PAN MALAYAN INSURANCE CORPORATION, petitioner, the insurance company shall be subrogated to the rights of the insured against
surance company shall be subrogated to the rights of the insured against the wrongdoer
vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.
Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the Court
of Appeals which upheld an order of the trial court dismissing for no cause of action PANMALAY's
complaint for damages against private respondents Erlinda Fabie and her driver.
The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY
may institute an action to recover the amount it had paid its assured in settlement of an insurance
claim against private respondents as the parties allegedly responsible for the damage caused to the
insured vehicle.
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against
private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a
Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive
Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness,
and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit
and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the
insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-
up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and
refused to pay the claim of PANMALAY.
Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto.
In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured
car was settled under the "own damage", coverage of the insurance policy, and that the driver of the
insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle.
PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation
Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no
cause of action against them. They argued that payment under the "own damage" clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an
order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19,
1986, the RTC denied PANMALAY's motion for reconsideration.
On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27,
1987. Consequently, PANMALAY filed the present petition for review.
After private respondents filed its comment to the petition, and petitioner filed its reply, the Court
considered the issues joined and the case submitted for decision.
Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.
PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly
caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended,
therefore, that its cause of action against private respondents was anchored upon Article 2207 of the
Civil Code, which reads:
If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of,
or the person who has violated the contract. . . .
PANMALAY is correct.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer [Compania
Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213;
Fireman's Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70
SCRA 323].
There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases
the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312, 29
L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d
705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods without notifying
the carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both
the assured and the insurer, and the latter cannot bring an action against the carrier on his right of
subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer
pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary
payment", the former has no right of subrogation against the third party liable for the loss [Sveriges
Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA 12].
None of the exceptions are availing in the present case.
The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally
subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not
have any cause of action against private respondents. On the one hand, the trial court held that
payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy
was an admission by the insurer that the damage was caused by the assured and/or its
representatives. On the other hand, the Court of Appeals in applying the ejusdem generis rule held that
Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not cover
damage arising from collision or overturning due to the negligence of third parties as one of the
insurable risks. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and claim
reimbursement from private respondents as alleged wrongdoers or parties responsible for the damage.
The above conclusion is without merit.
It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy
implies damage to the insured car caused by the assured itself, instead of third parties, proceeds from
an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY
utilized the phrase "own damage" — a phrase which, incidentally, is not found in the insurance policy —
to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had
assumed to reimburse the costs for repairing the damage to the insured vehicle [See PANMALAY's
Compliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense
that the so-called "own damage" coverage under Section III of the insurance policy is differentiated
from Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death
of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to the properties of third
parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section
III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to the
negligent acts of the third party. Not only does it stem from an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only
when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, that the courts will intervene. In such an event,
the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer
[Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972,
47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14, 1986,
145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988,
168 SCRA 1. Also Articles 1370-1378 of the Civil Code].
Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY
is liable to indemnify the assured CANLUBANG against damage to or loss of the insured vehicle, reads
as follows:
SECTION III — LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon: —
(a) by accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or
theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to
such transit by road, rail, inland, waterway, lift or elevator.
xxx xxx xxx
[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars;
Record, p. 34; Emphasis supplied].
PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-
1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or
overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same
understanding. Based on a police report wherein the driver of the insured car reported that after the
vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG
filed its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted
payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.
Considering that the very parties to the policy were not shown to be in disagreement regarding the
meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the
appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe
meaning contrary to the clear intention and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental
collision or overturning" found in the first paint of sub-paragraph (a) is untenable. Although the terms
"accident" or "accidental" as used in insurance contracts have not acquired a technical meaning, the
Court has on several occasions defined these terms to mean that which 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" [De la Cruz v. The Capital Insurance & Surety Co., Inc.,
G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of
Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that
these terms, without qualification, exclude events resulting in damage or loss due to the fault,
recklessness or negligence of third parties. The concept "accident" is not necessarily synonymous with
the concept of "no fault". It may be utilized simply to distinguish intentional or malicious acts from
negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the
insured vehicle due to negligent or careless acts of third parties is not listed under the general and
specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance
policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars, supra.]
The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the
coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that
insisted upon by respondents herein. By arguing that this section covers losses or damages due not
only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more
comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the
rationale behind the various rules on the interpretation of insurance contracts favoring the assured or
beneficiary so as to effect the dominant purpose of indemnity or payment [SeeCalanoc v. Court of
Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-
16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130
SCRA 327].
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy
does not cover damage to the insured vehicle caused by negligent acts of third parties, and that
PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision due to
private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of
PANMALAY's complaint against private respondents for no cause of action would still be a grave error of
law.
For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of
its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against
private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan,
supra., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary"
payment may nevertheless recover from the third party responsible for the damage to the insured
property under Article 1236 of the Civil Code.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely
prays that it be allowed to institute an action to recover from third parties who allegedly caused
damage to the insured vehicle, the amount which it had paid its assured under the insurance policy.
Having thus shown from the above discussion that PANMALAY has a cause of action against third
parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that there is
no legal obstacle to the filing by PANMALAY of a complaint for damages against private respondents as
the third parties allegedly responsible for the damage. Respondent Court of Appeals therefore
committed reversible error in sustaining the lower court's order which dismissed PANMALAY's complaint
against private respondents for no cause of action. Hence, it is now for the trial court to determine if in
fact the damage caused to the insured vehicle was due to the "carelessness, recklessness and
imprudence" of the driver of private respondent Erlinda Fabie.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for
damages against private respondents is hereby REINSTATED. Let the case be remanded to the lower
court for trial on the merits.
SO ORDERED.
MALAYAN INSURANCE v. ALBERTO
The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside
the July 28, 2010 Decision[1] of the Court of Appeals (CA) and its October 29, 2010 Resolution[2] denying
the motion for reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan Insurance). The
July 28, 2010 CA Decision reversed and set aside the Decision[3] dated February 2, 2009 of the Regional
Trial Court, Branch 51 in Manila.
The Facts
At around 5 oclock in the morning of December 17, 1995, an accident occurred at the corner of
EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated by
Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3) a Fuzo
Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with plate number TLM 732.[4]
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo
M. Dungga (SPO1 Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus
on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along EDSA
facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of the
Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the strong impact, these two vehicles
were shoved forward and the front left portion of the Mitsubishi Galant rammed into the rear right portion
of the Isuzu Tanker.[5]
Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy
No. PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the assured), insuring the
aforementioned Mitsubishi Galant against third party liability, own damage and theft, among
others. Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint dated
October 18, 1999 that it paid the damages sustained by the assured amounting to PhP 700,000. [6]
Maintaining that it has been subrogated to the rights and interests of the assured by operation
of law upon its payment to the latter, Malayan Insurance sent several demand letters to respondents
Rodelio Alberto (Alberto) and Enrico Alberto Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. When
respondents refused to settle their liability, Malayan Insurance was constrained to file a complaint for
damages for gross negligence against respondents.[7]
In their Answer, respondents asserted that they cannot be held liable for the vehicular accident,
since its proximate cause was the reckless driving of the Nissan Bus driver. They alleged that the speeding
bus, coming from the service road of EDSA, maneuvered its way towards the middle lane without due
regard to Reyes right of way. When the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes
but the braking action could not cope with the inertia and failed to gain sufficient traction. As a
consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear
end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck,
causing damage to the latter in the amount of PhP 20,000. Respondents also controverted the results of
the Police Report, asserting that it was based solely on the biased narration of the Nissan Bus driver. [8]
After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented
the testimony of its lone witness, a motor car claim adjuster, who attested that he processed the insurance
claim of the assured and verified the documents submitted to him. Respondents, on the other hand,
failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor
of Malayan Insurance and declared respondents liable for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against
defendants jointly and severally to pay plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of
the filing of the complaint;
2. Attorneys fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.[9]
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its
Decision dated July 28, 2010, the CA reversed and set aside the Decision of the trial court and ruled in
favor of respondents, disposing:
WHEREFORE, the foregoing considered, the instant appeal is
hereby GRANTED and the assailed Decision dated 2 February
2009 REVERSED and SET ASIDE. The Complaint dated 18 October 1999 is
hereby DISMISSED for lack of merit. No costs.
