time of paying the
premium. Nor is it possible to find that he enjoyed such health and strength as to justify a reasonable belief that he
was free from derangement of organic functions, or free from symptoms calculated to cause a reasonable
apprehension of such derangement, and that to ordinary observation and outward appearance his health was
reasonably such that he might, with ordinary safety, be insured and upon ordinary terms which only would satisfy
the requirement of "good health". But on the contrary, the testimony conclusively shows that on Saturday May
16,1908, at the time of the payment of the premium, the condition of Mr. Gordon's health was both a serious and a
dangerous one, and such as would preclude the possibility of any life insurance company, with knowledge of his
condition, issuing its policy upon his life for anything like the ordinary premium; in other words, his condition at that
time was such as to render him a hazardous and dangerous risk, which would not be assumed by any insurance
company upon receipt of the of the ordinary premium for insurance upon the life of an ordinary risk.

With the question of good faith on the part of the insured at the time of paying the premium, we have nothing to do.
The fact is that his physical condition was not disclosed to the company or its agent at the time of the payment of
the premium; and that his condition was not at that time such as, in his application for insurance, he stated it to be.
This being true, it is no leader hardship upon the beneficiary in the policy to say that the premium paid under such
conditions does not entitle her to recover the amount of insurance from the defendant company.
In the case of Powell vs. Prudential Insurance Co. of America (153 Ala., 611), the Supreme Court of Alabama, in a similar
cause, said:

On June 22, 1904, Claude D. Powell applied to the defendant company for insurance on his life for $1,000. In his
application for insurance, he stated: "I am in good health, . . . and all the statements and answers to the above
questions are complete and true, and that the foregoing, together with this declaration, shall constitute the application,
and become a part of the contract for insurance hereby applied for. And it is agreed that the policy herein applied for
shall be accepted subject to the privileges and provisions therein contained, and said policy shall not take effect until
the same shall be issued and delivered by the said company, and the first premium paid thereon in full, while my
health is in the same condition as described in this application."

xxx xxx xxx

Here we find that two absolute conditions precedent of the contract of insurance, were set aside or annulled, in what
the friends of the deceased attempted to do, in that, the the firsts premium was never paid by the assured one any
one for him, and if, by any possible construction, it could be held that it was not totally sick at the time, of which fact
the company was ignorant; and further, it is not denied that the policy was never delivered — if was done could
possibly amount to delivery — until after the death of the assured. To hold that the policy was good under such
circumstances, would be to abrogate and set aside the contract of insurance, and hold the company liable for a
payment of the policy against the very terms of its contract.

The same principle controls and applies when, as in the instant case, it is stipulated that the policy shall be of no effect if at
the time of its delivery to the insured he is not in good health.

The condition is valid and binding when its refers only to the payment of the first premium as well as to the delivery of the
policy, or to both.

In the case of Nyman vs. Manufactures' & Merchants' Life Ass'n.

(104 N.E., 653), the Supreme Court of IIlinois said:

. . . The proof is direct and positive that on the last-named date she was not in good health, and that two months and
three months day later she died from the disease the proof showed she was suffering from on that day. If there had
been no proof of the condition of Mrs. Nyman's health on the day the certificate was delivered, then there would be
some force in plaintiff's contention that the inference might be indulged that, if she was in good health on April 11th,
she so continued until the 19th. But no such inference can be indulged, when the uncontradicted proof shows she
was in bad health the day the certificate was delivered, and so continued until her death. Defendant proved its third
special plea, and, in our opinion, plaintiff offered no evidence that legitimately tended to rebut defendant's evidence.
The trial court therefore erred in refusing to direct a verdict in favor of defendant under the issue made by the third
special plea. (Libby, McNeill & Libby vs. Cook, 222 Ill., 206; 78 N.E., 599.)

In the case of American Bankers' Ins. Co. vs. Themas (53 Okla. Rep., 11), the Supreme Court of Oklahoma said:

That part of the policy which provides that the same shall not take effect until it is delivered by the company while
the insured is in good health prescribes a condition precedent to the attachment of the risk under the policy. (1
Cooley's Briefs on the Law of Insurance, p. 451.) Recognizing it to be such, plaintiff properly pleaded a waiver thereof
by setting up the facts as stated. (Western, etc., Ins. Co. vs. Coon, 38 Okla., 453; 134 Pac., 22; Anders vs. Life Ins.
Clearing Co., 62 Neb., 585; 87 N.W., 33 1.)

In the case of Steinsultz vs. Illinois Bankers Life Association (229 Ill. App. Rep., 199), the third district of the Appellate Courts,
in a similar cause, said:

The policy of insurance contains the following clause:

"I agree to accept the Policy issued hereon and that the same shall not take effect until the first payment shall have
been made and the Policy issued and actually delivered to me during my continuance in good health."

The main question in this case, in the opinion of this court, is the question as to whether a valid and legal policy ever
was issued and actually delivered to the insured, Myrtle May Steinsultz. It is argued that the clause in question is a
condition precedent and requires that the insured shall be in good health at the time of the payment of the first
premium and the actual delivery of the policy to her, otherwise that the policy never became operative and for the
purposes of this suit is void. It will be noticed that plaintiff in representing his main case made no effort to submit or
show anything as to the health of the insured prior to the claimed delivery of the policy. If the clause in question is a
condition precedent to recovery, which we shall discuss later, the general issue filed by the defendant denied the
existence of a valid policy and raised this question and required proof on the part of the plaintiff to show that the
insured was in good health at the time of the claimed delivery of the policy. No much proof was shown and the
defendant, appellant, at the close of plaintiff's case, moved the court to instruct the jury, under the pleadings and
evidence in the case, to find verdict for the defendant and form a verdict was submitted with the motion. This motion
the court overruled, to which ruling appellant duly excepted and this issue is therefore squarely raised by the
proceedings as the existence of legal and binding policy in the case under the terms of said contract.

In Ellis vs. State Mut. Life Assur. Co. of Worcester (206 III. App., 226), the appellant insurance company filed a plea
of the general issue with notice of special matter of defense, the special matter being that the policy was not to be
in effect until actually delivered and the first premium paid during the lifetime of the assured, and while he was in the
same condition of health as when his application was signed, and that the policy was not so delivered. There was a
trial, verdict and judgment in favor of appellee, being the amount of the policy and interest. To reverse said judgment
the appellant prosecuted appeal. In this case the application, signed by Ellis, contained, among other things, the
following provision: "That the contract or policy applied for shall not take effect until the first premium thereon shall
have been actually paid and the policy delivered to me during my lifetime and the present condition of health."

The policy issued thereon contained this provision: "This policy shall not take effect until actually delivered and the
first premium paid thereon during the lifetime of the insured."

Said policy contained the further provisions: "This policy and the application therefor shall constitute the entire
contract between the parties hereto."

In this case, likewise, the appellant at the close of appellee's evidence and then again at the close of all the evidence,
moved the court to direct a verdict in its favor. Appellant objected to the admission of the policy sued upon, in
evidence. In this case on December 14, 1914, the insured was injured and was carried to his home and died between
4:30 and 5 p.m. on that day, and it appears that the policy of insurance had been returned to the office of the agent
of the insurance company the evening before but had not been delivered personally to the insured at the time of his
death. In this case the contention was made by the holders of the policy and that the delivery to the agent was a
delivery to the insured.

The court goes into the question in the Ellis case very exhaustively, quoting from a great many cases and qouting
from Devine vs. Federal Life Ins. Co. (250 III., 203), in which the Supreme Court in discussing the question of the
delivery of an insurance policy, at page 206, says:

"The application may or not provide that the insurance shall effect only upon the delivery of the policy to the insured.
Unless expressly made so by the contract itself, an actual delivery of a policy of insurance to the insured is not
essential to the validity of the contract, and the rule under such circumstances is that a policy becomes binding upon
the insurer when signed and that forwarded to the insurance broker to whom the application as made, to be delivered
to the insured."

And quoting 25 Cyc 718, 719, it is stated with reference to the delivery of insurance policies that: "The placing of the
completed policy on hands of the agent for the delivery, without condition, to the insured completes the contract,
though the actual delivery by the agent to the insured is not made before the death of the insured. But if the delivery
to the agent of the company is with the understanding that it is to be delivered by the agent to the insured only after
the performance of some condition, then until the condition is performed and it becomes the duty of the agent to
deliver the policy to the insured, the contract is not complete. . . . It is usual condition of a life insurance policy that
the delivery shall not be effectual to create a binding contract unless the insured is alive in good health when the
policy is delivered and the first premium paid, and under such conditions the death of the insured before the delivery
of the policy will prevent its becoming effectual.

It was held in the Ellis case that in view of foregoing authorities, numerous of which we have not cited here, that the
policy sued on was never delivered and that the court erred in not directing a verdict in favor of appellant and reversed
the judgment with a finding of fact.

The language in the policy in question, "I agree to accept the Policy issued hereon and that the same shall not take
effect until the first payment shall have been made and the Policy issued and actually delivered to me during may
continuance in good health," is a condition precedent to the existence of any binding legal contract of insurance upon
the appellant. It means just what its says and it was entered into signed by the insured. The statement was a warranty
 that the insured was in good health at the time she signed said application and further was a binding obligation that
she should continue in good health at the time the policy was delivered to her, otherwise the policy never should
become binding and obligatory. It is condition that goes to the very existence of the policy and its validity, and under
the facts in this case it is insisted strenuously that no binding policy was ever issued and delivered by the appellant.

And in the case of Federal Life Ins. Co. vs. Wright (230 S.W., 795), the Civil Appellate Court of Texas said:

. . . The application and the policy contain the entire contract between the parties, and it is not only agreed in the
application that all of the statements therein "are full, true, and complete," but it is stipulated therein, as above shown,
that the policy of insurance applied for shall not take effect until the policy shall have been actually delivered to the
insured and the premium paid during his life and while he was in good health. The purpose and meaning of this
provision, standing alone or taken in connection with any or all other provisions of the contract, is clear, without
ambiguity, and not to open to construction. It unquestionably means that the policy should not take effect as a
contract of insurance unless actually delivered to the applicant therefor while he was in good health. This being the
meaning of the provision, and the appellee having admitted in her pleadings and in open court at the trial that the
applicant or insured was afflicted with tuberculosis of the lungs at the time the policy was delivered to him, and that
such disease caused his death, the policy by its terms never became an obligation of the appellant.

Applications for policies of life insurance frequently provide, as in the present instance, that the policy shall not take
effect unless it is delivered to the insured and the premium paid while he is in good health, and the great weight of
authority is to the effect that such provision is valid, and that if the insured was not in fact in good health on the date
the policy was delivered the company is not liable. (Gallant vs. Metropolitan L. Ins. Co., 167 Mass., 79; 44 N.E. 1073;
Murphy vs. Metropolitan Life Ins. Co., 106 Minn., 112; 118 N. W., 365; Logan vs. New York L. Insurance Co., 107
Wash., 253; 181 Pac., 906; Metropolitan L. Insurance Co. vs.Willis, 37 Ind. App., 48; 76 N.E., 560; Gallop vs. Royal
Neighbors of America, 167 Mo. App., 85; 150 S.W., 1118; Metropolitan L. Insurance Co. vs. Betz, 44 Tex. Civ. App.,
557; 99 S.W., 1140; American Nat. Insurance Co. vs. Anderson, 179 S.W, 66; Security Mut. L. Ins. Co. vs. Calvert,
39 Tex. Civ. App., 382; 87 S.W., 889; Seaback vs. Metropolitan L. Ins. Co., 274 Ill., 516; 113 N.E., 862; Mutual L.
Insurance Co. vs. Willey, 133 Md., 665; 106 Atl., 163.) It is also held that it is immaterial that the condition of the
insurer's health has changed since his application was made, or that he was ignorant of his condition.
(Carmichael vs. Hancock Mut. Ins. Co., 116 App. Div., 291; 101 N. Y. Supp., 602; Metropolitan L. Ins. Co. vs. Howle,
62 Ohio, 204; 56 N.E. 908, Id., 68 Ohio, 614; 68 N.E., 4; Oliver vs. Matual L. Ins. Co., 97 Va., 134; 33 S.E., 536;
Packard vs. Metropolitan L. Ins. Co., 72 N.H., 1; 54 Atl., 287.)

This defense, as we now view it, is separate and distinct from the defense that misrepresentations were made in the
application for the policy, and our conclusion is that the failure of the appellant to give notice to the insured or
beneficiary, within a reasonable time after discovering that the insured had tuberculosis of the lungs, that it would
not be bound by the contract of insurance did not render unavailing the provision that unless the policy was delivered
while the insured was in good health the contract should not take effect. Under article 4948 of the statute, it was
necessary for the appellant, in order to avail itself of the defense based upon misrepresentations made in the
application to secure the policy, to show that it gave the insured or beneficiary notice within a reasonable time after
discovering the falsity of such representations that it would not be bound by the contract of insurance; but in order
to sustain the first-mentioned defense, the same having been asserted within the contestable period, it was
necessary only to show that the insured was not in good health when the policy was delivered. We do not agree with
the contention to the effect that by pleading and proving that the first premium was paid and received when the
application for the policy was made, which was a few days prior to the delivery of the policy, the appellee showed
an express waiver of the provision in the application making the assumption of any liability on the part of appellant
dependent upon the good health of the insured at the time the policy was delivered.

The provision, as before stated, is clear and unambiguous and susceptible of but one construction. By its plain and
unmistakable terms the insured agrees that all the statements and answers contained in the application are full, true,
and complete in every respect, and are offered to the insurance company as a consideration a contract of insurance,
which shall not take effect unless the policy shall have been actually delivered to him while he was in good health.
Nor shall it take effect unless the first premium shall have been actually during his life and paid while he was in good
health. In other words, if the insure was not in good health at the time the policy was delivered to him, or if he was
dead or in bad health when the first premium was paid, then, in either event, no obligation on the part of the insurance
company was assumed, and, of course, there was no contract of insurance. It was as much a condition precedent
to the taking effect of the contract that the first premium be paid during the life of the insured and while he was in
good health, as that the policy be delivered while he was in good health, and the fact that the premium was paid
when the application was made, and a few days in advance of the delivery of the policy, can furnish no basis for the
holding that thereby the other condition was abrogated or waived. We can see no good reason for saying that the
provision relative to good health at the time of the payment of the first premium of the policy was inserted to cover
cases "when the first premium was collected at a time subsequent to the issuance of the policy, either at or prior to
the delivery thereof." The provision under consideration is not one which the insurance company may avail itself of
to avoid an executed contract, or one which in the ordinary sense constitutes a warranty of the good health of the
 insured, but its effect was to prevent the taking effect of the contemplated contract, unless there was a compliance
with the conditions precedent named therein. Differently stated, with such a provision in the application for the policy
the contract is not a completed one, is not absolute but conditional, and in this case it is the fact of sound health,
etc., in the insured on the date of the delivery of the policy that determines the liability of the appellant.

In her motion for a rehearing the appellee asserts that our holding on the appellant's motion for rehearing, to the
effect that since the application for the policy sued on, which as a part of the contract of insurance, stipulated that
the policy should not take effect until the same was actually delivered to the insured and the first premium paid during
his life and while he was in good health, and since it was admitted by the appellee and conclusively shown that the
insured had tuberculosis of the lungs at the time the policy was delivered to him the first premium paid, the policy its
terms never became an obligation of the and the appellant, is different from or in conflict with the decision in the
cases of American National Life Insurance Co. vs. Rowell (175 S.W., 170); American National Insurance
Co. vs. Burnside (175 S. W., 169) ; American National Life Insurance Co. vs. Fawcett (162 S.W. 169); National Fire
Ins. Co. vs. Carter (199 S.W., 507); and Mecca Fire Insurance Co. vs. Stricker (136 S.W., 599)

The first three of the cases mentioned were decided by this court, the fourth by the Court of Civil Appeals for the
First District, and the fifth by the Court of Civil Appeals for the Third District. Our conclusion is that neither of these
cases is in conflict with the decision in the first case referred to and the present case, but it seems manifest, from a
careful examination and analysis of the opinion in that case, that the court did not have in mind the precise question
here involved, and did not there expressly pass on it. There it was urged that the trial court erred in over ruling the
insurance company's demurrers to Rowell's petition, because it was not alleged that the insured was in sound health
at the time the policy sued on was issued, and this court held that there was no error in overruling the demurrers,
since, if the insured was not, in fact, in sound health at that time, such fact was a matter of defense to be pleaded
by the company. It was further there held that while the defendant averred that the insured was not in sound health
when the policy was issued, such defense was not sufficiently pleaded to justify the isffitc of testimony to establish
it. The opinion also indicates that the insurance company in its pleadings and assignments of error treated the
provision in the policy, that no obligation was assumed by it unless on the date of issuance the insured was in good
health, as a representation or warranty, and that this court, discussing the matter as presented, after stating in
substance the provisions of article 4948 of the statute said that the failure to give the notice prescribed in that statute
absolutely barred the insurance company from defending in action on the policy because of alleged
misrepresentations. We also declared that said statute applied to covenants of warranty as well as to statements in
the application not made warranties by the contract, citing Mecca Fire Ins. Co. vs. Stricker, supra.

Moreover, the stipulation that the insurance contract shall produce no effect unless the payment of the first premium and the
delivery of the policy be made when the insured is in good health, is not in conflict with any provision of the Insurance Law
now in force, nor with any other law of a general character; neither is said stipulation contrary to morals or public order, and
therefore the same is valid and binding upon the parties. (Articles 1255, 1257 and 1258, Civil Code.)

The majority opinion states that the delivery of the policy by the agent after he has made use of the discretion conferred upon
him by the defendant to deliver or to withhold said policy, is binding upon the defendant and the latter cannot evade the
consequences thereof. This same legal question has been raised before various appellate courts of several states of the
Union, which made a distinction between agents whose only power consisted in soliciting insurance and in delivering policies
and those who, in addition to such power, were authorized to issue policies and accept risks on behalf of insurance companies.
In the first case the doctrine is uniform that the acts of agents with limited powers are not binding upon the insurance companies,
whereas in the second case the acts of the agents bind and prejudice the insurance companies represented by them. This
legal question has been extensively considered and squarely decided in the case American Bankers' Ins.
Co. vs. Thomas, supra, as follows:

Favoring liability, she contends that the knowledge of Martin of the ill health of the insured at the time the policies
were delivered was the knowledge of the company and waiver of the condition. Not so Assuming that Martin, was
the agent of the company at that time, with authority to deliver the policies, it failing to appear that he had anything
to do with the execution thereof or the acceptance of the risk, his knowledge was not that of the company. In
Merchants' & Planters' Ins. Co. vs. Marsh (34 Okla., 453; 125 Pac., 1100), we held that the knowledge of the agent
was the knowledge of the company only where the authority of such agent, derived from the company, was to solicit
applications and execute and deliver contracts of insurance as an alter ego of the company, and that it was only in
such case that he had power to waive the conditions of the policy. In that case the agent was, as here, a local or
soliciting agent, and there the policy sued on was, as here, a 'home office policy", or one issued direct by the
president and secretary of the company as distinguished from one issued by the local agent. There, in the syllabus,
we said:

"A local agent of an insurance company, whose only power is to solicit applications for insurance, and forward them
to the company for approval, when, if approved to the insured, has no power to waive any of the provision of the
policy so delivered.". . .
 Also in keeping with this rule is Des Moines Ins. Co. vs. Moon (33 Okla., 437; 126 Pac., 753). There we said:

". . . Where the local agent has the power to accept a risk and deliver a policy of insurance, and is advised and has
full knowledge, at the time of the delivery of the policy, that certain conditions of the policy, which may be waived,
are violated, such policy is binding upon the company, notwithstanding the fact that it contains a provision that none
of the company's officers or agents can waive any of its provisions, except in writing, in upon the policy. This case
(referring to Western National Ins. Co, Marsh, 34 Okla., 414; 125 Pac., 1049), unanimously concurred in by the
members of the courts, settles the rule in this jurisdiction as to contracts of insurance written after the administration
of the state: . . ."

