PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents. DECISION YNARES-SANTIAGO, J.

: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following uestion! Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer" #If $es, give details%.i&'( The application was approved for a period of one year from )arch ', '*++ to )arch ', '*+*. ,ccordingly, he was issued Health -are ,greement .o. P/'/'*0. 1nder the agreement, respondent2s husband was entitled to avail of hospitali3ation benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of 4out5patient benefits6 such as annual physical e7aminations, preventive health care and other out5patient services. 1pon the termination of the agreement, the same was e7tended for another year from )arch ', '*+* to )arch ', '**/, then from )arch ', '**/ to June ', '**/. The amount of coverage was increased to a ma7imum sum of P89,///.// per disability. ii&:( ;uring the period of his coverage, Ernani suffered a heart attac< and was confined at the )anila )edical -enter #))-% for one month beginning )arch *, '**/. =hile her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health -are ,greement was void. ,ccording to petitioner, there was a concealment regarding Ernani2s medical history. ;octors at the ))- allegedly discovered at the time of Ernani2s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in

the application form. Thus, respondent paid the hospitali3ation e7penses herself, amounting to about P8>,///.//. ,fter her husband was discharged from the ))-, he was attended by a physical therapist at home. ?ater, he was admitted at the -hinese @eneral Hospital. ;ue to financial difficulties, however, respondent brought her husband home again. In the morning of ,pril 'A, '**/, Ernani had fever and was feeling very wea<. Bespondent was constrained to bring him bac< to the -hinese @eneral Hospital where he died on the same day. Cn July :0, '**/, respondent instituted with the Begional Trial -ourt of )anila, Dranch 00, an action for damages against petitioner and its president, ;r. Denito Beverente, which was doc<eted as -ivil -ase .o. */59A8*9. She as<ed for reimbursement of her e7penses plus moral damages and attorney2s fees. ,fter trial, the lower court ruled against petitioners, viz: =HEBEECBE, in view of the forgoing, the -ourt renders Fudgment in favor of the plaintiff Julita Trinos, ordering! '. ;efendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P8>,///.// plus interest, until the amount is fully paid to plaintiff who paid the sameG :. ;efendants to pay the reduced amount of moral damages of P'/,///.// to plaintiffG A. ;efendants to pay the reduced amount of P'/,///.// as e7emplary damages to plaintiffG 0. ;efendants to pay attorney2s fees of P:/,///.//, plus costs of suit.

SC CB;EBE;.iii&A( Cn appeal, the -ourt of ,ppeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Beverente. iv&0( Petitioner2s motion for reconsideration was denied. v&9( Hence, petitioner brought the instant petition for review, raising the primary argument that a

health care agreement is not an insurance contractG hence the 4incontestability clause6 under the Insurance -ode vi&>( does not apply. Petitioner argues that the agreement grants 4living benefits,6 such as medical chec<5ups and hospitali3ation which a member may immediately enFoy so long as he is alive upon effectivity of the agreement until its e7piration one5 year thereafter. Petitioner also points out that only medical and hospitali3ation benefits are given under the agreement without any indemnification, unli<e in an insurance contract where the insured is indemnified for his loss. )oreover, since Health -are ,greements are only for a period of one year, as compared to insurance contracts which last longer,vii&8( petitioner argues that the incontestability clause does not apply, as the same re uires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance -ommission, but a Health )aintenance Crgani3ation under the authority of the ;epartment of Health. Section : #'% of the Insurance -ode defines a contract of insurance as an agreement whereby one underta<es for a consideration to indemnify another against loss, damage or liability arising from an un<nown or contingent event. ,n insurance contract e7ists where the following elements concur! '. The insured has an insurable interestG

interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section '/ provides! Every person has an insurable interest in the life and health! #'% of himself, of his spouse and of his childrenG

#:% of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interestG #A% of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performanceG and #0% of any person upon whose life any estate or interest vested in him depends. In the case at bar, the insurable interest of respondent2s husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non5life insurance, which is primarily a contract of indemnity.i7&*( Cnce the member incurs hospital, medical or any other e7pense arising from sic<ness, inFury or other stipulated contingent, the health care provider must pay for the same to the e7tent agreed upon under the contract. Petitioner argues that respondent2s husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners re uired respondent2s husband to sign an e7press authori3ation for any person, organi3ation or entity that has any record or <nowledge of his health to furnish any and all information relative to any hospitali3ation, consultation, treatment or any other medical advice or e7amination. 7&'/( Specifically, the Health -are ,greement signed by respondent2s husband states! =e hereby declare and agree that all statement and answers contained herein and in any addendum anne7ed to this application are full, complete and true and bind all parties in interest under the ,greement herein applied for, that there shall be no contract of health care coverage unless and until an

:. The insured is subFect to a ris< of loss by the happening of the designated perilG A. The insurer assumes the ris<G

0. Such assumption of ris< is part of a general scheme to distribute actual losses among a large group of persons bearing a similar ris<G and 9. In consideration of the insurer2s promise, the insured pays a premium.viii&+( Section A of the Insurance -ode states that any contingent or un<nown event, whether past or future, which may damnify a person having an insurable

,greement is issued on this application and the full )embership Eee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed )embersG that no information ac uired by any Bepresentative of Philam-are shall be binding upon Philam-are unless set out in writing in the applicationG that any physician is, by these presents, e7pressly authori3ed to disclose or give testimony at anytime relative to any information ac uired by him in his professional capacity upon any uestion affecting the eligibility for health care coverage of the Proposed )embers and that the acceptance of any ,greement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Cffice Endorsement. 7i&''( #1nderscoring ours% In addition to the above condition, petitioner additionally re uired the applicant for authori3ation to in uire about the applicant2s medical history, thus! I hereby authori3e any person, organi3ation, or entity that has any record or <nowledge of my health andHor that of IIIIIIIIII to give to the Philam-are Health Systems, Inc. any and all information relative to any hospitali3ation, consultation, treatment or any other medical advice or e7amination. This authori3ation is in connection with the application for health care coverage only. , photographic copy of this authori3ation shall be as valid as the original.7ii&':( #1nderscoring ours% Petitioner cannot rely on the stipulation regarding 4Invalidation of agreement6 which reads! Eailure to disclose or misrepresentation of any material information by the member in the application or medical e7amination, whether intentional or unintentional, shall automatically invalidate the ,greement from the very beginning and liability of Philamcare shall be limited to return of all )embership Eees paid. ,n undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the

applicant by Philamcare or the assessment of a higher )embership Eee for the benefit or benefits applied for. 7iii&'A( The answer assailed by petitioner was in response to the uestion relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent2s husband who was not a medical doctor. =here matters of opinion or Fudgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue.7iv&'0( Thus, #,%lthough false, a representation of the e7pectation, intention, belief, opinion, or Fudgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the ris<, or its acceptance at a lower rate of premium, and this is li<ewise the rule although the statement is material to the ris<, if the statement is obviously of the foregoing character, since in such case the insurer is not Fustified in relying upon such statement, but is obligated to ma<e further in uiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of e7pectation or belief, that which he then <nows, to be actually untrue, or the impossibility of which is shown by the facts within his <nowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.7v&'9( #1nderscoring ours% The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.7vi&'>( -oncealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the e7tent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitali3ed for the disease or inFury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

1nder Section :8 of the Insurance -ode, 4a concealment entitles the inFured party to rescind a contract of insurance.6 The right to rescind should be e7ercised previous to the commencement of an action on the contract. 7vii&'8( In this case, no rescission was made. Desides, the cancellation of health care agreements as in insurance policies re uire the concurrence of the following conditions! '. Prior notice of cancellation to insuredG

,nent the incontestability of the membership of respondent2s husband, we uote with approval the following findings of the trial court! #1%nder the title -laim procedures of e7penses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the ,greement within which to contest the membership of the patient if he had previous ailment of asthma, and si7 months from the issuance of the agreement if the patient was sic< of diabetes or hypertension. The periods having e7pired, the defense of concealment or misrepresentation no longer lie.77iii&:A( Einally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the e7penses. It is not controverted that respondent paid all the hospital and medical e7penses. She is therefore entitled to reimbursement. The records ade uately prove the e7penses incurred by respondent for the deceased2s hospitali3ation, medication and the professional fees of the attending physicians. 77iv&:0( WHEREFORE, in view of the foregoing, the petition is ;E.IE;. The assailed decision of the -ourt of ,ppeals dated ;ecember '0, '**9 is ,EEIB)E;. SC CB;EBE;. ;avide, Jr., -.J., #-hairman%, Puno, and Kapunan, JJ., concur.

