fRepublic of the Philippines

SUPREME COURT
Manila
EN BANC

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

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and
GRACIA T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
Tanopo, Millora, Serafica, and Saez for plaintiff-appellees.
Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance Company under
Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental
Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident ... and
independently of all other causes." The clause, however,expressly provided that it would not apply where
death resulted from an injury"intentionally inflicted by another party."
On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered the
house of the insured Juan S. Biagtan. What happened then is related in the decision of the trial court as
follows:
...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said
life policy and supplementary contract were in full force and effect, the house of insured
Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by
the Court of First Instance of Pangasinan for robbery with homicide; that in committing
the robbery, the robbers, on reaching the staircase landing on the second floor, rushed
towards the door of the second floor room, where they suddenly met a person near the
door of oneof the rooms who turned out to be the insured Juan S. Biagtan who received
thrusts from their sharp-pointed instruments, causing wounds on the body of said Juan S.
Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964;
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the
basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death
benefit clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third

parties and therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a
quo rendered judgment in their favor. Hence the present appeal by the insurer.
The only issue here is whether under the facts are stipulated and found by the trial court the wounds
received by the insured at the hands of the robbers nine in all, five of them mortal and four non-mortal
were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the parties
presented no evidence and submitted the case upon stipulation, there was no "proof that the act of receiving
thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict injuries upon the person
of the insured or any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine
wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded
by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five of those
wounds caused the death of the insured. Whether the robbers had the intent to kill or merely to scare the
victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the
injuries was intentional. It should be noted that the exception in the accidental benefit clause invoked by the
appellant does not speak of the purpose whether homicidal or not of a third party in causing the
injuries, but only of the fact that such injuries have been "intentionally" inflicted this obviously to
distinguish them from injuries which, although received at the hands of a third party, are purely accidental.
This construction is the basic idea expressed in the coverage of the clause itself, namely, that "the death of
the insured resulted directly from bodily injury effected solely through external and violent means
sustained in an accident ... and independently of all other causes." A gun which discharges while being
cleaned and kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a
competitive game involving physical effort who collides with an opponent and fatally injures him as a
result: these are instances where the infliction of the injury is unintentional and therefore would be within
the coverage of an accidental death benefit clause such as thatin question in this case. But where a gang of
robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it
is contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of
whether they prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have
been accused and convicted of the crime of robbery with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of its
decision. The facts in that case, however, are different from those obtaining here. The insured there was a
watchman in a certain company, who happened to be invited by a policeman to come along as the latter was
on his way to investigate a reported robbery going on in a private house. As the two of them, together with
the owner of the house, approached and stood in front of the main gate, a shot was fired and it turned out
afterwards that the watchman was hit in the abdomen, the wound causing his death. Under those
circumstances this Court held that it could not be said that the killing was intentional for there was the
possibility that the malefactor had fired the shot to scare people around for his own protection and not
necessarrily to kill or hit the victim. A similar possibility is clearly ruled out by the facts in the case now
before Us. For while a single shot fired from a distance, and by a person who was not even seen aiming at
the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned.
The manner of execution of the crime permits no other conclusion.
Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in
insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any
other person, etc., implies the exercise of the reasoning faculties, consciousness and volition. 1 Where a
provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that

is controlling. 2 If the injuries suffered by the insured clearly resulted from the intentional act of a third
person the insurer is relieved from liability as stipulated. 3
In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the
insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the
action to recover indemnity, namely: (1) that the insured having been killed by intentional means, his death
was not accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in
case the insured died from injuries intentionally inflicted by another person. In rendering judgment for the
insurance company the Court held that while the assassination of the insured was as to him an unforeseen
event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death
or injury is intentionally inflicted by another person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot
three times by a person unknown late on a dark and stormy night, while working in the coal shed of a
railroad company. The policy did not cover death resulting from "intentional injuries inflicted by the
insured or any other person." The inquiry was as to the question whether the shooting that caused the
insured's death was accidental or intentional; and the Court found that under the facts, showing that the
murderer knew his victim and that he fired with intent to kill, there could be no recovery under the policy
which excepted death from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.
Zaldivar, Castro, Fernando and Villamor, JJ., concur.
Makasiar, J., reserves his vote.

SECOND DIVISION
[G.R. No. 113899. October 13, 1999]
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS AND
MEDARDA V. LEUTERIO,respondents.
DECISION
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision [1] dated May 17,
1993, of the Court of Appeals and its Resolution [2] dated January 4, 1994 in CA-G.R. CV No. 18341. The
appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial Court, Branch 18, in
an insurance claim filed by private respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial courts decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE
CORPORATION as insurer under its Group policy No. G-1907, in relation to Certification B-18558 liable
and ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the insured Dr.
Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00);
dismissing the claims for damages, attorneys fees and litigation expenses in the complaint and
counterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs,
other than the widow-beneficiary, for lack of cause of action.[3]
The facts, as found by the Court of Appeals, are as follows:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?

Answer: [ x ] Yes [ ] No.[4]

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred
(P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on November 15, 1983. Grepalife insisted
that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for Specific
Performance with Damages.[5] During the trial, Dr. Hernando Mejia, who issued the death certificate, was
called to testify. Dr. Mejias findings, based partly from the information given by the respondent widow,
stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was
not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against
Grepalife. On May 17, 1993, the Court of Appeals sustained the trial courts decision. Hence, the present
petition. Petitioners interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO
THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY
TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO LEUTERIO ONE
OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER THE
PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO
DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW
HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE
WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT
OF MATERIAL INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a
group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six
thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage
payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of
Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the proceeds of insurance
contract in favor of DBP, the indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to
this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
mortgage redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance
will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from
paying the obligation.[7] In a similar vein, ample protection is given to the mortgagor under such a concept
so that in the event of death; the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. [8] Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on
the mortgagors interest, and the mortgagor continues to be a party to the contract. In this type of policy
insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not
make the mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that
the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract,
and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the contract of insurance,
is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: In the event of the debtors death before his indebtedness with the Creditor
[DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated
by the debtor.[10] When DBP submitted the insurance claim against petitioner, the latter denied payment
thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private
respondent.[11] In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:
Insured, being the person with whom the contract was made, is primarily the proper person to bring suit
thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in
part for the benefit of another person named or unnamed, and although it is expressly made payable to
another as his interest may appear or otherwise. * * * Although a policy issued to a mortgagor is taken out
for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own
name, especially where the mortgagees interest is less than the full amount recoverable under the policy, *
* *.

