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This petition for review, under Rule 45 of the Rules of Court, assails the Decision [1] dated May 17, 1993, of the Court of
Appeals and its Resolution[2] dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the judgment
of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific
Life Assurance Co. The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer under its
Group policy No. G-1907, in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS
(P86,200.00); dismissing the claims for damages, attorneys fees and litigation expenses in the complaint and counterclaim, with
costs against the defendant and dismissing the complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack
of cause of action.[3]

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing
loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the
group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or
stomach disorder or any other physical impairment?

Answer: No. If so give details ___________.

8. Are you now, to the best of your knowledge, in good health?

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

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of
his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.

On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death claim to
Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension,
which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the
Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for Specific Performance with Damages.[5] During the trial,
Dr. Hernando Mejia, who issued the death certificate, was called to testify.Dr. Mejias findings, based partly from the information
given by the respondent widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17,
1993, the Court of Appeals sustained the trial courts decision. Hence, the present petition. Petitioners interposed the following
assigned errors:




Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which
would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the
trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial courts judgment,
Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined
in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption insurance, is a
device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form
of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation.[7] In a similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.[8] Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract.[9]

Section 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of
the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy
stating that: In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid, an
amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any,
shall then be paid to the beneficiary/ies designated by the debtor. [10] When DBP submitted the insurance claim against
petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter,
DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private
respondent.[11] In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.[12]we held:

Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * * * Subject
to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named
or unnamed, and although it is expressly made payable to another as his interest may appear or otherwise. * * * Although a
policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may
sue thereon in his own name, especially where the mortgagees interest is less than the full amount recoverable under the
policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has
assigned as collateral security any judgment he may obtain. [13]

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover it whatever the insured might have recovered, [14] the widow of the
decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the
insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused
his death. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair
dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same.[15]

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information
given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio
was a duly documented hospital record, and that the widows declaration that her husband had possible hypertension several
years ago should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of
the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital
confinement.[16] Dr. Leuterios death certificate stated that hypertension was only the possible cause of death. The private
respondents statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the
statement of the physician was properly considered by the trial court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a
doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the
death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From this report, the
appellant insurance company refused to pay the insurance claim. Appellant alleged that the insured had concealed the fact that
he had hypertension.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from
the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to Dr. Leuterios medical history...


Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot
refuse payment of the claim.[17]

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract.[18] Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the insurer.[19] In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the
amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the mortgagors death. Hence, for private respondents
failure to establish the same, the action for specific performance should be dismissed. Petitioners claim is without merit. A life
insurance policy is a valued policy.[20] Unless the interest of a person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. [21] The mortgagor paid the
premium according to the coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtors death during the terms of this insurance, a death benefit in the
amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with the creditor shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall then be paid
to the beneficiary/ies designated by the debtor.[22] (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In private respondents
memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagors outstanding
loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person
or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds
now rightly belong to Dr. Leuterios heirs represented by his widow, herein private respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 18341 is
AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand,
two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of
prior settlement of mortgagors indebtedness to Development Bank of the Philippines.Costs against petitioner.


[G.R. No. 124520. August 18, 1997]




This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court
of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or
store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE
obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; x x x[1]

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise
inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United)
without the written consent of private respondents CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to
CKS, based on its lease contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision* ordering therein defendant United to pay
CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys
fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision** dated 11 January 1996, affirming the
trial court decision, deleting however the awards for exemplary damages and attorneys fees. A motion for reconsideration by
United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:








The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered
into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha
spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is
obtained without the prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals,
good customs, public order or public policy.[3]

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs.[4] The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager
which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has
not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased
premises under the provisions of Section 17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified
by loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance
policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the
insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to
the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds
of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy
over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby
entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.


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


CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.


This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally
married man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-
life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the
revocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy
was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the
face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although
she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to
the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action
for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered
reading as follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-
trial and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala
Ebrado with whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen,
all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance
Co. Under Policy No. 009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider
for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala
and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his
common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his
legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and
affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the
Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of
said policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein
claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as
proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia
Ebrado and the insured made reservation to change the beneficiary but although the insured made the option
to change the beneficiary, same was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the designation of the parties agreed
that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to
the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the
receipt of this order.


On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the
estate of the deceased insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of those acts be made in a separate independent action
brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence in
the same proceeding (the action brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was
made beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only
necessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their
stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado were living together as
husband and wife without being legally married and that the marriage of the insured with the other defendant
Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there
is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in
question and as such she is not entitled to the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified
the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance
Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the
provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in
character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered
nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be
applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is
governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not
otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the
civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to
him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code
provides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor
or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which
the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy
of the person who cannot make the donation. 5 Under American law, a policy of life insurance is considered as a testament and
in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary
by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There
is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be
enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife
insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold
of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando,
said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and
improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se
enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit.
XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De
donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living
together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger
that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib.
32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those who
incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law,
reason and morality alike demand that the disabilities attached to marriage should likewise attach to

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be
differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is right
would be nullified if such irregular relationship instead of being visited with disabilities would be attended with
benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion
where the principle of statutory construction that what is within the spirit of the law is as much a part of it as
what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be
attained. Whatever omission may be apparent in an interpretation purely literal of the language used must be
remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the
time of the donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor
or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot
even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the
party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and
stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six
legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with
whom he has two children. These stipulations are nothing less than judicial admissions which, as a consequence, no longer
require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered
without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the
beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered based on this agreement and
stipulation of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified
to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the
policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.