SO ORDERED.[10]
The CA held that the evidence on record has failed to establish not only negligence on the part
of respondents, but also compliance with the other requisites and the consequent right of Malayan
Insurance to subrogation.[11] It noted that the police report, which has been made part of the records of
the trial court, was not properly identified by the police officer who conducted the on-the-spot
investigation of the subject collision. It, thus, held that an appellate court, as a reviewing body, cannot
rightly appreciate firsthand the genuineness of an unverified and unidentified document, much less accord
it evidentiary value.[12]
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police
report is a prima facie evidence of the facts stated in it. And inasmuch as they never questioned the
presentation of the report in evidence, respondents are deemed to have waived their right to question
its authenticity and due execution.[13]
In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence,
Malayan Insurance filed the instant petition.
The Issues
In its Memorandum[14] dated June 27, 2011, Malayan Insurance raises the following issues for
Our consideration:
I others either because said witness was told or read or heard those matters. [19] Such testimony is
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT
SINCE THE POLICE INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY
TESTIFY IN COURT THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR
DEFICIENT.
On the other hand, respondents submit the following issues in its Memorandum[15] dated July 7,
2011:
I
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF
MALAYAN INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO
ESTABLISH THE NEGLIGENCE OF RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE
SUFFICIENT TO CLAIM FOR THE AMOUNT OF DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE
AND REQUISITES AS PROVIDED UNDER PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2)
the sufficiency of the evidence to support a claim for gross negligence; and (3) the validity of subrogation
in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police investigator who
prepared the police report, said report is still admissible in evidence, especially since respondents failed
to make a timely objection to its presentation in evidence. [16] Respondents counter that since the police
report was never confirmed by the investigating police officer, it cannot be considered as part of the
evidence on record.[17]
Indeed, under the rules of evidence, a witness can testify only to those facts which the witness
knows of his or her personal knowledge, that is, which are derived from the witness own
perception.[18] Concomitantly, a witness may not testify on matters which he or she merely learned from
considered hearsay and may not be received as proof of the truth of what the witness has learned. This
is known as the hearsay rule.[20]
As discussed in D.M. Consunji, Inc. v. CA,[21] Hearsay is not limited to oral testimony or
statements; the general rule that excludes hearsay as evidence applies to written, as well as oral
statements.
There are several exceptions to the hearsay rule under the Rules of Court, among which are
entries in official records.[22] Section 44, Rule 130 provides:
Entries in official records made in the performance of his duty by a public
officer of the Philippines, or by a person in the performance of a duty specially enjoined
by law are prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources,[23] this Court reiterated the requisites for the admissibility in
evidence, as an exception to the hearsay rule of entries in official records, thus: (a) that the entry was
made by a public officer or by another person specially enjoined by law to do so; (b) that it was made by
the public officer in the performance of his or her duties, or by such other person in the performance of
a duty specially enjoined by law; and (c) that the public officer or other person had sufficient knowledge
of the facts by him or her stated, which must have been acquired by the public officer or other person
personally or through official information.
Notably, the presentation of the police report itself is admissible as an exception to the hearsay
rule even if the police investigator who prepared it was not presented in court, as long as the above
requisites could be adequately proved.[24]
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report,
and he did so in the performance of his duty. However, what is not clear is whether SPO1 Dungga had
sufficient personal knowledge of the facts contained in his report. Thus, the third requisite is lacking.
 Respondents failed to make a timely objection to the police reports presentation in evidence;
thus, they are deemed to have waived their right to do so. [25] As a result, the police report is still
admissible in evidence.
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the
rear of the Mitsubishi Galant, he is presumed to be negligent unless proved otherwise. It further contends
that respondents failed to present any evidence to overturn the presumption of negligence.[26] Contrarily,
respondents claim that since Malayan Insurance did not present any witness who shall affirm any
negligent act of Reyes in driving the Fuzo Cargo truck before and after the incident, there is no evidence
which would show negligence on the part of respondents.[27]
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report
in evidence, still, respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. The D.M.
Consunji, Inc. case is quite elucidating:
Petitioners contention, however, loses relevance in the face of the application
of res ipsa loquitur by the CA. The effect of the doctrine is to warrant a presumption
or inference that the mere fall of the elevator was a result of the person having charge
of the instrumentality was negligent. As a rule of evidence, the doctrine of res ipsa
loquitur is peculiar to the law of negligence which recognizes that prima
facie negligence may be established without direct proof and furnishes a substitute for
specific proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while
the mere happening of an accident or injury will not generally give rise to an
inference or presumption that it was due to negligence on defendants part,
under the doctrine of res ipsa loquitur, which means, literally, the thing or
transaction speaks for itself, or in one jurisdiction, that the thing or
instrumentality speaks for itself, the facts or circumstances accompanying an
injury may be such as to raise a presumption, or at least permit an inference
of negligence on the part of the defendant, or some other person who is
charged with negligence.
x x x where it is shown that the thing or instrumentality which caused
the injury complained of was under the control or management of the
defendant, and that the occurrence resulting in the injury was such as in the
ordinary course of things would not happen if those who had its control or
management used proper care, there is sufficient evidence, or, as sometimes
stated, reasonable evidence, in the absence of explanation by the defendant,
that the injury arose from or was caused by the defendants want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that
necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that
the defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of ascertaining it
and that the plaintiff has no such knowledge, and therefore is compelled to
allege negligence in general terms and to rely upon the proof of the happening
of the accident in order to establish negligence. The inference which the
doctrine permits is grounded upon the fact that the chief evidence of the true
cause, whether culpable or innocent, is practically accessible to the defendant
but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a
bridge by which a plaintiff, without knowledge of the cause, reaches over to
defendant who knows or should know the cause, for any explanation of care
exercised by the defendant in respect of the matter of which the plaintiff
complains. The res ipsa loquitur doctrine, another court has said, is a rule of
necessity, in that it proceeds on the theory that under the peculiar
circumstances in which the doctrine is applicable, it is within the power of the
defendant to show that there was no negligence on his part, and direct proof
of defendants negligence is beyond plaintiffs power. Accordingly, some courts
add to the three prerequisites for the application of the res ipsa
loquitur doctrine the further requirement that for the res ipsa loquiturdoctrine
to apply, it must appear that the injured party had no knowledge or means of
knowledge as to the cause of the accident, or that the party to be charged
with negligence has superior knowledge or opportunity for explanation of the
accident.