And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any judgment he may obtain.[13]
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the insured
might have recovered,[14] the widow of the decedent Dr. Leuterio may file the suit against the insurer,
Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as its defense
to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists where the assured had knowledge of
a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally withholds the same. [15]
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported
by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical
diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widows
declaration that her husband had possible hypertension several years ago should not be considered as
hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge
of Dr. Leuterios any previous hospital confinement. [16] Dr. Leuterios death certificate stated that
hypertension was only the possible cause of death. The private respondents statement, as to the medical
history of her husband, was due to her unreliable recollection of events. Hence, the statement of the
physician was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he
had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the
attending physician had certified in the death certificate that the former died of cerebral hemorrhage,
probably secondary to hypertension. From this report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had concealed the fact that he had hypertension.
Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines
taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who
could attest to Dr. Leuterios medical history...
xxx
Appellant insurance company had failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim.[17]
The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.[18] Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. [19] In the case
at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no
evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the mortgagors
death. Hence, for private respondents failure to establish the same, the action for specific performance
should be dismissed. Petitioners claim is without merit. A life insurance policy is a valued policy. [20] Unless
the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity
under a policy of insurance upon life or health is the sum fixed in the policy. [21]The mortgagor paid the
premium according to the coverage of his insurance, which states that:
The policy states that upon receipt of due proof of the Debtors death during the terms of this insurance, a
death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with the creditor shall have been fully paid, an
amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum
Assured, if there is any shall then be paid to the beneficiary/ies designated by the debtor.[22](Emphasis
omitted)
However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In private
respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagors outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the
benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the
insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr.
Leuterios heirs represented by his widow, herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to
pay the insurance proceeds amounting to Eighty-six thousand, two hundred (P86,200.00) pesos to the heirs
of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of
mortgagors indebtedness to Development Bank of the Philippines. Costs against petitioner.
SO ORDERED.
SYNOPSIS
This is a petition for review under Rule 45 of the Rules of Court, assailing the decision and resolution
of the Court of Appeals dated May 17, 1994 and January 4, 1994, respectively, in CA G.R. CV No. 18341.
The appellate court affirmed in toto the judgment of the Regional Trial Court of Misamis Oriental in an
insurance claim filed by private respondent against Great Pacific Life Assurance Co.
The Supreme Court found the petition not meritorious. Contrary to petitioners allegations, there was
no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the
insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the
petitioner had not proven nor produced any witness who could attest to Dr. Leuterios medical history.
Clearly, it had failed to establish that there was concealment made by the insured, hence it cannot refuse
payment of the claim.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; MORTGAGE REDEMPTION INSURANCE;
RATIONALE. - 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 so that 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.
2. ID.; ID.; ID.; INSURED MAY BE REGARDED AS REAL PARTY IN INTEREST, ALTHOUGH
HE HAS ASSIGNED THE POLICY FOR PURPOSE OF COLLECTION, OR HAS ASSIGNED
AS COLLATERAL SECURITY ANY JUDGMENT HE MAY OBTAIN. - 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 residential lot of private
respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we held: Insured, being the
person with whom the contract was made, is primarily the proper person to bring suit thereon. ***
Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for
the benefit of another person named or unnamed, and although it is expressly made payable to another
as his interest may appear or otherwise. *** Although a policy issued to a mortgagor is taken out for
the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his
own name, especially where the mortgagees interest is less than the full amount recoverable under the
policy, *** And in volume 33, page 82, of the same work, we read the following: Insured may be
regarded as the real party in interest, although he has assigned the policy for the purpose of collection,
or has assigned as collateral security any judgment he may obtain. 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, the widow
of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
3. ID.; ID.; ID.; FRAUDULENT INTENT ON THE PART OF THE INSURED MUST BE
ESTABLISHED TO ENTITLE THE INSURER TO RESCIND THE CONTRACT.- The
question of whether there was concealment was aptly answered by the appellate court, thus: The
insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he
had not consulted a doctor for any of the enumerated ailments, including hypertension; when he died
the attending physician had certified in the death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension. From this report, the appellant insurance company
refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that he
had hypertension. Contrary to appellants allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insureds widow who was not even sure if
the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced
any witness who could attest to Dr. Leuterios medical history x x x 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
rescind the 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.

10

11

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,
INC., respondents.

DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of Appeals reversing the decision of the Court of
First Instance of Manila in favor of petitioner and against private respondent which ordered the latter to pay
the sum of Pll,042.04 with interest at the rate of 12% interest from receipt of notice of loss on April 15,
1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs 1 thereby dismissing
petitioner s complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this Court, Except as
shall be indicated in the discussion of the opinion of this Court the substantial correctness of still particular
finding having been disputed, thereby raising a question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for its
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped
from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant
issued on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject
to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC.
printed Marine Policy form as filed with and approved by the Office of the Insurance
Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the plaintiff on
April 2, 1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033
(Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces
of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of
logs equivalent to 695,548 board feet (Exhibit C). The total cargo insured under the two
marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of the two
marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be
exported were lost during loading operations in the Diapitan Bay. The logs were to be
loaded on the 'SS Woodlock' which docked about 500 meters from the shoreline of the

12

Diapitan Bay. The logs were taken from the log pond of the plaintiff and from which they
were towed in rafts to the vessel. At about 10:00 o'clock a. m. on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs
which were rafted together co break loose from each other. 45 pieces of logs were
salvaged, but 30 pieces were verified to have been lost or washed away as a result of the
accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of 'appropriately 32 pieces
of log's during loading of the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft.
Philippine Lauan and Apitong Logs. We would like to inform you that we have received
advance preliminary report from our Office in Diapitan, Quezon that we have lost
approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as same will
be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant only
on April 15, 1963, as shown by the stamp impression appearing on the left bottom corner
of said letter. The plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033, in the total amount
of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation to
inspect the loss and assess the damage. The adjustment company submitted its 'Report on
August 23, 1963 (Exhibit H). In said report, the adjuster found that 'the loss of 30 pieces
of logs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies
covered the actual number of logs loaded on board the 'SS Woodlock' However, the loss
of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured
for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment, in the total amount of
Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on the
ground they defendant's investigation revealed that the entire shipment of logs covered by

13

the two marines policies No. 53 110 1032 and 713 HO 1033 were received in good order
at their point of destination. It was further stated that the said loss may be considered as
covered under Cover Note No. 1010 because the said Note had become 'null and void by
virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The
denial of the claim by the defendant was brought by the plaintiff to the attention of the
Insurance Commissioner by means of a letter dated March 21, 1964 (Exhibit K). In a
reply letter dated March 30, 1964, Insurance Commissioner Francisco Y. Mandanas
observed that 'it is only fair and equitable to indemnify the insured under Cover Note No.
1010', and advised early settlement of the said marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of
their attorneys, the claim of the plaintiff is being denied on the ground that the cover note
is null and void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS
NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE
COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE
COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE
COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT
WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT
DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF
DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ON
THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by express stipulation, the
cover note is made subject to the terms and conditions of the marine policies, and the payment of premiums
is one of the terms of the policies. From this undisputed fact, We uphold petitioner's submission that the
Cover Note was not without consideration for which the respondent court held the Cover Note as null and
void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before
the loss insured against occurred, does not militate against the validity of petitioner's contention, for no
such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover
Notes do not contain particulars of the shipment that would serve as basis for the computation of the
premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover
Note. This is a fact admitted by an official of respondent company, Juan Jose Camacho, in charge of issuing
cover notes of the respondent company (p. 33, tsn, September 24, 1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement
issued by private respondent after the issuance of the two regular marine insurance policies, thereby leaving
no account unpaid by petitioner due on the insurance coverage, which must be deemed to include the Cover
Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies

14

subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. 6
It may be true that the marine insurance policies issued were for logs no longer including those which had
been lost during loading operations. This had to be so because the risk insured against is not for loss during
operations anymore, but for loss during transit, the logs having already been safely placed aboard. This
would make no difference, however, insofar as the liability on the cover note is concerned, for the number
or volume of logs lost can be determined independently as in fact it had been so ascertained at the instance
of private respondent itself when it sent its own adjuster to investigate and assess the loss, after the issuance
of the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's
liability on the insurance coverage. This coverage could not have been no other than what was stipulated in
the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for
the loss insured against having already occurred, the more practical procedure is simply to deduct the
premium from the amount due the petitioner on the Cover Note. The non-payment of premium on the
Cover Note is, therefore, no cause for the petitioner to lose what is due it as if there had been payment of
premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the
loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen
even before payment of premium. This is how the cover note as a "binder" should legally operate
otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine
that where a policy is delivered without requiring payment of the premium, the presumption is that a credit
was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be sustained. The law
requires this ground of delay to be promptly and specifically asserted when a claim on the insurance
agreement is made. The undisputed facts show that instead of invoking the ground of delay in objecting to
petitioner's claim of recovery on the cover note, it took steps clearly indicative that this particular ground
for objection to the claim was never in its mind. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so that it could determine whether delay
would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss, which was on
April 15, 1963, was to set in motion from July 1963 what would be necessary to determine the cause and
extent of the loss, with a view to the payment thereof on the insurance agreement. Thus it sent its adjuster
to investigate and assess the loss in July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From April 1963 to July, 1963, enough time
was available for private respondent to determine if petitioner was guilty of delay in communicating the
loss to respondent company. In the proceedings that took place later in the Office of the Insurance
Commissioner, private respondent should then have raised this ground of delay to avoid liability. It did not
do so. It must be because it did not find any delay, as this Court fails to find a real and substantial sign
thereof. But even on the assumption that there was delay, this Court is satisfied and convinced that as
expressly provided by law, waiver can successfully be raised against private respondent. Thus Section 84 of
the Insurance Act provides:
Section 84.Delay in the presentation to an insurer of notice or proof of loss is waived if
caused by any act of his or if he omits to take objection promptly and specifically upon
that ground.
From what has been said, We find duly substantiated petitioner's assignments of error.

