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For its part, private respondent Seaboard argues that the payment made by the tortfeasor did not relieve it of
DECISION liability because at the time of payment, its (Seaboards) suit against petitioners was already ongoing. It also
insists that because the assailed order was interlocutory, it was not a proper subject for certiorari.[9]
CORONA, J.:
Private respondent Skylanders likewise contends that the order denying dismissal cannot be the subject of
Petitioner Danzas Corporation, through its agent, petitioner All Transport Network brings to us this petition for certiorari in the absence of grave abuse of discretion. It also defends the trial courts order granting a
review on certiorari[1] questioning the decision[2] and resolution[3] of the Court of Appeals which affirmed two preliminary hearing, saying that, assuming the trial court had erroneously granted such a hearing, such error
orders issued by the Regional Trial Court, Makati City, Branch 150.[4] was merely one of judgment and not of jurisdiction as to merit certiorari.[10]
On February 22, 1994, petitioner Danzas took a shipment of nine packages of ICS watches for transport to It is true that the doctrine in Manila Mahogany Manufacturing Corporation v. Court of Appeals[11]remains the
Manila. The consignee, International Freeport Traders, Inc. (IFTI) secured Marine Risk Note No. 0000342 from controlling doctrine on the issue of whether the tortfeasor, by settling with the insured, defeats the right to
private respondent Seaboard. subrogation of the insurer. According to Manila Mahogany:
On March 2, 1994, the Korean Airlines plane carrying the goods arrived in Manila and discharged the goods to
the custody of private respondent Philippine Skylanders, Inc. for safekeeping. On withdrawal of the shipment Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after
from private respondent Skylanders warehouse, IFTI noted that one package containing 475 watches was receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights
shortlanded while the remaining eight were found to have sustained tears on sides and the retape of flaps. On against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has
further examination and inventory of the cartons, it was discovered that 176 Guess watches were missing. paid to the latter, unless the release was made with the consent of the insurer.
Private respondent Seaboard, as insurer, paid the losses to IFTI.
This is buttressed by a later decision, Pan Malayan Insurance Corporation v. Court of Appeals,[12] in which we
On February 23, 1995, Seaboard, invoking its right of subrogation, filed a complaint against Skylanders, cited a number of exceptions to the rule laid down in Article 2207 of the Civil Code.[13] Under the first of these
petitioner and its authorized representative, petitioner All Transport Network, Inc. (ATN), praying for actual exceptions, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage
damages in the amount of P612,904.97 plus legal interest, attorneys fees and cost of suit. Petitioners impleaded from liability, the insurers right of subrogation is defeated.
Korean Airlines (KAL) as third-party defendant.
However, certain factual differences pointed out by private respondent Seaboard render this doctrine
While the case was pending, IFTIs treasurer, Mary Eileen Gozon accepted the proposal of KAL to settle inapplicable. In Manila Mahogany, the tortfeasor San Miguel Corporation paid the insured without knowing
consignees claim by paying the amount of US $522.20. On May 8, 1996, Felipe Acebedo, IFTIs representative that the insurer had already made such payment. KAL was not similarly situated, being fully aware of the prior
received a check from KAL and correspondingly signed a release form. payment made by the insurer to the consignee. Private respondent Seaboard asserts that, being in bad faith,
KAL should bear the consequences of its actions. [14]
On July 2, 1996, petitioners filed a motion to dismiss the case on the ground that private respondent Seaboards While Manila Mahogany is silent on whether the existence of good faith or bad faith on the tortfeasors part
demand had been paid or otherwise extinguished by KAL. affects the insurers right of subrogation, there exists a wealth of U.S. jurisprudence holding that whenever the
wrongdoer settles with the insured without the consent of the insurer and with knowledge of the insurers
On December 9, 1996, the trial court issued an order denying the motion to dismiss. Petitioners, private payment and right of subrogation, such right is not defeated by the settlement.[15] Because this doctrine is
respondent Skylanders and KAL filed separate motions for reconsideration. Prior to the resolution of these actually consistent with the facts of Mahogany and helps fill a slight gap left by our ruling in that case, we adopt
motions, the trial court allowed private respondent Skylanders to present evidence in a preliminary hearing on it now. The trial court correctly refused to dismiss the case. In that respect, therefore, the trial court did not
November 14, 1997, after which the court set a date to hear the presentation of rebuttal evidence. commit grave abuse of discretion which would justify certiorari.
Both the shop and the house were razed to the ground. The cause of the conflagration was never discovered.
We likewise find that no grave abuse of discretion was committed by public respondent when it granted private The National Bureau of Investigation found specimens from the burned structures negative for the presence of
respondent Skylanders motion for a preliminary hearing. inflammable substances.
Subsequently, private respondents collected P35,000.00 on the insurance on their house and the contents
In California and Hawaiian Sugar Company v. Pioneer Insurance and Surety Corporation,[16] we held that a thereof.
preliminary hearing was not mandatory but was rather subject to the discretion of the trial court. We found in On January 23, 1975, private respondents filed an action for damages against petitioner, praying for a judgment
that instance that the trial court had committed grave abuse of discretion in refusing the partys motion for a in their favor awarding P150,000.00 as actual damages, P50,000.00 as moral damages, P25,000.00 as exemplary
preliminary hearing on the ground that the case was premature, not having been submitted for arbitration. A damages, P20,000.00 as attorney's fees and costs. The Court of First Instance held for private respondents:
preliminary hearing could have settled the entire case, thereby helping decongest the dockets. It was therefore WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, and against the defendant:
the refusal to allow the most efficient and expeditious process which we condemned. 1. Ordering the defendant to pay to the plaintiffs the amount of P80,000.00 for damages suffered by said
In the instant case, we are not convinced that public respondents act of allowing a preliminary hearing plaintiffs for the loss of their house, with interest of 6% from the date of the filing of the Complaint on January
constituted grave abuse of discretion. 23, 1975, until fully paid;
2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00 for the loss of plaintiffs' furnitures,
In Land Bank of the Philippines v. the Court of Appeals[17] we discussed the meaning of grave abuse of religious images, silverwares, chinawares, jewelries, books, kitchen utensils, clothing and other valuables, with
discretion: interest of 6% from date of the filing of the Complaint on January 23, 1975, until fully paid;
3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as moral damages, P2,000.00 as
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of exemplary damages, and P5,000.00 as and by way of attorney's fees;
jurisdiction or, in other words, where the power is exercised in an arbitrary manner by reason of passion, 4. With costs against the defendant;
prejudice, or personal hostility, and it must be so patent or gross as to amount to an evasion of a positive duty 5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp. 1-2; Rollo, pp. 29-30.]
or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed the decision of the
The special civil action for certiorari is a remedy designed for the correction of errors of jurisdiction and not trial court but reduced the award of damages:
errors of judgment. The raison detre for the rule is when a court exercises its jurisdiction, an error committed WHEREFORE, the decision declaring the defendants liable is affirmed. The damages to be awarded to plaintiff
while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, should be reduced to P70,000.00 for the house and P50,000.00 for the furniture and other fixtures with legal
every error committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a interest from the date of the filing of the complaint until full payment thereof. [CA Decision, p. 7; Rollo, p. 35.]
void judgment. In such a scenario, the administration of justice would not survive. Hence, where the issue or A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution dated February 18,
question involved affects the wisdom or legal soundness of the decisionnot the jurisdiction of the court to 1980. Hence, petitioner filed the instant petition for review on February 22, 1980. After the comment and reply
render said decisionthe same is beyond the province of a special civil action for certiorari. (emphasis supplied) were filed, the Court resolved to deny the petition for lack of merit on June 11, 1980.
However, petitioner filed a motion for reconsideration, which was granted, and the petition was given due
course on September 12, 1980. After the parties filed their memoranda, the case was submitted for decision on
Public respondents order granting the preliminary hearing does not at all fit the description above. At worst, it January 21, 1981.
was an error in judgment which is beyond the domain of certiorari. Petitioner contends that the Court of Appeals erred:
1. In not deducting the sum of P35,000.00, which private respondents recovered on the insurance on their
WHEREFORE, in view of the foregoing, the petition is hereby DENIED. The decision and resolution of the Court house, from the award of damages.
of Appeals are AFFIRMED. 2. In awarding excessive and/or unproved damages.
Costs against petitioners. 3. In applying the doctrine of res ipsa loquitur to the facts of the instant case.
The pivotal issue in this case is the applicability of the common law doctrine of res ipsa loquitur, the issue of
SO ORDERED. damages being merely consequential. In view thereof, the errors assigned by petitioner shall be discussed in the
reverse order.
THIRD DIVISION 1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects to, may be stated as
G.R. No. L-52732 August 29, 1988 follows:
F.F. CRUZ and CO., INC., petitioner, Where the thing which caused the injury complained of is shown to be under the management of the defendant
vs. or his servants and the accident is such as in the ordinary course of things does not happen if those who have its
THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ ALMONTE MABLE and children management or control use proper care, it affords reasonable evidence, in the absence of explanation by the
DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME, ANTONIO, and BERNARDO all surnamed defendant, that the accident arose from want of care. [Africa v. Caltex (Phil.), Inc., G.R. No. L-12986, March 31,
MABLE, respondents. 1966, 16 SCRA 448.]
Luis S. Topacio for petitioner. Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a tank truck was being
Mauricio M. Monta for respondents. unloaded into an underground storage tank through a hose and the fire spread to and burned neighboring
houses, this Court, applying the doctrine of res ipsa loquitur, adjudged Caltex liable for the loss.
CORTES, J.: The facts of the case likewise call for the application of the doctrine, considering that in the normal course of
This petition to review the decision of the Court of Appeals puts in issue the application of the common law operations of a furniture manufacturing shop, combustible material such as wood chips, sawdust, paint, varnish
doctrine of res ipsa loquitur. and fuel and lubricants for machinery may be found thereon.
The essential facts of the case are not disputed. It must also be noted that negligence or want of care on the part of petitioner or its employees was not merely
The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the residence of presumed. The Court of Appeals found that petitioner failed to construct a firewall between its shop and the
private respondents. Sometime in August 1971, private respondent Gregorio Mable first approached Eric Cruz, residence of private respondents as required by a city ordinance; that the fire could have been caused by a
petitioner's plant manager, to request that a firewall be constructed between the shop and private heated motor or a lit cigarette; that gasoline and alcohol were used and stored in the shop; and that workers
respondents' residence. The request was repeated several times but they fell on deaf ears. In the early morning sometimes smoked inside the shop [CA Decision, p. 5; Rollo, p. 33.]
of September 6, 1974, fire broke out in petitioner's shop. Petitioner's employees, who slept in the shop Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a firewall in accordance
premises, tried to put out the fire, but their efforts proved futile. The fire spread to private respondents' house. with city ordinances would suffice to support a finding of negligence.
Even then the fire possibly would not have spread to the neighboring houses were it not for another negligent This petition for review assails the Decision[1] dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No.
omission on the part of defendants, namely, their failure to provide a concrete wall high enough to prevent the 60144, affirming the Decision[2] dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277.
flames from leaping over it. As it was the concrete wall was only 2-1/2 meters high, and beyond that height it Both decisions held that there was no violation of the Insurance Code and the respondents do not need license
consisted merely of galvanized iron sheets, which would predictably crumble and melt when subjected to as insurer and insurance agent/broker.
intense heat. Defendant's negligence, therefore, was not only with respect to the cause of the fire but also with The facts are undisputed.
respect to the spread thereof to the neighboring houses.[Africa v. Caltex (Phil.), Inc., supra; Emphasis supplied.] White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels
In the instant case, with more reason should petitioner be found guilty of negligence since it had failed to from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer
construct a firewall between its property and private respondents' residence which sufficiently complies with Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and
the pertinent city ordinances. The failure to comply with an ordinance providing for safety regulations had been Acceptance.[3] Pioneer also issued receipts evidencing payments for the coverage. When White Gold failed to
ruled by the Court as an act of negligence [Teague v. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.] fully pay its accounts, Steamship Mutual refused to renew the coverage.
The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for the loss sustained by Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
private respondents. latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
2. Since the amount of the loss sustained by private respondents constitutes a finding of fact, such finding by claiming that Steamship Mutual violated Sections 186[4] and 187[5]of the Insurance Code, while Pioneer violated
the Court of Appeals should not be disturbed by this Court [M.D. Transit & Taxi Co., Inc. v. Court of Appeals, G.R. Sections 299,[6] 300[7] and 301[8] in relation to Sections 302 and 303, thereof.
No. L-23882, February 17, 1968, 22 SCRA 559], more so when there is no showing of arbitrariness. The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to
In the instant case, both the CFI and the Court of Appeals were in agreement as to the value of private secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a
respondents' furniture and fixtures and personal effects lost in the fire (i.e. P50,000.00). With regard to the Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance
house, the Court of Appeals reduced the award to P70,000.00 from P80,000.00. Such cannot be categorized as agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance
arbitrary considering that the evidence shows that the house was built in 1951 for P40,000.00 and, according to business. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
private respondents, its reconstruction would cost P246,000.00. Considering the appreciation in value of real Steamship Mutual was already superfluous.
estate and the diminution of the real value of the peso, the valuation of the house at P70,000.00 at the time it The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court
was razed cannot be said to be excessive. distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held that Pioneer
3. While this Court finds that petitioner is liable for damages to private respondents as found by the Court of merely acted as a collection agent of Steamship Mutual.
Appeals, the fact that private respondents have been indemnified by their insurer in the amount of P35,000.00 In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
for the damage caused to their house and its contents has not escaped the attention of the Court. Hence, the FIRST ASSIGNMENT OF ERROR
Court holds that in accordance with Article 2207 of the Civil Code the amount of P35,000.00 should be deducted THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
from the amount awarded as damages. Said article provides: PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance PHILIPPINES.
company is subrogated to the rights of the insured against the wrongdoer or the person who violated the SECOND ASSIGNMENT OF ERROR
contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT
shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis supplied.] STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
The law is clear and needs no interpretation. Having been indemnified by their insurer, private respondents are THIRD ASSIGNMENT OF ERROR
only entitled to recover the deficiency from petitioner. THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN
On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it indemnified private CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
respondents from petitioner. This is the essence of its right to be subrogated to the rights of the insured, as FOURTH ASSIGNMENT OF ERROR
expressly provided in Article 2207. Upon payment of the loss incurred by the insured, the insurer is entitled to THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING]
be subrogated pro tanto to any right of action which the insured may have against the third person whose THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.[9]
negligence or wrongful act caused the loss [Fireman's Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L-27427, Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in
April 7, 1976, 70 SCRA 323.] the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
Under Article 2207, the real party in interest with regard to the indemnity received by the insured is the insurer The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to
[Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).] Whether or not the insurer should exercise the do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the
rights of the insured to which it had been subrogated lies solely within the former's sound discretion. Since the certifications issued by the Insurance Commission.
insurer is not a party to the case, its identity is not of record and no claim is made on its behalf, the private Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its
respondent's insurer has to claim his right to reimbursement of the P35,000.00 paid to the insured. assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals[10] as an
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED with the association composed of shipowners in general who band together for the specific purpose of providing
following modifications as to the damages awarded for the loss of private respondents' house, considering their insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of
receipt of P35,000.00 from their insurer: (1) the damages awarded for the loss of the house is reduced to third parties. It stresses that as a P & I Club, Steamship Mutuals primary purpose is to solicit and provide
P35,000.00; and (2) the right of the insurer to subrogation and thus seek reimbursement from petitioner for the protection and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its
P35,000.00 it had paid private respondents is recognized. agent.
SO ORDERED. 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
FIRST DIVISION protection against liabilities incidental to shipowning.[11]Respondents aver Hyopsung is inapplicable in this case
[G.R. No. 154514. July 28, 2005] because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION AND Is Steamship Mutual engaged in the insurance business?
THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents. Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or transacting an
DECISION insurance business. These are:
QUISUMBING, J.: (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; G.R. No. 76452 July 26, 1994
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES, petitioners,
of an insurance business within the meaning of this Code; vs.
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON MONTILLA PATERNO,
to evade the provisions of this Code. JR., respondents.
... Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.
The same provision also provides, the fact that no profit is derived from the making of insurance contracts, Oscar Z. Benares for private respondent.
agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude
the existence of an insurance business.[12] QUIASON, J.:
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, with preliminary
act required to be performed, and the exact nature of the agreement in the light of the occurrence, injunction or temporary restraining order, to annul and set aside the Order dated November 6, 1986 of the
contingency, or circumstances under which the performance becomes requisite. It is not by what it is called.[13] Insurance Commissioner and the entire proceedings taken in I.C. Special Case No. 1-86.
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify We grant the petition.
another against loss, damage or liability arising from an unknown or contingent event.[14] The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April 17,
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses 1986, to respondent Commissioner, alleging certain problems encountered by agents, supervisors, managers
incident to a marine adventure.[15] Section 99[16] of the Insurance Code enumerates the coverage of marine and public consumers of the Philippine American Life Insurance Company (Philamlife) as a result of certain
insurance. practices by said company.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in his
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund capacity as Philamlife's president, to comment on respondent Paterno's letter.
from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that private
to their interest.[17] Additionally, mutual insurance associations, or clubs, provide three types of coverage, respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts, dates, figures,
namely, protection and indemnity, war risks, and defense costs.[18] provisions of law, rules and regulations, and all other pertinent data which are necessary to enable him to
A P & I Club is a form of insurance against third party liability, where the third party is anyone other than the P prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance Commissioner to
& I Club and the members.[19] By definition then, Steamship Mutual as a P & I Club is a mutual insurance private respondent for his comments thereon.
association engaged in the marine insurance business. On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that his
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a hearing thereon
authority mandated by Section 187[20] of the Insurance Code. It maintains a resident agent in the Philippines to be conducted.
solicit insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his claim that
Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business here, private respondent's letter of May 16, 1986 did not supply the information he needed to enable him to answer
Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission. the letter-complaint.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of the
insurance company is allowed to engage in the insurance business without a license or a certificate of authority Contract of Agency complained of by private respondent.
from the Insurance Commission.[21] In said hearing, private respondent was required by respondent Commissioner to specify the provisions of the
Does Pioneer, as agent/broker of Steamship Mutual, need a special license? agency contract which he claimed to be illegal.
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration[22] issued by On August 4, private respondent submitted a letter of specification to respondent Commissioner dated July 31,
the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate 1986, reiterating his letter of April 17, 1986 and praying that the provisions on charges and fees stated in the
of authority[23] issued by the same agency. However, a Certification from the Commission states that Pioneer Contract of Agency executed between Philamlife and its agents, as well as the implementing provisions as
does not have a separate license to be an agent/broker of Steamship Mutual.[24] published in the agents' handbook, agency bulletins and circulars, be declared as null and void. He also asked
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance that the amounts of such charges and fees already deducted and collected by Philamlife in connection
agent for Steamship Mutual. Section 299 of the Insurance Code clearly states: therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from the date when they
SEC. 299 . . . were deducted.
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's letter of July
applications for insurance, or receive for services in obtaining insurance, any commission or other 31, 1986, and requested his answer thereto.
compensation from any insurance company doing business in the Philippines or any agent thereof, without first Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:
procuring a license so to act from the Commissioner, which must be renewed annually on the first day of (1) Private respondent's letter of August 11, 1986 does not contain any of the particular information which
January, or within six months thereafter. . . Philamlife was seeking from him and which he promised to submit.
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its directors and officers. (2) That since the Commission's quasi-judicial power was being invoked with regard to the complaint, private
Regrettably, we are not the forum for these issues. respondent must file a verified formal complaint before any further proceedings.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings on his
affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The complaint.
Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, and July 31, 1986.
ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive
respectively. The petitioners prayer for the revocation of Pioneers Certificate of Authority and removal of its Assistant to the President, asked that respondent Commission first rule on the questions of the jurisdiction of
directors and officers, is DENIED. Costs against respondents. the Insurance Commissioner over the subject matter of the letters-complaint and the legal standing of private
SO ORDERED. respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the case on November 5, 1986.
FIRST DIVISION On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is premature because: under the membership certificates it has issued to its members, where the amount of any such loss, damage or
(1) No complaint sufficient in form and contents has been filed; liability, excluding interest, costs and attorney's fees, being claimed or sued upon any kind of insurance, bond,
(2) No summons has been issued nor received by the respondent De los Reyes, and hence, no jurisdiction has reinsurance contract, or membership certificate does not exceed in any single claim one hundred thousand
been acquired over his person; pesos.
(3) No answer has been filed, and hence, the hearing scheduled on November 5, 1986 in the Subpoena/Notice, A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is limited by
and wherein the respondent is required to appear, is premature and lacks legal basis. law "to claims and complaints involving any loss, damage or liability for which an insurer may be answerable
II. The Insurance Commission has no jurisdiction over; under any kind of policy or contract of insurance, . . ." Hence, this power does not cover the relationship
(1) the subject matter or nature of the action; and affecting the insurance company and its agents but is limited to adjudicating claims and complaints filed by the
(2) over the parties involved (Rollo, p. 102). insured against the insurance company.
In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The dispositive While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the Insurance Code,
portion of said Order reads: the provisions of said Chapter speak only of the licensing requirements and limitations imposed on insurance
NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the fact that the agents and brokers.
instant case is an informal administrative litigation falling outside the operation of the aforecited memorandum The Insurance Code does not have provisions governing the relations between insurance companies and their
circular but cognizable by this Commission, the hearing officer, in open session ruled as it is hereby ruled to agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-judicial powers, assume
deny the Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109). jurisdiction over controversies between the insurance companies and their agents.
Hence, this petition. We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989),
II and Investment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA 904 (1962), that
The main issue to be resolved is whether or not the resolution of the legality of the Contract of Agency falls an insurance company may have two classes of agents who sell its insurance policies: (1) salaried employees
within the jurisdiction of the Insurance Commissioner. who keep definite hours and work under the control and supervision of the company; and (2) registered
Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the representatives, who work on commission basis.
complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of the Under the first category, the relationship between the insurance company and its agents is governed by the
Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the Commissioner has Contract of Employment and the provisions of the Labor Code, while under the second category, the same is
authority to nullify the alleged illegal provisions of the Contract of Agency. governed by the Contract of Agency and the provisions of the Civil Code on the Agency. Disputes involving the
III latter are cognizable by the regular courts.
The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance Commission is SET
Code, to wit: ASIDE.
The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies SO ORDERED.
and other insurance matters, mutual benefit associations and trusts for charitable uses are faithfully executed
and to perform the duties imposed upon him by this Code, . . . SPECIAL FIRST DIVISION
On the other hand, Section 415 provides: G.R. No. 167330 September 18, 2009
In addition to the administrative sanctions provided elsewhere in this Code, the Insurance Commissioner is PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
hereby authorized, at his discretion, to impose upon insurance companies, their directors and/or officers and/or vs.
agents, for any willful failure or refusal to comply with, or violation of any provision of this Code, or any order, COMMISSIONER OF INTERNAL REVENUE, Respondent.
instruction, regulation or ruling of the Insurance Commissioner, or any commission of irregularities, and/or RESOLUTION
conducting business in an unsafe and unsound manner as may be determined by the the Insurance CORONA, J.:
Commissioner, the following: ARTICLE II
(a) fines not in excess of five hundred pesos a day; and Declaration of Principles and State Policies
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents. Section 15. The State shall protect and promote the right to health of the people and instill health
A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to consciousness among them.
regulate the business of insurance, which is defined as follows: ARTICLE XIII
(2) The term "doing an insurance business" or "transacting an insurance business," within the meaning of this Social Justice and Human Rights
Code, shall include Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall
(a) making or proposing to make, as insurer, any insurance contract; endeavor to make essential goods, health and other social services available to all the people at affordable cost.
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely There shall be priority for the needs of the underprivileged sick, elderly, disabled, women, and children. The
incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a State shall endeavor to provide free medical care to paupers.1
reinsurance business, specifically recognized as constituting the doing of an insurance business within the For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10,
meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.2
in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2]; Emphasis supplied). We recall the facts of this case, as follows:
Since the contract of agency entered into between Philamlife and its agents is not included within the meaning Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a
of an insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same prepaid group practice health care delivery system or a health maintenance organization to take care of the sick
to the Insurance Commissioner. Expressio unius est exclusio alterius. and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial
With regard to private respondent's contention that the quasi-judicial power of the Insurance Commissioner responsibilities of the organization." Individuals enrolled in its health care programs pay an annual membership
under Section 416 of the Insurance Code applies in his case, we likewise rule in the negative. Section 416 of the fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed
Code in pertinent part, provides: physicians, specialists and other professional technical staff participating in the group practice health delivery
The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or system at a hospital or clinic owned, operated or accredited by it.
liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for which xxx xxx xxx
such insurer may be liable under a contract of suretyship, or for which a reinsurer may be used under any
contract or reinsurance it may have entered into, or for which a mutual benefit association may be held liable
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8,
letter and the corresponding assessment notices demanding the payment of deficiency taxes, including 2009.
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18. xxxx In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement 94807(also known as the "Tax Amnesty Act of 2007") by fully paying the amount of ₱5,127,149.08 representing
with the members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx 5% of its net worth as of the year ending December 31, 2005.8
xxx xxx xxx We find merit in petitioner’s motion for reconsideration.
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30,
protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the 1987.9 It is engaged in the dispensation of the following medical services to individuals who enter into health
deficiency VAT and DST assessments. care agreements with it:
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read: Preventive medical services such as periodic monitoring of health problems, family planning counseling,
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is consultation and advices on diet, exercise and other healthy habits, and immunization;
hereby ORDERED to PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87 inclusive of 25% count, and the like and
surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Curative medical services which pertain to the performing of other remedial and therapeutic processes in the
Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment event of an injury or sickness on the part of the enrolled member.10
against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year
said DST deficiency tax. basis. The medical services are dispensed to enrolled members in a hospital or clinic owned, operated or
SO ORDERED. accredited by petitioner, through physicians, medical and dental practitioners under contract with it. It
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. negotiates with such health care practitioners regarding payment schemes, financing and other procedures for
He claimed that petitioner’s health care agreement was a contract of insurance subject to DST under Section the delivery of health services. Except in cases of emergency, the professional services are to be provided only
185 of the 1997 Tax Code. by petitioner's physicians, i.e. those directly employed by it11 or whose services are contracted by it.12 Petitioner
On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in the also provides hospital services such as room and board accommodation, laboratory services, operating rooms,
nature of a non-life insurance contract subject to DST. x-ray facilities and general nursing care.13 If and when a member avails of the benefits under the agreement,
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it petitioner pays the participating physicians and other health care providers for the services rendered, at pre-
cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered agreed rates.14
petitioner to desist from collecting the same is REVERSED and SET ASIDE. To avail of petitioner’s health care programs, the individual members are required to sign and execute a
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary standard health care agreement embodying the terms and conditions for the provision of the health care
Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum services. The same agreement contains the various health care services that can be engaged by the enrolled
from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the medical
paid. service offered, the enrolled member may actually make use of the health care services being offered by
SO ORDERED. petitioner at any time.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case. Health Maintenance Organizations Are Not Engaged In The Insurance Business
xxx xxx xxx We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held that its agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the
petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a privilege, opportunity or facility used in the transaction of the business.15
contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is,
CA.4We also ruled that petitioner’s contention that it is a health maintenance organization (HMO) and not an to determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the
insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries issue of whether or not it is liable for DST on its health care agreements.16
under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner
an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business. are meritorious.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
for reconsideration, asserting the following arguments: Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person,
in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an association or company or corporation transacting the business of accident, fidelity, employer’s liability, plate,
insurance company. glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA’s disposition inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of
that health care services are not in the nature of an insurance business. the duties of any office or position, for the doing or not doing of anything therein specified, and on all
(c) Section 185 should be strictly construed. obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city,
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light municipality, or other public body or organization, and on all obligations guaranteeing the title to any real
of the amendments made in the DST law in 2002. estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not those corporation, there shall be collected a documentary stamp tax of fifty centavos (₱0.50) on each four pesos
contemplated under Section 185. (₱4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health insurance is not It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall
covered by Section 185. be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185. renders every word operative is preferred over that which makes some words idle and nugatory.17 This principle
(h) The June 12, 2008 decision should only apply prospectively. is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years. to the whole of the statute – its every word.18
Therefore, the questioned assessments on the DST are now rendered moot and academic.6
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, That an incidental element of risk distribution or assumption may be present should not outweigh all other
namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the factors. If attention is focused only on that feature, the line between insurance or indemnity and other types of
maker should be transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, legal arrangement and economic function becomes faint, if not extinct. This is especially true when the contract
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire is for the sale of goods or services on contingency. But obviously it was not the purpose of the insurance
insurance). statutes to regulate all arrangements for assumption or distribution of risk. That view would cause them to
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is engulf practically all contracts, particularly conditional sales and contingent service agreements. The fallacy is in
"an entity that provides, offers or arranges for coverage of designated health services needed by plan members looking only at the risk element, to the exclusion of all others present or their subordination to it. The
for a fixed prepaid premium."19 The payments do not vary with the extent, frequency or type of services question turns, not on whether risk is involved or assumed, but on whether that or something else to which it
provided. is related in the particular plan is its principal object purpose.24 (Emphasis supplied)
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of
years? We rule that it was not. operation as a whole of the corporation, it was service rather than indemnity which stood as its principal
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an purpose.
insurance business" or "transacting an insurance business:" There is another and more compelling reason for holding that the service is not engaged in the insurance
a) making or proposing to make, as insurer, any insurance contract; business. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental its status. The question, more broadly, is whether, looking at the plan of operation as a whole, ‘service’ rather
to any other legitimate business or activity of the surety; than ‘indemnity’ is its principal object and purpose. Certainly the objects and purposes of the corporation
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing organized and maintained by the California physicians have a wide scope in the field of social service. Probably
of an insurance business within the meaning of this Code; there is no more impelling need than that of adequate medical care on a voluntary, low-cost basis for persons
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed of small income. The medical profession unitedly is endeavoring to meet that need. Unquestionably this is
to evade the provisions of this Code. ‘service’ of a high order and not ‘indemnity.’26 (Emphasis supplied)
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance American courts have pointed out that the main difference between an HMO and an insurance company is that
contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not HMOs undertake to provide or arrange for the provision of medical services through participating physicians
be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a
insurance business. pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,21 have clear on this point:
determined that HMOs are not in the insurance business. One test that they have applied is whether the The basic distinction between medical service corporations and ordinary health and accident insurers is that the
assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal former undertake to provide prepaid medical services through participating physicians, thus relieving
object and purpose of the organization or whether they are merely incidental to its business. If these are the subscribers of any further financial burden, while the latter only undertake to indemnify an insured for medical
principal objectives, the business is that of insurance. But if they are merely incidental and service is the expenses up to, but not beyond, the schedule of rates contained in the policy.
principal purpose, then the business is not insurance. xxx xxx xxx
Applying the "principal object and purpose test,"22 there is significant American case law supporting the The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who
argument that a corporation (such as an HMO, whether or not organized for profit), whose main object is to will render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the
provide the members of a group with health services, is not engaged in the insurance business. medical service corporation’s plan, not only will the subscribers be deprived of the protection which they
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the District of might reasonably have expected would be provided, but the corporation will, in effect, be doing business
Columbia Circuit held that Group Health Association should not be considered as engaged in insurance activities solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject
since it was created primarily for the distribution of health care services rather than the assumption of to the more stringent financial requirements of the General Insurance Laws….