Of course, if the local agent had not power, as here, to accept the risk, he had no power to waive the condition
precedent in the policy. Cases relied on by plaintiff which hold the contrary practically under the same state of facts
fail to draw this distinction, and seem to hold that the knowledge of a mere soliciting agent of the company of the ill
health of the insured at the time of the delivery of the policy is the knowledge of the company, and hence a delivery
with such knowledge constitutes a waiver of the condition under consideration. They are Roe vs. National Life, etc.
Co. (137 Iowa, 696,: 115 N.W., 500: 17 L.R.A. [N.S.], 1144); Connecticut, etc. Ins. Co. vs. Grogan ([Ky.] 52 S.W.,
959); N.W. Life Ins. Co. vs. Findley (29 Tex. Civ. App., 494; 68 S. W., 695) ; National Life Ins. Co. vs. Twiddel ([Ky.),
58 S.W,, 699) ; Home Forum Ben. Order vs. Varnado ([Tex. Civ. App.], 55 S.W., 364), and others. But the distinction
is referred to in Bell vs. Ins. Co. (166 Mo. App., 390; 149 S.W. 33). In that case the insured, who was plaintiff's
brother, died at Nogales, Ariz., as a result of injuries received while working as a telegraph lineman. On July 17,
1909, he made application to defendant for policy of life insurance, payable in event of his death to plaintiff. He made
it to defendants' soliciting agents at that place, and paid the first annual premium cash in hand. The application was
forwarded to defendant by mail, and duly received in St. Louis, Mo., on July 23, 1909. The policy was conditioned
the same as here. On July 27, the application was duly accepted, and the policy issued and was mailed August 4,
1909, to the soliciting agents for delivery to the insured. Upon its arrival on August 8, 1909, pursuant to instructions,
the policy was deposited for him in the safe of the soliciting agents, along with other private papers of the insured
kept there by him. Two days before that died on the night of August 11th. On August 6th, one of the soliciting agents
visited the insured and knew of his injury. The court said:

"There can be no doubt that it is competent for the parties to stipulate in the application for insurance, as here, that
the policy shall not be affective or binding until delivered to, and accepted by the insured while in good health and
the payment of the first premium is made. It is said that a contract of life insurance is not complete until the last act
necessary to the done by the insured, under the conditions of the contract after acceptance of the application by the
company, has been done by him, and the courts, therefore, in proper cases, sustain such agreements which operate
to postpone the taking effect of the policy until the delivery and premium payment while the insured is in good health.
(See I Bacon, Life Ins. [3d ed.], see. 272; Kilcullen vs. Met. Life Ins. Co., 108 Mo. App., 61; 82 S.W. 966;
Misselhorn vs. Mutual Reserve, etc., Life Ins. Co., 30 Mo. App., 589; McGregor vs. Met. Life Ins. Co. [143 Ky., 488],
136 S. W., 889.) But though such be true, the provision for thus suspending the policy, as an effective contract, until
the premium is paid and its delivery, while the insured is in good health, is for the benefit of the insurer, and obviously
may be waived by it or by it or by its agent possessing authority with respect to that matter. (See Rhodus vs. Kansas
City, etc., Ins. Co., 156 Mo. App. 281; 137 S.W., 907.) . . . But it is insisted that a mere soliciting agent, such as
Cummings, is without authority to waive the condition in the policy here relied upon, and, for the purpose of the case,
the proposition may be conceded as true.

Whereupon the court proceeded to consider whether the company, under the facts in that case, had waived the
condition in the policy relied upon. We are therefore of opinion that Martin was without authority to waive the condition
relied on, and that plaintiff cannot recover unless defendant is stopped to deny that liability attached by in the petition.
Joining issue on these allegations, defendant by answer in effect admitted accepting the premiums back to
representative of the assured and demanded a return of the policies, which was refused, and the for the reason, it
is urged, defendant is not estopped to assert that no liability attached under the policies.

It is clear, therefore, that the delivery of the policy by Mendoza does not bind the defendant, nor is the defendant estopped
from alleging its defense, for the simple reason that Mendoza was not an agent with authority to issue policies or to accept
risks in the name of his principle.

There is another ground upon which the majority opinion is based, namely, that the defendant waived the defense it now
invokes, by reason of the delivery of the policy by its invokes, by reason of the delivery of the policy by its agent. It is admitted
that if the delivery of the policy was due to fraud, legally there could have been no waiver. In view of the facts established and
admitted, there is no doubt, as to the existence of the fraud. A restatement of the facts will show such existence. It will be
remembered that before the delivery of the policy Mendoza asked Estrada whether the insured continued enjoying good health,
to which she answered that she thought he was in good health because she had had no information that he was sick. It will
likewise be noted that the information, far from being correct or truthful, was incorrect and misleading because, it reality, on
that occasion the insured was seriously ill from nephritis and uremia, almost in a moribund state. Estrada, as a representative
of the insured was not only bound to give a truthful information on the state of health of the insured, but it was her duty to find
out it his true state of health in order to give true and correct information. When she gave Mendoza as incorrect information
tending to create the impression that the insured was well when in fact he was seriously ill, there is no doubt that she committed
fraud and imparted a deceitful information to the defendant agent. It matters not that the fraud was involuntary and not
chargeable to Estrada ; the truth is that it existed and that by reason of such fraud the policy was delivered, and both the agent
and the defendant were misled into believing that the insured was enjoying good health. In case of Cable vs. United States
Life ins. co. (111 Fed. Rep., 19), the seventh circuit of the United States Circuit Courts of Appeals, in deciding the same
question of waiver, said:

It is, however, urged that sufficient information was disclosed by Lord to McCabe to put the company upon inquiry,
and that, with such notice, McCabe delivered the policy and received the premium; that McCabe was the agent of
the company, and notice to him was notice to the company, and the delivery of the policy constituted a waiver of the
condition and warrant. Upon the assumption that McCabe was such agent of the company, and that his action must
be treated as the action of the company, and that his question which we do not determine, — it becomes us to inquire
of the sufficiency of the notice given, and whether the act of the delivery of the policy involved a waiver of the warranty.

. . . The holder of the policy cannot be permitted to conceal from the company an important fact like that of the
assured being in extremes, and then to claim a waiver of the forfeiture created by the act which brought the insured
to that condition to permit such concealment and yet to give to the action of the company the same effect as though
no concealment were made, would tend to sanction fraud on the part of the policy holder, instead of protecting him
against the commission of one by the company. (Insurance Co. vs. Wolff, 95 U.S., 326, 333; 24 Law. ed., 387, 390.)

It cannot here be doubted that if the insurance company, or McCabe as its agent, had been informed of the fact,
within the personal knowledge of Lord, that Cable was seriously ill with acute pneumonia, the policy would not have
been delivered. It is difficult for us to believe that Lord, with that knowledge, could think he had a right to accept this
policy; but, whether so or not, the concealment of the fact was a fraud upon the company. The statement made was
deceptive and misleading, whatever were the intentions of Lord, and a court of equity ought not to permit the
completion of the wrong. Courts of equity cannot sustain an insurance upon the life of a dying man when the nature
of his malady and the seriousness of his illness are concealed from the insurer.

The same doctrine has been applied when there is an attempt to show that the waiver or estoppel arises from the payment of
the premium. In the case of Nyman vs. Manufacturers' & Merchants' Life Assn., supra, the court said:

It is further insisted by plaintiff that defendant, by accepting and retaining premiums or assessments from the insured,
is estopped from denying the validity of the certificate. The first premium was paid on the day the policy was delivered,
and the last one two days before the insured's death. There is no proof whatever that defendant or its agent knew,
before the the death of Mrs. Nyman, that, at the time the policy was delivered and the first premium paid, she was
not in good health. Receiving premiums subsequently, with knowledge that she was them ill, could have no
significance, if defendant was ignorant of the fact that the insured was in bad health when the policy was delivered
and the first premium paid. If Mrs. Nyman had been in good health when she received the policy and paid the the
first premium, defendant would not have been justified in refusing to accept premium if she afterwards from denying
liability in this case must be knowledge that the insured was not in good health when the policy was delivered.

The case presents another aspect, namely, the waiver made by the plaintiff of any and all benefits accruing from the policy,
which waiver expressly appears in document Exhibit A, known as "Accord, Satisfaction and Release".

The pertinent clauses of the document read as follows:

Whereas, the. Insular Life Assce. Co., Ltd., claims that the delivery of the said policy No. 47710 was not valid because
said delivery was made while the said Arturo Sindayen was not in good health;

Whereas, the undersigned, Fortunata Lucero Sindayen, widow of the said Arturo Sindayen, is named as beneficiary
in the said policy of life insurance; and

Whereas, it is the desire of the Insular Life Assce. Co., Ltd., and of the beneficiary, Fortunata Lucero Sindayen that
all differences, controversies and disputes that may grow out of the insurance of the said policy of life insurance and
out of the claims that the said beneficiary may make under the said policy of life insurance the settled and
compromised; and
 Whereas, the said Insular Life Assce. Co., Ltd. has at the date hereof paid Fortunato Lucero Sinadyen, the
beneficiary named in said policy of life insurance, the sum of Forty Pesos and Sixty Centavos (40.06), lawful money
of the Philippine Islands, the receipt whereof is hereby acknowledge;

Now, thereof, in consideration of the promises and the sum of Forty Pesos and Sixty Centavos (P40.06), said
Fortunata Lucero Sindayen, for herself, her heirs, executors, administrators and assigns, release and forever
discharge said Insular Life Assurance Co., Ltd., its successors, and assigns, of all claims, obligation or indebtedness
which she, as such beneficiary over had or now has, hereafter can, shall, or may have, for, upon, or by reason of
said policy of life insurance numbered 47710 upon the life of said Arturo Sindayen, the latter now deceased, or
arising therefrom or connected therewith in any matter.

There is no dispute that the aforesaid document was signed by the plaintiff. There was irregularity in its execution because it
was authenticated by the notary public in the absence of plaintiff. It is admitted that due to this irregularity the document is not
a public instrument, but there is no doubt that it is an authentic private instrument whose evidentiary value cannot be
disregarded. Its terms are binding upon the plaintiff, who understood the same notwithstanding her denial.

However, it it said that the defendant likewise waived the defense which gas hereinbefore been extensively considered,
because it failed to return the first premium collected, and this alleged failure is predicated upon the statement contained in
the penultimate paragraph of the instrument stating that the check for P40.06 was returned to the plaintiff in consideration of
her waiver of any claim whatsoever. A careful reading of the instrument will convince the mind that what was really meant is
that the delivery of the check was another consideration of the plaintiff's waiver, it being self-evident that said check constituted,
in effect, a refund of the first premium paid by insured and received by the insurer. It is ridiculous to think that such a negligible
amount has been the only consideration of the plaintiff's waiver of any right or benefit accurring to her from the policy. A careful
perusal of the instrument will show that the real consideration of the plaintiff's waiver was the unenforceability of the policy due
to her husband's illness and the mutual desire of the plaintiff of the insurer to settle amicably the cases instead of resorting to
courts.

In conclusion it is my opinion: (1) That the policy has not produced any effect from which the plaintiff may derive any right, and
(2) that she has expressly waived any all rights accurring from the policy; and for these reasons I dissent from the majority
opinion.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 112329 January 28, 2000

VIRGINIA A. PEREZ, petitioner,

vs.
COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION, respondents.

YNARES-SANTIAGO, J.:

A contract of insurance, like all other contracts, must be assented to by both parties, either in person or through their agents
and so long as an application for insurance has not been either accepted or rejected, it is merely a proposal or an offer to
make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in CA-G.R. CV 35529
entitled, "BF Lifeman Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez. Defendant-Appellee," which
declared Insurance Policy 056300 for P50,000.00 issued by private respondent corporation in favor of the deceased Primitivo
B. Perez, null and void and rescinded, thereby reversing the decision rendered by the Regional Trial Court of Manila, Branch
XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. Sometime in
October 1987, an agent of the insurance corporation, Rodolfo Lalog, visited Perez in Guinayangan, Quezon and convinced
him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the
premium were paid annually.1âwphi1.nêt

On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional insurance coverage of P50,000.00.
On the same day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated
the amount received was a "deposit."1 Unfortunately, Lalog lost the application form accomplished by Perez and so on October
28, 1987, he asked the latter to fill up another application form. 2 On November 1, 1987, Perez was made to undergo the
required medical examination, which he passed.3

Pursuant to the established procedure of the company, Lalog forwarded the application for additional insurance of Perez,
together with all its supporting papers, to the office of BF Lifeman Insurance Corporation at Gumaca, Quezon which office was
supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a storm. At the time of his
death, his application papers for the additional insurance of P50,000.00 were still with the Gumaca office. Lalog testified that
when he went to follow up the papers, he found them still in the Gumaca office and so he personally brought the papers to the
Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in
Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and
issued the corresponding policy for the P50,000.00 on December 2, 1987. 4

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the deceased. She was paid
P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company
refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00
in view of a triple indemnity rider on the insurance policy. In its letter' of January 29, 1988 to Virginia A. Perez, the insurance
company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez.
Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint against Virginia A. Perez
seeking the rescission and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract
and all the elements of a valid contract are present. She then filed a counterclaim against private respondent for the collection
of P150,000.00 as actual damages, P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and P10,000.00 as
expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant Virginia A. Perez,
ordering the plaintiff BF Lifeman Insurance Corporation to pay to her the face value of BF Lifeman Insurance Policy
No. 056300, plus double indemnity under the SARDI or in the total amount of P150,000.00 (any refund made and/or
premium deficiency to be deducted therefrom).

SO ORDERED.5

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00 had been fully paid and
even if the sum of P2,075.00 were to be considered merely as partial payment, the same does not affect the validity of the
policy. The trial court further stated that the deceased had fully complied with the requirements of the insurance company. He
paid, signed the application form and passed the medical examination. He should not be made to suffer the subsequent delay
in the transmittal of his application form to private respondent's head office since these were no longer within his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance contract for P50,000.00 could
not have been perfected since at the time that the policy was issued, Primitivo was already dead. 6 Citing the provision in the
application form signed by Primitivo which states that:

. . . there shall be no contract of insurance unless and until a policy is issued on this application and that the policy
shall not take effect until the first premium has been paid and the policy has been delivered to and accepted by
me/us in person while I/we, am/are in good health

the Court of Appeals held that the contract of insurance had to be assented to by both parties and so long as the application
for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract.

Petitioner's motion for reconsideration having been denied by respondent court, the instant petition for certiorari was filed on
the ground that there was a consummated contract of insurance between the deceased and BF Lifeman Insurance Corporation
and that the condition that the policy issued by the corporation be delivered and received by the applicant in good health, is
potestative, being dependent upon the will of the insurance company, and is therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a
specified subject by specified perils.7 A contract, on the other hand, is a meeting of the minds between two persons whereby
one binds himself, with respect to the other to give something or to render some service.8 Under Article 1318 of the Civil Code,
there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his
application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the
contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the
following requisites stated in the application form:
 there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy
shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person
while I/We, am/are in good health.9

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the
application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding
policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance
coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November
27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept
inasmuch as the applicant at the time was already dead. In the case of Enriquez vs.Sun Life Assurance Co. of
Canada,10 recovery on the life insurance of the deceased was disallowed on the ground that the contract for annuity was not
perfected since it had not been proved satisfactorily that the acceptance of the application ever reached the knowledge of the
applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been delivered to and accepted
by the proposed insured in good health is potestative being dependent upon the will of the corporation and is therefore null
and void.

We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is considered void. Article
1182 of the New Civil Code states: When the fulfillment of the condition depends upon the sole will the debtor, the conditional
obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the perfection of the contract of
insurance:

(a) a policy must have been issued;

(b) the premiums paid; and

(c) the policy must have been delivered to and accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant while he
is in good health can hardly be considered as a potestative or facultative condition. On the contrary, the health of the applicant
at the time of the delivery of the policy is beyond the control or will of the insurance company. Rather, the condition is a
suspensive one whereby the acquisition of rights depends upon the happening of an event which constitutes the condition. In
this case, the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good
health. There was non-fulfillment of the condition, however, inasmuch as the applicant was already dead at the time the policy
was issued. Hence, the non-fulfillment of the condition resulted in the non-perfection of the contract.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either in person or by their
agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of application, must have been a completed contract, one that
leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in agreement.11

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It should be noted that an
application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. Delay in acting on the
application does not constitute acceptance even though the insured has forwarded his first premium with his application. The
corporation may not be penalized for the delay in the processing of the application papers. Moreover, while it may have taken
some time for the application papers to reach the main office, in the case at bar, the same was acted upon less than a week
after it was received. The processing of applications by respondent corporation normally takes two to three weeks, the longest
being a month.12 In this case, however, the requisite medical examination was undergone by the deceased on November 1,
1987; the application papers were forwarded to the head office on November 27, 1987; and the policy was issued on December
2, 1987. Under these circumstances, we hold that the delay could not be deemed unreasonable so as to constitute gross
negligence.
A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy 056300 for P50,000.00 null and
void and rescinded. The Court of Appeals corrected this in its Resolution of the motion for reconsideration filed by petitioner,
thus:

Anent the appearance of the word "rescinded" in the dispositive portion of the decision, to which defendant-appellee
attaches undue significance and makes capital of, it is clear that the use of the words "and rescinded" is, as it is
hereby declared, a superfluity. It is apparent from the context of the decision that the insurance policy in question
was found null and void, and did not have to be "rescinded". 13

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no contract at all and hence
could not be the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED insofar as it declared
Insurance Policy No. 056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of no force and effect and hence
null and void. No costs.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA
LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE COMPANY, LIMITED, respondents.