15

ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First Instance is
reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
[G.R. No. 82036. May 22, 1997]
TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs. HON. COURT OF
APPEALS and VICENTE MENDOZA, respondents.
DECISION
HERMOSISIMA, JR., J.:
The petition herein seeks the review and reversal of the decision [1] of respondent Court of
Appeals[2] affirming in toto the judgment[3] of the Regional Trial Court [4] in an action for damages [5] filed by
private respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.

16

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and
the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The erring
taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner Travellers
Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de
Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner
Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the
accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the
old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Marvilla ran
towards the old woman and held her on his lap to inquire from her what had happened, but obviously she
was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that
vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in
Tondo.
x x x Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to
Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when
Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon learning that
the two were the sons of the old woman, Lopez told them what had happened. The Mendoza brothers were
then able to trace their mother at the Mary Johnston Hospital where they were advised by the attending
physician that they should bring the patient to the National Orthopedic Hospital because of her fractured
bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 oclock that same
morning. Death was caused by traumatic shock as a result of the severe injuries she sustained x x x x.
x x x The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running
fast, so much so that because of the strong impact the old woman was thrown away and she fell on the
pavement. x x x In truth, in that related criminal case against defendant Dumlao x x x the trial court found as
a fact that therein accused was driving the subject taxicab in a careless, reckless and imprudent manner and
at a speed greater than what was reasonable and proper without taking the necessary precaution to avoid
accident to persons x x x considering the condition of the traffic at the place at the time aforementioned x x
x. Moreover, the driver fled from the scene of the accident and without rendering assistance to the victim. x
xx
x x x Three (3) witnesses who were at the scene at the time identified the taxi involved, though not
necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it
passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with
baggage bar attached on the baggage compartment and with an antenae[sic] attached at the right rear
side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have x x x
reflectorized decorations on the edges of the glass at the back. x x x A third witness in the person of Eulogio
Tabalno x x x made similar descriptions although, because of the fast speed of the taxi, he was only able to
detect the last digit of the plate number which is 8. x x x [T]he police proceeded to the garage of Lady Love
Taxi and then and there they took possession of such a taxi and later impounded it in the impounding area of
the agency concerned. x x x [T]he eyewitnesses x x x were unanimous in pointing to that Lady Love Taxi
with Plate No. 438, obviously the vehicle involved herein.
x x x During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing
No. 438-HA Pilipinas Taxi 1980, certified to the fact that the vehicle was driven last July 20, 1980 by one
Rodrigo Dumlao x x x x x x It was on the basis of this affidavit of the registered owner that caused the
police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of

17

the offense x x x. x x x [S]aid Dumlao absconded in that criminal case, specially at the time of the
promulgation of the judgment therein so much so that he is now a fugitive from justice.[6]
Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady
Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondents
mother. Subsequently, private respondent amended his complaint to include petitioner as the compulsory
insurer of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the Heirs of the
late Feliza Vineza de Mendoza, and against defendants Rodrigo Dumlao, Armando Abellon and Travellers
Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the former the
following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per
annum from October 17, 1980, when the complaint was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorneys fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED.[7]
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of
the trial court was affirmed by respondent appellate court. Petitioners Motion for Reconsideration[8] of
September 22, 1987 was denied in a Resolution[9] dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady
Love Taxi and that, assumingarguendo that it had indeed covered said taxicab for third-party liability
insurance, private respondent failed to file a written notice of claim with petitioner as required by Section
384 of P.D. No. 612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner as party defendant and
therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit
private respondents mother, private respondent did not attach a copy of the insurance contract to the
amended complaint. Private respondent does not deny this omission.

18

It is significant to point out at this juncture that the right of a third person to sue the insurer depends
on whether the contract of insurance is intended to benefit third persons also or only the insured.
[A] policy x x x whereby the insurer agreed to indemnify the insured against all sums x x x which the
Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person x x x is
one for indemnity against liability; from the fact then that the insured is liable to the third person, such third
person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third persons also or on the insured. And the test applied has
been this: Where the contract provides for indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the
insured for liability actually discharged by him thru payment to third persons, said third persons recourse
being thus limited to the insured alone.[10]
Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial
court could not have been able to apprise itself of the real nature and pecuniary limits of petitioners
liability. More importantly, the trial court could not have possibly ascertained the right of private
respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court never
saw nor read the insurance contract and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love
taxicab that fatally hit private respondents mother, considering that petitioner precisely presented the
defense of lack of insurance coverage before the trial court. Neither did the trial court issue
a subpoena duces tecum to have the insurance contract produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found petitioner liable
jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to
private respondent.
Apparently, the trial court did not distinguish between the private respondents cause of action against
the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is
based on torts and quasi-delicts while the latter is based on contract. Confusing these two sources of
obligations as they arise from the same act of the taxicab fatally hitting private respondents mother, and in
the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love taxicab, the
trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith
found all three - the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab jointly and severally liable for actual, moral and exemplary damages as well as attorneys fees and litigation
expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court
grievously erred in not having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.[11]
Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

19

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On
the other hand, insurance is defined as a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon
Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the
qualification that petitioners liability is only up to P20,000.00. In the context of a solidary obligation,
petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,103.00,
notwithstanding the qualification made by the trial court.But, how can petitioner be obliged to pay the
entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity
against third-party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to
pay P29,103.00 is made solidary is an evident breach of the concept of a solidary obligation.[12]
The above principles take on more significance in the light of the counter-allegation of petitioner that,
assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to
only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears repeating
that no copy of the insurance contract was ever proffered before the trial court by the private respondent,
notwithstanding knowledge of the fact that the latters complaint against petitioner is one under a written
contract. Thus, the trial court proceeded to hold petitioner liable for an award of damages exceeding its
limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the erroneous
presumption that petitioner could be found liable absent proof of the contract and based merely on the proof
of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private
respondents mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondents cause of action against petitioner did not successfully accrue because he failed to file with
petitioner a written notice of claim within six (6) months from the date of the accident as required by
Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondents mother, during
which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384
provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a written notice of claim setting forth the amount of his
loss, and/or the nature, extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim
shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in
proper cases, with the Commission or the Courts within one year from date of accident, otherwise the
claimants right of action shall prescribe [emphasis and underscoring supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, [13] we ruled that the
one year prescription period to bring suit in court against the insurer should be counted from the time that
the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third person
interested under the insurance policy. We explained:
It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to
hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner

20

company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so
until one year lapses from the date of the accident it could set up the defense of prescription, petitioner
company made private respondents believe that their claims would be settled in order that the latter will not
find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable
standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of
claims, and with manifest bad faith, petitioner company devised means and ways of stalling the settlement
proceedings. x x x [N]o steps were taken to process the claim and no rejection of said claim was ever made
even if private respondent had already complied with all the requirements. x x x
This Court has made the observation that some insurance companies have been inventing excuses to avoid
their just obligations and it is only the State that can give the protection which the insuring public needs
from possible abuses of the insurers.[14]
It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically
provide that action or suit for recovery of damage due to loss or injury must be brought in proper cases,
with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimants
right of action shall prescribe [emphasis ours].[15]
We have certainly ruled with consistency that the prescriptive period to bring suit in court under an
insurance policy, begins to run from the date of the insurers rejection of the claim filed by the insured, the
beneficiary or any person claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the indispensable requirement of having
filed the written claim mandated by Section 384 of the Insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance contract, no cause of
action accrues under such insurance contract, considering that it is the rejection of that claim that triggers
the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity for the
insurer to even reject a claim if none has been filed in the first place, as in the instant case.
The one-year period should instead be counted from the date of rejection by the insurer as this is the time
when the cause of action accrues. x x x
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiffs cause of action did not accrue until his claim was finally rejected by the insurance
company. This is because, before such final rejection, there was no real necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz.:
Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a
correlative obligation of the defendant but also an act or omission of the defendant in violation of said legal
right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply
with its duty.[16]
When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected
by petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings,
we are constrained to rule that respondent appellate court committed reversible error in finding petitioner
liable under an insurance contract the existence of which had not at all been proven in court.Even if there
were such a contract, private respondents cause of action can not prevail because he failed to file the
written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to
have waived his rights as against petitioner-insurer.

21

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in
CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are
REVERSED and SET ASIDE insofar as Travellers Insurance & Surety Corporation was found jointly and
severally liable to pay actual, moral and exemplary damages, death indemnity, attorneys fees and litigation
expenses in Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in
said case is hereby ordered dismissed.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

22

G.R. No. L-67835 October 12, 1987

MALAYAN INSURANCE CO., INC. (MICO), petitioner,
vs.
GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and
CORONACION PINCA, respondents.

CRUZ, J.:
When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for
the suddenly somber future. The vanished abode becomes a charred and painful memory. Where once stood
a home, there is now, in the sighing wisps of smoke, only a gray desolation. The dying embers leave ashes
in the heart.
For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an
aleatory contract. By such insurance, the insured in effect wagers that his house will be burned, with the
insurer assuring him against the loss, for a fee. If the house does burn, the insured, while losing his house,
wins the wagers. The prize is the recompense to be given by the insurer to make good the loss the insured
has sustained.
It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to
recover for such loss. Sometimes it is his fault that he cannot collect, as where there is a defect imputable to
him in the insurance contract. Conversely, the reason may be an unjust refusal of the insurer to
acknowledge a just obligation, as has happened many times.
In the instant case the private respondent has been sustained by the Insurance Commission in her claim for
compensation for her burned property. The petitioner is now before us to dispute the decision, 1 on the
ground that there was no valid insurance contract at the time of the loss.
The chronology of the relevant antecedent facts is as follows:
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion
Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July
22, 1981, until July 22, 1982. 2
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the
corresponding notice to Pinca. 3
On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of
MICO. 4
On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5
On January 18, 1982, Pinca's property was completely burned. 6
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had
been cancelled earlier. But Adora refused to accept it. 7

23

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the
Insurance Commission. It is because she was ultimately sustained by the public respondent that the
petitioner has come to us for relief.
From the procedural viewpoint alone, the petition must be rejected. It is stillborn.
The records show that notice of the decision of the public respondent dated April 5, 1982, was received by
MICO on April 10, 1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on
June 4, 1982. 9 Notice of this denial was received by MICO on June 13, 1982, as evidenced by Annex "1"
duly authenticated by the Insurance Commission. 10 The instant petition was filed with this Court on July
2, 1982. 11
The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it
thirty days wthin which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the
Rules of Court. For their part, the public and private respondents insist that the applicable law is B.P. 129,
which they say governs not only courts of justice but also quasi-judicial bodies like the Insurance
Commission. The period for appeal under this law is also fifteen days, as under Rule 45.
The pivotal date is the date the notice of the denial of the motion for reconsideration was received by
MICO.
MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order
of June 14, 1982, with a signed rubber-stamped notation on the upper left-hand corner that it was received
on June 18, 1982, by its legal department. It does not indicate from whom. At the bottom, significantly,
there is another signature under which are the ciphers "6-13-82," for which no explanation has been given.
Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same
Order with a rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan
Insurance Co., Inc. by J. Gotladera on "6-13-82." The signature may or may not habe been written by the
same person who signed at the bottom of the petitioner's Annex "B."
Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82"
appear on both annexes but also because it is the date authenticated by the administrative division of the
Insurance Commission. Annex "B" is at worst self-serving; at best, it might only indicate that it was
received on June 18, 1982, by the legal department of MICO, after it had been received earlier by some
other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal
department need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of
the Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen
days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt of
notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2, 1981,
or nineteen days later, there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would
end on June 28, 1982, or also four days from July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the
fifteenth day after MICO received notice of the decision, only one more day would have remained for it to
appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.

24

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the
petition would still be tardy. The law provides for a fixed period of ten days from notice of the denial of a
seasonable motion for reconsideration within which to appeal from the decision. Accordingly, that ten-day
period, counted from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July
2, 1982, nine dayslate.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the
policy had been cancelled before the occurence of the loss are not acceptable. Its contention that the claim
was allowed without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed
to the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and
until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies.
The above provision is not applicable because payment of the premium was in fact eventually made in this
case. Notably, the premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981
was stamped "Payment Received" of the amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is
important because it suggests an understanding between MICO and the insured that such payment could be
made later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually
made by Pinca to Adora, who remitted the same to MICO.
The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders:
suppose the payment had been made and accepted in, say, August 1981, would the commencement date of
the policy have been changed to the date of the payment, or would the payment have retroacted to July 22,
1981? If MICO accepted the payment in December 1981 and the insured property had not been burned,
would that policy not have expired just the same on July 22, 1982, pursuant to its original terms, and not on
December 24, 1982?
It would seem from MICO's own theory, that the policy would have become effective only upon payment,
if accepted and so would have been valid only from December 24, 1981m but only up to July 22, 1981,
according to the original terms. In others words, the policy would have run for only eight months although
the premium paid was for one whole year.
It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received
it on behalf of MICO, to which it was remitted on January 15, 1982. What is questioned is the validity of
Pinca's payment and of Adora's authority to receive it.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive
the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance broker a
policy or contract of insurance shall be demmed to have authorized such agent or broker
to receive on its behalf payment of any premium which is due on such policy or contract
of insurance at the time of its issuance or delivery or which becomes due thereon.

25

And it is a well-known principle under the law of agency that:

Payment to an agent having authority to receive or collect payment is equivalent to
payment to the principal himself; such payment is complete when the money delivered is
into the agent's hands and is a discharge of the indebtedness owing to the principal. 15
There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment
because six months had elapsed since the issuance by the policy itself. It is argued that this prohibition was
binding upon Pinca, who made the payment to Adora at her own riskl as she was bound to first check his
authority to receive it. 16
MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was
prohibited by the policy, it at the same time insists that the policy never came into force because the
premium had not been paid. One surely, cannot have his cake and eat it too.
We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca
because her policy never became effective for non-payment of premium. Payment was in fact made,
rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article 77,
Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64
(except "nonpayment of premium") provided the cancellation was made in accordance therewith and with
Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except
upon prior notice thereof to the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of the policy, of one or more
of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured
against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would violate
or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy, and
shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b)
that, upon written request of the named insured, the insurer will furnish the facts on
which the cancellation is based.

