G.R. No.

L-1669

August 31, 1950

PAZ
LOPEZ
DE
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

CONSTANTINO, plaintiff-appellant,

x---------------------------------------------------------x
G.R. No. L-1670

August 31, 1950

AGUSTINA
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

PERALTA, plaintiff-appellant,

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

Constantino.
Peralta.
appellee.

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 termof
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.)
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.)
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 imposs ible circumstances
created by war.
Defendant on the other hand asserts that the policies had lapsed for non -payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the
benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has received
careful consideration, inasmuch as it affects the interest of thousands of policy-holders and the obligations
of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil
Code.2 Act No. 2427 was largely copied from the Civil Code of California. 3 And this court has heretofore
announced its intention to supplement the statutory laws with general principles prevailing on the subject
in the United State. 4
In Young vs. Midland Textile Insurance Co.(30 Phil., 617),we saidthat"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 stipu late 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 toshow
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 nonpayment 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 paidover
the actual risk carried during the years when the policy had been in force. This rule was announcedin the
well-known Statham 6 case which, in the opinion of Professor Vance, is the correct rule.7
The appellants andsome amici curiae contendthat the New York rule shouldbe 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 nonpayment 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 i s 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 ave rage 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 insuredis
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 downon 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 wa r 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 settle ment 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, orat 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 premiumis 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. (Noblevs. 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.

Spouses Tomas Ruiz and Agustina Peralta. Their premium were initially annually but
subsequently changedto quarterly. The lastquarterly premium was delivered on on
November 18, 1941 and it covered the period until January 31, 1942.

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 tobe
borne by each individual will be relatively small."

Upon the Japanese occupation, the insurer and insured were not able to deal with
each other

Because the insured had borrowed on the policy P234.00 in January, 1941, the cash
surrender value of the policy was sufficient to maintain the policy in force onlyup
to September 7, 1942.

Tomas Ruiz died on February 16, 1945 with Agustina Peralta as beneficiary. Her
demand for payment was refused on the ground of non-payment of the premiums.

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, whichis 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.

Plaintiffs: As beneficiaries, they are entitled to receive the proceeds of the policies minus all
sums due for premiums in arrears.The non-payment of the premiums was causedby the closing
of Asia's offices in Manila during the Japanese occupation and the impossible circumstances
created by war.

lower court: absolved Asia

ISSUE: W/N the insurers still have a right to claim.

HELD: YES. lower court affirmed.

it would seem that pursuant to the express terms of the policy, non-payment of premium
produces its avoidance

Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur.

Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse
to enforce an insurance contract according to its meaning.

CONSTANTINO VS PAZ CASE DIGEST

Nevertheless, 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

3 Rules in case of war:

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.

FACTS:

Case 1:

The life of Arcadio Constantino was insured with Asia Life Insurance Company
(Asia) for a term of 20 years with Paz Lopez de Constantino as beneficiary. The first
premium covered the period up to September 26, 1942.

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

Asia Life Insurance Company, being an American Corp., had to close its branch office
in Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the
year 1945.

Case 2:

Connecticut Rule

2 elements in the consideration for which the annual premium is paid:

mere protection for the year

privilege of renewing the contract for each succeeding year

by paying the premium for that year at the time agreed upon

payment of premiums is a condition precedent, the non-performance

would be illegal necessarily defeats the right to renew the contract

New York Rule - greatly followed by a number of cases

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

United States Rule

contract is not merely suspended, but is abrogated by reason of nonpayments is peculiarly of the essence of the contract

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

The business of insurance is founded on the law of average; that of life insurance eminentlyso

contract of insurance is sui generis

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.

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.

the fundamental character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof, was specifically recognized

adopt the United States Rule: 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

G.R. No. L-44059 October 28, 1977

THE
INSULAR
LIFE
ASSURANCE
COMPANY,
LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance
policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No.
009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura
C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch
of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the
additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for
the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and
February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is
the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd.
commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial
order was entered reading as follows: +.wph!1
During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the
pre-trial and make admissions for the purpose of pretrial. During this conference, parties Carponia T.
Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando, Cresencio, Elsa,
Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was
insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September1, 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 whomshe 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 ins ured made
reservation to change the beneficiary but although the insured made the option to change the beneficiary,
same was never changed up to the time of his death and the wife did not have any opportunity to write
the company that there was reservation to change the designation of the parties agreed that a decision
be rendered based on and stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the
receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado
disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased insured. The trial court
held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of those acts be made in a separate independent
action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado
was made beneficiary in the policy in question for the disqualification and incapacity to exist and thatit is
only necessary that such fact be established by preponderance of evidence in the trial. Since it is agreedin
their stipulation above-quoted that the deceased insured and defendant Ca rponia T. Ebrado were living
together as husband and wife without being legally married and that the marriage of the insuredwith 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." Whennot otherwise specificallyprovidedfor by the Insurance
Law, the contract of life insurance is governed by the general rules of the civil law regulating
contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who
cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides: +.wph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense, in consideration t hereof;
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 cannotbe
laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation.5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and
determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common
law spouses in record to Property relations since such hip ultimately encroaches upon the nuptial and filial
rights of the legitimate family There is every reason to hold that the bar in donations between legitimate
spouses and those between illegitimate ones should be enforced in life insurance policies since the same
are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no
different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold
of family laws, reason and morality dictate that the impediments imposed upon married couple should
likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus,
in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court
of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue
and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" porque no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas
(Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects
(Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive
policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be
doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party
over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as
already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations
should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So long as
marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be
differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right
would be nullified if such irregular relationship instead of being visited with disabilities would be attended
with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any

occasion where the principle of statutory construction that what is within the spirit of the law is as much
a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision
would not be attained. Whatever omission may be apparent in an interpretation purely literal of the
language used must be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who
were guilty of adultery or concubinage at the time of the donation," Article 739 itself
provides: +.wph!1
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same
action.
The underscored clause neatly conveys thatno criminal conviction for the offense is a conditionprecedent.
In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the contrary,
the law plainly states that the guilt of the party may be proved "in the same acting for declaration of nullity
of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the
offense indicated. The quantum of proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that
during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial,the
parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to
who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby
declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy.
As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased
insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.1wph1.t
INSULAR LIFE VS EBRADO CASE DIGEST
FACTS:
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., on a
whole-life for P5,882.00 with a rider for Accidental Death for the same amount. He designated Carponia
T. Ebrado, his common-law wife as the revocable beneficiary in his policy. He referred to her as his wife in
the policy. On October 21, 1969, He died as a result of an accident when he was hit by a failing branchof
a tree. As the policy was inforce,the insurance company was 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 a claim for the proceeds of the Policyas 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. Pascual T. Ebrado, also filed a
claim to the insurance company, this time claiming to be the legal wife Buenaventura. She asserts thatshe
has a better right over the proceeds than Carponia who is a common-law wife. As the insurance company
is at a loss as to whom to give the proceeds, it commenced an action for interpleader in court. After the
issues have been joined, a pre-trial conference was held on July 8, 1972, that there is no possibility of
amicable settlement. 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. 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. 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.
ISSUE:
Whether or not 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.
HELD:
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.
A common-law wife named as a beneficiary in the life insurance policy of a legally married man cannot
claim the proceeds thereof in case the death of the latter. The contract of insurance is govern by the
provisions of the new civil code on matters not specifically provided for in the insurance code. 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. And under Article 2012 of the same Code, any person who is forbidden from
receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the
person who cannot make a donation to him. Common-law spouses are, definitely, barred from receiving
donations from each other. Also conviction for adultery or concubinage is not required as only
preponderance of evidence is necessary. In essence, a life insurance policy is no different from a civil
donationinsofar as the beneficiary is concerned.Both are foundedupon the same consideration: liberality.
A beneficiary is like a donee, because the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance.

G.R. No. L-4611

December 17, 1955

2637164 (Exhibit "LL")

QUA
CHEE
GAN, plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, BARNES AND CO.,
LTD., defendant-appellant.

Bodega No. 1 (Building)

Bodega No. 2 (Building)
Bodega No. 3 (Building)

Delgado,
Flores
&
Macapagal
for
appellant.
Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, Ponce Enrile & Contreras for
appellee.

2637165 (Exhibit "JJ")

Bodega No. 4 (Building)
Hemp Press moved by steam engine

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

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

2637345 (Exhibit "X")

Merchandise contents (copra and empty sacks of Bodega No. 1)

2637346 (Exhibit "Y")

Merchandise contents (hemp) of Bodega No. 3

2637067 (Exhibit "GG")

Merchandise contents (loose hemp) of Bodega No. 4

Wherefore, judgment is rendered for the plaintiff and against the defendant condemning the latterto pay
the former
(a) Under the first cause of action, the sum of P146,394.48;
(b) Under the second cause of action, the sum of P150,000;
(c) Under the third cause of action, the sum of P5,000;
(d) Under the fourth cause of action, the sum of P15,000; and
(e) Under the fifth cause of action, the sum of P40,000;
all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of the
Insurance Act from September 26, 1940, until each is paid, with costs against the defendant.
The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on
Appeal, 166-167.)
From the decision, the defendant Insurance Company appealed directly to this Court.
The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas
(designated as Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks of
copra and of hemp, baled and loose, in which the appellee dealth extensively. They had been, withtheir
contents, insured with the defendant Company since 1937, and the lose made payable to the Philippine
National Bank as mortgage of the hemp and crops, to the extent of its interest. On June, 1940, the
insurance stood as follows:
Policy No.

Property Insured

Total
Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one
week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren.
Plaintiff-appellee informed the insurer by telegram on the same date; and on the next day, the fire
adjusters engaged by appellant insurance company arrived and proceeded to examine and photograph
the premises, pored over the books of the insured and conducted an extensive investigation. The plaintiff
having submitted the corresponding fire claims, totalling P398,562.81 (but reduced to the full amount of
the insurance, P370,000), the Insurance Company resisted payment, claiming violation of warranties and
conditions, filing of fraudulent claims, and that the fire had been deliberately caused by the insured or by
other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother, Qua
Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime of arson, it being
claimed that they had set fire to the destroyed warehouses to collect the insurance. They were, however,
acquitted by the trial court in a final decision dated July 9, 1941 (Exhibit WW). Thereafter, the civil suit to
collect the insurance money proceeded to its trial and termination in the Court below, with the result
noted at the start of this opinion. The Philippine National Bank's complaint in intervention was dismissed
because the appellee had managed to pay his indebtedness to the Bank during the pendecy of the suit,
and despite the fire losses.
In its first assignment of error, the insurance company alleges that the trial Court should have held that
the policies were avoided for breach of warranty, specifically the one appearing on a rider pasted (with
other similar riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached for the
Amount
first time in 1939,
and the pertinent portions read as follows:
Memo. of Warranty. The undernoted Appliances for the extinction of fire being kept on the premises
insured hereby, and it being declared and understood that there is an ample and constant water supply

with sufficient pressure available at all seasons for the same, it is herebywarranted thatthe said appliances
shall be maintained in efficient working order during the currency of this policy, by reason whereof a
discount of 2 1/2 per cent is allowed on the premium cha rgeable under this policy.
Hydrants in the compound, not less in number than one for each 150 feet of external wall measurement
of building, protected, with not less than 100 feet of hose piping and nozzles for every two hydrants kept
under cover in convenient places, the hydrants being supplied with water pressure by a pumping engine,
or from some other source, capable of discharging at the rate of not less than 200 gallons of water per
minute into the upper story of the highest building protected, and a trained brigade of not less than 20
men to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the
appellee should have eleven (11) fire hydrants in the compound, and that he actually had o nly two (2),
with a further pair nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to
claim violation of the so-calledfire hydrants warranty, for the reasonthat knowing fully all that the number
of hydrants demanded therein never existed from the very beginning, the appellant neverthless issued the
policies in question subject to such warranty, and received the corresponding premiums. It would be
perilously close to conniving at fraud upon the insured to allow appellant to claims now as void ab initio
the policies that it had issued to the plaintiff without warning of theirfatal defect, of whichit was informed,
and after it had misled the defendant into be lieving that the policies were effective.
The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the
municipality of TAbaco, contrary to the requirements of the warranty in question. Such fact appears from
positive testimony for the insured that appellant's agents inspected the premises; and the simple denials
of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was made is
moreover rendered probable by its being a prerequisite for the fixing of the discount on the premium to
which the insured was entitled, since the discount depended on the number of hydrants, and the fire
fighting equipment available (See "Scale of Allowances" to which the policies were expressly made
subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol. 29, pp.
611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge
of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is charitable enough to assume, in the
absence of any showing to the contrary, that an insurance company intends to executed a valid contract
in return for the premium received; and when the policy contains a condition which renders it voidable at
its inception, and this result is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived the insured into thinking he is
insured when in fact he is not, and to have taken his money without consideration. (29 Am. Jur., Insurance,
section 807, at pp. 611-612.)

it the next moment. This cannot be deemed to be the real intention of the parties. To hold that a literal
construction of the policy expressed the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of (Wilson vs. Commercial Union Assurance
Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in this case is heightenedby the
fact that after the insured had incurred the expense of installing the two hydrants, the company collected
the premiums and issued him a policy so worded that it gave the insured a discount much smaller than
that he was normaly entitledto. According to the "Scale of Allowances," a policy subject to a warranty of
the existence of one fire hydrant for every 150 feet of external wall entitled the insured to a discount of 7
1/2 per cent of the premium; while the existence of "hydrants, in compund" (regardless of number)
reduced the allowance on the premium to a mere 2 1/2 per cent. This schedule was logical, since a greater
number of hydrants and fire fighting appliances reduced the risk of loss. But the appellant company, in the
particular case now before us, so worded the policies that while exacting the greater number of fire
hydrants and appliances, it kept the premium discount at the minimum of 2 1/2 per cent, thereby giving
the insurance company a double benefit. No reason is shown why appellant's premises, that had been
insured with appellant for several years past, suddenly should be regarded in 1939 as so hazardous as to
be accorded a treatment beyond the limits of appellant's own scale of allowances. Such abnormal
treatment of the insured strongly points at an abuse of the insurance company's selection of the words
and terms of the contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by the appellant as not applicable
to the present case. It is not a question here whether or not the parties may vary a written contract by oral
evidence; but whether testimony is receivable so that a party may be, by reason of inequitable conduct
shown, estopped from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the
insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Otherthan Nonpayment. It is a well settled
rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force,
receives and accepts a preium on the policy, estopped to take advantage of the forfeiture. It cannot treat
the policy as void for the purpose of defense to an action to recover for a loss thereafter occurring andat
the same time treat it as valid for the purpose of earning and collecting further premiums." (29 Am. Jur.,
653, p. 657.)
It would be unconscionable to permit a company to issue a policy under circumstances which it knew
rendered the policy void and then to accept and retain premiums under such a void policy. Neither law
nor good morals would justify such conduct and the doctrine of equitable estoppel is peculiarly applicable
to the situation. (McGuire vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or obscurities must be s trictly
interpreted aganst the prty that caused them, 1 the "memo of warranty" invoked by appellant bars the
latter from questioning the existence of the appliances called for in the insured premises, since its initial
expression, "the undernoted appliances for the extinction of fire being kept on the premises insured
hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of the existence of such
appliances which appellant cannot now contradict, should the parol evidence rule apply.

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's money
for a policy of insurance which it then knows to be void and of no effect, though it knows as it must,that
the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing,
and so closely related to positive fraud, as to the abhorent to fairminded men. It would be to allow the
company to treat the policy as valid long enough to get the preium on it, and leave it at liberty to repudiate

The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally
rejected, since the appellant's argument thereon is based on the assumption that the insured was bound
to maintain no less than eleven hydrants (one per 150 feet of wall), which requirement appellant is
estopped from enforcing. The supposed breach of the wter pressure condition is made to rest on the
testimony of witness Serra, thatthe water supply could fill a 5-gallon can in 3 seconds; appellant thereupon
inferring that the maximum quantity obtainable from the hydrants was 100 gallons a minute, when the

warranty called for 200 gallons a minute. The transcript shows, however, that Serra repeatedly refused
and professed inability to estimate the rate of discharge of the water, and only gave the "5-gallon per 3second" rate because the insistence of appellant's counsel forced the witness to hazard a guess. Obviously,
the testimony is worthless and insufficient to establish the violation claimed, speci ally since the burdenof
its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was
organized, and drilled, from time to give, altho not maintained as a permanently separate unit, which the
warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for his
compound alone a fire fighting force that many municipalities in the Islands do not even possess. There is
no merit in appellant's claim that subordinate membership of the business manager (Co Cuan) in the fire
brigade, while its direction was entrusted to a minor employee unders the testimony improbable. A
business manager is not necessarily adept at fire fighting, the qualities required being different for both
activities.
Under the second assignment of error, appellant insurance company avers, that the insured violatedthe
"Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since
appellee admitted that there were 36 cans (latas) of gasoline in the building designed as "Bodega No. 2"
that was a separate structure not affected by the fire. It is well to note that gasoline is not specifically
mentioned among the prohibited articles listed in the so-called "hemp warranty." The cause reliedupon
by the insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their liquid products having
a flash point below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance,
"Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it may well be wondered,
are in a position to understand or determine "flash point below 003o Fahrenheit. Here, again, by reason
of the exclusive control of the insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of the insured, specially to avoid
a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the hearing and possible complications of every contingency. So long
as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal
rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase
insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash.
324, LRA 1917A, 1237.)
An insurershouldnot be allowed,by the use of obscure phrases and exceptions, to defeatthe very purpose
for which the policy was procured (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises could not be expressed clearly
and unmistakably, in the language andterms thatthe general public can readily understand, without resort
to obscure esoteric expression (now derisively termed "gobbledygook"). We reiterate the rule stated in
Bachrach vs. British American Assurance Co. (17 Phil. 555, 561):
If the company intended to rely upon a condition of that character, it ought to have been plainly expressed
in the policy.
This rigid applicationof the rule on ambiguities has become necessary in view of currentbusiness practices.
The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared
"agreements" that the weaker party may not change one whit, his participation in the "agreement" being
reduced to the alternative to take it or leave it" labelled since Raymond Baloilles" contracts by adherence"
(con tracts d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such

contracts (of which policies of insurance and international bills of lading are prime examples) obviously
call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps for the unwarry (New Civil Coee,
Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad, habra de ser
tenido en cuenta que al seguro es, practicamente un contrato de los llamados de adhesion y por
consiguiente en caso de duda sobre la significacion de las clausulas generales de una poliza redactada
por las compafijas sin la intervencion alguna de sus clientes se ha de adoptar de acuerdo con el articulo
1268 del Codigo Civil, la interpretacion mas favorable al asegurado, ya que la obscuridad es imputable a la
empresa aseguradora,que debia haberse explicadomas claramante. (Dec. Trib.Sup. of Spain13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally
so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it
stricter responsibility.
Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental
to his business, being no more than a customary 2 day's supply for the five or six motor vehicles usedfor
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of
inflammable oils on the premises though prohibited by the policy does not void it if such keeping is
incidental to the business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and "according to
the weight of authority, even though there are printed prohibitions against keeping certain articles on the
insuredpremises the policy will not be avoided by a violation of these prohibitions,if the prohibit edarticles
are necessary or in customary use in carrying on the trade or business conducted on the premises." (45 C.
J. S., p. 311; also 4 Couch on Insurance, section 966b). It should also be noted that the "Hemp Warranty"
forbade storage only "in the building to which this insurance applies and/or in any building communicating
therewith", and it is undisputed that no gasoline was stored in the burned bodegas, and that "Bodega No.
2" which was not burned and where the gasoline was found, stood isolated fro m the other insured
bodegas.
The charge that the insured failed or refused to submitto the examiners of the insurer the books, vouchers,
etc. demanded by them was found unsubstantiated by the trial Court, and no reason has been shown to
alter this finding. The insured gave the insurance examiner all the date he asked for (Exhibits AA, BB, CCC
and Z), and the examiner even kept and photographed some of the examined books in his possession.
What does appear to have been rejected by the insured was the demand that he should submit
"a list of all books, vouchers, receiptsand other records" (Age 4, Exhibit 9-c); but the refusal of the insured
in this instance was well justified, since the demand for a list of all the vouchers (which were not inuse by
the insured) and receipts was positively unreasonable, considering that such listing was superfluous
because the insurer was not denied access to the records, that the volume of Qua Chee Gan's business ran
into millions, and that the demand was made just after the fire when everything was in turmoil. That the
representatives of the insurance company were able to secure all the date they needed is provedby the
fact that the adjuster Alexander Stewart was able to prepare his own balance sheet (Exhibit L of the
criminal case) that did not differ from that submitted by the insured (Exhibit J) except for the valuationof
the merchandise, as expressly found by the Court in the criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the decision
of the arson case (Exhibit WW) acquiting Qua Choc Gan, appellee in the present proceedings. The decision
states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asi como su
existencia de copra y abaca en las bodega al tiempo del incendio durante el periodo comprendido desde
el 1.o de enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de