insurance risk. A participating provider of health care services is one who agrees in writing to render health care services to or
xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from for persons covered by a contract issued by health service corporation in return for which the health service
illness or accident more truly they constitute the quantity purchase of well-rounded, continuous medical service corporation agrees to make payment directly to the participating provider.28 (Emphasis supplied)
by its members. xxx The functions of such an organization are not identical with those of insurance or Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business
indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the consequences of to provide medical services as needed, with payment made directly to the provider of these services.29 In short,
its descent, not with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the
the daily routine of living. Hazard is predominant. On the other hand, the cooperative is concerned principally member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
with getting service rendered to its members and doing so at lower prices made possible by quantity By the same token, any indemnification resulting from the payment for services rendered in case of emergency
purchasing and economies in operation. Its primary purpose is to reduce the cost rather than the risk of by non-participating health providers would still be incidental to petitioner’s purpose of providing and arranging
medical care; to broaden the service to the individual in kind and quantity; to enlarge the number receiving it; for health care services and does not transform it into an insurer. To fulfill its obligations to its members under
to regularize it as an everyday incident of living, like purchasing food and clothing or oil and gas, rather than the agreements, petitioner is required to set up a system and the facilities for the delivery of such medical
merely protecting against the financial loss caused by extraordinary and unusual occurrences, such as death, services. This indubitably shows that indemnification is not its sole object.
disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended
and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, the to keep members from developing medical conditions or diseases.30 As an HMO, it is its obligation to maintain
distinctive features of the cooperative are the rendering of service, its extension, the bringing of physician the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize
and patient together, the preventive features, the regularization of service as well as payment, the thepossibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to
substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to
except incidentally to these features, the indemnification for cost after the services is rendered. Except the provide the health and medical services needed to prevent such loss or damage.31
last, these are not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
substantial difference between contracting in this way for the rendering of service, even on the contingency its curative medical services), but these are incidental to the principal activity of providing them medical care.
that it be needed, and contracting merely to stand its cost when or after it is rendered. The "insurance-like" aspect of petitioner’s business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than insurance services, it cannot be We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the
considered as being in the insurance business. nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a
we are not saying that petitioner’s operations are identical in every respect to those of the HMOs or health member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally
providers which were parties to those cases. What we are stating is that, for the purpose of determining what interpreted in favor of the member and strictly against the HMO. For this reason, we reconsider our ruling
"doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not that Blue Cross and Philamcareare applicable here.
its mere components. This is of course only prudent and appropriate, taking into account the burdensome and Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes
strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent
Moreover, we are also not unmindful that there are other American authorities who have found particular event. An insurance contract exists where the following elements concur:
HMOs to be actually engaged in insurance activities.32 1. The insured has an insurable interest;
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the 2. The insured is subject to a risk of loss by the happening of the designed peril;
fact that it is not supervised by the Insurance Commission but by the Department of Health.33 In fact, in a letter 3. The insurer assumes the risk;
dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
insurance business. This determination of the commissioner must be accorded great weight. It is well-settled bearing a similar risk and
that the interpretation of an administrative agency which is tasked to implement a statute is accorded great 5. In consideration of the insurer’s promise, the insured pays a premium.41
respect and ordinarily controls the interpretation of laws by the courts. The reason behind this rule was Do the agreements between petitioner and its members possess all these elements? They do not.
explained in Nestle Philippines, Inc. v. Court of Appeals:34 First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of
modernizing society and the establishment of diverse administrative agencies for addressing and satisfying insurance:
those needs; it also relates to the accumulation of experience and growth of specialized capabilities by the It does not necessarily follow however, that a contract containing all the four elements mentioned above would
administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. be an insurance contract. The primary purpose of the parties in making the contract may negate the existence
Commissioner of Customs,35 the Court stressed that executive officials are presumed to have familiarized of an insurance contract. For example, a law firm which enters into contracts with clients whereby in
themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an consideration of periodical payments, it promises to represent such clients in all suits for or against them, is not
independent, conscientious and competent expert opinion thereon. The courts give much weight to the engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. On
government agency officials charged with the implementation of the law, their competence, expertness, the other hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its own
experience and informed judgment, and the fact that they frequently are the drafters of the law they expense to defend a physician against all suits for damages for malpractice is one of insurance, and the
interpret.36 corporation will be deemed as engaged in the business of insurance. Unlike the lawyer’s retainer contract, the
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997 essential purpose of such a contract is not to render personal services, but to indemnify against loss and
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity damage resulting from the defense of actions for malpractice.42 (Emphasis supplied)
for loss, damage, or liability…." In our decision dated June 12, 2008, we ruled that petitioner’s health care Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To
agreements are contracts of indemnity and are therefore insurance contracts: begin with, there is no loss, damage or liability on the part of the member that should be indemnified by
It is … incorrect to say that the health care agreement is not based on loss or damage because, under the said petitioner as an HMO. Under the agreement, the member pays petitioner a predetermined consideration in
agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related exchange for the hospital, medical and professional services rendered by the petitioner’s physician or affiliated
expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the physician to him. In case of availment by a member of the benefits under the agreement, petitioner does not
monetary expense or liability a member will incur in case of illness or injury. reimburse or indemnify the member as the latter does not pay any third party. Instead, it is the petitioner who
Under the health care agreement, the rendition of hospital, medical and professional services to the member in pays the participating physicians and other health care providers for the services rendered at pre-agreed rates.
case of sickness, injury or emergency or his availment of so-called "out-patient services" (including physical The member does not make any such payment.
examination, x-ray and laboratory tests, medical consultations, vaccine administration and family planning In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of
counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to any third party-provider of medical services which might in turn necessitate indemnification
the member to liability, he would be entitled to indemnification by petitioner. from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or
the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each already paid in advance at a pre-agreed price under the agreements.
member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying Third. According to the agreement, a member can take advantage of the bulk of the benefits
for the costs of the services even if they are significantly and substantially more than what the member has anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of administration as well as family planning counseling, even in the absence of any peril, loss or damage on his or
persons bearing a similar risk, that is, among all the other members of the health care program. This is her part.
insurance.37 Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-
We reconsider. We shall quote once again the pertinent portion of Section 185: participating physician or hospital. However, this is only a very minor part of the list of services available. The
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or assumption of the expense by petitioner is not confined to the happening of a contingency but includes
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, incidents even in the absence of illness or injury.
association or company or corporation transacting the business of accident, fidelity, employer’s liability, plate, In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, contracts called for the defendant to partially reimburse a subscriber for treatment received from a non-
inland, and fire insurance), xxxx (Emphasis supplied) designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined that "the
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of
the taxing authority.38 This is because taxation is a destructive power which interferes with the personal and prepayment for such services."44 Since indemnity of the insured was not the focal point of the agreement but
property rights of the people and takes from them a portion of their property for the support of the the extension of medical services to the member at an affordable cost, it did not partake of the nature of a
government.39 Hence, tax laws may not be extended by implication beyond the clear import of their language, contract of insurance.
nor their operation enlarged so as to embrace matters not specifically provided.40
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is industry pioneer, having set foot in the Philippines as early as 1965 and having been formally incorporated in
sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total
of financial risk. Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) enrollment of more than 2 million.49
from the usual insurance contracts. We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various
it might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in
insurance companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims fact already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care
might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did
made relative to the insured.45 not. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of
However, assuming that petitioner’s commitment to provide medical services to its members can be construed HMOs at a time they were already known as such, belies any legislative intent to impose it on them. As a matter
as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the
insurance contract because petitioner’s objective is to provide medical services at reduced cost, not to business as an HMO.50
distribute risk like an insurer. Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that
In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an health care agreements were never, at any time, recognized as insurance contracts or deemed engaged in the
insurance contract within the context of our Insurance Code. business of insurance within the context of the provision.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs The Power To Tax Is Not The Power To Destroy
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in
agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. The text of Section 185 its very nature no limits, so that security against its abuse is to be found only in the responsibility of the
came into U.S. law as early as 1904 when HMOs and health care agreements were not even in existence in this legislature which imposes the tax on the constituency who is to pay it.51 So potent indeed is the power that it
jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal was once opined that "the power to tax involves the power to destroy."52
Revenue Law of 1904")46enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net worth of
tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit: ₱259 million.54 Respondent never disputed these assertions. Given the realities on the ground, imposing the
ARTICLE XI DST on petitioner would be highly oppressive. It is not the purpose of the government to throttle private
Stamp Taxes on Specified Objects business. On the contrary, the government ought to encourage private enterprise.55 Petitioner, just like any
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or concern organized for a lawful economic activity, has a right to maintain a legitimate business.56 As aptly held
certificates of stock and indebtedness, and other documents, instruments, matters, and things mentioned and in Roxas, et al. v. CTA, et al.:57
described in this section, or for or in respect to the vellum, parchment, or paper upon which such instrument, The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
matters, or things or any of them shall be written or printed by any person or persons who shall make, sign, or caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
issue the same, on and after January first, nineteen hundred and five, the several taxes following: uniformly, lest the tax collector kill the "hen that lays the golden egg."58
xxx xxx xxx Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or because of a tax imposition may be an acceptable consequence but killing the business of an entity is another
liability made or renewed by any person, association, company, or corporation transacting the business of matter and should not be allowed. It is counter-productive and ultimately subversive of the nation’s thrust
accident, fidelity, employer’s liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other towards a better economy which will ultimately benefit the majority of our people.59
branch of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis supplied) Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997
the laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 became moot and academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid
was completely reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive ₱5,127,149.08 representing 5% of its net worth as of the year ended December 31, 2005 and complied with all
enumeration of items subject to DST was thus retained. requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), taxes as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the 1997
Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
provision became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917. prior years.61
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified Far from disagreeing with petitioner, respondent manifested in its memorandum:
all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of
DST rate was increased but the provision remained substantially the same. the tax involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of liabilities arising in 2005 and the preceding years.
1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as
the DST rate was again increased.1avvphi1 discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered admission, however, is not meant to preclude a revocation of the amnesty granted in case it is found to have
as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became been granted under circumstances amounting to tax fraud under Section 10 of said amnesty law.62 (Emphasis
Section 185. supplied)
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under
tax. RA 9480.63 There is no other conclusion to draw than that petitioner’s liability for DST for the taxable years 1996
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
subject legal provision was retained as the present Section 185. In 2004, amendments to the DST provisions Is The Court Bound By A Minute Resolution In Another Case?
were introduced by RA 924348 but Section 185 was untouched. Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare Health Systems
Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health is not an insurance contract for purposes of the DST.
Care Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the PUNO, C.J., Chairperson,
appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 CARPIO,
by minute resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a - v e r s u s - CORONA,
health care agreement is not an insurance contract. AZCUNA and
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the LEONARDO-DE CASTRO, JJ.
merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a
result, our ruling in that case has already become final.67 When a minute resolution denies or dismisses a COMMISSIONER OF
petition for failure to comply with formal and substantive requirements, the challenged decision, together with INTERNAL REVENUE,
its findings of fact and legal conclusions, are deemed sustained.68 But what is its effect on other cases? Respondent. Promulgated:
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res June 12, 2008
judicata.69 However, if other parties or another subject matter (even with the same parties and issues) is
involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the Court noted that a x-----------------------------------------x
previous case, CIR v. Baier-Nickel71 involving the same parties and the same issues, was previously disposed of
by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the DECISION
Court ruled that the previous case "ha(d) no bearing" on the latter case because the two cases involved CORONA, J.:
different subject matters as they were concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary
constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)?
and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions,
not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16, 2004
unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute decision[1] in CA-G.R. SP No. 70479. Petitioner Philippine Health Care Providers, Inc. believes otherwise and
resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks assails the CA decision in this petition for review under Rule 45 of the Rules of Court.
of a decision.73Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding
precedent in a decision duly signed by the members of the Court and certified by the Chief Justice. Petitioner is a domestic corporation whose primary purpose is [t]o establish, maintain, conduct and operate a
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its prepaid group practice health care delivery system or a health maintenance organization to take care of the sick
health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial
minute resolution in that case (which is not even binding precedent) in its favor. Nonetheless, in view of the responsibilities of the organization.[2] Individuals enrolled in its health care programs pay an annual membership
reasons already discussed, this does not detract in any way from the fact that petitioner’s health care fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed
agreements are not subject to DST. physicians, specialists and other professional technical staff participating in the group practice health delivery
A Final Note system at a hospital or clinic owned, operated or accredited by it.[3]
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and
there was never any legislative intent to impose the same on HMOs like petitioner, the same should not be The pertinent part of petitioners membership or health care agreement[4] provides:
arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost
which the average wage earner can afford. HMOs arrange, organize and manage health care treatment in the
furtherance of the goal of providing a more efficient and inexpensive health care system made possible by VII BENEFITS
quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service system
(wherein individuals are charged a fee each time they receive medical services), including the ability to control Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for reimbursement] of this
costs. They protect their members from exposure to the high cost of hospitalization and other medical expenses Agreement, Members shall have the following Benefits under this Agreement:
brought about by a fluctuating economy. Accordingly, they play an important role in society as partners of the
State in achieving its constitutional mandate of providing its citizens with affordable health services. In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which requires
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition will elevate confinement in a participating Hospital[,] the services or benefits stated below shall be provided to the Member
the cost of health care services. This will in turn necessitate an increase in the membership fees, resulting in free of charge, but in no case shall [petitioner] be liable to pay more than P75,000.00 in benefits with respect to
either placing health services beyond the reach of the ordinary wage earner or driving the industry to the anyone sickness, injury or related causes. If a member has exhausted such maximum benefits with respect to a
ground. At the end of the day, neither side wins, considering the indispensability of the services offered by particular sickness, injury or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee.
HMOs. It is[,] however, understood that the payment by [petitioner] of the said maximum in In-Patient Benefits to any
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals one member shall preclude a subsequent payment of benefits to such member in respect of an unrelated
in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against sickness, injury or related causes happening during the remainder of his membership term.
petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax. (a) Room and Board
No costs. (b) Services of physician and/or surgeon or specialist
SO ORDERED. (c) Use of operating room and recovery room
(d) Standard Nursing Services
FIRST DIVISION (e) Drugs and Medication for use in the hospital except those which are used to dissolve blood clots in the
vascular systems (i.e., trombolytic agents)
PHILIPPINE HEALTH CARE G.R. No. 167330 (f) Anesthesia and its administration
PROVIDERS, INC., (g) Dressings, plaster casts and other miscellaneous supplies
Petitioner, Present: (h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and diagnostic examinations
Condition for in-Patient Care. The provision of the services or benefits mentioned in the immediately preceding and other medical services related to the emergency treatment of the patient.][5] Provided, however, that in no
paragraph shall be subject to the following conditions: case shall the total amount payable by [petitioner] for said Emergency, inclusive of hospital bill and professional
(a) The Hospital Confinement must be approved by [petitioners] Physician, Participating Physician or fees, exceed P75,000.00.
[petitioners] Medical Coordinator in that Hospital prior to confinement. If the Member received care in a non-participating hospital, [petitioner] shall reimburse [him][6] 80% of the
(b) The confinement shall be in a Participating Hospital and the accommodation shall be in accordance with the hospital bill or the amount of P5,000.00[,] whichever is lesser, and 50% of the professional fees of non-
Member[]s benefit classification. participating physicians based on [petitioners] schedule of fees provided that the total amount[,] inclusive of
(c) Professional services shall be provided only by the [petitioners] Physicians or Participating Physicians. hospital bills and professional fee shall not exceed P5,000.00.