HEIRS OF LORETO C. MARAMAG, represented by surviving G.R. No. 181132



- versus -







June 5, 2009



This is a petition[1] for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution [2] dated
January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners appeal for lack of jurisdiction.

The case stems from a petition[3] filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or
reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ
of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while
respondents were Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the
killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance
Company, Ltd. (Insular)[4] and Great Pacific Life Assurance Corporation (Grepalife); [5] (3) the illegitimate children of Loreto
Odessa, Karl Brian, and Trisha Angeliewere entitled only to one-half of the legitime of the legitimate children, thus, the proceeds
released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4)
petitioners could not be deprived of their legitimes, which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the
insurance proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of
Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total
amount of P320,000.00 as actual litigation expenses and attorneys fees.

In answer,[6] Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie
as his legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it
ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among
Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessas share as she was
of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of
guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void
the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and
Trisha Angelie, considering that no settlement of Loretos estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva
as beneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer[7] with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy
beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for
insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than
65 years old when he signed it in September 2001; that the case was premature, there being no claim filed by the legitimate
family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was
resorted to.Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners,
declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be
resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal whether the complaint itself
was proper or not and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the
provisions of Articles 752[8] and 772[9] of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in
the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary
when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is
granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with
respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife.


In so ruling, the trial court ratiocinated thus

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters
not expressly provided for in such special laws shall be regulated by this Code. The principal law on insurance is
the Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code may be
resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be
paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made, unless otherwise specified in the
policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken
by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included as
beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the
beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary.
(Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order
to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of
insurance is not the donee spoken in the law of donation. The rules on testamentary succession cannot apply
here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be
considered as an advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil.
534). In the case of Southern Luzon Employees Association v. Juanita Golpeo, et al., the Honorable Supreme
Court made the following pronouncements[:]

With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the
defendant as his individual and separate property, we agree that the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such
proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose
life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by
virtue of Section 428 of the Code of Commerce x x x.

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of
action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration
of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in
the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person
who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life
insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil
Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid,
but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under
Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of nullity may
be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by
preponderance of evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines,
page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in
the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly
take cognizance as the action for the declaration for the nullity of a void donation falls within the general
jurisdiction of this Court.[11]

Insular[12] and Grepalife[13] filed their respective motions for reconsideration, arguing, in the main, that the petition failed to
state a cause of action. Insular further averred that the proceeds were divided among the three children as the remaining
named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for
failure to state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the
defenses of Insular and Grepalife would be better threshed out during trial.

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the Resolution of this
Court dated 21 September 2004 which ordered the prosecution of the case against defendant Eva Verna De
Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered


In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that
Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that
the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It
ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified,
that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loretos illegitimate
children should be reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to
the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha
Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loretos
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries
for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the
decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The
appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial
courts Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus,
the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider
matters which were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause
of action, did not the Regional Trial Court engage in the examination and determination of what were the facts
and their probative value, or the truth thereof, when it premised the dismissal on allegations of the
defendants in their answer which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance
for the concubine?[15]

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state
a cause of action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or
that her designation was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and
motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that
ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular
disqualified Eva as a beneficiary, her share should not have been distributed to her children with Loreto but, instead,
awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial courts finding that the petition failed to state a cause of action, as
provided in Rule 16, Section 1(g), of the Rules of Court, which reads

SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or pleading asserting a
claim, a motion to dismiss may be made on any of the following grounds:


(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another. [16] A complaint states a cause of
action when it contains the three (3) elements of a cause of action(1) the legal right of the plaintiff; (2) the correlative obligation
of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent,
the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. [17]

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in
the complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of
sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court
can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity
of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the
hearings related to the case.[18]

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of
Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners
claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of
the insurance policies, and that Evas children with Loreto, being illegitimate children, are entitled to a lesser share of the
proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance Code,[19] Evas share in the proceeds
should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed that the share of Eva
and portions of the shares of Loretos illegitimate children should be awarded to them, being the legitimate heirs of Loreto
entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article
2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance
Code. Section 53 of the Insurance Code states

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name
or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive;
or the beneficiary, if the insured is already deceased, upon the maturation of the policy. [20] The exception to this rule is a
situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.[21]

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the
proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds
to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as beneficiaries in Loretos insurance policies remains valid. Because
no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,[22] the shares of Eva in
the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated
any beneficiary,[23] or when the designated beneficiary is disqualified by law to receive the proceeds, [24] that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision
of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the
appeal; the issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the
first place.[25]

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.


G.R. No. 23703 September 28, 1925

HILARIO GERCIO, plaintiff-appellee,

Fisher, DeWitt, Perkins and Brady and Jesus Trinidad for appellant.
Vicente Romualdez, Feria and La O and P. J. Sevilla for appellee.


The question of first impression in the law of life insurance to be here decided is whether the insured — the husband — has the
power to change the beneficiary — the former wife — and to name instead his actual wife, where the insured and the
beneficiary have been divorced and where the policy of insurance does not expressly reserve to the insured the right to change
the beneficiary. Although the authorities have been exhausted, no legal situation exactly like the one before us has been

Hilario Gercio, the insured, is the plaintiff. The Sun Life Assurance Co. of Canada, the insurer, and Andrea Zialcita, the
beneficiary, are the defendants. The complaint is in the nature of mandamus. Its purpose is to compel the defendant Sun Life
Assurance Co. of Canada to change the beneficiary in the policy issued by the defendant company on the life of the plaintiff
Hilario Gercio, with one Andrea Zialcita as beneficiary.

