Heirs of Maramag vs De Guzman

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 LoretoOdessa, 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.
SO ORDERED.[10]

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
DISMISSED.

SO ORDERED.[14]

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:

xxxx

(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]

Ang Giok Chip vs. Springfield Fire and Marine

An important question in the law of insurance, not heretofore considered in this jurisdiction and,
according to our information, not directly resolved in California from which State the Philippine
Insurance Act was taken, must be decided on this appeal for the future guidance of trial courts and of
insurance companies doing business in the Philippine Islands. This question, flatly stated, is whether a
warranty referred to in the policy as forming part of the contract of insurance and in the form of a rider
to the insurance policy, is null and void because not complying with the Philippine Insurance Act. The
court has had the benefit of instructive briefs and memoranda from the parties and has also been
assisted by a well prepared brief submitted on behalf of amici curiae.

The admitted facts are these: Ang Giok Chip doing business under the name and style of Hua Bee Kong Si
was formerly the owner of a warehouse situated at No. 643 Calle Reina Regente, City of Manila. The
contents of the warehouse were insured with the three insurance companies for the total sum of
P60,000. One insurance policy, in the amount of P10,000, was taken out with the Springfield Fire &
Marine Insurance Company. The warehouse was destroyed by fire on January 11, 1928, while the policy
issued by the latter company was in force.

Predicated on this policy the plaintiff instituted action in the Court of First Instance of Manila against the
defendant to recover a proportional part of the loss coming to P8,170.59. Four special defenses were
interposed on behalf of the insurance company, one being planted on a violation of warranty F fixing the
amount of hazardous goods which might be stored in the insured building. The trial judge in his decision
found against the insurance company on all points, and gave judgment in favor of the plaintiff for the
sum of P8,188.74. From this judgment the insurance company has appealed, and it is to the first and
fourth errors assigned that we would address particular attention.

Considering the result at which we arrive, it is unnecessary for us to discuss three of the four special
defenses which were made by the insurance company. We think, however, that it would be a
reasonable deduction to conclude that more than 3 per cent of the total value of the merchandise
contained in the warehouse constituted hazardous goods, and that this per cent reached as high as 39.
We place reliance on the consular invoices and on the testimony of the adjuster, Herridge. Having thus
swept to one side all intervening obstacle, the legal question recurs, as stated in the beginning of this
decision, of whether or not warranty F was null and void.

To place this question in its proper light, we turn to the policy issued by the Springfield Fire & Marine
Insurance Company in favor of the plaintiff. The description of the risk in this policy is as
follows:lawphil.net

Ten thousand pesos Philippine Currency. — On general non-hazardous merchandise, chiefly consisting
of chucherias, also produce, Cacao, Flour, all the property of the Insured, or held by them in trust, on
commission or on joint account with others, or for which he is responsible, while contained during the
currency of this policy in the godown, situate No. 643 Calle Reina Regent. . . .

This policy is subject to the hereon attached "Ordinary Short Period Rate Scale" Warranties A & F, Co-
insurances Clause "and Three Fourths Loss Clause," which are forming part of same. Co-insurance
declared:

"P20,000. — Sun Insurance Office Ltd. (K & S)." (Emphasis inserted.) Securely pasted on the left hand
margin of the face of the policy are five warranties and special clauses. One of them is warranty F,
specially referred to on the face of the policy, reading in part as follows:

WARRANTY F

It is hereby declared and agreed that during the currency of this policy no hazardous goods be stored in
the Building to which this insurance applies or in any building communicating therewith, provided,
always, however, that the Insured be permitted to stored a small quantity of the hazardous goods
specified below, but not exceeding in all 3 per cent of the total value of the whole of the goods or
merchandise contained in said warehouse, viz; . . . .

The applicable law is found in the Instance Act, Act No. 2427, as amended, section 65 reading:
"Every express warranty, made at or before the execution of a policy, must be contained in the policy
itself, or in another instrument signed by the insured and referred to in the policy, as making a part of
it." As the Philippine law was taken verbatim from the law of California, in accordance with well settled
canons of statutory construction, the court should follow in fundamental points, at least, the
construction placed by California courts on a California law. Unfortunately the researches of counsel
reveal no authority coming from the courts of California which is exactly on all fours with the case
before us. However, there are certain consideration lying at the basis of California law and certain
indications in the California decisions which point the way for the decision in this case

Section 65 of the Philippine Insurance Act corresponds to section 2605 of the Civil Cod of California. The
comments of the Code Examiners of California disclose that the language of section 2605 was quite
different from that under the Code as adopted in 1872. That language was found too harsh as to
insurance companies. The Code Examiners' notes state: "The amendment restores the law as it existed
previous to the Code: See Parsons on Maritime Law, 106, and Phillips on Insurance, sec. 756." The
passage referred to in Philips on Insurance, was worded by the author as follows:

"Any express warranty or condition is always a part of the policy, but, like any other part of an express
contract, may be written in the margin, or contained in proposals or documents expressly referred to in
the policy, and so made a part of it." The annotator of the Civil Code of California, after setting forth
these facts, adds:

. . . The section as it now reads is in harmony with the rule that a warranty may be contained in another
instrument than the policy when expressly referred to in the policy as forming a part thereof: . . . .

What we have above stated has been paraphrased from the decision of the California Court of Appeals
in the case of Isaac Upham Co. vs. United States Fidelity & Guaranty Co. ( [1922], 211 Pac., 809), and
thus discloses the attitude of the California courts. Likewise in the Federal courts, in the case of Conner
vs. Manchester Assur. Co. ([1904], 130 Fed., 743), section 2605 of the Civil Code of California came
under observation, and it was said that it "is in effect an affirmance of the generally accepted doctrine
applicable to such contracts."

We, therefore, think it wrong to hold that the California law represents a radical departure from the
basic principles governing the law of insurance. We are more inclined to believe that the codification of
the law of California had exactly the opposite purpose, and that in the language of the Federal court it
was but an affirmance of the generally accepted doctrine applicable to such contracts. This being true,
we turn to two of such well recognized doctrines. In the first place, it is well settled that a rider attached
to a policy is a part of the contract, to the same extent and with like effect as it actually embodied
therein. (I Couch, Cyclopedia of Insurance Law, sec. 159.) In the second place, it is equally well settled
that an express warranty must appear upon the face of the policy, or be clearly incorporated therein and
made a part thereof by explicit reference, or by words clearly evidencing such intention. (4 Couch,
Cyclopedia of Insurance Law, sec. 862.)

Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code of California, will bear
analysis as tested by reason and authority. The law says that every express warranty must be "contained
in the policy itself." The word "contained," according to the dictionaries, means "included," inclosed,"
"embraced," "comprehended," etc. When, therefore, the courts speak of a rider attached to the policy,
and thus "embodied" therein, or of a warranty "incorporated" in the policy, it is believed that the phrase
"contained in the policy itself" must necessarily include such rider and warranty. As to the alternative
relating to "another instrument," "instrument" as here used could not mean a mere slip of paper like a
rider, but something akin to the policy itself, which in section 48 of the Insurance Act is defined as "The
written instrument, in which a contract of insurance is set forth." In California, every paper writing is not
necessarily an "instrument" within the statutory meaning of the term. The word "instrument has a well
defined definition in California, and as used in the Codes invariably means some written paper or
instrument signed and delivered by one person to another, transferring the title to, or giving a lien, on
property, or giving a right to debt or duty. (Hoag vs. Howard [1880], 55 Cal., 564; People vs.
Fraser[1913], 137 Pac., 276.) In other words, the rider, warranty F, is contained in the policy itself,
because by the contract of insurance agreed to by the parties it is made to form a part of the same, but
is not another instrument signed by the insured and referred to in the policy as forming a part of it.

Again, referring to the jurisprudence of California, another rule of insurance adopted in that State is in
point. It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by
the insured without objection binds both the acceptor and the insured to the terms thereof. The insured
may not thereafter be heard to say that he did not read the policy or know its terms, since it is his duty
to read his policy and it will be assumed that he did so. In California Jurisprudence, vol. 14, p. 427, from
which these statements are taken with citations to California decisions, it is added that it has been held
that where the holder of a policy discovers a mistake made by himself and the local agent in attaching
the wrong rider to his application, elects to retain the policy issued to him, and neither requests the
issuance of a different one nor offers to pay the premium requisite to insure against the risk which he
believe the rider to cover, he thereby accepts the policy.

We are given to understand, and there is no indication to the contrary, that we have here a standard
insurance policy. We are further given to understand, and there is no indication to the contrary, that the
issuance of the policy in this case with its attached rider conforms to well established practice in the
Philippines and elsewhere. We are further given to understand, and there is no indication to the
contrary, that there are no less than sixty-nine insurance companies doing business in the Philippine
Islands with outstanding policies more or less similar to the one involved in this case, and that to nullify
such policies would place an unnecessary hindrance in the transaction of insurance business in the
Philippines. These are matters of public policy. We cannot believe that it was ever the legislative
intention to insert in the Philippine Law on Insurance an oddity, an incongruity, entirely out of harmony
with the law as found in other jurisdiction, and destructive of good business practice.

We have studied this case carefully and having done so have reached the definite conclusion that
warranty F, a rider attached to the face of the insurance policy, and referred to in contract of insurance,
is valid and sufficient under section 65 of the Insurance Act. Accordingly, sustaining the first and fourth
errors assigned, and it being unnecessary to discuss the remaining errors, the result will be to reverse
the judgment appealed from and to order the dismissal of the complaint, without special
pronouncement as to costs in either instance.

Fielman’s Insurance vs. Vda de Songco

An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a
common carrier insurance policy on the pretext that what was insured, not once but twice, was a
private vehicle and not a common carrier, the policy being issued upon the insistence of its agent who
discounted fears of the insured that his privately owned vehicle might not fall within its terms, the
insured moreover being "a man of scant education," finishing only the first grade. So it was held in a
decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking the
review of the above decision of respondent Court of Appeals cannot be so sanguine as to entertain the
belief that a different outcome could be expected. To be more explicit, we sustain the Court of Appeals.

The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case.
Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ...,
owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such
private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent Benjamin
Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle ... Upon
paying an annual premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued on
September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ... the duration of
which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22,
1961, the defendant company, upon payment of the corresponding premium, renewed the policy by
extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco's private
jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during the effectivity of the
renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son
of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan,
as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco
(another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel
sustained physical injuries of varying degree." 1

It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-
old son of deceased Federico Songco, testifying as witness, declared that when insurance agent
Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr.
Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to which agent
Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be insured because
their company is not owned by the Government and the Government has nothing to do with their
company. So they could do what they please whenever they believe a vehicle is insurable' ... In spite of
the fact that the present case was filed and tried in the CFI of Pampanga, the defendant company did
not even care to rebut Amor Songco's testimony by calling on the witness-stand agent Benjamin
Sambat, its Pampanga Field Representative." 2

The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of
the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they
prevailed, as had been mentioned, in the lower court and in the respondent Court of
Appeals.1awphîl.nèt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock
Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that
where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its
favor, in order to forestall fraud or imposition on the insured." 4

As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the
insured Federico Songco to believe that he could qualify under the common carrier liability insurance
policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any
litigation arising out of such representation, be permitted to change its stand to the detriment of the
heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of
harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case
would result in a gross travesty of justice.