Mariano V. Ampil, Jr. for petitioners.

Ramon S. Caguiao for private respondent.

DAVIDE, JR., J.:

This is an appeal by certiorari to review and set aside the Decision of the public respondent Court of Appeals in CA-G.R. SP
No. 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.

12
On 10 October 1991, the public respondent rendered a decision, 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 1986 18and 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.

Cruz, Bellosillo and Quiason, JJ., concur.

Griño-Aquino, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-48563 May 25, 1979

VICENTE E. TANG, petitioner,

vs.
HON. COURT OF APPEALS and PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.

Ambrosio D. Go for petitioner.

Ferry, De la Rosa, Deligero Salonga & Associates for private respondent.

ABAD SANTOS, J.:

This is a petition to review on certiorari of the decision of the Court of Appeals (CA-G.R. No. 55407-R, June 8, 1978) which
affirmed the decision of the Court of First Instance of Manila in Civil Case No. 90062 wherein the petitioner herein was the
plaintiff and Philippine American Life Insurance Co. the herein respondent was the defendant. The action was for the
enforcement of two insurance policies that had been issued by the defendant company under the following circumstances.

On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate who spoke only Chinese, applied for an
insurance on her life for P60,000 with the respondent Company. The application consisted of two parts, both in the English
language. The second part of her application dealt with her state of health and because her answers indicated that she was
healthy, the Company issued her Policy No. 0690397, effective October 23, 1965, with her nephew Vicente E. Tang, herein
Petitioner, as her beneficiary,

On November 15, 1965, Lee See Guat again applied with the respondent Company for an additional insurance on her life for
P40,000. Considering that her first application had just been approved, no further medical examination was made but she was
required to accomplish and submit Part I of the application which reads: "I/WE HEREBY DECLARE AND AGREE that all
questions, statements answers contained herein, as well as those made to or to be made to the Medical Examiner in Part II
are full, complete and true and bind all parties in interest under the policy herein applied for; that there shall be no contract of
insurance unless a policy is issued on this application and the fun first premium thereon, according to the mode of payment
specified in answer to question 4D above, actually paid during the lifetime and good health of the Proposed Insured." Moreover,
her answers in Part II of her previous application were used in appraising her insurability for the second insurance. On
November 28, 1965, Policy No. 695632 was issued to Lee See Guat with the same Vicente E. Tang as her beneficiary.

On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies, Vicente E. Tang claimed
for their face value in the amount of P100,000 which the insurance company refused to pay on the ground that the insured
was guilty of concealment and misrepresentation at the time she applied for the two policies. Hence, the filing of Civil Case
No. 90062 in the Court of First Instance of Manila which dismissed the claim because of the concealment practised by the
insured in violation of the Insurance Law.

On appeal, the Court of Appeals, affirmed the decision. In its decision, the Court of Appeals stated, inter alia: "There is no
doubt that she deliberately concealed material facts about her physical condition and history and/or conspired with whoever
assisted her in relaying false information to the medical examiner, assuming that the examiner could not communicate directly
with her."

The issue in this appeal is the application of Art. 1332 of the Civil Code which stipulates:

Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by
him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.
According to the Code Commission: "This rule is especially necessary in the Philippines where unfortunately there is still a
fairly large number of illiterates, and where documents are usually drawn up in English or Spanish." (Report of the Code
Commission, p. 136.) Art. 1332 supplements Art. 24 of the Civil Code which provides that " In all contractual, property or other
relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the court must be vigilant for his protection.

It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Chinese, she could not be held
guilty of concealment of her health history because the applications for insurance were in English and the insurer has not
proved that the terms thereof had been fully explained to her.

It should be noted that under Art. 1332 above quoted, the obligation to show that the terms of the contract had been fully
explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged,
devolves on the party seeking to enforce it. Here the insurance company is not seeking to enforce the contracts; on the
contrary, it is seeking to avoid their performance. It is petitioner who is seeking to enforce them even as fraud or mistake is
not alleged. Accordingly, respondent company was under no obligation to prove that the terms of the insurance contracts were
fully explained to the other party. Even if we were to say that the insurer is the one seeking the performance of the contracts
by avoiding paying the claim, it has to be noted as above stated that there has been no imputation of mistake or fraud by the
illiterate insured whose personality is represented by her beneficiary the petitioner herein. In sum, Art. 1332 is inapplicable to
the case at bar. Considering the findings of both the CFI and Court of Appeals that the insured was guilty of concealment as
to her state of health, we have to affirm.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special pronouncement as to costs.

SO ORDERED.

Concepcion, Jr., and Santos, JJ., concur.

Aquino, J., concurs in the result.

Separate Opinions

ANTONIO, J., concurring:

I concur.

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

Certainly, petitioner cannot assume inconsistent positions by attempting to enforce the contract of insurance for the purpose
of collecting the proceeds of the policy and at the same time nullify the contract by claiming that he executed the same thru
fraud or mistake.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18529 February 26, 1965

FRANCISCO G. ALEJA, FELICITACION GAMBOA-ALEJA and DOMINADOR ALEJA, plaintiffs-appellants,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.

Restituto L. Joson for plaintiffs-appellants.

Bartolome S. Palma for defendant-appellee.

BARRERA, J.:

This is an appeal by Francisco G. Aleja, et al., from the decision of the Court of First Instance of Nueva Ecija (in Civil Case
No. 3335) dismissing their complaint against the Government Service Insurance System (GSIS) and denying their claim to the
proceeds of the insurance policy No. 310973 issued to the late Rosauro G. Aleja, on the ground that the deceased was not
yet covered by insurance at the time of his death.

As found by the lower court, the deceased Rosauro G. Aleja was appointed as temporary classroom teacher in the Bureau of
Public Schools, Division of Nueva Ecija, on July 8, 1958. Thereafter, a compulsory term insurance policy, No. 310973, was
issued in his name, said policy to take effect on February 1, 1959. The corresponding premium therefor was deducted for the
first time from his salary on January 31, 1959. However, two days before that or on January 29, 1959, while guarding the rice
stack in front of their house, Rosauro Aleja died of a gunshot wound inflicted by his own gun. Plaintiffs, as beneficiaries named
in the policy, filed a claim with the GSIS to collect the proceeds of the said policy, but the same was denied allegedly because
at the time of Aleja's death, the policy was not yet effective and the latter was, therefore, not covered by insurance. Hence,
the institution of this case and the consequent promulgation of the decision by the lower court which is the subject of the
present appeal.

In denying plaintiffs-appellants' claim, the GSIS contends that although Aleja became a permanent employee and entitled to
membership in the System 6 months after his original appointment, or on January 8, 1959, yet as specified in the policy issued
to him, the same shall become effective only on February 1, 1959. And this latter date was fixed in accordance with the
provisions of Commonwealth Act 186, as amended by Republic Act 660, which read:

SEC. 4. Scope of application of System.— (a) Membership to the System shall be compulsory upon all regularly and
permanently appointed employees, including those whose tenure of office is fixed or limited by law; upon all teachers
except only those who are substitutes; ... .

SEC. 8. (a) Compulsory membership insurance.— An employee whose membership in the System is compulsory
shall be automatically insured on the first day of the seventh calendar month following the month he was appointed
or on the first day of the sixth calendar month if the date of his appointment is the first day of the month: Provided,
That his medical examination, if required, has been approved by the System.

It is not controverted that the deceased had rendered services to the government for 6 months and 21 days before his death;
that he was insured and in fact a policy was already issued in his favor at the time of his death; that the death fixed for the
effectivity of said policy was made pursuant to the aforequoted provisions of the GSIS Charter. Appellants, however, maintain
that section 8 of Commonwealth Act 186, insofar as it fixes the date of compulsory membership therein, is absurd and
discriminatory, in that, whereas those whose appointments are dated on the first day of the month become covered by
insurance on the first day of the sixth month following their appointment, those who were appointed on other dates become
insured only on the first day of the seventh calendar month from their original appointment. In other words, if an employee is
appointed on January 1, he will be covered by insurance on June 1, whereas one who gets appointed in January 2 becomes
insured only on July 1. This arrangement, appellants claim, was made only to facilitate office transactions or for office
procedure, and should not be construed to defeat the purpose for which the System was established, i.e., to promote the
welfare of the employees. It is, therefore, urged that the coverage of compulsory insurance should commence on the date
when the employee becomes entitled to membership in the System, or upon completion of six months' service.

It may be admitted that as thus worded, the disputed provision makes a distinction, in the matter of effectivity of their insurance
coverage, between those appointed to the service on the first day of the month and those who receive their appointments on
any other date. But classification or class legislation, assuming this to be one, does not ipso facto make a statutory provision
invalid. Classification will not constitute an infringement of the individual's right to constitutional guarantees of equality if it is
not unreasonable, arbitrary or capricious. To be reasonable, the classification must be based on substantial distinctions which
make real differences; must be germane to the purposes of the law; must not be limited to existing conditions only, and must
apply equally to each member of the class, under similar conditions. 1

In the instant case, it may be true that the disputed provision must have been incorporated in the law to promote efficiency
and convenience in office procedure of the System. Taking into account the volume of business that the System handles, the
providing of this measure which ultimately may redound to the benefit of the members in the form of efficient and prompt
service, cannot be considered capricious or arbitrary.

Furthermore, it appears that the policy issued and accepted by Aleja during his lifetime specifically provides that the effective
date of the insurance contract is February 1, 1959. Additionally, it is not denied that the first premium on said insurance contract
was deducted from Aleja's salary only on January 31, 1959 or after his death. Clearly, at the time of his said death, there was
no existing contract between him and the appellee GSIS, there being no consideration for the risk sought to be enforced
against the insurance system. The offer of the latter to refund the amount collected after Aleja's death, is proper.

WHEREFORE, the decision of the lower court appealed from is hereby modified in the sense that the defendant-appellee shall
return to the plaintiffs the amount deducted from the deceased's salary in the form of premium. No costs. So ordered.

Bengzon, C.J., Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo, J., took no part.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.

Gutierrez, Cortes & Gonzales for petitioners.

Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-
20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured
failed to pay his premiums.

On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even
proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the
premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's
branch manager.

These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-
insured before
Branch 40 RTC, Dagupan City against respondent insurance company.

There are two issues for resolution in this case:

(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages?

(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an
effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom?

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City,
bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident
insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under
the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the
total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of
P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon
payment of this account.

If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is
(sic) not received by you within 7 days please notify us.

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured
for the amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters:

Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not
received by you within 7 days, please notify us. 4

On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-
insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception
dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax"
to the account of the insured.

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company,
and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake
but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under
the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or
that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned
within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages.

On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00
he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back
of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7

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

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

The letter was personally delivered by Carlito Ang to Areola on

August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach
of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure
of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that,
by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating
the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under
the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be
held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation.

The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company
to pay the former the following:

a) P1,703.65 as actual damages;

b) P200,000.00 as moral damages; and

c) P50,000.00 as exemplary damages;

2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
 3. To pay the costs.

In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject
insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact
of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's
inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was
never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company
would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured.
Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling
petitioner-insured to an award of the damages prayed for.

This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling
subject insurance policy.

After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the
latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy.
According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e.,
absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals,
is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly.
On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or
willfully to inflict a wrong on petitioner-insured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-
insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December
17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17, 1985; and (d)
respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added
that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign.

Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition
for review on certiorari anchored on these arguments:

Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible
error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was
admittedly caused by the fraudulent acts and bad faith of its own officers.

II

Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling
that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and
evident bad faith.

III

Respondent Court of Appeals committed a reversible error in not finding that even without considering the
fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the
insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad
faith, because among others, it was Mr. Malapit — the person who committed the fraud — who sent and
signed the notice of cancellation.

IV

Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision
of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants.

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch
office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy.
Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding
his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such
fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial
corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is
therefore not separate and distinct from that of respondent-insurance company, contrary to the view held by the Court of
Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the
non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could
not possibly absolve respondent insurance company from liability, there being an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the
same.

Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-
insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause
of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-
insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists
and the consequent award of damages ordered by the lower court in unsustainable.

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-
insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance
company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The
facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private
respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he
represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his
authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law,
particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within
the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no
exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due
to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not
free the same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling
in McIntosh v. Dakota Trust Co.: 14

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings
of the officers in their representative capacity but not for acts outside the scope of their authority. A bank
holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that
gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can
not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance
creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause
and in which each party is both a debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. 15

Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common
cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance
company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of
premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second paragraph of Article
1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in
case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However,
said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the
obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to
fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support
in our laws on obligations and contracts.

The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the
court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent
insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of
petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance
policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and
no substantial injury or actual damages whatsoever have been or can be shown. 18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R.
No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered
on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to
P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the
damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date
of filing of complaint until final payment thereof.

SO ORDERED.

Feliciano, Melo and Vitug, JJ., concur.

Bidin, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-1669 August 31, 1950

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-1670 August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

Mariano Lozada for appellant Constantino.

Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.

BENGZON, J.:

These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether the beneficiary
in a life insurance policy may recover the amount thereof although the insured died after repeatedly failing to pay the stipulated
premiums, such failure having been caused by the last war in the Pacific.

The facts are these:

First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a
foreign corporation incorporated under the laws of Delaware, U.S.A.), issued on September 27, 1941, its Policy No. 93912 for
P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the period up
to September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained
these stipulations, among others:

This POLICY OF INSURANCE is issued in consideration of the written and printed application here for a copy of
which is attached hereto and is hereby made a part hereof made a part hereof, and of the payment in advance during
the lifetime and good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos
Philippine currency1 and of the payment of a like amount upon each twenty-seventh day of September
hereafter during the term of Twenty years or until the prior death of the Insured. (Emphasis supplied.)

xxx xxx xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy
to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31
days.)

After that first payment, no further premiums were paid. The insured died on September 22, 1944.

It is admitted that the defendant, being an American corporation , had to close its branch office in Manila by reason of the
Japanese occupation, i.e. from January 2, 1942, until the year 1945.

Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year
Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for
the sum of P3,000. The annual premium stipulated in the policy was regularly paid from August 1, 1938, up to and including
September 30, 1941. Effective August 1, 1941, the mode of payment of premiums was changed from annual to quarterly, so
that quarterly premiums were paid, the last having been delivered on November 18, 1941, said payment covering the period
up to January 31, 1942. No further payments were handed to the insurer. Upon the Japanese occupation, the insured and the
insurer became separated by the lines of war, and it was impossible and illegal for them to deal with each other. Because the
insured had borrowed on the policy an mount of P234.00 in January, 1941, the cash surrender value of the policy was sufficient
to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina
Peralta is his beneficiary. Her demand for payment met with defendant's refusal, grounded on non-payment of the premiums.

The policy provides in part:

This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of
which is attached hereto and is hereby made apart hereof, and of the payment in advance during the life time and
good health of the Insured of the annual premium of Two hundred and 43/100 pesos Philippine currency and of the
payment of a like amount upon each first day of August hereafter during the term of Twenty years or until the prior
death of either of the Insured. (Emphasis supplied.)

xxx xxx xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy
to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of days.) . . .

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for
premiums in arrears. They allege that non-payment of the premiums was caused by the closing of defendant's offices in Manila
during the Japanese occupation and the impossible circumstances created by war.

Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the contract
of the parties and the law applicable to the situation.

The lower court absolved the defendant. Hence this appeal.

The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive and
exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it affects
the interest of thousands of policy-holders and the obligations of many insurance companies operating in this country.

Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2Act No.
2427 was largely copied from the Civil Code of California.3 And this court has heretofore announced its intention to supplement
the statutory laws with general principles prevailing on the subject in the United State. 4

In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity
upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the
time of the making of the contract as they may deem wise and necessary. The rate of premium is measured by the character
of the risk assumed. The insurance company, for a comparatively small consideration, undertakes to guarantee the insured
against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case
of loss, the insurer, therefore, may justly insists upon a fulfillment of these terms. If the insured cannot bring himself within the
conditions of the policy, he is not entitled for the loss. The terms of the policy constitute the measure of the insurer's liability,
and in order to recover the insured must show himself within those terms; and if it appears that the contract has been
terminated by a violation, on the part of the insured, of its conditions, then there can be no right of recovery. The compliance
of the insured with the terms of the contract is a condition precedent to the right of recovery."

Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments are
due in advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it would seem
that pursuant to the express terms of the policy, non-payment of premium produces its avoidance.

The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the parties and should
be enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It tends to bring
the law itself into disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the
operation of a clear, reasonable and material obligation of the contract. Mack vs.Rochester German Ins. Co., 106
N.Y., 560, 564. (Young vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not
been paid within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day
period of grace, ipso facto caused the policy to lapse. This goes to show that although we take the view that insurance policies
should be conserved5 and should not lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.

Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an
insurance contract according to its meaning. (45 C.J.S., p. 150.)

Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it should
be excused and should not cause the forfeiture of the policy.

Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of premiums
occasioned by war, the American cases may be divided into three groups, according as they support the so-called Connecticut
Rule, the New York Rule, or the United States Rule.

The first holds the view that "there are two elements in the consideration for which the annual premium is paid — First, the
mere protection for the year, and second, the privilege of renewing the contract for each succeeding year by paying the
premium for that year at the time agreed upon. According to this view of the contract, the payment of premiums is a condition
precedent, the non-performance would be illegal necessarily defeats the right to renew the contract."

The second rule, apparently followed by the greater number of decisions, hold that "war between states in which the parties
reside merely suspends the contracts of the life insurance, and that, upon tender of all premiums due by the insured or his
representatives after the war has terminated, the contract revives and becomes fully operative."

The United States rule declares that the contract is not merely suspended, but is abrogated by reason of non-payments is
peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve
value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had
been in force. This rule was announced in the well-known Statham6 case which, in the opinion of Professor Vance, is the
correct rule.7

The appellants and some amici curiae contend that the New York rule should be applied here. The appellee and other amici
curiae contend that the United States doctrine is the orthodox view.