P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este conclusion el ha tenidoen cuenta el
balance de comprobacion Exhibit 'J' que le ha entregado el mismo acusado Que Choc Gan en relacioncon
sus libros y lo ha encontrado correcto a excepcion de los precios de abaca y copra que alli aparecenque
no estan de acuerdo con los precios en el mercado. Esta comprobacion aparece en el balance mercado
exhibit J que fue preparado por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the adjuster Stewart for the insurer,
the Court referred the controversy to a government auditor, Apolonio Ramos; but the latter reached a
different result from the other two. Not only that, but Ramos reported two different valuations that could
be reached according to the methods employed (Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos para promovar el comercio
y la finanza, pero en el caso presente ha resultado un tanto cumplicada y acomodaticia, como lo prueba el
resultado del examen hecho por los contadores Stewart y Ramos, pues el juzgado no alcanza a ver como
habiendo examinado las mismas partidas y los mismos libros dichos contadores hayan de llegara dos
conclusiones que difieron sustancialmente entre si. En otras palabras, no solamente la comprobacion
hecha por Stewart difiere de la comprobacion hecha por Ramos sino que, segun este ultimo, su
comprobacion ha dado lugar a dos resultados diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurer
attempted to bolster its case with alleged photographs of certain pages of the insurance book (destroyed
by the war) of insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal purchases
of hemp and copra from June 11 to June 20, 1940. The Court below remained unconvinced of the
authenticity of those photographs, and rejected them, because they were not mentioned not introduced
in the criminal case; and considering the evident importance of said exhibits in establishing the motive of
the insured in committing the arson charged, and the absence of adequate explanation for their omission
in the criminal case, we cannot say that their rejection in the civil case constit uted reversible error.
The next two defenses pleaded by the insurer, that the insured connived at the loss and that the
fraudulently inflated the quantity of the insured stock in the burnt bodegas, are closely related to each
other. Both defenses are predicted on the assumption that the insured was in financial difficulties andset
the fire to defraud the insurance company, presumably in order to pay off the Philippine National Bank, to
which most of the insured hemp and copra was pledged. Both defenses are fatally undermined by the
established fact that, notwithstanding the insurer's refusal to pay the value of the policies the extensive
resources of the insured (Exhibit WW) enabled him to pay off the National Bank in a short time; and if he
was able to do so, no motive appears for attempt to defraud the insurer. While the acquittal of the insured
in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge from the
decision in the criminal case, is practically identical in both cases and must lead to the same result, since
the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be
materially less convincing than that required in order to convict the insured of the crime o f
arson"(Bachrach vs. British American Assurance Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained the quantities of copra and
hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and
conclusionsAs to the defense that the burned bodegas could not possibly have contained the quantities of
copra and hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates,
inferences and conclusions of its adjuster investigator, Alexander D. Stewart, who examined the premises
during and after the fire. His testimony, however, was based on inferences from the photographs and
traces found after the fire, and must yield to the contradictory testimony of engineer Andres Bolinas, and
specially of the then Chief of the Loan Department of the National Bank's Legaspi branch, Porfirio Barrios,
and of Bank Appraiser Loreto Samson, who actually saw the contents of the bodegas shortly before the
fire, while inspecting them for the mortgagee Bank. The lower Court was satisfied of the veracity and

accuracy of these witnesses, and the appellant insurer has failed to substantiate its charges aganst their
character. In fact, the insurer's repeated accusations that these witnesses were later "suspended for
fraudulent transactions" without giving any details, is a plain attempt to create prejudice against them,
without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hemp
burned (t. s. n., pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below to accept
its inferences from the remains shown in the photographs of the burned premises. It appears, likewise,
that the adjuster's calculations of the maximum contents of the destroyed warehouses rested on the
assumption that all the copra and hemp were in sacks, and on the result of his experiments to determine
the space occupied by definite amounts of sacked copra. The error in the estimates thus arrived at
proceeds from the fact that a large amount of the insured's stock were in loose form, occupying less space
than when kept in sacks; and from Stewart's obvious failure to give due allowance for the compressionof
the material at the bottom of the piles (t. s. n., pp. 1964, 1967) due to the weight of the overlying stock,
as shown by engineer Bolinas. It is probable that the errors were due to inexperience (Stewart himself
admitted that this was the first copra fire he had inve stigated); but it is clear that such errors render
valueles Stewart's computations. These were in fact twice passed upon and twice rejected by different
judges (in the criminal and civil cases) and their concordant opinion is practically conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, since the
opinions stated therein were based on ex parte investigations made at the back of the insured; and the
appellant did not present at the trial the original testimony and documents from which the conclusions in
the report were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the insured contained false and
fraudulent statements that avoided the insurance policy. But the trial Court found that the discrepancies
were a result of the insured's erroneous interpretation of the provisions of the insurance policies and claim
forms, caused by his imperfect knowledge of English, and that the misstatements were innocently made
and without intent to defraud. Our review of the lengthy record fails to disclose reasons for rejecting these
conclusions of the Court below. For example, the occurrence of previous fires in the premises insured in
1939, altho omitted in the claims, Exhibits EE and FF, were nevertheless revealed by the insured in his
claims Exhibits Q (filed simultaneously with them), KK and WW. Considering that all these claims were
submitted to the smae agent, and that this same agent had paid the loss caused by the 1939 fire, we find
no error in the trial Court's acceptance of the insured's explanation that the omission in Exhibits EE and FF
was due to inadvertance, for the insured could hardly expect under such circumstances, that the 1939
would pass unnoticed by the insurance agents. Similarly, the 20 per cent overclaim on 70 per cent of the
hemo stock, was explained by the insured as caused by his belief that he was entitled to include in the
claim his expected profit on the 70 per cent of the hemp, because the same was already con tracted for
and sold to other parties before the fire occurred. Compared with other cases of over-valuation recorded
in our judicial annals, the 20 per cent excess in the case of the insured is not by itself sufficient to establish
fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times
(1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight (8)
times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times (600 per cent); in Tan It
vs. Sun Insurance, 51 Phil. 212, the claim totalled P31,860.85 while the goods insured were inventoried at
O13,113. Certainly, the insured's overclaim of 20 per cent in the case at bar, duly explained by him to the
Court a quo, appears puny by comparison, and can not be regarded as "more than misstatement, more
than inadvertence of mistake, more than a mere error in opinion, more than a slight exaggeration" (Tan It
vs. Sun Insurance Office, ante) that would entitle the insurer to avoid the policy. It is well to note that the
overchange of 20 per cent was claimed only on a part (70 per cent) of the hemp stock; had the insured
acted with fraudulent intent, nothing prevented him from increasing the value of all of his copra, hemp
and buildings in the same proportion. This also applies to the alleged fraudulent claim for burned empty
sacks, that was likewise explained to our satisfaction and that of the trial Court. The rule is thatto avoid a

policy, the false swearing must be wilful and with intent to defraud (29 Am. Jur., pp. 849-851) which was
not the cause. Of course, the lack of fraudulent intent would not authorize the collection of the expected
profit under the terms of the polices, and the trial Court correctly deducte the same from its award.
We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed. Costs
against the appellant. So ordered.

the dictates of honesty and fair dealing, and so closely related to positive fraud, as to the abhorrent to fairminded men.
The appellant company so worded the policies that while exacting the greater number of fire hydrants and
appliances, it kept the premium discount at the minimum of 2 1/2%, thereby giving the insurance company
a double benefit. Such abnormal treatment of the insured strongly points at an abuse of the insurance
company's selection of the words and terms of the contract, over which it had absolute control.

Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and Concepcion, JJ., concur.

Qua owned 4 warehouses used for the storage of copra and hemp. They were insured with the Law Union.

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

Fire broke out and completely destroyed 3 bodegas. The plaintiff submitted claims totalling P398,562.81.
The Insurance Company resisted payment on the grounds that the fire had been deliberately caused by
the insured or by other persons in connivance with him.

Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly
interpreted against the party that caused them, the "memo of warranty" invoked by appellant bars the
latter from questioning the existence of the appliances called for in the insured premises

Que Chee Gan and his brother were tried for arson, but were acquitted by the trial court. As regards the
insurance claim, the trial court ruled in favor of Qua and entitled him to recover more than Php 300,000
for indemnities from the insurance company. Hence, the company appealed to the SC.

2. The ambiguity must be held strictly against the insurer and liberally in favor of the insured, specially to
avoid a forfeiture. So long as insurance companies insistupon 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 everyambiguity in favor of the insured.

In its first assignment of error, the insurance company alleged that the trial Court should have held that
the policies were avoided for breach of warranty. The contract noted that fire hydrants were required in
a particular measurement of space (every 150 feet). Hence, they argued that since the bodegas insured
had an external wall perimeter of 500 meters, the appellee should have 11 fire hydrants in the compound,
and that he actually had only 2, with a further pair.

Appellee admitted that there were 36 cans of gasoline in the building designed. It However, gasoline is
not specifically mentioned among the prohibited articles listed in the so-called "hemp warranty." The
cause relied upon by the insurer speaks of "oils", and is uncertain because, "Oils" usually mean "lubricants"
and not gasoline or kerosene.

Issues:

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

QUA VS LAW UNION CASE DIGEST

Facts:

1. WON the insurance company can void the policies it had issued
2. WON the insured violated the "Hemp Warranty" provisions of the policy against the storage of gasoline

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

3. WON the insured planned the destruction of the bodega

Held: No. No. No.
Ratio:
1. The insurer, who at the time of issuance, has knowledge of existing facts which would invalidate the
contract from the beginning, such constitutes a waiver of conditions in the contract inconsistent with the
facts, andthe insureris stoppedthereafter from asserting the breach of suchconditions. Also, an insurance
company intends to executed a valid contract in return for the premium received; and when the policy
contains a condition which renders it voidable at its inception, and this result is known to the insurer, it
will be presumed to have intended to waive the conditions and to execute a binding contract, ratherthan
to have deceived the insured into thinking he is insured when in fact he is not.
The appellant is barred estoppel to claim violation of the so-called fire hydrants warranty, because it
knew the number of hydrants demanded therein never existed from the very beginning and issued the
policies.
To allow a company to accept one's money for a policy of insurance which it then knows to be void andof
no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to

Also, the gasoline keptin Bodega No. 2 was only incidental to his business,being no more thana customary
2 day's supply for the five or six motor vehicles used for transporting of the stored merchandise. "It is well
settled that the keeping of inflammable oils on the premises though prohibited by the policy does not void
it if such keeping is incidental to the business."
3. It was unlikely that Qua burned the warehouse to defraud the company because he had the resources
to pay off theNational Bank in a short time. Also, no motive appears for attempt to defraud the insurer.
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the
insurer's evidence, to judge from the decision in the criminal case, is practically identical in both cases and
must lead to the same result, since the proof to establish the defense of connivance at the fire in order to
defraud the insurer "cannot be materially less convincing than that required in order to convict the insured
of the crime of arson."
As to the defense that the burned bodegas could not possibly have contained the quantities of copra and
hemp stated in the fire claims, the insurer relied on its adjuster investigator who examined the premises
during and after the fire. His testimony, however, was based on inferences from the photographs and
traces found after the fire, and must yield to the contradictory testimony of those who actually saw the
contents of the bodegas shortly before the fire, while inspecting them for the mortgagee Bank.

G.R. No. L-21821-22 and L-21824-27

May 31, 1966

DIOSDADO
C.
vs.
FILIPINAS COMPAIA DE SEGUROS, et al., defendants-appellees.

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

Porfirio
V.
Villaroman
for
plaintiff-appellant.
Ramirez and Ortigas for defendants-appellees Filipinas Compaia de Seguros, Philippine Guaranty Co., Inc.
and
Universal
Insurance
and
Indemnity
Co.
Renato L. Liboro for defendant-appellee People's Surety and Insurance Co., Inc.
Perfecto P. R. Chua Cheng for defendant-appellee South Sea Surety and Insurance Co., Inc.
Gil Carlos and Associates for defendant-appellee Plaridel Surety and Insurance Co., Inc.

"INDEMNITY FOR TOTAL OR PARTIAL DISABILITY

If the Insured sustains any Bodily Injury which is effected solely through vi olent, external, visible and
accidental means, and which shall not prove fatal but shall result, independently of all other causes and
within sixty (60) days from the occurrence, thereof, in Total or Partial Disability of the Insured, the
Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such
injury.
PARTIAL DISABILITY

BARRERA, J.:

LOSS OF:

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

Either Hand P650.00

The facts of these cases are not controverted:

Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, working as
mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took Personal Accident
Policies from several insurance companies, among which are herein defendants-appellees, on different
dates,1 effective for 12 months. During the effectivity of these policies, or on December 24, 1953, a fire
broke out in the factory where plaintiff was working. As he was trying to put out said fire with the helpof
a fire extinguisher, a heavy object fell upon his left hand. Plaintiff received treatment at the National
Orthopedic Hospital from December 26, 1953 to February 8, 1954, for the following injuries, to wit:
(1) Fracture, simple, oraximal phalanx, index finger, left;
(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd phalanx simple;
(3) Fracture, compound, communite phalanx, 4th finger, left;
(4) Fracture, simple, middle phalanx, middle finger, left;
(5) Lacerated wound, sutured, volar aspect, small finger, left;
(6) Fracture, simple, chip, head, 1st phalanx 5th digit, left.
which injuries, the attending surgeon certified, would cause temporary total disability of appellant's left
hand.
As the insurance companies refused to pay his claim for compensation under the policies by reason of the
said disability of his left hand, Ty filed motions in the Municipal Court of Manila, which rendered favorable
decision. On appeal to the Court of First Instance by the insurance companies, the cases were dismissed
on the ground that under the uniform terms of the insurance policies, partial disability of the insured
caused by loss of either hand to be compensable, the loss must result in the amputation of that hand.
Hence, these appeals by the insured.1wph1.t

The loss of a hand shall mean the loss, by amputation through the bones of the wrist.
Appellant contends that to be entitled to indemnification under the foregoing provision, it is enoughthat
the insured is disabled to such an extent that he cannot substantially perform all acts or duties of the kind
necessary in the prosecution of his business. It is argued that what is compensable is the disability and not
the amputation of the hand. The definition of what constitutes loss of hand, placed in the contract,
according to appellant, consequently, makes the provision ambiguous and calls for the interpretation
thereof by this Court.
This is not the first time that the proper construction of this provision, which is uniformly carried in
personal accident policies, has been questioned. Herein appellant himself has already brought this matter
to the attention of this Court in connection with the other accident policies which he took and under which
he had tried to collect indemnity, for the identical injury that is the basis of the claims in these cases.And,
we had already ruled:
While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we can
not go beyond the clear and express conditions of the insurance policies, all of which definite partial
disability as loss of either hand by amputation through the bones of the wrist. There was no such
amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was
that the physical injuries "caused temporary total disability of plaintiff's left hand." Note that the disability
of plaintiff's hand was merely temporary, having been caused by fractures of the index, the middle and
the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties.As
the terms of the policies are clear, express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the mere fracture or other temporary
disability not covered by the policies would certainly be unwarranted. 2
We find no reason to depart from the foregoing ruling on the matter.
Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the contract.
The provision is clear enough to inform the party entering into that contract that the loss to be considered
a disability entitled to indemnity, must be severance or amputation of that affected member from the
body of the insured.
Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without costs. So
ordered.

Concepcion, Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

In the case of an ordinary fire policy, which grants insurance only from year, or for some other
specified term it is plain that when the parties become alien enemies, the contractual tie is
broken and the contractual rights of the parties, so far as not vested.

However, elementary rules of justice (in the absence of specific provision in the Insurance Law)
require that the premium paid by the respondent for the period covered by its policy from
December 11, 1941, should be returned by the petitioner

TY VS SEGUROS CASE DIGEST

FACTS:

October 1, 1941: Christern Huenefeld and co., inc. (Christern), a company whose major
stockholders are German, paid P1M and obtained a fire policy fromFilipinas Cia. de Seguros
(Filipinas)

December 10, 1941: U.S. declared a war against Germany

February 27, 1942 (during the japanese occupation): the building and insured merchandise
were burned

their claimed from Filipinas and the salvage goods were auctioned for P92,650 who
refused since Christen was organized under the Philippine laws, it was under
American jurisdiction which is an enemy of the Germans

April 9, 1943: The Director of Bureau of Financing ordered Filipinas to pay the P92,650 to
Christen and it did.

