FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
In October 1941, Christern, Huenefeld and Company, a German company, obtained an insurance
policy from Filipinas Compaia for the formers merchandise contained in a building located in
Binondo, Manila. Filipinas Compaia is an American controlled company. During the Japanese
occupation, the building housing the insured merchandise was burned. Christern filed its claim
amounting to P92,650.00 but Filipinas Compaia refused to pay alleging that Christern is a
corporation whose majority stockholders are Germans; that during the Japanese occupation,
America declared war against Germany hence the insurance policy ceased to be effective
because the insured has become an enemy. Filipinas Compaia was eventually ordered to pay
Christern as ordered by the Japanese government.
ISSUE: Whether or not Christern, Huenefeld and Co is entitled to receive the proceeds from the
insurance claim.
HELD: No. There is no question that majority of the stockholders of Christern were German
subjects. This being so, Christern became an enemy corporation upon the outbreak of the war
between the United States and Germany. The Philippine Insurance Law (Act No. 2427, as
amended,) in Section 8, provides that anyone except a public enemy may be insured. It stands
to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public
enemy. Christern should return the amount it was earlier paid.
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.
Areola v CA G.R. No. 95641 September 22, 1994
Facts:
Prudential Guarantee cancelled Areolas personal accident insurance on the grounds that the
latter failed to pay his premiums 7 months after issuing the policy. Areola was supposed to pay
the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of
P110.25 and 2% premium tax of P29.40. The statement of account had a stipulation not
considering it a receipt. It also reminded the customer to ask for a receipt after payment. There
was also a stipulation calling for a demand for a provisional receipt after payment to an agent. A
provisional receipt was sent to petitioner telling him that the provisional receipt would be
confirmed by an official one. The company then cancelled the policy for non-payment of
premiums. After being surprised, Areola confronted a company agent and demanded an official
receipt. The latter told him that it was a mistake, but never gave him an official receipt. Areola
sent a letter demanding that he be reinstated or he would file for damages if his demand was not
met. The company then told him that his payments werent in full yet. The company replied to
Areola by telling him that there was reason to believe that no payment has been made since no
official receipt was issued. The company then told him that they would still hold him under the
policy. The company then confirmed that he paid the premium and that they would extend the
policy by one year.
Thereby, the company offered to reinstate same policy it had previously cancelled and even
proposed to extend its lifetime on finding that the cancellation was erroneous and that the
premiums were paid in full by petitioner-insured but were not remitted by the company's branch
manager, Mr. Malapit.
However, they were too late for Areola already filed an action for breach of contract in the trial
court.
The companys defense lay in rectifying its omission; hence, there was no breach of contract.
The court ruled in favor of Areola and asked Prudential to pay 250,000 pesos in moral and
exemplary damages. The court held that the company was in bad faith in cancelling the policy.
Had the insured met an accident at that time, he wouldnt be covered by the policy.
This ruling was challenged on appeal by respondent insurance company, denying bad faith in
unilaterally cancelling the policy. The AC absolved Prudential on the grounds that it was not
motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on what the existing records showed. The court
even added that the errant manager who didnt remit the profits was forced to resign. Areola then
filed for a petition in the Supreme Court.

Issue:
1. Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to
payment of damages?
2. Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent
insurance company, in an effort to rectify such error, obliterate whatever liability for damages it
may have to bear, thus absolving it?

Held: Yes. No. Petition granted
Ratio:
1. Petitioner alleged that the managers misappropriation of his premium payments is the
proximate cause of the cancellation of the insurance policy. Subsequent reinstatement could not
possibly absolve respondent insurance company from liability, due to the breach of contract. He
contended that damage had already been done.
Prudential averred that the equitable relief sought by petitioner-insured was granted to the filing
of the complaint, petitioner-insured is left without a cause of action. Reinstatement effectively
restored petitioner-insured to all his rights under the policy.
The court held that Malapit's fraudulent act of misappropriating the premiums paid by petitioner-
insured is directly imputable to respondent insurance company. A corporation, such as
respondent insurance company, acts solely thru its employees. The latters' acts are considered as
its own. Malapit represented its interest and acted in its behalf. His act of receiving the premiums
collected is well within the province of his authority. Thus, his receipt of said premiums is
receipt by private respondent insurance company who, by provision of law is bound by the acts
of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The fact
that private respondent insurance company was itself defrauded due to the anomalies that took
place does not free the same from its obligation to petitioner Areola. As held in Prudential Bank
v. Court of Appeals
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course
of dealings of the officers in their representative capacity but not for acts outside the scope of
their authority. Accordingly, a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general scope of
his authority even though the agent is secretly abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person.
Prudential is liable for damages for the fraudulent acts committed by Malapit. Reinstating the
insurance policy can not obliterate the injury inflicted. A contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those which arise from the
same cause and in which each party is both a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other.
