Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15895

November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiffappellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to
recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the
sum of P6,000 to the manager of the company's Manila office and was given a receipt reading as
follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina
Central de la Compaia.
The application was immediately forwarded to the head office of the company at Montreal, Canada. On
November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same
day the cable was received notice was sent by the Manila office of Herrer that the application had been
accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was
issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the
company stating that Herrer desired to withdraw his application. The following day the local office
replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr.
Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
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record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the
trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26, 1917,
and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on crossexamination that after preparing the letter and giving it to he manager, he new nothing of what became
of it. The local manager, Mr. White, testified to having received the cablegram accepting the application
of Mr. Herrer from the home office on November 26, 1917. He said that on the same day he signed a
letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after being signed,
were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if
the letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres testified to
having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his
application for a life annuity, and that he said that the only document relating to the transaction in his
possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he
had gone through the effects of the deceased and had found no letter of notification from the insurance
company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying
Mr. Herrer that his application had been accepted, was prepared and signed in the local office of the
insurance company, was placed in the ordinary channels for transmission, but as far as we know, was
never actually mailed and thus was never received by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be
applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be
noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title VIII
of Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil
Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts
and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in
force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act
expressly repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce.
The law of insurance is consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in article
1802, not only describes a contact of life annuity markedly similar to the one we are considering, but in
two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of
the Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter
shall be supplied by the provisions of this Code." On the supposition, therefore, which is incontestable,
that the special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code
is found article 1262 providing that "Consent is shown by the concurrence of offer and acceptance with
respect to the thing and the consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to his knowledge. The
contract, in such case, is presumed to have been entered into at the place where the offer was made."
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This latter article is in opposition to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a conclusion, then
the only duty remaining is for the court to apply the law as it is found. The legislature in its wisdom
having enacted a new law on insurance, and expressly repealed the provisions in the Code of Commerce
on the same subject, and having thus left a void in the commercial law, it would seem logical to make
use of the only pertinent provision of law found in the Civil code, closely related to the chapter
concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from
the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it
must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in
order that the principle may not be taken too lightly, let it be noticed that it is identical with the
principles announced by a considerable number of respectable courts in the United States. The courts
who take this view have expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only the mailing of acceptance,
it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the
acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of
the Civil Code providing that an acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The pertinent fact is, that according to the provisional
receipt, three things had to be accomplished by the insurance company before there was a contract: (1)
There had to be a medical examination of the applicant; (2) there had to be approval of the application
by the head office of the company; and (3) this approval had in some way to be communicated by the
company to the applicant. The further admitted facts are that the head office in Montreal did accept the
application, did cable the Manila office to that effect, did actually issue the policy and did, through its
agent in Manila, actually write the letter of notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter of notification thus fails to concur with the
essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced
by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage
prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could
have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts
fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been
received by the addressee unless it is shown that it was deposited in the post-office, properly addressed
and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it has not been
proved satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with
legal interest from November 20, 1918, until paid, without special finding as to costs in either instance.
So ordered.
Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.
Johnson, J., dissents.

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Enriquez v. SunLife- Insurance Policy

41 PHIL 269
Facts:
> On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life annuity.
> 2 days later, he paid the sum of 6T to the companys anager in its Manila office and was given a
receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same date,
the Manila office prepared a letter notifying Herrer that his application has been accepted and this was
placed in the ordinary channels of transmission, but as far as known was never actually mailed and
never received by Herrer.
> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this action to
recover the 6T paid by the deceased.
Issue:
Whether or not the insurance contract was perfected.
Held:
NO.
The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant. An acceptance of an offer of
insurance NOT actually or constructively communicated to the proposer does NOT make a contract of
insurane, as the locus poenitentiae is ended when an acceptance has passed beyond the control of the
party.
NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to the
insurance company, and if after a certain period of time the insured is stil living, he is entitled to regular
smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life Insurance on the
other hand, the insured during the period of the coverage makes small regular payments and upon his
death, the insurer pays a big amount to his beneficiaries.
Enriquez V. Sun Life Assurance Co. Of Canada
G.R. No. L-15895 November 29, 1920
Lessons Applicable: Perfection (Insurance)
FACTS:
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1 September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance Company of
Canada through its office in Manila for a life annuity
2 2 days later: he paid P6,000 to the manager of the company's Manila office and was given a
receipt
3 according to the provisional receipt, 3 things had to be accomplished by the insurance company
before there was a contract:
1

(1) There had to be a medical examination of the applicant; -check

(2) there had to be approval of the application by the head office of the company; and - check

(3) this approval had in some way to be communicated by the company to the applicant - ?

4 November 26, 1917: The head office at Montreal, Canada gave notice of acceptance by cable to
Manila but this was not mailed
5

December 4, 1917: policy was issued at Montreal

6 December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the company
stating that Herrer desired to withdraw his application
7 December 19, 1917: local office replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917
8

December 21, 1917 morning: received by Mr. Torres

December 20, 1917: Mr. Herrer died

10 Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed to recover
from Sun Life Assurance Company of Canada through its office in Manila for a life annuity
11 RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his application thereby perfecting his life
annuity
HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from the Sun Life the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to costs in
either instance. So ordered.
Civil Code
Art. 1319 (formerly Art.1262)
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made.
1 not perfected because it has not been proved satisfactorily that the acceptance of the application
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ever came to the knowledge of the applicant

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44059 October 28, 1977
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy
No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount
Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his
wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she
is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
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In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co.,
Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial
order was entered reading as follows:
During the pre-trial conference, the parties manifested to the court. that there is no possibility of
amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the
purpose of the pre-trial and make admissions for the purpose of pretrial. During this conference, parties
Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura
Ebrado was married to Pascuala Ebrado with whom she has six (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the
deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan,
dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as
evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for
Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his commonwife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3
and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim
with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for
the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action
against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the
Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by
the insured in the policy is Carponia Ebrado and the insured made reservation to change the beneficiary
but although the insured made the option to change the beneficiary, same was never changed up to the
time of his death and the wife did not have any opportunity to write the company that there was
reservation to change the designation of the parties agreed that a decision be rendered based on and
stipulation of facts as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the
receipt of this order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado
disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased insured. The trial court held:
It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery
or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it
also necessary that a finding of such guilt or commission of those acts be made in a separate
independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the action brought to declare the nullity of the
donation).
It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist
and that it is only necessary that such fact be established by preponderance of evidence in the trial. Since
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it is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the marriage of the
insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the
insurance in question was purchased there is no question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the
proceeds of the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the
Appellate Court certified the case to Us as involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code
(PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime
question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be applied
exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized
upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision
refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance.
Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article
2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not
expressly provided for in such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance is governed by the general
rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who
is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife
insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are,
definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides:
The following donations shall be void:
1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same
action.
2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot
be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life
insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life
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insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a
will and determine the effect of a clause designating the beneficiary by rules under which wins are
interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution of a barrier between
common law spouses in record to Property relations since such hip ultimately encroaches upon the
nuptial and filial rights of the legitimate family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate ones should be enforced in life insurance
policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife
insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that the impediments imposed
upon married couple should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be
restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said:
If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court
(Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of
and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient
law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to)
the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem
spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to
apply the same prohibitive policy to persons living together as husband and wife without the benefit of
nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks
greater influence of one party over the other, so that the danger that the law seeks to avoid is
correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1),
'it would not be just that such donations should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and
morality alike demand that the disabilities attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be
differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with disabilities would be
attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is
every any occasion where the principle of statutory construction that what is within the spirit of the law
is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in an interpretation purely literal
of the language used must be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons
who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides:
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same
action.
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The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the
contrary, the law plainly states that the guilt of the party may be proved "in the same acting for
declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of
the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.
In the caw before Us, the requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial
conference of the case. It case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children;
that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado,
with whom he has two children. These stipulations are nothing less thanjudicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these
admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the
parties even agreed "that a decision be rendered based on this agreement and stipulation of facts as to
who among the two claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is
hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life
insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of
the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero, JJ., concur.1

Insular Life vs. Ebrado

80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his
beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then
filed an action for interpleader.
Issue:

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10

Whether or not the common law wife named as beneficiary can collect the proceeds.
Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage applies
to insurance contracts. On matters not specifically provided for by the Insurance Law, the general rules
on Civil law shall apply. A life insurance policy is no different from a civil donation as far as the
beneficiary is concerned, since both are founded on liberality.
Why was the common law wife not ed to collect the proceeds despite the fact that she was the
beneficiary? Isnt this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC had to
consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or concubinage from
being beneficiaries of the life insurance policies of the persons with whom they committed adultery or
concubinage. If the SC used only Sec. 53, it would have gone against Art. 739 and 2012.