(d) If discharge from the Hospital has been authorized by [petitioners] attending Physician or Participating
Physician and the Member shall fail or refuse to do so, [petitioner] shall not be responsible for any charges
incurred after discharge has been authorized. On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand letter and
the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and
Out-Patient Services. A Member is entitled free of charge to the following services or benefits which shall be interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. The assessment
rendered or administered either in [petitioners] Clinic or in a Participating Hospital under the direction or represented the following:
supervision of [petitioners] Physician, Participating Physician or [petitioners] Medical Coordinator.
Value Added Tax (VAT) DST
(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at 1996 P 45,767,596.23 P 55,746,352.19
[petitioners] designated hospital/clinic, to wit: 1997 54,738,434.03__ 68,450,258.73__
(i) Taking a medical history P 100,506,030.26 P 124,196,610.92
(ii) Physical examination
(iii) Chest x-ray The deficiency DST assessment was imposed on petitioners health care agreement with the members of its
(iv) Stool examination health care program pursuant to Section 185 of the 1997 Tax Code which provides:
(v) Complete Blood Count
(vi) Urinalysis Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or bonds or
(vii) Fasting Blood Sugar (FBS) obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person,
(viii) SGPT association or company or corporation transacting the business of accident, fidelity, employers liability, plate,
(ix) Creatinine glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
(x) Uric Acid inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of
(xi) Resting Electrocardiogram the duties of any office or position, for the doing or not doing of anything therein specified, and on all
(xii) Pap Smear (Optional for women 40 years and above) obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city,
(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination. municipality, or other public body or organization, and on all obligations guaranteeing the title to any real
The following tests are to be done as part of the Member[]s Annual check-up program at [petitioners] estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or
designated clinic, to wit: corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four
1) Routine Physical Examination pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the
3) Chest X-ray protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the
4) Urinalysis deficiency VAT and DST assessments.
5) Fecalysis
(c) Preventive Health Care, which shall include: On April 5, 2002, the CTA rendered a decision,[7] the dispositive portion of which read:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is
(iii) Consultation and advices on diet, exercise and other healthy habits hereby ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%
(iv) Immunization but excluding drugs for vaccines used interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25%
(d) Out-Patient Care, which shall include: surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT
(i) Consultation, including specialist evaluation Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment
(ii) Treatment of injury or illness against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the
(iii) Necessary x-ray and laboratory examination said DST deficiency tax.
(iv) Emergency medicines needed for the immediate
relief of symptoms SO ORDERED.[8]
(v) Minor surgery not requiring confinement
Emergency Care. Subject to the conditions and limitations in this Agreement and those specified below, a Respondent appealed the CTA decision to the CA[9] insofar as it cancelled the DST assessment. He claimed that
Member is entitled to receive emergency care [in case of emergency. For this purpose, all hospitals and all petitioners health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax
attending physician(s) in the Emergency Room automatically become accredited. In participating hospitals, the Code.
member shall be entitled to the following services free of charge: (a) doctors fees, (b) emergency room fees, (c)
medicines used for immediate relief and during treatment, (d) oxygen, intravenous fluids and whole blood and
On August 16, 2004, the CA rendered its decision.[10] It held that petitioners health care agreement was in the persons bearing a similar risk, that is, among all the other members of the health care program. This is
nature of a non-life insurance contract subject to DST: insurance.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it Petitioners health care agreement is substantially similar to that involved in Philamcare Health Systems, Inc. v.
cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered CA.[18] The health care agreement in that case entitled the subscriber to avail of the hospitalization benefits,
petitioner to desist from collecting the same is REVERSED and SET ASIDE. whether ordinary or emergency, listed therein. It also provided for out-patient benefits such as annual physical
examinations, preventive health care and other out-patient services. This Court ruled in Philamcare Health
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Systems, Inc.:
Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum
from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully [T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own health. The
paid. health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.
SO ORDERED.[11] Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated
contingency, the health care provider must pay for the same to the extent agreed upon under the
Petitioner moved for reconsideration but the CA denied it. Hence, this petition. contract.[19] (emphasis supplied)
Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the
provision on a prepaid basis of medical services, including medical check-up, that are not based on loss or Similarly, the insurable interest of every member of petitioners health care program in obtaining the health care
damage. Petitioner also insists that it is not engaged in the insurance business. It is a health maintenance agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs
organization regulated by the Department of Health, not an insurance company under the jurisdiction of the hospital, medical or any other expense arising from sickness, injury or other stipulated contingency to the
Insurance Commission. For these reasons, petitioner asserts that the health care agreement is not subject to extent agreed upon under the contract.
DST.
Petitioners contention that it is a health maintenance organization and not an insurance company is irrelevant.
We do not agree. Contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance
contracts.[20]
The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments.[12] It is an excise upon Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility
the privilege, opportunity, or facility offered at exchanges for the transaction of the business.[13] In offered at exchanges for the transaction of the business.[21] It is an excise on the facilities used in the
particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing transaction of the business, separate and apart from the business itself.[22]
any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of
indemnity for loss, damage, or liability. WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is AFFIRMED.
Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency documentary
indemnify another against loss, damage or liability arising from an unknown or contingent event.[14] The event stamp tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum
insured against must be designated in the contract and must either be unknown or contingent.[15] from January 27, 2000 until full payment thereof.
Petitioners health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Costs against petitioner.
Healthcare, Inc. v. Olivares,[16] this Court ruled that a health care agreement is in the nature of a non-life
insurance policy.
Contrary to petitioners claim, its health care agreement is not a contract for the provision of medical services.
Petitioner does not actually provide medical or hospital services but merely arranges for the same[17] and pays SO ORDERED.
for them up to the stipulated maximum amount of coverage. It is also incorrect to say that the health care
agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability EN BANC
and indemnifies its member for hospital, medical and related expenses (such as professional fees of G.R. No. L-2294 May 25, 1951
physicians). The term loss or damage is broad enough to cover the monetary expense or liability a member will FILIPINAS COMPAÑIA DE SEGUROS, petitioner,
incur in case of illness or injury. vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in Ramirez and Ortigas for petitioner.
case of sickness, injury or emergency or his availment of so-called out-patient services (including physical Ewald Huenefeld for respondent.
examination, x-ray and laboratory tests, medical consultations, vaccine administration and family planning PARAS, C.J.:
counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of
the member to liability, he would be entitled to indemnification by petitioner. 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.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were
the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods
member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed
for the costs of the services even if they are significantly and substantially more than what the member has at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had
prepaid. Petitioner does not bear the costs alone but distributes or spreads them out among a large group of 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 already held that China Banking Corporation came within the meaning of the word "enemy" as used in the
and the petitioner being a company under American jurisdiction when said policy was issued on October 1, Trading with the Enemy Acts of civilized countries not only because it was incorporated under the laws of an
1941. The petitioner, however, in pursuance of the order of the Director of Bureau of Financing, Philippine enemy country but because it was controlled by enemies.
Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943. The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an
recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured becomes a public enemy.
insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent with a
ceased to be effective because of the outbreak of the war between the United States and Germany on state of war is prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading
December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the with the enemy; all acts which will increase, or tend to increase, its income or resources; all acts of voluntary
Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the submission to it; or receiving its protection; also all acts concerning the transmission of money or goods; and all
action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of contracts relating thereto are thereby nullified. It further prohibits insurance upon trade with or by the enemy,
First Instance of Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the upon the life or lives of aliens engaged in service with the enemy; this for the reason that the subjects of one
decision of the Court of Appeals. country cannot be permitted to lend their assistance to protect by insurance the commerce or property of
The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to
enemy when the United States declared war against Germany, relying on English and American cases which cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should
held that a corporation is a citizen of the country or state by and under the laws of which it was created or destroy its enemy's property and repay in insurance the value of what has been so destroyed, or that it should
organized. It rejected the theory that nationality of private corporation is determine by the character or in such manner increase the resources of the enemy, or render it aid, and the commencement of war
citizenship of its controlling stockholders. determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been lawful.
There is no question that majority of the stockholders of the respondent corporation were German subjects. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter
This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)
war between the United States and Germany. The English and American cases relied upon by the Court of In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it
Appeals have lost their force in view of the latest decision of the Supreme Court of the United States in is plain that when the parties become alien enemies, the contractual tie is broken and the contractual rights of
Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)
148-153, in which the controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its
presented to the Second International Conference of the Legal Profession held at the Hague (Netherlands) in favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and
August. 1948 the following enlightening passages appear: since the insured goods were burned after December 10, 1941, and during the war, the respondent was not
Since World War I, the determination of enemy nationality of corporations has been discussion in many entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the
enemies, namely managed under the influence of individuals or corporations, themselves considered as period covered by its policy from December 11, 1941, should be returned by the petitioner.
enemies. It was the English courts which first the Daimler case applied this new concept of "piercing the The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the
corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established after policy in question became null and void upon the declaration of war between the United States and Germany
the First World War. on December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its
The United States of America did not adopt the control test during the First World War. Courts refused to conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if
recognized the concept whereby American-registered corporations could be considered as enemies and thus the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling
subject to domestic legislation and administrative measures regarding enemy property. on the validity of the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by
World War II revived the problem again. It was known that German and other enemy interests were cloaked by the appellee was not unjust but the exercise of its lawful right to claim for and received the payment of the
domestic corporation structure. It was not only by legal ownership of shares that a material influence could be insurance policy," and that the ruling of the Bureau of Financing to the effect that "the appellee was entitled to
exercised on the management of the corporation but also by long term loans and other factual situations. For payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the
that reason, legislation on enemy property enacted in various countries during World War II adopted by Bureau of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the
statutory provisions to the control test and determined, to various degrees, the incidents of control. Court instruction of the Japanese Military Administration, as may be seen from the following: "In view of the findings
decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy and conclusion of this office contained in its decision on Administrative Case dated February 9, 1943 copy of
character of domestic corporation. which was sent to your office and the concurrence therein of the Financial Department of the Japanese Military
The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of
did other legislations the applications of the control test and again, as in World War I, courts refused to apply Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of
this concept whereby the enemy character of an American or neutral-registered corporation is determined by crossed check." (Emphasis supplied.)
the enemy nationality of the controlling stockholders. It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this
Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of
treatment of foreign-owned property in the United States allowed to large degree the determination of enemy P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.
interest in domestic corporations and thus the application of the control test. Court decisions sanctioned such Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
administrative practice enacted under the First War Powers Act of 1941, and more recently, on December 8, petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency,
1947, the Supreme Court of the United States definitely approved of the control theory. In Clark vs. Uebersee that should be returned by the petitioner for the unexpired term of the policy in question, beginning December
Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court: 11, 1941. Without costs. So ordered.
"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 EN BANC
those innocent fronts. . . . The power of seizure and vesting was extended to all property of any foreign country G.R. No. L-1669 August 31, 1950
or national so that no innocent appearing device could become a Trojan horse." PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed vs.
decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x The lower court absolved the defendant. Hence this appeal.
G.R. No. L-1670 August 31, 1950 The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of
AGUSTINA PERALTA, plaintiff-appellant, extensive and exhaustive memoranda including those of amici curiae. The matter has received careful
vs. consideration, inasmuch as it affects the interest of thousands of policy-holders and the obligations of many
ASIA LIFE INSURANCE COMPANY, defendant-appellee. insurance companies operating in this country.
Mariano Lozada for appellant Constantino. Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil
Cachero and Madarang for appellant Peralta. Code.2Act No. 2427 was largely copied from the Civil Code of California.3 And this court has heretofore
Dewitt, Perkins and Ponce Enrile for appellee. announced its intention to supplement the statutory laws with general principles prevailing on the subject in
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae. the United State.4
BENGZON, J.: In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of
These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such
the beneficiary in a life insurance policy may recover the amount thereof although the insured died after reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The rate
repeatedly failing to pay the stipulated premiums, such failure having been caused by the last war in the Pacific. of premium is measured by the character of the risk assumed. The insurance company, for a comparatively
The facts are these: small consideration, undertakes to guarantee the insured against loss or damage, upon the terms and
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore,
Company (a foreign corporation incorporated under the laws of Delaware, U.S.A.), issued on September 27, may justly insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of
1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty the policy, he is not entitled for the loss. The terms of the policy constitute the measure of the insurer's liability,
years. The first premium covered the period up to September 26, 1942. The plaintiff Paz Lopez de Constantino and in order to recover the insured must show himself within those terms; and if it appears that the contract
was regularly appointed beneficiary. The policy contained these stipulations, among others: has been terminated by a violation, on the part of the insured, of its conditions, then there can be no right of
This POLICY OF INSURANCE is issued in consideration of the written and printed application here for a copy of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right of
which is attached hereto and is hereby made a part hereof made a part hereof, and of the payment in advance recovery."
during the lifetime and good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium
pesos Philippine currency1 and of the payment of a like amount upon each twenty-seventh day of September payments are due in advance and any unpunctuality in making any such payment shall cause this policy to
hereafter during the term of Twenty years or until the prior death of the Insured. (Emphasis supplied.) lapse." Wherefore, it would seem that pursuant to the express terms of the policy, non-payment of premium
xxx xxx xxx produces its avoidance.
All premium payments are due in advance and any unpunctuality in making any such payment shall cause this The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the parties and
policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace should be enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It
of 31 days.) tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain case is attempted to
After that first payment, no further premiums were paid. The insured died on September 22, 1944. be taken without the operation of a clear, reasonable and material obligation of the contract.