2. Due to the agreement to enter into a contract of insurance where Prudential promised to extend
protection to petitioner-insured against the risk insured, there was a debtor creditor relation ship
between the two parties. Under Article 1191, the injured party is given a choice between
fulfillment or rescission of the obligation in case one of the obligors fails to comply with what is
incumbent upon him. However, said article entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or rescission of the obligation.
The damages would be nominal because the insurance company took steps to rectify the
contract . There was also no actual or substantial damage inflicted. Nominal damages are
"recoverable where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where there has been a breach
of contract and no substantial injury or actual damages whatsoever have been or can be shown.
ADELAIDA OCAMPO VDA. DE GOMEZ, demandante-apelante,
vs.
THE GOVERNMENT INSURANCE BOARD, demandado-apelado.
Sres. Artemio C. Macalino y Rodrigo G. Pagan en representacion de la apelante.
Abogado Auxiliar de Corporaciones D. Federico C. Alikpala en representacion del apelado.
BRIONES, J .:
Andres A. Gomez estuvo sirviendo en el gobierno provincial de la Pampanga como tasador
provincial delegado por un periodo continuo de 25 aos, desde el 8 de Agosto de 1914 en que
fue nombrado por primera vez, hasta el 28 de Febrero de 1938 en que fallecio. Segun el convenio
dehechos, no cabe duda de que su nombramiento era de empleado temporero temporary al
tenor de la fraseologia legal. No era elegible en el servicio civil: esto explica porque durante tan
largo tiempo de servicio no se le habia podido expedir un nombramiento regular y permanente.
El sueldo que percibia al morir era de P90 al mes.
Tampoco hay controversia entre las partes, bajo el convenio, acerca de los siguientes hechos: (a)
que el gobierno provincial de la Pampanga, para aprovecharse delos beneficios de la ley del
Commonwealth No. 186, aprobo el 8 de Agosto, 1937, por medio de su junta provincial, una
resolucion en que significaba su intencion de afiliarse al Sistema de Seguro de Vida del
Gobierno nacional llamado "Government Service Insurance System"; (b) que despues de recibir
dicha resolucion, la junta que regenta y administra dicho Sistema de Seguro la aprobo
debidamente, haciendo efectiva la afiliacion desde el 28 de Febrero, 1938; (c) que Andres A.
Gomez, antes de sumuerte, juntamente con otros empleados del gobierno provincial de la
Pampanga habia llenado un formulario del referido Sistema de Seguro llamado "Information for
membership insurance," en el que nombraba a suesposa Adelaida Ocampo como beneficiaria,
enviando luego el formulario asi llenado al "Government Service Insurance System" que lo
recibio y guardo en su archivo; (d) que el 28 de Febrero, 1938, el tesorero provincia lde la
Pampanga, como pagador oficial, dedujo del sueldode Gomez correspondiente a la segunda
mitad de dichomes la cantidad de P2.70 como su parte en la primera prima, aportando la
provincia una suma igual como su contribucion; (e) que la prima fue enviada a la oficina del
"Government Service Insurance System" en Manila, y dicha oficina la recibio el 10 de marzo,
1938, librando el correspondiente recibo al gobierno provincial de la Pampanga; (f) que el 7 de
Marzo, 1938, el tesorero provincial de la Pampanga envio a la oficina del "Government Service
Insurance System," en nombre de la viuda de Andres Gomez, Adelaida Ocampo, una
reclamacion por el importe dela poliza de seguro en la suma de P1,052, pero la juntadirectiva del
Sistema la rechazo por el fundamento de queAndres Gomez era solo un empleado temporero
temporary bajo las reglas del Servicio Civil, y, por tanto, no era asegurable cuando murio el
28 de Febrero, 1938; (g) finalmente, que la oficina del "Government Service Insurance System"
devolvio al gobierno provincial de la Pampanga el importe de la prima pagada, o sea la cantidad
de P5.40, por medio de la libranza de la Tesoreria No. 58162.
La viuda interpuso la presente accion ante el Juzgado de Primera Instancia de la Pampanga
contra la Junta Directiva del "Government Service Insurance System," pidiendoel cobro del
importe de la poliza. El Juzgado, estimandola defensa de que Andres Gomez era solo un
temporero, sinhaberse cualificado en el servicio civil mediante el correspondiente examen para
merecer un nombramiento como empleado regular y permanente, y, por tanto, sin derechoa ser
asegurado automaticamente bajo la ley que rige el Sistema, dicto sentencia contra la demandante,
sobrese y endola demanda. De ahi la presente apelacion.
Establecido y convenido que el nombramiento de Gomez era de temporero, la cuestion que
tenemos que resolver essi al tiempo de su muerte tenia tales cualificaciones quepodia ser
considerado como empleado regular y permanente para los efectos del cobro del importe de su
poliza de seguro por la beneficiaria. Decidimos que si, tenia tales cualificaciones.