26

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the
grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address
shown in the policy; 19
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written
request of the insured, the insurer will furnish the facts on which the cancellation is based. 20
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To
support this assertion, it presented one of its employees, who testified that "the original of the endorsement
and credit memo" presumably meaning the alleged cancellation "were sent the assured by mail
through our mailing section" 21 However, there is no proof that the notice, assuming it complied with the
other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's offers to show
that the cancellation was communicated to the insured is its employee's testimony that the said cancellation
was sent "by mail through our mailing section." without more. The petitioner then says that its "stand is
enervated (sic) by the legal presumption of regularity and due performance of duty." 22(not realizing
perhaps that "enervated" means "debilitated" not "strengthened").
On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation
and who, of course, did not have to prove such denial Considering the strict language of Section 64 that no
insurance policy shall be cancelled except upon prior notice, it behooved MICO's to make sure that the
cancellation was actually sent to and received by the insured. The presumption cited is unavailing against
the positive duty enjoined by Section 64 upon MICO and the flat denial made by the private respondent
that she had received notice of the claimed cancellation.
It stands to reason that if Pinca had really received the said notice, she would not have made payment on
the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on
that date and until one year later, and so taken advantage of the extended period. The Court finds that if she
did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in
effect and she was willing to make her payment retroact to July 22, 1981, its stipulated commencement
date. After all, agent Adora was very accomodating and had earlier told her "to call him up any time" she
was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind
when she paid her premium for the period beginning July 22, 1981, and not December 24, 1981.
MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the
premium on December 24, 1981, her purpose was "to renew it." As this could not be done by the agent
alone under the terms of the original policy, the renewal thereof did not legally bind MICO. which had not
ratified it. To support this argument, MICO's cites the following exchange:
Q: Now, Madam Witness, on December 25th you made the alleged
payment. Now, my question is that, did it not come to your mind that
after the lapse of six (6) months, your policy was cancelled?
A: I have thought of that but the agent told me to call him up at
anytime.

27

Q: So if you thought that your policy was already intended to revive

cancelled policy?
A: Misleading, Your Honor.
Hearing Officer: The testimony of witness is that, she thought of that.
Q: I will revise the question. Now, Mrs. Witness, you stated that you
thought the policy was cancelled. Now, when you made the payment of
December 24, 1981, your intention was to revive the policy if it was
already cancelled?
A: Yes, to renew it. 23
A close study of the above transcript will show that Pinca meant to renew the policy if it had really been
already cancelled but not if it was stffl effective. It was all conditional. As it has not been shown that there
was a valid cancellation of the policy, there was consequently no need to renew it but to pay the premium
thereon. Payment was thus legally made on the original transaction and it could be, and was, validly
received on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed of the
cancellation either and saw no reason not to accept the said payment.
The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance
policy is conclusive in case of total loss in the absence of fraud, 24 which is not shown here. Loss and its
amount may be determined on the basis of such proof as may be offered by the insured, which need not be
of such persuasiveness as is required in judicial proceedings. 25 If, as in this case, the insured files notice
and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof and
without unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90
of the Insurance Code.
The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss
should be considered sufficient. Notably,MICO submitted no evidence to the contrary nor did it even
question the extent of the loss in its answer before the Insurance Commission. It is also worth observing
that Pinca's property was not the only building bumed in the fire that razed the commercial district of Laoang, Samar, on January 18, 1982. 27
There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the
loss imperative or indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the
licensing and duties of adjusters.
We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through
efforts bordering on bad faith if not plain duplicity, We note that the motion for reconsideration was filed on
the fifteenth day from notice of the decision of the Insurance Commission and that there was a feeble
attempt to show that the notice of denial of the said motion was not received on June 13, 1982, to further
hinder the proceedings and justify the filing of the petition with this Court fourteen days after June 18,
1982. We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had
no knowledge, and the curious fact that although Pinca's payment was remitted to MICO's by its agent on
January 15, 1982, MICO sought to return it to Adora only on February 5, 1982, after it presumably had
learned of the occurrence of the loss insured against on January 18, 1982. These circumstances make the
motives of the petitioner highly suspect, to say the least, and cast serious doubts upon its candor and bona
fides.

28

WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981,
and its Order of June 4, 1981, are AFFIRMED in full, with costs against the petitioner. This decision is
immediately executory.
SO ORDERED.

SECOND DIVISION
[G.R. No. 119446. January 21, 1999]
PHILIPPINE HOME ASSURANCE CORPORATION, PHILIPPINE AMERICAN ACCIDENT
INSURANCE COMPANY, PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY
and
AMERICAN
INTERNATIONALUNDERWRITERS
(Phils.),
INC., petitioners, vs. COURT OF APPEALS, and COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals, dated April 27,
1994, which affirmed the decision of the Court of Tax Appeals denying the claims filed by the petitioners
for refund of documentary stamp taxes.
Petitioners are the Philippine Home Assurance Corporation (PHAC), the Philippine American
Accident Insurance Company (PAAIC), the Philippine American General Insurance Company (PAGIC),
and the American International Underwriters (Phils.), Inc. (AIUPI), which are domestic corporations
engaged in the insurance business.
From January to June 1986, they paid under protest the total amount of P10,456,067.83 as
documentary stamp taxes on various life and non-life insurance policies issued by them, broken down as
follows:
PHAC 1,714,459.00
PAAIC 68,046.00
PAGIC 3,816,973.00
AIUPI 4,856,589.83
TOTAL P10,456,067.83[1]
On August 4, 1987, petitioners filed separate claims for refund from the Bureau of Internal Revenue.
They alleged that the premiums on the insurance policies issued by them had not been paid thus, in
accordance with 77 of the Insurance Code,[3] no documentary stamp taxes were due on the policies.[4]
[2]

29

As the Bureau of Internal Revenue failed to act on their claims, [5] the petitioners appealed on
December 29, 1987 to the Court of Tax Appeals. In its decision, dated April 26, 1993, [6] the Tax Court
denied petitioners claims. It held:[7]
. . . . the documentary stamp must be affixed to the insurance policy, which is a contract in itself, between
the insurer and the insured, whereby for an agreed premium, the former undertakes to compensate the latter
for the loss of a specific subject by reason of specific perils, on the date it is issued even if no premium has
been paid. The payment or non-payment of the premium by the insured is immaterial since a documentary
stamp tax is in the nature of an excise tax upon a facility used in the transaction of a business which is
separate and distinct from the business itself. Such being the case, . . . the subsequent cancellation of an
insurance policy will not exempt the issuer from the corresponding documentary stamp tax. And thus, no
refund can be allowed of the documentary stamp tax paid on an insurance policy which for some reason or
another has been cancelled or for that matter, the premium was unpaid.
Petitioners filed a joint appeal in the Court of Appeals which, however, in a judgment, [8] dated April
27, 1994, affirmed the decision of the Court of Tax Appeals. In part the appellate court said:
The respondent court correctly characterized a documentary stamp tax as in the nature of an excise tax. As
such, it is imposed on the privilege of conducting a particular business or transaction and not on the
business or transaction itself. Thus, the documentary stamp tax on insurance policies is, in effect, imposed
on the privilege to conduct insurance business and not on the insurance business itself or on the premiums
paid under the said insurance policies. This means then that the documentary stamp tax accrues when the
said privilege is exercised. As the respondent court stated, while it is true that a documentary stamp tax is
levied on the document and not on the property involved, the documentary stamp tax is not intended to be a
tax on the document alone. The law taxes the document because of the transaction so that the tax becomes
due and payable at the time the transaction is had or accomplished, in this case, at the time of the issuance
of the document.
This is the reason that the documentary stamp tax will not be refunded upon the subsequent cancellation of
the insurance policy. Likewise, when a policy already issued becomes ineffective because of the nonpayment of the first premium, the documentary stamp tax cannot be refunded whether or not the policy has,
in fact, become effective, since the privilege subject of the tax has already been realized.
Hence, this appeal. Petitioners maintain that since the premiums on the subject life and non-life
insurance policies were not paid, the same are considered as never to have taken effect pursuant to 77 of the
Insurance Code and, therefore, no documentary stamp taxes were due thereon.
The petition is without merit.
The pertinent provisions of the National Internal Revenue Code state:
Sec. 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other instruments by
whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or
lives, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos or
fractional part thereof, of the amount issued by any such policy.
Sec. 184. Stamp Tax on Policies of Insurance Upon Property. On all policies of insurance or other
instruments by whatever name the same may be called, by which insurance shall be made or renewed upon
property of any description, including rents or profits, against peril by sea or on inland waters, or by fire or
lightning, there shall be collected a documentary stamp tax of thirty centavos on each four pesos, or
fractional part thereof, of the amount of the premium charged: Provided, however, that no documentary