Filipinas filed with the CFI the P92,650 paid to Christern

CA affirmed CFI: dismissed the action

Filed a petition for certiorari

ISSUE: W/N Christern is a public enemy and therefore ceased to be insured

HELD: YES. Ordered to pay Filipinas P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the Filipinas for the unexpired term of the policy in
question, beginning December 11, 1941

Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured

Effect of war, generally. All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited by the law of nations. Such prohibition includes
all negotiations, commerce, or trading with the enemy; all acts which will increase, or tend to
increase, its income or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and all contracts
relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the
enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason
that the subjects of one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subje cts, 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 commencementof
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

G.R. No. L-16215

June 29, 1963

SIMEON DEL ROSARIO, vs. THE EQUITABLE INSURANCE AND CASUALTY CO., INC.,
On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal
Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein
plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the
death of the insured. The pertinent provisions of the Policy, recite:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through violent, external, visible
and accidental means, and which shall result, independently of all other causes and within sixty
(60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:
Section 1. Injury sustained other than those specified below unless
excepted hereinafter. . . . . . . .
Section 2. Injury sustained by the wrecking or disablement of a
railroad passenger car or street railway car in or on which the
Insured is travelling as a farepaying passenger. . . . . . . .
Section 3. Injury sustained by the burning of a church, theatre,
public library or municipal administration building while the
Insured is therein at the commencement of the fire. . . . . . . .

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, fileda claim
for payment with defendant company, and on September 13, 1957, defendant company paid
to him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy. The receipt
signed by plaintiff reads
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS ONE
THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands
against said Company as a result of an accident which occurred on February 26, 1957, insured
under out ACCIDENT Policy No. 7136, causing the death of the Assured.
In view of the foregoing, this policy is hereby surrendered and CANCELLED.

P1,000.00

P1,500.00

LOSS COMPUTATION
Amount
of
__________
vvv vv

Insurance

P1,000.00

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company
acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said
company that said amount was not the correct one. Atty. Francisco claimed
P2,000.00
The amount payable under the policy, I believe should be P1,500.00 under the provision of
Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured
occurred under the circumstances simila r to that provided under the aforecited section.

Section 4. Injury sustained by the wrecking or disablement of a

regular passenger elevator car in which the Insured is being
conveyed as a passenger (Elevator in mines excluded) P2,500.00
Section 5. Injury sustained by a stroke of lightning or by a cyclone.
..... ..

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

P3,000.00

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability,
Hospital fees, or Loss of Time, caused to the insured:
. . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine
waters of a passenger steam or motor vessel in which the Insured is travelling as a farepaying
passenger; . . . .
A rider to the Policy contained the following:
IV. DROWNING
It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the
policy is hereby waived by the company, and to form a part of the provision covered by the
policy.

Defendant company, upon receipt of the letter, referred the matter to the Insurance
Commissioner, who rendered an opinion that the liability of the company was only P1,000.00,
pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above
opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime,
Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00
which the Company refused, to pay. Hence, a complaint for the recovery of the balance of
P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII),
praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs.
Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or
claim is set forth in the complaint had already been released, plaintiff having received the full
amount due as appearing in policy and as per opinion of the Insurance Commissioner. An
opposition to the motion to dismiss, was presented by plaintiff, and other pleadings were
subsequently file by the parties. On December 28, 1957, the trial court deferred action on the
motion to dismiss until termination of the trial of the case, it appearing that the ground thereof
was not indubitable. In the Answer to the complaint, defendant company practically admitted
all the allegations therein, denying only those which stated that under the policy its liability was
P3,000.00.
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent
portions of which read

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

party who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance
company.
. . . . And so it has been generally held that the "terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer, and
liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment
to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and the reasonfor
this rule is that the "insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and deliberation by
expert and legal advisers employed by, and acting exclusively in the interest of, the insurance
company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.

". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00
as indemnity for the death of the insured. The insured died of drowning. Death by drowning is
covered by the policy the pertinent provisions of which reads as follows:
"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily
injury which is effected solely thru violence, external, visible and accidental means" but, PartI
of the Policy is not applicable in case of death by drowning because death by drowning is not
one resulting from "bodily injury which is affected solely thru violent, external, visible and
accidental means" as "Bodily Injury" means a cut, a bruise, or a wound and drowning is death
due to suffocation and not to any cut, bruise or wound."

. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be
made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat.F.
Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).
At any event, the policy under consideration, covers death or disability by accidental means,
and the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for
death of the insured.

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery
apart from the bodily injury because death by bodily injury is covered by Part I of the policy
while death by drowning is covered by Part VI thereof. But while the policy mentions specific
amounts that may be recovered for death for bodily injury, yet, there is not specific amount
mentioned in the policy for death thru drowning although the latter is, under Part VI of the
policy, a ground for recovery thereunder. Since the defendant has bound itself to pay P1000.00
to P3,000.00 as indemnity for the death of the insured but the policy does not positively state
any definite amount that may be recovered in case of death by drowning, there is an ambiguity
in this respect in the policy, which ambiguity must be interpreted in favor of the insured and
strictly against the insurer so as to allow greater indemnity.
. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the
amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the
amount to which plaintiff is entitled to recover under the policy Exhibit "A".
The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation.
However, since it is evident that the defendant had not acted in bad faith in refusing to pay
plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees and expenses of
litigation.

In view of the conclusions reached,it would seemunnecessary to discuss the other issues raised
in the appeal.
The judgment appealed from is hereby affirmed. Without costs.
DEL ROSARIO VS EQUITABLE INSURANCE CASE DIGEST
FACTS:

April 13, 1957: Simeon del Rosario, father of the insured who died from drowning filed a claim
for payment with Equitable Ins. and Casualty Co., Inc. but it refused to pay more than P1,000
php so a case was filed with the RTC for the P2,000 balance stating that under the policy they
are entitled to P1,000 to P3,000 as indemnity

RTC: entitled to recover P3,000 - policy does not positively state any definite amount, there is
an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the
insured and strictly against the insurer so as to allow greater indemnity

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated
July 21, 1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sumof
Two Thousand (P2,000.00) Pesos and to pay the costs.
The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a
Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine
issue is purely legal in nature.
All the parties agree that indemnity has to be paid. The conflict centers on how much should
the indemnity be. We believe that under the proven facts and circumstances, the findings and
conclusions of the trial court, are well taken, for they are supported by the generally accepted
principles or rulings on insurance, which enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the same will be resolved against the one
responsible thereof. It should be recalled in this connection, that generally, the i nsured, has
little, if any, participation in the preparation of the policy, together with the drafting of its terms
and Conditions. The interpretation of obscure stipulations in a contract should not favor the

ISSUE:

W/N

Simeon

is

entitled

to

recover

P3,000

HELD: YES.

terms in an insurance policy, which are ambiguous, equivocal or uncertain are to be construed
strictly against, the insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where a forfeiture is involved

reason for this rule is that the "insured usually has no voice in the selection or arrangementof
the words employed and that the language of the contract is selected with great care and
deliberation by expert and legal advisers employed by, and acting exclusively in the interest of,
the insurance company

G.R. No. L-21380

May 20, 1966

MISAMIS
LUMBER
CORPORATION, plaintiff
vs.
CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.

the cost of repairs in the sum of P302.27 is unreasonable, excessive or padded, nor had it shown that it
could have undertaken the repairs itself at less expense.
and

appellee,

Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc., insured
its Ford Falcon motor car for the amount of P14,000 with the defendant-appellant, Capital Insurance &
Surety Company, Inc. The pertinent provisions of the policy provided, as follows:
1. The Company will subject to the Limits of Liability indemnify the Insured against loss or damage tothe
Motor Vehicle and its accessories and spare parts whilst thereon.
2. (a) by accidental collision or overturning or collision or overturning consequent when mechanical
breakdown or consequent upon wear and tear.
3. At its option, the Company may pay in cash the amount of the loss or damage or may repair, reinstate
or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the
Company shall not exceed the value of the parts lost or damaged and the reasona ble cost of fitting such
parts or the value of the Motor Vehicle at the time of the loss or damage whichever is the loss. The
Insured's estimate of value stated in the schedule shall be the maximum amount payable by the Company
in respect of any claim for loss or damage.1wph1.t
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the
Company may be liable under this policy provided that:
(a) the estimated cost of such repair does not exceed the authorized Repair Limit.
(b) a detailed estimate of the cost is forwarded to the Company without delay.
and providing also that the authorized repair limit is P150.00.
At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned insurance
policy was in force, the insured car, while traveling along in Aurora Boulevard in front of the Pepsi-Cola
plant in Quezon City, passed over a water hole which the driver did not see because an oncoming cardid
not dim its light. The crankcase and flywheel housing of the car broke when it hit a hollow block lying
alongside the water hole. At the instance of the plaintiff-appellee, the car was towed and repaired by
Morosi Motors at its shop at 1906 Taft Avenue Extension at a total cost of P302.27.
On 29 November 1961, when the repairs on the car had already been made, the plaintiff-appellee made a
report of the accident to the defendant-appellant Capital Insurance & Surety Company.
Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was filed in the
municipal court originally.
The case before Us is now a direct appeal on a point of law from the judgment of the Court of First Instance
of Manila finding for the plaintiff and against the defendant-insurer in its Civil Case No. 51757. Per our
resolution on 13 February 1964, it was resolved to proceed with the case without the appellee's brief,
which was filed late.
The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.
The lower court did not exonerate the said appellant for the excess because, according to it, the company's
absolution would render the insurance contract one-sided and that the said insurer had not shown that

The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4 that if the
insured authorizes the repair the liability of the insurer, per its sub-paragraph (a), is limited to P150.00.
The literal meaning of this stipulation must control, it being the actual contract, expressly and plainly
provided for in the policy (Art. 1370, Civil Code; Young vs. Midland Textile Ins. Co., 30 Phil. 617; Ty vs. First
Nat. Surety & Assur. Co., Inc., L-16138-45, 29 April 1961).
The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear
and specific and leaves no room for interpretation. The interpretation given is even unjustified because it
opposes what was specifically stipulated. Thus, it will be observed that the policy drew out not only the
limits of the insurer's liability but also the mechanics that the insured had to follow to be entitled to full
indemnity of repairs. The option to undertake the repairs is accorded to the insurance company per
paragraph 2. The said company was deprived of the option because the insured took it upon itself tohave
the repairs made, and only notified the insurer when the repairs were done. As a consequence, paragraph
4, which limits the company's liability to P150.00, applies.
The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in itself
does not justify the abrogation of its express terms, terms which the insured accepted or adhered to and
which is the law between the contracting parties.
Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is unreasonable,
as the appealed decision does, when the insurer was not given an opportunity to inspect and assess the
damage before the repairs were made, strikes Us as contrary to elementary justice and equity.
For the foregoing reasons, the appealed decision is hereby modified by ordering the defendant-appellant
Capital Insurance & Surety Company, Inc. to pay not more than P150.00 to the plaintiff-appellee Misamis
Lumber Corporation. Each party shall bear its own costs and attorney's fees.
MISAMIS VS CAPITAL INSURANCE
Facts:
Misamis Lumber Company insured its Ford Falcon to Capital Insurance for P 14,000. One day, the
cars crank andflywheel broke when it passed over a water hole in Aurora Boulevard. Misamis sent it to
be repaired at the cost of 302 pesos. However, Capital did not want to pay the entire amount because the
repair limit in the contract stipulated up to 150 pesos only. Misamis filed suit.
The lower court ruled against the insurance corporation because the company did not show that the cost
was excessive. Also , the court ruled that absolving the company of the excess amount would make the
contract
one
sided.
Issue: Is the insurance company liable for more than the amount in the repair limit?
Held:

No.

Insurance

company

only

ordered

to

pay

150

pesos.

Ratio:
Paragraph 4, subpar a. of the insurance contract is clear and specific. It authorizes up to 150 pesos only as
a
repair
limit.
The lower court did not heed the express stipulation in the agreement. The policy specifically notedthe
mechanics for repair in par. 2 and the limits of the liability in par 4. The company didnt notify the insurance
provider before it did the repairs. Also, even if the contract is onerous, this doesnt justify its abrogation.

G.R. No. 75605 January 22, 1993

VEREDIA VS CA.
The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance
Company of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between
June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential building locatedat TulipDrive,
Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de
Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May 12, 1981, and
The Development Insurance for P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property was completely destroyed by
fire on the early morning of December 28, 1980. Fidelity was accordingly informed of the loss anddespite
demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then
Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus
attorney's fees and litigation expenses. The complaint was later amended to include Monte de Piedad as
an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of
over-insurance; that Verendia maliciously represented that the building at the time of the fire was leased
under a contract executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo
Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity.
In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also
violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with
Country Bankers Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31,
1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court
reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the
contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy
contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity
as shown by its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a
motion for reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for
extension of 3 days within which to file a motion for reconsideration. The motion for extension was not
filed on April 19, 1986 which was the 15th day after receipt of the decision because said 15th day was a
Saturday and of course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motionfor
extension was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the
meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground
that the motion for extensionwas filed out of time because the 15thday from receiptof the decision which
fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate
Court has personnel receiving pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration
was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605
was initiated. Subsequently, or more specifically on October 21, 1986, the appellate court denied Fidelity's
motion for reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition for review

on certiorari now docketed as G.R. No. 76399. The two petitions, inter-related as they are, were
consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the petition for review
oncertiorari, we must first determine whether the decision of the appellate court may still be reviewed, or
whether the same is beyond further judicial scrutiny. Stated otherwise, before anything else, inquirymust
be made into the issue of whether Fidelity could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendencyof
a motion for extension of time to perfect an appeal does not suspend the running of the period sought to
be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs
vs. CFI of Manila (80 Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King(20 SCRA
1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a
motion for extension of time to file a motion for reconsideration in re gard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided opinions on whether the period
for appealing which also includes the period for moving to reconsider may be extended. The matter was
not definitely settled until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142
SCRA [1986]), declaring that beginning one month from the promulgation of the resolution on May 30,
1986
. . . the rule shall be strictly enforced that no motion for extension of time to file a motion for new trial or
reconsideration shall be filed . . . (at p. 212.)
In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of
course, Verendia's motion to expunge the motion for reconsideration was not finally disposed until July
22, 1986, or after the dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion
for extension came before its formal proscription under Habaluyas, for which reason we now turn our
attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contractof lease
submitted by Verendia to support his claim on the fire insurance policy constitutes a false declaration
which would forfeit his benefits under Section 13 of the policy and (b) whether or not, in submitting the
subrogation receipt in evidence, Fidelity had in effect agreed to settle Verendia's claim in the amount
stated in said receipt. 1
Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better
resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdictionof
this Court is limited to the review of errors of law. The appellate court's findings of fact are, therefore,
conclusive upon this Court except in the following cases: (1) when the conclusion is a finding grounded
entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly absurd,
mistaken, or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the judgment is premised on a misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals in making its findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433
[1991]). In view of the conflicting findings of the trial court and the appellate court on important issues in
these consolidated cases and it appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered
into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple
of days after the effectivity of the insurance policy. When the rented residential building was razedto the
ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the
premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the
Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on
the
otherside
(sic)
portion
of
said
compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroboratedtestimony that MarceloGarcia,whom
he considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate
him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority
(NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the contract
of lease was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated
December 4, 1981 recommending the denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract.
According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals
all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name whenhe in
fact was paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's
conclusions on these proven facts appear, therefore, to have sufficient bases; Verendia concocted the
lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the
property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed
the property's fair market value to be only P40,300.00, insured the same property with two other
insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by
the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of
the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery
from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla
Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion,
an insurance contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652
[1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section
13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy
shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his
behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support
his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue
of Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia,
reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and demand the
most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity
bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of
P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of

Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled
up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However,
that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed
the complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been
efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a
settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis but
would be substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and
the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that
of the trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
VEREDIA VS CA CASE DIGEST
FACTS:

Rafael (Rex) Verendia's residential building was insured with Fidelity and Surety Insurance
Company, Country Bankers Insurance and Development Insurance with Monte de Piedad &
Savings Bank as beneficiary

December 28, 1980 early morning: the building was completely destroyed by fire

Fidelity refused the claim stating that there was a misrepresentation since the lessee was
not Roberto Garcia but Marcelo Garcia

trial court: favored Fidelity

CA: reversed

ISSUE: W/N there was false declaration which would forfeit his benefits under Section 13 of the policy
HELD: YES.

Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits
under the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any fraudulent means or devises are used
by the Insured or anyone acting in his behalf to obtain any benefit under the policy"

Robert Garcia then executed anaffidavit before the National Intelligence and Security Authority
(NISA) to the effect that he was not the lessee of Verendia's house and that his signature on
the contract of lease was a complete forgery.

Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded the
principle that insurance contracts are uberrimae fidae and demand the most abundant good
faith

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

a) Tilter House- P19,800.00- 0.551%

D E C I S I ON

b) Power House- P41,000.00- 0.551%

PUNO, J.:

c) House Shed- P55,000.00 -0.540%

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner
GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner
assails the appellate court decision[1] which dismissed its two appeals and affirmed the judgment of the
trial court.