That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked
by the heirs of the insured as a bar to the alleged breach of warranty and condition in the policy. lt
would now rely on the fact that the insured owned a private vehicle, not a common carrier, something
which it knew all along when not once but twice its agent, no doubt without any objection in its part,
exerted the utmost pressure on the insured, a man of scant education, to enter into such a contract.

Nor is there any merit to the second alleged error of respondent Court that no legal liability was
incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable
was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions
contained in the policy issued by the defendant-appellant were impossible to comply with under the
existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from
asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and
consequently hold that the decision appealed from should be affirmed. The injured parties, to wit,
Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the
defendant company was being made liable, were passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being
made liable was the driver of the vehicle in question. Except for the fact, that they were not fare paying
passengers, their status as beneficiaries under the policy is recognized therein." 6

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would
reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well
known rule that ambiguities or obscurities must be strictly interpreted against the party that caused
them, the 'memo of warranty' invoked by appellant bars the latter from questioning the existence of the
appliances called for in the insured premises, since its initial expression, 'the undernoted appliances for
the extinction of fire being kept on the premises insured hereby, ... it is hereby warranted ...,' admits of
interpretation as an admission of the existence of such appliances which appellant cannot now
contradict, should the parol evidence rule apply." 7

To the same effect is the following citation from the same leading case: "This rigid application of the rule
on ambiguities has become necessary in view of current business practices. The courts cannot ignore
that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the
weaker party may not change one whit, his participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats
d'adhesion), in contrast to those entered into by parties bargaining on an equal footing, such contracts
(of which policies of insurance and international bills of lading are prime examples) obviously call for
greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker
party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code.
Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942)." 8

The last error assigned which would find fault with the decision of respondent Court of Appeals insofar
as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of
no persuasive force at all.
The conclusion that inescapably emerges from the above is the correctness of the decision of
respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of the
Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides) not for
the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its dominant
bargaining position carries with it stricter responsibility." 9

This is merely to stress that while the morality of the business world is not the morality of institutions of
rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile or
deception. Moreover, should it happen thus, no court of justice should allow itself to lend its approval
and support.1awphîl.nèt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co.,
Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower court
and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted and
unjustified plea to escape from its liability.

WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety.
Costs against petitioner Fieldmen's Insurance Co., Inc.

SMB vs Law and Rock Insurance

This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by the
plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of insurance
underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and the "Filipinas"
Compania de Seguros, for the sum of P7,500 each, insuring certain property which has been destroyed
by fire. The plaintiff, the San Miguel Brewery, is named as the party assured in the two policies referred
to, but it is alleged in the complaint that said company was in reality interested in the property which
was the subject of insurance in the character of a mortgage creditor only, and that the owner of said
property upon the date the policies were issued was one D. P. Dunn who was later succeeded as owner
by one Henry Harding. Accordingly said Harding was made a defendant, as a person interested in the
subject of the litigation.

The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two
companies named for the sum of P15,000, with interest and costs, and further that upon satisfaction of
the balance of P4,505.30 due to the plaintiff upon the mortgage debt, and upon the cancellation of the
mortgage, the plaintiff be absolved from liability to the defendants or any of them. The peculiar form of
the latter part of the prayer is evidently due to the design of the plaintiff to lay a foundation for Harding
to recover the difference between the plaintiff's credit and the amount for which the property was
insured. Accordingly, as was to be expected, Harding answered, admitting the material allegations of the
complaint and claiming for himself the right to recover the difference between the plaintiff's mortgage
credit and the face value of the policies. The two insurance companies also answered, admitting in
effect their liability to the San Miguel Brewery to the extent of its mortgage credit, but denying liability
to Harding on the ground that under the contracts of insurance the liability of the insurance companies
was limited to the insurable interest of the plaintiff therein. Soon after the action was begun the
insurance companies effected a settlement with the San Miguel Brewery by paying the full amount of
the credit claimed by it, with the result that the litigation as between the original plaintiff and the two
insurance companies came to an end, leaving the action to be prosecuted to final judgement by the
defendant Harding with respect to the balance claimed to be due to him upon the policies.

Upon hearing the evidence the trial judge came to the conclusion that Harding had no right of action
whatever against the companies and absolved them from liability without special finding as to costs.
From this decision the said Henry Harding has appealed.

The two insurance companies who are named as defendants do not dispute their liability to the San
Miguel Brewery, to the extent already stated, and the only question here under discussion is that of the
liability of the insurance companies to Harding. It is therefore necessary to take account of such facts
only as bear upon this aspect of the case.

In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the property to
which the insurance relates, mortgaged the same to the San Miguel Brewery to secure a debt of
P10,000. In the contract of mortgage Dunn agreed to keep the property insured at his expense to the
full amount of its value in companies to be selected by the Brewery Company and authorized the latter
in case of loss to receive the proceeds of the insurance and to retain such part as might be necessary to
cover the mortgage debt. At the same time, in order more conveniently to accomplish the end in view,
Dunn authorized and requested the Brewery Company to effect said insurance itself. Accordingly on the
same date Antonio Brias, general manager of the Brewery, made a verbal application to the Law Union
and Rock Insurance Company for insurance to the extent of P15,000 upon said property. In reply to a
question of the company's agent as to whether the Brewery was the owner of the property, he stated
that the company was interested only as a mortgagee. No information was asked as to who was the
owner of the property, and no information upon this point was given.

It seems that the insurance company to whom this application was directed did not want to carry more
than one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in a like
amount to be issued by the "Filipinas" Compania de Seguros. Both policies were issued in the name of
the San Miguel Brewery as the assured, and contained no reference to any other interest in the
property. Both policies contain the usual clause requiring assignments to be approved and noted on the
policy. The premiums were paid by the Brewery and charged to Dunn. A year later the policies were
renewed, without change, the renewal premiums being paid by the Brewery, supposedly for the account
of the owner. In the month of March of the year 1917 Dunn sold the insured property to the defendant
Henry Harding, but not assignment of the insurance, or of the insurance policies, was at any time made
to him.

We agree with the trial court that no cause of action in Henry Harding against the insurance companies
is show. He is not a party to the contracts of insurance and cannot directly maintain an action thereon.
(Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is merely of an equitable and subsidiary
nature and must be made effective, if at all, through the San Miguel Brewery in whose name the
contracts are written. Now the Brewery, as mortgagee of the insured property, undoubtedly had an
insurable interest therein; but it could not, in any event, recover upon these policies an amount in
excess of its mortgage credit. In this connection it will be remembered that Antonio Brias, upon making
application for the insurance, informed the company with which the insurance was placed that the
Brewery was interested only as a mortgagee. It would, therefore, be impossible for the Brewery
mortgage on the insured property.
This conclusion is not only deducible from the principles governing the operation and effect of insurance
contracts in general but the point is clearly covered by the express provisions of sections 16 and 50 of
the Insurance Act (Act No. 2427). In the first of the sections cited, it is declared that "the measure of an
insurable interest in property is the extent to which the insured might be damnified by loss or injury
thereof" (sec. 16); while in the other it is stated that "the insurance shall be applied exclusively to the
proper interest of the person in whose name it is made unless otherwise specified in the policy" (sec.
50).

These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the ownership
of the property had continued in him up to the time of the loss; and as regards Harding, an additional
insuperable obstacle is found in the fact that the ownership of the property had been charged, prior to
the loss, without any corresponding change having been effected in the policy of insurance. In section
19 of the Insurance Act we find it stated that "a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an
equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same
person." Again in section 55 it is declared that "the mere transfer of a thing insured does not transfer
the policy, but suspends it until the same person becomes the owner of both the policy and the thing
insured."

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

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

If during the negotiations which resulted in the writing of this insurance, it had been agreed between
the contracting parties that the insurance should be so written as to protect not only the interest of the
mortgagee but also the residuary interest of the owner, and the policies had been, by inadvertence,
ignorance, or mistake written in the form in which they were issued, a court would have the power to
reform the contracts and give effect to them in the sense in which the parties intended to be bound. But
in order to justify this, it must be made clearly to appear that the minds of the contracting parties did
actually meet in agreement and that they labored under some mutual error or mistake in respect to the
expression of their purpose. Thus, in Bailey vs. American Central Insurance Co. (13 Fed., 250), it
appeared that a mortgage desiring to insure his own insurable interest only, correctly stated his interest,
and asked that the same be insured. The insurance company agreed to accept the risk, but the policy
was issued in the name of the owner, because of the mistaken belief of the company's agent that the
law required it to be so drawn. It was held that a court of equity had the power, at the suit of the
mortgage, to reform the instrument and give judgment in his favor for the loss thereunder, although it
had been exactly as it was. Said the court: "If the applicant correctly states his interest and distinctly
asks for an insurance thereon, and the agent of the insurer agrees to comply with his request, and
assumes to decide upon the form of the policy to be written for that purpose, and by mistake of law
adopts the wrong form, a court of equity will reform the instrument so as to make it insurance upon the
interest named." (See also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home Insurance Co., 78
Iowa, 334; 16 Am. St. Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak Insurance Co., 31 Conn.,
517; Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)

Similarly, in cases where the mortgage is by mistake described as owner, the court may grant
reformation and permit a recovery by the mortgage in his character as such. (Dalton vs. Milwaukee etc.
Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance Co., 17 Fed., 568.) In Thompson vs.
Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408), it appeared that one Kearney made application to
an insurance company for insurance on certain property in his hands as receiver and it was understood
between him and the company's agent that, in case of loss, the proceeds of the policy should accrue to
him and his successors as receiver and to others whom it might concern. However, the policy, as issued,
was so worded as to be payable only to him as receiver. In an action brought on the policy by a
successor of Kearney, it was alleged that the making of the contract in this form was due to
inadvertence, accident, and mistake upon the part of both Kearney and the company.

Said the court:

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the policy,
the plaintiff is entitled to have it reformed.

In another case the same court said:

We have before us a contract from which by mistake, material stipulations have been omitted, whereby
the true intent and meaning of the parties are not fully or accurately expressed. There was a definite
concluded agreement as to insurance, which, in point of time, preceded the preparation and delivery of
the policy, and this is demonstrated by legal and exact evidence, which removes all doubt as to the
sense and undertaking of the parties. In the agreement there has been a mutual mistake, caused chiefly
by that contracting party who now seeks to limit the insurance to an interest in the property less than
that agreed to be insured. The written agreement did not effect that which the parties intended. That a
court of equity can afford relief in such a case, is, we think, well settled by the authorities. (Smell vs.
Atlantic, etc., Ins. Co., 98 U.S., 85, 89; 25 L. ed., 52.)