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

Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for
Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He
referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits foraccidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary therein,
although she admited that she and the insured were merely living as husband and wife without the
benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she
is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the
proceeds. The courtdeclared Carponia as disqualified.
Issue:
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11

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

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Republic of the Philippines

SUPREME COURT
Manila
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13

EN BANC
G.R. No. L-1669

August 31, 1950

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-1670

August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
Mariano Lozada for appellant Constantino.
Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.
BENGZON, J.:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the question
whether the beneficiary in a life insurance policy may recover the amount thereof although the insured
died after repeatedly failing to pay the stipulated premiums, such failure having been caused by the last
war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life
Insurance Company (a foreign corporation incorporated under the laws of Delaware, U.S.A.), issued on
September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio Constantino
for a term of twenty years. The first premium covered the period up to September 26, 1942. The plaintiff
Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained these stipulations,
among others:
This POLICY OF INSURANCE is issued in consideration of the written and printed application here for
a copy of which is attached hereto and is hereby made a part hereof made a part hereof, and of the
payment in advance during the lifetime and good health of the Insured of the annual premium of One
Hundred fifty-eight and 4/100 pesos Philippine currency1 and of the payment of a like amount upon
each twenty-seventh day of September hereafter during the term of Twenty years or until the prior death
of the Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall
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cause this policy to lapse unless and except as kept in force by the Grace Period condition or under
Option 4 below. (Grace of 31 days.)
After that first payment, no further premiums were paid. The insured died on September 22, 1944.
It is admitted that the defendant, being an American corporation , had to close its branch office in Manila
by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No.
78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of the
spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual premium stipulated in the
policy was regularly paid from August 1, 1938, up to and including September 30, 1941. Effective
August 1, 1941, the mode of payment of premiums was changed from annual to quarterly, so that
quarterly premiums were paid, the last having been delivered on November 18, 1941, said payment
covering the period up to January 31, 1942. No further payments were handed to the insurer. Upon the
Japanese occupation, the insured and the insurer became separated by the lines of war, and it was
impossible and illegal for them to deal with each other. Because the insured had borrowed on the policy
an mount of P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain
the policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff
Agustina Peralta is his beneficiary. Her demand for payment met with defendant's refusal, grounded on
non-payment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor,
a copy of which is attached hereto and is hereby made apart hereof, and of the payment in advance
during the life time and good health of the Insured of the annual premium of Two hundred and 43/100
pesos Philippine currency and of the payment of a like amount upon each first day of August hereafter
during the term of Twenty years or until the prior death of either of the Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall
cause this policy to lapse unless and except as kept in force by the Grace Period condition or under
Option 4 below. (Grace of days.) . . .
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus
all sums due for premiums in arrears. They allege that non-payment of the premiums was caused by the
closing of defendant's offices in Manila during the Japanese occupation and the impossible
circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the
benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has received
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careful consideration, inasmuch as it affects the interest of thousands of policy-holders and the
obligations of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the
Civil Code.2 Act No. 2427 was largely copied from the Civil Code of California. 3 And this court has
heretofore announced its intention to supplement the statutory laws with general principles prevailing on
the subject in the United State.4
In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are
contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to
impose such reasonable conditions at the time of the making of the contract as they may deem wise and
necessary. The rate of premium is measured by the character of the risk assumed. The insurance
company, for a comparatively small consideration, undertakes to guarantee the insured against loss or
damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in
case of loss, the insurer, therefore, may justly insists upon a fulfillment of these terms. If the insured
cannot bring himself within the conditions of the policy, he is not entitled for the loss. The terms of the
policy constitute the measure of the insurer's liability, and in order to recover the insured must show
himself within those terms; and if it appears that the contract has been terminated by a violation, on the
part of the insured, of its conditions, then there can be no right of recovery. The compliance of the
insured with the terms of the contract is a condition precedent to the right of recovery."
Recall of the above pronouncements is appropriate because the policies in question stipulate that "all
premium payments are due in advance and any unpunctuality in making any such payment shall cause
this policy to lapse." Wherefore, it would seem that pursuant to the express terms of the policy, nonpayment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the
parties and should be enforced by the courts, if the evidence brings the case clearly within their meaning
and intent. It tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain
case is attempted to be taken without the operation of a clear, reasonable and material obligation of the
contract. Mack vs. Rochester German Ins. Co., 106 N.Y., 560, 564. (Young vs. Midland Textile Ins. Co.,
30 Phil., 617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because
the premium had not been paid within the time fixed, since by its express terms, non-payment of any
premium when due or within the thirty-day period of grace, ipso facto caused the policy to lapse. This
goes to show that although we take the view that insurance policies should be conserved 5 and should not
lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.
Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to
enforce an insurance contract according to its meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of nonpayment of premiums occasioned by war, the American cases may be divided into three groups,
according as they support the so-called Connecticut Rule, the New York Rule, or the United States Rule.
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The first holds the view that "there are two elements in the consideration for which the annual premium
is paid First, the mere protection for the year, and second, the privilege of renewing the contract for
each succeeding year by paying the premium for that year at the time agreed upon. According to this
view of the contract, the payment of premiums is a condition precedent, the non-performance would be
illegal necessarily defeats the right to renew the contract."
The second rule, apparently followed by the greater number of decisions, hold that "war between states
in which the parties reside merely suspends the contracts of the life insurance, and that, upon tender of
all premiums due by the insured or his representatives after the war has terminated, the contract revives
and becomes fully operative."
The United States rule declares that the contract is not merely suspended, but is abrogated by reason of
non-payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to
allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over
the actual risk carried during the years when the policy had been in force. This rule was announced in
the well-known Statham6case which, in the opinion of Professor Vance, is the correct rule.7
The appellants and some amici curiae contend that the New York rule should be applied here. The
appellee and other amici curiae contend that the United States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different theories. Besides the respect and
high regard we have always entertained for decisions of the Supreme Court of the United States, we
cannot resist the conviction that the reasons expounded in its decision of the Statham case are logically
and judicially sound. Like the instant case, the policy involved in the Statham decision specifies that
non-payment on time shall cause the policy to cease and determine. Reasoning out that punctual
payments were essential, the court said:
. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the
calculations of the insurance company are based on the hypothesis of prompt payments. They not only
calculate on the receipt of the premiums when due, but on compounding interest upon them. It is on this
basis that they are enabled to offer assurance at the favorable rates they do. Forfeiture for non-payment
is an necessary means of protecting themselves from embarrassment. Unless it were enforceable, the
business would be thrown into confusion. It is like the forfeiture of shares in mining enterprises, and all
other hazardous undertakings. There must be power to cut-off unprofitable members, or the success of
the whole scheme is endangered. The insured parties are associates in a great scheme. This associated
relation exists whether the company be a mutual one or not. Each is interested in the engagements of all;
for out of the co-existence of many risks arises the law of average, which underlies the whole business.
An essential feature of this scheme is the mathematical calculations referred to, on which the premiums
and amounts assured are based. And these calculations, again, are based on the assumption of average
mortality, and of prompt payments and compound interest thereon. Delinquency cannot be tolerated nor
redeemed, except at the option of the company. This has always been the understanding and the practice
in this department of business. Some companies, it is true, accord a grace of thirty days, or other fixed
period, within which the premium in arrear may be paid, on certain conditions of continued good health,
etc. But this is a matter of stipulation, or of discretion, on the part of the particular company. When no
stipulation exists, it is the general understanding that time is material, and that the forfeiture is absolute
if the premium be not paid. The extraordinary and even desperate efforts sometimes made, when an
insured person is in extremes to meet a premium coming due, demonstrates the common view of this
matter.
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The case, therefore, is one in which time is material and of the essence and of the essence of the
contract. Non-payment at the day involves absolute forfeiture if such be the terms of the contract, as is
the case here. Courts cannot with safety vary the stipulation of the parties by introducing equities for the
relief of the insured against their own negligence.
In another part of the decision, the United States Supreme Court considers and rejects what is, in effect,
the New York theory in the following words and phrases:
The truth is, that the doctrine of the revival of contracts suspended during the war is one based on
considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust
or inequitable to revive.
In the case of Life insurance, besides the materiality of time in the performance of the contract, another
strong reason exists why the policy should not be revived. The parties do not stand on equal ground in
reference to such a revival. It would operate most unjustly against the company. The business of
insurance is founded on the law of average; that of life insurance eminently so. The average rate of
mortality is the basis on which it rests. By spreading their risks over a large number of cases, the
companies calculate on this average with reasonable certainty and safety. Anything that interferes with it
deranges the security of the business. If every policy lapsed by reason of the war should be revived, and
all the back premiums should be paid, the companies would have the benefit of this average amount of
risk. But the good risks are never heard from; only the bar are sought to be revived, where the person
insured is either dead or dying. Those in health can get the new policies cheaper than to pay arrearages
on the old. To enforce a revival of the bad cases, whilst the company necessarily lose the cases which are
desirable, would be manifestly unjust. An insured person, as before stated, does not stand isolated and
alone. His case is connected with and co-related to the cases of all others insured by the same company.
The nature of the business, as a whole, must be looked at to understand the general equities of the
parties.
The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as
alleged, the consequences of war should not prejudice the insured, neither should they bear down on the
insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured
to pay premiums was excused during the war owing to impossibility of performance, and that
consequently no unfavorable consequences should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the
first, is not an obligation of the insured, so much so that it is not a debt enforceable by action of the
insurer.
Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which
the insurer can maintain an action against insured; nor is its settlement governed by the strict rule
controlling payments of debts. So, the court in a Kentucky case declares, in the opinion, that it is not a
debt. . . . The fact that it is payable annually or semi-annually, or at any other stipulated time, does not of
itself constitute a promise to pay, either express or implied. In case of non-payment the policy is
forfeited, except so far as the forfeiture may be saved by agreement, by waiver, estoppel, or by statute.
The payment of the premium is entirely optional, while a debt may be enforced at law, and the fact that
the premium is agreed to be paid is without force, in the absence of an unqualified and absolute
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agreement to pay a specified sum at some certain time. In the ordinary policy there is no promise to pay,
but it is optional with the insured whether he will continue the policy or forfeit it. (3 Couch, Cyc. on
Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the insured by an observance of the
conditions may hold the insurer to his contract, the latter has not the power or right to compel the
insured to maintain the contract relation with it longer than he chooses. Whether the insured will
continue it or not is optional with him. There being no obligation to pay for the premium, they did not
constitute a debt. (Noblevs. Southern States M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis
ours.)
It should be noted that the parties contracted not only for peacetime conditions but also for times of war,
because the policies contained provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the contract even if armed conflict
should ensue.
For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the
Statham decision, it could now be relaxed and even disregarded. It is stated "that the relaxation of rules
relating to insurance is in direct proportion to the growth of the business. If there were only 100 men, for
example, insured by a Company or a mutual Association, the death of one will distribute the insurance
proceeds among the remaining 99 policy-holders. Because the loss which each survivor will bear will be
relatively great, death from certain agreed or specified causes may be deemed not a compensable loss.
But if the policy-holders of the Company or Association should be 1,000,000 individuals, it is clear that
the death of one of them will not seriously prejudice each one of the 999,999 surviving insured. The loss
to be borne by each individual will be relatively small."
The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be
considered will not be the death of one but the death of ten thousand, since the proportion of 1 to 100
should be maintained. And certainly such losses for 10,000 deaths will not be "relatively small."
After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a
vital defense of insurance companies that since the very beginning, said Act no. 2427 expressly
preserved it, by providing that after the policy shall have been in force for two years, it shall become
incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of premiums, and
military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress recently
amended this section (Rep. Act No. 171), the defense of fraud was eliminated, while the defense of
nonpayment of premiums was preserved. Thus the fundamental character of the undertaking to pay
premiums and the high importance of the defense of non-payment thereof, was specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in
effect a variation of the Connecticut rule for the sake of equity. In this connection, it appears that the
first policy had no reserve value, and that the equitable values of the second had been practically
returned to the insured in the form of loan and advance for premium.
For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies
in question, is hereby affirmed, without costs.
Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur.
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Constantino V. Asia Life Insurance Co. (1950)