A default judgment was taken in the lower court against the defendant Andrea Zialcita. The other defendant, the Sun Life
Assurance Co. of Canada, first demurred to the complaint and when the demurrer was overruled, filed an answer in the nature
of a general denial. The case was then submitted for decision on an agreed statement of facts. The judgment of the trial court
was in favor of the plaintiff without costs, and ordered the defendant company to eliminate from the insurance policy the
name of Andrea Zialcita as beneficiary and to substitute therefor such name as the plaintiff might furnish to the defendant for
that purpose.

The Sun Life Assurance Co. of Canada has appealed and has assigned three errors alleged to have been committed by the lower
court. The appellee has countered with a motion which asks the court to dismiss the appeal of the defendant Sun Life
Assurance Co. of Canada, with costs.

As the motion presented by the appellee and the first two errors assigned by the appellant are preliminary in nature, we will
pass upon the first. Appellee argues that the "substantial defendant" was Andrea Zialcita, and that since she was adjudged in
default, the Sun Life Assurance Co. of Canada has no interest in the appeal. It will be noticed, however, that the complaint prays
for affirmative relief against the insurance company. It will be noticed further that it is stipulated that the insurance company
has persistently refused to change the beneficiary as desired by the plaintiff. As the rights of Andrea Zialcita in the policy are
rights which are enforceable by her only against the insurance company, the defendant insurance company will only be fully
protected if the question at issue is conclusively determined. Accordingly, we have decided not to accede to the motion of the
appellee and not to order the dismissal of the appeal of the appellant.

This brings us to the main issue. Before, however, discussing its legal aspects, it is advisable to have before us the essential facts.
As they are stipulated, this part of the decision can easily be accomplished.

On January 29, 1910, the Sun Life Assurance Co. of Canada issued insurance policy No. 161481 on the life of Hilario Gercio. The
policy was what is known as a twenty-year endowment policy. By its terms, the insurance company agreed to insure the life of
Hilario Gercio for the sum of P/2,000, to be paid him on February 1, 1930, or if the insured should die before said date, then to
his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the insured. The
policy also contained a schedule of reserves, amounts in cash, paid-up policies, and renewed insurance, guaranteed. The policy
did not include any provision reserving to the insured the right to change the beneficiary.

On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end of the year 1919, she
was convicted of the crime of adultery. On September 4, 1920, a decree of divorce was issued in civil case no. 17955, which had
the effect of completely dissolving the bonds of matrimony contracted by Hilario Gercio and Andrea Zialcita.

On March 4, 1922, Hilario Gercio formally notified the Sun Life Assurance Co. of Canada that he had revoked his donation in
favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary of
the policy. Gercio requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the insurance company
has refused and still refuses to do.

With all of these introductory matters disposed of and with the legal question to the forefront, it becomes our first duty to
determine what law should be applied to the facts. In this connection, it should be remembered that the insurance policy was
taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and that the effort to change the beneficiary was
made in 1922. Should the provisions of the Code of Commerce and the Civil Code in force in 1910, or the provisions of the
Insurance Act now in force, or the general principles of law, guide the court in its decision?
On the supposition, first, that the Code of Commerce is applicable, yet there can be found in it no provision either permitting or
prohibiting the insured to change the beneficiary.

On the supposition, next, that the Civil Code regulates insurance contracts, it would be most difficult, if indeed it is practicable,
to test a life insurance policy by its provisions. Should the insurance contract, whereby the husband names the wife as the
beneficiary, be denominated a donation inter vivos, a donation causa mortis, a contract in favor of a third person, or an aleatory
contract? The subject is further complicated by the fact that if an insurance contract should be considered a donation, a
husband may then never insure his life in favor of his wife and vice versa, inasmuch as article 1334 prohibits all donations
between spouses during marriage. It would seem, therefore, that this court was right when in the case of Del Val vs. Del
Val ([1915]), 29 Phil., 534), it declined to consider the proceeds of the insurance policy as a donation or gift, saying "the contract
of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal
exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contracts or
to the destination of life-insurance proceeds. . . ." Some satisfaction is gathered from the perplexities of the Louisiana Supreme
Court, a civil law jurisdiction, where the jurists have disagreed as to the classification of the insurance contract, but have agreed
in their conclusions as will hereafter see. (Re Succession of Leone Desforges [1914], 52 L.R.A. [N.S.], 689; Lambert vs Penn
Mutual Life Insurance Company of Philadelphia and L'Hote & Co. [1898], 50 La. Ann., 1027.)

On the further supposition that the Insurance Act applies, it will be found that in this Law, there is likewise no provision either
permitting or prohibiting the insured to change the beneficiary.

We must perforce conclude that whether the case be considered as of 1910, or 1914, or 1922, and whether the case be
considered in the light of the Code of Commerce, the Civil Code, or the Insurance Act, the deficiencies in the law will have to be
supplemented by the general principles prevailing on the subject. To that end, we have gathered the rules which follow from
the best considered American authorities. In adopting these rules, we do so with the purpose of having the Philippine Law of
Insurance conform as nearly as possible to the modern Law of Insurance as found in the United States proper.

The wife has an insurable interest in the life of her husband. The beneficiary has an absolute vested interest in the policy from
the date of its issuance and delivery. So when a policy of life insurance is taken out by the husband in which the wife is named as
beneficiary, she has a subsisting interest in the policy. And this applies to a policy to which there are attached the incidents of a
loan value, cash surrender value, an automatic extension by premiums paid, and to an endowment policy, as well as to an
ordinary life insurance policy. If the husband wishes to retain to himself the control and ownership of the policy he may so
provide in the policy. But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's
consent, the insured cannot make such change. Accordingly, it is held that a life insurance policy of a husband made payable to
the wife as beneficiary, is the separate property of the beneficiary and beyond the control of the husband.