We have read and re-read the principal cases upholding the different theories. Besides the respect and high regard we have
always entertained for decisions of the Supreme Court of the United States, we cannot resist the conviction that the reasons
expounded in its decision of the Statham case are logically and judicially sound. Like the instant case, the policy involved in
the Statham decision specifies that non-payment on time shall cause the policy to cease and determine. Reasoning out that
punctual payments were essential, the court said:

. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the calculations
of the insurance company are based on the hypothesis of prompt payments. They not only calculate on the receipt
of the premiums when due, but on compounding interest upon them. It is on this basis that they are enabled to offer
assurance at the favorable rates they do. Forfeiture for non-payment is an necessary means of protecting themselves
from embarrassment. Unless it were enforceable, the business would be thrown into confusion. It is like the forfeiture
of shares in mining enterprises, and all other hazardous undertakings. There must be power to cut-off unprofitable
members, or the success of the whole scheme is endangered. The insured parties are associates in a great scheme.
This associated relation exists whether the company be a mutual one or not. Each is interested in the engagements
of all; for out of the co-existence of many risks arises the law of average, which underlies the whole business. An
essential feature of this scheme is the mathematical calculations referred to, on which the premiums and amounts
assured are based. And these calculations, again, are based on the assumption of average mortality, and of prompt
payments and compound interest thereon. Delinquency cannot be tolerated nor redeemed, except at the option of
the company. This has always been the understanding and the practice in this department of business. Some
companies, it is true, accord a grace of thirty days, or other fixed period, within which the premium in arrear may be
paid, on certain conditions of continued good health, etc. But this is a matter of stipulation, or of discretion, on the
part of the particular company. When no stipulation exists, it is the general understanding that time is material, and
that the forfeiture is absolute if the premium be not paid. The extraordinary and even desperate efforts sometimes
made, when an insured person is in extremes to meet a premium coming due, demonstrates the common view of
this matter.

The case, therefore, is one in which time is material and of the essence and of the essence of the contract. Non-
payment at the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts
 cannot with safety vary the stipulation of the parties by introducing equities for the relief of the insured against their
own negligence.

In another part of the decision, the United States Supreme Court considers and rejects what is, in effect, the New York theory
in the following words and phrases:

The truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of
equity and justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.

In the case of Life insurance, besides the materiality of time in the performance of the contract, another strong reason
exists why the policy should not be revived. The parties do not stand on equal ground in reference to such a revival.
It would operate most unjustly against the company. The business of insurance is founded on the law of average;
that of life insurance eminently so. The average rate of mortality is the basis on which it rests. By spreading their
risks over a large number of cases, the companies calculate on this average with reasonable certainty and safety.
Anything that interferes with it deranges the security of the business. If every policy lapsed by reason of the war
should be revived, and all the back premiums should be paid, the companies would have the benefit of this average
amount of risk. But the good risks are never heard from; only the bar are sought to be revived, where the person
insured is either dead or dying. Those in health can get the new policies cheaper than to pay arrearages on the old.
To enforce a revival of the bad cases, whilst the company necessarily lose the cases which are desirable, would be
manifestly unjust. An insured person, as before stated, does not stand isolated and alone. His case is connected
with and co-related to the cases of all others insured by the same company. The nature of the business, as a whole,
must be looked at to understand the general equities of the parties.

The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as alleged, the
consequences of war should not prejudice the insured, neither should they bear down on the insurer.

Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured to pay premiums was
excused during the war owing to impossibility of performance, and that consequently no unfavorable consequences should
follow from such failure.

The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the first, is not
an obligation of the insured, so much so that it is not a debt enforceable by action of the insurer.

Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which the insurer
can maintain an action against insured; nor is its settlement governed by the strict rule controlling payments of debts.
So, the court in a Kentucky case declares, in the opinion, that it is not a debt. . . . The fact that it is payable annually
or semi-annually, or at any other stipulated time, does not of itself constitute a promise to pay, either express or
implied. In case of non-payment the policy is forfeited, except so far as the forfeiture may be saved by agreement,
by waiver, estoppel, or by statute. The payment of the premium is entirely optional, while a debt may be enforced at
law, and the fact that the premium is agreed to be paid is without force, in the absence of an unqualified and absolute
agreement to pay a specified sum at some certain time. In the ordinary policy there is no promise to pay, but it is
optional with the insured whether he will continue the policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p.
1996.)

It is well settled that a contract of insurance is sui generis. While the insured by an observance of the conditions may
hold the insurer to his contract, the latter has not the power or right to compel the insured to maintain the contract
relation with it longer than he chooses. Whether the insured will continue it or not is optional with him. There being
no obligation to pay for the premium, they did not constitute a debt. (Noble vs. Southern States M.D. Ins. Co., 157
Ky., 46; 162 S.W., 528.) (Emphasis ours.)

It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies
contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated
uninterrupted operation of the contract even if armed conflict should ensue.

For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the Statham decision, it
could now be relaxed and even disregarded. It is stated "that the relaxation of rules relating to insurance is in direct proportion
to the growth of the business. If there were only 100 men, for example, insured by a Company or a mutual Association, the
death of one will distribute the insurance proceeds among the remaining 99 policy-holders. Because the loss which each
survivor will bear will be relatively great, death from certain agreed or specified causes may be deemed not a compensable
loss. But if the policy-holders of the Company or Association should be 1,000,000 individuals, it is clear that the death of one
of them will not seriously prejudice each one of the 999,999 surviving insured. The loss to be borne by each individual will be
relatively small."

The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be considered will not be
the death of one but the death of ten thousand, since the proportion of 1 to 100 should be maintained. And certainly such
losses for 10,000 deaths will not be "relatively small."

After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a vital defense of
insurance companies that since the very beginning, said Act no. 2427 expressly preserved it, by providing that after the policy
shall have been in force for two years, it shall become incontestable (i.e. the insurer shall have no defense) except for
fraud, non-payment of premiums, and military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress
recently amended this section (Rep. Act No. 171), the defense of fraud was eliminated, while the defense of nonpayment of
premiums was preserved. Thus the fundamental character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof, was specifically recognized.

In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a variation of
the Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no reserve value, and that the
equitable values of the second had been practically returned to the insured in the form of loan and advance for premium.

For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies in question, is hereby
affirmed, without costs.

Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-602 March 31, 1947

ADELAIDA OCAMPO VDA. DE GOMEZ, demandante-apelante,

vs.
THE GOVERNMENT INSURANCE BOARD, demandado-apelado.

Sres. Artemio C. Macalino y Rodrigo G. Pañgan en representacion de la apelante.

Abogado Auxiliar de Corporaciones D. Federico C. Alikpala en representacion del apelado.

BRIONES, J.:

Andres A. Gomez estuvo sirviendo en el gobierno provincial de la Pampanga como tasador provincial delegado por un periodo
continuo de 25 años, desde el 8 de Agosto de 1914 en que fue nombrado por primera vez, hasta el 28 de Febrero de 1938
en que fallecio. Segun el convenio dehechos, no cabe duda de que su nombramiento era de empleado temporero
— temporary — al tenor de la fraseologia legal. No era elegible en el servicio civil: esto explica porque durante tan largo
tiempo de servicio no se le habia podido expedir un nombramiento regular y permanente. El sueldo que percibia al morir era
de P90 al mes.

Tampoco hay controversia entre las partes, bajo el convenio, acerca de los siguientes hechos: (a) que el gobierno provincial
de la Pampanga, para aprovecharse delos beneficios de la ley del Commonwealth No. 186, aprobo el 8 de Agosto, 1937, por
medio de su junta provincial, una resolucion en que significaba su intencion de afiliarse al Sistema de Seguro de Vida del
Gobierno nacional llamado "Government Service Insurance System"; (b) que despues de recibir dicha resolucion, la junta que
regenta y administra dicho Sistema de Seguro la aprobo debidamente, haciendo efectiva la afiliacion desde el 28 de Febrero,
1938; (c) que Andres A. Gomez, antes de sumuerte, juntamente con otros empleados del gobierno provincial de la Pampanga
habia llenado un formulario del referido Sistema de Seguro llamado "Information for membership insurance," en el que
nombraba a suesposa Adelaida Ocampo como beneficiaria, enviando luego el formulario asi llenado al "Government Service
Insurance System" que lo recibio y guardo en su archivo; (d) que el 28 de Febrero, 1938, el tesorero provincia lde la Pampanga,
como pagador oficial, dedujo del sueldode Gomez correspondiente a la segunda mitad de dichomes la cantidad de P2.70
como su parte en la primera prima, aportando la provincia una suma igual como su contribucion; (e) que la prima fue enviada
a la oficina del "Government Service Insurance System" en Manila, y dicha oficina la recibio el 10 de marzo, 1938, librando el
correspondiente recibo al gobierno provincial de la Pampanga; (f) que el 7 de Marzo, 1938, el tesorero provincial de la
Pampanga envio a la oficina del "Government Service Insurance System," en nombre de la viuda de Andres Gomez, Adelaida
Ocampo, una reclamacion por el importe dela poliza de seguro en la suma de P1,052, pero la juntadirectiva del Sistema la
rechazo por el fundamento de queAndres Gomez era solo un empleado temporero — temporary — bajo las reglas del Servicio
Civil, y, por tanto, no era asegurable cuando murio el 28 de Febrero, 1938; (g) finalmente, que la oficina del "Government
Service Insurance System" devolvio al gobierno provincial de la Pampanga el importe de la prima pagada, o sea la cantidad
de P5.40, por medio de la libranza de la Tesoreria No. 58162.

La viuda interpuso la presente accion ante el Juzgado de Primera Instancia de la Pampanga contra la Junta Directiva del
"Government Service Insurance System," pidiendoel cobro del importe de la poliza. El Juzgado, estimandola defensa de que
Andres Gomez era solo un temporero, sinhaberse cualificado en el servicio civil mediante el correspondiente examen para
merecer un nombramiento como empleado regular y permanente, y, por tanto, sin derechoa ser asegurado automaticamente
bajo la ley que rige el Sistema, dicto sentencia contra la demandante, sobrese y endola demanda. De ahi la presente apelacion.

Establecido y convenido que el nombramiento de Gomez era de temporero, la cuestion que tenemos que resolver essi al
tiempo de su muerte tenia tales cualificaciones quepodia ser considerado como empleado regular y permanente para los
efectos del cobro del importe de su poliza de seguro por la beneficiaria. Decidimos que si, tenia tales cualificaciones.

Resulta establecido en autos, sin discusion, que Gomez, acogiendose a las disposiciones del articulo 672 del Codigo
Administrativo tal como fue enmendado por la ley del Commonwealth No. 177, se sometio a examen de 2.ogrado enel servicio
civil el 16 de Octubre, 1937, y fue aprobado enaquel examen, si bien este favorable resultado no se anunciosino despues ya
de su muerte. Es obvio que los efectos de la aprobacion deben retrotraerse a la fecha del examen. La prueba de la
competencia, de la idoneidad del examinando, se realizo antes de su muerte; por tanto, hay que darle efectividad desde la
fecha en que tuvo lugar laprueba. Hasta parece superfluo que esto se discuta.
Sin embargo, se arguye que no cabe dar efecto retroactivo a la aprobacion de Gomez en su examen, puesto que el articulo
663 (d) del Codigo Administrativo Revisado, tal como ha sido enmendado, dispone que "a period of trial service shall be
required before appointment or employmentis made permanent;" y es claro que Gomez, habien domuerto despues del
examen y antes de que su resultado seanunciara, mal pudo ser sometido a dicho periodo de pruebapor 6 meses.

Esta manera de interpretar la ley tiene el defecto deser demasiado literal, y "la letra mata (a veces), mientrasque el espiritu
vivifica." Tengase en cuenta que Gomez habia servido como tasador provincial delegado por 25 años consecutivos hasta el
dia de su muerte. Cuando portan largo tiempo pudo superar la prueba de su competencia, en el ejercicio cotidiano de sus
deberes, hay que presumir que sus superiores estaban satisfechos de su idoneidad. Por tanto, el periodo de prueba de 6
meses no rezabacon el. Para los efectos, por lo menos, de la validez de su poliza de seguro, se debe concluir que el exito
desu examen le capacitaba y cualificaba automaticamente para un nombramiento regular y permanente desde la fechade
dicho examen. Por tanto, el era asegurable y, dehecho, estaba asegurado en el dia de su muerte, bajo losterminos de la Ley
No. 186. Esta conclusion es tanto masjusta cuanto que el "Government Service Insurance System" acepto practicamente la
prima pagada, librando porella el correspondiente recibo.

Nos sentimos perfectamente autorizados para interpretarla ley lo mas liberalmente posible, toda vez que, prescindiendo ya
de que en el presente caso se trata de la viuday familia de un pequeño empleado, es evidente que el Sistema Nacional de
Seguro de Vida del Gobierno se hacreado para fines sociales y humanitarios, siendo parte deese generoso movimiento
universal que tiende a mejorarcada dia la suerte de los hijos del trabajo mediante la promulgacion en todos los paises cultos
y civilizados de leyes progresivas y liberales sobre seguridad social y economica. El articulo 3 de la ley del Commonwealth
No. 186 que crea y reglamenta dicho Sistema, dice positivamente que el mismose establece "en orden a promover la
eficiencia y bien estarde los empleados del Gobierno de Filipinas y reemplazar los sistemas de pensiones actualmente
establecidos . . .". Como se sabe, aquellos sistemas de pensioneseran fundamentalmente de beneficencia, tanto que si noha
sido posible continuarlos era porque el gobierno no disponia de tanto dinero para capitalizarlos y sostener lospor si solo. Asi
que se ha ideado el Sistema Nacional de Seguro sobre bases mas cientificas y con adecuadas aportaciones de los empleados
mismos. Con todo, es innegableque el sucesor ha heredado parte de los rasgos beneficos y humanitarios de sus antecesores.

En meritos de lo expuesto, se revoca la sentencia del Juzgado y se condena a la demandada y apelada a pagara la
demandante y apelante la suma de P1,052, importe de la poliza de seguro del difunto Andres A. Gomez, maslos intereses
legales desde la interposicion de la demanda, y las costas del juicio. Asi se ordena.

Moran, Pres., Paras, Feria, Pablo, Hilado, Bengzon, Padilla, and Tuason , MM., estan conformes.

Separate Opinions

PERFECTO, J., concurring:

We agree with the decision penned by Mr. Justice Briones, reversing the judgment of the lower court and ordering defendant
to pay plaintiff the insurance of her deceased husband Andres Gomez in the sum of P1,052, including legal interest and costs.
Under the provisions of Commonwealth Act No. 177, amending the Civil Service Law, Andres Gomez was a regular and
permanent employee of the government, because he had been occupying for twenty-five years a classified position and had
passed the examination as provided for by the above mentioned act, the pertinent, provisions of which are as follows:

No person shall be appointed to or employed in any position in the classified service until he passes the examination
provided therefor. Provided, however, that persons now regularly and permanently employed in any branch or
subdivision of the Government, whose positions are or may hereafter be classified by operation of the Constitution
and of this Act may, unless separated by proper authority, continue in the service for the term of three years from
January first, nineteen hundred and thirty-seven; Provided, that they shall be given three chances to qualify;
and Provided, finally, That all employees who, upon the approval of this act, have rendered ten or more years of
continuous and satisfactory service in a classified position or in any position which may be subject to classification,
shall be given practical examination in which their length of service shall be accorded preferred consideration.

The deceased, having rendered ten or more years of continuous and satisfactory service in a classified position and passed
the corresponding examination, became a permanent and regular employee and his membership in the insurance system
became compulsory under section 4 (g), of Commonwealth Act No. 186, known as the Government Service Insurance Act.

Having had the privilege of initiating the amendment to the Civil Service Law which was later embodied in Commonwealth Act
No. 117, as above quoted, we are in a position to state, as member of the National Assembly which approved the act and as
author of the provisions, that the same covered perfectly the case of Andres Gomez to make him a permanent and regular
employee.

We are also in a position to state that the main purpose of the Government Service Insurance Act was to replace the several
pension laws then effective, in order to eliminate the discrimination resulting from the fact that, while a small number of
government employees were enjoying the benefits of special pension laws, those benefits were denied to a great majority of
government employees. To uphold the position taken by the lower court is to deprive the widow of Andres Gomez of the
benefits clearly intended for her by Commonwealth Act No. 186.

Even if Andres Gomez had been only a temporary employee he was still insurable. The fact that membership in the
Government Insurance System is compulsory upon permanent and regular employees, is no reason to deprive other
employees of the benefits of the system as, otherwise, it will defeat the very social purpose for which it was established by the
National Assembly.

The system was established "in order to promote the efficiency and welfare of the employees of the Government of the
Philippines and to replace the present pension systems established," as stated in section 3 of Commonwealth Act No. 186.
There is absolutely no principle of justice which can justify circumscribing the benefits of the system only to permanent and
regular employees, when it was expressly intended for all employees, and to continue the hateful discrimination which
compelled the National Assembly to abolish the then existing special pension systems. If there should be any doubt on this
question, the doubt should be resolved in favor of the general intent of the law.

Courts are justified to do violence to the words of the statute to carry out "the judge-discovered intent" (Judge Baldwin, The
American Judiciary, p. 84); that construction of statutes must be done to avoid absurdity, and that general terms must not lead
to "injustice, oppression, or an absurd consequence," because "the reason of the law in such cases should prevail over its
letter" (The Church of the Holy Trinity vs. U.S., 36 Law. ed. [U.S.], 232); that our judges can go further to diagnose the intent
of the law and give it fulgour and effect and that the judge-made law is recognized in the Philippines (In re Shoop, 41 Phil.,
213); that lawyers who deny the power of courts to legislate in the Philippines are sadly mistaken (Bocobo, The Cult of
Legalism); that courts are "the great laboratories of the law" (Justice Cardozo, The Nature of Judicial Process); while Holland
said in The Elements of Jurisprudence:

The State in general has two, and only two, articulate organs for law-making purposes — the Legislature and the
Tribunals. The first organ makes new law, the second attests and confirms old law, though under cover of so doing
it introduces many new principles.

. . . For statutes and judicial decisions alike come into being and grow out of the same common roots, the supreme
good of society. It is a consecrated legal axiom that the reason of the law is the life of the law. The reason lies in the
soil of the common welfare." (Bocobo, Cult of Legalism.)

. . . Consequently, if the judge limits himself to the printed page of the statute, and does not go out into the open
spaces o factuality and dig down deep into this common soil, he fails in his noble calling, and becomes subservient
to formalism. (Bocobo, Cult of Legalism.)

In Samuels, Special C.J., in Wortham vs. Walker Tex. ([1939], 127 S.W. [2nd], 1138, 1150), we have the following liberal
construction of the law:

A liberal interpretation of a statute which denies to it the historical circumstances under which it has drawn is to make
mummery of its provisions.

A statute should not be construed in a spirit of detachment as if it were a protoplasm floating around a space . . ..
"Generally it may be said that in determining the meaning, intent, and purpose of a law or constitutional provisions,
the history of the times out of which it grew and to which it may be rationally supposed to bear some direct relationship,
the evils intended to be remedied, and the good to be accomplished are proper subjects of inquiry" . . ..

Law is not a water-tight compartment sealed or shut off from the contract with the drama of life which unfolds before
our eyes. It is in no sense a cloistered realm but a busy state in which events are held up to our vision and touch at
our elbows.