Resulta establecido en autos, sin discusion, que Gomez, acogiendose a las disposiciones del
articulo 672 del Codigo Administrativo tal como fue enmendado por la ley del Commonwealth
No. 177, se sometio a examen de 2.o grado enel servicio civil el 16 de Octubre, 1937, y
fue aprobado enaquel examen, si bien este favorable resultado no se anunciosino
despues ya de su muerte. Es obvio que los efectos de la aprobacion deben retrotraerse
a la fecha del examen. La prueba de la competencia, de la idoneidad del examinando,
se realizo antes de su muerte; por tanto, hay que darle efectividad desde la fecha en
que tuvo lugar laprueba. Hasta parece superfluo que esto se discuta.
Sin embargo, se arguye que no cabe dar efecto retroactivo a la aprobacion de Gomez
en su examen, puesto que el articulo 663 (d) del Codigo Administrativo Revisado, tal
como ha sido enmendado, dispone que "a period of trial service shall be required
before appointment or employmentis made permanent;" y es claro que Gomez, habien
domuerto despues del examen y antes de que su resultado seanunciara, mal pudo ser
sometido a dicho periodo de pruebapor 6 meses.
Esta manera de interpretar la ley tiene el defecto deser demasiado literal, y "la letra
mata (a veces), mientrasque el espiritu vivifica." Tengase en cuenta que Gomez habia
servido como tasador provincial delegado por 25 aos consecutivos hasta el dia de su
muerte. Cuando portan largo tiempo pudo superar la prueba de su competencia, en el
ejercicio cotidiano de sus deberes, hay que presumir que sus superiores estaban
satisfechos de su idoneidad. Por tanto, el periodo de prueba de 6 meses no rezabacon
el. Para los efectos, por lo menos, de la validez de su poliza de seguro, se debe
concluir que el exito desu examen le capacitaba y cualificaba automaticamente para
un nombramiento regular y permanente desde la fechade dicho examen. Por tanto, el
era asegurable y, dehecho, estaba asegurado en el dia de su muerte, bajo losterminos
de la Ley No. 186. Esta conclusion es tanto masjusta cuanto que el "Government
Service Insurance System" acepto practicamente la prima pagada, librando porella el
correspondiente recibo.
Nos sentimos perfectamente autorizados para interpretarla ley lo mas liberalmente
posible, toda vez que, prescindiendo ya de que en el presente caso se trata de la viuday
familia de un pequeo empleado, es evidente que el Sistema Nacional de Seguro de
Vida del Gobierno se hacreado para fines sociales y humanitarios, siendo parte deese
generoso movimiento universal que tiende a mejorarcada dia la suerte de los hijos del
trabajo mediante la promulgacion en todos los paises cultos y civilizados de leyes
progresivas y liberales sobre seguridad social y economica. El articulo 3 de la ley del
Commonwealth No. 186 que crea y reglamenta dicho Sistema, dice positivamente que
el mismose establece "en orden a promover la eficiencia y bien estarde los empleados
del Gobierno de Filipinas y reemplazar los sistemas de pensiones actualmente
establecidos . . .". Como se sabe, aquellos sistemas de pensioneseran
fundamentalmente de beneficencia, tanto que si noha sido posible continuarlos era
porque el gobierno no disponia de tanto dinero para capitalizarlos y sostener lospor si
solo. Asi que se ha ideado el Sistema Nacional de Seguro sobre bases mas cientificas
y con adecuadas aportaciones de los empleados mismos. Con todo, es innegableque el
sucesor ha heredado parte de los rasgos beneficos y humanitarios de sus antecesores.
En meritos de lo expuesto, se revoca la sentencia del Juzgado y se condena a la
demandada y apelada a pagara la demandante y apelante la suma de P1,052, importe
de la poliza de seguro del difunto Andres A. Gomez, maslos intereses legales desde la
interposicion de la demanda, y las costas del juicio. Asi se ordena.
Moran, Pres., Paras, Feria, Pablo, Hilado, Bengzon, Padilla, and Tuason , MM.,
estan conformes.
We agree with the decision penned by Mr. Justice Briones, reversing the judgment of
the lower court and ordering defendant to pay plaintiff the insurance of her deceased
husband Andres Gomez in the sum of P1,052, including legal interest and costs.