But to justify the reformation of a contract, the proof must be of the most satisfactory character, and it
must clearly appear that the contract failed to express the real agreement between the parties.
(Philippine Sugar Estates Development Company vs. Government of the Philippine Islands, 62 L. ed.,
1177, reversing Government of Philippine Island vs. Philippine Sugar Estates Development Co., 30 Phil.
Rep., 27.)

In the case now before us the proof is entirely insufficient to authorize the application of the doctrine
state in the foregoing cases, for it is by means clear from the testimony of Brias — and none other was
offered — that the parties intended for the policy to cover the risk of the owner in addition to that of
the mortgagee. It results that the defendant Harding is not entitled to relief in any aspect of the case.

The judgment is therefore affirmed, with costs against the appellant. So ordered.

Gallardo vs. Morales

The issue before us is whether a personal accident insurance which "insures for injuries and/or death as
a result of murder or assault or attempt thereat" is a life insurance, within the purview of Rule 39,
section 12, subdivision (k) of the Rules of Court, exempting from execution.

All moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance,
if the annual premiums paid do not exceed five hundred pesos, and if they exceed that sum a like
exemption shall exist which shall bear the same proportion to the moneys, benefits, privileges, and
annuities so accruing or growing out of such insurance that said five hundred pesos bears to the whole
annual premiums paid.

In accordance with a compromise agreement between the parties in the above-entitled case, a decision
was rendered therein by the Court of First Instance of Manila, on February 3, 1956, sentencing
defendant Hermenegilda S. Morales to pay to plaintiff Francisca Gallardo the sum of Seven Thousand
Pesos (P7,000.00). In due course, the corresponding writ of execution was issued and delivered to the
Sheriff of Manila, who, on August 8, 1956, garnished and levied execution on the sum of P7,000.00, out
of the P30,000.00 a due from the Capital Insurance & Surety Co., Inc., to said defendant, as beneficiary
under a personal accident policy issued by said company to defendant's husband, Luis Morales, who
died, on August 26, 1950, by assassination. Invoking the above-quoted provision of the Rules of Court,
defendant asked the sheriff to quash and lift said garnishment or levy on execution. Upon denial of this
request by the sheriff, defendant filed a motion praying that the aforementioned sum of P7,000.00 be
declared exempt from execution under said provision of the Rules of Court, and that the Sheriff of
Manila be ordered to quash or lift said garnishment or levy on execution. This motion was denied by an
order dated October 18, 1956. Hence, the present appeal by the defendant, who maintains that the
policy in question is a life insurance policy, within the purview of the aforementioned exemption, for it
insured her husband ". . . for injuries and/or death as a result of murder or assault or attempt thereat."

In its order denying the claim for exemption set up by the defendant, the lower court expressed itself as
follows:

Upon a perusal of the authorities cited by the parties, this Court is fully convinced that there is a
fundamental distinction between life insurance, and accident insurance, and the insurance policy issued
to Luis G. Morales, husband of herein defendant, was undoubtedly an accident insurance, as
distinguished from a life insurance. As conceded by the facts appearing in the pleadings, the personal
accident policy, part of the proceeds of which is under garnishment, was for P50,000.00 and yet the
annual premium was for P15.00. If it were an ordinary life insurance policy, taking into account that the
insured, Luis G. Morales, was 38 years of age and the amount of the policy was for P50,000.00 the
annual premium would have been around P1,206.00. Besides, the period for the policy was stipulated
for one year, and considerations as to age, health, occupation and other personal circumstances were
not taken into account in an accident insurance policy. Even the certification issued by the insurance
commissioner on August 23, 1956, marked as Annex "1" of the opposition, shows that the Capital
Insurance and Surety Company Inc. is a non-life insurance company and that the only authority granted
to it to transact business covers fire, marine, surety, fidelity, accident, motor car, and miscellaneous
insurance, except life insurance. From this circumstance alone, not to mention many others, there are
abundant indications that there exists a fundamental distinction between life insurance and accident
insurance. As counsel for oppositor has clearly pointed out, an accident policy merely insures the person
from injury and or death resulting from murder, assault, or an attempt thereat, while in life insurance
policy, what is insured is the life of the subject for a definite number of years. From the authorities
quoted by the oppositor, this Court is fully convinced that an accident policy is fundamentally different
from a life insurance policy, especially if this Court takes into account that accident insurance is an
indemnity or casualty contract, while life insurance is an investment contract.

It is not disputed that a life insurance is, generally speaking, distinct and different from an accident
insurance. However, when one of the risks insured in the latter is the death of the insured by accident,
then there are authorities to the effect that such accident insurance may, also, be regarded as a life
insurance.

"Life insurance" is a contract whereby one party insures a person against loss by the death of another.
Petition of Robbins, 140 A. 366, 367, 126 Me. 555.

An insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain
amount of money if another dies within the time limited by the policy. Cason vs. Owens, 26 S. E. 75, 76,
100 Ga. 142.

Life insurance includes in which the payment of the insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A. Va. 99F. 2d 44. 48, 49.

A contract for life insurance is really a contract for insurance for one year in consideration of an
advanced premium, with the right of assured to continue it from year to year upon payment of a
premium as stipulated. Mutual Life Ins. Co. 100 Pa 172, 180.

In its broader sense, "life insurance" includes accident insurance, since life is insured under either
contract. American Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551, 552, 171 Tenn. 561, 111 A.L.R. 59.

Under statute providing that 'any life insurance' on life of husband shall insure to benefit of widow and
children exempt from husband's debt, proceeds of policy insuring against death by accident insured to
widow's benefit free from husband's debts. Code 1932, B 8456. American Trust & Banking Co. vs. Lessly,
106 S.W. 2d 551, 171 Tenn. 511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidental death, is "life insurance policy" to such
extent within state statue prescribing in-contestable period for policies. Code S.C. 1932 ss 7986, 7987.
Pacific Mut. Life Ins. Co. of California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.
"Life insurance" includes all policies of insurance in which payment of insurance money is contingent
upon loss of life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d 165, 167, 169 Tenn. 477.

Insurance policy including a death benefit and a health or accident disability benefit constituted a "life
insurance policy" within meaning of laws 1926, c. 118, S. 134, imposing privilege tax on insurance
companies with different rates as between life insurance companies and other companies, in view of
provisions of Code 1906, ss 2576, 2598 (Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c. 191, s
I (Hemingway's Code 1927, s 5995); it being immaterial that in some policy forms the health and
disability feature was more valuable asent a showing that death provision was inserted to avoid the
higher tax. Universal Life Ins. Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25 Words & Phrases 260,
261, 262.)

When the application was made, Harris W. Rimmer carried life insurance with the Equitable Life
Assurance Society, for $10,000, payable upon proof of death, with a provision that upon death by
accident the amount of insurance payable would be increased to $20,000. The plaintiff insisted that this
was life insurance, a disclosure of which was not called for in question 10, while the defendant insisted it
was accident insurance that should have been disclosed and further insisted that, it being a fact material
to the risk the failure to disclose the policy in the Equitable Life Assurance Society rendered the policy
issued to the applicant void. . . .

The court might have gone further and held that the failure of the applicant to characterize the
insurance in the Equitable Life Assurance Society as accident insurance did not constitute a false answer
to the inquiry of what accident or health insurance he was carrying. The policy in the Equitable Life
Assurance Society covered loss of life from natural as well as external and accidental causes, and was life
insurance. The mere addition of the double indemnity clause providing for increased insurance upon
proof of death by accident did not divest the policy of its character of insurance on life, or make the
contract other than life insurance, for insurance on life includes all policies of insurance in which the
payment of the insurance money is contingent upon the loss of life. Logan vs. Fidelity & Casualty Co.,
146 Mo. 114, 47 S.W. 948. See also Johnson vs. Fidelity & Guaranty Co., 148 Mich. 406, 151 N.W. 593,
L.R.A. 1916A, 475; Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003; Wright vs. Fraternities
Health & Accident Ass'n. 107 Me. 418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins. Co. vs. Ins.
Com'r 208 Mass. 386, 94 N.E. 477; Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194;
Wahl vs. Interstate Business Men's Accident Ass'n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377."
(Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. W. 2d Series, 365, 367.)

For this reason, and because the above-quoted provision of the Rules of Court makes reference to "any
life insurance," we are inclined to believe that the exemption there established applies to ordinary life
insurance contracts, as well as to those which, although intended primarily to indemnify for risks arising
from accident, likewise, insure against loss of life due, either to accidental causes, or to the willful and
criminal act of another, which, as such, is not strictly accidental in nature. Indeed, it has been held that
statutes of this nature seek to enable the head of the family to secure his widow and children from
becoming a burden upon the community and, accordingly, should merit a liberal interpretation.

The object of this statue was to enable a husband, when death deprived wife and children of his
support, to secure them from want and to prevent them from becoming a charge upon the public.
Necessities of the wife and children and the public interest are none the less if the death of the husband
be brought about by accident rather than by disease. The intent of the legislature in the enactment of
this statute would not be advanced by the construction of the law upon which the petitioners insist.
(American Trust & Banking Co. vs. Lessly et al., Supreme Court of Tenn., 106 S.W. 2d, 551, 552.)

Under statutes providing to that effect, the proceeds of life insurance are exempt from the claims of
creditors, a limitation being sometimes imposed as to amount, see infra Sec. 40, or as to the
beneficiaries entitled to the exemption, see infra subdivision of this section. Statutes exempting life
insurance are regarded as exemption laws, and not as part of the insurance from law of the state, nor as
designed simply to protect insurer from harassing litigation. Such statutes should be construed liberally
and in the light of, and to give effect to, their purpose of enabling an individual to provide a fund after
his death for his family which will be free from the claims of creditors. The exemption privilege is
created not by contract but by legislative grant, and grounds for the exemption of the proceeds of
insurance policies must be found in the statutes. (35 C.J.S. pp. 53-54.)

By weight of authority, exemption statutes or rules should be liberally construed with a view to giving
effect to their beneficent and humane purpose. To this end, every reasonable doubt as to whether a
given property is or is not exempt should be resolved in favor of exemption. (Comments on the Rules of
Court by Moran [1957 ed.] Vol. 1, p. 564.)

Wherefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and
quashed, with the costs of this instance against plaintiff Francisca Gallardo. It is so ordered.