If the above principles of interpretation are not enough in support of the theory that all employees of the government are
entitled to the benefits of the Government Insurance System, there is the principle of social justice embodied in the Constitution
which supports the position, and with more emphasis if we take into consideration the fact that Commonwealth Act No. 186
was enacted after the Constitution came into effect.
 Is the mandate addressed only to the legislative department? No: it is meant for the three departments; legislative,
executive, and judicial, because the latter two are no less the agencies of the State than the first. For what use would
it be for the National Assembly to pass laws calculated to enhance social justice if the executive officials should
enforce them in such a way, and the courts should give them such an interpretation, as to defeat social justice?

Certainly, this principle of social justice in our Constitution as generously conceived and so tersely phrased, was not
included in the fundamental law as a mere popular gesture. It was meant to a vital, articulate, compelling principle
of public policy. It should be observed in the interpretation not only of future legislation, but also of all laws already
existing on November 15, 1935. It was intended to change the spirit of our laws, present and future. Thus, all the
laws which on the great historic event when the Commonwealth of the Philippines was born, were susceptible of two
interpretations — strict or liberal, against or in favor of social justice, now have to be construed broadly in order to
promote and achieve social justice. This may seem novel to our friends, the advocates of legalism, but it is the only
way to give life and significance to the above-quoted principle of the Constitution. If it was not designed to apply to
these existing laws, then it would be necessary to wait for generations until all our codes and all our statutes shall
have been completely changed by removing every provision inimical to social justice, before the policy of social
justice can become really effective. That would be an absurd conclusion. It is more reasonable to hold that this
constitutional principle applies to all legislation in force on November 15, 1935, and all laws thereafter passed.
(Bocobo, Cult of Legalism.)

Law, being a manifestation of social culture and progress, must be interpreted taking into consideration the stage of said
culture and progress including all the concomitant circumstances. It must be interpreted by drawing inspiration, not only from
the teachings of history, from precedents and traditions, but from inventions of science, discoveries of art, ideals of thinkers,
dreams of poets, that is, all the sources from which may spring guidance and help to form a truthful idea of the human relations
regulated by the law to be interpreted and applied. Broadmindedness and vision are essential for men presiding tribunals to
reach correct and just conclusions
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-42874 October 22, 1935

THE INSULAR LIFE ASSURANCE CO., LTD., plaintiff-appellant,vs.MARIA NARCISA SUVA, as administratrix of the
intestate estate of Benito Patrocinio Suva, defendant-appellee. FELICIDAD CRUZ, intervenor-appellant, MARIA,
NARCISA SUVA, intervenor-appellee.

BUTTE, J.:

This is an appeal from a judgment of the Court of First Instance of Manila in an action brought by the Insular Life Assurance
Co., Ltd,, for the cancellation of two policies each issued and delivered by it upon the life of Benito Patrocinio Suva, now
deceased. The action was originally brought by against the administratrix of the estate of the insured, but by leave of court,
Maria Narcisa Suva, in her own right, and Felicidad Cruz filed their interventions claiming to be the beneficiaries of the two
policies involved in this action.

The first of the policies, numbered 47726, bears date of December 1, 1932, and names as beneficiary Isabel Simbulan, the
wife of the insured. The second of the said policies, numbered 48819, bears date of February 1, 1933, and names as
beneficiary the appellee, Maria Narcisa Suva, sister of the, insured. The company acknowledges having received the premium
due on said policies for the first year and tenders the return of the same in its petition. The intervenors, besides praying for
judgment for the amount due on said policies, also pray for P1,000 each as damages.

The ground alleged by the plaintiff for the cancellation of said policies is that the insured made false statements as to the past
and present state of his health in his applications which, by the terms of the policies themselves, are made a part of the
contract. The applicant was examined on October 17, 1932, by Dr. G. Ocampo, one of the physicians of the company. He was
again examined on December 28, 1932, by Dr. M. Llora, a physician of the company sent out from the home office for that
purpose. In connection with his first application for policy No. 47726, among the numerous questions with relation to specific
diseases, the following question and answers appear in the report of Dr. Ocampo (Exhibit B):

¿Ha padecido V. alguna vez de las siguientes enfermedades . . . del pulmon, pleuresia, pulmonia, asma? — No.

¿Ha escupido V. sangre? ¿Por que causa? — No. No doubt is raised as to the correctness of any other statements of the
applicant.

The report of Dr. Ocampo is a detailed account of the complete examination made by him. Item No. 30 of his report is as
follows: "¿Encuentra V. despues de una dadosa interrogacion y reconocimiento, algun sintoma de pedecimiento actual o
anterior . . . de los pulmones? to which the doctor answered "No". Item 33 of his report is as follows: "¿Ha revisado V.
cuidadosamente todas las contestaciones de este reconocimiento y estil V. seguro de que son claras y completas?" to which
the doctor answered "Si". Item 34 is as follows: "¿Cree V. que los informes dados por el solicitante son verdaderos y completos
en todos los conceptos?" to which the doctor answered "Si". Item 35 is as follows: "¿Recomienda V., como representante fiel
de la compañia, que se acepte este riesgo como excelente bueno, o que no se acepte?" to which the doctor answered "Si,
que se acepte como excelente."

On December 28, 1932, when the applicant was examined by Dr. M. Llora, he was asked the same questions as were put to
him by Dr. Ocampo. In the questions relating to his clinical history he was asked: "Have you ever suffered from any ailment or
disease of (c) the lungs, pleurisy, pneumonia or asthma? The applicant answered "Yes, trancazo 1918" and (h) "Have you
ever spat blood? What was it due to?" to which the applicant answered "No". No other answers made by him are called in
question in this litigation.

In Dr. Llora's detailed report which appears on the back of said application, Exhibit C, appear the following:
Item 30: Do you find after careful inquiry and physical examination any evidence of past or present disease . . . (d) of the lungs?
Answer: No.

Item 34: Do you believe the party has given full and true information in all respects?

Answer: Si
Item 35: Would you classify applicant as first class, good, average or poor risk?

Answer — Creo que es acceptable. His report concludes with the following certificate:

I CERTIFY that I have carefully examined Benito Patrocinio Suva of Arayat, Pampanga, in private and in
not in the presence of any third person, at Arayat, Pampanga, his 28th day of December, 1932, at 5:15
o'clock P.M. for an insurance of P5,000 for 20 C.P. years on the applicant's life; that I have asked each
question exactly as set forth on the other side of this sheet and that the applicant's answers thereto are in
my handwriting, and are exactly as made by the applicant to me and that the applicant signed them in my
presence.

(Sgd.) M. LLORA. Med. Ex.

The insured died of pulmonary tuberculosis in the Chinese General Hospital in Manila on September 23, 1933.

The substance of the plaintiff's cause of action is that the statements made by the insured in his applications as above quoted,
were false and that the applicant was not in good health either at the time he presented his applications or on the date when
said policies were delivered.

Upon this issue of fact the learned trial judge made a complete and careful analysis of the evidence. We accept his conclusions
as to the credibility of the witnesses. We have carefully re-examined the entire record and see no reason to disturb his findings
of fact. It seems to us the company's physicians were entirely warranted in their conclusion that the insured was an acceptable
risk. The preponderance of the evidence discloses that the applicant, a young man 27 years of age and recently married, was
devoted to vigorous athletic sports and regularly carried on his business as a farmer and contractor up to May, 1933.

In reply to the question in the printed application, "Are you in good health? he replied "Yes". If two qualified physicians, not
selected by him, independently examine a man with critical attention and in the interest of their employer, the insurance
company, and they pronounce him, to be in good health. We should find it difficult to declare that he knowingly made a false
statement when he said he believed the same thing himself. "Good health" is a relative term. A person with sound body may
honestly believe himself to be in "good health" although at the moment he may have a terrific headache, or a running cold, or
an attack of diarrhea, or indigestion, or any other of a host of minor common ailments which may possibly develop later into a
serious illness. A hemorrhage may be due to any one of a variety of causes, grave or slight, having no necessary relation with
pulmonary tuberculosis. Even if we gave credence to the testimony that Benito Patrocinio Suva spat blood on one occasion
in May, 1932, and another in August, 1932, there is no evidence whatever in the record as to the cause of the alleged
hemorrhage. We have no right to jump at the conclusion that it was grave and could only be due to pulmonary tuberculosis,
especially as it left no trace, for Drs. Ocampo and Llora found nothing wrong with the applicant in October or December, 1932.
No serious illness prior to May, 1933, is established by the evidence. We agree with the trial court that the applicant was in
good health when the policies were delivered and that it is not proved that he made any material false statement in his said
applications for insurance.

The appellant company complains that the trial court failed to consider the death certificate signed by Dr. Tablante. This
certificate (Exhibit J) states that Suva died in the Chinese General Hospital of Manila on September 23, 1933; that the cause
of the death was pulmonary tuberculosis: that the duration of the disease was one year and five months. The source of
information of the latter statement is not mentioned. Suva entered the hospital in Au gust, 1933, and the certificate itself recites
that Dr. Tablante treated him only from August 18, 1933, to September 23, 1933. The plaintiff did not offer Dr. Tablante as a
witness and none of the hospital records were put in evidence. The statement of Dr. Tablante as to the duration of the disease
is apparently hearsay and, under the circumstances, we cannot give the recital in the certificate of death the conclusiveness
which the plaintiff claims for it. (U.S. vs. Que Ping, 40 Phil., 17.)

Felicidad Cruz appeals from that part of the judgment which holds that the insured, Benito Suva, having renounced in his
application the right to change the beneficiary in policy No. 47726, his wife, Isabel Simbulan, acquired a vested interest in the
policy which neither the insured nor the company could take from her without her consent. The conclusion of the trial court is
sustained by our decision in the case of Gercio vs. Sun Life Assurance Co. of Canada (48 Phil., 53) and the American
authorities therein cited. We think that the attempted change of beneficiary made by the insured on August 16, 1933, and
endorsed by the company on the back of the policy on August 24, 1933, was due to a mutual mistake. The application in which
the insured, over his personal signature, renounced the right to change the beneficiary, should prevail over the printed phrase
"WITH RIGHT OF REVOCATION" which occurs in the policy. It is to be noted that the application itself is made a part of the
contract.

In view of the premises, the judgment is affirmed with costs against the appellant insurance company as to the appellee Maria
Narcisa Suva and without special pronouncement as to costs in the appeal of Felicidad Cruz.
Malcolm, Imperial, Goddard, and Diaz, JJ., concur

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:

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

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

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

There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we
have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and
Germany. The English and American cases relied upon by the Court of Appeals have lost their force in view of the latest
decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947,
92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy Corporation" by
Martin Domke, a paper presented to the Second International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many countries,
belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations, themselves considered as enemies. It was the English
courts which first the Daimler case applied this new concept of "piercing the corporate veil," which was adopted by
the peace of Treaties of 1919 and the Mixed Arbitral established after the First World War.
 The United States of America did not adopt the control test during the First World War. Courts refused to recognized
the concept whereby American-registered corporations could be considered as enemies and thus subject to
domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were cloaked by
domestic corporation structure. It was not only by legal ownership of shares that a material influence could be
exercised on the management of the corporation but also by long term loans and other factual situations. For that
reason, legislation on enemy property enacted in various countries during World War II adopted by statutory
provisions to the control test and determined, to various degrees, the incidents of control. Court decisions were
rendered on the basis of such newly enacted statutory provisions in determining enemy character of domestic
corporation.

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

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

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

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

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

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

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on
October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured
goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said
policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law)
require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be
returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question
became null and void upon the declaration of war between the United States and Germany on December 10, 1941, and its
judgment in favor of the respondent corporation was predicated on its conclusion that the policy did not cease to be in force.
The Court of Appeals necessarily assumed that, even if the payment by the petitioner to the respondent was involuntary, its
action is not tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any
intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment
of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment
from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering
the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military Administration, as
may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on Administrative
Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department
of the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim
of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check."
(Emphasis supplied.)

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

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

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-l0874 January 28, 1958

RUFINO D. ANDRES, plaintiff-appellant, vs. THE CROWN LIFE INSURANCE COMPANY, defendant-appellee.

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

On April 20, 1952, Rufino D. Andres filed a complaint in the Court of First Instance of Ilocos Norte against the Crown Life
Insurance Company for the recovery of the amount of P5,000, as the face value of a joint 20-year endowment insurance policy
issued in favor of the plaintiff Rufino D. Andres and his wife Severa G. Andres on the 13th of February, 1950, by said insurance
company. On Jun 7, 1951, Rufino Andres presented his death claim as survivor-beneficiary of the deceased Severa G. Andres,
who died May 3, 1951. Payment having been denied by the insurance company on April 20, 1952, this case was instituted.

Defendant Company filed its answer in due time disclaiming liability and setting forth the special defense that the
aforementioned policy had already lapsed. Later, on March 25, 1954, the parties submitted the case for decision by the lower
court upon a stipulation of facts, fully quoted hereunder:

1. That on October 20, 1949, plaintiff and Severa G. Andres filed an application for insurance No. 536,423, which are marked
as common Exhibits "1" and "l-A", respectively;

2. That on February 13, 1950, defendant isssued Crown Life Policy No. 536,423 for the sum of P5,000, in the name of Rufino
D. Andres, plaintiff, and Severa G. Andres, which is hereto marked as common Exhibit "2";

3. That the premiums are to be paid as called for in the policy Exhibit '2", semi-annually, and the amount of P165.15 for the
first semester beginning November 25, 1949 to May 25, 1950 was paid on November 25, 1949, which is hereby marked as
common Exhibit "3", and the premium likewise in the sum of P165.15 for the second semester beginning May 25, 1950 to
November 25, 1950, was paid on June 24, 1950, as evidenced by common Exhibit "3-A"; and the premium for the third
semester beginning November 25, 1950 to May 25, 1951 was not paid;

4. That on January 6, 1951,the defendant, thru Mr. I.B. Melendres, wrote to Mr. and Mrs. Rufino D. Andres advising them that
the said Policy No. 536,423 lapsed on December 25, 1950 and the amount overdue was P165.15, giving them a period of
sixty (60) days from the date of lapse to file an application for reinstatement, which letter is made as common Exhibit "4";

5. That on February 12, 1951, the said Mr. I.B. Melendres, branch secretary of the defendant, wrote Mr. and Mrs. Rufino D.
Andres, telling the latter that Policy No. 536,423 was no longer in force and it lapsed on December 25, 1950, which letter is
herewith made as common Exhibit "5";

6. That in the month of February, 1951, plaintiff executed a Statement of Health which is at the same time an Application for
Reinstatement of the aforesaid policy, which application is herewith made as common Exhibit "6" (Note: Exhibit "6" is the
reverse side of Exhibit "4"). and Severa G. Andres also executed in the month of February, 1951, an Application for
Reinstatement, which Application for Reinstatement is made as common Exhibit "7";

7. That on February 20, 1951, plaintiff wrote a letter to the defendant and enclosed therewith a money order for P100, which
letter was received by the defendant on February 26, 1951, wherein it is stated that the balance unpaid is the sum of P65.15,
which letter is hereby made as common Exhibit "8";

8. That on April 14, 1951, the said Mr. I.B. Melendres, as branch secretary for the defendant; wrote plaintiff advising him that
the Home Office has approved the reinstatement of the lapsed policy, subject to the payment of P65.15 due on November,
1950 premium, a duplicate original copy of the said letter is hereby made as common Exhibit "9";

9. That on April 27, 1951, said Mr. I.B. Melendres, branch secretary, again wrote the plaintiff requesting the remittance of the
balance of P65.15 due on the semi-annual premium for November, 195O, and upon receipt of the said amount, there will be
sent to him the Certificate of Reinstatement of the policy, a duplicate original copy of the said letter is hereto made as common
Exhibit "10";
10. That on May 5, 1951, plaintiff sent a letter to the defendant and enclosed therewith a Money Order in the amount of P65.00
for the balance due on the Crown Life Policy No. 536,423, which letter has been received in the office of the defendant on
May 11, 1951, which letter is herewith made as common Exhibit "11";

11. That on May 15, 1951, said Mr. I.B. Melendres wrote a letter to Mr. and Mrs. Rufino D. Andres, enclosing an Official
Receipt for the receipt of P165.15, which Official Receipt is hereby made as common Exhibit "12", and also enclosed therewith
a Certificate of Reinstatement dated April 2, 1951, which is herewith made as common Exhibit "13" and the duplicate original
copy of the aforesaid letter dated May 15, 1951 is herewith made as common Exhibit "14", and premium notice addressed to
Mr. and Mrs. Rufino D. Andres, wherein it is shown that the semi-annual premium in the sum of P165.15 on the said policy
would be due on May 15, 1951, which premium notice is herwith made as common Exhibit "14-A";

12. That on June 7, 1951, plaintiff presented his Death Claim as survivor-beneficiary of the deceased Severa G. Andres which
has been received in the office of the defendant on June 11, 1951, which letter is herewith made as common Exhibit "15", and
there were therein enclosed in the said letter an affidavit dated June 6, 1951 of the plaintiff, which is herewith made as common
Exhibit "15-A", and a Certificate of Death dated May 29, 1951, issued by the Local Civil Registrar of the municipality of Sarrat,
wherein it is shown that Mrs. Severa G. Andres died on May 3, 1951 of dystocia, second degree, contracted pelvis, which
Certificate of Death is herewith made as common Exhibit "15-B", and a medical certificate of Dr. R. de la Cuesta, senior
resident physician of the Ilocos Norte Provincial Hospital, dated May 20, 1951, showing the cause of death of the said
deceased, Mrs. Severa G. Andres, which medical certificate is herewith made as common Exhibit "15-C";

13. That on June 30, 1951, Mr. I.B. Melendres wrote to plaintiff stating defendant's reasons for its refusal to pay the death
claim of the plaintiff which letter is herewith made as common Exhibit "16", in which there was therein enclosed a Death Claim
Discharge to be signed by the plaintiff but the plaintiff refused to sign, which Death Claim Discharge is herewith made as
common Exhibit "16-A";

14. That on November 23, 1951, the said Mr. I.B. Melendres wrote plaintiff enclosing therewith a National City Bank of New
York Check No. D-115356 for P165.00 payable to plaintiff, dated June 21, 1951, an original duplicate copy of which is herewith
made as common Exhibit "17";

15. That on December 1, 1951, the plaintiff wrote defendant company and enclosed therewith the aforesaid National City Bank
of New York Check No. D-115356 dated June 21, 1951, which letter is herewith made as Common Exhibit "18", and the check
returned to the defendant company as Exhibit "18-A";

16. That with the approval of this stipulation of facts, the parties hereby submit the same and do hereby request the Honorable
Court to give them twenty (20) days within which to file simultaneously their corresponding memoranda and another fifteen
(15) days for a reply memorandum." (Rec. App., pp. 17-22).

On August 5, 1954, Judge Julio Villamor rendered decision absolving the defendant from any liability on the ground that the
policy having lapsed, it was not reinstated at the time the plaintiff's wife died. Not satisfied with the decision, plaintiff appealed
to the Court of Appeals, but the appeal was later certified to this Court, for there is no question of fact involved therein.