Under the provisions of Commonwealth Act No. 177, amending the Civil Service
Law, Andres Gomez was a regular and permanent employee of the government,
because he had been occupying for twenty-five years a classified position and had
passed the examination as provided for by the above mentioned act, the pertinent,
provisions of which are as follows:
No person shall be appointed to or employed in any position in the classified
service until he passes the examination provided therefor. Provided, however,
that persons now regularly and permanently employed in any branch or
subdivision of the Government, whose positions are or may hereafter be
classified by operation of the Constitution and of this Act may, unless separated
by proper authority, continue in the service for the term of three years from
January first, nineteen hundred and thirty-seven; Provided, that they shall be
given three chances to qualify; and Provided, finally, That all employees who,
upon the approval of this act, have rendered ten or more years of continuous
and satisfactory service in a classified position or in any position which may be
subject to classification, shall be given practical examination in which their
length of service shall be accorded preferred consideration.
The deceased, having rendered ten or more years of continuous and satisfactory
service in a classified position and passed the corresponding examination, became a
permanent and regular employee and his membership in the insurance system became
compulsory under section 4 (g), of Commonwealth Act No. 186, known as the
Government Service Insurance Act.
Having had the privilege of initiating the amendment to the Civil Service Law which
was later embodied in Commonwealth Act No. 117, as above quoted, we are in a
position to state, as member of the National Assembly which approved the act and as
author of the provisions, that the same covered perfectly the case of Andres Gomez to
make him a permanent and regular employee.
We are also in a position to state that the main purpose of the Government Service
Insurance Act was to replace the several pension laws then effective, in order to
eliminate the discrimination resulting from the fact that, while a small number of
government employees were enjoying the benefits of special pension laws, those
benefits were denied to a great majority of government employees. To uphold the
position taken by the lower court is to deprive the widow of Andres Gomez of the
benefits clearly intended for her by Commonwealth Act No. 186.
Even if Andres Gomez had been only a temporary employee he was still insurable.
The fact that membership in the Government Insurance System is compulsory upon
permanent and regular employees, is no reason to deprive other employees of the
benefits of the system as, otherwise, it will defeat the very social purpose for which it
was established by the National Assembly.
The system was established "in order to promote the efficiency and welfare of the
employees of the Government of the Philippines and to replace the present pension
systems established," as stated in section 3 of Commonwealth Act No. 186. There is
absolutely no principle of justice which can justify circumscribing the benefits of the
system only to permanent and regular employees, when it was expressly intended for
all employees, and to continue the hateful discrimination which compelled the
National Assembly to abolish the then existing special pension systems. If there
should be any doubt on this question, the doubt should be resolved in favor of the
general intent of the law.
Courts are justified to do violence to the words of the statute to carry out "the judge-
discovered intent" (Judge Baldwin, The American Judiciary, p. 84); that construction
of statutes must be done to avoid absurdity, and that general terms must not lead to
"injustice, oppression, or an absurd consequence," because "the reason of the law in
such cases should prevail over its letter" (The Church of the Holy Trinity vs. U.S., 36
Law. ed. [U.S.], 232); that our judges can go further to diagnose the intent of the law
and give it fulgour and effect and that the judge-made law is recognized in the
Philippines (In re Shoop, 41 Phil., 213); that lawyers who deny the power of courts to
legislate in the Philippines are sadly mistaken (Bocobo, The Cult of Legalism); that
courts are "the great laboratories of the law" (Justice Cardozo, The Nature of Judicial
Process); while Holland said in The Elements of Jurisprudence:
The State in general has two, and only two, articulate organs for law-making
purposes the Legislature and the Tribunals. The first organ makes new law,
the second attests and confirms old law, though under cover of so doing it
introduces many new principles.
. . . For statutes and judicial decisions alike come into being and grow out of
the same common roots, the supreme good of society. It is a consecrated legal
axiom that the reason of the law is the life of the law. The reason lies in the soil
of the common welfare." (Bocobo, Cult of Legalism.)
. . . Consequently, if the judge limits himself to the printed page of the statute,
and does not go out into the open spaces o factuality and dig down deep into
this common soil, he fails in his noble calling, and becomes subservient to
formalism. (Bocobo, Cult of Legalism.)
In Samuels, Special C.J., in Wortham vs. Walker Tex. ([1939], 127 S.W. [2nd], 1138,
1150), we have the following liberal construction of the law:
A liberal interpretation of a statute which denies to it the historical
circumstances under which it has drawn is to make mummery of its provisions.
A statute should not be construed in a spirit of detachment as if it were a
protoplasm floating around a space . . .. "Generally it may be said that in
determining the meaning, intent, and purpose of a law or constitutional
provisions, the history of the times out of which it grew and to which it may be
rationally supposed to bear some direct relationship, the evils intended to be
remedied, and the good to be accomplished are proper subjects of inquiry" . . ..
Law is not a water-tight compartment sealed or shut off from the contract with
the drama of life which unfolds before our eyes. It is in no sense a cloistered
realm but a busy state in which events are held up to our vision and touch at our
elbows.