Filipinas Compania vs Huenefeld

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of
corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in
the sum of P1000,000, covering merchandise contained in a building located at No. 711 Roman Street,
Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and
insured merchandise were burned. In due time the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after deducting their value, the
total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on
the ground that the policy in favor of the respondent had ceased to be in force on the date the United
States declared war against Germany, the respondent Corporation (though organized under and by
virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner being a
company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner,
however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive
Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose
of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is
that the insured merchandise were burned up after the policy issued in 1941 in favor of the respondent
corporation has ceased to be effective because of the outbreak of the war between the United States
and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure. After trial, the Court of First
Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court
of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is
now before us on appeal by certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation
became an enemy when the United States declared war against Germany, relying on English and
American cases which held that a corporation is a citizen of the country or state by and under the laws
of which it was created or organized. It rejected the theory that nationality of private corporation is
determine by the character or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German
subjects. This being so, we have to rule that said respondent became an enemy corporation upon the
outbreak of the war between the United States and Germany. The English and American cases relied
upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of
the United States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed.
Advance Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In "Enemy
Corporation" by Martin Domke, a paper presented to the Second International Conference of the Legal
Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was
controlled by enemies, namely managed under the influence of individuals or corporations, themselves
considered as enemies. It was the English courts which first the Daimler case applied this new concept of
"piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed
Arbitral established after the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused
to recognized the concept whereby American-registered corporations could be considered as enemies
and thus subject to domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation but also by long term loans and
other factual situations. For that reason, legislation on enemy property enacted in various countries
during World War II adopted by statutory provisions to the control test and determined, to various
degrees, the incidents of control. Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war,
include as did other legislations the applications of the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice
in the treatment of foreign-owned property in the United States allowed to large degree the
determination of enemy interest in domestic corporations and thus the application of the control test.
Court decisions sanctioned such administrative practice enacted under the First War Powers Act of
1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely
approved of the control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss
corporation allegedly controlled by German interest, the Court: "The property of all foreign interest was
placed within the reach of the vesting power (of the Alien Property Custodian) not to appropriate
friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. .
. . The power of seizure and vesting was extended to all property of any foreign country or national so
that no innocent appearing device could become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed
decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9)
299, we already held that China Banking Corporation came within the meaning of the word "enemy" as
used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated
under the laws of an enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a
public enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as
soon as an insured becomes a public enemy.

Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent
with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations,
commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the
transmission of money or goods; and all contracts relating thereto are thereby nullified. It further
prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service
with the enemy; this for the reason that the subjects of one country cannot be permitted to lend their
assistance to protect by insurance the commerce or property of belligerent, alien subjects, or to do
anything detrimental too their country's interest. The purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's
property and repay in insurance the value of what has been so destroyed, or that it should in such
manner increase the resources of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state
of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified
term it is plain that when the parties become alien enemies, the contractual tie is broken and the
contractual rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid
and enforcible, and since the insured goods were burned after December 10, 1941, and during the war,
the respondent was not entitled to any indemnity under said policy from the petitioner. However,
elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the
premium paid by the respondent for the period covered by its policy from December 11, 1941, should
be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether
the policy in question became null and void upon the declaration of war between the United States and
Germany on December 10, 1941, and its judgment in favor of the respondent corporation was
predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily
assumed that, even if the payment by the petitioner to the respondent was involuntary, its action is not
tenable in view of the ruling on the validity of the policy. As a matter of fact, the Court of Appeals held
that "any intimidation resorted to by the appellee was not unjust but the exercise of its lawful right to
claim for and received the payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the appellant was, well
founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of this office
contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your
office and the concurrence therein of the Financial Department of the Japanese Military Administration,
and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs.
Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of
crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances
on this case. However, the petitioner will be entitled to recover only the equivalent, in actual Philippines
currency of P92,650 paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay
to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in
Philippine currency, that should be returned by the petitioner for the unexpired term of the policy in
question, beginning December 11, 1941. Without costs. So ordered.

Palileo vs Cosio

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that (1) the
transaction entered into between them on December 18, 1951 be declared as one of loan, and the
document executed covering the transaction as one of equitable mortgage to secure the payment of
said loan; (2) the defendant be ordered to credit to the plaintiff with the necessary amount from the
sum received by the defendant from the Associated Insurance & Surety Co., Inc. and to apply the same
to the payment of plaintiff's obligation thus considering it as fully paid; and (3) the defendant be
ordered to pay to plaintiff the difference between the alleged indebtedness of plaintiff and the sum
received by defendant from the aforementioned insurance company, plus the sum allegedly paid to
defendant as interest on the alleged indebtedness.

On December 19, 1952, defendant filed her answer setting up as special defense that the transaction
entered into between the plaintiff and defendant is one of sale with option to repurchase but that the
period for repurchase had expired without plaintiff having returned the price agreed upon as a result of
which the ownership of the property had become consolidated in the defendant. Defendant also set up
certain counterclaims which involve a total amount of P4,900.

On April 7, 1953, the case was set for trial on the merits, but because of several postponements asked
by the parties, the same has to be set anew for trial on January 12, 1954. On this date, neither the
defendant nor her counsel appeared, even if the latter had been notified of the postponement almost a
month earlier, and so the court received the evidence of the plaintiff. On January 18, 1954, the court,
having in view the evidence presented, rendered judgment granting the relief prayed for in the
complaint.

On February 2, 1954, the original counsel for the defendant was substituted and the new counsel
immediately moved that the judgment be set aside on the ground that, due to mistake or excusable
negligence, defendant was unable to present her evidence and the decision was contrary to law, and
this motion having been denied, defendant took the present appeal.

The important issue to be determined in this appeal is whether the lower court committed a grave
abuse of discretion in not reopening the case to give defendant an opportunity to present her evidence
considering that the failure of her original counsel to appear was due to mistake or execusable
negligence which ordinary prudence could not have guarded against.

The original counsel of defendant was Atty. Leon Ma. Guerrero. As early as February 11, 1953, said
counsel showed interest in the early disposal of this case by moving the court to have it set for trial. The
first date set was April 7, 1953, but no hearing was had on that date because plaintiff had moved to
postpone it. The case was next set for hearing on April 28, 1953, but on motion again of plaintiff, the
hearing was transferred to November 6, 1953. Then, upon petition of defendant, the trial had to be
moved to December 15, 1953, and because Atty. Guerrero could not appear on said date because of a
case he had in Cebu City, the hearing was postponed to January 18, 1954.

And on January 4, 1954, or nineteen days after receiving the notice of hearing, Atty. Guerrero was
appointed Undersecretary of Foreign Affairs. It is now contended that the appointment was so sudden
and unexpected that Atty. Guerrero, after taking his oath, was unable to wind up his private cases or
make any preparation at all. It is averred that "The days that followed his appointment were very busy
days for defendant's former counsel. There was an immediate need for clearing the backlog of official
business, including the reorganization of the Department of Foreign Affairs and our Foreign Service, and
more importantly, he had to assist the Secretary of Foreign Affairs in negotiations of national
importance like the Japanese reparations, and the revision of the trade agreement with the United
States, that, Atty. Guerrero had to work as much as fourteen hours daily . . . Because of all these
unavoidable confusion that followed in the wake of Atty. Guerrero's sudden and unexpected
appointment, the trial of this case scheduled for January 18, 1954 escaped his memory, and
consequently, Atty. Guerrero and the defendant were unable to appear when the case was called for
trial." These reasons, — it is intimated, — constitute excusable negligence which ordinary prudence
could not have guarded against and should have been considered by the trial court as sufficient
justification to grant the petition of defendant for a rehearing.

It is a well-settled rule that the granting of a motion to set aside a judgment or order on the ground of
mistake or excusable negligence is addressed to the sound discretion of the court (see Coombs vs.
Santos, 24 Phil., 446; Daipan vs. Sigabu, 25, Phil., 184). And an order issued in the exercise of such
discretion is ordinarily not to be disturbed unless it is shown that the court has gravely abused such
discretion. (See Tell vs. Tell, 48 Phil., 70; Macke vs. Camps, 5 Phil., 185; Calvo vs. De Gutierrez, 4 Phil.,
203; Manzanares vs. Moreta, 38 Phil., 821; Salva vs. Palacio and Leuterio, 90 Phil., 731.) In denying the
motion for reopening the trial court said: "After going over the same arguments, this Court is of the
opinion, and so holds that the decision of this Court of January 18, 1954 should not be disturbed."
Considering the stature, ability and experience of counsel Leon Ma. Guerrero, and the fact that he was
given almost one month notice before the date set for trial, we are persuaded to conclude that the trial
court did not abuse its discretion in refusing to reconsider its decision.

Coming now to the merits of the case, we note that the lower court made the following findings: On
December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the
following conditions: (a) that plaintiff shall pay to defendant an interest in the amount of P250 a month;
(b) that defendant shall deduct from the loan certain obligations of plaintiff to third persons amounting
to P4,550, plus the sum of P250 as interest for the first month; and (c) that after making the above
deductions, defendant shall deliver to plaintiff only the balance of the loan of P12,000.

Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00
corresponding to nine months from December 18, 1951, on the basis of P250.00 a month, which is more
than the maximum interest authorized by law. To secure the payment of the aforesaid loan, defendant
required plaintiff to sign a document known as "Conditional Sale of Residential Building", purporting to
convey to defendant, with right to repurchase, a two-story building of strong materials belonging to
plaintiff. This document did not express the true intention of the parties which was merely to place said
property as security for the payment of the loan.

After the execution of the aforesaid document, defendant insured the building against fire with the
Associated Insurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued
in the name of defendant. The building was partly destroyed by fire and, after proper demand,
defendant collected from the insurance company an indemnity of P13,107.00. Plaintiff demanded from
defendant that she be credited with the necessary amount to pay her obligation out of the insurance
proceeds but defendant refused to do so. And on the strength of these facts, the court rendered
decision the dispositive part of which reads as follows:

Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff and defendant,
as shown in Exhibit A, an equitable mortgage to secure the payment of the sum of P12,000 loaned by
the defendant to plaintiff; ordering the defendant to credit the sum of P13,107 received by the
defendant from the Associated Insurance & surety Co., Inc. to the payment of plaintiff's obligation in the
sum of P12,000.00 as stated in the complaint, thus considering the agreement of December 18, 1951
between the herein plaintiff and defendant completely paid and leaving still a balance in the sum of
P1,107 from the insurance collected by defendant; that as plaintiff had paid to the defendant the sum of
P2,250.00 for nine months as interest on the sum of P12,000 loaned to plaintiff and the legal interest
allowed by law in this transaction does not exceed 12 per cent per annum, or the sum of P1,440 for one
year, so the herein plaintiff and overpaid the sum of P810 to the defendant, which this Court hereby
likewise orders the said defendant to refund to herein plaintiff, plus the balance of P1,107 representing
the difference of the sum loan of P12,000 and the collected insurance of P13,107 from the insurance
company abovementioned to which the herein plaintiff is entitled to receive, and to pay the costs.

The question that now arises is: Is the trial court justified in considering the obligation of plaintiff fully
compensated by the insurance amount and in ordering defendant to refund to plaintiff the sum of
P1,107 representing the difference of the loan of P12,000 and the sum of P13,107 collected by said
defendant from the insurance company notwithstanding the fact that it was not proven that the
insurance was taken for the benefit of the mortgagor?