:. .otice must be based on the occurrence after effective date of the policy of one or more of the grounds mentionedG A. )ust be in writing, mailed or delivered to the insured at the address shown in the policyG 0. )ust state the grounds relied upon provided in Section >0 of the Insurance -ode and upon re uest of insured, to furnish facts on which cancellation is based.7viii&'+( .one of the above pre5conditions was fulfilled in this case. =hen the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non5compliance with his obligation.7i7&'*( Deing a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract J the insurer.77&:/( Dy reason of the e7clusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. 77i&:'( This is e ually applicable to Health -are ,greements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and e7clusionary clauses of doubtful import should be strictly construed against the provider.77ii&::(

i ii iii iv v vi vii viii i7MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and t ! CHARTER INSURANCE CORPORATION, respondents. DECISION PUNO, J.: This is a petition for review on certiorari to annul and set aside the ;ecision of respondent -ourt of ,ppeals dated ;ecember '0, '**9&'( and its Besolution dated Eebruary ::, '**>&:( in -,5@.B. -L .o. 09+/9 entitled )ayer Steel Pipe -orporation and Hong<ong @overnment Supplies ;epartment v. South Sea Surety Insurance -o., Inc. and The -harter Insurance -orporation.&A( In '*+A, petitioner Hong<ong @overnment Supplies ;epartment #Hong<ong% contracted petitioner )ayer Steel Pipe -orporation #)ayer% to manufacture and supply various steel pipes and fittings. Erom ,ugust to Cctober, '*+A, )ayer shipped the pipes and fittings to Hong<ong as evidenced by Invoice .os. )SP-5'/'0, )SP-5'/'9, )SP-5'/:9, )SP-5'/:/, )SP-5'/'8 and )SP-5'/::.&0( Prior to the shipping, petitioner )ayer insured the pipes and fittings against all ris<s with private respondents South Sea Surety and Insurance -o., Inc. #South Sea% and -harter Insurance -orp. #-harter%. The pipes and fittings covered by Invoice .os. )SP-5'/'0, '/'9 and '/:9 with a total amount of 1SM:':,88:./* were insured with respondent South Sea, while those covered by Invoice .os. '/:/, '/'8 and '/:: with a total amount of 1SM'0*,08/.// were insured with respondent -harter. Petitioners )ayer and Hong<ong Fointly appointed Industrial Inspection #International% Inc. as third5 party inspector to e7amine whether the pipes and fittings are manufactured in accordance with the specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. .onetheless, when the goods reached Hong<ong, it was discovered that a substantial portion thereof was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Bespondent -harter paid petitioner Hong<ong the amount of HKM>0,*/0.89. Petitioners demanded payment of the balance of HKM:**,A09.A/ representing the cost of repair of the damaged pipes. Private respondents refused to pay because the insurance surveyorNs report allegedly showed that the damage is a factory defect. Cn ,pril '8, '*+>, petitioners filed an action against private respondents to recover the sum of HKM:**,A09.A/. Eor their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners because the damage to the goods is due to factory defects which are not covered by the insurance policies. The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing defects. It also noted that the insurance contracts e7ecuted by petitioner )ayer and private respondents are Oall ris<sO policies which insure against all causes of conceivable loss or damage. The only e7ceptions are those e7cluded in the policy, or those sustained due to fraud or

intentional misconduct on the part of the insured. The dispositive portion of the decision states! =HEBEECBE, Fudgment is hereby rendered ordering the defendants Fointly and severally, to pay the plaintiffs the following! '. the sum e uivalent in Philippine currency of HKM:**,A09.A/ with legal rate of interest as of the filing of the complaintG :. A. P'//,///.// as and for attorneyNs feesG and costs of suit.

SC CB;EBE;.&9( Private respondents elevated the case to respondent -ourt of ,ppeals. Bespondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was covered by the Oall ris<sO insurance policies issued by private respondents to petitioner )ayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is barred under Section A#>% of the -arriage of @oods by Sea ,ct since it was filed only on ,pril '8, '*+>, more than two years from the time the goods were unloaded from the vessel. Section A#>% of the -arriage of @oods by Sea ,ct provides that Othe carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.O Bespondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Eilipino )erchants Insurance -o., Inc. vs. ,leFandro.&>( Hence this petition with the following assignments of error! '. The respondent -ourt of ,ppeals erred in holding that petitionersN cause of action had already prescribed on the mista<en application of the -arriage of @oods by Sea ,ct and the doctrine of Eilipino )erchants -o., Inc. v. ,leFandro #'09 S-B, 0:%G and :. The respondent -ourt of ,ppeals committed an error in dismissing the complaint.&8(

The petition is impressed with merit. Bespondent court erred in applying Section A#>% of the -arriage of @oods by Sea ,ct. Section A#>% of the -arriage of @oods by Sea ,ct states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. 1nder this provision, only the carrierNs liability is e7tinguished if no suit is brought within one year. Dut the liability of the insurer is not e7tinguished because the insurerNs liability is based not on the contract of carriage but on the contract of insurance. , close reading of the law reveals that the -arriage of @oods by Sea ,ct governs the relationship between the carrier on the one hand and the shipper, the consignee andHor the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance -ode. Cur ruling in Eilipino )erchants Insurance -o., Inc. v. ,leFandro&+( and the other cases&*( cited therein does not support respondent courtNs view that the insurerNs liability prescribes after one year if no action for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third5party complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third5party complaint on January *, '*8+, more than one year after delivery of the goods on ;ecember '8, '*88. The court held that the Insurer was already barred from filing a claim against the carrier because under the -arriage of @oods by Sea ,ct, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been delivered. The court said that Othe coverage of the ,ct includes the insurer of the goods.O&'/(

The Eilipino )erchants case is different from the case at bar. In Eilipino )erchants, it was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the shipperNs claim is the Oall ris<sO insurance policies issued by private respondents to petitioner )ayer. The ruling in Eilipino )erchants should apply only to suits against the carrier filed either by the shipper, the consignee or the insurer. =hen the court said in Eilipino )erchants that Section A#>% of the -arriage of @oods by Sea ,ct applies to the insurer, it meant that the insurer, li<e the shipper, may no longer file a claim against the carrier beyond the one5year period provided in the law. Dut it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurerNs liability is the insurance contract. ,n insurance contract is a contract whereby one party, for a consideration <nown as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.&''( ,n Oall ris<sO insurance policy covers all <inds of loss other than those due to willful and fraudulent act of the insured.&':( Thus, when private respondents issued the Oall ris<sO policies to petitioner )ayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with ,rticle ''00 of the .ew -ivil -ode.&'A( IN VIEW WHEREOF, the petition is @B,.TE;. The ;ecision of respondent -ourt of ,ppeals dated ;ecember '0, '**9 and its Besolution dated Eebruary ::, '**> are hereby SET ,SI;E and the ;ecision of the Begional Trial -ourt is hereby BEI.ST,TE;. .o costs. SC CB;EBE;. Begalado, #-hairman%, Bomero, )endo3a, and Torres, Jr., JJ., concur. PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Bespondent. BESC?1TIC. CORONA, J.: ,BTI-?E II ;eclaration of Principles and State Policies Section '9. The State shall protect and promote the right to health of the people and instill health consciousness among them. ,BTI-?E PIII Social Justice and Human Bights Section ''. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to ma<e essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sic<, elderly, disabled, women, and children. The State shall endeavor to provide free medical care to paupers.' Eor resolution are a motion for reconsideration and supplemental motion for reconsideration dated July '/, ://+ and July '0, ://+, respectively, filed by petitioner Philippine Health -are Providers, Inc.: =e recall the facts of this case, as follows! Petitioner is a domestic corporation whose primary purpose is O&t(o establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organi3ation to ta<e care of the sic< and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organi3ation.O Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.