As to the effect produced by the divorce, the Philippine Divorce Law, Act No. 2710, merely provides in section 9 that the decree
of divorce shall dissolve the community property as soon as such decree becomes final. Unlike the statutes of a few jurisdictions,
there is no provision in the Philippine Law permitting the beneficiary in a policy for the benefit of the wife of the husband to be
changed after a divorce. It must follow, therefore, in the absence of a statute to the contrary, that if a policy is taken out upon
a husband's life the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy.

These are some of the pertinent principles of the Law of Insurance. To reinforce them, we would, even at the expense of
clogging the decision with unnecessary citation of authority, bring to notice certain decisions which seem to us to have
controlling influence.

To begin with, it is said that our Insurance Act is mostly taken from the statute of California. It should prove of interest,
therefore, to know the stand taken by the Supreme Court of that State. A California decision oft cited in the Cyclopedias is Yore
vs. Booth ([1895]), 110 Cal., 238; 52 Am. St. Rep., 81), in which we find the following:

. . . It seems to be the settled doctrine, with but slight dissent in the courts of this country, that a person who procures
a policy upon his own life, payable to a designated beneficiary, although he pays the premiums himself, and keeps the
policy in his exclusive possession, has no power to change the beneficiary, unless the policy itself, or the charter of the
insurance company, so provides. In policy, although he has parted with nothing, and is simply the object of another's
bounty, has acquired a vested and irrevocable interest in the policy, which he may keep alive for his own benefit by
paying the premiums or assessments if the person who effected the insurance fails or refuses to do so.

As carrying great weight, there should also be taken into account two decisions coming from the Supreme Court of the United
States. The first of these decisions, in point of time, is Connecticut Mutual Life Insurance Company vs Schaefer ([1877]), 94 U.S.,
457). There, Mr. Justice Bradley, delivering the opinion of the court, in part said:
This was an action on a policy of the court, in part said: July 25, 1868, on the joint lives of George F. and Francisca
Schaefer, then husband and wife, payable to the survivor on the death of either. In January, 1870, they were divorced,
and alimony was decreed and paid to the wife, and there was never any issue of the marriage. They both subsequently
married again, after which, in February, 1871, George F. Schaefer died. This action was brought by Francisca, the

xxx xxx xxx

The other point, relating to the alleged cessation of insurable interest by reason of the divorce of the parties, is entitled
to more serious consideration, although we have very little difficulty in disposing of it.

It will be proper, in the first place, to ascertain what is an insurable interest. It is generally agreed that mere wager
policies, that is, policies in which the insured party has no interest in its loss or destruction, are void, as against public
policy. . . . But precisely what interest is necessary, in order to take a policy out of the category of mere wager, has been
the subject of much discussion. In marine and fire insurance the difficulty is not so great, because there insurance is
considered as strictly an indemnity. But in life insurance the loss can seldom be measured by pecuniary values. Still, an
interest of some sort in the insured life must exist. A man cannot take out insurance on the life of a total stranger, nor
on that of one who is not so connected with him as to make the continuance of the life a matter of some real interest
to him.

It is well settled that a man has an insurable interest in his own life and in that of his wife and children; a woman in the
life of her husband; and the creditor in the life of his debtor. Indeed it may be said generally that any reasonable
expectation of pecuniary benefit or advantage from the continued life of another creates an insurable interest in such
life. And there is no doubt that a man may effect an insurance on his own life for the benefit of a relative or fried; or
two or more persons, on their joint lives, for the benefit of the survivor or survivors. The old tontines were based
substantially on this principle, and their validity has never been called in question.

xxx xxx xxx

The policy in question might, in our opinion, be sustained as a joint insurance, without reference to any other interest,
or to the question whether the cessation of interest avoids a policy good at its inception. We do not hesitate to say,
however, that a policy taken out in good faith and valid at its inception, is not avoided by the cessation of the insurable
interest, unless such be the necessary effect of the provisions of the policy itself. . . .

. . . .In our judgment of life policy, originally valid, does not cease to be so by the cessation of the assured party's
interest in the life insured.

Another controlling decision of the United States Supreme Court is that of the Central National Bank of Washington City vs.
Hume ([1888], 128 U.S., 134). Therein, Mr. Chief Justice Fuller, as the organ of the court, announced the following doctrines:

We think it cannot be doubted that in the instance of contracts of insurance with a wife or children, or both, upon their
insurable interest in the life of the husband or father, the latter, while they are living, can exercise no power of
disposition over the same without their consent, nor has he any interest therein of which he can avail himself; nor upon
his death have his personal representatives or his creditors any interest in the proceeds of such contracts, which belong
to the beneficiaries to whom they are payable.

It is indeed the general rule that a policy, and the money to become due under it, belong, the moment it is issued, to
the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in the person procuring
the insurance, by any act of his, by deed or by will, to transfer to any other person the interest of the person named.