Lessons Applicable: General Principles on Insurance (Insurance)
FACTS:
1

Case 1:

1 The life of Arcadio Constantino was insured with Asia Life Insurance Company (Asia) for a
term of 20 years with Paz Lopez de Constantino as beneficiary. The first premium covered the
period up to September 26, 1942.
2 After the first premium, no further premiums were paid. The insured died on September 22,
1944.
3 Asia Life Insurance Company, being an American Corp., had to close its branch office in
Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.
2

Case 2:

1 Spouses Tomas Ruiz and Agustina Peralta. Their premium were initially annually but
subsequently changed to quarterly. The last quarterly premium was delivered on on November 18,
1941 and it covered the period until January 31, 1942.
2

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

3 Because the insured had borrowed on the policy P234.00 in January, 1941, the cash surrender
value of the policy was sufficient to maintain the policy in force only up to September 7, 1942.
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4 Tomas Ruiz died on February 16, 1945 with Agustina Peralta as beneficiary. Her demand for
payment was refused on the ground of non-payment of the premiums.
3 Plaintiffs: As beneficiaries, they are entitled to receive the proceeds of the policies minus all
sums due for premiums in arrears. The non-payment of the premiums was caused by the closing of
Asia's offices in Manila during the Japanese occupation and the impossible circumstances created by
war.
4

lower court: absolved Asia

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

HELD: YES. lower court affirmed.
5 it would seem that pursuant to the express terms of the policy, non-payment of premium
produces its avoidance
6 Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse
to enforce an insurance contract according to its meaning.
7 Nevertheless, inasmuch as the non-payment of premium was the consequence of war, it should
be excused and should not cause the forfeiture of the policy
8

3 Rules in case of war:

Connecticut Rule

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

1 mere protection for the year privilege of renewing the contract for each succeeding year by
paying the premium for that year at the time agreed upon payment of premiums is a condition
precedent, the non-performance would be illegal necessarily defeats the right to renew the contract
New York Rule - greatly followed by a number of cases war between states in which the parties
reside merely suspends the contracts of the life insurance, and that, upon tender of all premiums due
by the insured or his representatives after the war has terminated, the contract revives and becomes
fully operative United States Rule contract is not merely suspended, but is abrogated by reason of
non-payments is peculiarly of the essence of the contract
2 it would be unjust to allow the insurer to retain the reserve value of the policy, which is the
excess of the premiums paid over the actual risk carried during the years when the policy had been
in force.
9 The business of insurance is founded on the law of average; that of life insurance eminently so
contract of insurance is sui generis
1 Whether the insured will continue it or not is optional with him. There being no obligation to
pay for the premium, they did not constitute a debt.
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10 It should be noted that the parties contracted not only for peacetime conditions but also for
times of war, because the policies contained provisions applicable expressly to wartime days. The
logical inference, therefore, is that the parties contemplated uninterrupted operation of the contract
even if armed conflict should ensue.
11 the fundamental character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof, was specifically recognized adopt the United States Rule: first
policy had no reserve value, and that the equitable values of the second had been practically returned
to the insured in the form of loan and advance for premium.
87 Phil. 248 Commercial Law Insurance Code Parties to an Insurance Contract Insurance
Contract in Times of War
There are two cases consolidated here. First is that of Arcadio Constantino who acquired a life insurance
from Asia Life Insurance Company in September 1941. He paid the first premium which was good until
September 1942. War broke out and he was not able to pay the second and subsequent premiums. He
died in 1944. His beneficiary was Paz Lopez De Constantino.
The second case was that of Tomas Ruiz who acquired his life insurance from Asia Life in August 1938.
He has been paying his premium religiously but due to the war, he was not able to pay his subsequent
premiums in 1942. He died in 1945. His beneficiary was Agustina Peralta.
The beneficiaries from both insurance policies filed their claims when the war is over. They point out
that the obligation of the insured to pay premiums was excused (suspended) during the war owing to
impossibility of performance, and that consequently no unfavorable consequences should follow from
such failure (New York Rule).
Asia Life argued that the nonpayment of premiums cancelled the insurance policy. An insurance contract
is one in which time is material and of the essence. Non-payment at the day involves absolute forfeiture
if such be the terms of the contract (United States Rule).
ISSUE: Whether or not the beneficiaries are entitled to the claims.
HELD: No. The Supreme Court adopts the United States Rule. It should be noted that the parties
contracted not only for peacetime conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties
contemplated uninterrupted operation of the contract even if armed conflict should ensue.

Constantino v. Asia Life- Non-payment of Insurance Premiums

87 PHIL 248

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Facts:
> Appeal consolidates two cases.
> Asia life insurance Company (ALIC) was incorporated in Delaware.
> For the sum of 175.04 as annual premium duly paid to ALIC, it issued Policy No. 93912 whereby it
insured the life of Arcadio Constantino for 20 years for P3T with Paz Constantino as beneficiary.
First premium covered the period up to Sept. 26, 1942. No further premiums were paid after the
first premium and Arcadio died on Sept. 22, 1944.
> Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 1942-1945.
> On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses Tomas Ruiz and
Agustina Peralta for the sum of P3T for 20 years. The annual premium stipulated was regularly paid
from Aug. 1, 1938 up to and including Sept. 30, 1940.
Effective Aug. 1, 1941, the mode of payment was changed from annually to quarterly and such
quarterly premiums were paid until Nov. 18, 1941.
Last payment covered the period until Jan. 31, 1942.
Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.
> Due to Jap occupation, it became impossible and illegal for the insured to deal with ALIC. Aside
from this the insured borrowed from the policy P234.00 such that the cash surrender value of the policy
was sufficient to maintain the policy in force only up to Sept. 7, 1942.
> Both policies contained this provision: All premiums are due in advance and any unpunctuality in
making such payment shall cause this policy to lapse unless and except as kept in force by the grace
period condition.
> Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled to receive the
proceeds of the policies less all sums due for premiums in arrears. They also allege that non-payment of
the premiums were caused by the closing of ALICs offices during the war and the impossible
circumstances by the war, therefore, they should be excused and the policies should not be forfeited.
> Lower court ruled in favor of ALIC.
Issue:
May a beneficiary in a life insurance policy recover the amount thereof although the insured died after
repeatedly failing to pay the stipulated premiums, such failure being caused by war?
Held:
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NO.
Due to the express terms of the policy, non-payment of the premium produces its avoidance. In Glaraga
v. Sun Life, it was held that a life policy was avoided because the premium had not been paid within the
time fixed; since by its express terms, non-payment of any premium when due or within the 31 day
grace period ipso fact caused the policy to lapse.
When the life insurance policy provides that non-payment of premiums will cause its forfeiture, war
does NOT excuse non-payment and does not avoid forfeiture. Essentially, the reason why punctual
payments are important is that the insurer calculates on the basis of the prompt payments. Otherwise,
malulugi sila.
It should be noted that the parties contracted not only as to peace time conditions but also as to war-time
conditions since the policies contained provisions applicable expressly to wartime days. The logical
inference therefore is that the parties contemplated the uninterrupted operation of the contract even if
armed conflict should ensue.

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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 198174

September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated May 31, 2011 and Resolution 2 dated August 10, 2011 of the Court of Appeals (CA) in
CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract
of insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand
Pesos (P630,000.00) in case of loss or damage to said vehicle during the period covered, which is from
February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
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(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no
longer returned the motor vehicle to respondent and despite diligent efforts to locate the same, said
efforts proved futile. Resultantly, respondent promptly reported the incident to the police and
concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds in
the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others,
thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which
states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on
the provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSUREDS SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the
exception refers to damage of the motor vehicle and not to its loss. However, petitioners denial of
respondents insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this
wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time of demand
up to the time the amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys decision. The
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26

fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated
December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-0761099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a
Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its
petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY
OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE
RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT
COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY
ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES
DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE
CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY
AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE
JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondents vehicle is excluded under
the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to
the Schedule Vehicle and its accessories and spare parts whilst thereon:
(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;
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27

(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of
each and every loss for each and every vehicle insured by this Policy, such amount being equal to one
percent (1.00%) of the Insureds estimate of Fair Market Value as shown in the Policy Schedule with a
minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or
breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insureds
service.6
In denying respondents claim, petitioner takes exception by arguing that the word "damage," under
paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property or
reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondents vehicle as a result of it being stolen by the latters driver is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by
the driver of the insured is not an exception to the coverage from the insurance policy, since Section III
thereof did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy
subject of this case. This is evident from the very provision of Section III "Loss or Damage." The
insurance company, subject to the limits of liability, is obligated to indemnify the insured against theft.
Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed
by the driver of the insured, there being no categorical declaration of exception, the same must be
covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted as to
carry out the purpose for which the parties entered into the contract which is to insure against risks of
loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning
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28

of language in the policy. Where restrictive provisions are open to two interpretations, that which is most
favorable to the insured is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this would result to an absurd
situation where the insurer would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed by the insured himself, the
same would be an exception to the coverage since in that case there would be fraud on the part of the
insured or breach of material warranty under Section 69 of the Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense. 8 Accordingly, in
interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes
therein are to be given their meaning as understood in common speech.9
Adverse to petitioners claim, the words "loss" and "damage" mean different things in common ordinary
usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondents vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insureds service. Paragraph 4
clearly does not contemplate "loss of property," as what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of the
insured, members of his family, and any person in the insureds service, whose clear plan or purpose was
to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly
delineate between the terms "loss" and "damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then
logic dictates that it should have used the term "damage" alone in the entire policy or otherwise included
a clear definition of the said term as part of the provisions of the said insurance contract. Which is why
the Court finds it puzzling that in the said policys provision detailing the exceptions to the policys
coverage in Section III thereof, which is one of the crucial parts in the insurance contract, the insurer,
after liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by using
the word "damage" only in the policys exception regarding "malicious damage." Now, the defendantappellant would like this Court to believe that it really intended the word "damage" in the term
"malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
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29

assured, determine the import of the various terms and provisions embodied in the policy. However,
when the terms of the insurance policy are ambiguous, equivocal or uncertain, such that the parties
themselves disagree about the meaning of particular provisions, the policy will be construed by the
courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared
the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of
Appeals are hereby AFFIRMED.
SO ORDERED.
ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR
G.R. No. 198174, September 2, 2013 (PERALTA, J.)
FACTS:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX DSL with Alpha
Insurance and Surety Co (Alpha). The contract of insurance obligates the petitioner to pay the
respondent the amount of P630,000 in case of loss or damage to said vehicle during the period covered.
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30