Is is our opinion that on this score the court is in error for its ruling runs counter to the rule governing an
insurance taken by a mortgagee independently of the mortgagor. The rule is that "where a mortgagee,
independently of the mortgagor, insures the mortgaged property in his own name and for his own
interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to
retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the
money paid." (Vance on Insurance, 2d ed., p. 654)Or, stated in another way, "the mortgagee may insure
his interest in the property independently of the mortgagor. In that event, upon the destruction of the
property the insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and
the amount due under the mortgage debt remains unchanged. The mortgagee, however, is not allowed
to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of
the insurance money paid." (Vance on Insurance, 3rd ed., pp. 772-773) This is the same rule upheld by
this Court in a case that arose in this jurisdiction. In the case mentioned, an insurance contract was
taken out by the mortgagee upon his own interest, it being stipulated that the proceeds would be paid
to him only and when the case came up for decision, this Court held that the mortgagee, in case of loss,
may only recover upon the policy to the extent of his credit at the time of the loss. It was declared that
the mortgaged had no right of action against the mortgagee on the policy. (San Miguel Brewery vs. Law
Union, 40 Phil., 674.)

It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate
interest at his own expense and for his own benefit, without any agreement with the mortgagor with
respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance
proceeds applied in reduction of the mortgage debt" (19 R.C.L., p. 405), and that, furthermore, the
mortgagee "has still a right to recover his whole debt of the mortgagor." (King vs. State Mut. F. Ins. Co.,
7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also Loomis vs. Eagle Life & Health Ins. Co., 6
Gray, 396; Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster
vs. Equitable Mut. F. Ins. Co., 2 Gray 216.) But these authorities merely represent the minority view (See
case note, 3 Lawyers' Report Annotated, new series, p. 79). "The general rule and the weight of
authority is, that the insurer is thereupon subrogated to the rights of the mortgagee under the
mortgage. This is put upon the analogy of the situation of the insurer to that of a surety." (Jones on
Mortgages, Vol. I, pp. 671-672.)

Considering the foregoing rules, it would appear that the lower court erred in declaring that the
proceeds of the insurance taken out by the defendant on the property mortgaged inured to the benefit
of the plaintiff and in ordering said defendant to deliver to the plaintiff the difference between her
indebtedness and the amount of insurance received by the defendant, for, in the light of the majority
rule we have above enunciated, the correct solution should be that the proceeds of the insurance
should be delivered to the defendant but that her claim against the plaintiff should be considered
assigned to the insurance company who is deemed subrogated to the rights of the defendant to the
extent of the money paid as indemnity.

Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as
follows:(1) the transaction had between the plaintiff and defendant as shown in Exhibit A is merely an
equitable mortgage intended to secure the payment of the loan of P12,000;(2) that the proceeds of the
insurance amounting to P13,107.00 was properly collected by defendant who is not required to account
for it to the plaintiff; (3) that the collection of said insurance proceeds shall not be deemed to have
compensated the obligation of the plaintiff to the defendant, but bars the latter from claiming its
payment from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00 representing
the overpayment made by plaintiff by way of interest on the loan. No pronouncement as to costs.

Serrano vs CA

This petition for certiorari seeks to review the decision of the then Court of Appeals (now Intermediate
Appellate Court under BP 129) dated August 31, 1972, affirming the validity of the resolution of the
Social Security Commission denying favorable consideration of the claim for benefits of the petitioner
under the Group Redemption Insurance plan of the Social Security System (SYSTEM). The dispositive
portion of the respondent Court's decision reads as follows:
WHEREFORE, the Court hereby upholds the validity of the appealed resolution No. 1365, dated
December 24, 1968, of appellee Social Security Commission; without pronouncement as to costs (p. 31,
Rec.).

The undisputed facts are as follows:

On or about January 1, 1965, upon application of the SYSTEM, Group Mortgage Redemption Policy No.
GMR-1 was issued by Private Life Insurance Companies operating in the Philippines for a group life
insurance policy on the lives of housing loan mortgagors of the SYSTEM. Under this Group Mortgage
Redemption scheme, a grantee of a housing loan of the SYSTEM is required to mortgage the house
constructed out of the loan and the lot on which it stands. The SYSTEM takes a life insurance on the
eligible mortgagor to the extent of the mortgage indebtedness such that if the mortgagor dies, the
proceeds of his life insurance under the Group Redemption Policy will be used to pay his indebtedness
to the SYSTEM and the deceased's heirs will thereby be relieved of the burden of paying for the
amortization of the deceased's still unpaid loan to the SYSTEM (p. 25, rec.).

Petitioner herein is the widow of the late Bernardo G. Serrano, who, at the time of his death, was an
airline pilot of Air Manila, Inc. and as such was a member of the Social Security System.

On November 10, 1967, the SYSTEM approved the real estate mortgage loan of the late Bernardo G.
Serrano for P37,400.00 for the construction of the applicant's house (pp. 25-26, rec.).

On December 26, 1967, a partial release in the amount of P35,400.00 was effected and devoted to the
construction of the house (p. 2, rec.). As a consequence, a mortgage contract was executed in favor of
the SYSTEM by the late Captain Serrano with his wife as co-mortgagor.

On March 8, 1968, Captain Serrano died in a plane crash and because of his death, the SYSTEM closed
his housing loan account to the released amount of P35,400.00 (p. 26, rec.).

On December 2, 1968, the petitioner sent a letter addressed to the Chairman of the Social Security
Commission requesting that the benefits of the Group Mortgage Redemption Insurance be extended to
her.

The letter of the petitioner was referred to the Administrator of the SYSTEM, who recommended its
disapproval on the ground that the late Captain Serrano was not yet covered by the Group Mortgage
Redemption Insurance policy at the time of his death on March 8, 1968. In its resolution No. 1365 dated
December 24, 1968, the Social Security Commission sustained the said stand of the SYSTEM and thereby
formally denied the request of the petitioner (p. 26, rec.).

On appeal to the then Court of Appeals, the respondent Court affirmed the decision of the Social
Security Commission.

Hence, this petition.

The only issue to be resolved is the correctness of the interpretation given by the respondent
Commission which was upheld by the respondent Court as to the applicability of the Mortgage
Redemption Insurance plan particularly on when coverage on the life of the mortgagor commences.
Article II (Insurance Coverage) of the Group Mortgage Redemption Police No. GMR-1 provides:

Section 1. Eligibility.— Every mortgagor who is not over age 65 nearest birthday at the time the
Mortgage Loan is granted (or, in the case of a Mortgagor applying for insurance coverage on a Mortgage
Loan granted before the Date of Issue, at the time he makes such application) and who would not be
over 75 nearest birthday on the date on which the original term of the Mortgage Loan expires shall be
eligible for insurance coverage under this Policy, provided that if the total indebtedness to the Creditor
under the new Mortgage Loan and the outstanding balance of any prior Mortgage Loan or Loans insured
hereunder, exceeds P70,000.00, he will be eligible for insurance coverage up to this maximum limit only.

Co-makers or co-signers of mortgage contract are not eligible for coverage under this Policy.

Section 2. Mode of Acceptance. — Any Mortgagor who is eligible for coverage on or after the Date
of Issue shall be automatically insured, subject to the amount of insurance limit in Section 1 hereof,
without proof of insurability provided that he is not more than age 60 nearest birthday at the time the
Mortgage Loan is granted. Such a mortgagor who is over age 60 nearest birthday at the time the
Mortgage Loan is granted may be accepted for insurance only subject to the submission of evidence of
insurability satisfactory to the Subscribing Companies.

Any eligible Mortgagor who was already a Mortgagor before the Date of Issue shall be automatically
insured, subject to the amount of insurance limit in Section 1 hereof, without proof of insurability
provided that he is not more than age 60 nearest birthday on the Date of Issue and that he makes
written application to the Creditor for coverage within ninety (90) days from the Date of Issue. If such a
Mortgagor applies for coverage after ninety (90) days from the Date of Issue. he may be accepted for
insurance upon written application therefor, subject to the submission of evidence of insurability to the
Subscribing Companies.

Section 3. Effective Date of Insurance. — The insurance on the life of each eligible Mortgagor Loan
or partial release of Mortgage Loan accepted for coverage who becomes a Mortgagor on or after the
Date of Issue shall take effect from the beginning of the amortization period of such Mortgage Loan or
partial release of Mortgage Loan.

The beginning of the amortization period as used herein shall mean the first day of the month preceding
the month in which the first monthly amortization payment falls due.

It is hereby understood that before any release on any approved Mortgage Loan is made by the
Creditor, the requisites binding the Mortgagor and the Creditor as regards to said Mortgage Loan shall
have been completed

xxx xxx xxx

(pp. 59-60, rec.; emphasis supplied).

A careful analysis of the provisions leads to the conclusion that the respondent Court of Appeals erred in
construing the effectivity date of insurance coverage from the beginning of the amortization period of
the loan.
WE REVERSE.

There can be no doubt as to the eligibility of the late Captain Serrano for coverage under Section 1 of
Article II of the Group Mortgage Redemption Insurance Policy as he was a mortgagor of the Social
Security System not over the age of 65 nearest his birthday at the time when the mortgage loan was
granted to him (p. 26, rec.). This fact was admitted not only by the Social Security Commission but also
accepted by the Court of Appeals.

The problem manifests itself in Sections 2 and 3 of the same article of the Group Mortgage Redemption
Insurance Policy. Section 2 provides that "any mortgagor who is eligible for coverage on or after the
Date of Issue shall be automatically insured, ..." (emphasis supplied); while Section 3 provides that the
insurance "shall take effect from the beginning of the amortization period of such Mortgage loan or
partial release of Mortgage Loan " (emphasis supplied).

Section 2 of Article II of the Group Mortgage Redemption Insurance Policy provides that insurance
coverage shall be "automatic" and limited only by the amount of insurance and age requirement. While
the same section has for its title the mode of acceptance, what is controlling is the meaning of the
provision itself. The said section can only convey the Idea that the mortgagor who is eligible for
coverage on or after the date of issue shall be automatically insured. The only condition is that the age
requirement should be satisfied, which had been complied with by the deceased mortgagor in the
instant case.

Under said Section 2, mortgage redemption insurance is not just automatic; it is compulsory for all
qualified borrowers. This is the same automatic redemption insurance applied to all qualified borrowers
by the GSIS (Government Service Insurance System) and the DBP (Development Bank of the Philippines).
Indeed, the Mortgage Redemption Insurance Policy of the GSIS provides:

Sec. 2. ... This policy is granted subject to the terms and conditions set forth at the back hereof and in
consideration of the application therefor and shall take effect on the date of the first date of the
aforementioned loan (p. 126, CA rec.; emphasis supplied).

WE take judicial notice of the Mortgage Contract being issued by the Social Security System in
connection with applications for housing loans, specifically Section 16 thereof:

Section 16. — (a) The loan shall be secured against the death of the borrower through the Mortgage
Redemption Insurance Plan; (b) Coverage shall take effect on the date of the first release voucher of the
loan and shall continue until the real estate mortgage loan is fully paid; ... (emphasis supplied).

However, Section 3 of Article II presents an ambiguity. The effective date of coverage can be interpreted
to mean that the insurance contract takes effect "from the beginning of the amortization period of such
Mortgage Loan" or "partial release of Mortgage Loan."