The CA held that all the requisites of res ipsa loquitur are present in the case
at bar:
There is no dispute that appellees husband fell down from the 14th
floor of a building to the basement while he was working with appellants
construction project, resulting to his death. The construction site is within the
exclusive control and management of appellant. It has a safety engineer, a
project superintendent, a carpenter leadman and others who are in complete
control of the situation therein. The circumstances of any accident that would
occur therein are peculiarly within the knowledge of the appellant or its
employees. On the other hand, the appellee is not in a position to know what
caused the accident. Res ipsa loquitur is a rule of necessity and it applies
where evidence is absent or not readily available, provided the following
requisites are present: (1) the accident was of a kind which does not ordinarily
 occur unless someone is negligent; (2) the instrumentality or agency which
caused the injury was under the exclusive control of the person charged with
negligence; and (3) the injury suffered must not have been due to any
voluntary action or contribution on the part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the
basement while performing work in a construction site unless someone is
negligent[;] thus, the first requisite for the application of the rule of res ipsa
loquitur is present. As explained earlier, the construction site with all its
paraphernalia and human resources that likely caused the injury is under the
exclusive control and management of appellant[;] thus[,] the second requisite
is also present. No contributory negligence was attributed to the appellees
deceased husband[;] thus[,] the last requisite is also present. All the requisites
for the application of the rule of res ipsa loquitur are present, thus a
reasonable presumption or inference of appellants negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application
of res ipsa loquitur, but argues that the presumption or inference that it was negligent
did not arise since it proved that it exercised due care to avoid the accident which befell
respondents husband.
Petitioner apparently misapprehends the procedural effect of the doctrine. As
stated earlier, the defendants negligence is presumed or inferred when the plaintiff
establishes the requisites for the application of res ipsa loquitur. Once the plaintiff
makes out a prima facie case of all the elements, the burden then shifts to defendant
to explain. The presumption or inference may be rebutted or overcome by other
evidence and, under appropriate circumstances a disputable presumption, such as that
of due care or innocence, may outweigh the inference. It is not for the defendant to
explain or prove its defense to prevent the presumption or inference from arising.
Evidence by the defendant of say, due care, comes into play only after the
circumstances for the application of the doctrine has been established.[28]
In the case at bar, aside from the statement in the police report, none of the parties disputes
the fact that the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear
end of the vehicle in front of it. Respondents, however, point to the reckless driving of the Nissan Bus
driver as the proximate cause of the collision, which allegation is totally unsupported by any evidence on
record. And assuming that this allegation is, indeed, true, it is astonishing that respondents never even
bothered to file a cross-claim against the owner or driver of the Nissan Bus.
What is at once evident from the instant case, however, is the presence of all the requisites for
the application of the rule of res ipsa loquitur. To reiterate, res ipsa loquitur is a rule of necessity which
applies where evidence is absent or not readily available. As explained in D.M. Consunji, Inc., it is partly
based upon the theory that the defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of ascertaining it and that the plaintiff has
no such knowledge, and, therefore, is compelled to allege negligence in general terms and to rely upon
the proof of the happening of the accident in order to establish negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur rule are the
following: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent;
(2) the instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence; and (3) the injury suffered must not have been due to any voluntary action or
contribution on the part of the person injured.[29]
In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi
Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under the exclusive control of its
driver, Reyes. Even if respondents avert liability by putting the blame on the Nissan Bus driver, still, this
allegation was self-serving and totally unfounded. Finally, no contributory negligence was attributed to
the driver of the Mitsubishi Galant. Consequently, all the requisites for the application of the doctrine
of res ipsa loquitur are present, thereby creating a reasonable presumption of negligence on the part of
respondents.
It is worth mentioning that just like any other disputable presumptions or inferences, the
presumption of negligence may be rebutted or overcome by other evidence to the contrary. It is
unfortunate, however, that respondents failed to present any evidence before the trial court. Thus, the
presumption of negligence remains. Consequently, the CA erred in dismissing the complaint for Malayan
Insurances adverted failure to prove negligence on the part of respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced
by the claim check voucher[30] and the Release of Claim and Subrogation Receipt[31] presented by it before
the trial court. Respondents, however, claim that the documents presented by Malayan Insurance do not
indicate certain important details that would show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the
presentation of its evidence. Thus, and as We have mentioned earlier, respondents are deemed to have
waived their right to make an objection. As this Court held in Asian Construction and Development
Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard such evidence. We
note that ASIAKONSTRUCTs counsel of record before the trial court, Atty. Bernard Dy,
who actively participated in the initial stages of the case stopped attending the hearings
when COMFAC was about to end its presentation. Thus, ASIAKONSTRUCT could not
object to COMFACs offer of evidence nor present evidence in its defense;
ASIAKONSTRUCT was deemed by the trial court to have waived its chance to do so.
Note also that when a party desires the court to reject the evidence
offered, it must so state in the form of a timely objection and it cannot raise
the objection to the evidence for the first time on appeal. Because of a partys
failure to timely object, the evidence becomes part of the evidence in the
 case. Thereafter, all the parties are considered bound by any outcome arising
from the offer of evidence properly presented.[32] (Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt
presented by Malayan Insurance are already part of the evidence on record, and since it is not disputed
that the insurance company, indeed, paid PhP 700,000 to the assured, then there is a valid subrogation
in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety
Corporation:
Subrogation is the substitution of one person by another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other
in relation to a debt or claim, including its remedies or securities. The principle covers
a situation wherein an insurer has paid a loss under an insurance policy is entitled to
all the rights and remedies belonging to the insured against a third party with respect
to any loss covered by the policy. It contemplates full substitution such that it places
the party subrogated in the shoes of the creditor, and he may use all means that the
creditor could employ to enforce payment.
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured may have
against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the ultimate payment
of a debt by one who, in justice, equity, and good conscience, ought to pay.[33]
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the
rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CAs July 28, 2010 Decision and October
29, 2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The Decision
dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American
International Underwriters (Phils.), Inc., respondent.
BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known
as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a
life or an industrial life policy whenever the grace period provision applies.
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by
American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building
and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of
P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982
and 16 November 1982, all of which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596,
which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984.
The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July
1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted
by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed
policy, petitioner made two installment payments, both accepted by private respondent, the first on 6
February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner
refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for
Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-
9210651. It explained that it discontinued the payment of premiums because the policy did not contain
a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-
85, as well as the two (2) previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny
liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is not
covered.
Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and
in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85.
After some incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following
findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums of the
three aforementioned policies (being sought to be refunded) were made during the
lifetime or term of said policies, hence, it could not be said, inspite of the
 reservations, that no risk attached under the policies. Consequently, defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of
the reservation in the receipts ordinarily issued by the plaintiff on premium payments
the only plausible conclusion is that plaintiff has no right to demand their payment
after the lapse of the term of said policy on March 1, 1985. Therefore, the defendant
was justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a
decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the
premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The appellate court thus explained —
The obligation to pay premiums when due is ordinarily as indivisible obligation to pay
the entire premium. Here, the parties herein agreed to make the premiums payable
in installments, and there is no pretense that the parties never envisioned to make
the insurance contract binding between them. It was renewed for two succeeding
years, the second and third policies being a renewal/replacement for the previous
one. And the insured never informed the insurer that it was terminating the policy
because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may
not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not
agree to allow payment of the premiums in installment, or to consider the contract as
valid and binding upon payment of the first premium. Otherwise, we would allow the
insurer to renege on its liability under the contract, had a loss incurred (sic) before
completion of payment of the entire premium, despite its voluntary acceptance of
partial payments, a result eschewed by a basic considerations of fairness and equity.