A jurisdiction which found itself in somewhat the same situation as the Philippines, because of having to reconcile the civil law
with the more modern principles of insurance, is Louisiana. In a case coming before the Federal Courts, In re Dreuil &
Co. ([1915]), 221 Fed., 796), the facts were that an endowment insurance policy provided for payment of the amount thereof at
the expiration of twenty years to the insured, or his executors, administrators, or assigns, with the proviso that, if the insured die
within such period, payment was to be made to his wife if she survive him. It was held that the wife has a vested interest in the
policy, of which she cannot be deprived without her consent. Foster, District Judge, announced:

In so far as the law of Louisiana is concerned, it may also be considered settled that where a policy is of the semitontine
variety, as in this case, the beneficiary has a vested right in the policy, of which she cannot be deprived without her
consent. (Lambert vs Penn Mutual Life Ins. Co., 50 La. Ann., 1027; 24 South., 16.) (See in same connection a leading
decision of the Louisiana Supreme Court, Re Succession of Leonce Desforges, [1914], 52 L.R.A. [N.S.], 689.)
Some question has arisen as to the power of the insured to destroy the vested interest of the beneficiary in the policy. That
point is well covered in the case of Entwistle vs. Travelers Insurance Company ([1902], 202 Pa. St., 141). To quote:

. . . The interest of the wife was wholly contingent upon her surviving her husband, and she could convey no greater
interest in the policy than she herself had. The interest of the children of the insured, which was created for them by
the contract when the policy was issued; vested in them at the same time that the interest of the wife became vested
in her. Both interests were contingent. If the wife die before the insured, she will take nothing under the policy. If the
insured should die before the wife, then the children take nothing under the policy. We see no reason to discriminate
between the wife and the children. They are all payees, under the policy, and together constitute the assured.

The contingency which will determine whether the wife, or the children as a class will take the proceeds, has not as yet
happened; all the beneficiaries are living, and nothing has occurred by which the rights of the parties are in any way
changed. The provision that the policy may be converted into cash at the option of the holder does not change the
relative rights of the parties. We agree entirely with the suggestion that "holder" or "holders", as used in this
connection, means those who in law are the owners of the policy, and are entitled to the rights and benefits which may
accrue under it; in other words, all the beneficiaries; in the present case, not only the wife, by the children of the
insured. If for any reason, prudence required the conversion of the policy into cash, a guardian would have no special
difficulty in reasonable protecting the interest of his wards. But however that may be, it is manifest that the option can
only be exercised by those having the full legal interest in the policy, or by their assignee. Neither the husband, nor the
wife, nor both together had power to destroy the vested interest of the children in the policy.

The case most nearly on all fours with the one at bar is that of Wallace vs Mutual Benefit Life Insurance Co. ([1906], 97 Minn.,
27; 3 L.R.A. [N.S.], 478). The opinion there delivered also invokes added interest when it is noted that it was written by Mr.
Justice Elliott, the author of a text on insurance, later a member of this court. In the Minnesota case cited, one Wallace effected
a "twenty-year endowment" policy of insurance on his life, payable in the event of his death within twenty years to Emma G.
Wallace, his wife, but, if he lived, to himself at the end of twenty years. If Wallace died before the death of his wife, within the
twenty years, the policy was payable to the personal representatives of the insured. During the pendency of divorce
proceedings, the parties signed a contract by which Wallace agreed that, if a divorce was granted to Mrs. Wallace, the court
might award her certain specified property as alimony, and Mrs. Wallace agreed to relinquish all claim to any property arising
out of the relation of husband and wife. The divorce was granted. An action was brought by Wallace to compel Mrs. Wallace to
relinquish her interest in the insurance policy. Mr. Justice Elliott said:

As soon as the policy was issued Mrs. Wallace acquired a vested interest therein, of which she could not be deprived
without her consent, except under the terms of the contract with the insurance company. No right to change the
beneficiary was reserved. Her interest in the policy was her individual property, subject to be divested only by her
death, the lapse of time, or by the failure of the insured to pay the premiums. She could keep the policy alive by paying
the premiums, if the insured did not do so. It was contingent upon these events, but it was free from the control of her
husband. He had no interest in her property in this policy, contingent or otherwise. Her interest was free from any claim
on the part of the insured or his creditors. He could deprive her of her interest absolutely in but one way, by living more
than twenty years. We are unable to see how the plaintiff's interest in the policy was primary or superior to that of the
husband. Both interests were contingent, but they were entirely separate and distinct, the one from the other. The
wife's interest was not affected by the decree of court which dissolved the marriage contract between the parties. It
remains her separate property, after the divorce as before. . .

. . . . The fact that she was his wife at the time the policy was issued may have been, and undoubtedly was, the reason
why she was named as beneficiary in the event of his death. But her property interest in the policy after it was issued
did not in any reasonable sense arise out of the marriage relation.

Somewhat the same question came before the Supreme Court of Kansas in the leading case of Filley vs. Illinois Life Insurance
Company ([1914]), 91 Kansas, 220; L.R.A. [1915 D], 130). It was held, following consideration extending to two motions for
rehearing, as follows:

The benefit accruing from a policy of life insurance upon the life of a married man, payable upon his death to his wife,
naming her, is payable to the surviving beneficiary named, although she may have years thereafter secured a divorce
from her husband, and he was thereafter again married to one who sustained the relation of wife to him at the time of
his death.

The rights of a beneficiary in an ordinary life insurance policy become vested upon the issuance of the policy, and can
thereafter, during the life of the beneficiary, be defeated only as provided by the terms of the policy.
If space permitted, the following corroborative authority could also be taken into account: Joyce, The Law of Insurance, second
edition, vol. 2, pp. 1649 et seq.; 37 Corpus Juris, pp. 394 et seq.; 14 R.C.L., pp. 1376 et seq.; Green vs. Green ([1912], 147 Ky., 608;
39 L.R.A. [N.S.], 370); Washington Life Insurance Co. vs. Berwald ([1903], 97 Tex., 111); Begley vs. Miller ([1907]), 137 Ill., App.,
278); Blum vs. New York L. Ins. Co. ([1906], 197 Mo., 513; 8 L.R.A. [N.S.], 923; Union Central Life Ins. Co. vs. Buxer ([1900], 62
Ohio St., 385; 49 L.R.A., 737); Griffith vs. New York Life Ins. Co. ([1894], 101 Cal., 627; 40 Am. St. Rep., 96); Preston vs. Conn. Mut.
L. Ins. Co. of Hartford([1902]); 95 Md., 101); Snyder vs. Supreme Ruler of Fraternal Mystic Circle ([1909], 122 Tenn. 248; 45 L.R.A.
[N.S.], 209); Lloyd vs. Royal Union Mut. L. Ins. Co. ([1917], 245 Fed., 162); Phoenix Mut. L. Ins. Co. vs. Dunham ([1878], 46 Conn.,
79; 33 Am. Rep., 14); McKee vs. Phoenix Ins. Co. ([1859], 28 Mo., 383; 75 Am. Rep., 129); Supreme Council American Legion of
Honor vs. Smith and Smith ([1889], 45 N.J. Eq., 466); Overhiser vs. Overhiser ([1900], 63 Ohio St., 77; 81 Am. St. Rep., 612; 50
L.R.A., 552); Condon vs. New York Life Insurance Co. ([1918], 183 Iowa, 658); with which compare Foster vs. Gile ([1880], 50 Wis.,
603) and Hatch vs. Hatch ([1904], 35 Tex. Civ. App., 373).