On April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza to bring the vehicle to
nearby auto-shop for a tune up. However, Lanuza no longer returned the motor vehicle and despite
diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported
the incident to the police and concomitantly notified petitioner of the said loss and demanded payment
of the insurance proceeds.
Alpha, however, denied the demand of Castor claiming that they are not liable since the culprit who
stole the vehicle is employed with Castor. Under the Exceptions to Section III of the Policy, the
Company shall not be liable for (4) any malicious damage caused by the insured, any member of his
family or by A PERSON IN THE INSUREDS SERVICE.
Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional Trial
Court of Quezon City. The trial court rendered its decision in favor of Castor which decision is affirmed
in toto by the Court of Appeals. Hence, this Petition for Review on Certiorari.
ISSUE:
Whether or not the loss of respondents vehicle is excluded under the insurance policy
HELD:
NO. The words loss and damage mean different things in common ordinary usage. The word loss
refers to the act or fact of losing, or failure to keep possession, while the word damage means
deterioration or injury to property. Therefore, petitioner cannot exclude the loss of Castors vehicle
under the insurance policy under paragraph 4 of Exceptions to Section III, since the same refers only
to malicious damage, or more specifically, injury to the motor vehicle caused by a person under the
insureds service. Paragraph 4 clearly does not contemplate loss of property.
A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation vs. Philippine
American Life Insurance Company, this Court ruled that it must be remembered that an insurance
contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latters interest.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16138

INSURANCE

April 29, 1961

31

DIOSDADO C. TY, plaintiff-appellant,

vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16139

April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16140

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
UNITED INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16141

April 29, 1961.

DIOSDADO C. TY. plaintiff-appellant,

vs.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16142

April 29, 1961.

DIOSDADO C. TY, plaintiff-appellant,

vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16143

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16144
INSURANCE

April 29, 1961

32

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16145

April 29, 1961

DIOSDADO C. TY, plaintiff-appellant,

vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
V. B. Gesunundo for plaintiff-appellant.
M. Perez Cardenas for defendant-appellee.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon. Gregorio S. Narvasa, presiding,
dismissing the actions filed in the above-entitled cases.
The facts found by the trial court, which are not disputed in this appeal, are as follows:
At different times within a period of two months prior to December 24, 1953, the plaintiff herein
Diosdado C. Ty, employed as operator mechanic foreman in the Broadway Cotton Factory, in Grace
Park, Caloocan, Rizal, at a monthly salary of P185.00, insured himself in 18 local insurance companies,
among which being the eight above named defendants, which issued to him personal accident policies,
upon payment of the premium of P8.12 for each policy. Plaintiff's beneficiary was his employer,
Broadway Cotton Factory, which paid the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed the Broadway Cotton Factory. Fighting
his way out of the factory, plaintiff was injured on the left hand by a heavy object. He was brought to the
Manila Central University hospital, and after receiving first aid there, he went to the National
Orthopedic Hospital for treatment of his injuries which were as follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle finger, left and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent medical treatment in the
Orthopedic Hospital from December 26, 1953 to February 8, 1954. The above-described physical
injuries have caused temporary total disability of plaintiff's left hand. Plaintiff filed the corresponding
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33

notice of accident and notice of claim with all of the abovenamed defendants to recover indemnity under
Part II of the policy, which is similarly worded in all of the policies, and which reads pertinently as
follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and
accidental means, and which shall not prove fatal but shall result, independently of all other causes and
within sixty (60) days from the occurrence thereof, in Total or Partial Disability of the Insured, the
Company shall pay, subject to the exceptions as provided for hereinafter, the amount set opposite such
injury:
PARTIAL DISABILITY
LOSS OF:
xxx

xxx

xxx

Either hand ............................................................................ P650.00

xxx

xxx

xxx

... The loss of a hand shall mean the loss by amputation through the bones of the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that there being no severance of
amputation of the left hand, the disability suffered by him was not covered by his policy. Hence, plaintiff
sued the defendants in the Municipal Court of this City, and from the decision of said Court dismissing
his complaints, plaintiff appealed to this Court. (Decision of the Court of First Instance of Manila, pp.
223-226, Records).
In view of its finding, the court absolved the defendants from the complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may recover on the insurance
policies issued him for the loss of his left hand, it is not necessary that there should be an amputation
thereof, but that it is sufficient if the injuries prevent him from performing his work or labor necessary in
the pursuance of his occupation or business. Authorities are cited to the effect that "total disability" in
relation to one's occupation means that the condition of the insurance is such that common prudence
requires him to desist from transacting his business or renders him incapable of working. (46 C.J.S.,
970). It is also argued that obscure words or stipulations should be interpreted against the person who
caused the obscurity, and the ones which caused the obscurity in the cases at bar are the defendant
insurance companies.
While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, we
can not go beyond the clear and express conditions of the insurance policies, all of which define partial
disability as loss of either hand by amputation through the bones of the wrist." There was no such
amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal, was
that the physical injuries "caused temporary total disability of plaintiff's left hand." Note that the
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34

disability of plaintiff's hand was merely temporary, having been caused by fracture of the index, the
middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the law between the parties. As
the terms of the policies are clear, express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the mere fracture or other temporary
disability not covered by the policies would certainly be unwarranted.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the plaintiff-appellant.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ.,
concur.
Ty V. First National Surety And Assurance Co., Inc. (1961)
G.R. No. L-16138

April 29, 1961

Lessons Applicable: Clear Provision Given Ordinary Meaning (Insurance)

FACTS:
1 2 months prior to December 24, 1953: Diosdado C. Ty, employed as operator mechanic
foreman in the Broadway Cotton Factory insured himself in 18 local insurance companies with
Broadway Cotton Factory as his beneficiary
2 December 24, 1953: fire broke out at the Broadway Cotton Factory where Ty, fighting his way
out, injured his left hand by a heavy object.
3 He was brought to the Manila Central University hospital, and after receiving first aid there, he
went to the National Orthopedic Hospital for treatment of his injuries.
4 His injuries caused temporary total disability on his left hand so he filed a claim against all
defendants who rejected the claim reasoning that there it was not covered in his policy because there
was no severance of amputation of the left hand
5

Trial Court: absolved the defendants

ISSUE: W/N Ty can claim

HELD: NO. Affirmed.
6 Can not go beyond the clear and express conditions of the insurance policies, all of which
define partial disability as loss of either hand by amputation through the bones of the wrist.
7 Note that the disability of plaintiff's hand was merely temporary, having been caused by
fracture of the index, the middle and the fourth fingers of the left hand agreement contained in the
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35

insurance policies is the law between the parties

Ty v First National G.R. No. L-16138 April 29, 1961
J. Labrador
Facts:
Ty, a mechanic foreman in Caloocan, bought 18 insurance policies at 8 pesos each. A fire broke out, and
Ty fought his way out of the factory. His hand was broken by a heavy object in the process. He wanted
to collect an indemnity valuing 650 pesos for the loss of hand by means of amputation even if he only
suffered from broken fingers. The insurance companies sued him in court and they won. Ty then
appealed to the Supreme Court.
Issue: Can he collect the sums even if there was no amputation?
Held: No
Ratio:
The insurance policies clearly define loss of hand as amputation of the bones on the wrist. The injury
was only a temporary total disability of plaintiff's left hand." This wasnt covered by the policies.

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36

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21574

June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,

vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and appellant.
Achacoso, Nera and Ocampo for defendant and appellant.
Agustin M. Gramata for plaintiff and appellee.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the decision of the Court of
First Instance of Pangasinan (in Civ Case No. U-265), ordering it to indemnify therein plaintiff Simon
de la Cruz for the death of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the holder of
an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance & Surety Co.,
Inc., for the period beginning November 13, 1956 to November 12, 1957. On January 1, 1957, in
connection with the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing
contest for general entertainment wherein the insured Eduardo de la Cruz, a non-professional boxer
participated. In the course of his bout with another person, likewise a non-professional, of the same
height, weight, and size, Eduardo slipped and was hit by his opponent on the left part of the back of the
head, causing Eduardo to fall, with his head hitting the rope of the ring. He was brought to the Baguio
General Hospital the following day. The cause of death was reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, thereupon
filed a claim with the insurance company for payment of the indemnity under the insurance policy. As
the claim was denied, De la Cruz instituted the action in the Court of First Instance of Pangasinan for
specific performance. Defendant insurer set up the defense that the death of the insured, caused by his
participation in a boxing contest, was not accidental and, therefore, not covered by insurance. After due
hearing the court rendered the decision in favor of the plaintiff which is the subject of the present appeal.
It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped, which
was unintentional. At this opportunity, his opponent landed on Eduardo's head a blow, which sent the
latter to the ropes. That must have caused the cranial injury that led to his death. Eduardo was insured
"against death or disability caused by accidental means". Appellant insurer now contends that while the
death of the insured was due to head injury, said injury was sustained because of his voluntary
participation in the contest. It is claimed that the participation in the boxing contest was the "means" that
INSURANCE

37

produced the injury which, in turn, caused the death of the insured. And, since his inclusion in the
boxing card was voluntary on the part of the insured, he cannot be considered to have met his death by
"accidental means".
The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms
have been taken to mean that which happen by chance or fortuitously, without intention and design, and
which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's
foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a
known cause and, therefore, not expected.1
Appellant however, would like to make a distinction between "accident or accidental" and "accidental
means", which is the term used in the insurance policy involved here. It is argued that to be considered
within the protection of the policy, what is required to be accidental is the means that caused or brought
the death and not the death itself. It may be mentioned in this connection, that the tendency of court
decisions in the United States in recent years is to eliminate the fine distinction between the terms
"accidental" and "accidental means" and to consider them as legally synonymous. 2 But, even if we take
appellant's theory, the death of the insured in the case at bar would still be entitled to indemnification
under the policy. The generally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the insured's
voluntary act, unaccompanied by anything unforeseen except the death or injury.3 There is no accident
when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen
happening occurs which produces or brings about the result of injury or death. 4 In other words, where
the death or injury is not the natural or probable result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the
protection of policies insuring against death or injury from accident.
In the present case, while the participation of the insured in the boxing contest is voluntary, the injury
was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him
to the ropes of the ring. Without this unfortunate incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that blow in the head and would not have died. The fact
that boxing is attended with some risks of external injuries does not make any injuries received in the
course of the game not accidental. In boxing as in other equally physically rigorous sports, such as
basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or
death can only be accidental or produced by some unforeseen happening or event as what occurred in
this case.
Furthermore, the policy involved herein specifically excluded from its coverage
(e) Death or disablement consequent upon the Insured engaging in football, hunting, pigsticking,
steeplechasing, polo-playing, racing of any kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was not declared outside of the
protection of the insurance contract. Failure of the defendant insurance company to include death
resulting from a boxing match or other sports among the prohibitive risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.5
Wherefore, in view of the foregoing considerations, the decision appealed from is hereby affirmed, with
INSURANCE

38

costs against appellant. so ordered.