P100,000.00 for furniture, fixtures,

For review are the warring interpretations of petitioner and respondent on the scope of the insurance
companys liability for earthquake damage to petitioners properties. Petitioner avers that, pursuant to its
earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the properties
within its resort caused by earthquake. Respondent contends that the rider limits its liability for loss to the
two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort
insured originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance
policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. C, D, E and F; also
Exhs. 1, 2, 3 and 4 respectively), the risk of loss from earthquake shock was extended only to plaintiffs two
swimming pools, thus, earthquake shock endt. (Item 5 only) (Exhs. C-1; D-1, and E and two (2) swimming
pools only (Exhs. C-1; D-1, E and F-1). Item 5 in those policies referred to the two (2) swimming pools only
(Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No. 2064182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. G also G-1) and in said policy the
earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E and F-1 was deleted andthe
entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC
(AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which
carried the entry under Endorsement/Warranties at Time of Issue, which read Endorsement to Include
Earthquake Shock (Exh. 6-B-1) in the amount of P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as
premium thereof, computed as follows:

lines air-con and

operating equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 2064568061-9 (Exh. H) provided that the policy wording and rates in said policy be copied in the policy to be
issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14,
1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. I); that in the
computation of the premium, defendants Policy No. 31944 (Exh. I), whi ch is the policy in question,
contained on the right-hand upper portion of page 7 thereof, the following:
Rate-Various
Premium - P37,420.60 F/L
2,061.52 Typhoon
1,030.76 EC
393.00 ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;

Item -P7,691,000.00 - on the Clubhouse only

@ .392%;
1,500,000.00 - on the furniture, etc.
contained in the building
above-mentioned@ .490%;
393,000.00- on the two swimming

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against
earthquake shock (ES); that in all the six insurance policies (Exhs. C, D, E, F, G and H), the premiumagainst
the peril of earthquake shock is the same, that is P393.00 (Exhs. C and 1-B; 2-B and 3-B-1 and 3-B-2; F-02
and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC (Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued
by defendant, the shock endorsement provide(sic):
In consideration of the payment by the insured to the company of the sum included additional premium
the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the
contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy
occasioned by or through or in consequence of earthquake (Exhs. 1 -D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);

pools, only (against the

peril of earthquake
shock only) @ 0.100%
116,600.00- other buildings include
as follows:

that in Exhibit 7-C the word included above the underlined portion was deleted; that on July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944
issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. [2]
After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance
Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a formal claim,
then assigned the investigation of the cla im to an independent claims adjuster, Bayne Adjusters and

Surveyors, Inc. [3] On July 30, 1990, respondent, through its adjuster, requested petitioner to submit various
documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its
Vice-President A.R. de Leon, [4] rendered a preliminary report[5] finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that except for the
swimming pools, all affected items have no coverage for earthquake shocks.[6] On August 11, 1990,
petitioner filed its formal demand[7] for settlement of the damage to all its properties in the Agoo Playa
Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort. [8] Petitioner and
respondent failed to arrive at a settlement.[9] Thus, on January 24, 1991, petitioner filed a
complaint [10] with the regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest
thereon, as computed under par. 29 of the policy (Annex B) until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of
defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of li tigation;
5.) Costs. [11]

interest at6% per annum from the date of the filing of the Complaintuntil defendants obligation to plaintiff
is fully paid.
No pronouncement as to costs.[13]
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of
Appeals based on the following assigned errors: [14]
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE
DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS
PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS
OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER UNDER
DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF
THE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES
CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand,respondentfileda partial appeal, assailing the lowercourts failure to awardit attorneys
fees and damages on its compulsory counterclaim.

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims. [12]
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools
in all the policies issued by AHAC(AIU) (Exhibits C, D, E, F and G). From this factthe Court must consequently
agree with the position of defendant that the endorsement rider (Exhibit 7-C) means that only the two
swimming pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language
used in an insurance contract or a pplication is such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance company which prepared the contract. To the
mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is
no need for interpretation or construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had earthquake shock
coverage and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having
admitted that the damage to the swimming pools was appraised by defendants adjuster at P386,000.00,
defendant must, by virtue of the contract of insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding paragraph that defendantis
liable only for the damage caused to the two (2) swimming pools and that defendant has made known to
plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the other
damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree thatthe
action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the
plaintiffs right to come to Court in the honest belief that their Complaint is meritorious. The prayer,
therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED
EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with

However, after carefully perusing the documentary evidence of both parties, We are not convinced that
the last two (2) insurance contracts (Exhs. G and H), which the plaintiff-appellant had with AHAC (AIU) and
upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have
been based and copied (Exh. I), covered an extended earthquake shock insurance on all the insured
properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer for the
imposition of interest 24% on the insurance claim and 6% on loss of income allegedly amounting
to P4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage caused
on the two (2) swimming pools, as the Court a quo and this Court correctly found it to be liable only, it
then cannot be said that it was in default and therefore liable for interest.
Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the award
thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not
be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the
award thereof an exception rather than a rule, it is necessary for the court to make findings of facts and
law that would bring the case within the exception and justify the grant of such award (Country Bankers
Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25,
2002). Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative, We
find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial
Court hereby AFFIRMED in toto. No costs. [15]
Petitioner filed the present petition raising the following issues: [16]

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS INSURANCE POLICY
NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised
Rules of Court as its remedy, and there is no need for calibration of the evidence in order to establish the
facts upon which this petition is based.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION.

On the other hand, respondent made the following counter arguments: [18]

Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of the properties insured and not
only the swimming pools. It used the words any property insured by this policy, and it should be
interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the
body of the insurance policy itself, which states that it is [s]ubject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment
Agreement On Long Term Policies. [17]
Third, that the qualification referring to the two swimming pools had already been deleted in the
earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it
deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the
insurance policy, because the rider is the more deliberate expression of the agreement of the contracting
parties.
Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties
enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner
and against respondent. It was respondent which caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be
interpreted as a caveat on the standard fire insurance policy, such as to re move the two swimming pools
from the coverage for the risk of fire. It should not be used to limit the respondents liability for earthquake
shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the
extended coverage. The premium for the earthquake shock coverage was already included in the premium
paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that they intended to extend earthquake
shock coverage to all insured properties. When it secured an insurance policy from respondent, petitioner
told respondent that it wanted an exact replica of its latest insurance policy from American Home
Assurance Company (AHAC-AIU), which covered all the resorts properties for earthquake shock damage
and respondent agreed. After the July 16, 1990 earthquake, respondent assured petitioner that it was
covered for earthquake shock. Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its building claims and other repair
costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy itissued to
petitioner covered all of the properties within the res ort.

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage
against earthquake shock to petitioners insured properties other than on the two swimming pools.
Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against
earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its earlier
policies, and there was no increase in the premium paid. AHAC-AIU, in a letter [19] by its representative
Manuel C. Quijano, categorically stated that its previous policy, from which respondents policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00 shows that the policyonly
covered earthquake shock damage on the two swimming pools. The amount was the same amount paid
by petitioner for earthquake shock coverage on the two swimming pools from 1990-1991. No additional
premium was paid to warrant coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsementto the
two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of
petitioners properties. As per its agreement with petitioner, respondent copied its policy from the AHACAIU policy provided by petitioner. Although the first five policies contained the said qualification in their
riders title, in the last two policies, this qualification in the title was deleted. AHAC-AIU, through Mr. J.
Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose descriptive title w as merely
enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially
the enumeration of the items insured, where only the two swimming pools were noted as covered for
earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase Item
5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only) meant that
only the swimming pools were insured for earthquake damage. The same phrase is used in toto in the
policies from 1989 to 1990, the only difference being the designation of the two swimming pools as Item
3.
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the
properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for
coverage of the swimming pools against earthquake shock. No other premium was paid for earthquake
shock coverage on the other properties. In addition, the use of the qualifier ANY instead of ALL to describe
the property covered was done deliberately to enable the parties to specify the properties included for
earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included
in the earthquake shock coverage. Petitioners own evidence shows that it only required respondent to
follow the exact provisions of its previous policy from AHAC-AIU. Respondent complied with this
requirement. Respondents only deviation from the agreement was when it modified the provisions
regarding the replacement cost endorsement. With regard to the issue under litigation, the riders of the
old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from
maintaining that only the two swimming pools were covered for earthquake shock. The adjusters letter

notifying petitioner to present certain documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase Item 5 Only after the
descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy reflect
the parties clear intention to limit earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not objectto any
deficiency nor did it institute any action to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses. Since
respondent was willing and able to pay for the damage caused on the two swimming pools, it cannot be
considered to be in default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as included, viz:
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock only) [20]

Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby
expressly varied) and that any reference therein to loss or damage by fire should be deemed to apply also
to loss or damage occasioned by or through or in consequence of Earthquake. [24]
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance
with each other. [25] All its parts are reflective of the true intent of the parties. The policy cannot be
construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do
particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake
shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and
interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage
to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code
defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:

Second, under the breakdown for premium payments, [21] it was stated that:
1. The insured has an insurable interest;
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
3 393,000.00 0.100%-E/S 393.00 [22]

2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;

Third, Policy Condition No. 6 stated:

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly
or indirectly of any of the following occurrences, namely:--

5. In consideration of the insurer's promise, the insured pays a premium.[26] (Emphasis ours)

ANNUAL PAYMENT AGREEMENT ON

An insurance premium is the consideration paid an insurer for undertaki ng to indemnify the insured
against a specified peril.[27] In fire, casualty, and marine insurance, the premium payable becomes a debt
as soon as the risk attaches.[28] In the subject policy, no premium payments were made with regard to
earthquake shock coverage, except on the two swimming pools. There is no ment ion of any premium
payable for the other resort properties with regard to earthquake shock. This is consistent with the history
of petitioners previous insurance policies from AHAC-AIU. As borne out by petitioners witnesses:

LONG TERM POLICIES

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE
MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY
HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.

pp. 12-13

(a) Earthquake, volcanic eruption or other convulsion of nature. [23]

Fourth, the rider attached to the policy, titled Extended Coverage Endorsement (To Include the Perils of
Explosion, Aircraft, Vehicle and Smoke), stated, viz:

Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . .
additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this
Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire) to any
of the property insured by this Policy occasioned by or through or in consequence of Earthquake.

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period
from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming
pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision
here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools
only?

A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the
procurement of this policy?
A. Yes, sir.

A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more
limitation referring to the two swimming pools only, I was contented already that the previous limitation
pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA
Warranty & Annual Payment Agreement on Long Term Policies[29] to the insurance policy as proof of the
intent of the parties to extend the coverage for earthquake shock. Howe ver, this phrase is merely an
enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to which the policy
is subject, as required under Section 50, paragraph 2 of the Insurance Code.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage
to the two swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the
testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III[30]
TSN, August 11, 1992

Q. And they are independent of your company insofar as operati ons are concerned?
pp. 9-12
A. Yes, sir, they are separate entity.
Atty. Mejia:
Q. But insofar as the procurement of the insurance policy is concerned they are of course subject toyour
instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to take.

We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel
for defendant as Exhibit[s] 1-6 inclusive. Didyou have occasion to review of (sic) these six (6) policies issued
by your company [in favor] of Agoo Playa Resort?

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did yougive
written instruction to Forte Insurance Agency advising it that the earthquake shock coverage mustextend
to all properties of Agoo Playa Resort in La Union?

WITNESS:

A. No, sir. We did not make any written instruction, although we made an oral instruction to that effectof
extending the coverage on (sic) the other properties of the company.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an
earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in
Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as
provided for in each of the six (6) policies?

Q. And that instruction, according to you, was very important because in April 1987 there was an
earthquake tremor in La Union?
A. Yes, sir.

Yes[,] I remember having gone over these policies at one point of time, sir.

xxx
WITNESS:
Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?
The extent of the coverage is only up to the two (2) swimming pools, sir.
A. Yes, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
Q. Now, after this policy was delivered to you did you bother to check the provisions with respect toyour
instructions that all properties must be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit
G?

A. Yes, sir.
ATTY. MEJIA:

Atty. Mejia: Yes.

What is your basis for stating that the coverage against earthquake shock as provided for in each of the six
(6) policies extend to the two (2) swimming pools only?

Witness:

WITNESS:
Because it says here in the policies, in the enumeration Earthquake Shock Endorsement, in the Clauses and
Warranties: Item 5 only (Earthquake Shock Endorsement), sir.

ATTY. MEJIA:

ATTY. ANDRES:

Witness referring to Exhibit C-1, your Honor.

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we
do cover earthquake shock. For building we covered it for full earthquake coverage which includes
earthquake shock

No, we dont, sir.

COURT:

A. Yes, sir.

As far as earthquake shock endorsement you do not have a specific coverage for other things other than
swimming pool? You are covering building? They are covered by a general insurance?

ATTY. ANDRES:

Q. That is why the phrase earthquake shock to the two (2) swimming pools only was placed, is it not?

WITNESS:

Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during
your direct-examination, the phrase Item no. 5 only meaning to (sic) the two (2) swimming pools was
deleted from the policies issued by AIU, is it not?

Earthquake shock coverage could not stand alone. If we are covering building or another we can issue
earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring
a swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.

ATTY. ANDRES:

DIRECT EXAMINATION OF JUAN BARANDA III

As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for
the policies?

TSN, August 11, 1992

WITNESS:

pp. 23-25

My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company
underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued
with no specific attachments, premium rates and so on. It was i nadvertent, sir.

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive
[remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and
H respectively entend the coverage against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you
that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it,
if we are going to look at the premium there has been no change with respect to the rates. Everytime (sic)
there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the
other as stated in the policy. As I see, there is no increase in the amount of the premium. I mustsay that
the coverage was not broaden (sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going to do some
computation based on the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6

The Court also rejects petitioners contention that respondents contemporaneous and subsequentacts to
the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the
earthquake shock endorsement included all its properties in the resort. Respondent only insured the
properties as intended by the petitioner. Petitioners own witness testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas
(sic) to copy from Exhibit H for purposes of procuring the policy from Philippine Charter Insurance
Corporation?
A. I told him that the insurance that they will have to ge t will have the same provisions as this American
Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will
be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming
pools all affected items have no coverage for earthquake shock?

TSN, January 14, 1992

pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of
coverage of Exhibits I and H sometime in the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or diffe rence between the policy wordings as well as
scope of coverage of Exhibits I and H respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings
and rates were copied from the insurance policy I sent them but it was only when this case erupted that
we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time
between those indicated in Exhibit I and those indicated in Ex hibit H respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00
on the two (2) swimming pools only against the peril of earthquake shock which I understood before that
this provision will have to be placed here because this particular provision under the peril of earthquake
shock only is requested because this is an insurance policy and therefore cannot be insured against fire,
so this has to be placed.
The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved. Atty.
Umlas categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne
Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors,
Inc., respondent never meant to lead petitioner to believe that the endorsement for earthquake shock
covered properties other than the two swimming pools, viz:

A. I based my statement on my findings, because upon my examination of the policy I found out that under
Item 3 it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis
(against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium
payment only Item 3 which refers to the swimming pools have a computation for premium paymentfor
earthquake shock and all the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor
of the insured and strictly against the insurer company which usually prepares it.[31] A contract of adhesion
is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other
party merely affixes his signature or his "adhesion" thereto. Through the years, the courts have heldthat
in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation
being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the
weaker party whom the courts of justice must protect. [32] Consequently, any ambiguity therein is resolved
against the insurer, or construed liberally in favor of the insured. [33]
The case law will show that this Court will only rule out blind adherence to terms where facts and
circumstances will show that they are basically one-sided.[34]Thus, we have called on lower courts to
remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of the
claims of contending parties. In Development Bank of the Philippines v. National Merchandising
Corporation, et al.,[35] the parties, who were acute businessmen of experience, were presumed to have
assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it
did not know the provisions of the policy. From the inception of the policy, petitioner had required the
respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. The
testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of petitioner, is
reflective of petitioners knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
TSN, September 23, 1991

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne

pp. 20-21

Adjusters and Surveyors, Inc.)

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo
Playa?

TSN, January 26, 1993

pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the
policy issued by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance
coverage policy and it was indicated under Item 3 specifically that the coverage is only for earthquake
shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him what I had foundout in
the policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage
for earthquake shock.

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance
Corporation as long as it will follow the same or exact provisions of the previous insurance policy we had
with American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American
Home Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told himthat
the policy and wordings shall be copied from the AIU Policy No. 206 -4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206 -4568061-9
in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in
the replacement cost endorsement, but the principal provisions of the policy remained essentially similar
to AHAC-AIUs policy. Consequently, we cannot apply the "fine print" or "contract of adhesion" rule inthis
case as the parties intent to limit the coverage of the policy to the two swimming pools only is not
ambiguous. [37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is
dismissed. No costs.
SO ORDERED.
GULF RESORTS VS PCIC CASE DIGEST
Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in
said resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies
issued, the risks of loss from earthquake shock was extended only to petitioners two swimming pools.
Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy provided that
the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter
issued Policy No. 31944 to Gulf Resorts covering the period of Ma rch 14, 1990 to March 14, 1991 for
P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that Gulf Resorts
paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the
shock endorsement provided that In consideration of the payment by the insured to the companyof the
sum included additional premium the Company agrees, notwithstanding what is stated in the printed
conditions of this policy due to the contrary, that this insurance cove rs loss or damage to shock to any of
the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the underlined
portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and
plaintiffs properties covered by Policy No. 31944 issued by defendant, including the two swimming
pools in its Agoo Playa Resort were damaged.

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for
damages on its properties. Respondent denied petitioners claim on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court ruledin
favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium of
P393.00 against the peril of earthquake shock, the same premium it had paid against earthquake shock
only on the two swimming pools in all the policies issued by AHAC.

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not
extend to all propertiesdamaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the intentionof
the parties to extend earthquake shock coverage to the two swimming pools only. An insurance premium
is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril.In
fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches. In the
subject policy, no premium payments were made with regard to earthquake shock coverage except on the

two swimming pools. There is no mention of any premium paya ble for the other resort properties with
regard to earthquake shock. This is consistent with the history of petitioners insurance policies with AHAC.

G.R. No. 167330

September 18, 2009

PHILIPPINE
HEALTH
CARE
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent
is ORDERED to DESIST from collecting the said DST deficiency tax.
PROVIDERS,

INC., Petitioner,
SO ORDERED.

II

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST
assessment. He claimed that petitioners health care agreement was a contract of insurance subject to DST
under Section 185 of the 1997 Tax Code.

Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.

On August 16, 2004, the CA rendered its decision. It held that petitioners health care agreement was in
the nature of a non-life insurance contract subject to DST.

ARTICLE
Social Justice and Human Rights

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it
cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered
petitioner to desist from collecting the same is REVERSED and SET ASIDE.

ARTICLE
Declaration of Principles and State Policies

XIII

Section 11. The State shall adopt an integrated and comprehensive approach to health development which
shall endeavor to make essential goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women,
and children. The State shall endeavor to provide free medical care to paupers. 1

Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency

Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the
same shall have been fully paid.

For resolution are a motion for reconsideration and supplemental motion for reconsideration datedJuly
10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc. 2

SO ORDERED.

We recall the facts of this case, as follows:

Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organizationto take
care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs
pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical
services provided by its duly licensed physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a hospital or clinic owned, operated or
accredited by it.

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision.We held
that petitioners health care agreement during the pertinent period was in the nature of non-life insurance
which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health
Systems, Inc. v. CA.4We also ruled that petitioners contention that it is a health maintenance organization
(HMO) and not an insurance company is irrelevant because contracts between companies like petitioner
and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on
the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the
transaction of the business.

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. xxxx

Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental
motion for reconsideration, asserting the following arguments:

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code
xxxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not acton the
protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellationof
the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner
is hereby ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge
plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT defici ency and P31,094,163.87
inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT
deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996

(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company
engaged in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service
provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CAs
disposition that health care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the
light of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they are not those
contemplated under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health insurance, health insurance is not
covered by Section 185.

(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.