30

stamp tax shall be collected on reinsurance contracts or on any instrument by which cession or acceptance
of insurance risks under any reinsurance agreement is effected or recorded.
In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred
by law for the creation, revision, or termination of specific legal relationships through the execution of
specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of
particular documents, are subject to the payment of documentary stamp taxes are leases of lands,
[9]
mortgages, pledges, and trusts,[10] and conveyances of real property.[11]
Documentary stamp taxes are thus levied on the exercise of these privileges through the execution of
specific instruments, independently of the legal status of the transactions giving rise thereto.
The documentary stamp taxes must be paid upon the issuance of the said instruments, without regard to
whether the contracts which gave rise to them are rescissible, void, voidable, or unenforceable. As the
Supreme Court of the United States held in Du Pont v. United States:[12]
The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or facility
offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the
transaction of the business separate and apart from the business itself. In this view it is immaterial whether
the transfer of the account constituted a sale.
This case has been cited in several of this Courts decisions, first in Commissioner of Internal Revenue
v. Heald Lumber Co.,[13] then in Philippine Consolidated Coconut Industries, Inc. v. Collector of Internal
Revenue,[14] then in Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,[15] and most
recently in Lincoln Philippine Life Insurance Company, Inc. v. Court of Appeals.[16] It is thus settled that the
life and non-life insurance policies in question are subject to documentary stamp taxes pursuant to 183 and
184 of the National Internal Revenue Code by their mere issuance, and the fact that the policies have not
become effective for non-payment of the corresponding premiums as required by 77 of the Insurance Code
cannot affect petitioners liability for payment of documentary stamp taxes. Their claim for refund was
correctly denied.
WHEREFORE, the decision of the Court of Appeals, dated April 27, 1994, is AFFIRMED.
SO ORDERED.
SYNOPSIS
Petitioners, domestic corporations engaged in the insurance business, filed claims for refund of
documentary stamp taxes from the Bureau of Internal Revenue on the ground that the premiums on their
insurance policies had not been paid. The claims were raised to the Court of Tax Appeals when the Bureau
failed to act on them. The Court of Tax Appeals denied the claims. It ruled that a documentary stamp tax is
in the nature of an excise tax and the payment or non-payment of the premium is immaterial. This decision
was affirmed on appeal by the Court of Appeals which ruled that a documentary stamp tax, as in the nature
of an excise tax, is imposed on the privilege of conducting a particular business of transaction and not on
the business or transaction itself. The documentary stamp tax accrues when the said privilege is exercised
and becomes due and payable at the time the transaction is accomplished. Hence, this appeal.
In general, documentary stamp taxes are levied on the exercise by persons of certain privileges
through the execution of specific instruments, independently of the legal status of the transactions giving
rise thereto, and must be paid upon the issuance of said instruments without regard to whether the contracts
are rescissible, void, voidable or unerforceable.

31

Life and non-life insurance policies are subject to documentary stamp taxes pursuant to Section 183
and 184 of the National Internal Revenue Code, and the fact that the policies have not become effective for
non-payment of premiums cannot effect petitioners liability for payment thereof. Their claim for refund
was correctly denied.
SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; DOCUMENTARY STAMP TAXES;
LEVIED ON EXERCISE OF PRIVILEGE. In general, documentary stamp taxes are levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. Examples of such
privileges, the exercise of which, as effected through the issuance of particular documents, are subject
to the payment of documentary stamp taxes are leases of lands, mortgages, pledges, and trusts, and
conveyances of real property.
2. ID.; ID.; ID.; ID.; MUST BE PAID WITHOUT REGARD TO WHETHER CONTRACTS ARE
RESCISSIBLE, VOID, VOIDABLE, OR UNENFORCEABLE.Documentary stamp taxes are thus
levied on the exercise of these privileges through the execution of specific instruments, independently
of the legal status of the transactions giving rise thereto. The documentary stamp taxes must be paid
upon the issuance of the said instruments, without regard to whether the contracts which gave rise to
them are rescissible, void, voidable, or unenforceable. (Du Pont v. United States, 300 U.S. 150. 153
[1936]).
3. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. The life and non-life insurance policies in question are subject
to documentary stamp taxes pursuant to 184 of the National Internal Revenue Code by their mere
issuance, and the fact that the policies have not become effective for non-payment of the
corresponding premiums as required by 77 of the Insurance Code cannot affect petitioners, liability
for payment of documentary stamp taxes. Their claim for refund was correctly denied.

32

33

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 96452 May 7, 1992

PERLA COMPANIA DE SEGUROS, INC. petitioner,
vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM, respondents.
Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.
Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No.
96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the
decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the decision
of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages.
The dispositive portion of the decision of the Court of Appeals reads, as follows:

34

WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de
Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of
their insured vehicle; while said appellants are ordered to pay appellee FCP Credit
Corporation all the unpaid installments that were due and payable before the date said
vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to
pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary
damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable
refusal on sham grounds to honor the just insurance claim of appellants by way of
example and correction for public good, and attorney's fees of P10,000.00 as a just and
equitable reimbursement for the expenses incurred therefor by appellants, and the costs of
suit both in the lower court and in this appeal. 2
The facts as found by the trial court are as follows:
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory note
in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the
schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford
Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered
under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de
Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP
Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel
mortgage as shown by the Deed of Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of
Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was
driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine
Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao
to make a police report regarding said incident, as shown by the certification issued by the Quezon City
police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation
Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the
insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol
Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim
was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it
was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which
is in violation of the authorized driver clause of the insurance policy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance with the
licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been
permitted and is not disqualified by order of a Court of Law or by reason of any
enactment or regulation in that behalf. 11
On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on
the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle

35

insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the
promissory note and the chattel mortgage contract.
Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private
respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an
amended third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the
trial court rendered a decision, the dispositive portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from
July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the
costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint
filed against Third-Party Defendant. 13
Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which
reversed said decision.
After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution
of December 10, 1990, petitioners filed these separate petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding
that private respondents did not violate the insurance contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor
from his admitted obligations under the promissory note particularly the payment of interest, litigation
expenses and attorney's fees.
We find no merit in Perla's petition.
The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision
or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or
knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the
"AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its
decision:
. . . Theft is an entirely different legal concept from that of accident. Theft is committed
by a person with the intent to gain or, to put it in another way, with the concurrence of the
doer's will. On the other hand, accident, although it may proceed or result from

36

negligence, is the happening of an event without the concurrence of the will of the person
by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The "authorized
driver clause" in a typical insurance policy is in contemplation or anticipation of accident
in the legal sense in which it should be understood, and not in contemplation or
anticipation of an event such as theft. The distinction often seized upon by insurance
companies in resisting claims from their assureds between death occurring as a result
of accident and death occurring as a result of intent may, by analogy, apply to the case at
bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an
expired license, then, appellee Perla Compania could properly resist appellants' claim for
indemnification for the loss or destruction of the vehicle resulting from the accident. But
in the present case. The loss of the insured vehicle did not result from an accident where
intent was involved; the loss in the present case was caused by theft, the commission of
which was attended by intent. 15
It is worthy to note that there is no causal connection between the possession of a valid driver's license and
the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not applicable or germane to the claim,
thereby reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay the
former the installments due on the promissory note on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory
contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments
due and payable before the automobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the interest, litigation expenses and
attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the three
contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance policy, this
Court is compelled to construe all three contracts as intimately interrelated to each other, despite the fact
that at first glance there is no relationship whatsoever between the parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated therein
in accordance with the schedule provided for. To secure said promissory note, private respondents
constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from
the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make
the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned by
Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were able
to secure an insurance policy from petitioner Perla, and the same was made specifically payable to
petitioner FCP. 16
The insurance policy was therefore meant to be an additional security to the principal contract, that is, to
insure that the promissory note will still be paid in case the automobile is lost through accident or theft. The
Chattel Mortgage Contract provided that:
THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE
THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST
LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE

37

YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY
OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT
LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE
OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY
OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS
MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . . 17
It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance
company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding
balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance
policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner
FCP, and this would have had the effect of extinguishing private respondents' obligation to petitioner FCP.
Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments
from petitioner Perla.
Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made
to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As
mentioned above, the contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private
respondents should not in any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP
since they will be required to pay the latter the unpaid balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner
Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be
ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from
December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner
FCP, 18 plus legal interest from July 2, 1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally
entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the
insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as
attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until
fully paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to
costs.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36480 May 31, 1988

38

ANDREW PALERMO, plaintiff-appellee,

vs.
PYRAMID INSURANCE CO., INC., defendant- appellant.