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

De La Cruz V. Capital Ins. & Surety Co, Inc. (1966)

G.R. No. L-21574

June 30, 1966

Lessons Applicable: Liability of Insurer for Suicide and Accidental Death (Insurance)
FACTS:
1 Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the
holder of an accident insurance policy "against death or disability caused by accidental means"
2 January 1, 1957: For the celebration of the New Year, the Itogon-Suyoc Mines, Inc. sponsored a
boxing contest for general entertainment wherein Eduardo, a non-professional boxer participated
3

In the course of his bout with another non-professional boxer of the same height, weight, and

INSURANCE

39

size, Eduardo slipped and was hit by his opponent on the left part of the back of the head, causing
Eduardo to fall, with his head hitting the rope of the ring
4 He was brought to the Baguio General Hospital the following day. He died due to hemorrhage,
intracranial.
5 Simon de la Cruz, the father of the insured and who was named beneficiary under the policy,
thereupon filed a claim with the insurance company
6 The Capital Insurance and Surety co., inc denied stating that the death caused by his
participation in a boxing contest was not accidental
7

RTC: favored Simon

ISSUE: W/N the cause of death was accident

HELD:YES.
8

Eduardo slipped, which was unintentional

9 The terms "accident" and "accidental" as used in insurance contracts, have not acquired any
technical meaning and are construed by the courts in their ordinary and common acceptation happen
by chance or fortuitously, without intention and design, and which is unexpected, unusual, and
unforeseen
1

event that takes place without one's foresight or expectation

2 event that proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected
10 where the death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the resulting death is
within the protection of policies insuring against death or injury from accident
11 while the participation of the insured in the boxing contest is voluntary, the injury was sustained
when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the
ropes of the ring is not
12 The fact that boxing is attended with some risks of external injuries does not make any injuries
received in the course of the game not accidental
13 In boxing as in other equally physically rigorous sports, such as basketball or baseball, death is
not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be
accidental or produced by some unforeseen happening or event as what occurred in this case

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Furthermore, the policy involved herein specifically excluded from its coverage
14 (e) Death or disablement consequent upon the Insured engaging in football, hunting,
pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or motorcycling.
1 Death or disablement resulting from engagement in boxing contests was not declared outside of
the protection of the insurance contract

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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4611

December 17, 1955

QUA CHEE GAN, plaintiff-appellee,

vs.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER,
BARNES AND CO., LTD., defendant-appellant.
Delgado, Flores & Macapagal for appellant.
Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, Ponce Enrile & Contreras for
appellee.
REYES, J. B. L., J.:
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance of said
province, seeking to recover the proceeds of certain fire insurance policies totalling P370,000, issued by
the Law Union & Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the insured that
were burned on June 21, 1940. The records of the original case were destroyed during the liberation of
the region, and were reconstituted in 1946. After a trial that lasted several years, the Court of First
Instance rendered a decision in favor of the plaintiff, the dispositive part whereof reads as follows:
Wherefore, judgment is rendered for the plaintiff and against the defendant condemning the latter to pay
the former
(a) Under the first cause of action, the sum of P146,394.48;
(b) Under the second cause of action, the sum of P150,000;
(c) Under the third cause of action, the sum of P5,000;
(d) Under the fourth cause of action, the sum of P15,000; and
(e) Under the fifth cause of action, the sum of P40,000;

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all of which shall bear interest at the rate of 8% per annum in accordance with Section 91 (b) of the
Insurance Act from September 26, 1940, until each is paid, with costs against the defendant.
The complaint in intervention of the Philippine National Bank is dismissed without costs. (Record on
Appeal, 166-167.)
From the decision, the defendant Insurance Company appealed directly to this Court.
The record shows that before the last war, plaintiff-appellee owned four warehouses or bodegas
(designated as Bodegas Nos. 1 to 4) in the municipality of Tabaco, Albay, used for the storage of stocks
of copra and of hemp, baled and loose, in which the appellee dealth extensively. They had been, with
their contents, insured with the defendant Company since 1937, and the lose made payable to the
Philippine National Bank as mortgage of the hemp and crops, to the extent of its interest. On June, 1940,
the insurance stood as follows:
Policy No.

Property Insured

2637164
(Exhibit "LL")

Bodega No. 1 (Building)

P15,000.00

Bodega No. 2 (Building)

10,000.00

Bodega No. 3 (Building)

25,000.00

Bodega No. 4 (Building)

10,000.00

2637165
(Exhibit "JJ")

Amount

Hemp Press moved by steam engine

5,000.00

2637345
(Exhibit "X")

Merchandise contents (copra and empty

sacks of Bodega No. 1)

150,000.00

2637346
(Exhibit "Y")

Merchandise contents (hemp) of Bodega

No. 3

150,000.00

2637067
Merchandise contents (loose hemp) of
(Exhibit "GG") Bodega No. 4
Total

5,000.00
P370,000.00

Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted almost one
week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored theren.
Plaintiff-appellee informed the insurer by telegram on the same date; and on the next day, the fire
adjusters engaged by appellant insurance company arrived and proceeded to examine and photograph
the premises, pored over the books of the insured and conducted an extensive investigation. The plaintiff
having submitted the corresponding fire claims, totalling P398,562.81 (but reduced to the full amount of
the insurance, P370,000), the Insurance Company resisted payment, claiming violation of warranties and
conditions, filing of fraudulent claims, and that the fire had been deliberately caused by the insured or by
other persons in connivance with him.
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With counsel for the insurance company acting as private prosecutor, Que Chee Gan, with his brother,
Qua Chee Pao, and some employees of his, were indicted and tried in 1940 for the crime of arson, it
being claimed that they had set fire to the destroyed warehouses to collect the insurance. They were,
however, acquitted by the trial court in a final decision dated July 9, 1941 (Exhibit WW). Thereafter, the
civil suit to collect the insurance money proceeded to its trial and termination in the Court below, with
the result noted at the start of this opinion. The Philippine National Bank's complaint in intervention was
dismissed because the appellee had managed to pay his indebtedness to the Bank during the pendecy of
the suit, and despite the fire losses.
In its first assignment of error, the insurance company alleges that the trial Court should have held that
the policies were avoided for breach of warranty, specifically the one appearing on a rider pasted (with
other similar riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached for
the first time in 1939, and the pertinent portions read as follows:
Memo. of Warranty. The undernoted Appliances for the extinction of fire being kept on the premises
insured hereby, and it being declared and understood that there is an ample and constant water supply
with sufficient pressure available at all seasons for the same, it is hereby warranted that the said
appliances shall be maintained in efficient working order during the currency of this policy, by reason
whereof a discount of 2 1/2 per cent is allowed on the premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each 150 feet of external wall measurement
of building, protected, with not less than 100 feet of hose piping and nozzles for every two hydrants kept
under cover in convenient places, the hydrants being supplied with water pressure by a pumping engine,
or from some other source, capable of discharging at the rate of not less than 200 gallons of water per
minute into the upper story of the highest building protected, and a trained brigade of not less than 20
men to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the
appellee should have eleven (11) fire hydrants in the compound, and that he actually had only two (2),
with a further pair nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to
claim violation of the so-called fire hydrants warranty, for the reason that knowing fully all that the
number of hydrants demanded therein never existed from the very beginning, the appellant neverthless
issued the policies in question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to claims now as
void ab initio the policies that it had issued to the plaintiff without warning of their fatal defect, of which
it was informed, and after it had misled the defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued, that in the premises insured
there were only two fire hydrants installed by Qua Chee Gan and two others nearby, owned by the
municipality of TAbaco, contrary to the requirements of the warranty in question. Such fact appears
from positive testimony for the insured that appellant's agents inspected the premises; and the simple
denials of appellant's representative (Jamiczon) can not overcome that proof. That such inspection was
made is moreover rendered probable by its being a prerequisite for the fixing of the discount on the
premium to which the insured was entitled, since the discount depended on the number of hydrants, and
the fire fighting equipment available (See "Scale of Allowances" to which the policies were expressly
made subject). The law, supported by a long line of cases, is expressed by American Jurisprudence (Vol.
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29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract inconsistent with the facts, and the
insurer is stopped thereafter from asserting the breach of such conditions. The law is charitable enough
to assume, in the absence of any showing to the contrary, that an insurance company intends to executed
a valid contract in return for the premium received; and when the policy contains a condition which
renders it voidable at its inception, and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather than to have deceived the
insured into thinking he is insured when in fact he is not, and to have taken his money without
consideration. (29 Am. Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept one's
money for a policy of insurance which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair
dealing, and so closely related to positive fraud, as to the abhorent to fairminded men. It would be to
allow the company to treat the policy as valid long enough to get the preium on it, and leave it at liberty
to repudiate it the next moment. This cannot be deemed to be the real intention of the parties. To hold
that a literal construction of the policy expressed the true intention of the company would be to indict it,
for fraudulent purposes and designs which we cannot believe it to be guilty of (Wilson vs. Commercial
Union Assurance Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in this case is heightened by the
fact that after the insured had incurred the expense of installing the two hydrants, the company collected
the premiums and issued him a policy so worded that it gave the insured a discount much smaller than
that he was normaly entitledto. According to the "Scale of Allowances," a policy subject to a warranty of
the existence of one fire hydrant for every 150 feet of external wall entitled the insured to a discount of 7
1/2 per cent of the premium; while the existence of "hydrants, in compund" (regardless of number)
reduced the allowance on the premium to a mere 2 1/2 per cent. This schedule was logical, since a
greater number of hydrants and fire fighting appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so worded the policies that while exacting the greater
number of fire hydrants and appliances, it kept the premium discount at the minimum of 2 1/2 per cent,
thereby giving the insurance company a double benefit. No reason is shown why appellant's premises,
that had been insured with appellant for several years past, suddenly should be regarded in 1939 as so
hazardous as to be accorded a treatment beyond the limits of appellant's own scale of allowances. Such
abnormal treatment of the insured strongly points at an abuse of the insurance company's selection of the
words and terms of the contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by the appellant as not
applicable to the present case. It is not a question here whether or not the parties may vary a written
contract by oral evidence; but whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than Nonpayment. It is a well
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45

settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer
in force, receives and accepts a preium on the policy, estopped to take advantage of the forfeiture. It
cannot treat the policy as void for the purpose of defense to an action to recover for a loss thereafter
occurring and at the same time treat it as valid for the purpose of earning and collecting further
premiums." (29 Am. Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy under circumstances which it knew
rendered the policy void and then to accept and retain premiums under such a void policy. Neither law
nor good morals would justify such conduct and the doctrine of equitable estoppel is peculiarly
applicable to the situation. (McGuire vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly
interpreted aganst the prty that caused them, 1the "memo of warranty" invoked by appellant bars the
latter from questioning the existence of the appliances called for in the insured premises, since its initial
expression, "the undernoted appliances for the extinction of fire being kept on the premises insured
hereby, . . . it is hereby warranted . . .", admists of interpretation as an admission of the existence of such
appliances which appellant cannot now contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be equally
rejected, since the appellant's argument thereon is based on the assumption that the insured was bound to
maintain no less than eleven hydrants (one per 150 feet of wall), which requirement appellant is
estopped from enforcing. The supposed breach of the wter pressure condition is made to rest on the
testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds; appellant
thereupon inferring that the maximum quantity obtainable from the hydrants was 100 gallons a minute,
when the warranty called for 200 gallons a minute. The transcript shows, however, that Serra repeatedly
refused and professed inability to estimate the rate of discharge of the water, and only gave the "5-gallon
per 3-second" rate because the insistence of appellant's counsel forced the witness to hazard a guess.
Obviously, the testimony is worthless and insufficient to establish the violation claimed, specially since
the burden of its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same was
organized, and drilled, from time to give, altho not maintained as a permanently separate unit, which the
warranty did not require. Anyway, it would be unreasonable to expect the insured to maintain for his
compound alone a fire fighting force that many municipalities in the Islands do not even possess. There
is no merit in appellant's claim that subordinate membership of the business manager (Co Cuan) in the
fire brigade, while its direction was entrusted to a minor employee unders the testimony improbable. A
business manager is not necessarily adept at fire fighting, the qualities required being different for both
activities.
Under the second assignment of error, appellant insurance company avers, that the insured violated the
"Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since
appellee admitted that there were 36 cans (latas) of gasoline in the building designed as "Bodega No. 2"
that was a separate structure not affected by the fire. It is well to note that gasoline is not specifically
mentioned among the prohibited articles listed in the so-called "hemp warranty." The cause relied upon
by the insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their liquid products
having a flash point below 300o Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary
parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how many insured, it may well be
wondered, are in a position to understand or determine "flash point below 003o Fahrenheit. Here, again,
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46

by reason of the exclusive control of the insurance company over the terms and phraseology of the
contract, the ambiguity must be held strictly against the insurer and liberraly in favor of the insured,
specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the hearing and possible complications of every contingency. So
long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which
conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins.
Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises could not be expressed clearly
and unmistakably, in the language and terms that the general public can readily understand, without
resort to obscure esoteric expression (now derisively termed "gobbledygook"). We reiterate the rule
stated in Bachrach vs. British American Assurance Co. (17 Phil. 555, 561):
If the company intended to rely upon a condition of that character, it ought to have been plainly
expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in view of current business
practices. The courts cannot ignore that nowadays monopolies, cartels and concentrations of capital,
endowed with overwhelming economic power, manage to impose upon parties dealing with them
cunningly prepared "agreements" that the weaker party may not change one whit, his participation in the
"agreement" being reduced to the alternative to take it or leave it" labelled since Raymond Baloilles"
contracts by adherence" (con tracts d'adhesion), in contrast to these entered into by parties bargaining
on an equal footing, such contracts (of which policies of insurance and international bills of lading are
prime examples) obviously call for greater strictness and vigilance on the part of courts of justice with a
view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for
the unwarry (New Civil Coee, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February
1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia alguna oscuridad, habra de ser
tenido en cuenta que al seguro es, practicamente un contrato de los llamados de adhesion y por
consiguiente en caso de duda sobre la significacion de las clausulas generales de una poliza redactada
por las compafijas sin la intervencion alguna de sus clientes se ha de adoptar de acuerdo con el
articulo 1268 del Codigo Civil, la interpretacion mas favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse explicado mas claramante. (Dec. Trib. Sup. of
Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but
equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position
carries with it stricter responsibility.
Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only incidental
to his business, being no more than a customary 2 day's supply for the five or six motor vehicles used
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for transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well settled that the keeping of
inflammable oils on the premises though prohibited by the policy does not void it if such keeping is
incidental to the business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and "according
to the weight of authority, even though there are printed prohibitions against keeping certain articles on
the insured premises the policy will not be avoided by a violation of these prohibitions, if the prohibited
articles are necessary or in customary use in carrying on the trade or business conducted on the
premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section 966b). It should also be noted that the
"Hemp Warranty" forbade storage only "in the building to which this insurance applies and/or in any
building communicating therewith", and it is undisputed that no gasoline was stored in the burned
bodegas, and that "Bodega No. 2" which was not burned and where the gasoline was found, stood
isolated from the other insured bodegas.
The charge that the insured failed or refused to submit to the examiners of the insurer the books,
vouchers, etc. demanded by them was found unsubstantiated by the trial Court, and no reason has been
shown to alter this finding. The insured gave the insurance examiner all the date he asked for (Exhibits
AA, BB, CCC and Z), and the examiner even kept and photographed some of the examined books in his
possession. What does appear to have been rejected by the insured was the demand that he should
submit "a list of all books, vouchers, receiptsand other records" (Age 4, Exhibit 9-c); but the refusal of
the insured in this instance was well justified, since the demand for a list of all the vouchers (which were
not in use by the insured) and receipts was positively unreasonable, considering that such listing was
superfluous because the insurer was not denied access to the records, that the volume of Qua Chee Gan's
business ran into millions, and that the demand was made just after the fire when everything was in
turmoil. That the representatives of the insurance company were able to secure all the date they needed
is proved by the fact that the adjuster Alexander Stewart was able to prepare his own balance sheet
(Exhibit L of the criminal case) that did not differ from that submitted by the insured (Exhibit J) except
for the valuation of the merchandise, as expressly found by the Court in the criminal case for arson.
(Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was strikingly illustrated in the
decision of the arson case (Exhibit WW) acquiting Qua Choc Gan, appellee in the present proceedings.
The decision states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan en Tabaco asi como su
existencia de copra y abaca en las bodega al tiempo del incendio durante el periodo comprendido desde
el 1.o de enero al 21 de junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de
P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este conclusion el ha tenidoen cuenta el
balance de comprobacion Exhibit 'J' que le ha entregado el mismo acusado Que Choc Gan en relacion
con sus libros y lo ha encontrado correcto a excepcion de los precios de abaca y copra que alli aparecen
que no estan de acuerdo con los precios en el mercado. Esta comprobacion aparece en el balance
mercado exhibit J que fue preparado por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the adjuster Stewart for the insurer,
the Court referred the controversy to a government auditor, Apolonio Ramos; but the latter reached a
different result from the other two. Not only that, but Ramos reported two different valuations that could
be reached according to the methods employed (Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos buenos para promovar el
comercio y la finanza, pero en el caso presente ha resultado un tanto cumplicada y acomodaticia, como
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lo prueba el resultado del examen hecho por los contadores Stewart y Ramos, pues el juzgado no
alcanza a ver como habiendo examinado las mismas partidas y los mismos libros dichos contadores
hayan de llegara dos conclusiones que difieron sustancialmente entre si. En otras palabras, no solamente
la comprobacion hecha por Stewart difiere de la comprobacion hecha por Ramos sino que, segun este
ultimo, su comprobacion ha dado lugar a dos resultados diferentes dependiendo del metodo que se
emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously entertained. The insurer
attempted to bolster its case with alleged photographs of certain pages of the insurance book (destroyed
by the war) of insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing abnormal
purchases of hemp and copra from June 11 to June 20, 1940. The Court below remained unconvinced of
the authenticity of those photographs, and rejected them, because they were not mentioned not
introduced in the criminal case; and considering the evident importance of said exhibits in establishing
the motive of the insured in committing the arson charged, and the absence of adequate explanation for
their omission in the criminal case, we cannot say that their rejection in the civil case constituted
reversible error.
The next two defenses pleaded by the insurer, that the insured connived at the loss and that the
fraudulently inflated the quantity of the insured stock in the burnt bodegas, are closely related to each
other. Both defenses are predicted on the assumption that the insured was in financial difficulties and set
the fire to defraud the insurance company, presumably in order to pay off the Philippine National Bank,
to which most of the insured hemp and copra was pledged. Both defenses are fatally undermined by the
established fact that, notwithstanding the insurer's refusal to pay the value of the policies the extensive
resources of the insured (Exhibit WW) enabled him to pay off the National Bank in a short time; and if
he was able to do so, no motive appears for attempt to defraud the insurer. While the acquittal of the
insured in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge
from the decision in the criminal case, is practically identical in both cases and must lead to the same
result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict the insured of the crime of
arson"(Bachrach vs. British American Assurance Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained the quantities of copra and
hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates, inferences and
conclusionsAs to the defense that the burned bodegas could not possibly have contained the quantities of
copra and hemp stated in the fire claims, the insurer's case rests almost exclusively on the estimates,
inferences and conclusions of its adjuster investigator, Alexander D. Stewart, who examined the
premises during and after the fire. His testimony, however, was based on inferences from the
photographs and traces found after the fire, and must yield to the contradictory testimony of engineer
Andres Bolinas, and specially of the then Chief of the Loan Department of the National Bank's Legaspi
branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw the contents of the
bodegas shortly before the fire, while inspecting them for the mortgagee Bank. The lower Court was
satisfied of the veracity and accuracy of these witnesses, and the appellant insurer has failed to
substantiate its charges aganst their character. In fact, the insurer's repeated accusations that these
witnesses were later "suspended for fraudulent transactions" without giving any details, is a plain
attempt to create prejudice against them, without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the remains the quantity of hemp
burned (t. s. n., pp. 1468, 1470), rebutted appellant's attacks on the refusal of the Court below to accept
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its inferences from the remains shown in the photographs of the burned premises. It appears, likewise,
that the adjuster's calculations of the maximum contents of the destroyed warehouses rested on the
assumption that all the copra and hemp were in sacks, and on the result of his experiments to determine
the space occupied by definite amounts of sacked copra. The error in the estimates thus arrived at
proceeds from the fact that a large amount of the insured's stock were in loose form, occupying less
space than when kept in sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964, 1967) due to the weight of the
overlying stock, as shown by engineer Bolinas. It is probable that the errors were due to inexperience
(Stewart himself admitted that this was the first copra fire he had investigated); but it is clear that such
errors render valueles Stewart's computations. These were in fact twice passed upon and twice rejected
by different judges (in the criminal and civil cases) and their concordant opinion is practically
conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by the Court below, since the
opinions stated therein were based on ex parte investigations made at the back of the insured; and the
appellant did not present at the trial the original testimony and documents from which the conclusions in
the report were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the insured contained false and
fraudulent statements that avoided the insurance policy. But the trial Court found that the discrepancies
were a result of the insured's erroneous interpretation of the provisions of the insurance policies and
claim forms, caused by his imperfect knowledge of English, and that the misstatements were innocently
made and without intent to defraud. Our review of the lengthy record fails to disclose reasons for
rejecting these conclusions of the Court below. For example, the occurrence of previous fires in the
premises insured in 1939, altho omitted in the claims, Exhibits EE and FF, were nevertheless revealed
by the insured in his claims Exhibits Q (filed simultaneously with them), KK and WW. Considering that
all these claims were submitted to the smae agent, and that this same agent had paid the loss caused by
the 1939 fire, we find no error in the trial Court's acceptance of the insured's explanation that the
omission in Exhibits EE and FF was due to inadvertance, for the insured could hardly expect under such
circumstances, that the 1939 would pass unnoticed by the insurance agents. Similarly, the 20 per cent
overclaim on 70 per cent of the hemo stock, was explained by the insured as caused by his belief that he
was entitled to include in the claim his expected profit on the 70 per cent of the hemp, because the same
was already contracted for and sold to other parties before the fire occurred. Compared with other cases
of over-valuation recorded in our judicial annals, the 20 per cent excess in the case of the insured is not
by itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134,
the claim was fourteen (14) times (1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire
Insurance Co., 43 Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co., 47 Phil.
14, six (6) times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalled P31,860.85
while the goods insured were inventoried at O13,113. Certainly, the insured's overclaim of 20 per cent in
the case at bar, duly explained by him to the Court a quo, appears puny by comparison, and can not be
regarded as "more than misstatement, more than inadvertence of mistake, more than a mere error in
opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance Office, ante) that would entitle the
insurer to avoid the policy. It is well to note that the overchange of 20 per cent was claimed only on
apart (70 per cent) of the hemp stock; had the insured acted with fraudulent intent, nothing prevented
him from increasing the value of all of his copra, hemp and buildings in the same proportion. This also
applies to the alleged fraudulent claim for burned empty sacks, that was likewise explained to our
satisfaction and that of the trial Court. The rule is that to avoid a policy, the false swearing must be
wilful and with intent to defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of course, the lack
of fraudulent intent would not authorize the collection of the expected profit under the terms of the
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50