If the above principles of interpretation are not enough in support of the theory that all
employees of the government are entitled to the benefits of the Government Insurance
System, there is the principle of social justice embodied in the Constitution which
supports the position, and with more emphasis if we take into consideration the fact
that Commonwealth Act No. 186 was enacted after the Constitution came into effect.
Is the mandate addressed only to the legislative department? No: it is meant for
the three departments; legislative, executive, and judicial, because the latter two
are no less the agencies of the State than the first. For what use would it be for
the National Assembly to pass laws calculated to enhance social justice if the
executive officials should enforce them in such a way, and the courts should
give them such an interpretation, as to defeat social justice?
Certainly, this principle of social justice in our Constitution as generously
conceived and so tersely phrased, was not included in the fundamental law as a
mere popular gesture. It was meant to a vital, articulate, compelling principle of
public policy. It should be observed in the interpretation not only of future
legislation, but also of all laws already existing on November 15, 1935. It was
intended to change the spirit of our laws, present and future. Thus, all the laws
which on the great historic event when the Commonwealth of the Philippines
was born, were susceptible of two interpretations strict or liberal, against or
in favor of social justice, now have to be construed broadly in order to promote
and achieve social justice. This may seem novel to our friends, the advocates of
legalism, but it is the only way to give life and significance to the above-quoted
principle of the Constitution. If it was not designed to apply to these existing
laws, then it would be necessary to wait for generations until all our codes and
all our statutes shall have been completely changed by removing every
provision inimical to social justice, before the policy of social justice can
become really effective. That would be an absurd conclusion. It is more
reasonable to hold that this constitutional principle applies to all legislation in
force on November 15, 1935, and all laws thereafter passed. (Bocobo, Cult of
Legalism.)
Law, being a manifestation of social culture and progress, must be interpreted taking
into consideration the stage of said culture and progress including all the concomitant
circumstances. It must be interpreted by drawing inspiration, not only from the
teachings of history, from precedents and traditions, but from inventions of science,
discoveries of art, ideals of thinkers, dreams of poets, that is, all the sources from
which may spring guidance and help to form a truthful idea of the human relations
regulated by the law to be interpreted and applied. Broadmindedness and vision are
essential for men presiding tribunals to reach correct and just conclusions.

















RUFINO D. ANDRES, plaintiff-appellant,
vs.
THE CROWN LIFE INSURANCE COMPANY, defendant-appellee.
Esteban Aguinaldo and Santiago D. Andres for appellant.
Nicodemus L. Dasig for appellee.
On April 20, 1952, Rufino D. Andres filed a complaint in the Court of First Instance of Ilocos Norte
against the Crown Life Insurance Company for the recovery of the amount of P5,000, as the face value of
a joint 20-year endowment insurance policy issued in favor of the plaintiff Rufino D. Andres and his wife
Severa G. Andres on the 13th of February, 1950, by said insurance company. On Jun 7, 1951, Rufino
Andres presented his death claim as survivor-beneficiary of the deceased Severa G. Andres, who died
May 3, 1951. Payment having been denied by the insurance company on April 20, 1952, this case was
instituted.
Defendant Company filed its answer in due time disclaiming liability and setting forth the special defense
that the aforementioned policy had already lapsed. Later, on March 25, 1954, the parties submitted the
case for decision by the lower court upon a stipulation of facts, fully quoted hereunder:
1. That on October 20, 1949, plaintiff and Severa G. Andres filed an application for insurance No.
536,423, which are marked as common Exhibits "1" and "l-A", respectively;
2. That on February 13, 1950, defendant isssued Crown Life Policy No. 536,423 for the sum of
P5,000, in the name of Rufino D. Andres, plaintiff, and Severa G. Andres, which is hereto
marked as common Exhibit "2";
3. That the premiums are to be paid as called for in the policy Exhibit '2", semi-annually, and the
amount of P165.15 for the first semester beginning November 25, 1949 to May 25, 1950 was paid
on November 25, 1949, which is hereby marked as common Exhibit "3", and the premium
likewise in the sum of P165.15 for the second semester beginning May 25, 1950 to November 25,
1950, was paid on June 24, 1950, as evidenced by common Exhibit "3-A"; and the premium for
the third semester beginning November 25, 1950 to May 25, 1951 was not paid;
4. That on January 6, 1951,the defendant, thru Mr. I.B. Melendres, wrote to Mr. and Mrs. Rufino
D. Andres advising them that the said Policy No. 536,423 lapsed on December 25, 1950 and the
amount overdue was P165.15, giving them a period of sixty (60) days from the date of lapse to
file an application for reinstatement, which letter is made as common Exhibit "4";
5. That on February 12, 1951, the said Mr. I.B. Melendres, branch secretary of the defendant,
wrote Mr. and Mrs. Rufino D. Andres, telling the latter that Policy No. 536,423 was no longer in
force and it lapsed on December 25, 1950, which letter is herewith made as common Exhibit "5";
6. That in the month of February, 1951, plaintiff executed a Statement of Health which is at the
same time an Application for Reinstatement of the aforesaid policy, which application is herewith
made as common Exhibit "6" (Note: Exhibit "6" is the reverse side of Exhibit "4"). and Severa G.