777

777

777

Cn January :8, :///, respondent -ommissioner of Internal Bevenue &-IB( sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency ta7es, including surcharges and interest, for the ta7able years '**> and '**8 in the total amount of P::0,8/:,>0'.'+. 7777 The deficiency &documentary stamp ta7 #;ST%( assessment was imposed on petitioner2s health care agreement with the members of its health care program pursuant to Section '+9 of the '**8 Ta7 -ode 7777 777 777 777

Petitioner protested the assessment in a letter dated Eebruary :A, :///. ,s respondent did not act on the protest, petitioner filed a petition for review in the -ourt of Ta7 ,ppeals #-T,% see<ing the cancellation of the deficiency L,T and ;ST assessments. Cn ,pril 9, ://:, the -T, rendered a decision, the dispositive portion of which read! =HEBEECBE, in view of the foregoing, the instant Petition for Beview is P,BTI,??$ @B,.TE;. Petitioner is hereby CB;EBE; to P,$ the deficiency L,T amounting to P::,/90,+A'.89 inclusive of :9Q surcharge plus :/Q interest from January :/, '**8 until fully paid for the '**> L,T deficiency and PA',/*0,'>A.+8 inclusive of :9Q surcharge plus :/Q interest from January :/, '**+ until fully paid for the '**8 L,T deficiency. ,ccordingly, L,T Buling .o. &:A'(5++ is declared void and without force and effect. The '**> and '**8 deficiency ;ST assessment against petitioner is hereby -,.-E??E; ,.; SET ,SI;E. Bespondent is CB;EBE; to ;ESIST from collecting the said ;ST deficiency ta7. SC CB;EBE;. Bespondent appealed the -T, decision to the &-ourt of ,ppeals #-,%( insofar as it cancelled the ;ST assessment. He claimed that petitioner2s health care agreement was a contract of insurance subFect to ;ST under Section '+9 of the '**8 Ta7 -ode. Cn ,ugust '>, ://0, the -, rendered its decision. It held that petitioner2s health care agreement was in the nature of a non5life insurance contract subFect to ;ST. =HEBEECBE, the petition for review is @B,.TE;. The ;ecision of the -ourt of Ta7 ,ppeals, insofar as it cancelled and set aside the '**> and '**8 deficiency documentary stamp ta7 assessment and ordered petitioner to desist from collecting the same is BELEBSE; and SET ,SI;E. Bespondent is ordered to pay the amounts of P99,80>,A9:.'* and P>+,09/,:9+.8A as deficiency ;ocumentary Stamp Ta7 for '**> and '**8, respectively, plus :9Q surcharge for late payment and :/Q interest per annum from January :8, :///, pursuant to Sections :0+ and :0* of the Ta7 -ode, until the same shall have been fully paid. SC CB;EBE;. Petitioner moved for reconsideration but the -, denied it. Hence, petitioner filed this case. 777 777 777

In a decision dated June ':, ://+, the -ourt denied the petition and affirmed the -,2s decision. =e held that petitioner2s health care agreement during the pertinent period was in the nature of non5life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. OlivaresA and Philamcare Health Systems, Inc. v. CA.0 =e also ruled that petitioner2s contention that it is a health maintenance organi3ation #H)C% and not an insurance company is irrelevant because contracts between companies li<e petitioner and the beneficiaries under their plans are treated as insurance contracts. )oreover, ;ST is not a ta7 on the business transacted but an e7cise on the privilege, opportunity or facility offered at e7changes for the transaction of the business.

1nable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration, asserting the following arguments! #a% The ;ST under Section '+9 of the .ational Internal Bevenue of '**8 is imposed only on a company engaged in the business of fidelity bonds and other insurance policies. Petitioner, as an H)C, is a service provider, not an insurance company. #b% The -ourt, in dismissing the appeal in CIR v. Philippine National Ban , affirmed in effect the -,2s disposition that health care services are not in the nature of an insurance business. #c% Section '+9 should be strictly construed. #d% ?egislative intent to e7clude health care agreements from items subFect to ;ST is clear, especially in the light of the amendments made in the ;ST law in ://:. #e% ,ssuming ar!uen"o that petitioner2s agreements are contracts of indemnity, they are not those contemplated under Section '+9. #f% ,ssuming ar!uen"o that petitioner2s agreements are a<in to health insurance, health insurance is not covered by Section '+9. #g% The agreements do not fall under the phrase Oother branch of insuranceO mentioned in Section '+9. #h% The June ':, ://+ decision should only apply prospectively. #i% Petitioner availed of the ta7 amnesty benefits under B,9 *0+/ for the ta7able year ://9 and all prior years. Therefore, the uestioned assessments on the ;ST are now rendered moot and academic.> Cral arguments were held in Daguio -ity on ,pril ::, ://*. The parties submitted their memoranda on June +, ://*. In its motion for reconsideration, petitioner reveals for the first time that it availed of a ta7 amnesty under B, *0+/8 #also <nown as the OTa7 ,mnesty ,ct of ://8O% by fully paying the amount of P9,':8,'0*./+ representing 9Q of its net worth as of the year ending ;ecember A', ://9.+ =e find merit in petitioner2s motion for reconsideration. Petitioner was formally registered and incorporated with the Securities and E7change -ommission on June A/, '*+8.* It is engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it! P"!#!nt$#! medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet, e7ercise and other healthy habits, and immuni3ationG D$a%n&'t$( medical services such as routine physical e7aminations, 75rays, urinalysis, fecalysis, complete blood count, and the li<e and C)"at$#! medical services which pertain to the performing of other remedial and therapeutic processes in the event of an inFury or sic<ness on the part of the enrolled member.'/ Individuals enrolled in its health care program pay an annual membership fee. )embership is on a year5to5year basis. The medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians, medical and dental practitioners under contract with it. It negotiates with such health care practitioners regarding payment schemes, financing and other procedures for the delivery of health services. E7cept in cases of emergency, the professional services are to be provided only by petitionerNs physicians, i.e. those directly employed by it'' or whose services are contracted by it.': Petitioner also provides hospital services such as room and board accommodation, laboratory services, operating rooms, 75ray facilities and general nursing care.'A If and when a member avails of the benefits under the agreement, petitioner pays the participating physicians and other health care providers for the services rendered, at pre5agreed rates.'0

To avail of petitioner2s health care programs, the individual members are re uired to sign and e7ecute a standard health care agreement embodying the terms and conditions for the provision of the health care services. The same agreement contains the various health care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. E7cept for the curative aspect of the medical service offered, the enrolled member may actually ma<e use of the health care services being offered by petitioner at any time. H!a*t Ma$nt!nan(! O"%an$+at$&n' A"! N&t En%a%!d In T ! In')"an(! ,)'$n!'' =e said in our June ':, ://+ decision that it is irrelevant that petitioner is an H)C and not an insurer because its agreements are treated as insurance contracts and the ;ST is not a ta7 on the business but an e7cise on the privilege, opportunity or facility used in the transaction of the business.'9 Petitioner, however, submits that it is of critical importance to characteri3e the business it is engaged in, that is, to determine whether it is an H)C or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for ;ST on its health care agreements.'> , second hard loo< at the relevant law and Furisprudence convinces the -ourt that the arguments of petitioner are meritorious. Section '+9 of the .ational Internal Bevenue -ode of '**8 #.IB- of '**8% provides! Section '+9. Stamp ta# on $i"elity %on"s an" other insurance policies. J On a** -&*$($!' &. $n')"an(! or bonds or obligations &. t ! nat)"! &. $nd!/n$t0 .&" *&'', da/a%!, &" *$a1$*$t0 /ad! &" "!n!2!d 10 an0 -!"'&n, a''&($at$&n &" (&/-an0 &" (&"-&"at$&n t"an'a(t$n% t ! 1)'$n!'' &. accident, fidelity, employer2s liability, plate, glass, steam boiler, burglar, elevator, automatic sprin<ler, &" &t !" 1"an( &. $n')"an(! 3!4(!-t *$.!, /a"$n!, $n*and, and .$"! $n')"an(!5, and all bonds, underta<ings, or recogni3ances, conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or organi3ation, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp ta7 of fifty centavos #P/.9/% on each four pesos #P0.//%, or fractional part thereof, of the premium charged. #Emphasis supplied% It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over that which ma<es some words idle and nugatory.'8 This principle is e7pressed in the ma7im &t ma!is valeat 'uam pereat, that is, we choose the interpretation which gives effect to the whole of the statute J its every word. '+ Erom the language of Section '+9, it is evident that t2& "!6)$'$t!' must concur before the ;ST can apply, namely! #'% the document must be a -&*$(0 &. $n')"an(! &" an &1*$%at$&n $n t ! nat)"! &. $nd!/n$t0 and #:% t ! /a7!" ' &)*d 1! t"an'a(t$n% t ! 1)'$n!'' &. accident, fidelity, employer2s liability, plate, glass, steam boiler, burglar, elevator, automatic sprin<ler, or other branch of $n')"an(! #e7cept life, marine, inland, and fire insurance%. Petitioner is admittedly an H)C. 1nder B, 8+89 #or OThe .ational Health Insurance ,ct of '**9O%, an H)C is Oan entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fi7ed prepaid premium.O'* The payments do not vary with the e7tent, fre uency or type of services provided. The uestion is! was petitioner, as an H)C, engaged in the business of insurance during the pertinent ta7able years" =e rule that it was not. Section : #:% of P;:/ '0>/ #otherwise <nown as the Insurance -ode% enumerates what constitutes Odoing an insurance businessO or Otransacting an insurance business!O a% ma<ing or proposing to ma<e, as insurer, any insurance contractG