polices, and the trial Court correctly deducte the same from its award.
We find no reversible error in the judgment appealed from, wherefore the smae is hereby affirmed. Costs
against the appellant. So ordered.
Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and Concepcion, JJ., concur.

Qua Chee Gan v. Law Union Rock - Breach of Warranty

98 PHIL 85
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or copra
and hemp in which the appelle deals with exclusively.
> The warehouses together with the contents were insured with Law Union since 1937 and the loss
made payable to PNB as mortgagee of the hemp and copra.
> A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely.
> Insured then informed insurer of the unfortunate event and submitted the corresponding fire claims,
which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims
and that the fire had been deliberately caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of the insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason that there was a breach of warranty.
Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of
external wall measurements of the compound, and since bodegas insured had an external wall per meter
of 1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.

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Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because
knowing that the number of hydrants it demanded never existed from the very beginning, appellant
nevertheless issued the policies subject to such warranty and received the corresponding premiums. The
insurance company was aware, even before the policies were issued, that in the premises there were only
2 hydrants and 2 others were owned by the Municipality, contrary to the requirements of the warranties
in question.
It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the
policies it issued to the insured, without warning him of the fatal defect, of which the insurer was
informed, and after it had misled the insured into believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of
a policy has the knowledge of existing facts, which if insisted on, would invalidate the contract from its
very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with
known facts, and the insurer is stopped thereafter from asserting the breach of such conditions. The
reason for the rule is: To allow a company to accept ones money for a policy of insurance which it
knows to be void and of no effect, though it knows as it must that the insured believes it to be valid and
binding is so contrary to the dictates of honesty and fair dealing, as so closely related to positive fraud,
as to be abhorrent to fair-minded men. It would be to allow the company to treat the policy as valid long
enough to get the premium on it, and leave it at liberty to repudiate it the next moment.
Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be
interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars
the latter from questioning the existence of the appliances called for, since its initial expression the
undernoted appliances for the extinction of fire being kept on the premises insured hereby.. admits of
the interpretation as an admission of the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.
(2) Whether or not the insured violated the hemp warranty provision against the storage of gasoline
since insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and
not affected by the fire.
It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the socalled hemp warranty. The clause relied upon by the insurer speaks of oils. Ordinarily, oils mean
lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance
company over the terms of the contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured, specially to avoid a forfeiture.
Furthermore, the gasoline kept was only incidental to the insureds business. It is a well settled rule that
keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such
keeping is incidental to the business. Also, the hemp warranty forbade the storage only in the building
to which the insurance applies, and/or in any building communicating therewith; and it is undisputed
that no gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline
was found stood isolated from the other bodegas.

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Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION

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53

G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the
November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query:
May the inaction of the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered
into an agreement denominated as Creditor Group Life Policy No. P-1920 2 with petitioner Eternal
Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective
for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage
by the Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a
declaration of good health shall be required for all Lot Purchasers as part of the application. The
Company reserves the right to require further evidence of insurability satisfactory to the Company in
respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
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The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance
of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the
Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if
the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together
with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of
all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated
December 29, 1982,4containing a list of insurable balances of its lot buyers for October 1982. One of
those included in the list as "new business" was a certain John Chuang. His balance of payments was
PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for
Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate of Death;
(2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of
Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the
following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with
form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account
showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was
received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance
claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on
April 25, 1986.8
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20,
1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of Insurability
provision, "a declaration of good health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of Coverage under the policy which states
that "there shall be no insurance if the application is not approved by the Company." Since no
application had been submitted by the Insured/Assured, prior to his death, for our approval but was
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submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under
the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract and
was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall
have been met. We will however, return all the premiums which have been paid in behalf of John Uy
Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of
money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL,
against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of
P100,000.00, representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until
fully paid; and, to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he accomplished
before his death, as testified to by Eternals witness and evidenced by the letter dated December 29,
1982, stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further ruled
that due to Philamlifes inaction from the submission of the requirements of the group insurance on
December 29, 1982 to Chuangs death on August 2, 1984, as well as Philamlifes acceptance of the
premiums during the same period, Philamlife was deemed to have approved Chuangs application. The
RTC said that since the contract is a group life insurance, once proof of death is submitted, payment
must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is
REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuangs application was not enclosed in Eternals
letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted
application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no
application form, Chuang was not covered by Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence,
in holding that:

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I. The application for insurance was not duly submitted to respondent PhilamLife before the death of
John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the
CA and first level courts, considering their findings of facts are conclusive and binding on this Court.
However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of
the CA] are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review
them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it
submitted a copy of the insurance application of Chuang before his death. In Eternals letter dated
December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy
of the insurance application which was signed by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that
Eternal must present evidence showing that Philamlife received a copy of Chuangs insurance
application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such
stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such
receipt is an admission by Philamlife against its own interest. 13 The burden of evidence has shifted to
Philamlife, which must prove that the letter did not contain Chuangs insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to have received Chuangs insurance application.
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To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is stamped as
received, the contents of the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to
inconsistencies is groundless. The trial court is in the best position to determine the reliability and
credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses demeanor,
conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the
appellate court, unless some facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the result of the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no
overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of
Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form and the
original of this is submitted to Philamlife together with the monthly remittances and the second copy is
remained or retained with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the location and
does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that payment
together with the new clients all the originals I see to it before I sign the transmittal letter the originals
are attached therein.16
In other words, the witness admitted not knowing where the original insurance application was, but
believed that the application was transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two
insurance application forms were accomplished and the testimony of Mendoza on who actually filled
out the application form, these are minor inconsistencies that do not affect the credibility of the
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witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the
credibility of witnesses, and these may even serve to strengthen their credibility as these negate any
suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecutions evidence
as a whole or reflect on the witnesses honesty. The test is whether the testimonies agree on essential
facts and whether the respective versions corroborate and substantially coincide with each other so as to
make a consistent and coherent whole.18
In the present case, the number of copies of the insurance application that Chuang executed is not at
issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternals
witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the
application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life
Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.
An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became effective
upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should
be resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and
must be construed in such a way as to preclude the insurer from noncompliance with its obligations. 19
(Emphasis supplied.)