Petitioner, however, submits that it is of critical importance to characterize the business it is engagedin,
that is, to determine whether it is an HMO or an insurance company, as this distinction is indispensable in
turn to the issue of whether or not it is liable for DST on its health c are agreements. 16

(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior
years. Therefore, the questioned assessments on the DST are now rendered moot and academic. 6

A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of
petitioner are meritorious.

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on
June 8, 2009.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under
RA 9480 7 (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08
representing 5% of its net worth as of the year ending December 31, 2005. 8
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June
30, 1987.9 It is engaged in the dispensation of the following medical services to individuals who enter into
health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling,
consultation and advices on diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete
blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in
the event of an injury or sickness on the part of the enrolled member.10

Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or
bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of accident, fidelity, employers
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or position, for the doing or not doing of
anything therein specified, and on all obligations guaranteeing the validity or legality of any bond orother
obligations issued by any province, city, municipality, or other public body or organization, and on all
obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be
made or renewed by any such person, company or corporation, there shall be collected a documentary
stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium
charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute
shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a
construction which renders every word operative is preferred over that which makes some words idle and
nugatory. 17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute its every word. 18

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a yearto-year basis. The medical services are dispensed to enrolled members in a hospital or clinic owned,
operated or accredited by petitioner, through physicians, medical and dental practitioners under contract
with it. It negotiates with such health care practitioners regarding payment schemes, financing andother
procedures for the delivery of health services. Except in cases of emergency, the professional services are
to be provided only by petitioner's physicians, i.e. those directly employed by it 11 or whose services are
contracted by it. 12 Petitioner also provides hospital services such as room and board accommodation,
laboratory services, operating rooms, x-ray facilities and general nursing care.13 If and when a member
avails of the benefits under the agreement, petitioner pays the participating physicians and other health
care providers for the services rendered, at pre -agreed rates. 14

From the language of Section 185, it is evident that two requisites must concur before the DST can apply,
namely: (1) the document must be a policy of insurance or an obligation in the nature of
indemnity and (2)the maker should be transacting the business of accident, fidelity, employers liability,
plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance).

To avail of petitioners health care programs, the individual members are required to sign and execute a
standard health care agreement embodying the terms and conditions for the provision of the healthcare
services. The same agreement contains the various health care services that can be engage d by the
enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect
of the medical service offered, the enrolled member may actually make use of the health care services
being offered by petitioner at any time.

The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent
taxable years? We rule that it was not.

Health Maintenance Organizations Are Not Engaged In The Insurance Business

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer
because its agreements are treated as insurance contracts and the DST is not a tax on the business but an
excise on the privilege, opportunity or facility used in the transaction of the business. 15

Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO
is "an entity that provides, offers or arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium."19 The payments do not vary with the extent, frequency or type of
services provided.

Section 2 (2) of PD 20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing
an insurance business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing
or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,21 have
determined that HMOs are not in the insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an insurance business) are the
principal object and purpose of the organization or whether they a re merely incidental to its business. If
these are the principal objectives, the business is that of insurance. But if they are merely incidental and
service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law supporting the
argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is
to provide the members of a group with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association 23 wherein the Court of Appeals of the
District of Columbia Circuit held that Group Health Association should not be considered as engaged in
insurance activities since it was created primarily for the distribution of health care services rather than
the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating security against loss
from illness or accident more truly they constitute the quantity purchase of well -rounded, continuous
medical service by its members. xxx The functions of such an organization are not identical with those of
insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the
unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the
cooperative is concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation. Its primary purpose is to
reduce the cost rather than the risk of medical care; to broaden the service to the individual in kind and
quantity; to enlarge the number receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss
caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is,
in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily
discomforts as well as the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and patient together,
the preventive features, the regularization of service as well as payment, the substantial reduction in
cost by quantity purchasing in short, getting the medical job done and paid for; not, except incidentally
to these features, the indemnification for cost after the services is rendered. Except the last, these are
not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial
difference between contracting in this way for the rendering of service, even on the contingency that itbe
needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present shoul d not outweigh all other
factors. If attention is focused only on that feature, the line between insurance or indemnity and other
types of legal arrangement and economic function becomes faint, if not extinct. This is especially true
when the contract is for the sale of goods or services on contingency. But obviously it was not the purpose
of the insurance statutes to regulate all arrangements for assumption or distribution of risk. That view
would cause them to engulf practically all contracts, particularly conditional sales and contingent service

agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present or
their subordination to it. The question turns, not on whether risk is involved or assumed, but on whether
that or something else to which it is related in the particular plan is its principal object
purpose.24 (Emphasis supplied)
In California Physicians Service v. Garrison,25 the California court felt that, after scrutinizing the plan of
operation as a whole of the corporation, it was service rather than indemnity which stood as its principal
purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or peril is not the sole test to be applied in
determining its status. The question, more broadly, is whether, looking at the plan of operation as a
whole, service rather than indemnity is its principal object and purpose. Certainly the objects and
purposes of the corporation organized and maintained by the California physicians have a wide scope in
the field of social service. Probably there is no more impelling need than that of adequate medical care
on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is
endeavoring to meet that need. Unquestionably this is service of a high order and not
indemnity.26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance company
is that HMOs undertake to provide or arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the insured for medical expenses
incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is
that the former undertake to provide prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter onl y undertake to indemnify an
insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians
who will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating
in the medical service corporations plan, not only will the subscribers be deprived of the protection
which they might reasonably have expected would be provided, but the corporation will, in effect, be
doing business solely as a health and accident indemnity insurer without having qualified as such and
rendering itself subject to the more stringent financial requirements of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render health care services
to or for persons covered by a contract issued by health service corporation in return for which the health
service corporation agrees to make payment directly to the participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the p rimary purpose of the
business to provide medical services as needed, with payment made directly to the provider of these
services.29 In short, even if petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of
emergency by non-participating health providers would still be incidental to petitioners purpose of
providing and arranging for health care services and does not transform it into an insurer. To fulfill its
obligations to its members underthe agreements, petitioner is requiredto setup a system and the facilities
for the delivery of such medical services. This indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioners services covers preventive and diagnostic medical services
intended to keep members from developing medical conditions or diseases. 30 As an HMO, it is its obligation
to maintain the good health of its members. Accordingly, its health care programs are designed to
prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under
its agreements is not to indemnify its members against any loss or damage arising from a medical condition
but, on the contrary, to provide the health and medical services needed to prevent such loss or damage.31

Under the health care agreement, the rendition of hospital, medical and professional se rvices to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration
and family planning counseling) is the contingent event which gives rise to liability on the part of the
member. In case of exposure of the member to liability, he would be entitled to indemnification by
petitioner.

Overall, petitioner appears to provide insurance -type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them medical
care. The "insurance-like" aspect of petitioners business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.

Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising
from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred
by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the
risk of paying for the costs of the services even if they are significantly and substantially more than what
the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads themout
among a large group of persons bearing a similar risk, that is, among all the other members of the health
care program. This is insurance. 37

It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S.
cases, we are not saying that petitioners operations are identical in every respect to those of the HMOs
or health providers which were parties to those cases. What we are stating is that, for the purpose of
determining what "doing an insurance business" means, we have to scrutinize the operations of the
business as a whole and not its mere components. This is of course only prudent and appropriate, taking
into account the burdensome andstrict laws, rules andregulations applicable to insurers and otherentities
engaged in the insurance business. Moreover, we are also not unmindful that there are other American
authorities who have found particular HMOs to be actually engaged i n insurance activities. 32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from
the fact that it is not supervised by the Insurance Commission but by the Department of Health.33 In fact,
in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged
in the insurance business. This determination of the commissioner must be accorded great weight. It is
well-settled that the interpretation of an administrative agency which is tasked to implement a statute is
accorded great respect and ordinarily controls the interpretation of laws by the courts. The reason behind
this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and satisfying
those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs.
Commissioner of Customs,35 the Court stressed that executive officials are presumed to have familiarized
themselves with all the considerations pertinent to the meaning and purpose of the law, and to have
formed an independent, conscientious and competent expert opinion thereon. The courts give much
weight to the government agency officials charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that they frequently are the dra fters of the
law they interpret. 36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of
1997
Section 185 states that DST is imposed on "all policies of insurance or obligations of the nature of
indemnity for loss, damage, or liability." In our decision dated June 12, 2008, we ruled that petitioners
health care agreements are contracts of indemnity and are therefore insurance contracts:
It is incorrect to say that the health care agreement is not based on loss or damage because, under the
said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and
related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to
cover the monetary expense or liability a member will incur in case of illness or injury.

We reconsider. We shall quote once again the pertinent portion of Sectio n 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or
bondsor obligations of the nature of indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of accident, fidelity, employers
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed
against the taxing authority. 38 This is because taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of their property for the support
of the government. 39 Hence, tax laws may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not specifically provided. 40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in
the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases didnot
involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service
provider to a member under the terms of their health care agreement. Such contracts, as contracts of
adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For this reason,
we reconsider our ruling that Blue Crossand Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk and
5. In consideration of the insurers promise, the insured pays a premium. 41
Do the agreements between petitioner and its members possess all these elements? They do not.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service,it is
not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above
would be an insurance contract. The primary purpose of the parties in making the contract may negate
the existence of an insurance contract. For example, a law firm which enters into contracts with clients
whereby in consideration of periodical payments, it promises to represent such clients in all suits for or
against them, is not engaged in the insurance business. Its contracts are simply for the purpose of
rendering personal services. On the other hand, a contract by which a corporation, in consideration of a
stipulated amount, agrees at its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as engaged in the business of
insurance. Unlike the lawyers retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice. 42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioners agreements.
To begin with, there is no loss, damage or liability on the part of the member that should be indemnified
by petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined
consideration in exchange for the hospital, medical and professional services rendered by the petitioners
physician or affiliated physician to him. In case of availment by a member of the benefits under the
agreement, petitioner does not reimburse or indemnify the member as the latter does not pay any third
party. Instead, it is the petitioner who pays the participating physicians and other health care providers for
the services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the
part of the member to any third party-provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability orclaim
has already been incurred. There is no indemnity precisely because the member me rely avails of medical
services to be paid or already paid in advance at a pre -agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g.laboratory services, x-ray, routine annual physical examination and consultations, vaccine
administration as well as family planning counseling, even in the absence of any peril, loss or damage on
his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a
non-participating physician or hospital. However, this is only a very minor part of the list of services
available. The assumption of the expense by petitioner is not confined to the happening of a contingency
but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the healthcare
contracts called for the defendant to partially reimburse a subscriber for treatment received from a nondesignated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined that"the
primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration
of prepayment for such services."44 Since indemnity of the insured was not the focal point of the
agreement but the extension of medical services to the member at an affordable cost, it did not partake
of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone
is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain

degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those
of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the
risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar
only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of
insurance claims might be higher than the premiums paid. The amount of premium is calculated on the
basis of assumptions made relative to the insured. 45
However, assuming that petitioners commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not
qualify as an insurance contract because petitioners objective is to provide medical services at reduced
cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude that it is notan
insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioners health care
agreements under Section 185 of the NIRC of 1997 is the provisions legislative history. The text of Section
185 came into U.S. law as early as 1904 when HMOs and health care agreements were not even in
existence in this jurisdiction.It was imposedunder Section 116, Article XI of Act No. 1189 (otherwise known
as the "Internal Revenue Law of 1904")46 enacted on July 2, 1904 and became effective on August 1, 1904.
Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent
portion of Section 116, to wit:
ARTICLE
Stamp Taxes on Specified Objects

XI

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures,
or certificates of stock and indebtedness, and other documents, instruments, matters, and things
mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon
which such instrument, matters, or things or any of them shall be written or printed by any person or
persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five, the
several taxes following:
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage,
or liability made or renewed by any person, association, company, or corporation transacting the
business of accident, fidelity, employers liability, plate glass, steam boiler, burglar, elevator, automatic
sprinkle, or other branch of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis
supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and
consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article
XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed
and exclusive enumeration of items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l),
Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent
DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of
1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which
codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October
1, 1946, the DST rate was increased but the provision remained substantially the same.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg."58

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC
of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984
respectively, the DST rate was again increased.1avvphi1

Legitimate enterprises enjoy the constitutional protectionnot to be taxed out of existence. Incurring losses
because of a tax imposition may be an acceptable consequence but killing the business of an entity is
another matter and should not be allowed. It is counter-productive and ultimately subversive of the
nations thrust towards a better economy which will ultimately benefit the majority of our people. 59

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was
renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again
renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate
of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997),
the subject legal provision was retained as the present Section 185. In 2004, amendments to the DST
provisions were introduced by RA 9243 48 but Section 185 was untouched.
On the other hand,the conceptof an HMO was introduced inthe Philippines with the form ation of Bancom
Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated
Health Care Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance,
Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been
formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36
registered HMOs with a total enrollment of more than 2 million. 49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that
when the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However,
when the various amendments to the DST law were enacted, they were already in existence in the
Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the
legislature to impose DST on health care agreements, it could have done so in clear and categorical terms.
It had many opportunities to do so. But it did not. The fact that the NIRC contained no specific provision
on the DST liability of health care agreements of HMOs at a time they were already known a s such, belies
any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability
only on January 27, 2000, after more than a decade in the business as an HMO. 50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe tosay
that health care agreements were never, at any time, recognized as insurance contracts or deemed
engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging
in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay it. 51 So potent indeed is the power
that it was once opined that "the power to tax involves the power to destroy." 52
Petitioner claims that the assessed DST to date which amounts to P376 million 53 is way beyond its net
worth ofP259 million. 54 Respondent never disputed these assertions. Given the realities on the ground,
imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to
throttle private business. On the contrary, the government ought to encourage private
enterprise.55 Petitioner, just like any concern organized for a lawful economic activity, has a right to
maintain a legitimate business. 56 As aptly held in Roxas, et al. v. CTA, et al.:57

Petitioners Tax Liability Was Extinguished Under The Provisions Of RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997
became moot and academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007.
It paidP5,127,149.08 representing 5% of its net worth as of the year ended December 31, 2005 and
complied withall requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitledto immunity
from payment of taxes as well as additions thereto, and the appurtenant ci vil, criminal or administrative
penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all internal revenue
taxes for taxable year 2005 and prior years. 61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from
payment of the tax involved, including the civil, criminal, or administrative penalties provided under the
1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits of this
case as discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of
petitioner. This admission, however, is not meant to preclude a revocation of the amnesty granted incase
it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said
amnesty law. 62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program
under RA 9480. 63 There is no other conclusion to draw than that petitioners liability for DST for the taxable
years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound
by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare
Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing
the appeal in Philippine National Bank (G.R. No. 148680). 66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the Court should apply the CA ruling
there that a health care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a dispositionof
the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in thatcase has already become final.67 Whena minute resolutiondenies
or dismisses a petition for failure to comply with formal and substantive requirements, the challenged
decision, together with its findings of fact and legal conclusions, are deemed sustained. 68 But what is its
effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the same parties
and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the
Court noted that a previous case, CIR v. Baier-Nickel 71 involving the same parties and the same issues,
was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the
ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter
case because the two cases involved different subject matters as they were concerned with the taxable
income of different taxable years. 72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision.
The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that
the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only
to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority
of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike
decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section
4(3) of Article VIII speaks of a decision. 73 Indeed, as a rule, this Court lays down doctrines or principles of
law which constitute binding precedent in a decision duly signed by the members of the Court and certified
by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability for DST on
its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully
invoke the minute resolution in that case (which is not even binding precedent) in its favor. Nonetheless,
in view of the reasons already discussed, this does not detract in any way from the fact that petitioners
health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the
NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same
should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a
cost which the average wage earner can afford. HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system
made possible by quantity purchasing of services and economies of scale. They offer advantages over the
pay-for-service system (wherein individuals are charged a fee each time they receive medical services),
including the ability to control costs. They protect their members from exposure to the high cost of
hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they
play an important role in society as partners of the State in achieving its constitutional mandate of
providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition will
elevate the cost of health care services. This will in turn necessitate an increase in the membershipfees,
resulting in either placing health services beyond the reach of the ordinary wage earner or driving the
industry to the ground. At the end of the day, neither side wins, considering the indispensability of the
services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of
Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from
collecting the said tax.
No costs.

SO ORDERED.
PHCHP VS CIR
FACTS:
Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice health care deliverysystem
or a health maintenance organization to take care of the sick and disabled persons enrolled in
the health care plan and to provide for the administrative, legal, and financial responsibilities
of the organization." Individuals enrolled in its healthcare programs pay anannual membership
fee and are entitled to various preventive, diagnostic and curative medical services provided by
its duly licensed physicians, specialists and other professional technical staff participating in the
group practice health delivery system at a hospital or clinic owned, operated or accreditedby
it.
January 27, 2000: Commissioner of Internal Revenue (CIR) sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiencytaxes,
including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18
Petitioner protested the assessment in a letter dated February 23, 2000.
CIR did not act on the protest, petitioner filed a petition for review in the Court of
Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments.
CTA: PARTIALLY GRANTED
to pay VAT
DST assessment CANCELLED AND SET ASIDE
CIR: health care agreement was a contract of insurance subject to DST under Section 185 of the
1997 Tax Code
CA: health care agreement was in the nature of a non-life insurance contract subject to DST
Court Affirmed CA
ISSUE:
1. W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the business of insurance
during the pertinent taxable years - NO
2. W/N the Philippine Health Care Providers, Inc enters into an insurance contract - NO
HELD: motion for reconsideration is GRANTED

G.R. No. 76452 July 26, 1994

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

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON MONTILLA
PATERNO, JR., respondents.

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

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

(2) That since the Commission's quasi-judicial power was being invoked with regard to the complaint,
private respondent must file a verified formal complaint before any further proceedings.
In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings on his
complaint.
On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, andJuly 31,
1986.

We grant the petition.

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April
17, 1986, to respondent Commissioner, alleging certain problems encountered by agents, supervisors,
managers and public consumers of the Philippine American Life Insurance Company (Philamlife) as a result
of certain practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in
his capacity as Philamlife's president, to comment on respondent Paterno's letter.
In a letter datedApril 29, 1986 to respondentCommissioner, petitioner De los Reyes suggestedthatprivate
respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts, dates, figures,
provisions of law, rules and regulations, and all other pertinent data which are necessary to enable him to
prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance Commissioner to
private respondent for his comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that
his letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a hearing
thereon be conducted.

In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President and
Executive Assistant to the President, asked that respondent Commission first rule on the questions of the
jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and the legal
standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the case on November5,
1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaint sufficient in form and contents has been filed;
(2) No summons has been issued nor received by the respondent De los Reyes, and hence, no jurisdiction
has been acquired over his person;
(3) No answer has been filed, and hence, the hearing scheduled on November 5, 1986 in the
Subpoena/Notice, and wherein the respondent is required to appear, is premature and lacks legal basis.