To our mind, the insurance contract became valid and binding upon payment of the
first premium, and the plaintiff could not have denied liability on the ground that
payment was not made in full, for the reason that it agreed to accept installment
payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for the insurance policies for
1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance
Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability for
loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only be effective if there
is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance
Code. The absence of an express acknowledgment in the policies of such receipt of the corresponding
premium payments, and petitioner's failure to pay said premiums on or before the effective dates of
said policies rendered them invalid. Petitioner thus concludes that there cannot be a perfected contract
of insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance
Code, no contract of insurance is valid and binding unless the premium thereof has been paid,
notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all
premium payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The records
clearly show that petitioner and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted
all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to
honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not
allow the insurer to continue collecting and accepting the premiums, although paid on installments, and
later deny liability on the lame excuse that the premiums were not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision —
While the import of Section 77 is that prepayment of premiums is strictly required as
a condition to the validity of the contract, We are not prepared to rule that the
request to make installment payments duly approved by the insurer, would prevent
the entire contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive
evidence of payment so far as to make the policy binding despite the fact that
premium is actually unpaid. Section 77 merely precludes the parties from stipulating
that the policy is valid even if premiums are not paid, but does not expressly prohibit
an agreement granting credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy (De Leon, the Insurance Code, at
p. 175). So is an understanding to allow insured to pay premiums in installments not
so proscribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar.
In Arce, no payment was made by the insured at all despite the grace period given. In the case before
Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2)
installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third policy
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where
the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums
paid if the insurer was exposed to the risk insured for any period, however brief or momentary.
WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs
against petitioner.
SO ORDERED.
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M.
RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M.
RORALDO, petitioners, vs. COURT OF APPEALS and FORTUNE LIFE AND GENERAL
INSURANCE CO., INC., respondents.
D E C I S I O N*
BELLOSILLO, J.:
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of
premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE)
issued Fire InsurancePolicy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-
storey residential building located at 5855 Zobel Street, Makati City, together with all their personal
effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23
January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid
P600.00 thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10
March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a
claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment
Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March
1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies
or their representatives in investigating the claim made by the claimant for his loss which occurred at
5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of
actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies
held by said claimant, nor the rights of either or any of the parties to this agreement, and such action
shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.[1]
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition
No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission
proved futile. On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages in the
amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per
annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value
of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal
rate of 6% per annum from the filing of the complaint until full payment, and attorneys fees equivalent
to 20% of the total amount claimed plus costs of suit.[2]
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be
liable to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium
of P2,983.50 plus 12% interest from 10 March 1987 until full payment.[3]
Hence this petition for review with petitioners contending mainly that contrary to the conclusion of
the appellate court, FORTUNE remains liable under the subject fire insurance policy inspite of the failure
of petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.[4] The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy, and if not so paid,
the policy will lapse and be forfeited by its own terms.[5]
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance
with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the
Property herein described x x x
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company
official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or may
hereafter be in force provide for the payment of the stipulated premiums in periodic installments at
fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed effective,
valid and binding upon the Company only when the premiums therefor have actually been paid in full
and duly acknowledged in a receipt signed by any authorized official or representative/agent of the
Company in such manner as provided herein, (Italics supplied).[6]
Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only
been partially paid and the balance paid only after the peril insured against has occurred, the insurance
contract did not take effect and the insured cannot collect at all on the policy. This is fully supported by
Sec. 77 of the Insurance Code which provides
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against.Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies (Italics supplied).
Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has
been paid. This leads us to the manner of payment envisioned by the law to make the insurance policy
operative and binding. For whatever judicial construction may be accorded the disputed phrase must
ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish
the court should neither distinguish assumes that the legislature made no qualification on the use of a
general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court through Mr. Justice
Jesus G. Barrera, interpreting the phrase with pay used in connection with leaves of absence with pay
granted to employees, ruled -
x x x the legislative practice seems to be that when the intention is to distinguish between full and
partial payment, the modifying term is used x x x
Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679
regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges
of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that
every househelp shall be allowed four (4) days vacation each month, which laws simply stated with pay,
the Court concluded that it was undisputed that in all these laws the phrase with pay used without any
qualifying adjective meant that the employee was entitled to full compensation during his leave of
absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment
of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the
1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.[8] where the Court through
Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium
made the policy effective during the whole period of the policy. In that case, the insurance company
commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense
the insured claimed that nonpayment of premium produced the cancellation of the insurance contract.
Ruling otherwise the Court held
It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the same year, the latter paid to the former the
sum of P3,000.00 on account of the total premium of P6,051.95 due thereon.There is, consequently, no
doubt at all that, as between the insurer and the insured, there was not only a perfected contract of
insurance but a partially performed one as far as the payment of the agreed premium was
concerned. Thereafter the obligation of the insurer to pay the insured the amount, for which the policy
was issued in case the conditions therefor had been complied with, arose and became binding upon it,
while the obligation of the insured to pay the remainder of the total amount of the premium due
became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the
factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the
premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In
the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy xxx is not in
force until the premium has been fully paid and duly receipted by the Company x x x. Resultantly, it is
correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the
parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent
to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of
the premium without any other precondition to its enforceability as in the instant case, the insurer in
effect had shown its intention to continue with the existing contract of insurance, as in fact it was
enforcing its right to collect premium, or exact specific performance from the insured. This is not so
here. By express agreement of the parties, no vinculum juris or bond of law was to be established until
full payment was effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed that the
premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court
refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with approval
the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire
premium. Here, the parties x x x agreed to make the premiums payable in installments, and there is no
pretense that the parties never envisioned to make the insurance contract binding between them. It
was renewed for two succeeding years, the second and third policies being a renewal/replacement for
the previous one. And the insured never informed the insurer that it was terminating the policy because
the terms were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make
the insurance contract valid and binding without payment of premiums, there is nothing in said section
which suggests that the parties may not agree to allow payment of the premiums in installment, or to
consider the contract as valid and binding upon payment of the first premium. Otherwise we would
allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion
of payment of the entire premium, despite its voluntary acceptance of partial payments, a result
eschewed by basic considerations of fairness and equity x x x.
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium
as inPhoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But
contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench.
Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof
and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted
by the Company x x x and that this policy shall be deemed effective, valid and binding upon the Company
only when the premiums therefor have actually been paid in full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77
of the Insurance Code the payment of partial premium by the assured in this particular instance should
not be considered the payment required by the law and the stipulation of the parties. Rather, it must be
taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount
has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full
payment must be made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law
ever resulted from the fractional payment of premium. The insurance contract itself expressly provided
that the policy would be effective only when the premium was paid in full. It would have been altogether
different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be
insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract
is the intention of the parties as expressed in the policy.[10] Courts have no other function but to enforce
the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly
against the insurer should not be permitted to have the effect of making a plain agreement ambiguous
and then construe it in favor of the insured.[11] Verily, it is elemental law that the payment of premium is
requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in
the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a
partial payment will not keep the policy alive even for such fractional part of the year as the part payment
bears to the whole payment.[12]
Applying further the rules of statutory construction, the position maintained by petitioners becomes
even more untenable.The case of South Sea Surety and Insurance Company, Inc. v. Court of
Appeals,[13] speaks only of two (2) statutory exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace period applies, and
(b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment
being declared by law to, be then conclusive evidence of the premium payment.[14]
 A maxim of recognized practicality is the rule that the expressed exception or exemption excludes
others. Exceptio firm at regulim in casibus non exceptis. The express mention of exceptions operates to
exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed
included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the
law has not expressly excepted partial payments, there is no valid and binding contract.Hence, in the
absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds
of the policy.