b% ma<ing or proposing to ma<e, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the suretyG c% doing any <ind of business, including a reinsurance business, specifically recogni3ed as constituting the doing of an insurance business within the meaning of this -odeG d% doing or proposing to do any business in substance e uivalent to any of the foregoing in a manner designed to evade the provisions of this -ode. In the application of the provisions of this -ode, the fact that no profit is derived from the ma<ing of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the ma<ing thereof does not constitute the doing or transacting of an insurance business. Larious courts in the 1nited States, whose Furisprudence has a persuasive effect on our decisions,:' have determined that H)Cs are not in the insurance business. Cne test that they have applied is whether the assumption of ris< and indemnification of loss #which are elements of an insurance business% are the principal obFect and purpose of the organi3ation or whether they are merely incidental to its business. If these are the principal obFectives, the business is that of insurance. Dut if they are merely incidental and service is the principal purpose, then the business is not insurance. ,pplying the Oprincipal obFect and purpose test,O:: there is significant ,merican case law supporting the argument that a corporation #such as an H)C, whether or not organi3ed for profit%, whose main obFect is to provide the members of a group with health services, is not engaged in the insurance business. The rule was enunciated in (or"an v. )roup Health Association:A wherein the -ourt of ,ppeals of the ;istrict of -olumbia -ircuit held that @roup Health ,ssociation should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care services rather than the assumption of insurance ris<. 777 ,lthough @roup Health2s activities may be considered in one aspect as creating security against loss from illness or accident more truly they constitute the uantity purchase of well5rounded, continuous medical service by its members. 777 T ! .)n(t$&n' &. ')( an &"%an$+at$&n a"! n&t $d!nt$(a* 2$t t &'! &. $n')"an(! &" $nd!/n$t0 (&/-an$!'. The latter are concerned primarily, if not e7clusively, with ris< and the conse uences of its descent, not with service, or its e7tension in <ind, uantity or distributionG with the unusual occurrence, not the daily routine of living. Ha3ard is predominant. On t ! &t !" and, t ! (&&-!"at$#! $' (&n(!"n!d -"$n($-a**0 2$t %!tt$n% '!"#$(! "!nd!"!d t& $t' /!/1!"' and d&$n% '& at *&2!" -"$(!' /ad! -&''$1*! 10 6)ant$t0 -)"( a'$n% and !(&n&/$!' $n &-!"at$&n. It' -"$/a"0 -)"-&'! $' t& "!d)(! t ! (&'t "at !" t an t ! "$'7 &. /!d$(a* (a"!8 t& 1"&ad!n t ! '!"#$(! t& t ! $nd$#$d)a* $n 7$nd and 6)ant$t08 t& !n*a"%! t ! n)/1!" "!(!$#$n% $t8 t& "!%)*a"$+! $t a' an !#!"0da0 $n($d!nt &. *$#$n%, *$7! -)"( a'$n% .&&d and (*&t $n% &" &$* and %a', "at !" t an /!"!*0 -"&t!(t$n% a%a$n't t ! .$nan($a* *&'' (a)'!d 10 !4t"a&"d$na"0 and )n)')a* &(()""!n(!', ')( a' d!at , d$'a't!" at '!a, .$"! and t&"nad&. It is, in this instance, to ta<e care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. T& ')//a"$+!, t ! d$'t$n(t$#! .!at)"!' &. t ! (&&-!"at$#! a"! t ! "!nd!"$n% &. '!"#$(!, $t' !4t!n'$&n, t ! 1"$n%$n% &. - 0'$($an and -at$!nt t&%!t !", t ! -"!#!nt$#! .!at)"!', t ! "!%)*a"$+at$&n &. '!"#$(! a' 2!** a' -a0/!nt, t ! ')1'tant$a* "!d)(t$&n $n (&'t 10 6)ant$t0 -)"( a'$n% $n ' &"t, %!tt$n% t ! /!d$(a* 9&1 d&n! and -a$d .&"8 n&t, !4(!-t $n($d!nta**0 t& t !'! .!at)"!', t ! $nd!/n$.$(at$&n .&" (&'t a.t!" t ! '!"#$(!' $' "!nd!"!d. E4(!-t t ! *a't, t !'! a"! n&t d$'t$n(t$#! &" %!n!"a**0 ( a"a(t!"$'t$( &. t ! $n')"an(! a""an%!/!nt. There is, therefore, a substantial difference between contracting in this way for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered. That an incidental element of ris< distribution or assumption may be present should not outweigh all other factors. If attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint, if not e7tinct. This is especially true when the contract is for the sale of goods or services on contingency. Dut obviously it was not the

purpose of the insurance statutes to regulate all arrangements for assumption or distribution of ris<. That view would cause them to engulf practically all contracts, particularly conditional sales and contingent service agreements. T ! .a**a(0 $' $n *&&7$n% &n*0 at t ! "$'7 !*!/!nt, t& t ! !4(*)'$&n &. a** &t !"' -"!'!nt &" t !$" ')1&"d$nat$&n t& $t. T ! 6)!'t$&n t)"n', n&t &n 2 !t !" "$'7 $' $n#&*#!d &" a'')/!d, 1)t &n 2 !t !" t at &" '&/!t $n% !*'! t& 2 $( $t $' "!*at!d $n t ! -a"t$()*a" -*an $' $t' -"$n($-a* &19!(t -)"-&'!.:0 #Emphasis supplied% In Cali$ornia Physicians* Service v. )arrison,:9 the -alifornia court felt that, after scrutini3ing the plan of operation as a whole of the corporation, it was service rather than indemnity which stood as its principal purpose. There is another and more compelling reason for holding that the service is not engaged in the insurance business. A1'!n(! &" -"!'!n(! &. a'')/-t$&n &. "$'7 &" -!"$* $' n&t t ! '&*! t!'t t& 1! a--*$!d $n d!t!"/$n$n% $t' 'tat)'. T ! 6)!'t$&n, /&"! 1"&ad*0, $' 2 !t !", *&&7$n% at t ! -*an &. &-!"at$&n a' a 2 &*!, :'!"#$(!; "at !" t an :$nd!/n$t0; $' $t' -"$n($-a* &19!(t and -)"-&'!. -ertainly the obFects and purposes of the corporation organi3ed and maintained by the -alifornia physicians have a wide scope in the field of social service. P"&1a1*0 t !"! $' n& /&"! $/-!**$n% n!!d t an t at &. ad!6)at! /!d$(a* (a"! &n a #&*)nta"0, *&2-(&'t 1a'$' .&" -!"'&n' &. '/a** $n(&/!. T ! /!d$(a* -"&.!''$&n )n$t!d*0 $' !nd!a#&"$n% t& /!!t t at n!!d. Un6)!'t$&na1*0 t $' $' :'!"#$(!; &. a $% &"d!" and n&t :$nd!/n$t0.;:> #Emphasis supplied% ,merican courts have pointed out that the main difference between an H)C and an insurance company is that H)Cs underta<e to provide or arrange for the provision of medical services through participating physicians while insurance companies simply underta<e to indemnify the insured for medical e7penses incurred up to a pre5agreed limit. Somerset Orthope"ic Associates, P.A. v. Horizon Blue Cross an" Blue Shiel" o$ Ne+ (ersey:8 is clear on this point! The basic distinction between medical service corporations and ordinary health and accident insurers is that the former underta<e to provide prepaid medical services t "&)% -a"t$($-at$n% - 0'$($an', thus relieving subscribers of any further financial burden, while the latter only underta<e to indemnify an insured for medical e7penses up to, but not beyond, the schedule of rates contained in the policy. 777 777 777

The primary purpose of a medical service corporation, however, is an underta<ing to provide physicians who will render services to subscribers on a prepaid basis. H!n(!, $. t !"! a"! n& - 0'$($an' -a"t$($-at$n% $n t ! /!d$(a* '!"#$(! (&"-&"at$&n;' -*an, n&t &n*0 2$** t ! ')1'("$1!"' 1! d!-"$#!d &. t ! -"&t!(t$&n 2 $( t !0 /$% t "!a'&na1*0 a#! !4-!(t!d 2&)*d 1! -"&#$d!d, 1)t t ! (&"-&"at$&n 2$**, $n !..!(t, 1! d&$n% 1)'$n!'' '&*!*0 a' a !a*t and a(($d!nt $nd!/n$t0 $n')"!" without having ualified as such and rendering itself subFect to the more stringent financial re uirements of the @eneral Insurance ?awsR. , participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return .&" 2 $( t ! !a*t '!"#$(! (&"-&"at$&n a%"!!' t& /a7! -a0/!nt d$"!(t*0 t& t ! -a"t$($-at$n% -"&#$d!".:+ #Emphasis supplied% -onse uently, the mere presence of ris< would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services.:* In short, even if petitioner assumes the ris< of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business. Dy the same to<en, any indemnification resulting from the payment for services rendered in case of emergency by non5participating health providers would still be incidental to petitioner2s purpose of providing and arranging for health care services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is re uired to set up a system and the facilities for the delivery of such medical services. This indubitably shows that indemnification is not its sole obFect.