It is admitted that the defendant, being an American corporation , had to close its branch office in Manila by Mack vs.Rochester German Ins. Co., 106 N.Y., 560, 564. (Young vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)
reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945. In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint had not been paid within the time fixed, since by its express terms, non-payment of any premium when due or
Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz within the thirty-day period of grace, ipso facto caused the policy to lapse. This goes to show that although we
and Agustina Peralta, for the sum of P3,000. The annual premium stipulated in the policy was regularly paid take the view that insurance policies should be conserved5 and should not lightly be thrown out, still we do not
from August 1, 1938, up to and including September 30, 1941. Effective August 1, 1941, the mode of payment hesitate to enforce the agreement of the parties.
of premiums was changed from annual to quarterly, so that quarterly premiums were paid, the last having been Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an
delivered on November 18, 1941, said payment covering the period up to January 31, 1942. No further insurance contract according to its meaning. (45 C.J.S., p. 150.)
payments were handed to the insurer. Upon the Japanese occupation, the insured and the insurer became Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence
separated by the lines of war, and it was impossible and illegal for them to deal with each other. Because the of war, it should be excused and should not cause the forfeiture of the policy.
insured had borrowed on the policy an mount of P234.00 in January, 1941, the cash surrender value of the Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-
policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February payment of premiums occasioned by war, the American cases may be divided into three groups, according as
16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant's they support the so-called Connecticut Rule, the New York Rule, or the United States Rule.
refusal, grounded on non-payment of the premiums. The first holds the view that "there are two elements in the consideration for which the annual premium is paid
The policy provides in part: — First, the mere protection for the year, and second, the privilege of renewing the contract for each
This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of succeeding year by paying the premium for that year at the time agreed upon. According to this view of the
which is attached hereto and is hereby made apart hereof, and of the payment in advance during the life time contract, the payment of premiums is a condition precedent, the non-performance would be illegal necessarily
and good health of the Insured of the annual premium of Two hundred and 43/100 pesos Philippine defeats the right to renew the contract."
currency and of the payment of a like amount upon each first day of August hereafter during the term of Twenty The second rule, apparently followed by the greater number of decisions, hold that "war between states in
years or until the prior death of either of the Insured. (Emphasis supplied.) which the parties reside merely suspends the contracts of the life insurance, and that, upon tender of all
xxx xxx xxx premiums due by the insured or his representatives after the war has terminated, the contract revives and
All premium payments are due in advance and any unpunctuality in making any such payment shall cause this becomes fully operative."
policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace The United States rule declares that the contract is not merely suspended, but is abrogated by reason of non-
of days.) . . . payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk
due for premiums in arrears. They allege that non-payment of the premiums was caused by the closing of carried during the years when the policy had been in force. This rule was announced in the well-known
defendant's offices in Manila during the Japanese occupation and the impossible circumstances created by war. Statham6 case which, in the opinion of Professor Vance, is the correct rule.7
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance The appellants and some amici curiae contend that the New York rule should be applied here. The appellee and
with the contract of the parties and the law applicable to the situation. 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 that it is payable annually or semi-annually, or at any other stipulated time, does not of itself constitute a
regard we have always entertained for decisions of the Supreme Court of the United States, we cannot resist promise to pay, either express or implied. In case of non-payment the policy is forfeited, except so far as the
the conviction that the reasons expounded in its decision of the Statham case are logically and judicially sound. forfeiture may be saved by agreement, by waiver, estoppel, or by statute. The payment of the premium is
Like the instant case, the policy involved in the Statham decision specifies that non-payment on time shall cause entirely optional, while a debt may be enforced at law, and the fact that the premium is agreed to be paid is
the policy to cease and determine. Reasoning out that punctual payments were essential, the court said: without force, in the absence of an unqualified and absolute agreement to pay a specified sum at some certain
. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the time. In the ordinary policy there is no promise to pay, but it is optional with the insured whether he will
calculations of the insurance company are based on the hypothesis of prompt payments. They not only continue the policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
calculate on the receipt of the premiums when due, but on compounding interest upon them. It is on this basis It is well settled that a contract of insurance is sui generis. While the insured by an observance of the conditions
that they are enabled to offer assurance at the favorable rates they do. Forfeiture for non-payment is an may hold the insurer to his contract, the latter has not the power or right to compel the insured to maintain the
necessary means of protecting themselves from embarrassment. Unless it were enforceable, the business contract relation with it longer than he chooses. Whether the insured will continue it or not is optional with him.
would be thrown into confusion. It is like the forfeiture of shares in mining enterprises, and all other hazardous There being no obligation to pay for the premium, they did not constitute a debt. (Noble vs. Southern States
undertakings. There must be power to cut-off unprofitable members, or the success of the whole scheme is M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis ours.)
endangered. The insured parties are associates in a great scheme. This associated relation exists whether the It should be noted that the parties contracted not only for peacetime conditions but also for times of war,
company be a mutual one or not. Each is interested in the engagements of all; for out of the co-existence of because the policies contained provisions applicable expressly to wartime days. The logical inference, therefore,
many risks arises the law of average, which underlies the whole business. An essential feature of this scheme is is that the parties contemplated uninterrupted operation of the contract even if armed conflict should ensue.
the mathematical calculations referred to, on which the premiums and amounts assured are based. And these For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the
calculations, again, are based on the assumption of average mortality, and of prompt payments and compound Statham decision, it could now be relaxed and even disregarded. It is stated "that the relaxation of rules relating
interest thereon. Delinquency cannot be tolerated nor redeemed, except at the option of the company. This has to insurance is in direct proportion to the growth of the business. If there were only 100 men, for example,
always been the understanding and the practice in this department of business. Some companies, it is true, insured by a Company or a mutual Association, the death of one will distribute the insurance proceeds among
accord a grace of thirty days, or other fixed period, within which the premium in arrear may be paid, on certain the remaining 99 policy-holders. Because the loss which each survivor will bear will be relatively great, death
conditions of continued good health, etc. But this is a matter of stipulation, or of discretion, on the part of the from certain agreed or specified causes may be deemed not a compensable loss. But if the policy-holders of the
particular company. When no stipulation exists, it is the general understanding that time is material, and that Company or Association should be 1,000,000 individuals, it is clear that the death of one of them will not
the forfeiture is absolute if the premium be not paid. The extraordinary and even desperate efforts sometimes seriously prejudice each one of the 999,999 surviving insured. The loss to be borne by each individual will be
made, when an insured person is in extremes to meet a premium coming due, demonstrates the common view relatively small."
of this matter. The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be considered
The case, therefore, is one in which time is material and of the essence and of the essence of the contract. Non- will not be the death of one but the death of ten thousand, since the proportion of 1 to 100 should be
payment at the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts maintained. And certainly such losses for 10,000 deaths will not be "relatively small."
cannot with safety vary the stipulation of the parties by introducing equities for the relief of the insured against After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a vital
their own negligence. defense of insurance companies that since the very beginning, said Act no. 2427 expressly preserved it, by
In another part of the decision, the United States Supreme Court considers and rejects what is, in effect, the providing that after the policy shall have been in force for two years, it shall become incontestable (i.e. the
New York theory in the following words and phrases: insurer shall have no defense) except for fraud, non-payment of premiums, and military or naval service in time
The truth is, that the doctrine of the revival of contracts suspended during the war is one based on of war (sec. 184 [b], Insurance Act). And when Congress recently amended this section (Rep. Act No. 171), the
considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust or defense of fraud was eliminated, while the defense of nonpayment of premiums was preserved. Thus the
inequitable to revive. fundamental character of the undertaking to pay premiums and the high importance of the defense of non-
In the case of Life insurance, besides the materiality of time in the performance of the contract, another strong payment thereof, was specifically recognized.
reason exists why the policy should not be revived. The parties do not stand on equal ground in reference to In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a
such a revival. It would operate most unjustly against the company. The business of insurance is founded on the variation of the Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no
law of average; that of life insurance eminently so. The average rate of mortality is the basis on which it rests. reserve value, and that the equitable values of the second had been practically returned to the insured in the
By spreading their risks over a large number of cases, the companies calculate on this average with reasonable form of loan and advance for premium.
certainty and safety. Anything that interferes with it deranges the security of the business. If every policy lapsed For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies in
by reason of the war should be revived, and all the back premiums should be paid, the companies would have question, is hereby affirmed, without costs.
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 EN BANC
than to pay arrearages on the old. To enforce a revival of the bad cases, whilst the company necessarily lose the G.R. No. L-4197 March 20, 1952
cases which are desirable, would be manifestly unjust. An insured person, as before stated, does not stand FIDELA SALES DE GONZAGA, plaintiff-appellant,
isolated and alone. His case is connected with and co-related to the cases of all others insured by the same vs.
company. The nature of the business, as a whole, must be looked at to understand the general equities of the THE CROWN LIFE INSURANCE COMPANY, defendant-appellee.
parties. Beltran and Anuat for appellant.
The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as alleged, Nicodemus L. Dasig for appellee.
the consequences of war should not prejudice the insured, neither should they bear down on the insurer. TUASON, J.:
Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured to pay This is one more case wherein the question of the effects of war in a pre-war insurance contracts is presented.
premiums was excused during the war owing to impossibility of performance, and that consequently no Reduced to their absolute essentials, the facts are that, on September 26, 1939 the Crown Life Insurance Co.,
unfavorable consequences should follow from such failure. whose home office is in Toronto, Canada, issued to Ramon Gonzaga through its branch office in Manila a 20-
The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the first, is year endowment policy for P15,000. The insured paid in due time the agreed yearly premium, which was
not an obligation of the insured, so much so that it is not a debt enforceable by action of the insurer. P591.00, for three consecutive years, the last payment having been effected on September 6, 1941. On account
Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which the of the outbreak of war, no premiums were paid after that date, although the policy was continued in force up to
insurer can maintain an action against insured; nor is its settlement governed by the strict rule controlling June 12, 1943, under its automatic premium loan clause.
payments of debts. So, the court in a Kentucky case declares, in the opinion, that it is not a debt. . . . The fact
Ramon Gonzaga died on June 27, 1945 from an accident. Unsuccessful in her attempt to collect the amount of Gonzaga admittedly come to Manila on a visit every now and then, and could have, without difficulty, contacted
the policy his widow and the beneficiary named in the policy began this suit on December 18, 1947. The any of those people.
defendant set up the defense that the policy had lapsed by non-payment of the stipulated premiums of the For another thing, the policy carried a clause providing for its reinstatement under certain conditions within
stipulated dates. And the trial court in a carefully written decision ruled against the plaintiff. three years from the date of lapse on application of the insured. The present policy lapsed on June 12, 1943, the
Since this action was decided by the court below, several cases analogous to this one in its main characteristics Company's Manila branch was reopened on May 1, 1945 and resumed regular business through the same
have come up before this Court. (Paz Lopez de Constantino vs. Asia Life Insurance Company,1 G.R. No. L-1669; general agents at the Wilson Building on Juan Luna Street, Manila and Ramon Gonzaga died on June 27, 1945. It
Agustina Peralta vs. Asia Life Insurance Company,2 G.R. No. L-1670; James McGuire vs. The Manufacturers Life is undoubted that Gonzaga knew all that. It is not denied that he was an employee in the United States Navy,
Insurance Co;3 G. R. No. L-3581; National Leather Co; Inc. vs. The United States Life Insurance Co.,4 G.R. No. L- that the united States Navy had an office in the same Wilson Building, and that he came at least twice a month
2668; Victoria Hidalgo Vda. de Carrero, et al., vs. The Manufacturers Life Insurance Co.,5 G. R. No. L-3032; and to that office for his salary.
West Coast Life Insurance Co. vs. Patricio H. Gubagaras,6 G. R. No. L-2810) In Paz Lopez de Constantinos. Asia Both in law and in reason, the action was properly dismissed and the appealed decision is hereby affirmed, with
Life Insurance Company, G. R. No. L-1669, the leading case, the Court speaking through Mr. Justice Bengzon, costs.
adopted this doctrine:
The case, therefore, is one in which time is material and of the essence of the contract. Non-payment at the day EN BANC
involves absolute forfeiture is such be the terms of the contract, as is the case here. Courts cannot with safety G.R. No. L-7667 November 28, 1955
vary the stipulation of the parties by introducing equities for the relief of the insured against their own CHERIE PALILEO, plaintiff-appellee,
negligence. vs.
The aforecited decisions are decisive of the proposition that non-payment of premiums by reason of war puts BEATRIZ COSIO, defendant-appellant.
an end to the contract. Claro M. Recto for appellant.
There is, however, one aspect of the case at bar not raised before and upon which the plaintiff rest her case in Bengson, Villegas, Jr. and Villar for appellee.
the alternative. BAUTISTA ANGELO, J.:
In its answer, the defendant alleged that "through its General Agents, Hanson, Orth and Stevenson, Inc., it had Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that (1) the
its offices open in the city of Manila during the Japanese occupation in the Philippines." Taking advantage of this transaction entered into between them on December 18, 1951 be declared as one of loan, and the document
allegation, and ignoring her own in her complaint — that "for the whole duration of the (war) and from thence executed covering the transaction as one of equitable mortgage to secure the payment of said loan; (2) the
to sometime thereafter, that is, in October, 1945, . . . defendant closed its business in the Islands, and had defendant be ordered to credit to the plaintiff with the necessary amount from the sum received by the
absolutely no agency or representative here to represent it, with authority to collect premiums from the defendant from the Associated Insurance & Surety Co., Inc. and to apply the same to the payment of plaintiff's
Insured." — the plaintiff asserts that it was the defendant's duty to notify her husbands of its postal address obligation thus considering it as fully paid; and (3) the defendant be ordered to pay to plaintiff the difference
during the war, and that its failure to do so excused deliquency in the payment of the premiums. The plaintiff between the alleged indebtedness of plaintiff and the sum received by defendant from the aforementioned
cites the provision of the contract which states that "all premiums subsequent to the first year are payable to insurance company, plus the sum allegedly paid to defendant as interest on the alleged indebtedness.
the Company's authorized cashier at the place stated in the fourth page hereof, or at such other place instead On December 19, 1952, defendant filed her answer setting up as special defense that the transaction entered
thereof as may be designated from time to time by noticed to the Company mailed to the Insured at his last into between the plaintiff and defendant is one of sale with option to repurchase but that the period for
known post office address." repurchase had expired without plaintiff having returned the price agreed upon as a result of which the
The evidence on this feature of the case reveals that, the defendant being an enemy corporation, its offices, ownership of the property had become consolidated in the defendant. Defendant also set up certain
which were housed at the Chaco building when the hostilities broke out, were ordered closed by the Japanese counterclaims which involve a total amount of P4,900.
Military authorities in January 1942, and the officers of Hanson, Orth and Stevenson, Inc., defendants general On April 7, 1953, the case was set for trial on the merits, but because of several postponements asked by the
agents, being American citizens, were entered. In addition, on August 25 the Japanese administration issued parties, the same has to be set anew for trial on January 12, 1954. On this date, neither the defendant nor her
"Instruction No. 71" by which enemy alien insurance companies were expressly prohibited from doing business. counsel appeared, even if the latter had been notified of the postponement almost a month earlier, and so the
But before that instruction was promulgated Hanson, Orth and Stevenson, had opened in the house of one of court received the evidence of the plaintiff. On January 18, 1954, the court, having in view the evidence
their Filipino employees on Gonzales Street in Ermita an office with skeleton force, all Filipinos, for the purpose presented, rendered judgment granting the relief prayed for in the complaint.
of receiving premiums from their policy holders; and notwithstanding the prohibition that office was not closed. On February 2, 1954, the original counsel for the defendant was substituted and the new counsel immediately
In the face of the Japanese Military decrees, which found sanctions in international law, the failure of the moved that the judgment be set aside on the ground that, due to mistake or excusable negligence, defendant
defendant or its Filipino employees to advise the insured of the defendant's new address did not work as a was unable to present her evidence and the decision was contrary to law, and this motion having been denied,
forfeiture of the right to have the premiums satisfied promptly. While clandestine transactions between the defendant took the present appeal.
parties during the war might be binding, it was not obligatory on the insurer, and it was well-nigh risky for its The important issue to be determined in this appeal is whether the lower court committed a grave abuse of
employees, to send out notices to its widely scattered policy holders, what with the postal service under the discretion in not reopening the case to give defendant an opportunity to present her evidence considering that
control and administration of the ruthless occupants. the failure of her original counsel to appear was due to mistake or execusable negligence which ordinary
There is no duty when the law forbids; and there is no obligation without corresponding right enjoyed by prudence could not have guarded against.
another. The insured had no right to demand that the defendant maintain an office during the war, and the The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953, said counsel
defendant was not obligated to do so. Had the defendant not opened any office at all during the occupation and showed interest in the early disposal of this case by moving the court to have it set for trial. The first date set
stopped receiving premiums absolutely, the plaintiff's position would not have been any better or worse for the was April 7, 1953, but no hearing was had on that date because plaintiff had moved to postpone it. The case
closing and suspension of the defendant's business. Had the plaintiff's husband actually tendered his premiums was next set for hearing on April 28, 1953, but on motion again of plaintiff, the hearing was transferred to
and the defendant's employees rejected them, he could not have insisted on the payment as a matter of right. November 6, 1953. Then, upon petition of defendant, the trial had to be moved to December 15, 1953, and
Stated otherwise, the defendant's opening of an interim office partook of the nature of the privilege to the because Atty. Guerrero could not appear on said date because of a case he had in Cebu City, the hearing was
policy holders to keep their policies operative rather than a duty to them under the contract. postponed to January 18, 1954.