Applying Article 1374 of the new Civil Code, the mortgagor in the instant case was already covered by
the insurance upon the partial release of the loan.

Article 1374, NCC, reads thus:

The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly.

The ambiguity in Section 3 of Article II should be resolved in favor of the petitioner. "The interpretation
of obscure words or stipulations in a contract shall not favor the party who caused the obscurity"
(Article 1377, Civil Code). WE have held that provisions, conditions or exceptions tending to work a
forfeiture of insurance policies should be construed most strongly against those for whose benefit they
are inserted, and most favorably toward those against whom they are intended to operate (Trinidad vs.
Orient Protective Ass., 67 Phil. 181).

While the issuance of the Group Mortgage Redemption Insurance is a contract between the Social
Security System and the Private Life Insurance Companies, the fact is that the SYSTEM entered into such
a contract to afford protection not only to itself should the mortgagor die before fully paying the loan
but also to afford protection to the mortgagor. WE take note of the following:

I. Insurance Coverage.

1. Fire insurance. — The SSS-financed house shall be covered by fire insurance equal to its appraised
value or the amount of the loan, whichever is lesser.

2. Mortgage Redemption Insurance. — Coverage shall be compulsory for any mortgagor who is not
more than 60 years old.

The insured indebtedness on the mortgage as provided in the policy shall be deemed paid upon the
death of a mortgagor covered under the MRI (Employees' Benefits & Social Welfare, 1983 Rev. Ed., CBSI,
pp. 50-51; emphasis supplied).

It is imperative to dissect the rationale of the insurance scheme envisioned by the Social Security
System. The Mortgage Redemption Insurance device is not only for the protection of the SYSTEM but
also for the benefit of the mortgagor. On the part of the SYSTEM, 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. The SYSTEM insures the
payment to itself of the loan with the insurance proceeds. It also negates any future problem that can
crop up should the heirs be not in a position to pay the mortgage loan. In short, the process of
amortization is hastened and possible litigation in the future is avoided. In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of his death; the
mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.

The interpretation of the Social Security Commission goes against the very rationale of the insurance
scheme. It cannot unjustly enrich itself at the expense of another (Nemo cum alterius detrimento
protest). "Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith" (Article 19, Civil Code). Simply put,
the SYSTEM cannot be allowed to have the advantage of collecting the insurance benefits from the
private life insurance companies and at the same time avoid its responsibility of giving the benefits of
the Mortgage Redemption Insurance plan to the mortgagor. The very reason for the existence of the
Social Security System is to extend social benefits. For SSS to be allowed to deny benefits to its
members, is certainly not in keeping with its policy "... to establish, develop, promote and perfect a
sound and viable tax-exempt social security service suitable to the needs of the people throughout the
Philippines, which shall provide to covered employees and their families protection against the hazards
of disability, sickness, old age, and death with a view to promote their well-being in the spirit of social
justice" (The Social Security Law, R.A. No. 1161, as amended).

To sustain the position of the SSS is to allow it to collect twice the same amount — first from the
insurance companies which paid to it the amount of the MRI and then from the heirs of the deceased
mortgagor. This result is unconscionable as it is iniquitous.

It is very clear that the spirit of social justice permeates the insurance scheme under the Group
Mortgage Redemption Insurance. It is a welcome innovation in these times when the concept of social
justice is not just an empty slogan nor a mere shibboleth. Social justice is explicitly institutionalized and
guaranteed under the Constitution (Article II, Section 6, 1973 Constitution). The construction that would
enhance the State's commitment on social justice mandates Us to hold for the petitioner.

Usually, among the items to be deducted by the SYSTEM from the first release of the loan is the
premium corresponding to the mortgage redemption insurance (MRI). However, if the premium
corresponding to the amount to be deducted from the first release of the loan was not paid by the
borrower, the deceased mortgagor, the said unpaid premium should be refunded by the heirs of the
borrower.

WHEREFORE, THE DECISION OF THE RESPONDENT COURT OF APPEALS AFFIRMING RESOLUTION NO.
1365 OF RESPONDENT COMMISSION IS HEREBY SET ASIDE. THE SOCIAL SECURITY SYSTEM IS HEREBY
DIRECTED TO RELEASE THE PETITIONER FROM PAYING THE MORTGAGE LOAN. THE PETITIONER IS
HEREBY DIRECTED TO REFUND TO THE SSS THE PREMIUM CORRESPONDING TO THE RELEASED
AMOUNT, IF THE SAME HAD NOT BEEN DEDUCTED THEREFROM. NO COSTS.

Calanoc vs CA

This suit involves the collection of P2,000 representing the value of a supplemental policy covering
accidental death which was secured by one Melencio Basilio from the Philippine American Life Insurance
Company. The case originated in the Municipal Court of Manila and judgment being favorable to the
plaintiff it was appealed to the court of first instance. The latter court affirmed the judgment but on
appeal to the Court of Appeals the judgment was reversed and the case is now before us on a petition
for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and
Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the
amount of P2,000 to which was attached a supplementary contract covering death by accident. On
January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of
Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow, was paid the
sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of
P2,000 representing the value of the supplemental policy, the company refused alleging, as main
defense, that the deceased died because he was murdered by a person who took part in the commission
of the robbery and while making an arrest as an officer of the law which contingencies were expressly
excluded in the contract and have the effect of exempting the company from liability.
The pertinent facts which need to be considered for the determination of the questions raised are those
reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed at about
seven o'clock in the night of January 25, 1951, he was on duty as watchman of the Manila Auto Supply at
the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda who had his
residence at the corner of Zurbaran and Oroquieta, a block away from Basilio's station, had come home
that night and found that his house was well-lighted, but with the windows closed; that getting
suspicious that there were culprits in his house, Atty. Ojeda retreated to look for a policeman and
finding Basilio in khaki uniform, asked him to accompany him to the house with the latter refusing on
the ground that he was not a policeman, but suggesting that Atty. Ojeda should ask the traffic
policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic
policeman at said corner and reported the matter, asking the policeman to come along with him, to
which the policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda
passed by Basilio and somehow or other invited the latter to come along; that as the tree approached
the Ojeda residence and stood in front of the main gate which was covered with galvanized iron, the
fence itself being partly concrete and partly adobe stone, a shot was fired; that immediately after the
shot, Atty. Ojeda and the policeman sought cover; that the policeman, at the request of Atty. Ojeda, left
the premises to look for reinforcement; that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death; that the shot
must have come from inside the yard of Atty. Ojeda, the bullet passing through a hole waist-high in the
galvanized iron gate; that upon inquiry Atty. Ojeda found out that the savings of his children in the
amount of P30 in coins kept in his aparador contained in stockings were taken away, the aparador
having been ransacked; that a month thereafter the corresponding investigation conducted by the
police authorities led to the arrest and prosecution of four persons in Criminal Case No. 15104 of the
Court of First Instance of Manila for 'Robbery in an Inhabited House and in Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of
the law" or as a result of an "assault or murder" committed in the place and therefore his death was
caused by one of the risks excluded by the supplementary contract which exempts the company from
liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion, made the
following comment:

From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto Supply,
and, as such, he was not boud to leave his place and go with Atty. Ojeda and Policeman Magsanoc to
see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact, according to the finding of
the lower court, Atty. Ojeda finding Basilio in uniform asked him to accompany him to his house, but the
latter refused on the ground that he was not a policeman and suggested to Atty. Ojeda to ask help from
the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured
the help of the traffic policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the main gate of said residence, he
was shot and thus died. The death, therefore, of Basilio, although unexpected, was not caused by an
accident, being a voluntary and intentional act on the part of the one wh robbed, or one of those who
robbed, the house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio, though
unexpected, cannot be considered accidental, for his death occurred because he left his post and joined
policeman Magsanoc and Atty. Ojeda to repair to the latter's residence to see what happened thereat.
Certainly, when Basilio joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger
to which he was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and
Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of
the Manila Auto Supply which was a block away from the house of Atty. Ojeda where something
suspicious was happening which caused the latter to ask for help. While at first he declied the invitation
of Atty. Ojeda to go with him to his residence to inquire into what was going on because he was not a
regular policeman, he later agreed to come along when prompted by the traffic policeman, and upon
approaching the gate of the residence he was shot and died. The circumstance that he was a mere
watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on
his part to expose his life to danger considering the fact that the place he was in duty-bound to guard
was only a block away. In volunteering to extend help under the situation, he might have thought,
rightly or wrongly, that to know the truth was in the interest of his employer it being a matter that
affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing that
errand, but that risk always existed it being inherent in the position he was holding. He cannot therefore
be blamed solely for doing what he believed was in keeping with his duty as a watchman and as a
citizen. And he cannot be considered as making an arrest as an officer of the law, as contended, simply
because he went with the traffic policeman, for certainly he did not go there for that purpose nor was
he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the
very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of
either crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps
this may be clarified in the criminal case now pending in court as regards the incident but before that is
done anything that might be said on the point would be a mere conjecture. Nor can it be said that the
killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare
away the people around for his own protection and not necessarily to kill or hit the victim. In any event,
while the act may not excempt the triggerman from liability for the damage done, the fact remains that
the happening was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely
because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary contract
which enumerates the cases which may exempt the company from liability. While as a general rule "the
parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss,
and may expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to
be desired that the terms and phraseology of the exception clause be clearly expressed so as to be
within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the
same must of necessity be interpreted or resolved aganst the one who has caused the obscurity. (Article
1377, new Civil Code) And so it has bene generally held that the "terms in an insurance policy, which are
ambiguous, equivacal, or uncertain . . . are to be construed strictly and most strongly against the insurer,
and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the
insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that
he "insured usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by
experts who know and can anticipate the bearings and possible complications of every contingency. So
long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which
conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co.,
91 Wash. 324, LRA 1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not
warrant the finding that the death of the unfortunate victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-
appellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

Finman General vs CA

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary
mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1
affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner
Finman General Assurance Corporation to pay private respondent Julia Surposa the proceeds of the
personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner
Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy
No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and
brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18,
1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation
and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on
their way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra
Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice
of claim with the petitioner insurance company which denied said claim contending that murder and
assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which
subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with interest. As no evidence was submitted to prove the claim
for mortuary aid in the sum of P1,000.00, the same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of
P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied. With costs.
4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court
in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy
since death resulting from murder and/or assault are impliedly excluded in said insurance policy
considering that the cause of death of the insured was not accidental but rather a deliberate and
intentional act of the assailant in killing the former as indicated by the location of the lone stab wound
on the insured. Therefore, said death was committed with deliberate intent which, by the very nature of
a personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms
have been taken to mean that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without
one's foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect
of a known cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident or accidental means
within the terms of an accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury. There is no accident when a
deliberate act is performed unless some additional, unexpected, independent, and unforeseen
happening occurs which produces or brings about the result of injury or death. In other words, where
the death or injury is not the natural or probable result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the
protection of the policies insuring against death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder
as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured
and his companion were on their way home from attending a festival. They were confronted by
unidentified persons. The record is barren of any circumstance showing how the stab wound was
inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer
wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from
criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The
insured died from an event that took place without his foresight or expectation, an event that
proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said
that where was a capricious desire on the part of the accused to expose his life to danger considering
that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten
(10) circumstances wherein no liability attaches to petitioner insurance company for any injury,
disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of "
expresso unius exclusio alterius" — the mention of one thing implies the exclusion of another thing — is
therefore applicable in the instant case since murder and assault, not having been expressly included in
the enumeration of the circumstances that would negate liability in said insurance policy cannot be
considered by implication to discharge the petitioner insurance company from liability for, any injury,
disability or loss suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted
in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the
petition for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of
merit.