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

II. The Insurance Commission has no jurisdiction over;

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

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

In said hearing, private respondent was required by respondent Commissioner to specify the provisions of
the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to respondent Commissioner dated
July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on charges and fees
stated in the Contract of Agency executed between Philamlife and its agents, as well as the implementing
provisions as published in the agents' handbook, agency bulletins and circulars, be declared as null and
void. He alsoasked that the amounts of such charges andfees already deducted andcollectedby Philamlife
in connection therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from
the date when they were deducted.
Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's letterof
July 31, 1986, and requested his answer thereto.

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

In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The
dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the factthat
the instant case is an informal administrative litigation falling outside the operation of the aforecited
memorandum circular but cognizable by this Commission, the hearing officer, in open session ruled as it
is hereby ruled to deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the resolution of the legality of the Contract of Agency
falls within the jurisdiction of the Insurance Commissioner.

Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the
complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of
the Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the
Commissioner has authority to nullify the alleged illegal provisions of the Contract of Agency.
III
The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations and trusts for c haritable uses are
faithfully executed and to perform the duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner
is hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers
and/or agents, for any willful failure or refusal to comply with, or violation of any provision of this Code,
or any order, instruction, regulation or ruling of the Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an unsafe and unsound manner as may be determined by the
the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents.
A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority
to regulate the business of insurance, which is defined as foll ows:
(2) The term "doing an insurance business" or "transacting an insurance business," within the meaning of
this
Code,
shall
include
(a)
making or
proposing
to make,
as
insurer, any
insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including
a reinsurance business, specifically recognized as constituting the doing of an insurance business within the
meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2]; Emphasis
supplied).
Since the contract of agency entered into between Philamlife and its agents is not included within the
meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction
over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.
With regard to private respondent's contention that the quasi -judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in the negative.
Section 416 of the Code in pertinent part, provides:
The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for
which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be used
under any contract or reinsurance it may have entered into, or for which a mutual benefit association may
be held liable under the membership certificates it has issued to its members, where the amount of any
such loss, damage or liability, excluding interest, costs and attorney's fees, being claimed or suedupon any

kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single
claim one hundred thousand pesos.
A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is limited
by law "to claims and complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, . . ." Hence, this power does not coverthe
relationship affecting the insurance company and its agents but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance
Code, the provisions of said Chapter speak only of the licensing requirements and limitations imposed on
insurance agents and brokers.
The Insurance Code does not have provisions governing the relations between insurance companies and
their agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-judicial powers,
assume jurisdiction over controversies between the insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989),
andInvestment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA 904 (1962),
that an insurance company may have two classes of agents who sell its insurance policies: (1) salaried
employees who keep definite hours and work under the control and supervision of the company; and(2)
registered representatives, who work on commission basis.
Under the first category, the relationship between the insurance company and its agents is governedby
the Contract of Employment and the provisions of the Labor Code, while under the second category,the
same is governed by the Contract of Agency and the provisions of the Civil Code on the Agency. Disputes
involving the latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance Commission
is SET ASIDE.
SO ORDERED.
PHILAM VS ANSALDO
FACTS:

Ramon M. Paterno, Jr. sent a letter dated April 17, 1986 to Insurance Commissioner alleging
certain problems encountered by agents, supervisors, managers and public consumers of the
Philippine American Life Insurance Company (Philamlife)

During the hearing Ramon stated that the contract of agency is illegal

Philamlife through its president De los Reyes contended that the Insurance Commissioneras a
quasi-judicial body cannot rule on the matter

ISSUE:
1. W/N the Insurance Commissioner has the authority to regulate the business of insurance - YES
2. W/N the business of insurance covers the contract of agency - NO

HELD: petition is GRANTED

1. YES.

insurance company may have two classes of agents who sell its insurance policies:

(1) salaried employees who keep definite hours and work under the
control and supervision of the company - governed by the Contract of
Employment and the provisions of the Labor Code

(2) registered representatives, who work on commission basis.

- governed by the Contract of Agency and the provisions of the Civil Code
on the Agency

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

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

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

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

Insurance Commissioner has the authority to regulate the business of insurance

2. NO.

power does not cover the relationship affecting the insurance company and its agents but is
limited to adjudicating claims and complaints filed by the insured against the insurance
company

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

Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989):

[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH
TRINOS, respondents.

SYSTEMS,

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

INC., petitioner, vs.

COURT

OF

APPEALS and

JULITA

D E C I S I ON
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:
Have you or any of your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). [1]
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly,
he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was
entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also
entitled to avail of out-patient benefits such as annual physical examinations, preventive healthcare and
other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability. [2]
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent
tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying
that the Health Care Agreement was void. According to petitioner, there was a concealment regarding
Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinementthat
he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him ba ck to the Chinese General Hospital where he diedon
the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an actionfor
damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After
trial, the lower court ruled against petitioners, viz:

SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages
and absolved petitioner Reverente. [4] Petitioners motion for reconsideration was denied. [5] Hence,
petitioner brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the incontestability clause under the Insurance Code[6] does
not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups and hospitalization
which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its
expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits
are given under the agreement without any indemnification, unlike in an insurance contract where the
insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one
year, as compared to insurance contracts which last longer, [7] petitioner argues that the incontestability
clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further
argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium. [8]
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the pl aintiff Julita Trinos,
ordering:

(3) of any person under a legal obligation to him for the payment of money, respecting property or service,
of which death or illness might delay or prevent the performance; and

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the
amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;

(4) of any person upon whose life any estate or interest vested in him depends.

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement
was his own health. The health care agreement was in the nature of non-life insurance, which is primarily
a contract of indemnity.[9] Once the member incurs hospital, medical or any other expense arising from

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It appears thatin
the application for health coverage, petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all informationrelative to any hospitalization, consultation, treatment or any other medical
advice or examination.[10] Specifically, the Health Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and answers containe d herein and in any addendum
annexed to this application are full, complete and true and bind all parties in interest under the Agreement
herein applied for, that there shall be no contract of health care coverage unless and until an Agreement
is issued on this application and the full Membership Fee according to the mode of payment applied for is
actually paid during the lifetime and good health of proposed Members; that no information acquired by
any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the
application; that any physician is, by these presents, expressly authorized to disclose or give testimonyat
anytime relative to any information acquired by him in his professional capacity upon any question
affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any
Agreement issued on this application shall be a ratification of any correction in or addition to this
application as stated in the space for Home Office Endorsement.[11] (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to
inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my health
and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative
to any hospitalization, consultation, treatment or any other medical advice or examination. This
authorization is in connection with the application for health care coverage only. A photographic copy of
this authorization shall be as valid as the original. [12] (Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees
paid. An undisclosed or misrepresented information is deemed material if its revelation would have
resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee
for the benefit or benefits applied for. [13]

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract.[16] Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests
upon the provider or insurer. In any case, with or without the authority to investigate, petitioneris liable
for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is
bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider
attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever
he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contractof
insurance. The right to rescind should be exercised previous to the commencement of an action on the
contract.[17] In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based. [18]
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. [19] Being a contract of adhesion, the terms of an insurance contractare to
be construed strictly against the party which prepared the contract the insurer.[20] By reason of the
exclusive control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture. [21] This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring
coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against
the provider. [22]
Anent the incontestability of the membership of respondents husband, we quote with approval the
following findings of the trial court:

The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in
good faith and without intent to deceive will not avoid a policy even though they are untrue. [14] Thus,

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. hadtwelve
months from the date of issuance of the Agreementwithinwhich to contestthe membershipof the patient
if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient
was sick of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie. [23]

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if
the statement is obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally states to be true, as a matterof
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious
and amounts to actual fraud. [15] (Underscoring ours)

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

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.

Section 10 provides that every person has an insurable interest in the life and health (1) of himself, of his
spouse and of his children.

SO ORDERED.

The insurable interest of respondents husbandin obtaining the health care agreement was his ownhealth.
The health care agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the extent agreed upon
under the contract.

PHILAMCARE VS CA
FACTS:
Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the question
Have you or any of your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?, Ernani answered No. Under the
agreement, Ernani is entitled to avail of hospitalization benefits and out-patient benefits. The coverage
was approved for a period of one year from March 1, 1988 to March 1, 1989. The agreement was however
extended yearly until June 1, 1990 which increased the amount of coverage to a maximum sum of P75,000
per disability.
During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month. While in the hospital, his wife Julita tried to claim the benefits under the
health care agreement. However, the Philamcare denied her claim alleging that the agreement was void
because Ernani concealed his medical history. Doctors at the MMC allegedly discovered at the time of
Ernanis confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Thus, Julita paid for all the hospitalization expenses.
After Ernani was discharged from the MMC, he was attended by a physical therapist at home. Later, he
was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought
her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak.
Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same
day.
Julita filed an action for damages and reimbursement of her expenses plus moral damages attorneys fees
against Philamcare and its president, Dr. Benito Reverente. The Regional Trial court or Manila rendered
judgment in favor of Julita. On appeal, the decision of the trial court was affirmed but deleted all awards
for damages and absolved petitioner Reverente. Hence, this petition for review raising the primary
argument that a health care agreement is not an insurance contract; hence the incontestability clause
under the Insurance Code does not apply.
ISSUES:
(1) Whether or not the health care agreement is not an insurance contract
(2) Whether or not there is concealment of material fact made by Ernani
HELD:
(1)YES. Section2 (1)of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage, or liability arising from an
unknown or contingent event.
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which my damnify a person having an insurable against him, may be insured against. Every person has an
insurable interest in the life and health of himself.

(2) NO. The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from respondents
husband who was not a medical doctor. Where matters of opinion or judgment are called for answers
made I good faith and without intent to deceive will not avoid a policy even though they are untrue.
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealmentas a defense for the healthcare provideror insurer to avoid liability is anaffirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer to the extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or wherever he avails of the
covered benefits which he has prepaid.
Being a contract of adhesion, the terms of an insurance contract are to be construed strictly againstthe
party which prepared the contract the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements.

[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION
AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents.
D E C I S I ON
QUISUMBING, J.:
This petition for review assails the Decision[1] dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No.
60144, affirming the Decision[2] dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD277. Both decisions held that there was no violation of the Insurance Code and the respondents do not
need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protectionand indemnitycoverage for its vessels
from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of
Entry and Acceptance.[3] Pioneer also issued receipts evidencing payments for the coverage. When White
Gold failed to fully pay its accounts, Steamship Mutual refus ed to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 186[4] and 187[5] of the Insurance Code, while Pioneer
violated Sections 299, [6] 300 [7] and 301 [8] in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual
to secure a license because it was not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club(P & I Club). Likewise, Pioneerneed not obtain another license
as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in
the insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis--visconventional insurance. The appellate court also heldthat
Pioneer merely acted as a collection agent of Steamship Mutual.

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. [9]
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance
business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admitthat Steamship Mutual is a P & I Club. SteamshipMutual admits it does not have a license
to do business in the Philippines although Pioneer is its resident agent. This relationship is reflectedin the
certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress
its assertion, it cites the definition of a P & I Club inHyopsung Maritime Co., Ltd. v. Court of Appeals[10] as
an association composed of shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in
favor of third parties. It stresses that as a P & I Club, Steamship Mutuals primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to
act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to shipowning. [11] Respondents aver Hyopsung is
inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or
transacting an insurance business. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;

In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
FIRST ASSIGNMENT OF ERROR

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN
THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR
BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN
THE PHILIPPINES.

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.

SECOND ASSIGNMENT OF ERROR

The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not
preclude the existence of an insurance business. [12]

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR

...

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the occurrence,

contingency, or circumstances under which the performance becomes requisite. It is not by what it is
called. [13]
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. [14]

ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety
Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer
and insurance agent, respectively. The petitioners prayer for the revocation of Pioneers Certificate of
Authority and removal of its directors and officers, is DENIED. Costs against respondents.
SO ORDERED.

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.[15] Section 99 [16] of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative ente rprise where the members are both the
insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the
creation of a fund from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. [17] Additionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection and indemnity, war risks, and defense costs. [18]
A P & I Club is a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members.[19] By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 [20] of the Insurance Code. It maintains a resident agentin
the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue
doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer
or insurance company is allowed to engage in the insurance business without a license or a certificate of
authority from the Insurance Commission. [21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration [22] issued
by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority[23] issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. [24]
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof, without
first procuring a license so to act from the Commissioner, which must be renewed annually on the first day
of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals
affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
WHITEGOLD VS PIONEER
Facts: Petitioner White Gold bought a protection and indemnity coverage for its ships from Steamship
Mutual through Respondent Pioneer. Certificates and receipts thus were given. However, Petitioner failed
to fulfill its payments thus Steamship refused to renew its coverage. Steamship then filed for collection
against Petitioner for recovery of unpaid balance. Thereafter, Petitioner also filed a complaint against
Steamship and Respondent before the Insurance Commission for violations (186,187 for Steamship and
299,300,301 in relation to 302 and 303 for Respondent) of the Insurance Code -license requirements as an
Insurance company for the former and as insurance agent for the latter. Said commission dismissed the
complaint which decision was affirmed by the CA.
Issue: Whether or not Steamship Mutual is a Protection and Indemnity Club engaged in the insurance
business in the Philippines
Held: Steamship Mutual as a P & I Club is a mutual insurance company engaged in the marine insurance
business.
An insurance contract is a contract of indemnity. This means that one party undertakes for a consideration
to indemnify another party against loss, damage, or liability arising from an unknown orcontingent event.
While to determine if a contract is an insurance contract we can look at the nature of the promise,the act
to be performed, exact nature of the agreement in view of the entire occurrence, contingency or
circumstance where the performance is mandated. The label is not controlling. While under Section 2(2)
of the Insurance Code the phrase doing an insurance business constitutes the following: 1) making or
proposing to make, as insurer, any insurance contract; 2) making or proposing to make, as surety, any
contractof suretyship as a vocationand not as merely incidental to any other legitimate business or activity
of the surety; 3) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business withinthe meaning of this code; 4) doing or proposing to
do any business in substance to any of the foregoing in a manner designed to evade the provision of this
code.
Taking all of these in to consideration, Steamship Mutual engaged in marine insurance business undertook
to indemnify Petitioner WhiteGold against marine losses as enumerated under sec. 99 of the Insurance
Code. It is immaterial whether profit is derived from making insurance contract and that no separate or
direct consideration is received since these does not preclude the existence of an insurance business.
NOTES:
*Mutual Insurance company- cooperative enterprise where the members are both the insurer and
insured.
*Protection and Indemnity Club- a form of insurance against third party liability where the third party is
anyone other than the P & I Club and its members.

G.R. No. L-2294

May 25, 1951

FILIPINAS
COMPAIA
vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez
and
Ewald Huenefeld for respondent.

Ortigas

DE

for

SEGUROS, petitioner,

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.

petitioner.

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.

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 Courtof
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, decidedon 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 heldat
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

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 renderedon the basis of suchnewly 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-ownedproperty in the United States allowedto 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 n o 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 usedin
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.)

Filipinas Compaia is an American controlled company. The building and the insured merchandise were
burned during the Japanese occupation. Christern filed its claim amounting to P92,650.00 but Filipinas
Compaia refused to pay alleging that Christern is a corporation whose majority stockholders are Germans
and that during the Japanese occupation, America declared war against Germany hence the insurance
policy ceased to be effective because the insured has become an enemy. Filipinas Compaia was
eventually ordered to pay Christern as ordered by the Japanese government.

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.)

ISSUE:

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 premiumpaid
by the respondent for the period covered by its policy from December 11, 1941, should be returnedby the
petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hi nges 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 canbe
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, i n 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 topay 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.
FILIPINAS DE COMPANIA VS CHRISTERN & CO. CASE DIGEST
FACTS:
Christern, Huenefeld and Company, a German company, obtained a fire insurance policy from Filipinas
Compaia for the merchandise contained in a building located in Binondo, Manila in the sum of P100,000.

Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the insurance claim.
HELD:
NO. There is no question that majority of the stockholders of Christern were German subjects. This being
so, Christern became an enemy corporation upon the outbreak of the war between the United States and
Germany. The Philippine Insurance Law (Act No. 2427, as amended,) in Section 8, provides that anyone
except a public enemy may be insured. It stands to reason that an insurance policy ceases to be allowable
as soon as an insured becomes a public enemy.
The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued
in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, 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 respondentfor
the period covered by its policy from December 11, 1941 , should be returned by the petitioner

G.R. No. L-14300

January 19, 1920

SAN
MIGUEL
BREWERY,
vs.
LAW UNION AND
ROCK INSURANCE CO.,
(LTD.)
HENRY HARDING, defendant-appellant.
Crossfield
and
O'Brien
for
Lawrence
and
Ross
for
appellee
Law
Sanz
and
Luzuriaga
for
appellee
"Filipinas,
No appearance for the other appellee.

ETC., plaintiff-appellee,
ET

AL., defendants-appellees.

appellant
Harding.
Union
etc.
Ins.
Co.
Compaia
de
Seguros."