GRIO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the only question involved is the
interpretation of the provision of the insurance contract regarding the "authorized driver" of the insured
motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First Instance
of Negros Occidental against Pyramid Insurance Co., Inc., for payment of his claim under a Private Car
Comprehensive Policy MV-1251 issued by the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the
time of the accident, the insured was driving his car with an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering the defendant "to pay the
plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in question and to pay the
costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal." It was
opposed by the defendant, but was granted by the trial court on December 15, 1969.
The trial court found the following facts to be undisputed:
On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan
car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City,
plaintiff insured the same with the defendant insurance company against any loss or
damage for P 20,000.00 and against third party liability for P 10,000.00. Plaintiff paid the
defendant P 361.34 premium for one year, March 12, 1968 to March 12, 1969, for which
defendant issued Private Car Comprehensive Policy No. MV-1251, marked Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok
Motors Co., to secure the payment of the balance of the purchase price, which explains
why the registration certificate in the name of the plaintiff remains in the hands of the
mortgagee, Ng Sam Bok Motors Co.
On April 17, 1968, while driving the automobile in question, the plaintiff met a violent
accident. The La Carlota City fire engine crashed head on, and as a consequence, the
plaintiff sustained physical injuries, his father, Cesar Palermo, who was with am in the
car at the time was likewise seriously injured and died shortly thereafter, and the car in
question was totally wrecked.
The defendant was immediately notified of the occurrence, and upon its orders, the
damaged car was towed from the scene of the accident to the compound of Ng Sam Bok
Motors in Bacolod City where it remains deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in case of
accident either to indemnify the plaintiff for loss or damage to the car in cash or to

39

replace the damaged car. The defendant, however, refused to take either of the abovementioned alternatives for the reason as alleged, that the insured himself had violated the
terms of the policy when he drove the car in question with an expired driver's license.
(Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following provision of the Private Car
Comprehensive Policy MV-1251:
AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission. Provided that the
person driving is permitted in accordance with the licensing or other laws or regulations
to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by
order of a Court of law or by reason of any enactment or regulation in that behalf. (Exh.
"A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured motor
vehicle because his driver's license had expired. The driver of the insured motor vehicle at the time of the
accident was, the insured himself, hence an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a
license or with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a
bar to recovery under the insurance contract. It however renders him subject to the penal sanctions of the
Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or regulations
to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of
Law or by reason of any enactment or regulation in that behalf," applies only when the driver" is driving on
the insured's order or with his permission." It does not apply when the person driving is the insured himself.
This view may be inferred from the decision of this Court in Villacorta vs. Insurance Commission, 100
SCRA 467, where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from its text, is that a
person other than the insured owner, who drives the car on the insured's order, such as his
regular driver, or with his permission, such as a friend or member of the family or the
employees of a car service or repair shop, must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
In an American case, where the insured herself was personally operating her automobile but without a
license to operate it, her license having expired prior to the issuance of the policy, the Supreme Court of
Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which act is a
statutory crime is not precluded by public policy from enforcing a policy indemnifying
her against liability for bodily injuries The inflicted by use of the automobile." (Drew C.
Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23
A.L.R. 1467.)

40

WHEREFORE, the appealed decision is affirmed with costs against the defendant-appellant.
SO ORDERED.

41

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-29749 April 15, 1988
PLACIDA PEZA et al., petitioners,
vs.
HON. FEDERICO C. ALIKPALA, etc., et al., respondents.
Chaves, Elio Chaves & Associates for petitioners.
Jacinto D. Jimenez for respondents.

NARVASA, J.:
Presented in the proceeding at bar is the sorry situation of the loss by a party of the right to argue the merits
of a cause on appeal due to an obsessive pre-occupation with a question of admissibility of evidence, like a
man who, it is said, "fails to see the forest for the trees."
The case had its origin in an unfortunate vehicular accident. Two (2) children ran across the path of a
vehicle as it was running along the national highway at barrio Makiling Calamba, Laguna. They were
killed.
The vehicle, a Chevrolet "Carry-All", belonged to a partnership known as Diman & Company, and was
then being driven by its driver, Perfecto Amar. It was insured with the Empire Insurance Co., Inc. under a

42

so-called 'comprehensive coverage" policy, loss by theft excluded. The policy was in force at the time of
the accident.
Placida Peza, the managing partner of Diman & Co. filed a claim with the insurance company, hereafter
simply, Empire, for payment of compensation to the family of the two (2) children who died as a result of
the accident. Empire refused to pay on the ground that the driver had no authority to operate the vehicle, a
fact which expressly excepted it from liability under the policy. What Peza did was to negotiate directly
with the deceased children father for an out-of-court settlement. The father agreed to accept P 6,200.00 in
fun settlement of the liability of the vehicles owner and driver, and Peza paid him this sum.
Peza thereafter sued Empire to recover this sum of P6,200.00 as actual damages, as well as P20,000.00 as
moral damages, P10,000.00 as exemplary damages, and P10,000.00 as attorney's fees. She amended her
complaint shortly thereafter to include Diman & Co. as alternative party plaintiff. 1
Empire's basic defense to the suit was anchored on the explicit requirement in the policy limiting the
operation of the insured vehicle to the "authorized driver" therein defined, namely, (a) the insured, or (b)
any person driving on the insured order or with his permission, provided that... that the person driving is permited in accordance with the licensing or other laws or
regulations to drive the Motor vehicle or has been so permitted and is not disqualified by
order of the Court of Law of by reason of any enactment or regulation in that behalf from
driving such Motor Vehicle.It appearing, according to Empire, that at the time of the mishap, the driver Perfecto Amar only had a
temporary operator's permit (TVR) already expired his drivers license having earlier been
confiscated by an agent of the Land Transportation Commission for an alleged violation of Land
Transportation and Traffic Rules, he was not permitted by law and was in truth disqualified to operate any
motor vehicle; and this operated to relieve it (Empire) from liability under its policy.
The fact of Amar's having only an expired TVR at the time of the accident was duly established during the
trial. It does not seem to have been seriously disputed by the plaintiffs. What plaintiff's counsel attempted
to do, to neutralize that fact, was to offer rebuttal testimony (1) to explain the circumstances attending the
issuance of the TVR by the LTC officer to Amar in proof of the proposition that there was no reason for
confiscation of Amar's license and the issuance to him of a TVR, and the LTC agent was wrong in doing so,
and also, to (2) prove that, "contrary to the implication' of one of Empire's exhibits, Amar's license had not
expired, but had been renewed. The respondent Judge however sustained the objection of Empire's councel
to the evidence on the ground that it was irrelevant to the issue. 2 The Judge also denied plaintiffs' request
for time to present additional rebuttal evidence in proof of the same propositions. 3
The plaintiffs having moved for reconsideration, and the Court having refused, said plaintiffs have come to
this Court seeking communication on certiorari of the above describe orders, assailing them as being
tainted by grave abuse of discretion.
It would seem fairly obvious that whether the LTC agent was correct or not in his opinion that driver Amar
had violated some traffic regulation warranting confiscation of his license and issuance of a TVR in lieu
thereof, this would not alter the undisputed fact that Amar's licence had indeed been confiscated and a TVR
issued to him, and the TVR had already expired at the time that the vehicle being operated by him killed
two children by accident. Neither would proof of the renewal of Amar's license change the fact that it had
really been earlier confiscated by the LTC agent. The plaintiffs' proferred proof therefore had no logical
connection with the facts thereby sought to be refuted, the proof had no rational tendency to establish the
improbability of the facts demonstrated by Empire's evidence. The proofs were thus correctly by the
respondent Judge as being irrelevant.