Geagona vs CA

Four our review under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in CA-G.R.
SP No. 31916, entitled "Country Bankers Insurance Corporation versus Armando Geagonia," reversing
the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner
Armando Geagonia against private respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del
Sur. On 22 December 1989, he obtained from the private respondent fire insurance policy No. F-146222
for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business."

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had in his
inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc.

P55,698.00

F. Legaspi Gen. Merchandise

86,432.50
Cebu Tesing Textiles

250,000.00

(on credit)

—————

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already affected, or
which may subsequently be effected, covering any of the property or properties consisting of stocks in
trade, goods in process and/or inventories only hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition
shall not apply when the total insurance or insurances in force at the time of the loss or damage is not
more than P200,000.00.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stock-in-trade were completely destroyed prompting
him to file with the private respondent a claim under the policy. On 28 December 1990, the private
respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade
were likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each,
issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These policies
indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage
clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may
appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F
24758.4

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy.

The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission
(Case No. 3340) for the recovery of P100,000.00 under fire insurance policy No. F-14622 and for
attorney's fees and costs of litigation. He attached as Annex "AM"6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said letter that at the time he
obtained the private respondent's fire insurance policy he knew that the two policies issued by the PFIC
were already in existence; however, he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the
private respondent's agent; and had it been mentioned, he would not have withheld such information.
He further asserted that the total of the amounts claimed under the three policies was below the actual
value of his stocks at the time of loss, which was P1,000,000.00.
In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as
its principal defense the violation of Condition 3 of the policy.

In its decision of 21 June 1993,8 the Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from
the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
These findings were based on the petitioner's testimony that he came to know of the PFIC policies only
when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them and
paid for their premiums without informing him thereof. The Insurance Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the
sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the
amount of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim of respondent is
hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in
its resolution of 20 August 1993, 10 the private respondent appealed to the Court of Appeals by way of a
petition for review. The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals reversed the decision of the Insurance
Commission because it found that the petitioner knew of the existence of the two other policies issued
by the PFIC. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken
in the name of private respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR.
ARMANDO GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only the mortgagee of
the goods.

In addition, the premiums on both policies were paid for by private respondent, not by the Tesing
Textiles which is alleged to have taken out the other insurance without the knowledge of private
respondent. This is shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both
invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured but the party to
which they were issued were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the policies on the same
property subject of the insurance with petitioner. Hence, in failing to disclose the existence of these
insurances private respondent violated Condition No. 3 of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his
letter to petitioner [of 18 January 1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision requiring me to inform your office about
my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said
requirement at the time he was convincing me to insure with you. If he only die or even inquired if I had
other existing policies covering my establishment, I would have told him so. You will note that at the
time he talked to me until I decided to insure with your company the two policies aforementioned were
already in effect. Therefore I would have no reason to withhold such information and I would have
desisted to part with my hard earned peso to pay the insurance premiums [if] I know I could not recover
anything.

Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my
stocks damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see
xerox copy of Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months
before the fire, shows my merchandise inventory was already some P595,455.75. . . . These will support
my claim that the amount claimed under the three policies are much below the value of my stocks lost.

xxx xxx xxx

The letter contradicts private respondent's pretension that he did not know that there were other
insurances taken on the stock-in-trade and seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the instant
petition. He contends therein that the Court of Appeals acted with grave abuse of discretion amounting
to lack or excess of jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-

JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION
IS ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;

B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS

EVIDENCE DURING THE HEARING OR TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE
RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior
knowledge of the two insurance policies issued by the PFIC when he obtained the fire insurance policy
from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy,
and (b) if he had, whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of
reconsideration of 18 January 1991, is without merit. The petitioner claims that the said letter was not
offered in evidence and thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's
complaint in I.C. Case No. 3440 as Annex "M" thereof and made integral part of the complaint. 12 It has
attained the status of a judicial admission and since its due execution and authenticity was not denied
by the other party, the petitioner is bound by it even if it were not introduced as an independent
evidence. 13
As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the
previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit
admission by the petitioner in his letter to the private respondent of 18 January 1991, which was quoted
in the challenged decision of the Court of Appeals. These divergent findings of fact constitute an
exception to the general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14

We agree with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His
letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to
the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a
written admission made ante litem motam. It was, indeed, incredible that he did not know about the
prior policies since these policies were not new or original. Policy No. GA-28144 was a renewal of Policy
No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a]
policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of
an immaterial provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject
matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy covering
his interest, either at the same or at separate times. 18 The mortgagor's insurable interest covers the
full value of the mortgaged property, even though the mortgage debt is equivalent to the full value of
the property.19 The mortgagee's insurable interest is to the extent of the debt, since the property is
relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien
thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the
debt, not exceeding the value of the mortgaged property. 20 Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual
practice. The mortgagee may be made the beneficial payee in several ways. He may become the
assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the
original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached; or the policy, though by its
terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract
duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his
interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by
the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which defeats
his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such interest as
the mortgagee has at the issuing of the policy.23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has
been noted, however, that although the mortgagee is himself the insured, as where he applies for a
policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the
assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause. 25

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject
to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:

The insured shall give notice to the company of any insurance or insurances already effected, or which
may subsequently be effected covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall
be forfeited.

or in the 1930 case of Santa Ana vs. Commercial Union Assurance

Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects
thereby assured must be declared by the insured in writing and he must cause the company to add or
insert it in the policy, without which such policy shall be null and void, and the insured will not be
entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does
not absolutely declare void any violation thereof. It expressly provides that the condition "shall not
apply when the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00."

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor
of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest
protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in
the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible
to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for
such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which tend to work
a forfeiture of insurance policies should be construed most strictly against those for whose benefits they
are inserted, and most favorably toward those against whom they are intended to operate. 30 The
reason for this is that, except for riders which may later be inserted, the insured sees the contract
already in its final form and has had no voice in the selection or arrangement of the words employed
therein. On the other hand, the language of the contract was carefully chosen and deliberated upon by
experts and legal advisers who had acted exclusively in the interest of the insurers and the technical
language employed therein is rarely understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally
free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us to conclude
that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to
the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering
any of the property or properties consisting of stocks in trade, goods in process and/or inventories only
hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE
that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists
where the same person is insured by several insurers separately in respect of the same subject and
interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as
that covered by the policy of the private respondent, no double insurance exists. The non-disclosure
then of the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance
in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a situation in which
a fire would be profitable to the insured.32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP
No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.

Costs against private respondent Country Bankers Insurance Corporation.

Fortune Insurance vs CA

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is
liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial
court and the Court of Appeals held that there should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private
respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune
Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of
Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its
head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the following
stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate
original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of
P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office
at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The
robbery took place while the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff
by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto
attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by
virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which
is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint
is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said
crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance
policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section
(b), which is marked as Exhibit "A-1," and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting alone or
in conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong
are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion
thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No.
0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of
P145,000.00), with interest thereon at the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It
Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga,
their services as armored car driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields
the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such — in a context which does not impress the
Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard,
beyond perhaps entitling plaintiff to request are replacement for such driver guard. The finding is
accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the
"authorized representatives" of plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati
Head Office. Quite plainly — it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash
being transferred along a specified money route, and hence plaintiff's then designated "messenger"
adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No.
32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither
employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against
the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office,
Ltd. vs. Court of Appeals, 211 SCRA 554). 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 (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals,
195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple.
No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary
sense.

The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and
therefore its definition as to employer-employee relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-
appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it
has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C)
except only to ask for their replacements from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the
Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the
general exceptions clause considering that driver Magalong and security guard Atiga were Producers'
authorized representatives or employees in the transfer of the money and payroll from its branch office
in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one
branch to another, they effectively and necessarily became its authorized representatives in the care
and custody of the money. Assuming that they could not be considered authorized representatives, they
were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee
relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there
was in reality an employer-employee relationship between Producers, on the one hand, and Magalong
and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer
and that it is absolved from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3)
the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control
the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive
factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but
"labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. — There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited and placed by such
persons are performing activities which are directly related to the principal business of such employer.
In such cases, the person or intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if the latter were directly
employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in
International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is
equivalent to a finding that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its employees since it had
nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the
control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable
to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor
Code, a social legislation whose provisions may set aside contracts entered into by parties in order to
give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines vs.
Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements are generally
considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3)
the power of dismissal; and (4) the power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong
as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As
to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides
that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no
other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts
are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these,
the rights and obligations of the parties must be determined by the terms of their contract, taking into
consideration its purpose and always in accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud
the insurer — the moral hazard — is so great that insurers have found it necessary to fill up their policies
with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the
risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such
provisions are those in the insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having unrestricted access to the property.
12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood
in common speech. 13 The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer.
16 Limitations of liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without
saying then that if the terms of the contract are clear and unambiguous, there is no room for
construction and such terms cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is
settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as
employees or authorized representatives of Producers under paragraph (b) of the general exceptions
clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting alone or
in conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms "employee"
and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "employee," it
must have had in mind any person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of the employer-
employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106
of the Labor Code which considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services
are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services
that the drivers and the security guards each shall supply to Producers are not the latter's employees, it
may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is,
in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal
of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and PRC
Management Systems and Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we are
satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay
City branch to its head office in Makati, its "authorized representatives" who served as such with its
teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In short, for these particular tasks,
the three acted as agents of Producers. A "representative" is defined as one who represents or stands in
the place of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R.
CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in
Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

Enriquez vs Sun Life

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to
recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the
sum of P6,000 to the manager of the company's Manila office and was given a receipt reading as
follows:

MANILA, I. F., 26 de septiembre, 1917.

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina Central
de la Compañia.