On the admitted facts and the authorities supporting the nearly universally accepted principles of insurance, we are irresistibly
led to the conclusion that the question at issue must be answered in the negative.

The judgment appealed from will be reversed and the complaint ordered dismissed as to the appellant, without special
pronouncement as to the costs in either instance. So ordered.

G.R. No. 147839 June 8, 2006





Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in
Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection
with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy." 3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date
of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x4


Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks
of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never
consented to paying the claim of the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was purely
accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established
that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose
of securing the payment of purchase price, the above-described merchandise remains the property of the vendor until the
purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the
RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil.,
Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.


The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing
sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is
borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC
and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against
petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor. 11

Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its Resolution dated April 11, 2001. 13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:




Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that
was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment
by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were
not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands
came from respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of
loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could
be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner
was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval
ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its
interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property;
that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation expenses and cost of suit. 17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or
any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court. 20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence
on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the
ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. 22 In this
case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the
goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood literally just as they appear on the face of the contract. 25 Thus, what
were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales
invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described
merchandise remains the property of the vendor until the purchase price thereof is fully paid." 26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been
made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)


Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of
the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of,
the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an
interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be
injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he
has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code is misplaced.
As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with
IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As
correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature. 34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by
its class or genus without any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the
effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of
the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is
whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to
Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not
an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00
in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001
of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.






- versus - CHICO-NAZARIO,**

Acting Chairperson,







August 25, 2009

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


Challenged in this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court are the Decision[2] dated 30
August 2007and the Orders dated 10 April 2008[3] and 3 July 2008[4] of the Regional Trial Court (RTC) of Gapan City, Branch 34, in
Civil Case No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R. Lalican
(Violeta) against respondent Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April
2008 and 3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and denied petitioners Notice of

The factual and procedural antecedents of the case, as culled from the records, are as follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through
Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, [5] which contained a 20-
Year Endowment Variable Income Package Flexi Plan worth P500,000.00,[6] with two riders valued at P500,000.00 each.[7] Thus,
the value of the policy amounted to P1,500,000.00. Violeta was named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount
of P8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year period of the
policy. According to the Policy Contract, there was a grace period of 31 days for the payment of each premium subsequent to
the first. If any premium was not paid on or before the due date, the policy would be in default, and if the premium remained
unpaid until the end of the grace period, the policy would automatically lapse and become void.[8]

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due
on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became void.

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application
for Reinstatement[9] of Policy No. 9011992, together with the amount of P8,062.00 to pay for the premium due on 24 January
1998. In a letter[10] dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully
processed because, although he already deposited P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the
overdue interest thereon amounting to P322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file
another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that subsequently
became due on 24 April 1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluans house and submitted a second Application for Reinstatement [11] of
Policy No. 9011992, including the amount of P17,500.00, representing payments for the overdue interest on the premium for 24
January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business
errand, her husband received Eulogios second Application for Reinstatement and issued a receipt for the amount Eulogio

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to

Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando,
on 18 September 1998, Eulogios second Application for Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However,
Insular Life no longer acted upon Eulogios second Application for Reinstatement, as the former was informed on 21 September
1998 that Eulogio had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.

In a letter[12] dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time
of Eulogios death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate the same. According to the Application
for Reinstatement, the policy would only be considered reinstated upon approval of the application by Insular Life during the
applicants lifetime and good health, and whatever amount the applicant paid in connection thereto was considered to be a
deposit only until approval of said application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check
No. 0000309734, for the amount of P25,417.00, drawn in Violetas favor, representing the full refund of the payments made by
Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter[13] dated 10
March 1999, Insular Life stated that it could not find any reason to reconsider its decision rejecting Violetas claim. Insular Life
again tendered to Violeta the above-mentioned check in the amount of P25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of
Insular Life.Violetas counsel subsequently sent a letter[14] dated 8 July 1999 to Insular Life, demanding payment of the full
proceeds of Policy No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a
re-evaluation of Violetas claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a
Complaint for Death Claim Benefit,[15] which was docketed as Civil Case No. 2177. Violeta alleged that Insular Life engaged in
unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta
prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus
interests, attorneys fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim,[16] asserting that Violetas Complaint had no legal or factual
bases.Insular Life maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered void by the non-
payment of the 24 January 1998 premium and non-compliance with the requirements for the reinstatement of the same. By way
of counterclaim, Insular Life prayed that Violeta be ordered to pay attorneys fees and expenses of litigation incurred by the

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No.
9011992 had been complied with and the defenses put up by Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24,
1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his insurance policy
necessarily lapsed. This is clear from the terms and conditions of the contract between [Insular Life] and
[Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x. [17]

The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular Life and the
Application for Reinstatement Eulogio subsequently signed and submitted to Insular Life, held that Eulogio was not able to fully
comply with the requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties. In the instant case, the terms
of the insurance contract between [Eulogio] and [Insular Life] were spelled out in the policy provisions of
Insurance Policy No. 9011992. There is likewise no dispute that said insurance contract is by nature a contract
of adhesion[,] which is defined as one in which one of the contracting parties imposes a ready-made form of
contract which the other party may accept or reject but cannot modify. (Polotan, Sr. vs. CA, 296 SCRA 247).