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In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared
the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10,
1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser
is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving
the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of
the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not
work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of insurance. As such,
insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No.
57810 isREVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch
138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time
of extra-judicial demand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on
June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June
17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
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No costs.
SO ORDERED.

ETERNAL VS. PHILAMLIFE

G.R. No. 166245

April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor Group Life Policy
with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the purchased burial lots.

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The relevant provisions of the policy are:

ELIGIBILITY.
xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.
xx
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together
with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of
all insured lot purchasers. Eternal complied by submitting a letter dated December 29, 1982, containing
a list of insurable balances of its lot buyers for October 1982. One of those included in the list as new
business was a certain John Chuang. His balance of payments was 100K. on August 2, 1984, Chuang
died.
Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuangs death.
Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a letter requiring
Eternal to submit the additional documents relative to its insurance claim for Chuangs death. Eternal
transmitted the required documents through a letter which was received by Philamlife.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance
claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000.
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter a portion of
which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984
Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of
Eternal, ordering Philamlife to pay the former 100K representing the proceeds of the policy.
CA reversed. Hence this petition.
ISSUE: WON Philamlife should pay the 100K insurance proceeds
HELD: petition granted.

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YES
An examination of the provision of the POLICY under effective date of benefit, would show ambiguity
between its two sentences. The first sentence appears to state that the insurance coverage of the clients
of Eternal already became effective upon contracting a loan with Eternal while the second sentence
appears to require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a partys
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser
is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving
the insurance application. The second sentence of the Creditor Group Life Policy on the Effective Date
of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination
of the insurance contract by the insurer must be explicit and unambiguous.

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Eternal Gardens Memorial Park Corporation v Philamlife (Insurance)

G.R. No. 166245

April 9, 2008

FACTS:
Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal
who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial lots.
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together
with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of
all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated
December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of
those included in the list as "new business" was a certain John Chuang. His balance of payments was
PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for
Chuang's death.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's insurance
claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on
April 25, 1986.8
In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May 20,
1986. Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC).
DECISION OF LOWER COURTS:
(1) RTC : in favor of Eternal. due to Philamlife's inaction from the submission of the requirements of the
group insurance on December 29, 1982 to Chuang's death on August 2, 1984, as well as Philamlife's
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acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang's
application. The RTC said that since the contract is a group life insurance, once proof of death is
submitted, payment must follow.
(2) CA : in favor of Philamlife. there being no application form, Chuang was not covered by Philamlife's
insurance.
ISSUE:
May the inaction of the insurer on the insurance application be considered as approval of the
application?
RULING:
YES
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life
Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.
An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became effective
upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such
stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such
receipt is an admission by Philamlife against its own interest.13 The burden of evidence has shifted to
Philamlife, which must prove that the letter did not contain Chuang's insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application.
The seemingly conflicting provisions must be harmonized to mean that upon a party's purchase of a
memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and
the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination
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of the insurance contract by the insurer must be explicit and unambiguous.

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Republic of the Philippines

SUPREME COURT
FIRST DIVISION
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP
No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case
No. RD-277. Both decisions held that there was no violation of the Insurance Code and the respondents
do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its
vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a
Certificate of Entry and Acceptance.3 Pioneer also issued receipts evidencing payments for the coverage.
When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover
the latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code,
while Pioneer violated Sections 299,63007 and 3018 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain
another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was
not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held
that Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
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FIRST ASSIGNMENT OF ERROR

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

(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received therefor,
shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes requisite. It is not by what it is
called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the
insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the
creation of a fund from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.17 Additionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection and indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members." 19 By definition then, Steamship Mutual as a P & I Club is a
mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 18720 of the Insurance Code. It maintains a resident agent in
the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from
the Insurance Commission.
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Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 issued
by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a Certification from the Commission
states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its directors
and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the
Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby
REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and
Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper
authorizations to do business as insurer and insurance agent, respectively. The petitioners prayer for the
revocation of Pioneers Certificate of Authority and removal of its directors and officers, is DENIED.
Costs against respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
White Gold v Pioneer G.R. No. 154514. July 28, 2005
J. Quisimbing
Facts:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual
through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry and
Acceptance. Pioneer also issued receipts. When White Gold failed to fully pay its accounts, Steamship
Mutual refused to renew the coverage.
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Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover
the unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual and Pioneer violated provisions of the Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business and that it was a P & I
club. Pioneer was not required to obtain another license as insurance agent because Steamship Mutual
was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The appellate court
also held that Pioneer merely acted as a collection agent of Steamship Mutual.
Hence this petition by White Gold.
Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
Held: Yes. Petition granted.
Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To
buttress its assertion, itcites the definition as an association composed of shipowners in general who
band together for the specific purpose of providing insurance cover on a mutual basis against liabilities
incidental to shipowning that the members incur in favor of third parties.
They argued that Steamship Mutuals primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have come
together to provide mutual protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members. By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in
the Philippines to solicit insurance and to collect payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue
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doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.
2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued
by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement ofapplications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines or
any agent thereof, without first procuring a license so to act from the Commissioner

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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of
corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in
the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street,
Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and
insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under
the policy. The salvage goods were sold at public auction and, after deducting their value, the total loss
suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground
that the policy in favor of the respondent had ceased to be in force on the date the United States declared
war against Germany, the respondent Corporation (though organized under and by virtue of the laws of
the Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated
April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose
of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is
that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent
corporation has ceased to be effective because of the outbreak of the war between the United States and
Germany on December 10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure. After trial, the Court of First
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Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of
Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now
before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation became
an enemy when the United States declared war against Germany, relying on English and American cases
which held that a corporation is a citizen of the country or state by and under the laws of which it was
created or organized. It rejected the theory that nationality of private corporation is determine by the
character or citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were German
subjects. This being so, we have to rule that said respondent became an enemy corporation upon the
outbreak of the war between the United States and Germany. The English and American cases relied
upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of
the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed.
Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy
Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal
Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled
by enemies, namely managed under the influence of individuals or corporations, themselves considered
as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing
the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral
established after the First World War.
The United States of America did not adopt the control test during the First World War. Courts refused to
recognized the concept whereby American-registered corporations could be considered as enemies and
thus subject to domestic legislation and administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation but also by long term loans and
other factual situations. For that reason, legislation on enemy property enacted in various countries
during World War II adopted by statutory provisions to the control test and determined, to various
degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during the last war,
include as did other legislations the applications of the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice
in the treatment of foreign-owned property in the United States allowed to large degree the
determination of enemy interest in domestic corporations and thus the application of the control test.
Court decisions sanctioned such administrative practice enacted under the First War Powers Act of 1941,
and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of
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the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation
allegedly controlled by German interest, the Court: "The property of all foreign interest was placed
within the reach of the vesting power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The
power of seizure and vesting was extended to all property of any foreign country or national so that no
innocent appearing device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed
decision. However, we may add that, in Haw Pia vs. China Banking Corporation, * 45 Off Gaz., (Supp.
9) 299, we already held that China Banking Corporation came within the meaning of the word "enemy"
as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated
under the laws of an enemy country but because it was controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a
public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as
soon as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent
with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations,
commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the
transmission of money or goods; and all contracts relating thereto are thereby nullified. It further
prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service
with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their
assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do
anything detrimental too their country's interest. The purpose of war is to cripple the power and exhaust
the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property
and repay in insurance the value of what has been so destroyed, or that it should in such manner increase
the resources of the enemy, or render it aid, and the commencement of war determines, for like reasons,
all trading intercourse with the enemy, which prior thereto may have been lawful. All individuals
therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion, and
are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified
term it is plain that when the parties become alien enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p.
112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid
and enforcible, and since the insured goods were burned after December 10, 1941, and during the war,
the respondent was not entitled to any indemnity under said policy from the petitioner. However,
elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December 11, 1941, should be
returned by the petitioner.
The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether
the policy in question became null and void upon the declaration of war between the United States and
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Germany on December 10, 1941, and its judgment in favor of the respondent corporation was predicated
on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed
that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in
view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held that "any
intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to claim for
and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the
effect that "the appellee was entitled to payment from the appellant was, well founded." Factually, there
can be no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim
of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may be
seen from the following: "In view of the findings and conclusion of this office contained in its decision
on Administrative Case dated February 9, 1943 copy of which was sent to your office and the
concurrence therein of the Financial Department of the Japanese Military Administration, and following
the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern,
Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed
check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on
this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines
currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to
the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine
currency, that should be returned by the petitioner for the unexpired term of the policy in question,
beginning December 11, 1941. Without costs. So ordered.
Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur.

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FILIPINAS DE COMPANIA DE SEGUROS vs. CHRISTERN, HUENFELD & CO

G.R. No. L-2294 May 25, 1951, EN BANC (PARAS, C.J.)
FACTS:
Christern, Huenefeld and Company, a German company, obtained a fire insurance policy from Filipinas
Compaia for the merchandise contained in a building located in Binondo, Manila in the sum of
P100,000. Filipinas Compaia is an American controlled company. The building and the insured
merchandise were burned during the Japanese occupation. Christern filed its claim amounting to
P92,650.00 but Filipinas Compaia refused to pay alleging that Christern is a corporation whose
majority stockholders are Germans and that during the Japanese occupation, America declared war
against Germany hence the insurance policy ceased to be effective because the insured has become an
enemy. Filipinas Compaia was eventually ordered to pay Christern as ordered by the Japanese
government.
ISSUE:
Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the insurance claim.
HELD:
NO. There is no question that majority of the stockholders of Christern were German subjects. This
being so, Christern became an enemy corporation upon the outbreak of the war between the United
States and Germany. The Philippine Insurance Law (Act No. 2427, as amended,) in Section 8, provides
that anyone except a public enemy may be insured. It stands to reason that an insurance policy ceases
to be allowable as soon as an insured becomes a public enemy.
The respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and
since the insured goods were burned after December 10, 1941, and during the war, the respondent was
not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice
(in the absence of specific provision in the Insurance Law) require that the premium paid by the
respondent for the period covered by its policy from December 11, 1941, should be returned by the
petitioner

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