In fact, a substantial portion of petitioner2s services covers preventive and diagnostic medical services intended to <eep members from developing medical conditions or diseases.A/ ,s an H)C, it is its obligation to maintain the good health of its members. A((&"d$n%*0, $t' !a*t (a"! -"&%"a/' a"! d!'$%n!d t& -"!#!nt &" t& /$n$/$+! t ! -&''$1$*$t0 &. an0 a'')/-t$&n &. "$'7 &n $t' -a"t. Thus, its underta<ing under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage.A' Cverall, petitioner appears to provide insurance5type benefits to its members #with respect to its ()"at$#! medical services%, but these are incidental to the principal activity of providing them medical care. The Oinsurance5li<eO aspect of petitioner2s business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business. It is important to emphasi3e that, in adopting the Oprincipal purpose testO used in the above5 uoted 1.S. cases, we are not saying that petitioner2s operations are identical in every respect to those of the H)Cs or health providers which were parties to those cases. =hat we are stating is that, for the purpose of determining what Odoing an insurance businessO means, we have to scrutini3e the operations of the business as a whole and not its mere components. This is of course only prudent and appropriate, ta<ing into account the burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. )oreover, we are also not unmindful that there are other ,merican authorities who have found particular H)Cs to be actually engaged in insurance activities.A: ?astly, it is significant that petitioner, as an H)C, is not part of the insurance industry. This is evident from the fact that it is not supervised by the Insurance -ommission but by the ;epartment of Health. AA In fact, in a letter dated September A, :///, the Insurance -ommissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well5settled that the interpretation of an administrative agency which is tas<ed to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. The reason behind this rule was e7plained in Nestle Philippines, Inc. v. Court o$ Appeals!A0 The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or moderni3ing society and the establishment of diverse administrative agencies for addressing and satisfying those needsG it also relates to the accumulation of e7perience and growth of speciali3ed capabilities by the administrative agency charged with implementing a particular statute. In Asturias Su!ar Central, Inc. vs. Commissioner o$ Customs,A9 the -ourt stressed that e7ecutive officials are presumed to have familiari3ed themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent, conscientious and competent e7pert opinion thereon. The courts give much weight to the government agency officials charged with the implementation of the law, their competence, e7pertness, e7perience and informed Fudgment, and the fact that they fre uently are the drafters of the law they interpret.A> A H!a*t Ca"! A%"!!/!nt I' N&t An In')"an(! C&nt"a(t C&nt!/-*at!d Und!" S!(t$&n <=> O. T ! NIRC &. <??@ Section '+9 states that ;ST is imposed on Oall policies of insuranceR or obligations of the nature of indemnity for loss, damage, or liabilityR.O In our decision dated June ':, ://+, we ruled that petitioner2s health care agreements are contracts of indemnity and are therefore insurance contracts! It is R incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related e7penses #such as professional fees of physicians%. The term Oloss or damageO is broad enough to cover the monetary e7pense or liability a member will incur in case of illness or inFury. 1nder the health care agreement, the rendition of hospital, medical and professional services to the member in case of sic<ness, inFury or emergency or his availment of so5called Oout5patient servicesO #including physical e7amination, 75ray and laboratory tests, medical consultations, vaccine administration and family planning counseling% is the contingent event which gives rise to liability on

the part of the member. In case of e7posure of the member to liability, he would be entitled to indemnification by petitioner. Eurthermore, the fact that petitioner must relieve its member from liability by paying for e7penses arising from the stipulated contingencies belies its claim that its services are prepaid. The e7penses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the ris< of paying for the costs of the services even if they are significantly and substantially more than what the member has Oprepaid.O Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar ris<, that is, among all the other members of the health care program. This is insurance.A8 =e reconsider. =e shall uote once again the pertinent portion of Section '+9! Section '+9. Stamp ta# on $i"elity %on"s an" other insurance policies. J On a** -&*$($!' &. $n')"an(! or bonds &" &1*$%at$&n' &. t ! nat)"! &. $nd!/n$t0 .&" *&'', da/a%!, &" *$a1$*$t0 made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer2s liability, plate, glass, steam boiler, burglar, elevator, automatic sprin<ler, or other branch of insurance #e7cept life, marine, inland, and fire insurance%, 7777 #Emphasis supplied% In construing this provision, we should be guided by the principle that ta7 statutes are strictly construed against the ta7ing authority.A+ This is because ta7ation is a destructive power which interferes with the personal and property rights of the people and ta<es from them a portion of their property for the support of the government.A* Hence, ta7 laws may not be e7tended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.0/ =e are aware that, in Blue Cross and Philamcare, the -ourt pronounced that a health care agreement is in the nature of non5life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a ta7 provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the H)C. Eor this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable here. Section : #'% of the Insurance -ode defines a contract of insurance as an agreement whereby one underta<es for a consideration to indemnify another against loss, damage or liability arising from an un<nown or contingent event. ,n insurance contract e7ists where the following elements concur! '. The insured has an insurable interestG :. The insured is subFect to a ris< of loss by the happening of the designed perilG A. The insurer assumes the ris<G 0. Such assumption of ris< is part of a general scheme to distribute actual losses among a large group of persons bearing a similar ris< and 9. In consideration of the insurer2s promise, the insured pays a premium.0' ;o the agreements between petitioner and its members possess all these elements" They do not. ,irst. In our Furisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance! It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance contract. T ! -"$/a"0 -)"-&'! &. t ! -a"t$!' $n /a7$n% t ! (&nt"a(t /a0 n!%at! t ! !4$'t!n(! &. an $n')"an(! (&nt"a(t. Eor e7ample, a law firm which enters into contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. Cn the other hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its own e7pense to defend a physician

against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. 1nli<e the lawyer2s retainer contract, the essential purpose of such a contract is not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for malpractice.0: #Emphasis supplied% Secon". .ot all the necessary elements of a contract of insurance are present in petitioner2s agreements. To begin with, there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an H)C. 1nder the agreement, the member pays petitioner a predetermined consideration in e7change for the hospital, medical and professional services rendered by the petitioner2s physician or affiliated physician to him. In case of availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the services rendered at pre5agreed rates. The member does not ma<e any such payment. In other words, there is nothing in petitionerNs agreements that gives rise to a monetary liability on the part of the member to any third party5provider of medical services which might in turn necessitate indemnification from petitioner. The terms OindemnifyO or OindemnityO presuppose that a liability or claim has already been incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or already paid in advance at a pre5agreed price under the agreements. -hir". ,ccording to the agreement, a member can ta<e advantage of the bul< of the benefits anytime, e.!. laboratory services, 75ray, routine annual physical e7amination and consultations, vaccine administration as well as family planning counseling, even in the absence of any peril, loss or damage on his or her part. ,ourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non5participating physician or hospital. However, this is only a very minor part of the list of services available. The assumption of the e7pense by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of illness or inFury. In .ichi!an Po"iatric .e"ical Association v. National ,oot Care Pro!ram, Inc.,0A although the health care contracts called for the defendant to partially reimburse a subscriber for treatment received from a non5designated doctor, this did not ma<e defendant an insurer. -iting (or"an, the -ourt determined that Othe primary activity of the defendant #was% the provision of podiatric services to subscribers in consideration of prepayment for such services.O00 Since indemnity of the insured was not the focal point of the agreement but the e7tension of medical services to the member at an affordable cost, it did not parta<e of the nature of a contract of insurance. ,i$th. ,lthough ris< is a primary element of an insurance contract, it is not necessarily true that ris< alone is sufficient to establish it. ,lmost anyone who underta<es a contractual obligation always bears a certain degree of financial ris<. -onse uently, there is a need to distinguish prepaid service contracts #li<e those of petitioner% from the usual insurance contracts. Indeed, petitioner, as an H)C, underta<es a business ris< when it offers to provide health services! the ris< that it might fail to earn a reasonable return on its investment. Dut it is not the ris< of the type peculiar only to insurance companies. Insurance ris<, also <nown as actuarial ris<, is the ris< that the cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the insured.09 However, assuming that petitioner2s commitment to provide medical services to its members can be construed as an acceptance of the ris< that it will shell out more than the prepaid fees, it still will not ualify as an insurance contract because petitioner2s obFective is to provide medical services at reduced cost, not to distribute ris< li<e an insurer. In sum, an e7amination of petitioner2s agreements with its members leads us to conclude that it is not an insurance contract within the conte7t of our Insurance -ode. T !"! Wa' N& L!%$'*at$#! Int!nt T& I/-&'! DST On H!a*t Ca"! A%"!!/!nt' O. HMO'