The New Lexicon Websters Dictionary defines ambiguity as the quality of having more than one meaning and
an idea, statement or expression capable of being understood in more than one sense. In Nacu vs. Court of
Appeals, 231 SCRA 237 (1994), the Supreme Court stated that[:]

Any ambiguity in a contract, whose terms are susceptible of different interpretations as a

result thereby, must be read and construed against the party who drafted it on the
assumption that it could have been avoided by the exercise of a little care.
In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second
application for reinstatement.Examining the said provisions, the court finds the same clearly written in
terms that are simple enough to admit of only one interpretation.They are clearly not ambiguous, equivocal
or uncertain that would need further construction. The same are written on the very face of the application
just above the space where [Eulogio] signed his name. It is inconceivable that he signed it without reading
and understanding its import.

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear laymans
language, rendering it free from any ambiguity that would require a legal interpretation or construction. Thus,
the court believes that [Eulogio] was well aware that when he filed the said application for reinstatement, his
lapsed policy was not automatically reinstated and that its approval was subject to certain
conditions. Nowhere in the policy or in the application for reinstatement was it ever mentioned that the
payment of premiums would have the effect of an automatic and immediate renewal of the lapsed
policy. Instead, what was clearly stated in the application for reinstatement is that pending approval
thereof, the premiums paid would be treated as a deposit only and shall not bind the company until this
application is finally approved during my/our lifetime and good health[.]

Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the
words used or in the manner they were written. [Violeta] did not present any proof that [Eulogio] was not
conversant with the English language. Hence, his having personally signed the application for reinstatement[,]
which consisted only of one page, could only mean that he has read its contents and that he understood them.

Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy
provisions of Policy No. 9011992 and in the application for reinstatement subject of this case, the court finds
no merit in [Violetas] contention that the policy provision stating that [the lapsed policy of Eulogio] should be
reinstated during his lifetime is ambiguous and should be construed in his favor. It is true that [Eulogio]
submitted his application for reinstatement, together with his premium and interest payments, to [Insular Life]
through its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died in the
afternoon of that same day. It was only on the following day, September 18, 1998 that Ms. Malaluan brought
the said document to [the regional office of Insular Life] in San Fernando, Pampanga for approval. As correctly
pointed out by [Insular Life] there was no more application to approve because the applicant was already
dead and no insurance company would issue an insurance policy to a dead person.[18] (Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the same by
interpreting the insurance agreement in her favor where there is no need for such interpretation. It is
conceded that [Eulogios] payment of overdue premiums and interest was received by [Insular Life] through its
agent Ms. Malaluan. It is also true that [the] application for reinstatement was filed by [Eulogio] a day before
his death.However, there is nothing that would justify a conclusion that such receipt amounted to an
automatic reinstatement of the policy that has already lapsed. The evidence suggests clearly that no such
automatic renewal was contemplated in the contract between [Eulogio] and [Insular Life]. Neither was it
shown that Ms. Malaluan was the officer authorized to approve the application for reinstatement and that
her receipt of the documents submitted by [Eulogio] amounted to its approval. [19] (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance
of evidence her cause of action against the defendant, let this case be, as it is hereby DISMISSED.[20]

On 14 September 2007, Violeta filed a Motion for Reconsideration [21] of the afore-mentioned RTC Decision. Insular Life
opposed[22] the said motion, averring that the arguments raised therein were merely a rehash of the issues already considered
and addressed by the RTC. In an Order[23] dated 8 November 2007, the RTC denied Violetas Motion for Reconsideration, finding
no cogent and compelling reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November
2007 Order of the RTC was received by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply[24] to the Motion for Reconsideration, wherein she
reiterated the prayer in her Motion for Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite
already receiving on 3 December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for
Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments
she had previously made in her Motion for Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,[25] declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had
already attained finality in view of Violetas failure to file the appropriate notice of appeal within the reglementary period. Thus,
any further discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and

Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,[26] praying that the Order dated 10 April 2008 be set
aside and that she be allowed to file an appeal with the Court of Appeals.

In an Order[27] dated 3 July 2008, the RTC denied Violetas Notice of Appeal with Motion given that the Decision dated 30 August
2007 had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for

1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed
despite having allegedly attained finality and despite the fact that the mode of appeal that has been
availed of by Violeta is erroneous?

2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a
question of law not in accord with law and applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC
Decision dated 30 August 2007; and in the computation of the reglementary period for appealing the said judgment. Violeta
claims that her former counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the
latters death just shortly after the filing of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats
this Court to admit and give due course to her appeal even if the same was filed out of time.

Violeta further posits that the Court should address the question of law arising in this case involving the interpretation
of the second sentence of Section 19 of the Insurance Code, which provides:

Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the insurance takes effect,
but need not exist thereafter or when the loss occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No.
9011992 just before he passed away on 17 September 1998. The RTC should have construed the provisions of the Policy
Contract and Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and considered
the special circumstances of the case, to rule that Eulogio had complied with the requisites for the reinstatement of Policy No.
9011992 prior to his death, and that Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not
justified. Rule 41, Section 1 of the Rules of Court,[28] provides that no appeal may be taken from an order disallowing or
dismissing an appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court.[29]

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and
executory. Violeta filed a Motion for Reconsideration thereof, but the RTC denied the same in an Order dated 8 November
2007. The records of the case reveal that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus,
Violeta had 15 days[30] from said date of receipt, or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of
Appeal only on 20 May 2008, more than five months after receipt of the RTC Order dated 8 November 2007 denying her Motion
for Reconsideration.