Andres also executed in the month of February, 1951, an Application for Reinstatement, which
Application for Reinstatement is made as common Exhibit "7";
7. That on February 20, 1951, plaintiff wrote a letter to the defendant and enclosed therewith a
money order for P100, which letter was received by the defendant on February 26, 1951, wherein
it is stated that the balance unpaid is the sum of P65.15, which letter is hereby made as common
Exhibit "8";
8. That on April 14, 1951, the said Mr. I.B. Melendres, as branch secretary for the defendant;
wrote plaintiff advising him that the Home Office has approved the reinstatement of the lapsed
policy, subject to the payment of P65.15 due on November, 1950 premium, a duplicate original
copy of the said letter is hereby made as common Exhibit "9";
9. That on April 27, 1951, said Mr. I.B. Melendres, branch secretary, again wrote the plaintiff
requesting the remittance of the balance of P65.15 due on the semi-annual premium for
November, 195O, and upon receipt of the said amount, there will be sent to him the Certificate of
Reinstatement of the policy, a duplicate original copy of the said letter is hereto made as common
Exhibit "10";
10. That on May 5, 1951, plaintiff sent a letter to the defendant and enclosed therewith a Money
Order in the amount of P65.00 for the balance due on the Crown Life Policy No. 536,423, which
letter has been received in the office of the defendant on May 11, 1951, which letter is herewith
made as common Exhibit "11";
11. That on May 15, 1951, said Mr. I.B. Melendres wrote a letter to Mr. and Mrs. Rufino D.
Andres, enclosing an Official Receipt for the receipt of P165.15, which Official Receipt is hereby
made as common Exhibit "12", and also enclosed therewith a Certificate of Reinstatement dated
April 2, 1951, which is herewith made as common Exhibit "13" and the duplicate original copy of
the aforesaid letter dated May 15, 1951 is herewith made as common Exhibit "14", and premium
notice addressed to Mr. and Mrs. Rufino D. Andres, wherein it is shown that the semi-annual
premium in the sum of P165.15 on the said policy would be due on May 15, 1951, which
premium notice is herwith made as common Exhibit "14-A";
12. That on June 7, 1951, plaintiff presented his Death Claim as survivor-beneficiary of the
deceased Severa G. Andres which has been received in the office of the defendant on June 11,
1951, which letter is herewith made as common Exhibit "15", and there were therein enclosed in
the said letter an affidavit dated June 6, 1951 of the plaintiff, which is herewith made as common
Exhibit "15-A", and a Certificate of Death dated May 29, 1951, issued by the Local Civil
Registrar of the municipality of Sarrat, wherein it is shown that Mrs. Severa G. Andres died on
May 3, 1951 of dystocia, second degree, contracted pelvis, which Certificate of Death is herewith
made as common Exhibit "15-B", and a medical certificate of Dr. R. de la Cuesta, senior resident
physician of the Ilocos Norte Provincial Hospital, dated May 20, 1951, showing the cause of
death of the said deceased, Mrs. Severa G. Andres, which medical certificate is herewith made as
common Exhibit "15-C";
13. That on June 30, 1951, Mr. I.B. Melendres wrote to plaintiff stating defendant's reasons for its
refusal to pay the death claim of the plaintiff which letter is herewith made as common Exhibit
"16", in which there was therein enclosed a Death Claim Discharge to be signed by the plaintiff
but the plaintiff refused to sign, which Death Claim Discharge is herewith made as common
Exhibit "16-A";
14. That on November 23, 1951, the said Mr. I.B. Melendres wrote plaintiff enclosing therewith a
National City Bank of New York Check No. D-115356 for P165.00 payable to plaintiff, dated
June 21, 1951, an original duplicate copy of which is herewith made as common Exhibit "17";
15. That on December 1, 1951, the plaintiff wrote defendant company and enclosed therewith the
aforesaid National City Bank of New York Check No. D-115356 dated June 21, 1951, which
letter is herewith made as Common Exhibit "18", and the check returned to the defendant
company as Exhibit "18-A";
16. That with the approval of this stipulation of facts, the parties hereby submit the same and do
hereby request the Honorable Court to give them twenty (20) days within which to file
simultaneously their corresponding memoranda and another fifteen (15) days for a reply
memorandum." (Rec. App., pp. 17-22).