Eurthermore, militating in convincing fashion against the imposition of ;ST on petitioner2s health care agreements under Section '+9 of the .IB- of '**8 is the provision2s legislative history. The te7t of Section '+9 came into 1.S. law as early as '*/0 when H)Cs and health care agreements were not even in e7istence in this Furisdiction. It was imposed under Section ''>, ,rticle PI of ,ct .o. ''+* #otherwise <nown as the OInternal Bevenue ?aw of '*/0O%0> enacted on July :, '*/0 and became effective on ,ugust ', '*/0. E7cept for the rate of ta7, Section '+9 of the .IB- of '**8 is a verbatim reproduction of the pertinent portion of Section ''>, to wit! ,BTI-?E PI Sta/- Ta4!' on Specified CbFects Section ''>. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stoc< and indebtedness, and other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon which such instrument, matters, or things or any of them shall be written or printed by any person or persons who shall ma<e, sign, or issue the same, on and after January first, nineteen hundred and five, the several ta7es following! 777 777 777

Third 777 3(5 &n a** -&*$($!' &. $n')"an(! &" 1&nd &" &1*$%at$&n &. t ! nat)"! &. $nd!/n$t0 .&" *&'', da/a%!, &" *$a1$*$t0 /ad! &" "!n!2!d 10 an0 -!"'&n, a''&($at$&n, (&/-an0, &" (&"-&"at$&n t"an'a(t$n% t ! 1)'$n!'' &. a(($d!nt, .$d!*$t0, !/-*&0!";' *$a1$*$t0, -*at! %*a'', 't!a/ 1&$*!", 1)"%*a", !*!#at&", a)t&/at$( '-"$n7*!, &" &t !" 1"an( &. $n')"an(! 3!4(!-t *$.!, /a"$n!, $n*and, and .$"! $n')"an(!5 7777 #Emphasis supplied% Cn Eebruary :8, '*'0, ,ct .o. :AA* #the Internal Bevenue ?aw of '*'0% was enacted revising and consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section ''>, ,rticle PI of ,ct .o. ''+* was completely reproduced as Section A/ #l%, ,rticle III of ,ct .o. :AA*. The very detailed and e7clusive enumeration of items subFect to ;ST was thus retained. Cn ;ecember A', '*'>, Section A/ #l%, ,rticle III of ,ct .o. :AA* was again reproduced as Section '>/0 #l%, ,rticle IL of ,ct .o. :>98 #,dministrative -ode%. 1pon its amendment on )arch '/, '*'8, the pertinent ;ST provision became Section '00* #l% of ,ct .o. :8'', otherwise <nown as the ,dministrative -ode of '*'8. Section '00* #'% eventually became Sec. ::: of -ommonwealth ,ct .o. 0>> #the .IB- of '*A*%, which codified all the internal revenue laws of the Philippines. In an amendment introduced by B, 0/ on Cctober ', '*0>, the ;ST rate was increased but the provision remained substantially the same. Thereafter, on June A, '*88, the same provision with the same ;ST rate was reproduced in P; ''9+ #.IB- of '*88% as Section :A0. 1nder P;s '098 and '*9*, enacted on June '', '*8+ and Cctober '/, '*+0 respectively, the ;ST rate was again increased./avvphi/ Effective January ', '*+>, pursuant to Section 09 of P; '**0, Section :A0 of the .IB- of '*88 was renumbered as Section '*+. ,nd under Section :A of EC08 :8A dated July :9, '*+8, it was again renumbered and became Section '+9. Cn ;ecember :A, '**A, under B, 8>>/, Section '+9 was amended but, again, only with respect to the rate of ta7. .otwithstanding the comprehensive amendment of the .IB- of '*88 by B, +0:0 #or the .IB- of '**8%, the subFect legal provision was retained as the present Section '+9. In ://0, amendments to the ;ST provisions were introduced by B, *:0A0+ but Section '+9 was untouched. Cn the other hand, the concept of an H)C was introduced in the Philippines with the formation of Dancom Health -are -orporation in '*80. The same pioneer H)C was later reorgani3ed and renamed Integrated Health -are Services, Inc. #or Intercare%. However, there are those who claim that Health )aintenance, Inc. is the H)C industry pioneer, having set foot in the Philippines as early as '*>9 and having been formally incorporated in '**'. ,fterwards, H)Cs proliferated uic<ly and

currently, there are A> registered H)Cs with a total enrollment of more than : million. 0* =e can clearly see from these two histories #of the ;ST on the one hand and H)Cs on the other% that when the law imposing the ;ST was first passed, H)Cs were yet un<nown in the Philippines. However, when the various amendments to the ;ST law were enacted, they were already in e7istence in the Philippines and the term had in fact already been defined by B, 8+89. If it had been the intent of the legislature to impose ;ST on health care agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. Dut it did not. The fact that the .IB- contained no specific provision on the ;ST liability of health care agreements of H)Cs at a time they were already <nown as such, belies any legislative intent to impose it on them. A' a /att!" &. .a(t, -!t$t$&n!" 2a' a''!''!d $t' DST *$a1$*$t0 &n*0 &n Jan)a"0 A@, ABBB, a.t!" /&"! t an a d!(ad! $n t ! 1)'$n!'' a' an HMO.9/ -onsidering that Section '+9 did not change since '*/0 #e7cept for the rate of ta7%, it would be safe to say that health care agreements were never, at any time, recogni3ed as insurance contracts or deemed engaged in the business of insurance within the conte7t of the provision. T ! P&2!" T& Ta4 I' N&t T ! P&2!" T& D!'t"&0 ,s a general rule, the power to ta7 is an incident of sovereignty and is unlimited in its range, ac<nowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the ta7 on the constituency who is to pay it.9' So potent indeed is the power that it was once opined that Othe power to ta7 involves the power to destroy.O9: Petitioner claims that the assessed ;ST to date which amounts to PA8> million9A is way beyond its net worth of P:9* million.90 Bespondent never disputed these assertions. @iven the realities on the ground, imposing the ;ST on petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. Cn the contrary, the government ought to encourage private enterprise.99 Petitioner, Fust li<e any concern organi3ed for a lawful economic activity, has a right to maintain a legitimate business.9> ,s aptly held in Ro#as, et al. v. C-A, et al.!98 The power of ta7ation is sometimes called also the power to destroy. Therefore it should be e7ercised with caution to minimi3e inFury to the proprietary rights of a ta7payer. It must be e7ercised fairly, e ually and uniformly, lest the ta7 collector <ill the Ohen that lays the golden egg.O9+ ?egitimate enterprises enFoy the constitutional protection not to be ta7ed out of e7istence. Incurring losses because of a ta7 imposition may be an acceptable conse uence but <illing the business of an entity is another matter and should not be allowed. It is counter5productive and ultimately subversive of the nation2s thrust towards a better economy which will ultimately benefit the maFority of our people.9* P!t$t$&n!";' Ta4 L$a1$*$t0 Wa' E4t$n%)$' !d Und!" T ! P"&#$'$&n' O. RA ?=CB Petitioner asserts that, regardless of the arguments, the ;ST assessment for ta7able years '**> and '**8 became moot and academic>/ when it availed of the ta7 amnesty under B, *0+/ on ;ecember '/, ://8. It paid P9,':8,'0*./+ representing 9Q of its net worth as of the year ended ;ecember A', ://9 and complied with all re uirements of the ta7 amnesty. 1nder Section >#a% of B, *0+/, it is entitled to immunity from payment of ta7es as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the '**8 .IB-, as amended, arising from the failure to pay any and all internal revenue ta7es for ta7able year ://9 and prior years.>' Ear from disagreeing with petitioner, respondent manifested in its memorandum! Section > of &B, *+0/( provides that availment of ta7 amnesty entitles a ta7payer to immunity from payment of the ta7 involved, including the civil, criminal, or administrative penalties provided under the '**8 &.IB-(, for ta7 liabilities arising in ://9 and the preceding years. In view of petitioner2s availment of the benefits of &B, *+0/(, and without conceding the merits of this case as discussed above, "!'-&nd!nt (&n(!d!' t at ')( ta4 a/n!'t0 !4t$n%)$' !' t ! ta4 *$a1$*$t$!' &. -!t$t$&n!". This admission, however, is not meant to preclude a revocation of the