Of this privilege, incidentally, Gonzaga could have taken advantage if he was really intent on preserving his And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero was appointed
policy. Uncontroverted or admitted is the fact that the defendant's agent, through whom he had been insured, Undersecretary of Foreign Affairs. It is now contended that the appointment was so sudden and unexpected
lived in Malabon, Rizal, and was his close acquaintance; and so were some of the defendant's Filipino that Atty. Guerrero, after taking his oath, was unable to wind up his private cases or make any preparation at
employees who handled the insurance business of Hanson, Orth and Stevenson during the occupation. And all. It is averred that "The days that followed his appointment were very busy days for defendant's former
counsel. There was an immediate need for clearing the backlog of official business, including the reorganization
of the Department of Foreign Affairs and our Foreign Service, and more importantly, he had to assist the independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is
Secretary of Foreign Affairs in negotiations of national importance like the Japanese reparations, and the entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim against
revision of the trade agreement with the United States, that, Atty. Guerrero had to work as much as fourteen the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid." (Vance on
hours daily . . . Because of all these unavoidable confusion that followed in the wake of Atty. Guerrero's sudden Insurance, 2d ed., p. 654)Or, stated in another way, "the mortgagee may insure his interest in the property
and unexpected appointment, the trial of this case scheduled for January 18, 1954 escaped his memory, and independently of the mortgagor. In that event, upon the destruction of the property the insurance money paid
consequently, Atty. Guerrero and the defendant were unable to appear when the case was called for trial." to the mortgagee will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt
These reasons, — it is intimated, — constitute excusable negligence which ordinary prudence could not have remains unchanged. The mortgagee, however, is not allowed to retain his claim against the mortgagor, but it
guarded against and should have been considered by the trial court as sufficient justification to grant the passes by subrogation to the insurer, to the extent of the insurance money paid." (Vance on Insurance, 3rd ed.,
petition of defendant for a rehearing. pp. 772-773) This is the same rule upheld by this Court in a case that arose in this jurisdiction. In the case
It is a well-settled rule that the granting of a motion to set aside a judgment or order on the ground of mistake mentioned, an insurance contract was taken out by the mortgagee upon his own interest, it being stipulated
or excusable negligence is addressed to the sound discretion of the court (see Coombs vs. Santos, 24 Phil., 446; that the proceeds would be paid to him only and when the case came up for decision, this Court held that the
Daipan vs. Sigabu, 25, Phil., 184). And an order issued in the exercise of such discretion is ordinarily not to be mortgagee, in case of loss, may only recover upon the policy to the extent of his credit at the time of the loss. It
disturbed unless it is shown that the court has gravely abused such discretion. (See Tell vs. Tell, 48 Phil., 70; was declared that the mortgaged had no right of action against the mortgagee on the policy. (San Miguel
Macke vs. Camps, 5 Phil., 185; Calvo vs. De Gutierrez, 4 Phil., 203; Manzanares vs. Moreta, 38 Phil., 821; Brewery vs. Law Union, 40 Phil., 674.)
Salva vs. Palacio and Leuterio, 90 Phil., 731.) In denying the motion for reopening the trial court said: "After It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate interest
going over the same arguments, this Court is of the opinion, and so holds that the decision of this Court of at his own expense and for his own benefit, without any agreement with the mortgagor with respect thereto,
January 18, 1954 should not be disturbed." Considering the stature, ability and experience of counsel Leon Ma. the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds applied in
Guerrero, and the fact that he was given almost one month notice before the date set for trial, we are reduction of the mortgage debt" (19 R.C.L., p. 405), and that, furthermore, the mortgagee "has still a right to
persuaded to conclude that the trial court did not abuse its discretion in refusing to reconsider its decision. recover his whole debt of the mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden
Coming now to the merits of the case, we note that the lower court made the following findings: On December 9 Allen, 123; See also Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg.
18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the following conditions: (a) Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But
that plaintiff shall pay to defendant an interest in the amount of P250 a month; (b) that defendant shall deduct these authorities merely represent the minority view (See case note, 3 Lawyers' Report Annotated, new series,
from the loan certain obligations of plaintiff to third persons amounting to P4,550, plus the sum of P250 as p. 79). "The general rule and the weight of authority is, that the insurer is thereupon subrogated to the rights of
interest for the first month; and (c) that after making the above deductions, defendant shall deliver to plaintiff the mortgagee under the mortgage. This is put upon the analogy of the situation of the insurer to that of a
only the balance of the loan of P12,000. surety." (Jones on Mortgages, Vol. I, pp. 671-672.)
Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00 Considering the foregoing rules, it would appear that the lower court erred in declaring that the proceeds of the
corresponding to nine months from December 18, 1951, on the basis of P250.00 a month, which is more than insurance taken out by the defendant on the property mortgaged inured to the benefit of the plaintiff and in
the maximum interest authorized by law. To secure the payment of the aforesaid loan, defendant required ordering said defendant to deliver to the plaintiff the difference between her indebtedness and the amount of
plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to convey to insurance received by the defendant, for, in the light of the majority rule we have above enunciated, the correct
defendant, with right to repurchase, a two-story building of strong materials belonging to plaintiff. This solution should be that the proceeds of the insurance should be delivered to the defendant but that her claim
document did not express the true intention of the parties which was merely to place said property as security against the plaintiff should be considered assigned to the insurance company who is deemed subrogated to the
for the payment of the loan. rights of the defendant to the extent of the money paid as indemnity.
After the execution of the aforesaid document, defendant insured the building against fire with the Associated Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as
Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued in the name of follows:(1) the transaction had between the plaintiff and defendant as shown in Exhibit A is merely an equitable
defendant. The building was partly destroyed by fire and, after proper demand, defendant collected from the mortgage intended to secure the payment of the loan of P12,000;(2) that the proceeds of the insurance
insurance company an indemnity of P13,107.00. Plaintiff demanded from defendant that she be credited with amounting to P13,107.00 was properly collected by defendant who is not required to account for it to the
the necessary amount to pay her obligation out of the insurance proceeds but defendant refused to do so. And plaintiff; (3) that the collection of said insurance proceeds shall not be deemed to have compensated the
on the strength of these facts, the court rendered decision the dispositive part of which reads as follows: obligation of the plaintiff to the defendant, but bars the latter from claiming its payment from the former; and
Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff and defendant, as (4) defendant shall pay to the plaintiff the sum of P810.00 representing the overpayment made by plaintiff by
shown in Exhibit A, an equitable mortgage to secure the payment of the sum of P12,000 loaned by the way of interest on the loan. No pronouncement as to costs.
defendant to plaintiff; ordering the defendant to credit the sum of P13,107 received by the defendant from the
Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in the sum of P12,000.00 as
stated in the complaint, thus considering the agreement of December 18, 1951 between the herein plaintiff and EN BANC
defendant completely paid and leaving still a balance in the sum of P1,107 from the insurance collected by G.R. No. L-14300 January 19, 1920
defendant; that as plaintiff had paid to the defendant the sum of P2,250.00 for nine months as interest on the SAN MIGUEL BREWERY, ETC., plaintiff-appellee,
sum of P12,000 loaned to plaintiff and the legal interest allowed by law in this transaction does not exceed 12 vs.
per cent per annum, or the sum of P1,440 for one year, so the herein plaintiff and overpaid the sum of P810 to LAW UNION AND ROCK INSURANCE CO., (LTD.) ET AL., defendants-appellees.
the defendant, which this Court hereby likewise orders the said defendant to refund to herein plaintiff, plus the HENRY HARDING, defendant-appellant.
balance of P1,107 representing the difference of the sum loan of P12,000 and the collected insurance of Crossfield and O'Brien for appellant Harding.
P13,107 from the insurance company abovementioned to which the herein plaintiff is entitled to receive, and to Lawrence and Ross for appellee Law Union etc. Ins. Co.
pay the costs. Sanz and Luzuriaga for appellee "Filipinas, Compañia de Seguros."
The question that now arises is: Is the trial court justified in considering the obligation of plaintiff fully No appearance for the other appellee.
compensated by the insurance amount and in ordering defendant to refund to plaintiff the sum of P1,107 STREET, J.:
representing the difference of the loan of P12,000 and the sum of P13,107 collected by said defendant from the This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by the plaintiff, the
insurance company notwithstanding the fact that it was not proven that the insurance was taken for the benefit San Miguel Brewery, for the purpose of recovering upon two policies of insurance underwritten respectively by
of the mortgagor? Law Union and Rock Insurance Company (Ltd.), and the "Filipinas" Compania de Seguros, for the sum of P7,500
Is is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an each, insuring certain property which has been destroyed by fire. The plaintiff, the San Miguel Brewery, is
insurance taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee, named as the party assured in the two policies referred to, but it is alleged in the complaint that said company
was in reality interested in the property which was the subject of insurance in the character of a mortgage interest in property is the extent to which the insured might be damnified by loss or injury thereof" (sec. 16);
creditor only, and that the owner of said property upon the date the policies were issued was one D. P. Dunn while in the other it is stated that "the insurance shall be applied exclusively to the proper interest of the person
who was later succeeded as owner by one Henry Harding. Accordingly said Harding was made a defendant, as a in whose name it is made unless otherwise specified in the policy" (sec. 50).
person interested in the subject of the litigation. These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the ownership of the
The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two companies property had continued in him up to the time of the loss; and as regards Harding, an additional insuperable
named for the sum of P15,000, with interest and costs, and further that upon satisfaction of the balance of obstacle is found in the fact that the ownership of the property had been charged, prior to the loss, without any
P4,505.30 due to the plaintiff upon the mortgage debt, and upon the cancellation of the mortgage, the plaintiff corresponding change having been effected in the policy of insurance. In section 19 of the Insurance Act we find
be absolved from liability to the defendants or any of them. The peculiar form of the latter part of the prayer is it stated that "a change of interest in any part of a thing insured unaccompanied by a corresponding change of
evidently due to the design of the plaintiff to lay a foundation for Harding to recover the difference between the interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the
plaintiff's credit and the amount for which the property was insured. Accordingly, as was to be expected, interest in the insurance are vested in the same person." Again in section 55 it is declared that "the mere
Harding answered, admitting the material allegations of the complaint and claiming for himself the right to transfer of a thing insured does not transfer the policy, but suspends it until the same person becomes the
recover the difference between the plaintiff's mortgage credit and the face value of the policies. The two owner of both the policy and the thing insured."
insurance companies also answered, admitting in effect their liability to the San Miguel Brewery to the extent of Undoubtedly these policies of insurance might have been so framed as to have been "payable to the Sane
its mortgage credit, but denying liability to Harding on the ground that under the contracts of insurance the Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the continuance of
liability of the insurance companies was limited to the insurable interest of the plaintiff therein. Soon after the the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a clause would have
action was begun the insurance companies effected a settlement with the San Miguel Brewery by paying the proved an intention to insure the entire interest in the property, not merely the insurable interest of the San
full amount of the credit claimed by it, with the result that the litigation as between the original plaintiff and the Miguel Brewery, and would have shown exactly to whom the money, in case of loss, should be paid. But the
two insurance companies came to an end, leaving the action to be prosecuted to final judgement by the policies are not so written.
defendant Harding with respect to the balance claimed to be due to him upon the policies. It is easy to collect from the facts stated in the decision of the trial judge, no less than from the testimony of
Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of action whatever Brias, the manager of the San Miguel Brewery, that, as the insurance was written up, the obligation of the
against the companies and absolved them from liability without special finding as to costs. From this decision insurance companies was different from that contemplated by Dunn, at whose request the insurance was
the said Henry Harding has appealed. written, and Brias. In the contract of mortgage Dunn had agreed, at his own expense, to insure the mortgaged
The two insurance companies who are named as defendants do not dispute their liability to the San Miguel property for its full value and to indorse the policies in such manner as to authorize the Brewery Company to
Brewery, to the extent already stated, and the only question here under discussion is that of the liability of the receive the proceeds in case of loss and to retain such part thereof as might be necessary to satisfy the
insurance companies to Harding. It is therefore necessary to take account of such facts only as bear upon this remainder then due upon the mortgage debt. Instead, however, of effecting the insurance himself Dunn
aspect of the case. authorized and requested the Brewery Company to procure insurance on the property in the amount of
In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the property to which the P15,000 at Dunn's expense. The Brewery Company undertook to carry this mandate into effect, and it of course
insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of P10,000. In the contract became its duty to procure insurance of the character contemplated, that is, to have the policies so written as
of mortgage Dunn agreed to keep the property insured at his expense to the full amount of its value in to protect not only the insurable interest of the Brewery, but also the owner. Brias seems to have supposed that
companies to be selected by the Brewery Company and authorized the latter in case of loss to receive the the policies as written had this effect, but in this he was mistaken. It was certainly a hardship on the owner to
proceeds of the insurance and to retain such part as might be necessary to cover the mortgage debt. At the be required to pay the premiums upon P15,000 of insurance when he was receiving no benefit whatever except
same time, in order more conveniently to accomplish the end in view, Dunn authorized and requested the in protection to the extent of his indebtedness to the Brewery. The blame for the situation thus created rests,
Brewery Company to effect said insurance itself. Accordingly on the same date Antonio Brias, general manager however, with the Brewery rather than with the insurance companies, and there is nothing in the record to
of the Brewery, made a verbal application to the Law Union and Rock Insurance Company for insurance to the indicate that the insurance companies were requested to write insurance upon the insurable interest of the
extent of P15,000 upon said property. In reply to a question of the company's agent as to whether the Brewery owner or intended to make themselves liable to that extent.
was the owner of the property, he stated that the company was interested only as a mortgagee. No information If during the negotiations which resulted in the writing of this insurance, it had been agreed between the
was asked as to who was the owner of the property, and no information upon this point was given. contracting parties that the insurance should be so written as to protect not only the interest of the mortgagee
It seems that the insurance company to whom this application was directed did not want to carry more than but also the residuary interest of the owner, and the policies had been, by inadvertence, ignorance, or mistake
one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in a like amount to be written in the form in which they were issued, a court would have the power to reform the contracts and give
issued by the "Filipinas" Compania de Seguros. Both policies were issued in the name of the San Miguel Brewery effect to them in the sense in which the parties intended to be bound. But in order to justify this, it must be
as the assured, and contained no reference to any other interest in the property. Both policies contain the usual made clearly to appear that the minds of the contracting parties did actually meet in agreement and that they
clause requiring assignments to be approved and noted on the policy. The premiums were paid by the Brewery labored under some mutual error or mistake in respect to the expression of their purpose. Thus, in Bailey vs.
and charged to Dunn. A year later the policies were renewed, without change, the renewal premiums being American Central Insurance Co. (13 Fed., 250), it appeared that a mortgage desiring to insure his own insurable
paid by the Brewery, supposedly for the account of the owner. In the month of March of the year 1917 Dunn interest only, correctly stated his interest, and asked that the same be insured. The insurance company agreed
sold the insured property to the defendant Henry Harding, but not assignment of the insurance, or of the to accept the risk, but the policy was issued in the name of the owner, because of the mistaken belief of the
insurance policies, was at any time made to him. company's agent that the law required it to be so drawn. It was held that a court of equity had the power, at the
We agree with the trial court that no cause of action in Henry Harding against the insurance companies is show. suit of the mortgage, to reform the instrument and give judgment in his favor for the loss thereunder, although
He is not a party to the contracts of insurance and cannot directly maintain an action thereon. (Uy Tam and Uy it had been exactly as it was. Said the court: "If the applicant correctly states his interest and distinctly asks for
Yet vs.Leonard, 30 Phil. Rep., 471.) His claim is merely of an equitable and subsidiary nature and must be made an insurance thereon, and the agent of the insurer agrees to comply with his request, and assumes to decide
effective, if at all, through the San Miguel Brewery in whose name the contracts are written. Now the Brewery, upon the form of the policy to be written for that purpose, and by mistake of law adopts the wrong form, a
as mortgagee of the insured property, undoubtedly had an insurable interest therein; but it could not, in any court of equity will reform the instrument so as to make it insurance upon the interest named." (See
event, recover upon these policies an amount in excess of its mortgage credit. In this connection it will be also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78 Iowa, 334; 16 Am. St. Rep.,
remembered that Antonio Brias, upon making application for the insurance, informed the company with which 443; Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31 Conn., 517; Balen vs. Hanover Fire Insurance
the insurance was placed that the Brewery was interested only as a mortgagee. It would, therefore, be Co., 67 Mich., 179.)