STREET, J.:
This actionwas begun on October8, 1917, inthe Court of FirstInstance of the city of Manila by the plaintiff,
the San Miguel Brewery, for the purpose of recovering upon two policies of insurance underwritten
respectively by Law Union and Rock Insurance Company (Ltd.), and the "Filipinas" Compania de Seguros,
for the sum of P7,500 each, insuring certain property which has been destroyed by fire. The plaintiff, the
San Miguel Brewery, is named as the party assured in the two policies referred to, but it is alleged inthe
complaint that said company was in reality interested in the property which was the subject of insurance
in the character of a mortgage creditor only, and that the owner of said property upon the date the policies
were issued was one D. P. Dunn who was later succeeded as owner by one Henry Harding. Accordingly
said Harding was made a defendant, as a person interested in the subject of the litigation.
The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two companies
named for the sum of P15,000, with interest and costs, and further that upon satisfaction of the balance
of P4,505.30 due to the plaintiff upon the mortgage debt, and upon the cancellation of the mortgage, the
plaintiff be absolved from liability to the defendants or any of them. The peculiar form of the latter part of
the prayer is evidently due to the design of the plaintiff to lay a foundation for Harding to recover the
difference between the plaintiff's credit and the amount for which the property was insured. Accordingly,
as was to be expected, Harding answered, admitting the material allegations of the complaint and claiming
for himself the right to recover the difference between the plaintiff's mortgage credit and the face value
of the policies. The two insurance companies also answered, admitting in effect their liability to the San
Miguel Brewery to the extent of its mortgage credit, but denying liability to Harding on the ground that
under the contracts of insurance the liability of the insurance companies was limited to the insurable
interest of the plaintiff therein. Soon after the action was begun the insurance companies effected a
settlement with the San Miguel Brewery by paying the full amount of the credit claimed by it, with the
result that the litigation as between the original plaintiff and the two insurance companies came to an end,
leaving the action to be prosecuted to final judgement by the defendant Harding with respect to the
balance claimed to be due to him upon the policies.
Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of action
whatever against the companies and absolved them from liability without special finding as to costs. From
this decision the said Henry Harding has appealed.
The two insurance companies who are named as defendants do not dispute their liability to the San Miguel
Brewery, to the extent already stated, and the only question here under discussion is that of the liability
of the insurance companies to Harding. It is therefore necessary to take account of such facts only as bear
upon this aspect of the case.
In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the property to which
the insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of P10,000. In the
contract of mortgage Dunn agreed to keep the property insured at his expense to the full amount of its

value in companies to be selected by the Brewery Company and authorized the latter in case of loss to
receive the proceeds of the insurance and to retain such part as might be necessary to cover the mortgage
debt. At the same time, in order more conveniently to accomplish the end in view, Dunn authorized and
requested the Brewery Company to effect said insurance itself. Accordingly on the same d ate Antonio
Brias, general manager of the Brewery, made a verbal application to the Law Union and Rock Insurance
Company for insurance to the extent of P15,000 upon said property. In reply to a question of the
company's agent as to whether the Brewery was the owner of the property, he stated that the company
was interested only as a mortgagee. No information was asked as to who was the owner of the property,
and no information upon this point was given.
It seems that the insurance company to whom this application was directed did not want to carry more
than one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in a like amount
to be issued by the "Filipinas" Compania de Seguros. Both policies were issued in the name of the San
Miguel Brewery as the assured, and contained no reference to any other interest in the property. Both
policies contain the usual clause requiring assignments to be approved and noted on the policy. The
premiums were paid by the Brewery and charged to Dunn. A year later the policies were renewed, without
change, the renewal premiums being paid by the Brewery, supposedly for the account of the owner. In the
month of March of the year 1917 Dunn sold the insured property to the defendant Henry Harding, but not
assignment of the insurance, or of the insurance policies, was at any time made to him.
We agree with the trial court that no cause of action in Henry Harding against the insurance companies is
show. He is not a party to the contracts of insurance and ca nnot directly maintain an action thereon. (Uy
Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is merely of an equitable and subsidiary nature
and must be made effective, if at all, through the San Miguel Brewery in whose name the contracts are
written. Now the Brewery, as mortgagee of the insured property, undoubtedly had an insurable interest
therein; but it could not, in any event, recover upon these policies an amount in excess of its mortgage
credit. In this connection it will be remembered that Antonio Brias, upon making application for the
insurance, informed the company with which the insurance was placed that the Brewery was interested
only as a mortgagee. It would, therefore, be impossible for the Brewery mortgage on the insured property.
This conclusion is not only deducible from the principles governing the operation and effect of insurance
contracts in general but the point is clearly covered by the express provisions of sections 16 and 50 of the
Insurance Act (Act No. 2427). In the first of the sections cited, it is declared that "the measure of an
insurable interest in property is the extent to which the insured might be damnified by loss or injury
thereof" (sec. 16); while in the other it is stated that "the insurance shall be applied exclusively to the
proper interest of the person in whose name it is made unless otherwise specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the ownership
of the property had continued in him up to the time of the loss; and as regards Harding, an additional
insuperable obstacle is found in the fact that the ownership of the property had been charged, prior to the
loss, without any corresponding change having been effected in the policy of insurance. In section 19 of
the Insurance Act we find it stated that "a change of interest in any part of a thing insured unaccompanied
by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the insurance are vested in the same person." Again in
section 55 it is declared that "the mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy and the thing insured."
Undoubtedly these policies of insurance might have been so framed as to have been "payable to the Sane
Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a
clause would have proved an intention to insure the entire interest in the property, not merely the

insurable interest of the San Miguel Brewery, and would have shown exactly to whom the money, in case
of loss, should be paid. But the policies are not so written.

that the making of the contract in this form was due to inadvertence, accident, and mistake upon the part
of both Kearney and the company.

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

Said the court:

If during the negotiations which resulted in the writing of this insurance, it had been agreed between the
contracting parties that the insurance should be so written as to protect not only the interest of the
mortgagee but also the residuary interest of the owner, and the policies had been, by inadvertence,
ignorance, or mistake written in the form in which they were issued, a court would have the power to
reform the contracts and give effect to them in the sense in which the parties intended to be bound. But
in order to justify this, it must be made clearly to appear that the minds of the contracting parties did
actually meet in agreement and that they labored under some mutual error or mistake in respectto the
expression of their purpose. Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it appeared
that a mortgage desiring to insure his own insurable interest only, correctly stated his interest,and asked
that the same be insured. The insurance company agreed to accept the risk, but the policy was issued in
the name of the owner, because of the mistaken belief of the company's agent that the law required it to
be so drawn. It was held that a court of equity had the power, at the suit of the mortgage, to reformthe
instrument and give judgment in his favor for the loss thereunder, although it had been exactly as itwas.
Said the court: "If the applicant correctly states his interest and distinctly asks for an insurance thereon,
and the agent of the insurer agrees to comply with his request, and assumes to decide upon the form of
the policy to be written for that purpose, and by mistake of law adopts the wrong form, a court of equity
will reform the instrument so as to make it insurance upon the interest named." (See also Fink vs. Queens
Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa, 334; 16 Am. St. Rep., 443; Woodbury
Savings etc., Co., vs.Charter Oak Insurance Co., 31 Conn., 517; Balen vs. Hanover Fire Insurance Co., 67
Mich., 179.)
Similarly, in cases where the mortgage is by mistake described as owner, the court may grant reformation
and permit a recovery by the mortgage in his character as such. (Dalton vs. Milwaukee etc. Insurance Co.,
126 Iowa, 377; Spare vs. Home Mutual Insurance Co., 17 Fed., 568.) In Thompson vs. Phoenix Insurance Co.
(136 U.S., 287; 34 L. 3d., 408), it appeared that one Kearney made application to an insurance company
for insurance on certain property in his hands as receiver and it was understood between him and the
company's agent that, in case of loss, the proceeds of the policy should accrue to him and his successors
as receiver and to others whom it might concern. However, the policy, as issued, was so worded as to be
payable only to him as receiver. In an action brought on the policy by a successor of Kearney, it was alleged

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the policy, the
plaintiff is entitled to have it reformed.
In another case the same court said:
We have before us a contract from which by mistake, material stipulations have been omitted, whereby
the true intent and meaning of the parties are not fully or accurately expressed. There was a definite
concluded agreement as to insurance, which, in point of time, preceded the preparation and delivery of
the policy, and this is demonstrated by legal and exact evidence, which removes all doubt as to the sense
and undertaking of the parties. In the agreement there has been a mutual mistake, caused chieflyby that
contracting party who now seeks to limit the insurance to an interest in the property less than thatagreed
to be insured. The written agreement did not effect that which the parties intended. That a court of equity
can afford relief in such a case, is, we think, well settled by the authorities. (Smell vs. Atlantic, etc., Ins. Co.,
98 U.S., 85, 89; 25 L. ed., 52.)
But to justify the reformation of a contract, the proof must be of the most satisfactory character, and it
must clearly appear that the contract failed to express the real agreement between the parties. (Philippine
Sugar Estates Development Company vs. Government of the Philippine Islands, 62 L. ed.,
1177, reversing Government of Philippine Island vs. Philippine Sugar Estates Development Co., 30 Phil.
Rep., 27.)
In the case now before us the proof is entirely insufficient to authorize the application of the doctrine state
in the foregoing cases, for it is by means clear from the testimony of Brias and none other was offered
that the parties intended for the policy to cover the risk of the owner in addition to that of the
mortgagee. It results that the defendant Harding is not entitled to relief in any aspect of the case.
The judgment is therefore affirmed, with costs against the appellant. So ordered.
SAN MIGUEL VS LAW UNION CASE DIGEST
Lessons Applicable:

Mortgagor (Insurance)

Measure of Insurable Interest (Insurance)

Effect of Change of Interest in Thing Insured (Insurance)

Effect of transfer of thing insured (Insurance)

Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old
law)
FACTS:

In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure
the mortgaged property for its full value and to indorse the policies in such manner as to
authorize the Brewery Company to receive the proceeds in case of loss and to retain suchpart
thereof as might be necessary to satisfy the remainder then due upon the mortgage debt.

Instead, however, of effecting the insurance himself Dunn authorized and requested the
Brewery Company to procure insurance on the property in the amount of P15,000 at Dunn's
expense.

San Miguel insured the property only as mortgagee.

Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.

When it was destroyed by fire, the two companies settled with San Miguelto the extentof the
mortgage credit.

RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the
difference between the mortgage credit and the face value of the policies.

Henry Harding appealed.

ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO
HELD: affirmed

section 19 of the Insurance Act:

a change of interest in any part of a thing insured unaccompanied by a

corresponding change of interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person

section 55:

the mere transfer of a thing insured does not transfer the policy, but suspends it
until the same person becomes the owner of both the policy and the thing insured

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

The blame for the situation thus created rests, however, with the Brewery rather thanwith the
insurance companies, and there is nothing in the record to indicate that the insurance
companies were requested to write insurance upon the insurable interest of the owner or
intended to make themselves liable to that extent

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the parties are entitled to have it reformed. But to justify the reformation of a contract,
the proof must be of the most satisfactory character, and it must clearly appear that the
contract failed to express the real agreement between the parties

In the case now before us the proof is entirely insufficient to authorize reformation.

G.R. No. L-15184

May 31, 1963

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

SAURA
IMPORT
&
EXPORT
CO.,
INC., plaintiff-appellant,
vs.
PHILIPPINE INTERNATIONAL SURETY CO., INC., and PHILIPPINE NATIONAL BANK, defendants-appellees.

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

Saura,
Magno
&
Associates
for
plaintiff-appellant.
Tolentino, Garcia and D. R. Cruz for defendant-appellee Philippine International Surety Co., Inc.
Ramon B. de los Reyes and Antonio P. Cruz for defendant-appellee Philippine National Bank.

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

PAREDES, J.:

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

Instant case was certified by the Court of Appeals to Us, it appearing that the issues involved are purelyof
law.
On December 26, 1952, the Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel
of land covered by T.C.T. No. 40445 of the Registry of Deeds of Davao, issued in its name, to secure the
payment of promissory note of P27,000.00 (Exhs. P, B-2). On April 30, 1953, the mortgage was amended
to guarantee an increased amount, bringing the total mortgaged debt to P37,000.00 (Exhs. P -2, B-3). The
provisions of the mortgaged contact, pertinent to the resolution of the present case, provide as follows
2. . . . he shall insure the mortgaged property at all times against fire and earthquake for an amount and
with such company satisfactory to the Mortgagee, indorsing to the latter the corresponding policies; he
shall keep the mortgaged property in good condition, making repairs and protecting walls that may be
necessary; . . .
xxx

xxx

xx x

Erected on the land mortgaged, was a building of strong materials owned by the mortgagor Saura Import
& Export Co., Inc., which ha d always been covered by insurance, many years prior to the mortgage
contract. Pursuant to the requirement, Saura insured the building and its contents with the Philippine
International Surety, an insurance firm acceptable to mortgagee Bank, for P29,000.00 against fire for the
period of one year from October 2, 1954. As required therefor, the insurance policy was endorsed tothe
mortgagee PNB, in a Memo which states
Loss if any, payable to the Philippine National Bank as their interest may appear, subject to the terms,
conditions and warranties of this policy (Exh. A).
The policy was delivered to the mortgagee Bank by Saura. On October 15, 1954, barely thirteen (13) days
after the issuance of the fire insurance policy (October 2, 1954), the insurer cancelled the same, effective
as of the date of issue (Exh. A-2). Notice of the cancellation was given to appellee bank in writing, sent by
Registered Mail and personally addressed to Fortunato Domingo, Branch Manager of the appellee Bank's
Davao Branch, and was received by the Bank on November 8, 1954. On April 6, 1955, the building and its
contents, worth P40,685.69 were burned. On April 11, 1955, Saura filed a claim with the Insurer and
mortgagee Bank. Upon the presentation of notice of loss with the PNB, Saura learned for the first time
that the policy had previously been cancelled on October 2, 1954, by the insurer, when Saura's folder in
the Bank's filed was opened and the notice of cancellation (original and duplicate) sent by the Insurer to
the Bank, was found. Upon refusal of the Insurer Philippine International Surety to pay the amountof the
insurance, Civil Case No. 26847 was filed with the Manila CFI against the Insurer, and the PNB was later
included as party defendant, after it had refused to prosecute the case jointly with Saura Import & Export
Co., Inc.

In the determination of liabilities of the parties herein, let us look into the general principles of insurance,
in matters of cancellations of policy by the insurer. Fire insurance policies and other contracts of insurance
upon property, in addition to the common provision for cancellation of the policy upon request of the
insured, generally provide for cancellation by the insurer by notice to the insured for a prescribed period,
which is usually 5 days, and the return of the unearned portion of the premium paid by the insured,such
provision for cancellation upon notice being authorized by statutes in some jurisdiction, either specifically
or as a provision of an adopted standard form of policy. The purpose of provisions or stipulations for notice
to the insured, is to prevent the cancellation of the policy, without allowing the insured ample opportunity
to negotiate for other insurance in its stead. The form and sufficiency of a notice of cancellation is
determined by policy provisions. In order to form the basis for the cancellation of a policy, notice to the
insured n not be in any particular form, in the absence of a statute or policy provision prescribing such
form, and it is sufficient, so long as it positively and unequivocally indicates to the insured, that it is the
intention of the company that the policy shall cease to be binding. Where the policy contains no provisions
that a certain number of days notice shall be given, a reasonable notice and opportunity to obtain other
insurance must be given. Actual personal notice to the insured is essential to a cancellation under a
provision for cancellation by notice. The actual receipt by the insured of a notice of cancellation is
universally recognized as a condition precedent to a cancellation of the policy by the insurer, and
consequently a letter containing notice of cancellation which is mailed by the insurer but not received by
the insured, is ineffective as cancellation (29 Am. Jur. pp. 732 -741).
The policy in question (Exh. A), does not provide for the notice, its form or period. The Insurance Law, Act
No. 2427, does not likewise provide for such notice. This being the case, it devolves upon the Court to
apply the generally accepted principles of insurance, regarding cancellation of the insurance policy by the
insurer. From what has been heretofore stated, actual notice of cancellation in a clear and unequivocal
manner, preferably in writing, in view of the importance of an insurance contract, should be given by the
insurer to the insured, so that the latter might be given an opportunity to obtain other insurance for his
own protection. The notice should be personal to the insured and not to and/or through any unauthorized
person by the policy. In the case at bar, the defendant insurance company, must have realized the
paramount importance of sending a notice of cancellation, when it sent the notice of cancellation of the
policy to the defendant bank (as mortgagee), but not to the insured with which it (insurance company)
had direct dealing. It was the primary duty of the defendant-appellee insurance company to notify the
insured, but it did not. It should be stated that the house and its contents were burned on April 6, 1955,
at the time when the policy was enforced (October 2, 1954 to October 2, 1955); and that under the facts,
as found by the trial court, to which We are bound, it is evident that both the insurance company and the
appellee bank failed, wittingly or unwittingly, to notify the insured appellant Saura of the cancellation
made.

Of course, the defendant insurance company contends that it gave notice to the defendant-appellee bank
as mortgagee of the property, and that was already a substantial compliance with its duty to notify the
insured of the cancellation of the policy. But notice to the bank, as far appellant herein is concerned, is not
effective notice.
If a mortgage or lien exists against the property insured, and the policy contains a clause stating thatloss,
if any, shall be payable to such mortgagee or the holder of such lien as interest may appear, notice of
cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of the policy to the owner
of the property. (Connecticut Ins. Co. v. Caumisar, 218 Ky. 378, 391 SW 776, cited in 29 Am. Jur. p. 743).

October 15, 1954: Barely 13 days after the issuance of the fire insurance policy, the insurer
cancelled it. Notice of the cancellation was given to PNB (mortgagee). But Saura (insured) was
not informed.

April 6, 1955: The building and all its contents worth P40,685.69 were burned so Saura filed a
claim with the Insurer and mortgagee Bank

RTC: dismissed

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

ISSUE: W/N Philippine International Surety should be held liable for the claim because notice to onlythe
mortgagee
is
not
substantial

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

HELD:YES. Appealed from is hereby reversed. Philippine International Surety Co., Inc., to pay Saura Import
& Export Co., Inc., P29,000

It was the primary duty of Philippine International Surety to notify the insured, but it did not

While an assignment of error which is required by law or rule of court has been held essential to appellate
review, only those assigned will be considered, there are a number of cases which appear to accordto the
appellate court a broad discretionary power to waive the lack of proper assignment of errors and consider
errors not assigned. And an unassigned error closely related to an error properly assigned, or uponwhich
the determination of the question raised by the error properly assigned is dependent, wi ll be considered
by the appellate court notwithstanding the failure to assign it as error. (Hernandez v. Andal, 78 Phil. 198199).

If a mortgage or lien exists against the property insured, and the policy contains a clause stating
that loss, if any, shall be payable to such mortgagee or the holder of such lien as interestmay
appear, notice of cancellation to the mortgagee or lienholder alone is ineffective as a
cancellation of the policy to the owner of the property.

liability attached principally the insurance company, for its failure to give notice of the
cancellation of the policy to Saura

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

it is unnecessary to discuss the errors assigned against appellee bank

Because of the conclusions reached, We find it unnecessary to discuss the errors assigned against appellee
bank.
WHEREFORE, the decision appealed from is hereby reversed, and another is entered, condemning the
defendant-appellee Philippine International Surety Co., Inc., to pay Saura Import & Export Co., Inc.,
appellant herein, the sum of P29,000.00, the amount involved in Policy No. 429, subject-matter of the
instant case. Without costs.
SAURA IMPORT VS PIS CASE DIGEST
FACTS:

Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land.

The mortgage was amended to guarantee an increased amount, bringing the total mortgaged
debt to P37,000

On the land mortgage is a building owned by Saura Import & Export Co Inc. which was insured
with Philippine International Surety (Insurer) even before the mortgage contract so it was
required to endorse to mortga gee PNB

G.R. No. L-7667

November 28, 1955

CHERIE
vs.
BEATRIZ COSIO, defendant-appellant.
Claro
M.
Recto
Bengson, Villegas, Jr. and Villar for appellee.