Violetas claim that her former counsels failure to file the proper remedy within the reglementary period was an honest
mistake, attributable to the latters deteriorating health, is unpersuasive.
Violeta merely made a general averment of her former counsels poor health, lacking relevant details and supporting
evidence. By Violetas own admission, her former counsels health rapidly deteriorated only by the first week of July 2008. The
events pertinent to Violetas Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8
November 2007, denying Violetas Motion for Reconsideration of the Decision dated 30 August 2007, was received on 3
December 2007; and Violetas Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that Violetas
former counsel was already suffering from ill health during these times; or that the illness of Violetas former counsel would have
affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta,
which failure the latter cannot now disown on the basis of her bare allegation and self-serving pronouncement that the former
was ill. A client is bound by his counsels mistakes and negligence.[31]

The Court, therefore, finds no reversible error on the part of the RTC in denying Violetas Notice of Appeal for being filed
beyond the reglementary period. Without an appeal having been timely filed, the RTC Decision dated 30 August 2007 in Civil
Case No. 2177 already became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period
to appeal lapses and no appeal is perfected within such period. As a consequence, no court (not even this Court) can exercise
appellate jurisdiction to review a case or modify a decision that has become final. [32] When a final judgment is executory, it
becomes immutable and unalterable. It may no longer be modified in any respect either by the court, which rendered it or even
by this Court. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors,
judgments must become final at some definite point in time.[33]

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-
called nunc pro tunc entries, which cause no prejudice to any party, and void judgments. [34] The instant case does not fall under
any of these exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the
Petition must still fail.

Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing
insurable interest in his own life until the day of his death.

An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable
interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection
with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the
event insured against.[35] The existence of an insurable interest gives a person the legal right to insure the subject matter of the
policy of insurance.[36] Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own
life.[37] Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs. [38]

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is entirely irrelevant in the
case at bar. It is actually beyond question that while Eulogio was still alive, he had an insurable interest in his own life, which he
did insure under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to reinstate the lapsed
insurance policy on his life before his death on 17 September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision
that Policy No. 9011992 lapsed because of Eulogios non-payment of the premiums which became due on 24 April 1998 and 24
July 1998. Policy No. 9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day
grace period for payment of the premium, which fell due on 24 January 1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyonddispute. Eulogios filing of his first Application for
Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that Policy No. 9011992 had
lapsed by then. Insular Life did not act on Eulogios first Application for Reinstatement, since the amount Eulogio simultaneously
deposited was sufficient to cover only the P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue
interests thereon. On 17 September 1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again
through Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue interest on the premium for 24
January 1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio
passed away.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse.[39] Both the
Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the
policy lapse:


You may reinstate this policy at any time within three years after it lapsed if the following conditions are met:
(1) the policy has not been surrendered for its cash value or the period of extension as a term insurance has not
expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are paid
with compound interest at a rate not exceeding that which would have been applicable to said premium and
indebtedness in the policy years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.[40]

Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which
Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application is approved by the
Company during my/our lifetime and good health and until all other Company requirements for the
reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this application shall be
considered as deposit only and shall not bind the Company until this application is finally approved by the
Company during my/our lifetime and good health. If this application is disapproved, I/We also agree to accept
the refund of all payments made in connection herewith, without interest, and to surrender the receipts for
such payment.[41] (Emphases ours.)

In the instant case, Eulogios death rendered impossible full compliance with the conditions for reinstatement of Policy
No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogios lifetime and
good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company,[42] citing McGuire
v. The Manufacturer's Life Insurance Co.[43]:

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
application does not give the insured absolute right to such reinstatement by the mere filing of an
application. The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the
insured and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the
death of the insured the insurance Company cannot be compelled to entertain an application for
reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined
and satisfied. (Emphases ours.)

It does not matter that when he died, Eulogios Application for Reinstatement and deposits for the overdue premiums and
interests were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power or authority of its
insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for payment of
premiums, to waive any lapsation, forfeiture or any of our rights or requirements, such powers being limited to
our president, vice-president or persons authorized by the Board of Trustees and only in writing. [44] (Emphasis

Malaluan did not have the authority to approve Eulogios Application for Reinstatement. Malaluan still had to turn over to Insular
Life Eulogios Application for Reinstatement and accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for
Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation other than
those that they so obviously embody.A construction in favor of the insured is not called for, as there is no ambiguity in the said
provisions in the first place. The words thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the
appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the
provisions of his Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed. While it is a cardinal
principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as
against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms, which the parties themselves have used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense. [45]

Eulogios death, just hours after filing his Application for Reinstatement and depositing his payment for overdue
premiums and interests with Malaluan, does not constitute a special circumstance that can persuade this Court to already
consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear and express provisions of the Policy
Contract and Application for Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or
disapprove the Application for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn
of events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on
a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts are not permitted to make
contracts for the parties. The function and duty of the courts consist simply in enforcing and carrying out the contracts actually

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and
Application for Reinstatement before Eulogios death. Violeta, therefore, cannot claim any death benefits from Insular Life on the
basis of Policy No. 9011992; but she is entitled to receive the full refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the
Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil
Case No. 2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision dated 30 August
2007 subject thereof, was already final and executory. No costs.