On August 5, 1954, Judge Julio Villamor rendered decision absolving the defendant from any liability on
the ground that the policy having lapsed, it was not reinstated at the time the plaintiff's wife died. Not
satisfied with the decision, plaintiff appealed to the Court of Appeals, but the appeal was later certified to
this Court, for there is no question of fact involved therein.
As has been correctly stated by the lower court, the resolution of the issues in this case centers on whether
or not policy No. 536423 (Exhibit "2") which has been in a state of lapse before May 3, 1951, has been
validly and completely reinstated after said date. In other words, was there a perfected contract of
reinstatement after the policy lapsed due to non-payment of premiums?
The stipulation of facts and accompanying exhibits render it undisputable that the original policy No.
536423 lapsed for non-payment of premiums on December 26, 1950, upon expiration of the customary
31-day period of grace. The subsequent reinstatement of the policy was provided for in the contract itself
in the following terms:
If this policy lapses, it may be reinstated upon application made within three years from the date
of lapse, and upon production of evidence of the good health of the injured (and also of the
Beneficiary, if the rate of premium depends upon the age of the Beneficiary), and such other
evidence of insurability at the date of application for reinstatement as would then satisfy the
Company to issue a new Policy on the same terms as this Policy, and upon payment of all
overdue premiums and other indebtedness in respect of this Policy, together with interest at six
per cent, compounded annually, and provided also that no change has taken place in such good
health and insurability subsequent to the date of such application and before this Policy is
reinstated.
As stated by the lower court, the conditions set forth in the policy for reinstatement are the following: (a)
application shall be made within three years from the date of lapse; (b) there should be a production of
evidence of the good health of the insured: (c) if the rate of premium depends upon the age of the
Beneficiary, there should likewise be a production of evidence of his or her good health; (d) there should
be presented such other evidence of insurability at the date of application for reinstatement; (e) there
should be no change which has taken place in such good health and insurability subsequent to the date of
such application and before the policy is reinstated; and (f) all overdue premiums and other indebtedness
in respect of the policy, together with interest at six per cent, compounded annually, should first be paid.
The plaintiff-appellant did not comply with the last condition; for he only paid P100 (on account of the
over due semi-annual premium of P165.15) on February 20, 1951, before his wife's death (Stipulation,
par. 7) ; and, despite the Company's reminders on April 14 and 27, he remitted the balance of P65 on May
5, 1951 (received by the Company's agency on May 11), two days after his wife died. On the face of such
facts, the Company had the right to treat the contract as lapsed and refuse payment of the policy.
Appellant, however, contends that the condition regarding payment of the premium was waived by the
insurance Company by its letters (signed by I. B. Melendres, cashier) Exhibits 4 and 5 wherein the
Company manifested to appellant:
If you can not pay the full amount immediately, send as large an amount as possible and advise us
how soon you expect to be able to pay the balance. Every consideration will be given to your
request consistent with the company's regulations (Exhibit 4).
If you are unable to cover this amount in full, send us as big an amount as you are able and we
will work out an adjustment most beneficial to you. (Exhibit 5)
We see nothing in these expressions that would indicate an intention on the insurer's part to waive the full
payment of the overdue premium as prerequisite to the reinstatement of the lapsed policy, considering the
well settled rule that a waiver must be clear and positive, and intent to waive shown clearly and
convincingly (Fernandez vs. Sebido, 70 Phil. 151, 159; Lang vs. Sheriff
*
49 Off. Gaz. 3323, 3329; Jocson
vs. Capitol Subdivision, Inc. G.R. L-6573, February 28, 1955). The promise to give plaintiff's case every
consideration does not import any decision to renounce the insurer's rights; and as to the "working out of
an adjustment most beneficial" to the insured, the proposal is obviously so vague and indefinite as to
require further negotiations between the parties, for their criteria might differ as to what would be the
most beneficial arrangement.
Upon the other hand, the subsequent letters of the insurance Company (Exhibits 9 and 10) patently
indicated that the Company insisted on the full payment of the premium before the policy was
reinstated.We take this opportunity of advising you that our Home Office has approved the reinstatement
of your lapsel policy subject to the payment of the balance of P65.15 due on your November 1950
premium. Kindly remit this amount in order that you may once more enjoy the benefits of insurance
protection" (Exibit 9, April 14, 1951).
We may now reinstate your policy if you will kindly remit to us the balance of P65.15 due on your semi-
annual premium for November, 1950. Please send us this amount by return mail and upon its receipt we
will in turn send the Certificate of Reinstatement of your policy, thus rendering it once again in full force
and effect, (Exhibit 10, April 21, 1951) (Emphasis supplied).Clearly the Company did not consider the
partial payment as sufficient consideration for the reinstatement. Appellant's failure to remit the balance
before the death of his wife operated to deprive him of any right to waive the policy and recover the face
value thereof.