In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of
insurance is primarily a risk-distributing device, a mechanism by which all members of a group exposed
to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever
losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer,
that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and
the insured, that of parting with the amount required as premium, without receiving anything therefor in
case the contingency does not happen. To ensure payment for these losses, the law mandates all
insurance companies to maintain a legal reserve fund in favor of those claiming under their policies.[15] It
should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat
partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer
despite an express agreement to the contrary. For what could prevent the insurance applicant from
deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire
and then conveniently pass on the balance of the premium to be deducted from the proceeds of the
insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required
premium, and when the risk occurs simply points to the proceeds from where to source the balance? Can
an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium
stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the
insurance should the risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the
insured despite clearly defined obligations of the parties to the policy can be carried out to extremes that
there is the danger that we may, so to speak, kill the goose that lays the golden egg. We are well aware
of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to
all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is
manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the exceptions provided in Secs. 77 and
78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully
paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the
public, hence, the imperative need for its prompt payment and full satisfaction.[16] It must be emphasized
here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured
against are based on the sound hypothesis of prompt payment of premiums.Upon this bedrock insurance
firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of
premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a
mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to
be paid even after the risk insured against has occurred, as petitioners have done in this case, on the
principle that the strength of the vinculumjuris is not measured by any specific amount of premium
payment, we will surely wreak havoc on the business and set to naught what has taken actuarians
centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer
and the insured.
The terms of the insurance policy constitute the measure of the insurers liability. 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.[17] The validity of these limitations is by law passed upon by the Insurance
Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance
which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and
allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24
March 1995 is AFFIRMED.
SO ORDERED.
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE
COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the
Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine
American Life Insurance Company for the recovery of the proceeds from their late father's policy. The
facts of the case as found by the Court of Appeals are:
Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein
petitioners' complaint against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No. 1082467 in the amount of P
80,000.00.
On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life
insurance in the amount of P 80,000.00 with respondent company. Said application
was approved and Policy No. 1082467 was issued effective November 6,1973, with
petitioners the beneficiaries thereof (Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed
with respondent company their claim for the proceeds of the life insurance policy.
However, in a letter dated September 11, 1975, respondent company denied
petitioners' claim and rescinded the policy by reason of the alleged misrepresentation
and concealment of material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on the policy were
thereupon refunded .
Alleging that respondent company's refusal to pay them the proceeds of the policy
was unjustified and unreasonable, petitioners filed on November 27, 1975, a
complaint against the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
 After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for
lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment of errors, to wit:
A. The conclusion in law of respondent Court that respondent insurer has the right to
rescind the policy contract when insured is already dead is not in accordance with
existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that respondent insurer may be allowed
to avoid the policy on grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of applicable legal provisions
and established jurisprudence.
C. The inference of respondent Court that respondent insurer was misled in issuing
the policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer had the right to rescind the contract of
insurance as rescission must allegedly be done during the lifetime of the insured within two years and
prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48
added to prevent the insurance company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are concerned
if the insurance has been in force for at least two years during the insured's lifetime. The phrase
"during the lifetime" found in Section 48 simply means that the policy is no longer considered in force
after the insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two
years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured died on April 26,1975.
The policy was thus in force for a period of only one year and five months.
Considering that the insured died before the two-year period had lapsed, respondent
company is not, therefore, barred from proving that the policy is void ab initio by
reason of the insured's fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums
paid on September 11, 1975, previous to the commencement of this action on
November 27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no concealment or misrepresentation by their late
father because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent
salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was submitted because of
repeated visits and solicitations by the insurer's agent. Assured did not knock at the
door of the insurer to buy insurance. He was the object of solicitations and visits.
Assured was a man of means. He could have obtained a bigger insurance, not just P
80,000.00. If his purpose were to misrepresent and to conceal his ailments in
anticipation of death during the two-year period, he certainly could have gotten a
bigger insurance. He did not.
Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano
Guinto. It was he who accomplished the application, Part II, medical. Philamlife did
not.
Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a
relative to Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to denounce the pressure and
practice indulged in by agents in selling insurance. At one time or another most of us
have been subjected to that pressure, that practice. This court took judicial
cognizance of the whirlwind pressure of insurance selling-especially of the agent's
practice of 'supplying the information, preparing and answering the
application, submitting the application to their companies, concluding the transactions
and otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at
page 205:
It is of common knowledge that the selling of insurance today is subjected to the
whirlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and procure
applications.
These agents are to be found all over the length and breadth of the land. They are
stimulated to more active efforts by contests and by the keen competition offered by
the other rival insurance companies.
They supply all the information, prepare and answer the applications, submit the
applications to their companies, conclude the transactions, and otherwise smooth out
all difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when the pressure of
insurance salesmanship was not overwhelming as it is now; when the population of
this country was less than one-fourth of what it is now; when the insurance
companies competing with one another could be counted by the fingers. (pp. 140-
142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been subjected to the
whirlwind pressure of insurance salesmanship this Court itself has long denounced,
 the assured who dies within the two-year period, should stand charged of fraudulent
concealment and misrepresentation." (p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added
by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and paying
for a life insurance policy, would be allowed to collect on the policy even if the insured fraudulently
concealed material facts.
The petitioners argue that no evidence was presented to show that the medical terms were explained in
a layman's language to the insured. They state that the insurer should have presented its two medical
field examiners as witnesses. Moreover, the petitioners allege that the policy intends that the medical
examination must be conducted before its issuance otherwise the insurer "waives whatever
imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was presented by respondent
company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove
concealment on his part. The same is not well taken. The deceased, by affixing his
signature on the application form, affirmed the correctness of all the entries and
answers appearing therein. It is but to be expected that he, a businessman, would
not have affixed his signature on the application form unless he clearly understood its
significance. For, the presumption is that a person intends the ordinary consequence
of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule
131, Rules of Court].
The evidence for respondent company shows that on September 19,1972, the
deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was complaining of progressive
weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,
(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug,
testified that the deceased came to see him on December 14, 1973 for consolation
and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit
6) Because of the concealment made by the deceased of his consultations and
treatments for hypertension, diabetes and liver disorders, respondent company was
thus misled into accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical history is revealed in
the application form, an applicant for insurance is presumed to be healthy and
physically fit and no further medical investigation or examination is conducted by
respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this
case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of money are collected from
ignorant persons by companies and associations which adopt high sounding titles and
print the amount of benefits they agree to pay in large black-faced type, following
such undertakings by fine print conditions which destroy the substance of the
promise. All provisions, conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly against those for whose
benefit they are inserted, and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil. 184)
There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in such a
way as to conceal from the applicant their importance. If a warning in bold red letters or a boxed
warning similar to that required for cigarette advertisements by the Surgeon General of the United
States is necessary, that is for Congress or the Insurance Commission to provide as protection against
high pressure insurance salesmanship. We are limited in this petition to ascertaining whether or not the
respondent Court of Appeals committed reversible error. It is the petitioners' burden to show that the
factual findings of the respondent court are not based on substantial evidence or that its conclusions
are contrary to applicable law and jurisprudence. They have failed to discharge that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe
Oscar Schuetze,plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellee.
Araneta, De Joya, Zaragoza and Araneta for appellant.
Attorney-General Jaranilla for appellee.
VILLA-REAL, J.:
The Bank of the Philippine Islands, as administrator of the estate of the deceased Adolphe Oscar
Schuetze, has appealed to this court from the judgment of the Court of First Instance of Manila
absolving the defendant Juan Posadas, Jr., Collector of Internal Revenue, from the complaint filed
against him by said plaintiff bank, and dismissing the complaint with costs.