As has been correctly stated by the lower court, the resolution of the issues in this case centers on whether or not policy No.
536423 (Exhibit "2") which has been in a state of lapse before May 3, 1951, has been validly and completely reinstated after
said date. In other words, was there a perfected contract of reinstatement after the policy lapsed due to non-payment of
premiums?

The stipulation of facts and accompanying exhibits render it undisputable that the original policy No. 536423 lapsed for non-
payment of premiums on December 26, 1950, upon expiration of the customary 31-day period of grace. The subsequent
reinstatement of the policy was provided for in the contract itself in the following terms:

If this policy lapses, it may be reinstated upon application made within three years from the date of lapse, and upon
production of evidence of the good health of the injured (and also of the Beneficiary, if the rate of premium depends
upon the age of the Beneficiary), and such other evidence of insurability at the date of application for reinstatement
as would then satisfy the Company to issue a new Policy on the same terms as this Policy, and upon payment of all
overdue premiums and other indebtedness in respect of this Policy, together with interest at six per cent,
compounded annually, and provided also that no change has taken place in such good health and insurability
subsequent to the date of such application and before this Policy is reinstated.

As stated by the lower court, the conditions set forth in the policy for reinstatement are the following: (a) application shall be
made within three years from the date of lapse; (b) there should be a production of evidence of the good health of the insured:
(c) if the rate of premium depends upon the age of the Beneficiary, there should likewise be a production of evidence of his or
her good health; (d) there should be presented such other evidence of insurability at the date of application for reinstatement;
(e) there should be no change which has taken place in such good health and insurability subsequent to the date of such
application and before the policy is reinstated; and (f) all overdue premiums and other indebtedness in respect of the policy,
together with interest at six per cent, compounded annually, should first be paid.

The plaintiff-appellant did not comply with the last condition; for he only paid P100 (on account of the over due semi-annual
premium of P165.15) on February 20, 1951, before his wife's death (Stipulation, par. 7) ; and, despite the Company's reminders
on April 14 and 27, he remitted the balance of P65 on May 5, 1951 (received by the Company's agency on May 11), two days
after his wife died. On the face of such facts, the Company had the right to treat the contract as lapsed and refuse payment of
the policy.

Appellant, however, contends that the condition regarding payment of the premium was waived by the insurance Company
by its letters (signed by I. B. Melendres, cashier) Exhibits 4 and 5 wherein the Company manifested to appellant:

If you can not pay the full amount immediately, send as large an amount as possible and advise us how soon you
expect to be able to pay the balance. Every consideration will be given to your request consistent with the company's
regulations (Exhibit 4).

If you are unable to cover this amount in full, send us as big an amount as you are able and we will work out an
adjustment most beneficial to you. (Exhibit 5)

We see nothing in these expressions that would indicate an intention on the insurer's part to waive the full payment of the
overdue premium as prerequisite to the reinstatement of the lapsed policy, considering the well settled rule that a waiver must
be clear and positive, and intent to waive shown clearly and convincingly (Fernandez vs. Sebido, 70 Phil. 151, 159; Lang vs.
Sheriff* 49 Off. Gaz. 3323, 3329; Jocson vs. Capitol Subdivision, Inc. G.R. L-6573, February 28, 1955). The promise to give
plaintiff's case every consideration does not import any decision to renounce the insurer's rights; and as to the "working out of
an adjustment most beneficial" to the insured, the proposal is obviously so vague and indefinite as to require further
negotiations between the parties, for their criteria might differ as to what would be the most beneficial arrangement.

Upon the other hand, the subsequent letters of the insurance Company (Exhibits 9 and 10) patently indicated that the Company
insisted on the full payment of the premium before the policy was reinstated.

We take this opportunity of advising you that our Home Office has approved the reinstatement of your lapsel
policy subject to the payment of the balance of P65.15 due on your November 1950 premium. Kindly remitthis
amount in order that you may once more enjoy the benefits of insurance protection" (Exibit 9, April 14, 1951).

We may now reinstate your policy if you will kindly remit to us the balance of P65.15 due on your semi-annual
premium for November, 1950. Please send us this amount by return mail and upon its receipt we will in turn send
the Certificate of Reinstatement of your policy, thus rendering it once again in full force and effect, (Exhibit 10, April
21, 1951) (Emphasis supplied).

Clearly the Company did not consider the partial payment as sufficient consideration for the reinstatement. Appellant's failure
to remit the balance before the death of his wife operated to deprive him of any right to waive the policy and recover the face
value thereof.

This Court, in the case of James McGuire vs. The Manufacturer's Life Insurance Co. (87 Phil,. 370, 48 Off. Gaz. [1], 114), said.

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does
not give the insured absolute right to such reinstatement by the mere filing of an application. The Company has the
right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does no pay all
overdue premium and all other indebtedness to the Company. After the death of the insured the insurance Company
cannot be compelled to entertain an application for reinstatement of the policy because the conditions precedent to
reinstatement can no longer be determined and satisfied.

Wherefore, finding no error in the judgment appealed from, we hereby affirm the same, with costs against appellant. So
ordered.

Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Endencia, and Felix, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 16475 November 8, 1921

SUN LIFE ASSURANCE COMPANY OF CANADA, plaintiff-appellee,

vs.
FRANK B. INGERSOLL, as assignee of the insolvent estate of DY POCO, and TAN SIT, administratrix of the estate
of Dy Poco, deceased, defendants.
TAN SIT, appellant.

Crossfield & O'Brien for appellant.

Ross & Lawrence for assignee.
No appearance for appellee.

STREET, J.:

This is an action of interpleader filed by the Sun Life Assurance Company, pursuant to section 120 of the Code of Civil
Procedure, in order to compel the two defendants to interplead and litigate their claims to the proceeds of a policy of insurance
which the plaintiff had issued upon the life of one Dy Poco, now deceased. The defendants Frank B. Ingersoll and Tan Sit,
both answered, each asserting a claim to the proceeds of said policy, the first in the character of assignee in insolvency of Dy
Poco, and the second as the administratrix of his estate. After hearing the cause, his Honor, Judge James A. Ostrand, declared
that Frank B. Ingersoll, the assignee in insolvency had the better right and ordered the Insurance Company to pay the money
to him. From this judgment Tan Sit appealed.

It appears in evidence that on April 16, 1918, the plaintiff, the Sun Life Assurance Company of Canada, in consideration of
the payment of a stipulated annual premium during the period of the policy, or until the premiums had been completely paid
for twenty years, issued a policy of insurance on the life of one Dy Poco, of Manila, Philippine Islands, for the sum of $12,500,
United State currency, payable to the said assured or his assigns on the 21st day of February, 1938, and if he should die
before that date, then to his legal representatives. On June 23, 1919, the assured, Dy Poco, was adjudged an involuntary
insolvent by the Court of First Instance of Manila, and the defendant Frank B. Ingersoll, was appointed assignee of his estate.
On July 10, 1919, the said Dy Poco died, and thereafter on August 21, 1919, the defendant, Tan Sit, was duly appointed by
the Court of First Instance of Manila as the administratrix of his intestate estate.

By the terms of the policy it was provided that after the payment of three full premiums, the assured could surrender the policy
to the company for a "cash surrender value," indicated in an annexed table; but inasmuch as no more than two premiums had
been paid upon the policy now in question up to the time of the death of the assured, this provision had not become effective;
and it does not appear that the company would in accordance with its own usage or otherwise have made any concession to
the assured in the event he had desired, before his death, to surrender the policy. It must therefore be accepted that this policy
had no cash surrender value, at the time of the assured's death, either by contract or by conventional practice of the company
in such cases.

The solution of the case depends upon the interpretation to be placed by us upon certain provisions of our Insolvency Law
(Act No. 1956), but as the problem is by no means free from difficulty, we deem it advisable to state at the outset the results
reached by the Supreme Court of the United States in dealing with a similar problem under the provisions of the Federal
Bankruptcy Act of 1898.

In the first place that court has held that the title of the trustee is determined as of the date when the petition of bankruptcy is
filed, and that the circumstance that the death of the insolvent occurs after the petition is filed but before the adjudication of
bankruptcy does not give the trustee any additional right to the proceeds of the policy, where he had none to the policy itself
before death occurred (Everett vs. Judson, 228 U. S., 474; 57 L. ed., 927). Moreover, in such case, the personal representative
of the deceased is entitled to exercise the same rights that the deceased himself might have exercised, with reference to the
policy and its proceeds. (Andrews vs. Partridge 228 U. S., 479; 57 L. ed., 929.)

The rule thus declared is apparently applicable under our Insolvency Law, with the sole difference that the operative act which
under our law vests title in the assignee is the transfer of the insolvent's property to the assignee by the clerk of the court (sec.
32, Act No. 1956). This transfer, however, relates back to the commencement of the proceedings in insolvency, and the result
is the same as under the American statute.
Upon the question of the extent of the right or title, which the trustee acquires to insurance in existence on the life of the
insolvent upon the date of the filing of the petition in bankruptcy, great diversity of opinion formerly existed in the Federal
tribunals; and great uncertainty upon this point prevailed until the case of Burlingham vs. Crouse (228 U.S., 459; 57 L. ed.,
920; 46 L.R.A. [N. S.], 148) was decided a few years ago by the Supreme Court of the United States.

The provision of law under consideration in that case was section 70 (a) of the Bankruptcy Act of 1898.1 In the part here
material to be quoted said provision is as follows:

The trustee of the estate of a bankrupt, upon his appointment and qualification, and his successor or successors if
he shall have one or more, upon his or their appointment and qualification, shall in turn be vested by operation of
law with the title of the bankcrupt, as of the date he was adjudged a bankcrupt, except in so far as it is to property
which is exempt, to all (1) documents relating to his property; (2) interests in patents, patent rights, copyrights, and
trade-marks; (3) powers which he might have exercised for his own benefit, but not those which he might have
exercised for some other person; (4) property transferred by him in fraud of his creditors; (5) property which, prior to
the filing of the petition, he could by any means have transferred, or which might have been levied upon and sold
under judicial process against him: Provided, That when any bankcrupt shall have any insurance policy, which has
a cash surrender value payable to himself, his estate, or personal representatives, he may within thirty days after
the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or
secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from
the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings; otherwise
the policy shall pass to the trustee as assets.

Upon the inspection of this provision it will be seen that by the general language used in the part preceding the proviso, and
especially by the words used in the fifth subsection, practically everything in the nature of property pertaining to the bankcrupt
is vested in the trustee, subject — in the case of insurance policies — to the limitation expressed in the proviso.

Now, prior to the decision in Burlingham vs. Crouse, supra, the idea more generally prevailing in the Federal courts appears
to have been to the effect that any policy of insurance in force upon the life of the bankrupt would, under the general language
above quoted, necessarily pass to the trustee in bankruptcy but for the proviso, which enables the bankrupt to rescue certain
policies, namely, those having a "cash surrender value" by redeeming them from the trustee upon paying to him said surrender
value. In other words, the proviso was looked upon as an independent and additional piece of legislation, establishing a special
rule as to policies having a cash surrender value, but not otherwise limiting the general words of the statute.

In Burlingham vs. Crouse, supra, however, the Supreme Court of the United States held that the proviso in question had the
effect not only of securing to the insolvent the right to redeem policies having a cash surrender value but of limiting the general
language preceding the proviso in such manner that a policy having no surrender value does not vest in the trustee in
bankruptcy at all. In other words, the proviso itself contains a definitive statement of the rights of the trustee in bankruptcy to
the insurance effected prior to the insolvency on the life of the insolvent; and therefore the trustee can in no event take any
insurance from the insolvent other than that which has a cash surrender value. This result was reached by declaring that the
proviso fulfilled the office of a proviso proper, which is, to limit the general language which precedes it.

At the same time the court accepted the proposition that a policy of insurance is property, though admittedly of a peculiar
character; and it further suggested that, but for the limiting effect of the proviso, the general words used in the statute would
apparently have been sufficient to pass the policy there in question to the trustee in bankruptcy.

Upon inspection of the Insolvency Law in force in these Islands (Act No. 1956), it will be seen that it contains nothing similar
to the proviso to section 70 (a) of the American Bankruptcy Law now in force. It results that Burlingham vs.Crouse, supra, is
not decisive of the case before us; and furthermore, as will be readily seen, its implications are not particularly favorable to
the pretensions of the appellant.

The property and interests of the insolvent which, under the law here in force, become vested in the assignee of the insolvent
are specified in section 32 of the Insolvency Law which, in the part here material to be stated, reads as follows:

SEC. 32. As soon as an assignee is elected or appointed and qualified, the clerk of the court shall, by an instrument
under his hand and seal of the court, assign and convey to the assignee all the real and personal property, estate,
and effects of the debtor with all his deeds, books, and papers relating thereto, and such assignment shall relate
back to the commencement of the proceedings in insolvency, and shall relate back to the acts upon which the
adjudication was founded, and by operation of law shall vest the title to all such property, estate, and effects in the
assignee, although the same is then attached on mesne process, as the property of the debtor. Such assignment
shall operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution.
Now, it is a well-known fact in our legislative history that the Insolvency Law (Act No. 1956) is in great part a copy of the
Insolvency Act of California, enacted in 1895, though it contains a few provisions from the American Bankruptcy Law of 1898
(see observation of Justice Trent in Mitsui Bussan Kaisha vs. Hongkong and Shanghai Banking Corporation, 36 Phil., 27, 37).
Again, upon comparing the California Insolvency Law of 1895 with the American Bankruptcy Act of 1867, it will be found that
the former contains much in common with the latter; and among the provisions common to the Bankruptcy Act of 1867, the
California Insolvency Law of 1895, and the Insolvency Law in force in these Islands (Act No. 1956), is precisely the provision
which appears as section 32 of our Act, defining the property which passes as assets to the assignee in insolvency.
(Bankruptcy Act of 1867, sec. 14; California Insolvency Law of 1895, sec. 21; Philippine Insolvency Law, sec. 32.)

Under each of said laws the assignee acquires all the real and personal property, estate, and effects of the debtor, not exempt
by law from execution, with all deeds, books and papers relating thereto; and while this language is broad, it nevertheless
lacks the comprehensiveness of section 70 (a) of the American Bankruptcy Law of 1898 in the least two particulars; for under
subsection 3 of section 70 (a) of the last mentioned law, the trustee in bankruptcy acquires the right to exercise any powers
which the insolvent might have exercised for his own benefit, and under subsection 5 the trustee acquires any property of the
insolvent which the latter could by any means have assigned to another. The Insolvency Law here in force, in common with
the predecessor laws above-mentioned, contains nothing similar to these provisions.

Having discovered the source of section 32 of our Insolvency Law to be in the American Bankruptcy Act of 1867, we may
properly look to the decisions of the courts of the United States as instructive upon any question of interpretation arising in the
application of said section; and in this connection we find a pertinent opinion from one of the Federal courts, dealing with the
very question whether an assignee in bankruptcy acquires the title to a policy of insurance over and above the net reserve or
cash surrender value, upon which point the decision is to the effect that he does not.

The case to which we refer is that of In re McKinney (15 Fed., 535), which arose upon the following facts: On July 23, 1856,
one Andrew McKinney took out a policy of insurance upon his life for $3,000, payable to his executors, administrators or
assigns. The policy was continued in force until his death in October, 1882. Before this event had occurred, however, the
insured had been adjudicated a bankrupt and had in fact secured a discharge from the court of bankruptcy.

Said policy of insurance had been mentioned in the schedule of assets submitted in the insolvency proceedings, but the
assignee took no steps in reference to it; and all premiums accruing after the adjudication of insolvency were paid by the wife
of the insolvent out of her own funds, she supposing that the policy would inure to her benefit.

After the death of the insured, his assignee in bankruptcy was directed to transfer to the widow of the bankrupt, as the proper
person interested in his estate, the policy of insurance, upon payment to the assignee of the surrender value of the policy
approximately as of the date when the assignee obtained title to the assets of the bankrupt.

In passing upon the facts above stated the court declared that no beneficial interest in this policy had ever passed to the
assignee over and beyond what constituted the surrender value, and that the legal title to the policy was vested in the assignee
merely in order to make the surrender value available to him. The conclusion therefore was that the assignee should surrender
the policy upon the payment to him of said value, as he was in fact directed to do.

In this connection the court observed that the assignee in bankruptcy had no right to keep the estate unsettled for an indefinite
period, for the mere purpose of speculating upon the chances of the bankrupt's death. The speedy settlement of the estates
of bankrupts, as contemplated by law, is incompatible with such course. Moreover, it was observed that, as regards everything
beyond the surrender value, the assignee in bankruptcy would, after the discharge of the bankrupt, have no insurable interest
in the life of the bankrupt.

In the course of the opinion in this case, an explanation was given of the meaning of "surrender value" or "cash surrender
value," as used in connection with a policy of insurance, and of the manner in which such value is acquired. Upon this point it
was observed that the surrender value of a policy "arises from the fact that the fixed annual premiums is much in excess of
the annual risk during the earlier years of the policy, an excess made necessary in order to balance the deficiency of the same
premium to meet the annual risk during the latter years of the policy. This excess in the premium paid over the annual cost of
insurance, with accumulations of interest, constitutes the surrender value. Though this excess of premiums paid is legally the
sole property of the company, still in practical effect, though not in law it is moneys of the assured deposited with the company
in advance to make up the deficiency in later premiums to cover the annual cost of insurance, instead of being retained by the
assured and paid by him to the company in the shape of greatly-increased premiums, when the risk is greatest. It is the 'net
reserve' required by law to be kept by the company for the benefit of the assured, and to be maintained to the credit of the
policy. So long as the policy remains in force the company has not practically any beneficial interest in it, except as its custodian,
with the obligation to maintain it unimpaired and suitably invested for the benefit of the insured. This is the practical, though
not the legal, relation of the company to this fund.
 Upon the surrender of the policy before the death of the assured, the company, to be relieved from all responsibility
for the increased risk, which is represented by this accumulating reserve, could well afford to surrender a
considerable part of it to the assured, or his representative. A return of a part in some form or other is now usually
made. (In re McKinney, 15 Fed., 535, 538.)

In this connection it may be observed that the stipulation providing for a cash surrender value is a comparatively recent
innovation in life insurance. Formerly the contracts provided — as they still commonly do in the policies issued by fraternal
organizations and benefit societies — for the payment of a premium sufficient to keep the estimated risk covered; and in case
of a lapse the policy-holder received nothing. Furthermore, the practice is common among insurance companies even now to
concede nothing in the character of cash surrender value, until three full premiums have been paid, as in the policy now before
us.