impossible for the Brewery mortgage on the insured property. Similarly, in cases where the mortgage is by mistake described as owner, the court may grant reformation and
This conclusion is not only deducible from the principles governing the operation and effect of insurance permit a recovery by the mortgage in his character as such. (Dalton vs. Milwaukee etc. Insurance Co., 126 Iowa,
contracts in general but the point is clearly covered by the express provisions of sections 16 and 50 of the 377; Spare vs. Home Mutual Insurance Co., 17 Fed., 568.) In Thompson vs. Phoenix Insurance Co. (136 U.S., 287;
Insurance Act (Act No. 2427). In the first of the sections cited, it is declared that "the measure of an insurable 34 L. 3d., 408), it appeared that one Kearney made application to an insurance company for insurance on
certain property in his hands as receiver and it was understood between him and the company's agent that, in P392,130.50
case of loss, the proceeds of the policy should accrue to him and his successors as receiver and to others whom
it might concern. However, the policy, as issued, was so worded as to be payable only to him as receiver. In an The policy contained the following condition:
action brought on the policy by a successor of Kearney, it was alleged that the making of the contract in this 3. The insured shall give notice to the Company of any insurance or insurances already affected, or which may
form was due to inadvertence, accident, and mistake upon the part of both Kearney and the company. subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in
Said the court: process and/or inventories only hereby insured, and unless such notice be given and the particulars of such
If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the policy, the insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
plaintiff is entitled to have it reformed. Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this
In another case the same court said: policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance
We have before us a contract from which by mistake, material stipulations have been omitted, whereby the or insurances in force at the time of the loss or damage is not more than P200,000.00.
true intent and meaning of the parties are not fully or accurately expressed. There was a definite concluded On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco,
agreement as to insurance, which, in point of time, preceded the preparation and delivery of the policy, and this Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to file with
is demonstrated by legal and exact evidence, which removes all doubt as to the sense and undertaking of the the private respondent a claim under the policy. On 28 December 1990, the private respondent denied the
parties. In the agreement there has been a mutual mistake, caused chiefly by that contracting party who now claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by fire
seeks to limit the insurance to an interest in the property less than that agreed to be insured. The written insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the
agreement did not effect that which the parties intended. That a court of equity can afford relief in such a case, Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies indicate that the insured was "Messrs.
is, we think, well settled by the authorities. (Smell vs. Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L. ed., 52.) Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
But to justify the reformation of a contract, the proof must be of the most satisfactory character, and it must MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear
clearly appear that the contract failed to express the real agreement between the parties. (Philippine Sugar subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F 24758.4
Estates Development Company vs. Government of the Philippine Islands, 62 L. ed., 1177, reversing Government The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.
of Philippine Island vs. Philippine Sugar Estates Development Co., 30 Phil. Rep., 27.) The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case No.
In the case now before us the proof is entirely insufficient to authorize the application of the doctrine state in 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for attorney's fees and costs
the foregoing cases, for it is by means clear from the testimony of Brias — and none other was offered — that of litigation. He attached as Annex "AM"6 thereof his letter of 18 January 1991 which asked for the
the parties intended for the policy to cover the risk of the owner in addition to that of the mortgagee. It results reconsideration of the denial. He admitted in the said letter that at the time he obtained the private
that the defendant Harding is not entitled to relief in any aspect of the case. respondent's fire insurance policy he knew that the two policies issued by the PFIC were already in existence;
The judgment is therefore affirmed, with costs against the appellant. So ordered. however, he had no knowledge of the provision in the private respondent's policy requiring him to inform it of
the prior policies; this requirement was not mentioned to him by the private respondent's agent; and had it
been mentioned, he would not have withheld such information. He further asserted that the total of the
FIRST DIVISION amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was
P1,000,000.00.
G.R. No. 114427 February 6, 1995 In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its
ARMANDO GEAGONIA, petitioner, principal defense the violation of Condition 3 of the policy.
vs. In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate Condition 3
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents. as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was
Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that
DAVIDE, JR., J.: Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on the
Four our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-G.R. SP No. petitioner's testimony that he came to know of the PFIC policies only when he filed his claim with the private
31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing the decision of respondent and that Cebu Tesing Textile obtained them and paid for their premiums without informing him
the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia thereof. The Insurance Commission then decreed:
against private respondent Country Bankers Insurance Corporation. WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of
The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of
22 December 1989, he obtained from the private respondent fire insurance policy No. F-146222 for P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is hereby dismissed.
P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in its
following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a petition
usual to assured's business." for review. The petition was docketed as CA-G.R. SP No. 31916.
The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance Commission
Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. It said:
amounting to P392,130.50, itemized as follows: It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the
Zenco Sales, Inc. P55,698.00 name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of the goods.
F. Legaspi Gen. Merchandise 86,432.50 In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which
is alleged to have taken out the other insurance without the knowledge of private respondent. This is shown by
Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
Cebu Tesing Textiles 250,000.00 (on credit) only the mortgagee of the goods insured but the party to which they were issued were the "DISCOUNT MART
(MR. ARMANDO GEAGONIA)."
————— In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property
subject of the insurance with petitioner. Hence, in failing to disclose the existence of these insurances private
respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter to policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter,
petitioner [of 18 January 1991. The body of the letter reads as follows;] the same interest therein, and the same risk.17
xxx xxx xxx As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest
Please be informed that I have no knowledge of the provision requiring me to inform your office about my therein and both interests may be one policy, or each may take out a separate policy covering his interest,
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said either at the same or at separate times. 18 The mortgagor's insurable interest covers the full value of the
requirement at the time he was convincing me to insure with you. If he only die or even inquired if I had other mortgaged property, even though the mortgage debt is equivalent to the full value of the property.19 The
existing policies covering my establishment, I would have told him so. You will note that at the time he talked to mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security thereof,
me until I decided to insure with your company the two policies aforementioned were already in effect. and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima
Therefore I would have no reason to withhold such information and I would have desisted to part with my hard facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of the
earned peso to pay the insurance premiums [if] I know I could not recover anything. mortgaged property. 20 Thus, separate insurances covering different insurable interests may be obtained by the
Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my stocks mortgagor and the mortgagee.
damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see xerox copy of A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice.
Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months before the fire, shows The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the policy
my merchandise inventory was already some P595,455.75. . . . These will support my claim that the amount with the consent of the insurer; or the mere pledgee without such consent; or the original policy may contain a
claimed under the three policies are much below the value of my stocks lost. mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be
xxx xxx xxx attached; or a "standard mortgage clause," containing a collateral independent contract between the
The letter contradicts private respondent's pretension that he did not know that there were other insurances mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the
taken on the stock-in-trade and seriously puts in question his credibility. mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's
His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition. He benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. 21
contends therein that the Court of Appeals acted with grave abuse of discretion amounting to lack or excess of In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may
jurisdiction: appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-JUDICIAL made a party to the contract himself. Hence, any act of the mortgagor which defeats his right will also defeat
BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED the right of the mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at the issuing of
RESPECT AND EVEN FINALITY BY THE COURTS; the policy.23
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms
THE HEARING OR TRIAL; AND of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted,
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT. however, that although the mortgagee is himself the insured, as where he applies for a policy, fully informs the
The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior authorized agent of his interest, pays the premiums, and obtains on the assurance that it insures him, the policy
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy from the is in fact in the form used to insure a mortgagor with loss payable clause. 25
private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy, and (b) if he had, The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause
whether he is precluded from recovering therefrom. which reads:
The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of reconsideration Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the
of 18 January 1991, is without merit. The petitioner claims that the said letter was not offered in evidence and terms of this policy.
thus should not have been considered in deciding the case. However, as correctly pointed out by the Court of This is clearly a simple loss payable clause, not a standard mortgage clause.
Appeals, a copy of this letter was attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and
thereof and made integral part of the complaint. 12 It has attained the status of a judicial admission and since its Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:
due execution and authenticity was not denied by the other party, the petitioner is bound by it even if it were The insured shall give notice to the company of any insurance or insurances already effected, or which may
not introduced as an independent evidence. 13 subsequently be effected covering any of the property hereby insured, and unless such notice be given and the
As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous two particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the
policies. The Court of Appeals disagreed and found otherwise in view of the explicit admission by the petitioner Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.
in his letter to the private respondent of 18 January 1991, which was quoted in the challenged decision of the or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Court of Appeals. These divergent findings of fact constitute an exception to the general rule that in petitions Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects thereby
for review under Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are assured must be declared by the insured in writing and he must cause the company to add or insert it in the
conclusive and binding upon this Court. 14 policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case
We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of loss," Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare void any
of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary violation thereof. It expressly provides that the condition "shall not apply when the total insurance or
before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission insurances in force at the time of the loss or damage is not more than P200,000.00."
made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the
policies were not new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA- insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection
28146 had been renewed twice, the previous policy being F-24792. which the insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its that forfeitures are not favored and that any construction which would result in the forfeiture of the policy
incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy may benefits for the person claiming thereunder, will be avoided, if it is possible to construe the policy in a manner
declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial which would permit recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated differently,
provision does not avoid the policy." Such a condition is a provision which invariably appears in fire insurance provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be
policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or construed most strictly against those for whose benefits they are inserted, and most favorably toward those
"other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its against whom they are intended to operate. 30 The reason for this is that, except for riders which may later be
violation would thus avoid the inserted, the insured sees the contract already in its final form and has had no voice in the selection or
arrangement of the words employed therein. On the other hand, the language of the contract was carefully
chosen and deliberated upon by experts and legal advisers who had acted exclusively in the interest of the and personally addressed to Fortunato Domingo, Branch Manager of the appellee Bank's Davao Branch, and
insurers and the technical language employed therein is rarely understood by ordinary laymen. 31 was received by the Bank on November 8, 1954. On April 6, 1955, the building and its contents, worth
With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free P40,685.69 were burned. On April 11, 1955, Saura filed a claim with the Insurer and mortgagee Bank. Upon the
from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the presentation of notice of loss with the PNB, Saura learned for the first time that the policy had previously been
prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent cancelled on October 2, 1954, by the insurer, when Saura's folder in the Bank's filed was opened and the notice
exceeding P200,000.00 of the total policies obtained. of cancellation (original and duplicate) sent by the Insurer to the Bank, was found. Upon refusal of the Insurer
The first conclusion is supported by the portion of the condition referring to other insurance "covering any of Philippine International Surety to pay the amount of the insurance, Civil Case No. 26847 was filed with the
the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby Manila CFI against the Insurer, and the PNB was later included as party defendant, after it had refused to
insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co- prosecute the case jointly with Saura Import & Export Co., Inc.
insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same At the trial, it was established that neither the Insurer nor the mortgagee Bank informed the plaintiff Saura of
person is insured by several insurers separately in respect of the same subject and interest. As earlier stated, the cancellation of the policy. On April 30, 1957, the court a quo rendered the following judgment —
the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate. . . . IN VIEW WHEREOF, complaint dismissed; costs against the plaintiff; but as there is no proof on the
Since the two policies of the PFIC do not cover the same interest as that covered by the policy of the private counterclaim of the Philippines International Surety, the same is also dismissed.
respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by
petitioner's right to recover on the private respondent's policy. this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in by this stipulation of facts. 1äwphï1.ñët
force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co- A motion to reconsider the above judgment, seasonably presented on May 14, 1957, was subsequently denied.
insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. The decision rendered and the resolution denying the motion for reconsideration constitute the subject of the
Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over- instant appeal by plaintiff Saura on the three alleged errors, which converge on the correctness of the ruling,
insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two wholly dismissing the complaint absolving both the insurance company and the bank from liability.
or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to In the determination of liabilities of the parties herein, let us look into the general principles of insurance, in
destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in matters of cancellations of policy by the insurer. Fire insurance policies and other contracts of insurance upon
preventing a situation in which a fire would be profitable to the insured.32 property, in addition to the common provision for cancellation of the policy upon request of the insured,
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. generally provide for cancellation by the insurer by notice to the insured for a prescribed period, which is
31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED. usually 5 days, and the return of the unearned portion of the premium paid by the insured, such provision for
Costs against private respondent Country Bankers Insurance Corporation. cancellation upon notice being authorized by statutes in some jurisdiction, either specifically or as a provision of
SO ORDERED. an adopted standard form of policy. The purpose of provisions or stipulations for notice to the insured, is to
prevent the cancellation of the policy, without allowing the insured ample opportunity to negotiate for other
EN BANC insurance in its stead. The form and sufficiency of a notice of cancellation is determined by policy provisions. In
G.R. No. L-15184 May 31, 1963 order to form the basis for the cancellation of a policy, notice to the insured n not be in any particular form, in
SAURA IMPORT & EXPORT CO., INC., plaintiff-appellant, the absence of a statute or policy provision prescribing such form, and it is sufficient, so long as it positively and
vs. unequivocally indicates to the insured, that it is the intention of the company that the policy shall cease to be
PHILIPPINE INTERNATIONAL SURETY CO., INC., and PHILIPPINE NATIONAL BANK, defendants-appellees. binding. Where the policy contains no provisions that a certain number of days notice shall be given, a
Saura, Magno & Associates for plaintiff-appellant. reasonable notice and opportunity to obtain other insurance must be given. Actual personal notice to the
Tolentino, Garcia and D. R. Cruz for defendant-appellee Philippine International Surety Co., Inc. insured is essential to a cancellation under a provision for cancellation by notice. The actual receipt by the
Ramon B. de los Reyes and Antonio P. Cruz for defendant-appellee Philippine National Bank. insured of a notice of cancellation is universally recognized as a condition precedent to a cancellation of the
PAREDES, J.: policy by the insurer, and consequently a letter containing notice of cancellation which is mailed by the insurer
Instant case was certified by the Court of Appeals to Us, it appearing that the issues involved are purely of law. but not received by the insured, is ineffective as cancellation (29 Am. Jur. pp. 732-741).
On December 26, 1952, the Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of The policy in question (Exh. A), does not provide for the notice, its form or period. The Insurance Law, Act No.
land covered by T.C.T. No. 40445 of the Registry of Deeds of Davao, issued in its name, to secure the payment of 2427, does not likewise provide for such notice. This being the case, it devolves upon the Court to apply the
promissory note of P27,000.00 (Exhs. P, B-2). On April 30, 1953, the mortgage was amended to guarantee an generally accepted principles of insurance, regarding cancellation of the insurance policy by the insurer. From
increased amount, bringing the total mortgaged debt to P37,000.00 (Exhs. P-2, B-3). The provisions of the what has been heretofore stated, actual notice of cancellation in a clear and unequivocal manner, preferably in
mortgaged contact, pertinent to the resolution of the present case, provide as follows — writing, in view of the importance of an insurance contract, should be given by the insurer to the insured, so
2. . . . he shall insure the mortgaged property at all times against fire and earthquake for an amount and with that the latter might be given an opportunity to obtain other insurance for his own protection. The notice
such company satisfactory to the Mortgagee, indorsing to the latter the corresponding policies; he shall keep should be personal to the insured and not to and/or through any unauthorized person by the policy. In the case
the mortgaged property in good condition, making repairs and protecting walls that may be necessary; . . . at bar, the defendant insurance company, must have realized the paramount importance of sending a notice of
xxx xxx xxx cancellation, when it sent the notice of cancellation of the policy to the defendant bank (as mortgagee), but not
Erected on the land mortgaged, was a building of strong materials owned by the mortgagor Saura Import & to the insured with which it (insurance company) had direct dealing. It was the primary duty of the defendant-
Export Co., Inc., which had always been covered by insurance, many years prior to the mortgage contract. appellee insurance company to notify the insured, but it did not. It should be stated that the house and its
Pursuant to the requirement, Saura insured the building and its contents with the Philippine International contents were burned on April 6, 1955, at the time when the policy was enforced (October 2, 1954 to October
Surety, an insurance firm acceptable to mortgagee Bank, for P29,000.00 against fire for the period of one year 2, 1955); and that under the facts, as found by the trial court, to which We are bound, it is evident that both the
from October 2, 1954. As required therefor, the insurance policy was endorsed to the mortgagee PNB, in a insurance company and the appellee bank failed, wittingly or unwittingly, to notify the insured appellant Saura
Memo which states — of the cancellation made.