The appellant has assigned the following alleged errors as committed by the trial court in its judgment,
to wit:
1. The lower court erred in holding that the testimony of Mrs. Schuetze was inefficient to
established the domicile of her husband.
2. The lower court erred in holding that under section 1536 of the Administrative Code the tax
imposed by the defendant is lawful and valid.
3. The lower court erred in not holding that one-half (½) of the proceeds of the policy in
question is community property and that therefore no inheritance tax can be levied, at least on
one-half (½) of the said proceeds.
4. The lower court erred in not declaring that it would be unconstitutional to impose an
inheritance tax upon the insurance policy here in question as it would be a taking of property
without due process of law.
The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector of Internal
Revenue, the amount of P1,209 paid by the plaintiff under protest, in its capacity of administrator of
the estate of the late Adolphe Oscar Schuetze, as inheritance tax upon the sum of P20,150, which is
the amount of an insurance policy on the deceased's life, wherein his own estate was named the
beneficiary.
At the hearing, in addition to documentary and parol evidence, both parties submitted the following
agreed statement of facts of the court for consideration:
It is hereby stipulated and agreed by and between the parties in the above-entitled action
through their respective undersigned attorneys:
1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe Oscar
Schuetze, is of legal age, a native of Manila, Philippine Islands, and is and was at all times
hereinafter mentioned a resident of Germany, and at the time of the death of her husband,
the late Adolphe Oscar Schuetze, she was actually residing and living in Germany;
2. That the Bank of the Philippine Islands, is and was at all times hereinafter mentioned a
banking institution duly organized and existing under and by virtue of the laws of the
Philippine Islands;
3. That on or about August 23, 1928, the herein plaintiff before notary public Salvador
Zaragoza, drew a general power appointing the above-mentioned Bank of the Philippine
Islands as her attorney-in-fact, and among the powers conferred to said attorney-in-fact was
the power to represent her in all legal actions instituted by or against her;
4. That the defendant, of legal age, is and at all times hereinafter mentioned the duly
appointed Collector of Internal Revenue with offices at Manila, Philippine Islands;
5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the first time
of March 31, 1890, and worked in the several German firms as a mere employee and that
from the year 1903 until the year 1918 he was partner in the business of Alfredo Roensch;
6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of making
various trips to Europe;
7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java, and with
the intention of going to Bremen, landed in the Philippine Islands where he met his death on
February 2, 1928;
8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany, executed a
will, in accordance with its law, wherein plaintiff was named his universal heir;
9. That the Bank of the Philippine Islands by order of the Court of First Instance of Manila
under date of May 24, 1928, was appointed administrator of the estate of the deceased
Adolphe Oscar Schuetze;
10. That, according to the testamentary proceedings instituted in the Court of First Instance of
Manila, civil case No. 33089, the deceased at the time of his death was possessed of not only
real property situated in the Philippine Islands, but also personal property consisting of shares
of stock in nineteen (19) domestic corporations;
11. That the fair market value of all the property in the Philippine Islands left by the deceased
at the time of his death in accordance with the inventory submitted to the Court of First
Instance of Manila, civil case No. 33089, was P217,560.38;
12. That the Bank of the Philippine Islands, as administrator of the estate of the deceased
rendered its final account on June 19, 1929, and that said estate was closed on July 16, 1929;
13. That among the personal property of the deceased was found life-insurance policy No.
194538 issued at Manila, Philippine Islands, on January 14, 1913, for the sum of $10,000 by
the Sun Life Assurance Company of Canada, Manila branch, a foreign corporation duly
organized and existing under and by virtue of the laws of Canada, and duly authorized to
transact business in the Philippine Islands;
14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was named the
beneficiary without any qualification whatsoever;
15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the premiums
of said policy to the Sun Life Assurance Company of Canada, Manila branch;
16. That on or about the year 1918, the Sun Life Assurance Company of Canada, Manila
branch, transferred said policy to the Sun Life Assurance Company of Canada, London branch;
17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time of his
death paid the premiums of said policy to the Sun Life Assurance Company of Canada, London
Branch;
18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his widow, the
plaintiff herein;
19. That at the time of the death of the deceased and at all times thereafter including the date
when the said insurance policy was paid, the insurance policy was not in the hands or
possession of the Manila office of the Sun Life Assurance Company of Canada, nor in the
possession of the herein plaintiff, nor in the possession of her attorney-in-fact the Bank of the
Philippine Islands, but the same was in the hands of the Head Office of the Sun Life Assurance
Company of Canada, at Montreal, Canada;
20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the
decedent's estate received from the Sun Life Assurance Company of Canada, Manila branch,
the sum of P20,150 representing the proceeds of the insurance policy, as shown in the
statement of income and expenses of the estate of the deceased submitted on June 18, 1929,
by the administrator to the Court of First Instance of Manila, civil case No. 33089;
21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said sum of
P20,150;
22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax upon the
transmission of the proceeds of the policy in question in the sum of P20,150 from the estate of
the late Adolphe Oscar Schuetze to the sole heir of the deceased, or the plaintiff herein, which
inheritance tax amounted to the sum of P1,209;
23. That the Bank of the Philippine Islands as administrator of the decedent's estate and as
attorney-in-fact of the herein plaintiff, having been demanded by the herein defendant to pay
inheritance tax amounting to the sum of P1,209, paid to the defendant under protest the
above-mentioned sum;
24. That notwithstanding the various demands made by plaintiff to the defendant, said
defendant has refused and refuses to refund to plaintiff the above mentioned sum of P1,209;
25. That plaintiff reserves the right to adduce evidence as regards the domicile of the
deceased, and so the defendant, the right to present rebuttal evidence;
26. That both plaintiff and defendant submit this stipulation of facts without prejudice to their
right to introduce such evidence, on points not covered by the agreement, which they may
deem proper and necessary to support their respective contentions.
In as much as one of the question raised in the appeal is whether an insurance policy on said Adolphe
Oscar Schuetze's life was, by reason of its ownership, subject to the inheritance tax, it would be well to
decide first whether the amount thereof is paraphernal or community property.
According to the foregoing agreed statement of facts, the estate of Adolphe Oscar Schuetze is the sole
beneficiary named in the life-insurance policy for $10,000, issued by the Sun Life Assurance Company
of Canada on January 14, 1913. During the following five years the insured paid the premiums at the
Manila branch of the company, and in 1918 the policy was transferred to the London branch.
The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario
Gelano on January 16, 1914.
With the exception of the premium for the first year covering the period from January 14, 1913 to
January 14, 1914, all the money used for paying the premiums, i. e., from the second year, or January
16, 1914, or when the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano,
until his death on February 2, 1929, is conjugal property inasmuch as it does not appear to have
exclusively belonged to him or to his wife (art. 1407, Civil Code). As the sum of P20,150 here in
controversy is a product of such premium it must also be deemed community property, because it was
acquired for a valuable consideration, during said Adolphe Oscar Schuetze's marriage with Rosario
Gelano at the expense of the common fund (art. 1401, No. 1, Civil Code), except for the small part
corresponding to the first premium paid with the deceased's own money.
In his Commentaries on the Civil Code, volume 9, page 589, second edition, Manresa treats of life
insurance in the following terms, to wit:
The amount of the policy represents the premiums to be paid, and the right to it arises the
moment the contract is perfected, for at the moment the power of disposing of it may be
exercised, and if death occurs payment may be demanded. It is therefore something acquired
for a valuable consideration during the marriage, though the period of its fulfillment, depend
upon the death of one of the spouses, which terminates the partnership. So considered, the
question may be said to be decided by articles 1396 and 1401: if the premiums are paid with
the exclusive property of husband or wife, the policy belongs to the owner; if with conjugal
property, or if the money cannot be proved as coming from one or the other of the spouses,
the policy is community property.