43

Even positing error in the Judge's analysis of the evidence attempted to be introduced and his rejection
thereof, it is clear that it was at most an error of judgment, not such an error as may be branded a grave
abuse of discretion, i.e., such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction, against which the writ of certiorari will lie. 4 In any event, the established principle is "that
ruling of the trial court on procedural questions and on admissibility of evidence during the course of the
trial are interlocutory in nature and may not be the subject of separate appeal or review on certiorari, but
are to be assigned as errors and reviewed in the appeal properly taken from the decision rendered by the
trial court on the merits of the case. 5
In the meantime, respondent Judge Alikpala rendered judgment on the merits, since the case was then
already ripe for adjudication. The judgment ordered dismissal of the case for failure on the part of the
plaintiff to prove their cause of action against Empire. Notice of the judgment was served on the parties in
due course. The plaintiffs did not appeal. instead, they filed a motion praying that Judge Alikpala be
declared guilty of contempt of court for having decided the case on the merits despite the pendency in this
Court of the the certiorari action instituted by the plaintiffs.
It is elementary that the mere pendency of a special civil action for certiorari, commenced in relation to a
case pending before a lower Court, does not interrupt the course of the latter when there is no writ of
injunction restraining it. This was particularly true in the case of the respondent Judge in the light of the
requirement of the Judiciary Act that a case be decided within ninety (90) days from date of
submission. 6 As His Honor has pointed out, he but did his duty under the law, and hence, by no stretch of
the imagination may his act be regarded as contempt of court, much less an 'affront to the Tribunal.' He is
right, and must therefore be absolved of any responsibility for contempt.
In their eagerness to prove the respondent Judge wrong in sustaining objections to their proffered proofs,
and to have him punished for contempt for rendering judgment on the merits adversely to them despite his
being a respondent in their certiorari suit before this Court, the plaintiff failed to perfect an appeal from that
judgment on the merits. Judge Alikpala's judgment has thus become and executory, and this is an additional
factor precluding relief to the petitioners.
WHEREFORE, the petition is DISMISSED for lack of merit, without pronouncement as to costs.
Teehankee, C.J., Cruz, Gancayco and Grio-Aquino, JJ., concur.

44

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 48049 June 29, 1989
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.

45

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy. The facts
of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein
petitioners' complaint against respondent Philippine American Life Insurance Company
for the recovery of the proceeds of Policy No. 1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application was
approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied petitioners'
claim and rescinded the policy by reason of the alleged misrepresentation and
concealment of material facts made by the deceased Tan Lee Siong in his application for
insurance (Exhibit 3). The premiums paid on the policy were thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of the policy was
unjustified and unreasonable, petitioners filed on November 27, 1975, a complaint
against the former with the Office of the Insurance Commissioner, docketed as I.C. Case
No. 218.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for
lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed to
avoid the policy on grounds of concealment by the deceased assured, is contrary to the
provisions of the policy contract itself, as well as, of applicable legal provisions and
established jurisprudence.

46

C. The inference of respondent Court that respondent insurer was misled in issuing the
policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior
to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been
in force during the lifetime of the insured for a period of two years from the date of its
issue or of its last reinstatement, the insurer cannot prove that the policy is void ab
initio or is rescindable by reason of the fraudulent concealment or misrepresentation of
the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48
added to prevent the insurance company from exercising a right to rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insured's lifetime. The phrase "during the
lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April 26,1975. The
policy was thus in force for a period of only one year and five months. Considering that
the insured died before the two-year period had lapsed, respondent company is not,
therefore, barred from proving that the policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. Moreover, respondent company rescinded
the contract of insurance and refunded the premiums paid on September 11, 1975,
previous to the commencement of this action on November 27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen to do
so. The petitioners state:
Here then is a case of an assured whose application was submitted because of repeated
visits and solicitations by the insurer's agent. Assured did not knock at the door of the
insurer to buy insurance. He was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in anticipation

47

of death during the two-year period, he certainly could have gotten a bigger insurance. He
did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative
to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the pressure and practice
indulged in by agents in selling insurance. At one time or another most of us have been
subjected to that pressure, that practice. This court took judicial cognizance of the
whirlwind pressure of insurance selling-especially of the agent's practice of 'supplying the
information, preparing and answering the application, submitting the application to their
companies, concluding the transactions and otherwisesmoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page
205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressureof modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and procure
applications.
These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered by the
other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth out all
difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of insurance
salesmanship was not overwhelming as it is now; when the population of this country
was less than one-fourth of what it is now; when the insurance companies competing with
one another could be counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the whirlwind
pressure of insurance salesmanship this Court itself has long denounced, the assured who
dies within the two-year period, should stand charged of fraudulent concealment and
misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by
the second paragraph of Section 48.

48

The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two
years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer
lie. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to
avoid liability. The petitioners' interpretation would give rise to the incongruous situation where the
beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be
allowed to collect on the policy even if the insured fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were explained in a
layman's language to the insured. They state that the insurer should have presented its two medical field
examiners as witnesses. Moreover, the petitioners allege that the policy intends that the medical
examination must be conducted before its issuance otherwise the insurer "waives whatever imperfection by
ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for insurance
were asked, explained to and understood by the deceased so as to prove concealment on
his part. The same is not well taken. The deceased, by affixing his signature on the
application form, affirmed the correctness of all the entries and answers appearing
therein. It is but to be expected that he, a businessman, would not have affixed his
signature on the application form unless he clearly understood its significance. For, the
presumption is that a person intends the ordinary consequence of his voluntary act and
takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].
The evidence for respondent company shows that on September 19,1972, the deceased
was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that
by January, 1973, the deceased was complaining of progressive weight loss and
abdominal pain and was diagnosed to be suffering from hepatoma, (t.s.n. August 23,
1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the
deceased came to see him on December 14, 1973 for consolation and claimed to have
been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of the
concealment made by the deceased of his consultations and treatments for hypertension,
diabetes and liver disorders, respondent company was thus misled into accepting the risk
and approving his application as medically standard (Exhibit 5- C) and dispensing with
further medical investigation and examination (Exhibit 5-A). For as long as no adverse
medical history is revealed in the application form, an applicant for insurance is
presumed to be healthy and physically fit and no further medical investigation or
examination is conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo,
pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case.
(Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles and
print the amount of benefits they agree to pay in large black-faced type, following such
undertakings by fine print conditions which destroy the substance of the promise. All
provisions, conditions, or exceptions which in any way tend to work a forfeiture of the
policy should be construed most strongly against those for whose benefit they are

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inserted, and most favorably toward those against whom they are meant to operate.
(Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the insured's medical
history are in smaller print than the rest of the printed form or that they are designed in such a way as to
conceal from the applicant their importance. If a warning in bold red letters or a boxed warning similar to
that required for cigarette advertisements by the Surgeon General of the United States is necessary, that is
for Congress or the Insurance Commission to provide as protection against high pressure insurance
salesmanship. We are limited in this petition to ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to show that the factual findings of the respondent
court are not based on substantial evidence or that its conclusions are contrary to applicable law and
jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.

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