This Court, in the case of James McGuire vs. The Manufacturer's Life Insurance Co. (87 Phil,. 370, 48
Off. Gaz. [1], 114), said.
The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the mere
filing of an application. The Company has the right to deny the reinstatement if it is not satisfied
as to the insurability of the insured and if the latter does no pay all overdue premium and all other
indebtedness to the Company. After the death of the insured the insurance Company cannot be
compelled to entertain an application for reinstatement of the policy because the conditions
precedent to reinstatement can no longer be determined and satisfied.
Wherefore, finding no error in the judgment appealed from, we hereby affirm the same, with costs against
appellant. So ordered.
Sun Life v Ingersoll G.R. No. 16475 November 8, 1921
J. Street

Facts:
Sun Life issued a policy on Dy Pocos life for US$12,500. The contract stipulated that it would
be payable to the said assured or his assigns on the 21st day of February, 1938, and if he should
die before that date, then it would be given to his legal representatives. The payment of a
stipulated annual premium during the period of the policy, or until the premiums had been
completely paid for twenty years,
Dy Poco, was adjudged an insolvent by the trial court and Frank B. Ingersoll was appointed
assignee of his estate. Poco died, and Tan Sit, was appointed as the administratrix of his intestate
estate.
Both Ingersoll, as assignee, and Tan Sit, as administratix of Dy Poco's estate, asserted claims to
the proceeds of the policy. The lower court found that Ingersoll had a better right and ordered
Sun Life to pay.
The polic stipulated that after the payment of three full premiums, the assured could surrender
the policy to the company for a "cash surrender value." Butno more than two premiums had
been paid upon the policy up to the time of the death of the assured. Hence this provision had not
become effective. It must therefore be accepted that this policy had no cash surrender value, at
the time of the assured's death, either by contract or by convention practice of the company in
such cases.

Issue:
WON Ingersoll, as assignee, has a right to the proceeds of the insurance

Held: No. Sunlife must pay to the administratrix.

Ratio:
The property and interests of the insolvent which become vested in the assignee of the insolvent
are specified in section 32 of the Insolvency Law.
Sec 32 declares that the assignment to be made by the clerk of the court "shall operate to vest in
the assignee all of the estate of the insolvent debtor not exempt by law from execution."
Moreover, by section 24, the court is required, upon making an order adjudicating any person
insolvent, to stay any civil proceedings pending against him; and it is declared in section 60 that
no creditor whose debt is provable under the Act shall be allowed, after the commencement of
proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor.
In connection with the foregoing may be mentioned subsections 1 and 2 of section 36, as well as
the opening words of section 33, to the effect that the assignee shall have the right and power to
recover and to take into his possession, all of the estate, assets, and claims belonging to the
insolvent, except such as are exempt by law from execution.
These provisions clearly evince an intention to vest in the assignee, for the benefit of all the
creditors of the insolvent, such elements of property and property right as could be reached and
subjected by process of law by any single creditor suing alone. "leviable assets" and "assets in
insolvency" are practically coextensive terms. Hence, in determining what elements of value
constitute assets in insolvency, the court is at liberty to consider what elements of value are
subject to be taken upon execution, and vice versa.
Section 48 of the Insolvency Law, didnt declare items from the ownership of which the assignee
is excluded. Moreover, all life insurance policies are declared by law to be assignable, regardless
of whether the assignee has an insurable interest in the life of the insured or not.
The assignee in insolvency acquired no beneficial interest in the policy of insurance in question;
that its proceeds are not liable for any of the debts provable against the insolvent in the pending
proceedings, and that said proceeds should therefore be delivered to his administratrix.
In re McKinney: no beneficial interest in this policy had ever passed to the assignee over and
beyond what constituted the surrender value, and that the legal title to the policy was vested in
the assignee merely in order to make the surrender value available to him. The conclusion
therefore was that the assignee should surrender the policy upon the payment to him of said
value, as he was in fact directed to do.
A surrender value of a policy "arises from the fact that the fixed annual premiums is much in
excess of the annual risk during the earlier years of the policy, an excess made necessary in order
to balance the deficiency of the same premium to meet the annual risk during the latter years of
the policy. This is the practical, though not the legal, relation of the company to this fund. "Upon
the surrender of the policy before the death of the assured, the company, to be relieved from all
responsibility for the increased risk, which is represented by this accumulating reserve, could
well afford to surrender a considerable part of it to the assured, or his representative. A return of
a part in some form or other is now Usually made."
The stipulation providing for a cash surrender value is a comparatively recent innovation in life
insurance. Furthermore, the practice is common among insurance companies even now to
concede nothing in the character of cash surrender value, until three full premiums have been
paid, as in this case.
The courts are therefore practically unanimous in refusing to permit the assignee in insolvency to
wrest from the insolvent a policy of insurance which contains in it no present realizable assets.