In the course of the same opinion, his Honor, Judge Brown, discussing the legal aspects of the case then before him, said:

To the extent of its actual cash surrender value, therefore, this policy, at the time of the bankruptcy, was "property"
and "effects" of the bankrupt within sections 5044, 5046, of the Revised Statutes, and as such passed to the
bankrupt's assignee. So far as necessary to make the cash surrender value available, the title to the policy also
passed to the assignee, so that he might thereafter either surrender it to the company, or assign it over, either to the
bankrupt, or to any other person having an insurable interest in his life, on receiving payment of the surrender value
at the time, or so much of it as the assignee might be able to obtain.

Beyond this interest in the surrender value I think nothing passed to the assignee in bankruptcy save the naked title
to the policy in order to make that interest available. As an executory contract, aside from its surrender value, the
policy had no pecuniary value whatever. Assuming that the bankrupt had the average expectation of life, as a mere
contract for future insurance it would be a burden rather than a benefit to the estate; for, whatever might be afterwards
obtained from it, (beyond the present surrender value), a still greater sum must presumably be paid out in the shape
of future premiums and interest in order to keep the policy alive, since these premiums, with interest on the average,
not only equal the amount ultimately payable, but all the company's expenses and profits in addition. As an executory
contract, therefore, aside from its surrender value the policy was not "property" or "effects," but an incumbrance
which the assignee would be bound to reject, like leases at an unfavorable rent. . . . In such cases the assignee has
at least an election to reject the contract; and if, knowing its terms, he does nothing to avail himself of it, and allows
third persons to acquire an interest in it, he must, as against the latter, be deemed to have rejected it, except in so
far as the law itself casts it upon him. (In re McKinney, 15 Fed., 535, 538.)

We have quoted at length from this opinion and consider it the more respectable, because it has been cited or quoted with
approval more than once by the Supreme Court of the United States (Holden vs. Stratton, 198 U.S., 202; 49 L. ed., 1018;
Hiscock vs. Mertens, 205 U.S., 202; 51 L ed., 771; Burlingham vs. Crouse, 228 U. S., 459, 469), — an approval which certainly
would not have been given if the reasoning along which that decision proceeds had been considered specious or unsound.

The conclusion reached in the case of In re McKinney, supra, to the effect that, in the absence of express provision of law to
the contrary, a policy of insurance constitutes assets for an assignee in insolvency only to the extent of its realizable value is
corroborated by the decision of the Court of Appeal of Great Britain in Holt vs. Everall (2 Ch. Div., 266), which arose under the
English Bankrupt Act of 1869. It there appeared that in 1870 a trader effected policies of insurance on his own life. In the
following year, wishing that his wife might have the benefit of the policies, under the married woman's act, he surrendered
them to the insurance company, and received in substitution therefor policies at the same premiums, payable on the same
day, and entitled to the same privileges, as the former, and which provided that the sums assured should be paid to the wife.
Within two years from the date of the substitute policies the husband liquidated, dying before the discharge. The trustee
claimed the insurance.

All of the Lords Justices were of the opinion that the old policies, having no surrender value, could not have been available as
assets to the trustee, and therefore that the disposition made of them by the insured was not obnoxious to the Bankrupt Act.

Said James, L. J.: "In that point of view it is important to see whether there was any actual property — anything that could be
called property — at the time when the husband obtained the policies in question. If the husband at that time had anything of
value, and that was given up as part of the consideration of the new policies, there might be this question; but i am satisfied
that that which was given up was not of any value whatever; that there was, in fact, nothing taken away from the creditors,
and that the transaction, as far as the creditors were concerned, was in substance exactly the same as if the policies of 1871
had been made without any reference whatever to the existing policies of 1870, which he might at any moment have given up
or forfeited, or dealt with as he thought fit. There is, therefore, nothing substantial arising from the fact that the policies of 1871
were in exchange for the policies of 1870." (2 Ch. Div., 273-274.)
And Mellish, L. J., added: "In this case the old policies were really worth nothing; they were policies which an insolvent trader,
knowing that he was going to become a bankrupt, would naturally allow to drop, as he could have no interest in keeping up a
policy and paying the premiums for the benefit of his creditors; or perhaps not even for their benefit, because if the policy were
such as these were, which had only been effected for a single year, it would be no benefit to the creditors and would be
worthless in the hands of the trustee." (2 Ch. Div., 276.)

The case of Morris vs. Dodd (110 Ga., 606; 50 L. R.. A., 33) from the year 1900 is to the same effect; and although this case
was decided after the American Bankruptcy Act of 1898 had been enacted, the reasoning proceeds along the line suggested
in In re McKinney and Holt vs. Everall, supra. The facts in Morris vs. Dodd, supra, were, briefly, that a husband, within four
months prior to the filing of his petition in bankruptcy, had transferred to his wife an insurance policy which before such transfer
had been payable to his legal representatives. The policy had no cash surrender value either when the transfer was made or
when the petition in bankruptcy was filed. Upon the death of the husband pending the proceedings in bankruptcy, it was held
that the wife was entitled to the proceeds of the policy. Said the court: "The purpose of the bankruptcy act is to take the
property owned by the bankrupt when the petition is filed, and apply it towards the payment of his then existing debts,
discharging him in due course from any further liability; his after-acquired property not being subject to such debts. This being
true, it is apparent that the creditors represented by the trustee, whose debts cannot continue against the bankrupt, can have
no insurable interest in his life for the purpose of indemnifying themselves against loss." (50 L. R. A., 44.)

Numerous decisions of later date, tending to the same conclusion, could be cited from the Federal courts of the United States,
but inasmuch as these decisions have been rendered under the regime of the Bankrupt Law of 1898, already discussed, we
omit mention of particular cases; and in this connection it suffices to refer to section 207 of the title Bankruptcy (7 C. J., 122),
under which the pertinent cases are collated.

The authorities above marshaled clearly exhibit the resolute attitude of courts, both high and low upon the proposition that the
assignee acquires no beneficial interest in insurance effected on the life of the insolvent, except to the extent that such
insurance contains assets which can be realized upon as of the date when the petition of insolvency is filed; and this attitude
is manifest whether the question has arisen under provisions like section 32 of our Insolvency Law, corresponding to section
14 of the American Bankruptcy Act of 1867, or under section 70 (a) of the American Bankruptcy Act of 1898. The explanation
is to be found in the consideration that the destruction of a contract of life insurance is not only highly prejudicial to the insured
and those dependent upon him, but is inimical to the interests of society. Insurance is a species of property that should be
conserved and not dissipated. As is well known, life insurance is increasingly difficult to obtain with advancing years, and even
when procurable after the age of fifty, the cost is then so great as to be practically prohibitive to many. Insolvency is a disaster
likely to overtake men in mature life; and one who has gone through the process of bankruptcy usually finds himself in his
declining years with the accumulated savings of years swept away and earning power diminished. The courts are therefore
practically unanimous in refusing to permit the assignee in insolvency to wrest from the insolvent a policy of insurance which
contains in it no present realizable assets.

Having reviewed the cases most directly pertinent to the situation before us, attention will again be directed to section 32 of
the Insolvency Law, and related provisions, in order to exhibit an aspect of the case upon which we have not as yet commented.
That section, among other things, declares that the assignment to be made by the clerk of the court "shall operate to vest in
the assignee all of the estate of the insolvent debtor not exempt by law from execution." Moreover, by section 24, the court is
required, upon making an order adjudicating any person insolvent, to stay any civil proceedings pending against him; and it is
declared in section 60 that no creditor whose debt is provable under the Act shall be allowed, after the commencement of
proceedings in insolvency, to prosecute to final judgment any action therefore against the debtor. In connection with the
foregoing may be mentioned subsections 1 and 2 of section 36, as well as the opening words of section 33, to the effect that
the assignee shall have the right and power to recover, and to take into his possession, all of the estate, assets, and claims
belonging to the insolvent, except such as are exempt by law from execution.

These provisions clearly evince an intention to vest in the assignee, for the benefit of all the creditors of the insolvent, such
elements of property and property right as could be reached and subjected by process of law by any single creditor suing
alone. And this is exactly as it should be: for it cannot be supposed that the Legislature would suppress the right of action of
every individual creditor upon the adjudication of insolvency, and at the same time allow the insolvent debtor to retain anything
subject to the payment of his debts in a normal state of solvency.lawphil.net

We are thus conducted to the conclusion that "leviable assets" and "assets in insolvency" are practically coextensive terms.
Hence, in determining what elements of value constitutes assets in insolvency, we are at liberty to consider what elements of
value are subject to be taken upon execution, and vice versa.

Accordingly, we proceed to inquire whether, under the laws prevailing in this jurisdiction, a policy of insurance having no cash
surrender value, but payable to the insured or his legal representative, is property that may be taken upon execution against
him. In this connection it must be admitted that the laws of these Islands declare no exemption with respect to insurance
policies; and this species of property is not enumerated, in section 48 of the Insolvency Law, among items from the ownership
of which the assignee is excluded. Moreover, all life insurance policies are declared by law to be assignable, regardless of
whether the assignee has an insurable interest in the life of theft insured or not (Insurance Act No. 2427, sec. 166) — a
circumstance which debilitates in a slight degree the reasoning upon which the decision in the case of In re McKinney, supra,
is based. Finally, this court itself has held that insurance policies having a present cash surrender value are subject to be
taken upon execution. (Misut Garcia vs. West Coast San Francisco Life Ins. Co., 41 Phil., 258.) Upon the question whether a
life insurance policy having no surrender value can be seized upon execution, this court has not passed; but the same
consideration would apparently be controlling upon this point that have determined the position of the courts on the question
whether such a policy passes to the assignee in insolvency. In other words, a policy devoid of a cash surrender value cannot
be either "leviable assets" or "assets in insolvency." Certainly no case has been called to our attention from the voluminous
jurisprudence of the United States or of England where a policy of ordinary life insurance, having no surrender value, was ever
taken upon process of execution from an insured person, or the beneficiary named in the policy, during the life of the insured;
and we have discovered no case in which such a policy has been declared to pass to the trustee as assets in bankruptcy,
during the life of the insured; though there are apparently cases in which, after death of the insured, the proceeds of such
policies have been declared by some of the Federal courts of the United States to be assets in insolvency — contrary to the
rule afterwards laid down by the Supreme Court of the United States in Burlingham vs. Crouse, supra.

As applied to the facts of the case before us, the conclusion to which we have arrived is that the assignee in insolvency
acquired no beneficial interest in the policy of insurance in question; that its proceeds are not liable for any of the debts
provable against the insolvent in the pending proceedings, and that said proceeds should therefore be delivered to his
administratrix.

The judgment will therefore be reversed; and the plaintiff, the Sun Life Assurance Company, will be directed to pay the
proceeds of the policy to the defendant Tan Sit. So ordered, without special pronouncement as to costs.

Johnson, Araullo, Avanceña Villamor and Romualdez, JJ., concur

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,

vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

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

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

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

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung; kidney or stomach disorder or any other physical
impairment?

Answer: No. If so give details _____________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [x] Yes [ ] NO. 4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.1âwphi1.nêt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension,
which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional
Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." 5During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia's findings, based partly from the information
given by the respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure.
The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17,
1993, the Court of Appeals sustained the trial court's decision. Hence, the present petition. Petitioners interposed the following
assigned errors:

1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO

THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY
TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE
CASE AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF
CAUSE OF ACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER
THE PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY

TO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO
SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN
ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.

4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO

CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF WILFREDO
LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE
INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO. 6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary
in a group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he
had hypertension, which would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty
six thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial
court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court's judgment,
Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not
joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract.
The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device
for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. 7 In a similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness. 8 Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making
the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to be a party to
the contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable
clause does not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:

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

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

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

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

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

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever the insured might have recovered, 14the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance
contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death.
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. 15

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given
by the widow of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the cause of death of Dr. Leuterio was
a duly documented hospital record, and that the widow's declaration that her husband had "possible hypertension several
years ago" should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the
decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous hospital
confinement. 16 Dr. Leuterio's death certificate stated that hypertension was only "the possible cause of death." The private
respondent's statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

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

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

xxx xxx xxx

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

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.18Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the insurer. 19 In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.1âwphi1.nêt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the
amount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for private respondent's
failure to establish the same, the action for specific performance should be dismissed. Petitioner's claim is without merit. A life
insurance policy is a valued policy. 20 Unless the interest of a person insured is susceptible of exact pecuniary measurement,
the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. 21 The mortgagor paid
the premium according to the coverage of his insurance, which states that:

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

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

However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or
his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds
now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 18341 is
AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six
thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of
proof of prior settlement of mortgagor's indebtedness to Development Bank of the Philippines. Costs against
petitioner.1âwphi1.nêt

SO ORDERED.

Mendoza, Buena and De Leon, Jr., JJ., concur.

Bellosillo, J, on official leave.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21642 July 30, 1966

SOCIAL SECURITY SYSTEM, petitioner-appellee, vs.

CANDELARIA D. DAVAC, ET AL., respondents; LOURDES Tuplano, respondent-appellant.

BARRERA, J.:

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

The facts of the case as found by the Social Security Commission, briefly are: The late Petronilo Davac, a former employee
of Lianga Bay Logging Co., Inc. became a member of the Social Security System (SSS for short) on September 1, 1957. As
such member, he was assigned SS I.D. No. 08-007137. In SSS form E-1 (Member's Record) which he accomplished and filed
with the SSS on November 21, 1957, he designated respondent Candelaria Davac as his beneficiary and indicated his
relationship to her as that of "wife". He died on April 5, 1959 and, thereupon, each of the respondents (Candelaria Davac and
Lourdes Tuplano) filed their claims for death benefit with the SSS. It appears from their respective claims and the documents
submitted in support thereof, that the deceased contracted two marriages, the first, with claimant Lourdes Tuplano on August
29, 1946, who bore him a child, Romeo Davac, and the second, with Candelaria Davac on January 18, 1949, with whom he
had a minor daughter Elizabeth Davac. Due to their conflicting claims, the processing thereof was held in abeyance,
whereupon the SSS filed this petition praying that respondents be required to interpose and litigate between themselves their
conflicting claims over the death benefits in question.

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

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

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

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

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

It may be true that the purpose of the coverage under the Social Security System is protection of the employee as well as of
his family, but this purpose or intention of the law cannot be enforced to the extent of contradicting the very provisions of said
law as contained in Section 13, thereof, ... . When the provision of a law are clear and explicit, the courts can do nothing but
apply its clear and explicit provisions (Velasco vs. Lopez, 1 Phil, 270; Caminetti vs. U.S., 242 U.S. 470, 61 L. ed. 442).

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

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

Article 2012 of the New Civil Code provides:

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

And Article 739 of the same Code prescribes:

ART. 739. The following donations shall be void:

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

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

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

The sources of this special fund are the covered employee's contribution (equal to 2-½ per cent of the employee's monthly
compensation);3 the employer's contribution (equivalent to 3-½ per cent of the monthly compensation of the covered
employee);4 and the Government contribution which consists in yearly appropriation of public funds to assure the maintenance
of an adequate working balance of the funds of the System. 5 Additionally, Section 21 of the Social Security Act, as amended
by Republic Act 1792, provides:

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

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

SEC. 15. Non-transferability of benefit. — The system shall pay the benefits provided for in this Act to such persons as may
be entitled thereto in accordance with the provisions of this Act. Such benefits are not transferable, and no power of attorney
or other document executed by those entitled thereto in favor of any agent, attorney, or any other individual for the collection
thereof in their behalf shall be recognized except when they are physically and legally unable to collect personally such
benefits: Provided, however, That in the case of death benefits, if no beneficiary has been designated or the designation there
of is void, said benefits shall be paid to the legal heirs in accordance with the laws of succession. (Rep. Act 2658, amending
Rep. Act 1161.)

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

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

So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, concur
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs.

CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally
married man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado
as the revocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the
policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in
the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums
and interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although
she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of
marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled
to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an
action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered
reading as follows:

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement.
Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala Ebrado
agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she
has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2)
that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929
whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as
evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado;
3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom
she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on
October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that
complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala
Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance
company filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due
from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the
insured in the policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although
the insured made the option to change the beneficiary, same was never changed up to the time of his death and the
wife did not have any opportunity to write the company that there was reservation to change the designation of the
parties agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is
entitled to the policy.
 Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of
this order. SO ORDERED.

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

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

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

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified
the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance
Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that
the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be
applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not
otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation
to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil
Code provides:

The following donations shall be void:

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

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which
the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation. 5 Under American law, a policy of life insurance is considered as a
testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating
the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There
is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be
enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a
fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the
threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be
imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason
should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice
Fernando, said:

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and improper
pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen
desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV),
reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum
et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as husband and
wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years
bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is
correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not
be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.'
So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot
stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the
law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction
that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose
discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation
purely literal of the language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may
effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time
of the donation," Article 739 itself provides:

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot
even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of
the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and
stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has
six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado,
with whom he has two children. These stipulations are nothing less than judicial admissions which, as a consequence, no
longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly
rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and
the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and
stipulation of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.

Teehankee (Chairman), Makasiar, Muñ;oz Palma, Fernandez and Guerrero, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

A.M. No. 190 October 18, 1977

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

RESOLUTION

MAKASIAR, J.:

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

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

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

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

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

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

The record also shows that the late Atty. Chanliongco died ab intestato and that he filed or over to state in his application for
membership with the GSIS the beneficiary or benefits of his retirement benefits, should he die before retirement. Hence, the
retirement benefits shall accrue to his estate and will be distributed among his Legal heirs in with the benefits on intestate s ,
as in the caw of a fife if no benefit is named in the policy (Vda. de vs. GSIS, L-28093, Jan. 30, 1971, 37 SCRA 315, 325).

Insofar therefore as the retirement benefits are WE adopt in toto, for being in accordance with law, the GSIS determination of
the amount of the retirement the kill heirs and their e shares as indicated in its letter to US, dated March 15, 1977, to wit:

(a) Amount of retirement grautity:

1
. Total 37.57169 years
creditable
service

2. Highest rate Pl,558.33333/mo.

of salary

3. Gratuity in 50.14338 months

terms of
months
 4. Amount of
gratuity
(highest

salary) x (No. P78,140,10

of grautity
months)

(b) Legal heirs:

1
. Fidela B. widow
Chanliongco.