amnesty granted in case it is found to have been granted under circumstances amounting to ta7 fraud under Section '/ of said amnesty law.>: #Emphasis supplied% Eurthermore, we held in a recent case that ;ST is one of the ta7es covered by the ta7 amnesty program under B, *0+/.>A There is no other conclusion to draw than that petitioner2s liability for ;ST for the ta7able years '**> and '**8 was totally e7tinguished by its availment of the ta7 amnesty under B, *0+/. I' T ! C&)"t ,&)nd ,0 A M$n)t! R!'&*)t$&n In An&t !" Ca'!D Petitioner raises another interesting issue in its motion for reconsideration! whether this -ourt is bound by the ruling of the -,>0 in CIR v. Philippine National Ban >9 that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the ;ST. In support of its argument, petitioner cites the ,ugust :*, ://' minute resolution of this -ourt dismissing the appeal in Philippine National Ban #@.B. .o. '0+>+/%.>> Petitioner argues that the dismissal of @.B. .o. '0+>+/ by minute resolution was a Fudgment on the meritsG hence, the -ourt should apply the -, ruling there that a health care agreement is not an insurance contract. It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. =hen we dismissed the petition, we effectively affirmed the -, ruling being uestioned. ,s a result, our ruling in that case has already become final.>8 =hen a minute resolution denies or dismisses a petition for failure to comply with formal and substantive re uirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.>+ Dut what is its effect on other cases" =ith respect to the same subFect matter and the same issues concerning the same parties, it constitutes res 0u"icata.>* However, if other parties or another subFect matter #even with the same parties and issues% is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier1 Nic el,8/ the -ourt noted that a previous case, CIR v. Baier1Nic el8' $n#&*#$n% t ! 'a/! -a"t$!' and t ! 'a/! $'')!', was previously disposed of by the -ourt thru a minute resolution dated Eebruary '8, ://A sustaining the ruling of the -,. .onetheless, the -ourt ruled that t ! -"!#$&)' (a'! E a3d5 n& 1!a"$n%E on the latter case because the two cases involved different subFect matters as they were concerned with the ta7able income of different ta7able years.8: Desides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional re uirement under the first paragraph of Section '0, ,rticle LIII of the -onstitution that the facts and the law on which the Fudgment is based must be e7pressed clearly and distinctly applies only to decisions, not to minute resolutions. , minute resolution is signed only by the cler< of court by authority of the Fustices, unli<e a decision. It does not re uire the certification of the -hief Justice. )oreover, unli<e decisions, minute resolutions are not published in the Philippine Beports. Einally, the proviso of Section 0#A% of ,rticle LIII spea<s of a decision.8A Indeed, as a rule, this -ourt lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the -ourt and certified by the -hief Justice. ,ccordingly, since petitioner was not a party in @.B. .o. '0+>+/ and since petitioner2s liability for ;ST on its health care agreement was not the subFect matter of @.B. .o. '0+>+/, petitioner cannot successfully invo<e the minute resolution in that case #which is not even binding precedent% in its favor. .onetheless, in view of the reasons already discussed, this does not detract in any way from the fact that petitioner2s health care agreements are not subFect to ;ST. A F$na* N&t! Ta<ing into account that health care agreements are clearly not within the ambit of Section '+9 of the .IB- and there was never any legislative intent to impose the same on H)Cs li<e petitioner, the same should not be arbitrarily and unFustly included in its coverage. It is a matter of common <nowledge that there is a great social need for ade uate medical services at a cost which the average wage earner can afford. H)Cs arrange, organi3e and manage health care treatment in the furtherance of the goal of providing a more efficient and ine7pensive health care

system made possible by uantity purchasing of services and economies of scale. They offer advantages over the pay5for5service system #wherein individuals are charged a fee each time they receive medical services%, including the ability to control costs. They protect their members from e7posure to the high cost of hospitali3ation and other medical e7penses brought about by a fluctuating economy. ,ccordingly, they play an important role in society as partners of the State in achieving its constitutional mandate of providing its citi3ens with affordable health services. The rate of ;ST under Section '+9 is e uivalent to ':.9Q of the premium charged.80 Its imposition will elevate the cost of health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of the ordinary wage earner or driving the industry to the ground. ,t the end of the day, neither side wins, considering the indispensability of the services offered by H)Cs. WHEREFORE, the motion for reconsideration is GRANTED. The ,ugust '>, ://0 decision of the -ourt of ,ppeals in -,5@.B. SP .o. 8/08* is REVERSED and SET ASIDE. The '**> and '**8 deficiency ;ST assessment against petitioner is hereby CANCELLED and SET ASIDE. Bespondent is ordered to desist from collecting the said ta7. .o costs. SO ORDERED.

7DIONISIA, EULOGIO, MARINA, GUILLERMO and NOR,ERTO a** ')"na/!d GUINGON, plaintiffs5appellees, vs. ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO., INC., defendants. CAPITAL INSURANCE and SURETY CO., INC., defendant5appellant. )eneroso Almario an" Associates $or plainti$$s1appellees. Achacoso an" Associates $or "e$en"ant1appellant. ,ENGFON, J.P., J.: Julio ,guilar owned and operated several Feepneys in the -ity of )anila among which was one with plate number P1J5:/>5)anila, '*>'. He entered into a contract with the -apital Insurance S Surety -o., Inc. insuring the operation of his Feepneys against accidents with third5party liability. ,s a conse uence thereof an insurance policy was e7ecuted by the -apital Insurance S Surety -o., Inc., the pertinent provisions of which in so far as this case is concerned contains the following! Section II 23IABI3I-4 -O -H5 P&B3IC '. The -ompany, will, subFect to the limits of liability, indemnify the Insured in the event of accident caused by or arising out of the use of the )otor LehicleHs or in connection with the loading or unloading of the )otor LehicleHs, against all sums including claimantNs costs and e7penses which the Insured shall become legally liable to pay in respect of! a. death of or bodily inFury to any person b. damage to property ;uring the effectivity of such insurance policy on Eebruary :/, '*>' Iluminado del )onte, one of the drivers of the Feepneys operated by ,guilar, while driving along the intersection of Juan ?una and )oro streets, -ity of )anila, bumped with the Feepney abovementioned one @ervacio @uingon who had Fust alighted from another Feepney and as a conse uence the latter died some days thereafter. , corresponding information for homicide thru rec<less imprudence was filed against Iluminado del )onte, who pleaded guilty. , penalty of four months imprisonment was imposed on him.

,s a corollary to such action, the heirs of @ervacio @uingon filed an action for damages praying that the sum of P+:,88'.+/ be paid to them Fointly and severally by the defendants, driver Iluminado del )onte, owner and operator Julio ,guilar, and the -apital Insurance S Surety -o., Inc. Eor failure to answer the complaint, ;el )onte and ,guilar were declared in default. -apital Insurance S Surety -o., Inc. answered, alleging that the plaintiff has no cause of action against it. ;uring the trial the following facts were stipulated! -C1BT! The -ourt wants to find if there is a stipulation in the policy whereby the insured is insured against liability to third persons who are not passengers of Feeps. ,?),BIC! ,s far as I <now, in my honest belief, there is no particulari3ation as to the passengers, whether the passengers of the Feep insured or a passenger of another Feep or whether it is a pedestrian. =ith those, we can submit the stipulation. SI)D1?,.! I admit that. #T.s.n., p. :', Jan. :A, '*>:G p. >9 Bec. on ,ppeal% Cn ,ugust :8, '*>:, the -ourt of Eirst Instance of )anila rendered its Fudgment with the following dispositive portion! =HEBEECBE, Fudgment is rendered sentencing Iluminado del )onte and Julio ,guilar Fointly and severally to pay plaintiffs the sum of P+,98:.*9 as damages for the death of their father, plus P',///.// for attorneyNs fees plus costs. The defendant -apital Insurance and Surety -o., Inc. is hereby sentenced to pay the plaintiffs the sum of Eive Thousand #P9,///.//% Pesos plus Eive Hundred #P9//.//% Pesos as attorneyNs fees and costs. These sums of P9,///.// and P9//.// adFudged against -apital Insurance and Surety -o., Inc. shall be applied in partial satisfaction of the Fudgment rendered against Iluminado del )onte and Julio ,guilar in this case. SC CB;EBE;. The case was appealed to the -ourt of ,ppeals which appellate court on September A/, '*>A certified the case to 1s because the appeal raises purely uestions of law. The issues raised before 1s in this appeal are #'% ,s the company agreed to indemnify the insured Julio ,guilar, is it only the insured to whom it is liable" #:% )ust Julio ,guilar first show himself to be entitled to indemnity before the insurance company may be held liable for the same" #A% Plaintiffs not being parties to the insurance contract, do they have a cause of action against the companyG and #0% ;oes the fact that the insured is liable to the plaintiffs necessarily mean that the insurer is liable to the insured" In the discussion of the points thus raised, what is paramount is the interpretation of the insurance contract with the aim in view of attaining the obFectives for which the insurance was ta<en. The Bules of -ourt provide that parties may be Foined either as plaintiffs or defendants, as the right to relief in respect to or arising out of the same transactions is alleged to e7ist #Sec. >, Bule A%. The policy, on the other hand, contains a clause stating! E. Action A!ainst Company .o action shall lie against the -ompany unless, as a condition precedent thereto, the Insured shall have fully complied with all of the terms of this Policy, nor until the amount of the InsuredNs obligation to pay shall have been finally determined either by Fudgment against the Insured after actual trial or by written agreement of the Insured, the claimant, and the -ompany. ,ny person or organi3ation or the legal representative thereof who has secured such Fudgment or written agreement shall thereafter be entitled to recover under this policy to the e7tent of the insurance afforded by the Policy. .othing contained in this policy shall give any person or organi3ation any right to Foin the -ompany as a co5defendant in any action against the Insured to determine the InsuredNs liability.