PALILEO, plaintiff-appellee,

for

appellant.

BAUTISTA ANGELO, J.:

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that (1) the
transaction entered into between them on December 18, 1951 be declared as one of loan, and the
document executed covering the transaction as one of equitable mortgage to secure the paymentof said
loan; (2) the defendant be ordered to credit to the plaintiff with the necessary amount from the sum
received by the defendant from the Associated Insurance & Surety Co., Inc. and to apply the same to the
payment of plaintiff's obligation thus considering it as fully paid; and (3) the defendant be ordered to pay
to plaintiff the difference between the allegedindebtedness of plaintiff and the sum receivedby defendant
from the aforementioned insurance company, plus the sum allegedly paid to defendant as intereston the
alleged indebtedness.
On December 19, 1952, defendant filed her answer setting up as special defense that the transaction
entered into between the plaintiff and defendant is one of sale with option to repurchase but that the
period for repurchase had expired without plaintiff having returned the price agreed upon as a result of
which the ownership of the property had become consolidated in the defendant. Defendant also set up
certain counterclaims which involve a total amount of P4,9 00.
On April 7, 1953, the case was set for trial on the merits, but because of several postponements asked by
the parties, the same has to be set anew for trial on January 12, 1954. On this date, neither the defendant
nor her counsel appeared,evenif the latter had beennotifiedof the postponementalmosta month earlier,
and so the court received the evidence of the plaintiff. On January 18, 1954, the court, having in view the
evidence presented, rendered judgment granting the relief prayed for in the com plaint.
On February 2, 1954, the original counsel for the defendant was substituted and the new counsel
immediately moved that the judgment be set aside on the ground that, due to mistake or excusable
negligence, defendant was unable to present her evidence and the decision was contrary to law, andthis
motion having been denied, defendant took the present appeal.
The important issue to be determined in this appeal is whether the lower court committed a grave abuse
of discretion in not reopening the case to give defendant an opportunity to present her evidence
considering that the failure of her original counsel to appear was due to mistake or execusable negligence
which ordinary prudence could not have guarded against.
The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953, said counsel
showed interest in the early disposal of this case by moving the court to have it set for trial. The first date
set was April 7, 1953, but no hearing was had on that date because plaintiff had moved to postpone it.The
case was next set for hearing on April 28, 1953, but on motion again of plaintiff, the hearing was
transferred to November 6, 1953. Then, upon petition of defendant, the trial had to be moved to
December 15, 1953, and because Atty. Guerrero could not appear on said date because of a case he had
in Cebu City, the hearing was postponed to January 18, 1954.
And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero was
appointed Undersecretary of Foreign Affairs. It is now contended that the appointment was so sudden and

unexpected that Atty. Guerrero, after taking his oath, was unable to wind up his private cases or make any
preparation at all. It is averred that "The days that followed his appointment were very busy days for
defendant's former counsel. There was an immediate need for clearing the backlog of official business,
including the reorganization of the Department of Foreign Affairs and our Foreign Service, and more
importantly, he had to assist the Secretary of Foreign Affairs in negotiations of national importance like
the Japanese reparations, and the revision of the trade agreement with the United States, that, Atty.
Guerrero had to work as much as fourteen hours daily . . . Because of all these unavoidable confusionthat
followed in the wake of Atty. Guerrero's sudden and unexpected appointment, the trial of this case
scheduled for January 18, 1954 escaped his memory, and consequently, Atty. Guerrero and the defendant
were unable to appear when the case was called for trial." These reasons, it is intimated, constitute
excusable negligence which ordinary prudence could not have guarded against and should have been
considered by the trial court as sufficient justification to grant the petition of defendant for a rehearing.
It is a well-settled rule that the granting of a motion to set aside a judgment or order on the ground of
mistake or excusable negligence is addressed to the sound discretion of the court (see Coombs vs. Santos,
24 Phil., 446; Daipan vs. Sigabu, 25, Phil., 184). And an order issued in the exercise of such discretion is
ordinarily not to be disturbed unless it is shown that the court has gravely abused such discretion. (See
Tell vs. Tell, 48 Phil., 70; Macke vs. Camps, 5 Phil., 185; Calvo vs. De Gutierrez, 4 Phil., 203;
Manzanares vs. Moreta, 38 Phil., 821; Salvavs. Palacio and Leuterio, 90 Phil., 731.) In denying the motion
for reopening the trial court said: "After going over the same arguments, this Court is of the opinion, and
so holds that the decision of this Court of January 18, 1954 should not be disturbed." Considering the
stature, ability and experience of counsel Leon Ma. Guerrero, and the fact that he was given almostone
month notice before the date set for trial, we are persuaded to conclude that the trial court didnot abuse
its discretion in refusing to reconsider its decision.
Coming now to the merits of the case, we note that the lower court made the following findings: On
December 18,1951,plaintiff obtained from defendanta loan in the sumof P12,000 subjectto the following
conditions: (a) that plaintiff shall pay to defendant an interest in the amount of P250 a month; (b) that
defendant shall deduct from the loan certain obligations of plaintiff to third persons amounting to P4,550,
plus the sum of P250 as interest for the first month; and (c) that after making the above deductions,
defendant shall deliver to plaintiff only the balance of the loan of P12,000.
Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00
corresponding to nine months from December 18, 1951, on the basis of P250.00 a month, whichis more
than the maximum interest authorized by law. To secure the payment of the aforesaid loan, defendant
required plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to
convey to defendant, with right to repurchase, a two-story building of strong materials belonging to
plaintiff. This document did not express the true intention of the parties which was merely to place said
property as security for the payment of the loan.
After the execution of the aforesaid document, defendant insured the building against fire with the
Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issuedin
the name of defendant. The building was partly destroyed by fire and, after proper demand, defendant
collected from the insurance company an indemnity of P13,107.00. Plaintiff demanded from de fendant
that she be credited with the necessary amount to pay her obligation out of the insurance proceeds but
defendant refused to do so. And on the strength of these facts, the court rendered decision the dispositive
part of which reads as follows:
Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff and defendant,
as shown in Exhibit A, an equitable mortgage to secure the payment of the sum of P12,000 loaned by the
defendant to plaintiff; ordering the defendant to credit the sum of P13,107 received by the defendant
from the Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in the sum of

P12,000.00 as stated in the complaint, thus considering the agreement of December 18, 1951 between
the herein plaintiff and defendant completely paid and leaving still a balance in the sum of P1,107 from
the insurance collected by defendant; that as plaintiff had paid to the defendant the sum of P2,250.00 for
nine months as interest on the sum of P12,000 loaned to plaintiff and the legal interest allowedby law in
this transaction does not exceed 12 per cent per annum, or the sum of P1,440 for one year, so the herein
plaintiff and overpaid the sum of P810 to the defendant, which this Court hereby likewise orders the said
defendant to refund to herein plaintiff, plus the balance of P1,107 representing the difference of the sum
loan of P12,000 and the collected insurance of P13,107 from the insurance company abovementioned to
which the herein plaintiff is entitled to receive, and to pay the costs.
The question that now arises is: Is the trial court justified in considering the obligation of plaintiff fully
compensated by the insurance amount and in ordering defendant to refund to plaintiff the sum of P1,107
representing the difference of the loan of P12,000 and the sum of P13,107 collected by said defendant
from the insurance company notwithstanding the fact that it was not proven that the insurance was taken
for the benefit of the mortgagor?
Is is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an
insurance taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee,
independently of the mortgagor, insures the mortgagedproperty in his own name and for his owninterest,
he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim
against the mortgagor,butis passed by subrogation to the insurer to the extentof the money paid." (Vance
on Insurance, 2d ed., p. 654)Or, stated in another way, "the mortgagee may insure his interest in the
property independently of the mortgagor. In that event, upon the destruction of the property the
insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount
due under the mortgage debt remains unchanged. The mortgagee, however, is not allowed to retain his
claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the insurance
money paid." (Vance on Insurance, 3rd ed., pp. 772-773) This is the same rule upheld by this Court in a
case that arose in this jurisdiction. In the case mentioned, an insurance contract was taken out by the
mortgagee upon his own interest, it being stipulated that the proceeds would be paid to him only and
when the case came up for decision, this Court held that the mortgagee, in case of loss, may only recover
upon the policy to the extent of his credit at the time of the loss. It was declared that the mortgaged had
no right of action against the mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40 Phil., 674.)
It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate
interest at his own expense and for his own benefit, without any agreement with the mortgagor with
respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance
proceeds applied in reduction of the mortgage debt" (19 R.C.L., p. 405), and that, further more, the
mortgagee "has still a right to recover his whole debt of the mortgagor." (King vs. State Mut. F. Ins.Co., 7
Cush. 1; Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also Loomis vs. Eagle Life & Health Ins. Co.,6 Gray,
396; Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506;
Foster vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the minority view
(See case note, 3 Lawyers' Report Annotated, new series, p. 79). "The general rule and the weight of
authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under the mortgage.
This is put upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages,Vol.
I, pp. 671-672.)
Considering the foregoing rules, it would appear that the lower court erred in declaring that the proceeds
of the insurance taken out by the defendant on the property mortgaged inured to the benefit of the
plaintiff and in ordering said defendant to deliver to the plaintiff the difference between her indebtedness
and the amount of insurance received by the defendant, for, in the light of the majority rule we have above
enunciated, the correct solution should be that the proceeds of the insurance should be delivered tothe

defendant but that her claim against the plaintiff should be considered assigned to the insurance company
who is deemed subrogated to the rights of the defendant to the extent of the money paid as indemnity.
Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as
follows:(1) the transaction had between the plaintiff and defendant as shown in Exhibit A is merely an
equitable mortgage intended to secure the payment of the loan of P12,000;(2) that the proceeds of the
insurance amounting to P13,107.00 was properly collected by defendant who is not required to account
for it to the plaintiff; (3) that the collection of said insurance proceeds shall not be deemed to have
compensated the obligation of the plaintiff to the defendant, but bars the latter from claiming its payment
from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00 representing the
overpayment made by plaintiff by way of interest on the loan. No pronouncement as to costs .
PALILEO VS COSIO CASE DIGEST
Lessons Applicable: Mortgagor (Insurance)
FACTS:

Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee)

praying that their transaction be one of a loan with an equitable mortgage to secure the
payment of the loan. The original counsel of Cosio Atty. Guerrero being appointed
Undersecretary of Foreign Affairs so she forgot the date of the trial and she was substituted.

it is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right to

repurchase. After the execution of the contract, Cosio insured in her name the building
with Associated Insurance & Surety Co. against fire.

The building was partly destroyed by fire so she claimed an indemnity of P13,107

Palileo demanded that the amount of insurance proceeds be credited to her loan

RTC: it is a loan with equitable mortgage so the insurance proceeds should be creditedto the
loan and refund the overpayment.

ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her own benefit
HELD: YES. Modify. collection of insurance proceeds shall not be deemed to have compensated the
obligation of the Palileo to Cosio, but bars the Cosio from claiming its payment from the Palileo; and Cosio
shall pay to Palileo P810 representing the overpayment made by Palileo by way of interest on the loan.

When the the mortgagee may insure his interest in the property independently of the
mortgagor , upon the destruction of the property the insurance money paid to the mortgagee
will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt
remains unchanged. The mortgagee, however, is not allowed to retain his claim against the
mortgagor, but it passes by subrogation to the insurer, to the extent of the insurance money
paid

It is true that there are authorities which hold that "If a mortgagee procures insurance on his
separate interest at his own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled
to have the insurance proceeds applied in reduction of the mortgage debt" But these
authorities merely represent the minority view

G.R. No. L-31845 April 30, 1979

GREAT
PACIFIC
LIFE
vs.
HONORABLE COURT OF APPEALS, respondents.

of First Instance of Cebu, which rendered the adverse decision as earlier refered to against both
petitioners.
ASSURANCE

COMPANY, petitioner,
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a
temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing
concealed the state of healthandphysical condition of Helen Go, whichrenderedvoid the aforesaidExhibit
E.

G.R. No. L-31878 April 30, 1979

LAPULAPU
D.
vs.
HON. COURT OF APPEALS and NGO HING, respondents.

MONDRAGON, petitioner,

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo fo r petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29,
1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these
petitions for certiorari by way of appeal, from the amended decision of respondent Court of Appeals which
affirmed in toto the decision of the Court of First Instance of Cebu, ordering "the defendants (herein
petitioners Great Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from the date of the
filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific
Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in
the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied the
essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City
wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the
data on the application form which was signed by private respondent Ngo Hing. The latter paid the annual
premuim the sum of P1,077.75 going over to the Company, but he reatined the amount of P1,317.00 as
his commission for being a duly authorized agebt of Pacific Life. Upon the payment of the insurance
premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April 30, 1957, Mondragon
received a letter from Pacific Life disapproving the insurance application (Exhibit 3 -M). The letter stated
that the said life insurance application for 20-year endowment plan is not available for minors below seven
years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised thatif
the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

1. At the back of Exhibit E are condition precedents required before a deposit is c onsidered a BINDING
RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ... and the insurance application,
ON or PRIOR to the date of medical examination ... said insurance shan be in force and in effect fromthe
date of such medical examination, for such period as is covered by the deposit ...,PROVIDED the company
shall be satisfied that on said date the applicant was insurable on standard rates under its rule for the
amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or
the kind of policy requested in the application but issue, or offers to issue a policy for a different plan
and/or amount ..., the insurance shall not be in force and in effect until the applicant shall have accepted
the policy as issued or offered by the Company and shall have paid the full premium thereof. If the
applicant does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to
approve the application the insurance applied for shall not have been in force at any time and the sum paid
be returned to the applicant upon the surrender of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according to the standard rates, and the
company disapproves the application, the insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment,on behalf of the company,thatthe latter's branch office hadreceivedfrom the applicant
the insurance premium andhadaccepted the application subjectfor processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicantis
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment insurance plan to children, pointing
out that since 1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4 -M).

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the agent,
no liability shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De
Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 2 64).

It was when things were in such state that on Ma y 28, 1957 Helen Go died of influenza with complication
of bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question on the ground that it is not offering the twenty-year
endowment insurance policy to children less than seven years of age. What it offered instead is another

plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt,
there could have been no insurance contract duly perfected between thenl Accordingly, the depositpaid
by private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents ... The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing
to be dione, nothing to be completed,nothing to be passedupon,or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no
contract perfected between the parties who had no meeting of their minds. Private respondet, being an
authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company
does not offer the life insurance applied for. When he filed the insurance application in dispute, private
respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his proposal that
the insurance company starts to offer the 20-year endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his one -year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must
have known and followed the progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate
Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3 -M) nor the reply
thereto of appellant Mondragon reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly communicated to Ngo; Hing, father of the
minor applicant. I am not quite conninced that this was so. Ngo Hing, as father of the applicant herself,
was precisely the "underwriter who wrote this case" (Exhibit H-1). The unchallenged statement of
appellant Mondragon in his letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was
"our associate" and that it was the latter who "insisted that the plan be placed on the 20-year endowment
plan." Under these circumstances, it is inconceivable that the progress in the processing of the application
was not brought home to his knowledge. He must have been duly apprised of the rejection of the
application for a 20-year endowment plan otherwise Mondragon would not have asserted that it was Ngo
Hing himself who insisted on the application as originally filed, thereby implictly declining the offer to
consider the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that
he was, Ngo Hing should only be presumed to know what kind of policies are available in the company for
minors below 7 years old. What he and Mondragon were apparently trying to do in the premises was
merely to prod the company into going into the business of issuing endowment policies for minors just as
other insurance companies allegedly do. Until such a definite policy is however, adopted by the company,
it can hardly be said that it could have been bound at all under the binding slip for a plan of insurance that
it could not have, by then issued at all. (Amended Decision, Rollo, pp - 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private
respondent had deliberately concealed the state of health and piysical condition of his daughter HelenGo.
Wher private regpondeit supplied the required essential data for the insurance application form,he was
fully aware that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect
could never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the insurance compary. As an insurance agent of
Pacific Life, he ought to know, as he surely must have known. his duty and responsibility to such a material
fact. Had he diamond said significant fact in the insurance application fom Pacific Life would have verified
the same and would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field man's Insurance
Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs.
Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties withthe
noncompliance of the conditions provided in the binding receipt, and concealment, as legally defined,
having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby entered
absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.
GREPALIFE VS CA.
FACTS: A contract of group life insurance was executed between petitioner Grepalife and DBP. Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan.
In an application form,. Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes,
lung; kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
Grepalife then issued a Certificate, as insurance coverage of Leuterio, to the extent of his DBP mortgage
indebtedness amounting to P86,200.00
Later, Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death claim
to Grepalife. Grepalife denied the claim alleging that. Leuterio was not physically healthy when he applied
for an insurance coverage. Grepalife insisted that Leuterio did not disclose he had been suffering from

hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that
justified the denial of the claim.
Tthe widow of the. Leuterio, respondent Medarda, filed a complaint with the RTC, against Grepalife for
Specific Performance with Damages. During the trial, Dr. Mejia, who iss ued the death certificate, was
called to testify. Dr. Mejias findings, based partly from the information given by the respondent widow,
stated that Leuterio complained of headaches presumably due to high blood pressure. The inference was
not conclusive because Leuterio was not autopsied, hence, other causes were not ruled out.
The trial court rendered a decision in favor of respondent widow and against Grepalife. The CA sustained
the trial courts decision. Hence, the present petition.
ISSUE:

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

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

HELD: petition denied

1.

1.

WIDOW

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to
this type of contract.

The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption
insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of the
mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be
applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying
the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept sothat
in the event of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium
under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy
insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not
make the mortgagee a party to the contract.

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 mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: In the event of the debtors death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor
and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the
debtor. When DBP submitted the insurance claim against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt
from the mortgagor and took the necessary action of foreclosure on the r esidential lot of private
respondent.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might
have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
2. The second assigned error refers to an alleged concealment that the petitioner interposed as its defense
to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists where the assured had knowledge
of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the same.

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

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

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

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescindthe
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case
at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no
evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the
mortgagors death. Hence, for private respondents failure to establish the same, the action for specific
performance should be dismissed. Petitioners claim is without merit. A life insurance policy is a valued
policy. Unless the interest of a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. The
mortgagor paid the premium according to the coverage of his insurance which states that:
The policy states that upon receipt of due proof of the Debtors death during the terms of this insurance,
a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with the creditor shall have been fully paid,an
amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum
Assured, if there is any shall then be paid to the beneficiary/ies designated by the debtor.
However, we noted that the CA decision was promulgated in 1993. In private respondents memorandum,
she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagors outstanding loan.
Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unj ustly enrich itself at the
expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Leuterios heirs
represented by his widow.