2. Mario B. legitimate
Chanliongco II. son

3. Ma. Angelina C. illegitimate

Buenaventura child

4. Mario illegitimate
Chanliongco Jr. child

(c) Distribution

(1) 8/16 share to P39,070.050

Mario II

(2) 4/16 share to the 19,535.025

widow, Fidela B.
Chanliongco

(3) 2/16 share, or 19 535 25

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

TOTAL P78.140.100

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

Unpaid salary for July 8-12, 1976 @

P1,416.66/mo. P228.49

10% salary adj. for July 1-12, 1976 54.84

Money value of terminal leave for the

 period from July 13, 1976 to September

14,1977 @ P1,558.33 21,962.54

Sub-Total P22,9245.87

Less:

Withholding Tax P1,400.00

Supreme Court

Savings & Loan

Association 7,340.42 8.740.42

NET PROCEEDS P13,505.45

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

1
. Fidela B.
Chanliongco

a. As her P 6,752.72
conjugal
share

b. As a P 1,688.18
legal heir

2. Mario P 3,376.36
Chanliongco II

3. Ma. Angelina 844.10

C. Buenaventura

4. Mario Jr. 844.09

TOTAL P13,505.45
It will be seen from the f distribution that the money value of the unused vacation and sick leave, unpaid will and 10%
adjustment due to the has been treated as conjugal property. Accordingly, one-half (l/2) goes to the widow as her share in the
conjugal hip and the other half P6,752.725 is to be distributed to the deceased's kill him, using the same one WE used in
distributing the retirement benefits. This is so because "Vacation with pay is not a gratuity but is compensation for services
rendered." (Ramey vs. State, 296 NW 323, 296 Mich. 449).

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

1
. FIDELA B. CHANLIONGCO

A. HER 4/16 SHARE OF RETIREMENT P19,535.025

GRATUITY

B. HER SHARE FROM MONEY VALUE OF

TEAL LEAVE, UNPAID SALARY AND 10%
ADJUSTMENT:

(1) AS HER CONJUGAL SHARE 6,752.72

(2) AS A LEGAL HEIR P1,688.18

TOTAL AMOUNT DUE HER P27,975.93

2. MARIO CHANLIONGCO II

A. HIS 8/16 SHARE OF RETIREMENT P39,070.05

GRATUITY

B. HIS SHARE FROM MONEY VALUE OF 3,376.36

TERMINAL LEAVE, UNPAID SALARY AND
10% ADJUSTMENT

TOTAL AMOUNT DUE HIM P42,446.41

3. MA. ANGELINA C. BUENAVENTURA:

A. HER 2/16 SHARE OF RETIREMENT P9,767.51

GRATUITY

B. HER SHARE FROM MONEY VALUE OF 844.10

TERMINAL LEAVE, UNPAID SALARY AND
10% ADJUSTMENT

TOTAL AMOUNT DUE HER P10,611.61

4. MARIO CHANLIONGCO JR. TO BE PAID

THROUGH HIS MOTHER AND NATURAL
GUARDIAN, ANGELINA CRESPO):

A. HIS 2/16 SHARE OF RETIREMENT P9,767.51

GRATUITY

B. HIS SHARE FROM MONEY VALUE OF 844.10

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

SO ORDERED.

Separate Opinions

AQUINO, J., concurring:

I concur. The provisions on legitime are found under the rubric of testamentary succession. That does not mean that the
legitime is taken into account only in testamentary succession. The legitime must also be taken into consideration in legal
succession.

There may be instances, like the instant case, where in legal succession the estate is distributed according to the rules on
legitime without applying the rules on intestate ion. The reason is that sometimes the estate is not even sufficient to satisfy
the legitimes. The legitimes of the primary compulsory heirs, like a child or descendant, should first be satisfied.

In this case the decedent's legal heirs are his legitimate child, his widow and two intimate children. His estate is partitioned
among those heirs by giving them their respective time.

The legitimate child gets one-half of the estate as his legitime which is regarded as his share as a legal heir Art 888, Civil
Code).

The widow's legitime is one-fourth of the estate. That represents also her share as a legal heir (Art. 892, 1st sentence, Civil
Code).

The remaining one-fourth of the estate, which is the free portion, goes to the illegitimate children in equal shares, as their
legitime, Pursuant to the provision that 'the legitimate of the illegitimate children shall be taken from the portion of the estate
at the free disposal of the testator, provoked that in no case shall the total legitime of such illegitimate children exceed that
free portion, and that the legitime of the surviving spouse must first be fully satisfied par., art. 895, Civil Code).

The rule in Santillon vs. Miranda, L-19281, June 30, 1965, 14 SCRA 563, that when the surviving spouse concurs with only
one legitimate child, the spouse is entitled to one-half of the estate and the gets the other half, t to article 996 of the Civil Code,
does not apply to the case because here intimate children concur with the surviving spouse and the intimate child.

In this case, to divide the estate between the surviving spouse and the ligitemate child that deprive the illegitimate children of
their legitime.

So, the decendent's estate is distributed in the proportion of 1/2 for the legitimate child, 1/4 for the widow and 1/8 each for the
two illegitimate children.

Also not of possible application to this case is the rule that the legal of an acknowledge natural child is 1/2 of the legitime of
the legitimate child of that the of the spurious child is 2/5 of that of the of the intimate child or 4/5 of that of that of the
acknowledged natural child.

The rule be applied because the estate is not sufficient to cover legitimes of all compulsory heirs. That is one of the flaws of
the law of succession.

A situation as in the instant case may arise where the illegitimate children get less than their legitime.

With respect to the decendant's unpaid salary and the money value of his leave, the same are conjugal properties because of
the rule that property "obtained by the or work, or as salary of the spouses, or either of them", is conjugal in character (Art.
153[2], Civil Code).
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 23703 September 28, 1925

HILARIO GERCIO, plaintiff-appellee,

vs.
SUN LIFE ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.

Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.
Vicente Romualdez, Feria and La O and P. J. Sevilla for appellee.

MALCOLM, J.:

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

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

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

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

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

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

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No. 161481 on the life of Hilario Gercio.
The policy was what is known as a twenty-year endowment policy. By its terms, the insurance company agreed to insure the
life of Hilario Gercio for the sum of P/2,000, to be paid him on February 1, 1930, or if the insured should die before said date,
then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the
insured. The policy also contained a schedule of reserves, amounts in cash, paid-up policies, and renewed insurance,
guaranteed. The policy did not include any provision reserving to the insured the right to change the beneficiary.
On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end of the year 1919,
she was convicted of the crime of adultery. On September 4, 1920, a decree of divorce was issued in civil case no. 17955,
which had the effect of completely dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that he had revoked his donation in
favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary
of the policy. Gercio requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the insurance
company has refused and still refuses to do.

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

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

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

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

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

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

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

These are some of the pertinent principles of the Law of Insurance. To reinforce them, we would, even at the expense of
clogging the decision with unnecessary citation of authority, bring to notice certain decisions which seem to us to have
controlling influence.
To begin with, it is said that our Insurance Act is mostly taken from the statute of California. It should prove of interest, therefore,
to know the stand taken by the Supreme Court of that State. A California decision oft cited in the Cyclopedias is Yore vs.
Booth ([1895]), 110 Cal., 238; 52 Am. St. Rep., 81), in which we find the following:

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

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

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

xxx xxx xxx

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

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

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

xxx xxx xxx

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

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

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

We think it cannot be doubted that in the instance of contracts of insurance with a wife or children, or both, upon
their insurable interest in the life of the husband or father, the latter, while they are living, can exercise no power of
disposition over the same without their consent, nor has he any interest therein of which he can avail himself; nor
upon his death have his personal representatives or his creditors any interest in the proceeds of such contracts,
which belong to the beneficiaries to whom they are payable.
 It is indeed the general rule that a policy, and the money to become due under it, belong, the moment it is issued, to
the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in the person
procuring the insurance, by any act of his, by deed or by will, to transfer to any other person the interest of the person
named.

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

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

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

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

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

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

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

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

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

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

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

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

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

Street, Villamor, Ostrand, Johns, and Villa-Real, JJ., concur. Avanceña, C.J., concurs in the result. Romualdez, J., took no
part.

Separate Opinions

JOHNSON, J., concurring in the result.

I agree with the majority of the court, that the judgment of the lower court should be revoked, but for a different reason. In my
judgment, the question presented by the plaintiff is purely an academic one. The purpose of the petition is to have declared
the rights of certain persons in an insurance policy which is not yet due and payable. It may never become due and payable.
The premiums may not be paid, thereby rendering the contract of insurance of non effect, and many other things may occur,
before the policy becomes due, which would render it non effective. The plaintiff and the other parties who are claiming an
interest in said policy should wait until there is something due them under the same. For the courts to declare now who are
the persons entitled to receive the amounts due, if they ever become due and payable, is impossible, for the reason that
nothing may ever become payable under the contract of insurance, and for many reasons such persons may never have a
right to receive anything when the policy does become due and payable. In my judgment, the action is premature and should
have been dismissed.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-2910 June 29, 1951

THE MANUFACTURERS LIFE INSURANCE CO., plaintiff-appellant,

vs.
BIBIANO L. MEER, in the capacity as Collector of Internal Revenue, defendant-appellee.

Camus, Zavalla, Bautista and Nueves for appellant.

First Assistant Solicitor General Roberto A. Gianzon, Office of the Solicitor Felix V. Makasiar and Solicitor Jose P. Alejandro
for appellee.

BENGZON, J.:

Appeal from a decision of the Honorable Buenaventura Ocampo, then judge of the Manila court of first instance, dismissing
plaintiff's complaint to recover money paid under protest for taxes. The case was submitted upon a stipulation of facts,
supplemented by documentary evidence.

The plaintiff, the Manufacturer Life Insurance Company in a corporation duly organized in Canada with head office at Toronto.
It is duly registered and licensed to engage in life insurance business in the Philippines, and maintains a branch office in
Manila. It was engaged in such business in the Philippines for more than five years before and including the year 1941. But
due to the exigencies of the war it closed the branch office at Manila during 1942 up to September 1945.

In the course of its operations before the war, plaintiff issued a number of life insurance policies in the Philippines containing
stipulations referred to as non-forfeiture clauses, as follows:

'8. Automatic Premium Loan. — This Policy shall not lapse for non-payment of any premium after it has been three
full years in force, if, at the due date of such premium, the Cash Value of this Policy and of any bonus additions and
dividends left on accumulation (after deducting any indebtedness to the Company and the interest accrued thereon)
shall exceed the amount of said premium. In which event the company will, without further request, treat the premium
then due as paid, and the amount of such premium, with interest from its actual due date at six per cent per annum,
compounded yearly, and one per cent, compounded yearly, for expenses, shall be a first lien on this Policy in the
Company's favour in priority to the claim of any assignee or any other person. The accumulated lien may at any time,
while the Policy is in force, be paid in whole or in part.

"When the premium falls due and is not paid in cash within the month's grace, if the Cash Value of this policy and of
any bonus addition and dividends left on accumulation (after deducting any accumulated indebtedness) be less than
the premium then due, the Company will, without further requests, continue this insurance in force for a period .. . .

"10. Cash and Paid-Up Insurance Values. — At the end of the third policy year or thereafter, upon the legal surrender
of this Policy to the Company while there is no default in premium payments or within two months after the due date
of the premium in default, the Company will (1) grant a cash value as specified in Column (A) increased by the cash
value of any bonus additions and dividends left on accumulation, which have been alloted to this Policy, less all
indebtedness to the Company on this Policy on the date of such surrender, or (2) endorse this Policy as a Non-
Participating Paid-up Policy for the amount as specified in Column (B) of the Table of Guaranteed Values . . ..

"11. Extended Insurance. — After the premiums for three or more full years have been paid hereunder in cash, if
any subsequent premium is not paid when due, and there is no indebtness to the Company, on the written request
of the Insured . . ..

From January 1, 1942 to December 31, 1946 for failure of the insured under the above policies to pay the corresponding
premiums for one or more years, the plaintiff's head office of Toronto, applied the provision of the automatic premium loan
clauses; and the net amount of premiums so advanced or loaned totalled P1,069,254.98. On this sum the defendant Collector
of Internal Revenue assessed P17,917.12 — which plaintiff paid supra protest —. The assessment was made pursuant to
section 255 of the National Internal Revenue Code as amended. which partly provides:
 SEC. 255. Taxes on insurance premiums. — There shall be collected from every person, company, or corporation
(except purely cooperative companies or associations) doing business of any sort in the Philippines a tax of one per
centum of the total premiums collected .. whether such premiums are paid in money, notes credits, or any substitute
for money but premiums refunded within six months after payment on account of rejection of risk or returned for
other reason to person insured shall not be included in the taxable receipts . . ..

It is the plaintiff's contention that when it made premium loans or premium advances, as above stated, by virtue of the non-
forfeiture clauses, it did not collect premiums within the meaning of the above sections of the law, and therefore it is not
amendable to the tax therein provided.

The plaintiff conveniently divides that issue into five minor issues, to wit:

(a) Whether or not premium advances made by plaintiff-appellant under the automatic premium loan clause of its
policies are "premium collected" by the Company subject to tax;

(b) Whether or not, in the application of the automatic premium loan clause of plaintiff-appellant's policies, there is
"payment in money, notes, credit, or any substitutes for money";

(c) Whether or not the collection of the alleged deficiency premium taxes constitutes double taxation;

(d) Whether the making of premium advances, granting for the sake of argument that it amounted to collection of
premiums, were done in Toronto, Canada, or in the Philippines; and

(e) Whether or not the fact that plaintiff-appellant was not doing business in the Philippines during the period from
January 1, 1942 to September 30, 1945, inclusive, exempts it from payment of premium taxes corresponding to said
period.

These points will be considered in their order. The first two may best taken up together in the light of a practical illustration
offered by appellant:

"Suppose that "A" years of age, secures a 20-years endowment policy for P5,000 from plaintiff-appellant Company and pays
an annual premium of P250. 'A' pays the first ten yearly premiums amounting to P2,500 and on this amount plaintiff-appellant
pays the corresponding taxes under section 255 of the National Internal Revenue Code. Suppose also that the cash value of
said policy after the payment of the 10th annual premium amounts to P1,000." When on the eleventh year the annual premium
fell due and the insured remitted no money within the months grace, the insurer treated the premium then over due as paid
from the cash value, the amount being loan to the policyholder 1 who could discharged it at anytime with interest at 6 per cent.
The insurance contract, therefore, continued in force for the eleventh year.

Under the circumstances described, did the insurer collect the amount of P250 as the annual premium for the eleventh year
on the said policy? The plaintiff says no; but the defendant and the lower court say yes. The latter have, in our opinion, the
correct view. In effect the Manufacturers Life Insurance Co. loaned to "A" on the eleventh year, the sum of P250 and the latter
in turn paid with that sum the annual premium on his policy. The Company therefore collected the premium for the eleventh
year.

"How could there be such a collection "plaintiff argues "when as a result thereof, insurer becomes a creditor, acquires a lien
on the policy and is entitled to collect interest on the amount of the unpaid premiums?".

Wittingly, the "premium" and the "loan" have been interchanged in the argument. The insurer "became a creditor" of the
loan, but not of the premium that had already been paid. And it is entitled to collect interest on the loan, not on the premium.

In other words, "A" paid the premium for the eleventh; but in turn he became a debtor of the company for the sum of P250.
This debt he could repay either by later remitting the money to the insurer or by letting the cash value compensate for it. The
debt may also be deducted form the amount of the policy should "A" die thereafter during the continuance of the policy.

Proceeding along the same line of argument counsel for plaintiff observes "that there is no change, much less an increase, in
the amount of the assets of plaintiff-appellant after the application of the automatic premium loan clause. Its assets remain
exactly the same after making the advances in question. It being so, there could have been no collection of premium . . .. "We
cannot assent to this view, because there was an increase. There was thenew credit for the advances made. True, the plaintiff
could not sue the insured to enforce that credit. But it has means of satisfaction out of the cash surrender value.
Here again it may be urged that if the credit is paid out of the cash surrender value, there were no new funds added to the
company's assets. Cash surrender value "as applied to life insurance policy, is the amount of money the company agrees to
pay to the holder of the policy if he surrenders it and releases his claims upon it. The more premiums the insured has paid the
greater will be the surrender value; but the surrender value is always a lesser sum than the total amount of premiums paid."
(Cyclopedia Law Dictionary 3d. ed. 1077.)

The cash value or cash surrender value is therefore an amount which the insurance company holds in trust 2 for the insured to
be delivered to him upon demand. It is therefore a liability of the company to the insured. Now then, when the company's credit
for advances is paid out of the cash value or cash surrender value, that value and the company's liability is thereby
dismissed pro tanto. Consequently, the net assets of the insurance company increasedcorresponding; for it is plain
mathematics that the decrease of a person's liabilities means a corresponding increase in his net assets.

Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed no additional cash to the
funds of the insurer. Yet it must be admitted that the insurer agreed to consider the premium paid on the strength of the
automatic loan. The premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the taxis
due because section 255 above quoted levies taxes according to the total premiums collected by the insurer "whether such
premiums are paid in money, notes, credits or any substitutes for money.

In connection with the third issue, appellant refers to its example about "A" who failed to pay the premium on the eleventh year
and the insurer advanced P250 from the cash value. Then it reasons out that "if the amount P250 is deducted from the cash
value of P1,000 of the policy, then taxing this P250 anew as premium collected, as was done in the present case, will amount
to double taxation since taxes had already been collected on the cash value of P1,000 as part of the P2,500 collected as
premiums for the first ten years." The trouble with the argument is that it assumes all advances are necessarily repaid from
the cash value. That is true in some cases. In others the insured subsequently remits the money to repay the advance and to
keep unimpaired the cash reserve of his policy.

As to a matter of fact of the total amount advanced (P1,069,254.998) P158,666.63 had actually been repaid at the time of
assessment notice. Besides, the premiums paid and on which taxes had already been collected, were those for the ten years.
The tax demanded is on the premium for the eleventh year.

In any event there is no constitutional prohibition against double taxation.

On the fourth issue the appellant takes the position that as advances of premiums were made in Toronto, such premiums are
deemed to have been paid there — not in the Philippines — and therefore those payments are not subject to local taxation.
The thesis overlooks the actual fact that the loans are made to policyholders in the Philippines, who in turn pay therewith the
premium to the insurer thru the Manila branch. Approval of appellants position will enable foreign insurers to evade the tax by
contriving to require that premium payments shall be made at their head offices. What is important, the law does not
contemplate premiums collected in the Philippines. It is enough that the insurer is doing insurance business in the Philippines,
irrespective of the place of its organization or establishment.

This brings forth the appellant's last contention that it was "engaged in business" in the Philippines during the years 1942 to
September 1945, and that as section 255 applies only to companies "doing insurance business in the Philippines" this tax was
improperly demanded.

It is our opinion that although during those years the appellant was not open for new business because its branch office was
closed, still it was practically and legally, operating in this country by collecting premiums on its outstanding policies, incurring
the risks and/or enjoying the benefits consequent thereto, without having previously taken any steps indicating withdrawal in
good faith field of economic activity3.

As a matter of fact, in objecting to the payment of the tax, plaintiff-appellant never insisted, before the Bureau of Internal
Revenue, that it was not engaged in business in this country during those years.

Wherefore, finding no prejudicial error in the appealed decisions, we hereby affirm it with costs.

Paras, C.J., Feria, Pablo, Padilla, Tuason, Montemayor, Reyes and Jugo, JJ., concur