Loss if any, payable to the Philippine National Bank as their interest may appear, subject to the terms, Of course, the defendant insurance company contends that it gave notice to the defendant-appellee bank as
conditions and warranties of this policy (Exh. A). mortgagee of the property, and that was already a substantial compliance with its duty to notify the insured of
The policy was delivered to the mortgagee Bank by Saura. On October 15, 1954, barely thirteen (13) days after the cancellation of the policy. But notice to the bank, as far appellant herein is concerned, is not effective
the issuance of the fire insurance policy (October 2, 1954), the insurer cancelled the same, effective as of the notice.
date of issue (Exh. A-2). Notice of the cancellation was given to appellee bank in writing, sent by Registered Mail
If a mortgage or lien exists against the property insured, and the policy contains a clause stating that loss, if any, On September 2, 1969, the PNB sold the properties covered by TCT Nos. 2887 and 2888 — Pampanga to Jesus
shall be payable to such mortgagee or the holder of such lien as interest may appear, notice of cancellation to M. Vitug, Anunciacion V. de Guzman, Prudencia V. Fajardo, Salvador Vitug and Aurora V. Gutierrez in those
the mortgagee or lienholder alone is ineffective as a cancellation of the policy to the owner of the property. names the corresponding titles were issued. 6
(Connecticut Ins. Co. v. Caumisar, 218 Ky. 378, 391 SW 776, cited in 29 Am. Jur. p. 743). During the lifetime of Clodualdo Vitug he married two times. His first wife was Gervacia Flores with whom he
Upon authority of the above case, therefore, the liability of the insurance company becomes a fact. had 3 children, namely, Victor, Lucina and Julio all surnamed Vitug. Victor now dead is survived by his 5
It may be argued that in the appeal brief of appellant, no error has been assigned against the insurance children: Leonardo, Juan, Candida Francisco and Donaciano, an surnamed Vitug. Juan Vitug is also dead and is
company and no prayer is found therein asking that it be made liable. It must be noted, however, that the case survived by his only daughter Florencia Vitug.
was dismissed the lower court and the main object of the appeal is to secure a reversal of the said judgment. The second wife of Clodualdo Vitug was Donata Montemayor with whom he had 8 children, namely, Pragmacio,
This Court is clothed with ample authority to review matters, even if they are not assigned as errors in the Maximo, Jesus, Salvador, Prudencio and Anunciacion, all surnamed Vitug, the late Enrique Vitug represented by
appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. Thus it was held: his wife Natalia Laquian, and the late Francisco Vitug who is survived by 11 children, namely, Antonio, Francisco,
While an assignment of error which is required by law or rule of court has been held essential to appellate Aurora, Pedro, Honorio, Corazon, Anselmo, Benigno, Eligio Jesus and Luz.
review, only those assigned will be considered, there are a number of cases which appear to accord to the Clodualdo Vitug died intestate on May 20, 1929 so his estate was settled and distributed in Special Proceeding
appellate court a broad discretionary power to waive the lack of proper assignment of errors and consider No. 422 in the Court of First Instance of Pampanga wherein Donata Montemayor was the Administratrix. 7
errors not assigned. And an unassigned error closely related to an error properly assigned, or upon which the Meanwhile, on May 12,1958, Donata Montemayor executed a contract of lease of Lot No. 24, which is covered
determination of the question raised by the error properly assigned is dependent, will be considered by the by TCT No. 2887-R in favor of her children Pragmacio and Maximo both surnamed Vitug. This lease was
appellate court notwithstanding the failure to assign it as error. (Hernandez v. Andal, 78 Phil. 198-199). extended on August 31, 1963. By virtue of a general power of attorney executed by Donata Montemayor on
Although assigned errors apparently appear to be directed against the appellee bank alone, they in essence, Sept. 19, 1966 in favor of Pragmacio Vitug, the latter executed a contract of lease on Sept. 19, 1967 of the said
seek a reversal of the decision on dismissal, entered by the lower court, which in the main has for its purpose lot in favor of Maximo Vitug. 8
the finding of liability on the policy. In the course of our examination of the records of the case, the decision and On March 21, 1970 Pragmacio Vitug and Maximo Vitug filed an action for partition and reconveyance with
the errors assigned, We found that liability attached principally the insurance company, for its failure to give damages in the Court of First Instance of Pampanga against Marcelo Mendiola, special administrator of the
notice of the cancellation of the policy to herein appellant itself. intestate estate of Donata Montemayor who died earlier, Jesus Vitug, Sr., Salvador, Natalia, Prudencia,
Because of the conclusions reached, We find it unnecessary to discuss the errors assigned against appellee Anunciacion, all surnamed Vitug, Antonio, Francisco, Aurora, Pedro, Honorio, Corazon, Anselmo, Benigno, Eligio
bank. Jesus and Luz, all surnamed Fajardo and the PNB.
WHEREFORE, the decision appealed from is hereby reversed, and another is entered, condemning the The subject of the action is 30 parcels of land which they claim to be the conjugal property of the spouses
defendant-appellee Philippine International Surety Co., Inc., to pay Saura Import & Export Co., Inc., appellant Donata Montemayor and Clodualdo Vitug of which they claim a share of 2/11 of 1/2 thereof. They assailed the
herein, the sum of P29,000.00, the amount involved in Policy No. 429, subject-matter of the instant case. mortgage to the PNB and the public auction of the properties as null and void. They invoked the case of Vitug
Without costs. vs. Montemayor, L-5297 decided by this Court on Oct. 20, 1953 which is an action for partition and liquidation
of the said 30 parcels of land wherein the properties were found to be conjugal in nature.
In a decision of Sept. 15, 1975, the lower court dismissed the complaint with costs against the plaintiffs and
FIRST DIVISION ordered them to pay attorney's fees of P5,000.00 to the defendant's counsel. Plaintiffs then interposed an
G.R. No. L-57757 August 31, 1987 appeal to the Court of Appeals, wherein in due course a decision was rendered on May 20, 1981, the dispositive
PHILIPPINE NATIONAL BANK, petitioner, part of which reads as follows:
vs. WHEREFORE, in the light of the foregoing, the decision appealed from is hereby reversed and set aside, and
THE HONORABLE COURT OF APPEALS, PRAGMACIO VITUG AND MAXIMO VITUG, respondents. another one entered in accordance with the tenor of the prayer of appellant's complaint with the modification
that the sale at public auction of the 22 parcels be considered valid with respect to the 1/2 thereof. No costs.
GANCAYCO, J.: Hence the herein petition for certiorari filed by the PNB raising the following assignments of error:
Does the presumption of conjugality of properties acquired by the spouses during coverture provided for in I
Article 160 of the Civil Code apply to property covered by a Torrens certificate of title in the name of the THE RESPONDENT COURT OF APPEALS ERRED IN APPLYING TO THE CASE AT BAR THE RULING OF THIS
widow? This is the issue posed in this petition to review on certiorari of the decision of the Court of Appeals in HONORABLE SUPREME COURT IN FLORENCIA VITUG VS. DONATA MONTEMAYOR, ET AL., 91 PHIL. 286 (1953)
CA-G.R. No. 60903 which is an action for reconveyance and damages. * BECAUSE:
On November 28, 1952, Donata Montemayor, through her son, Salvador M. Vitug, mortgaged to the Philippine A. BETWEEN A PROVISION OF A SPECIAL LAW AND THE JUDICIAL INTERPRETATION AND/OR APPLICATION OF A
National Bank (PNB) several parcels of land covered by Transfer Certificate of Title (TCT) No. 2289 — Pampanga PROVISION OF A GENERAL LAW, THE FORMER PREVAILS.
to guarantee the loan granted by the PNB to Salvador Jaramilla and Pedro Bacani in the amount of P40,900.00 B. THE DOCTRINE OF STARE DECISIS IS NOT A MECHANICAL FORMULA OF ADHERENCE.
which was duly registered in the Office of the Register of Deeds of Pampanga. 1 C. PNB WAS NOT A PARTY, AND HAD NO KNOWLEDGE OF THE ABOVECITED CASE.
On December 1, 1963, Donata Montemayor also mortgaged in favor of PNB certain properties covered by TCT D. SIMILARLY, PRAGMACIO VITUG AND MAXIMO VITUG WERE NOT PARTIES IN SAID CASE.
Nos. 2887 and 2888-Pampanga to guarantee the payment of the loan account of her son Salvador Vitug in the II
amount of P35,200.00, which mortgage was duly registered in the Register of Deeds of Pampanga. 2 THE RESPONDENT COURT OF APPEALS ERRED IN NOT RECOGNIZING THE CONCLUSIVENESS OF THE
The above-mentioned Transfer Certificates of Titles covering said properties were all in the name of Donata CERTIFICATE, OF TITLE, AS PROVIDED IN ACT 496, AS AMENDED (THE LAND REGISTRATION).
Montemayor, of legal age, Filipino, widow and a resident of Lubao, Pampanga at the time they were mortgaged III
to PNB 3 and were free from all hens and encumbrances. 4 THE RESPONDENT COURT OF APPEALS ERRED IN IGNORING THE CONCLUSIVENESS OF OWNERSHIP OF DONATA
Salvador Vitug failed to pay his account so the bank foreclosed the mortgaged properties covered by TCT Nos. MONTEMAYOR OVER THE PROPERTIES WHICH WERE REGISTERED EXCLUSIVELY IN HER NAME WHEN PRIVATE
2887 and 2888. They were sold at public auction on May 20, 1968 in which the PNB was the highest bidder. The RESPONDENTS (PRAGMACIO VITUG AND MAXIMO VITUG), AS LESSEES, ENTERED INTO A CONTRACT OF LEASE
titles thereto were thereafter consolidated in the name of PNB. WITH DONATA MONTEMAYOR AS THE OWNER-LESSOR.
Likewise, Salvador Jaramilla and Pedro Bacani failed to settle their accounts with the PNB so the latter IV
foreclosed the properties covered by TCT No. 2889 which were sold at public auction and likewise PNB was the THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PNB WAS A MORTGAGEE IN BAD FAITH.
buyer thereof. On August 30, 1968, a certificate of sale was issued by the Register of Deeds covering said The petition is impressed with merit.
properties in favor of the PNB. When the title of the PNB was consolidated a new title was issued in its name. 5 When the subject properties were mortgaged to the PNB they were registered in the name of Donata
Montemayor, widow. Relying on the torrens certificate of title covering said properties the mortgage loan
applications of Donata were granted by the PNB and the mortgages were duly constituted and registered in the attomey's fees and expenses of litigation to petitioner PNB in the amount of P20,000.00 and the costs of the
office of the Register of Deeds. suit.
In processing the loan applications of Donata Montemayor, the PNB had the right to rely on what appears in the SO ORDERED.
certificates of title and no more. On its face the properties are owned by Donata Montemayor, a widow. The
PNB had no reason to doubt nor question the status of said registered owner and her ownership thereof.
Indeed, there are no liens and encumbrances covering the same.
The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon
the face of the torrens certificate of title and to dispense with the need of inquiring further, except when the
party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man
make such inquiry. 9
A torrens title concludes all controversy over ownership of the land covered by a final degree of
registration. 10 Once the title is registered the owner may rest assured without the necessity of stepping into
the portals of the court or sitting in the mirador de su casa to avoid the possibility of losing his land. 11
Article 160 of the Civil Code provides as follows:
Art. 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved
that it pertains exclusively to the husband or to the wife.
The presumption applies to property acquired during the lifetime of the husband and wife. In this case, it
appears on the face of the title that the properties were acquired by Donata Montemayor when she was
already a widow. When the property is registered in the name of a spouse only and there is no showing as to
when the property was acquired by said spouse, this is an indication that the property belongs exclusively to
said spouse. 12 And this presumption under Article 160 of the Civil Code cannot prevail when the title is in the
name of only one spouse and the rights of innocent third parties are involved. 13
The PNB had a reason to rely on what appears on the certificates of title of the properties mortgaged. For all
legal purposes, the PNB is a mortgagee in goodfaith for at the time the mortgages covering said properties were
constituted the PNB was not aware to any flaw of the title of the mortgagor. 14
True it is that in the earlier cases decided by this Court, namely Vitug VS. Montemayor decided on May 15,
1952, which is an action for recovery of possession of a share in said parcels of land, 15 and in the subsequent
action for partition between the same parties decided on Oct. 20, 1953, 16 this court found the 30 parcels of
land in question to be conjugal in nature and awarded the corresponding share to the property of Florencia
Vitug, an heir of the late Clodualdo Vitug from the first marriage. In said cases this Court affirmed the decision
of the lower court. In the dispositive part of the decision of the trial court it made the observation that "but
from the conduct of Clodualdo Vitug and Donata Montemayor during the existence of their marital life, the
inference is clear that Clodualdo had the unequivocal intention of transmitting the full ownership of the 30
parcels of land to his wife Donata Montemayor, thus considering the 1/2 of the funds of the conjugal property
so advanced for the purchase of said parcels of land as reimbursible to the estate of Clodualdo Vitug on his
death. 17 That must be the reason why the property was registered in the name of Donata Montemayor as
widow after the death of Clodualdo Vitug. 18
At any rate, although actions for recovery of real property and for partition are real actions, however, they are
actions in personam that bind only the particular individuals who are parties thereto. 19 The PNB not being a
party in said cases is not bound by the said decisions. Nor does it appear that the PNB was aware of the said
decisions when it extended the above describe mortgage loans. Indeed, if the PNB knew of the conjugal nature
of said properties it would not have approved the mortgage applications covering said properties of Donata
Montemayor without requiring the consent of all the other heirs or co-owners thereof. Moreover, when said
properties were sold at public auction, the PNB was a purchaser for value in good faith. So its right thereto is
beyond question. 20
Pragmacio and Maximo Vitug are now estopped from questioning the title of Donata Montemayor to the said
properties. They never raised the conjugal nature of the property nor took issue as to the ownership of their
mother, Donata Montemayor, over the same. Indeed private respondents were among the defendants in said
two cases wherein in their answers to the complaint they asserted that the properties in question are
paraphernal properties belonging exclusively to Donata Montemayor and are not conjugal in nature. 21 Thus
they leased the properties from their mother Donata Montemayor for many years knowing her to be the
owner. They were in possession of the property for a long time and they knew that the same were mortgaged
by their mother to the PNB and thereafter were sold at public auction, but they did not do anything. 22 It is only
after 17 years that they remembered to assert their rights. Certainly, they are guilty of laches. 23
Moreover, as correctly held by the lower court. Pragmacio and Maximo Vitug as occupants and lessees of the
property in question cannot now dispute the ownership of their mother over the same who was their lessor. 24
WHEREFORE, the subject decision of the respondent Court of Appeals is hereby REVERSED and set aside and
another decision is hereby rendered DISMISSING the complaint and ordering private respondents to pay