The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex. Civ. A., 509) laid
down the following doctrine:
COMMUNITY PROPERTY — LIFE INSURANCE POLICY. — A husband took out an endowment
life insurance policy on his life, payable "as directed by will." He paid the premiums thereon
out of community funds, and by his will made the proceeds of the policy payable to his own
estate. Held, that the proceeds were community estate, one-half of which belonged to the
wife.
In In re Stan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down the following
doctrine:
A testator, after marriage, took out an insurance policy, on which he paid the premiums from
his salary. Held that the insurance money was community property, to one-half of which, the
wife was entitled as survivor.
In In re Webb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following doctrine:
A decedent paid the first third of the amount of the premiums on his life-insurance policy out
of his earnings before marriage, and the remainder from his earnings received after marriage.
Held, that one-third of the policy belonged to his separate estate, and the remainder to the
community property.
Thus both according to our Civil Code and to the ruling of those North American States where the
Spanish Civil Code once governed, the proceeds of a life-insurance policy whereon the premiums were
paid with conjugal money, belong to the conjugal partnership.
The appellee alleges that it is a fundamental principle that a life-insurance policy belongs exclusively to
the beneficiary upon the death of the person insured, and that in the present case, as the late Adolphe
Oscar Schuetze named his own estate as the sole beneficiary of the insurance on his life, upon his
death the latter became the sole owner of the proceeds, which therefore became subject to the
inheritance tax, citing Del Val vs. Del Val (29 Phil., 534), where the doctrine was laid down that an heir
appointed beneficiary to a life-insurance policy taken out by the deceased, becomes the absolute owner
of the proceeds of such policy upon the death of the insured.
The estate of a deceased person cannot be placed on the same footing as an individual heir. The
proceeds of a life-insurance policy payable to the estate of the insured passed to the executor or
administrator of such estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas the
proceeds of a life-insurance policy payable to an heir of the insured as beneficiary belongs exclusively
to said heir and does not form part of the deceased's estate subject to administrator. (Del Val vs. Del
Val, supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of the Code of Commerce.)
Just as an individual beneficiary of a life-insurance policy taken out by a married person becomes the
exclusive owner of the proceeds upon the death of the insured even if the premiums were paid by the
conjugal partnership, so, it is argued, where the beneficiary named is the estate of the deceased whose
life is insured, the proceeds of the policy become a part of said estate upon the death of the insured
even if the premiums have been paid with conjugal funds.
In a conjugal partnership the husband is the manager, empowered to alienate the partnership property
without the wife's consent (art. 1413, Civil Code), a third person, therefore, named beneficiary in a life-
insurance policy becomes the absolute owner of its proceeds upon the death of the insured even if the
premiums should have been paid with money belonging to the community property. When a married
man has his life insured and names his own estate after death, beneficiary, he makes no alienation of
the proceeds of conjugal funds to a third person, but appropriates them himself, adding them to the
assets of his estate, in contravention of the provisions of article 1401, paragraph 1, of the Civil Code
cited above, which provides that "To the conjugal partnership belongs" (1) Property acquired for a
valuable consideration during the marriage at the expense of the common fund, whether the acquisition
is made for the partnership or for one of the spouses only." Furthermore, such appropriation is a fraud
practised upon the wife, which cannot be allowed to prejudice her, according to article 1413, paragraph
2, of said Code. Although the husband is the manager of the conjugal partnership, he cannot of his own
free will convert the partnership property into his own exclusive property.
As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze, were
paid out of the conjugal funds, with the exceptions of the first, the proceeds of the policy, excluding the
proportional part corresponding to the first premium, constitute community property, notwithstanding
the fact that the policy was made payable to the deceased's estate, so that one-half of said proceeds
belongs to the estate, and the other half to the deceased's widow, the plaintiff-appellant Rosario Gelano
Vda. de Schuetze.
The second point to decide in this appeal is whether the Collector of Internal Revenue has authority,
under the law, to collect the inheritance tax upon one-half of the life-insurance policy taken out by the
late Adolphe Oscar Schuetze, which belongs to him and is made payable to his estate.
According to the agreed statement of facts mentioned above, the plaintiff-appellant, the Bank of the
Philippine Islands, was appointed administrator of the late Adolphe Oscar Schuetze's testamentary
estate by an order dated March 24, 1928, entered by the Court of First Instance of Manila. On July 13,
1928, the Sun Life Assurance Company of Canada, whose main office is in Montreal, Canada, paid
Rosario Gelano Vda. de Schuetze upon her arrival at Manila, the sum of P20,150, which was the
amount of the insurance policy on the life of said deceased, payable to the latter's estate. On the same
date Rosario Gelano Vda. de Schuetze delivered the money to said Bank of the Philippine Islands, as
administrator of the deceased's estate, which entered it in the inventory of the testamentary estate,
and then returned the money to said widow.
Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835 and section 1 of
Act No. 3031, contains the following relevant provision:
SEC. 1536. Conditions and rate of taxation. — Every transmission by virtue of inheritance,
devise, bequest, gift mortis causa or advance in anticipation of inheritance, devise, or bequest
of real property located in the Philippine Islands and real rights in such property; of any
franchise which must be exercised in the Philippine Islands; of any shares, obligations, or
bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippine Islands in accordance with its laws; of any shares or rights in any partnership,
business or industry established in the Philippine Islands or of any personal property located in
the Philippine Islands shall be subject to the following tax:
xxx xxx xxx
In as much as the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetze were
paid to the Bank of the Philippine Islands, as administrator of the deceased's estate, for management
and partition, and as such proceeds were turned over to the sole and universal testamentary heiress
Rosario Gelano Vda. de Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds is
the Philippine Islands.
In his work "The Law of Taxation," Cooley enunciates the general rule governing the levying of taxes
upon tangible personal property, in the following words:
GENERAL RULE. — The suits of tangible personal property, for purposes of taxation may be
where the owner is domiciled but is not necessarily so. Unlike intangible personal property, it
may acquire a taxation situs in a state other than the one where the owner is domiciled,
merely because it is located there. Its taxable situs is where it is more or less permanently
located, regardless of the domicile of the owner. It is well settled that the state where it is
more or less permanently located has the power to tax it although the owner resides out of
the state, regardless of whether it has been taxed for the same period at the domicile of the
owner, provided there is statutory authority for taxing such property. It is equally well settled
that the state where the owner is domiciled has no power to tax it where the property has
acquired an actual situs in another state by reason of its more or less permanent location in
that state. ... (2 Cooley, The Law of Taxation, 4th ed., p. 975, par. 451.)
With reference to the meaning of the words "permanent" and "in transit," he has the following to say:
PERMANENCY OF LOCATION; PROPERTY IN TRANSIT. — In order to acquire a situs in a state
or taxing district so as to be taxable in the state or district regardless of the domicile of the
owner and not taxable in another state or district at the domicile of the owner, tangible
personal property must be more or less permanently located in the state or district. In other
words, the situs of tangible personal property is where it is more or less permanently located
rather than where it is merely in transit or temporarily and for no considerable length of time.
If tangible personal property is more or less permanently located in a state other than the one
where the owner is domiciled, it is not taxable in the latter state but is taxable in the state
where it is located. If tangible personal property belonging to one domiciled in one state is in
another state merely in transitu or for a short time, it is taxable in the former state, and is not
taxable in the state where it is for the time being. . . . .