The application was immediately forwarded to the head office of the company at Montreal, Canada. On
November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the
same day the cable was received notice was sent by the Manila office of Herrer that the application had
been accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was
issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the
company stating that Herrer desired to withdraw his application. The following day the local office
replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of
November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr.
Herrer died on December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial
testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26, 1917, and
handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on cross-
examination that after preparing the letter and giving it to he manager, he new nothing of what became
of it. The local manager, Mr. White, testified to having received the cablegram accepting the application
of Mr. Herrer from the home office on November 26, 1917. He said that on the same day he signed a
letter notifying Mr. Herrer of this acceptance. The witness further said that letters, after being signed,
were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if
the letter had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on
November 26, 1917, was not called as a witness. For the defense, attorney Manuel Torres testified to
having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his
application for a life annuity, and that he said that the only document relating to the transaction in his
possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he
had gone through the effects of the deceased and had found no letter of notification from the insurance
company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying
Mr. Herrer that his application had been accepted, was prepared and signed in the local office of the
insurance company, was placed in the ordinary channels for transmission, but as far as we know, was
never actually mailed and thus was never received by the applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be
applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be
noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title VIII of
Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil Code there
formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and life
annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in force the
Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act expressly
repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The law of
insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in article
1802, not only describes a contact of life annuity markedly similar to the one we are considering, but in
two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of
the Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter
shall be supplied by the provisions of this Code." On the supposition, therefore, which is incontestable,
that the special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code
is found article 1262 providing that "Consent is shown by the concurrence of offer and acceptance with
respect to the thing and the consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to his knowledge. The
contract, in such case, is presumed to have been entered into at the place where the offer was made."
This latter article is in opposition to the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion, then
the only duty remaining is for the court to apply the law as it is found. The legislature in its wisdom
having enacted a new law on insurance, and expressly repealed the provisions in the Code of Commerce
on the same subject, and having thus left a void in the commercial law, it would seem logical to make
use of the only pertinent provision of law found in the Civil code, closely related to the chapter
concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from
the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it
must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in
order that the principle may not be taken too lightly, let it be noticed that it is identical with the
principles announced by a considerable number of respectable courts in the United States. The courts
who take this view have expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only the mailing of acceptance,
it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the
acceptance has passed beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)

In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262
of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The pertinent fact is, that according to the provisional
receipt, three things had to be accomplished by the insurance company before there was a contract: (1)
There had to be a medical examination of the applicant; (2) there had to be approval of the application
by the head office of the company; and (3) this approval had in some way to be communicated by the
company to the applicant. The further admitted facts are that the head office in Montreal did accept the
application, did cable the Manila office to that effect, did actually issue the policy and did, through its
agent in Manila, actually write the letter of notification and place it in the usual channels for
transmission to the addressee. The fact as to the letter of notification thus fails to concur with the
essential elements of the general rule pertaining to the mailing and delivery of mail matter as
announced by the American courts, namely, when a letter or other mail matter is addressed and mailed
with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as
soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these
elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed
to have been received by the addressee unless it is shown that it was deposited in the post-office,
properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not been
proved satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.lawph!l.net

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000
with legal interest from November 20, 1918, until paid, without special finding as to costs in either
instance. So ordered.

Perez vs CA

A contract of insurance, like all other contracts, must be assented to by both parties, either in person or
through their agents and so long as an application for insurance has not been either accepted or
rejected, it is merely a proposal or an offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in CA-
G.R. CV 35529 entitled, "BF Lifeman Insurance Corporations, Plaintiff-Appellant versus Virginia A. Perez,
Defendant-Appellee," which declared Insurance Policy 056300 for P50,000.00 issued by private
respondent corporation in favor of the deceased Primitivo B. Perez, null and void and rescinded, thereby
reversing the decision rendered by the Regional Trial Court of Manila, Branch XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00. Sometime in October 1987, an agent of the insurance corporation, Rodolfo Lalog, visited
Perez in Guinayangan, Quezon and convinced him to apply for additional insurance coverage of
P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually.

On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional insurance
coverage of P50,000.00. On the same day, petitioner Virginia A. Perez, Primitivos wife, paid P2,075.00 to
Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."[1] Unfortunately,
Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to
fill up another application form.[2] On November 1, 1987, Perez was made to undergo the required
medical examination, which he passed.[3]

Pursuant to the established procedure of the company, Lalog forwarded the application for additional
insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance
Corporation at Gumaca, Quezon which office was supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a
storm. At the time of his death, his application papers for the additional insurance of P50,000.00 were
still with the Gumaca office. Lalog testified that when he went to follow up the papers, he found them
still in the Gumaca office and so he personally brought the papers to the Manila office of BF Lifeman
Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved
the application and issued the corresponding policy for the P50,000.00 on December 2, 1987.[4] Ncm

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in
case of accident) but the insurance company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity
rider on the insurance policy. In its letter of January 29, 1988 to Virginia A. Perez, the insurance
company maintained that the insurance for P50,000.00 had not been perfected at the time of the death
of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which
Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint against
Virginia A. Perez seeking the rescission and declaration of nullity of the insurance contract in question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations
under the contract and all the elements of a valid contract are present. She then filed a counterclaim
against private respondent for the collection of P150,000.00 as actual damages, P100,000.00 as
exemplary damages, P30,000.00 as attorneys fees and P10,000.00 as expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion of
which reads as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant Virginia A.

Perez, ordering the plaintiff BF Lifeman Insurance Corporation to pay to her the face value of BF Lifeman
Insurance Policy No. 056300, plus double indemnity under the SARDI or in the total amount of
P150,000.00 (any refund made and/or premium deficiency to be deducted therefrom).

SO ORDERED.[5]

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00
had been fully paid and even if the sum of P2,075.00 were to be considered merely as partial payment,
the same does not affect the validity of the policy. The trial court further stated that the deceased had
fully complied with the requirements of the insurance company. He paid, signed the application form
and passed the medical examination. He should not be made to suffer the subsequent delay in the
transmittal of his application form to private respondents head office since these were no longer within
his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance
contract for P50,000.00 could not have been perfected since at the time that the policy was issued,
Primitivo was already dead.[6] Citing the provision in the application form signed by Primitivo which
states that: Ncmmis
"x x x there shall be no contract of insurance unless and until a policy is issued on this application and
that the policy shall not take effect until the first premium has been paid and the policy has been
delivered to and accepted by me/us in person while I/we, am/are in good health"

the Court of Appeals held that the contract of insurance had to be assented to by both parties and so
long as the application for insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract.

Petitioners motion for reconsideration having been denied by respondent court, the instant petition for
certiorari was filed on the ground that there was a consummated contract of insurance between the
deceased and BF Lifeman Insurance Corporation and that the condition that the policy issued by the
corporation be delivered and received by the applicant in good health, is potestative, being dependent
upon the will of the insurance company, and is therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the
other for loss on a specified subject by specified perils.[7] A contract, on the other hand, is a meeting of
the minds between two persons whereby one binds himself, with respect to the other to give something
or to render some service.[8] Under Article 1318 of the Civil Code, there is no contract unless the
following requisites concur:

(1).......Consent of the contracting parties;

(2).......Object certain which is the subject matter of the contract;

(3).......Cause of the obligation which is established.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his
medical examination, his application was subject to the acceptance of private respondent BF Lifeman
Insurance Corporation. The perfection of the contract of insurance between the deceased and
respondent corporation was further conditioned upon compliance with the following requisites stated in
the application form:

"there shall be no contract of insurance unless and until a policy is issued on this application and that
the said policy shall not take effect until the premium has been paid and the policy delivered to and
accepted by me/us in person while I/We, am/are in good health."[9] Scnc m

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it
merely received the application form and all the requisite supporting papers of the applicant. Its assent
was given when it issues a corresponding policy to the applicant. Under the abovementioned provision,
it is only when the applicant pays the premium and receives and accepts the policy while he is in good
health that the contract of insurance is deemed to have been perfected.
It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for
additional insurance coverage were still with the branch office of respondent corporation in Gumaca
and it was only two days later, or on November 27, 1987, when Lalog personally delivered the
application papers to the head office in Manila. Consequently, there was absolutely no way the
acceptance of the application could have been communicated to the applicant for the latter to accept
inasmuch as the applicant at the time was already dead. In the case of Enriquez vs. Sun Life Assurance
Co. of Canada,[10] recovery on the life insurance of the deceased was disallowed on the ground that the
contract for annuity was not perfected since it had not been proved satisfactorily that the acceptance of
the application ever reached the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been
delivered to and accepted by the proposed insured in good health is potestative being dependent upon
the will of the corporation and is therefore null and void.

We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is
considered void. Article 1182 of the New Civil Code states: When the fulfillment of the condition
depends upon the sole will of the debtor, the conditional obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the perfection
of the contract of insurance:

(a).......a policy must have been issued;

(b).......the premiums paid; and

(c).......the policy must have been delivered to and accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and accepted by
the applicant while he is in good health can hardly be considered as a potestative or facultative
condition. On the contrary, the health of the applicant at the time of the delivery of the policy is beyond
the control or will of the insurance company. Rather, the condition is a suspensive one whereby the
acquisition of rights depends upon the happening of an event which constitutes the condition. In this
case, the suspensive condition was the policy must have been delivered and accepted by the applicant
while he is in good health. There was non-fulfillment of the condition, however, inasmuch as the
applicant was already dead at the time the policy was issued. Hence, the non-fulfillment of the condition
resulted in the non-perfection of the contract. Sdaa miso

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either
in person or by their agents. So long as an application for insurance has not been either accepted or
rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date
of application, must have been a completed contract, one that leaves nothing to be done, nothing to be
completed, nothing to be passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in agreement.[11]

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It
should be noted that an application is a mere offer which requires the overt act of the insurer for it to
ripen into a contract. Delay in acting on the application does not constitute acceptance even though the
insured has forwarded his first premium with his application. The corporation may not be penalized for
the delay in the processing of the application papers. Moreover, while it may have taken some time for
the application papers to reach the main office, in the case at bar, the same was acted upon less than a
week after it was received. The processing of applications by respondent corporation normally takes two
to three weeks, the longest being a month.[12] In this case, however, the requisite medical examination
was undergone by the deceased on November 1, 1987; the application papers were forwarded to the
head office on November 27, 1987; and the policy was issued on December 2, 1987. Under these
circumstances, we hold that the delay could not be deemed unreasonable so as to constitute gross
negligence.

A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy 056300
for P50,000.00 null and void and rescinded. The Court of Appeals corrected this in its Resolution of the
motion for reconsideration filed by petitioner, thus:

"Anent the appearance of the word rescinded in the dispositive portion of the decision, to which
defendant-appellee attaches undue significance and makes capital of, it is clear that the use of the
words and rescinded is, as it is hereby declared, a superfluity. It is apparent from the context of the
decision that the insurance policy in question was found null and void, and did not have to be
rescinded."[13]

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no
contract at all and hence could not be the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED
insofar as it declared Insurance Policy No. 056300 for P50,000.00 issued by BF Lifeman Insurance
Corporation of no force and effect and hence null and void. No costs

Insular Life vs Ebrado

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

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

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage
in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00
plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of
P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon
due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage.

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

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

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

SO ORDERED.

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

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

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