Property merely in transit through a state ordinarily is not taxable there. Transit begins when
an article is committed to a carrier for transportation to the state of its destination, or started
on its ultimate passage. Transit ends when the goods arrive at their destination. But
intermediate these points questions may arise as to when a temporary stop in transit is such
as to make the property taxable at the place of stoppage. Whether the property is taxable in
such a case usually depends on the length of time and the purpose of the interruption of
transit. . . . .
. . . It has been held that property of a construction company, used in construction of a
railroad, acquires a situs at the place where used for an indefinite period. So tangible personal
property in the state for the purpose of undergoing a partial finishing process is not to be
regarded as in the course of transit nor as in the state for a mere temporary purpose. (2
Cooley, The Law of Taxation, 4th ed., pp. 982, 983 and 988, par. 452.)
If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze and made
payable to his estate, were delivered to the Bank of the Philippine Islands for administration and
distribution, they were not in transit but were more or less permanently located in the Philippine
Islands, according to the foregoing rules. If this be so, half of the proceeds which is community
property, belongs to the estate of the deceased and is subject to the inheritance tax, in accordance
with the legal provision quoted above, irrespective of whether or not the late Adolphe Oscar Schuetze
was domiciled in the Philippine Islands at the time of his death.
By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a life-insurance
policy payable to the insured's estate, on which the premiums were paid by the conjugal partnership,
constitute community property, and belong one-half to the husband and the other half to the wife,
exclusively; (2) that if the premiums were paid partly with paraphernal and partly conjugal funds, the
proceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3) that the
proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the
testamentary administrator of the former as part of the assets of said estate under probate
administration, are subject to the inheritance tax according to the law on the matter, if they belong to
the assured exclusively, and it is immaterial that the insured was domiciled in these Islands or
outside.1awphil.net
Wherefore, the judgment appealed from is reversed, and the defendant is ordered to return to the
plaintiff the one-half of the tax collected upon the amount of P20,150, being the proceeds of the
insurance policy on the life of the late Adolphe Oscar Schuetze, after deducting the proportional part
corresponding to the first premium, without special pronouncement of costs. So ordered.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.
MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life
insurance policy of a legally married man claim the proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy
No. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amount
Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as
his wife.
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing
branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the
coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest
thereon due for January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated
beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely
living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.
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.
SO ORDERED.
RAFAEL (REX) VERENDIA, vs. COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINE / FIDELITY & SURETY CO. OF THE PHILIPPINES, INC. vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
The two consolidated cases involved herein stemmed from the issuance by Fidelity and
Surety Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance Policy
No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the
amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May
12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867
expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property was completely
destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly
informed of the loss and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then Court of First Instance of Quezon City,
praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and
litigation expenses. The complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy was avoided
by reason of over-insurance; that Verendia maliciously represented that the building at the
time of the fire was leased under a contract executed on June 25, 1980 to a certain
Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in
favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that
Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers Insurance and Development
Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated
on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P),
JJ.), the appellate court reversed for the following reasons: (a) there was no
misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in
the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia
to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown
by its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No.
76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of
directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on April
21, 1986, a motion for extension of 3 days within which to file a motion for
reconsideration. The motion for extension was not filed on April 19, 1986 which was the
15th day after receipt of the decision because said 15th day was a Saturday and of course,
the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension
was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but Fidelity had in the
meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on
the ground that the motion for extension was filed out of time because the 15th day from
receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed, so
Verendia contended, the Intermediate Appellate Court has personnel receiving pleadings
even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for
reconsideration was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition
herein docketed as G.R. No. 75605 was initiated. Subsequently, or more specifically on
October 21, 1986, the appellate court denied Fidelity's motion for reconsideration and
account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now
docketed as G.R. No. 76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the petition for
review on certiorari, we must first determine whether the decision of the appellate court
may still be reviewed, or whether the same is beyond further judicial scrutiny. Stated
otherwise, before anything else, inquiry must be made into the issue of whether Fidelity
could have legally asked for an extension of the 15-day reglementary period for appealing
or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that
the pendency of a motion for extension of time to perfect an appeal does not suspend the
running of the period sought to be extended (Garcia vs. Buenaventura 74 Phil. 611
[1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not expressly prohibit
the filing of a motion for extension of time to file a motion for reconsideration in regard to
a final order or judgment, magistrates, including those in the Court of Appeals, held
sharply divided opinions on whether the period for appealing which also includes the
period for moving to reconsider may be extended. The matter was not definitely settled
until this Court issued its Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA
[1986]), declaring that beginning one month from the promulgation of the resolution on
May 30, 1986 —
. . . the rule shall be strictly enforced that no motion for extension of time
to file a motion for new trial or reconsideration shall be filed . . . (at p.
212.)
In the instant case, the motion for extension was filed and granted before June 30, 1986,
although, of course, Verendia's motion to expunge the motion for reconsideration was not
finally disposed until July 22, 1986, or after the dictum in Habaluyas had taken effect.
Seemingly, therefore, the filing of the motion for extension came before its formal
proscription under Habaluyas, for which reason we now turn our attention to G.R. No.
76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the
contract of lease submitted by Verendia to support his claim on the fire insurance policy
constitutes a false declaration which would forfeit his benefits under Section 13 of the
policy and (b) whether or not, in submitting the subrogation receipt in evidence, Fidelity
had in effect agreed to settle Verendia's claim in the amount stated in said receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better
resolved by the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction
of this Court is limited to the review of errors of law. The appellate court's findings of fact are,
therefore, conclusive upon this Court except in the following cases: (1) when the conclusion is a finding
grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly
absurd, mistaken, or impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the judgment is premised on a misapprehension of facts; (5) when the findings of fact
are conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of
Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the trial court and the appellate
court on important issues in these consolidated cases and it appearing that the appellate court
judgment is based on a misapprehension of facts, this Court shall review the evidence on record.
The contract of lease upon which Verendia relies to support his claim for insurance benefits, was There is also no reason to conclude that by submitting the subrogation receipt as evidence in court,
entered into between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount
"1"), a couple of days after the effectivity of the insurance policy. When the rented residential building of P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no
was razed to the ground on December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was representative of Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his
still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M. address are not filled up. More significantly, the same receipt states that Verendia had received the
Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto aforesaid amount. However, that Verendia had not received the amount stated therein, is proven by the
Garcia was "renting on the otherside (sic) portion of said compound" fact that Verendia himself filed the complaint for the full amount of P385,000.00 stated in the policy. It
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, might be that there had been efforts to settle Verendia's claims, but surely, the subrogation receipt by
whom he considered as the real lessee, was occupying the building when it was burned (TSN, July 27, itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's
1982, p.10). presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to only wanting in rational basis but would be substituting the will of the Court for that of the parties.
locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED
Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on and the decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE
the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster and that of the trial court is hereby REINSTATED and UPHELD.
submitted a report dated December 4, 1981 recommending the denial of Verendia's claim (Exh. "2"). SO ORDERED
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease
contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been
paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his
cousin's name when he in fact was paying for the rent and why he (Verendia) himself, the lessor,
allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient
bases; Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged
"lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the
Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00,
insured the same property with two other insurance companies for a total coverage of around
P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure
of the insurer's liability and compliance therewith is a condition precedent to the insured's right to
recovery from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],
citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a
contract of adhesion, an insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it (Western Guaranty Corporation vs. Court
of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under
the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be
made or used in support thereof, or if any fraudulent means or devises are used by the Insured or
anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false
declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such
provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae
fidae and demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).