Dan<ruptcy or insolvency of the Insured or of the InsuredNs estate shall not relieve the -ompany of any of its obligations hereunder. ,ppellant contends that the Ono actionO clause in the policy closes the avenue to any third party which may be inFured in an accident wherein the Feepney of the insured might have been the cause of the inFury of third persons, alleging the freedom of contracts. =ill the mere fact that such clause was agreed upon by the parties in an insurance policy prevail over the Bules of -ourt which authori3es the Foining of parties plaintiffs or defendants" The foregoing issues raise two principal! uestions! #'% -an plaintiffs sue the insurer at all" #:% If so, can plaintiffs sue the insurer 0ointly with the insured" The policy in the present case, as afore uoted, is one whereby the insurer agreed to indemnify the insured Oagainst all sums . . . which the Insured shall become legally lia%le to pay in respect of! a. death of or bodily inFury to any person . . . .O -learly, therefore, it is one for indemnity against liabilityG ' from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer./6+ph7/.89t The right of the person inFured to sue the insurer of the party at fault #insured%, depends on whether the contract of insurance is intended to benefit third persons also or only the insured. ,nd the test applied has been this! =here the contract provides for indemnity against lia%ility to third persons, then third persons to whom the insured is liable, can sue the insurer. =here the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third personsN recourse being thus limited to the insured alone.: The ne7t uestion is on the right of the third person to sue the insurer Fointly with the insured. The policy re uires, as afore5stated, that suit and final Fudgment be first obtained against the insuredG that only OthereafterO can the person inFured recover on the policyG it e7pressly disallows suing the insurer as a co5defendant of the insured in a suit to determine the latterNs liability. ,s adverted to before, the uery is which procedure to follow T that of the insurance policy or the Bules of -ourt. The Ono actionO clause in the policy of insurance cannot prevail over the Bules of -ourt provision aimed at avoiding multiplicity of suits. In a case s uarely on the point, American Automo%ile Ins. Co. vs. Stru+e, :'+ S= 9A0 #Te7as --,%, it was held that a Ono actionO clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits. =e uote! ,ppellants filed a plea in abatement on the grounds that the suit had been prematurely brought against the insurance company, and that it had been improperly Foined with Uun<er, as said insurance company, under the terms of the policy, was only liable after Fudgment had been awarded against Uun<er. . . . V V V That plea was properly overruled, because under the laws of Te7as a dual suit will always be avoided whenever all parties can have a fair trial when Foined in one suit. ,ppellee, had he so desired, could have prosecuted his claim to Fudgment as against Uun<er and then have sued on that Fudgment against the insurance company, but the law does not ma<e it imperative that he should do so, but would permit him to dispose of the whole matter in one suit. The rule has often been announced in Te7as that when two causes of action are connected with each other, or grow out of the same transaction, they may be properly Foined, and in such suit all parties against whom the plaintiff asserts a common or an alternative liability may be Foined as defendants. . . . Even if appellants had presented any plea in abatement as to Foinder of damages arising from a tort with those arising from a contract, it could not, under the facts of this case, be sustained, for the rule is that a suit may include an action for breach of contract and one for tort, provided they are connected with each other or grew out of the same transaction. Similarly, in the instant suit, Sec. 9 of Bule : on OJoinder of causes of actionO and Sec. > of Bule A on OPermissive Foinder of partiesO cannot be superseded, at least +ith respect to thir" persons not a party to the contract, as herein, by a Ono actionO clause in the contract of insurance.

=herefore, the Fudgment appealed from is affirmed in toto. -osts against appellant. So ordered. ,ONIFACIO ,ROS., INC., ET AL., plaintiffs5appellants, vs. ENRIGUE MORA, ET AL., defendants5appellees. ). .a!saysay $or plainti$$s1appellants. A%a" Santos an" Pa%lo $or "e$en"ant1appellee H. 5. Reyes, Inc. (. P. Santilla an" A. :. Hi"al!o, (r. $or other "e$en"ant1appellee. CASTRO, J.: This is an appeal from the decision of the -ourt of Eirst Instance of )anila, Dranch PL, in civil case 0++:A, affirming the decision of the )unicipal -ourt of )anila, declaring the H.S. Beyes, Inc. as having a better right than the Donifacio Dros., Inc. and the ,yala ,uto Parts -ompany, appellants herein, to the proceeds of motor insurance policy ,5/>'9, in the sum of P:,//:.8A, issued by the State Donding S Insurance -o. Inc., and directing payment of the said amount to the H. Beyes, Inc. Enri ue )ora, owner of Cldsmobile sedan model '*9>, bearing plate .o. W-5 mortgaged the same to the H.S. Beyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June :A, '*9* with the State Donding S Insurance -o., Inc., and motor car insurance policy ,5/>'9 was issued to Enri ue )ora, the pertinent provisions of which read! '. The -ompany #referring to the State Donding S Insurance -o., Inc.% will, subFect to the ?imits of ?iability, indemnify the Insured against loss of or damages to the )otor Lehicle and its accessories and spare parts whilst thereonG #a% by accidental collision or overturning or collision or overturning conse uent upon mechanical brea<down or conse uent upon wear and tear, 777 777 777

:. ,t its own option the -ompany may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the )otor Lehicle or any part thereof or its accessories or spare parts. The liability of the -ompany shall not e7ceed the value of the parts whichever is the less. The InsuredNs estimate of value stated in the schedule will be the ma7imum amount payable by the -ompany in respect of any claim for loss or damage./6+ph7/.89t 777 777 777

0. The Insured may authori3e the repair of the )otor Lehicle necessitated by damage for which the -ompany may be liable under this Policy provided that! T #a% The estimated cost of such repair does not e7ceed the ,uthori3ed Bepair ?imit, #b% , detailed estimate of the cost is forwarded to the -ompany without delay, subFect to the condition that O?oss, if any is payable to H.S. Beyes, Inc.,O by virtue of the fact that said Cldsmobile sedan was mortgaged in favor of the said H.S. Beyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Beyes, Inc. as )ortgageeG 777 777 777

;uring the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Dayne ,dFustment -o. for investigation and appraisal of the damage. Enri ue )ora, without the <nowledge and consent of the H.S. Beyes, Inc., authori3ed the Donifacio Dros. Inc. to furnish the labor and materials, some of which were supplied by the ,yala ,uto Parts -o. Eor the cost of labor and materials, Enri ue )ora was billed at P:,'/:.8A through the H.H. Dayne ,dFustment -o. The insurance company after claiming a franchise in the amount of P'//, drew a chec< in the amount of P:,//:.8A, as proceeds of the insurance policy, payable to the order of Enri ue )ora or H.S. Beyes,. Inc., and entrusted the chec< to the H.H. Dayne ,dFustment -o. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enri ue )ora without the consent of the H.S. Beyes, Inc., and without payment to the Donifacio Dros. Inc. and the ,yala ,uto Parts -o. of the cost of repairs and materials.

1pon the theory that the insurance proceeds should be paid directly to them, the Donifacio Dros. Inc. and the ,yala ,uto Parts -o. filed on )ay +, '*>' a complaint with the )unicipal -ourt of )anila against Enri ue )ora and the State Donding S Insurance -o., Inc. for the collection of the sum of P:,//:.8A The insurance company filed its answer with a counterclaim for interpleader, re uiring the Donifacio Dros. Inc. and the H.S. Beyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in uestion. Enri ue )ora was declared in default for failure to appear at the hearing, and evidence against him was received e# parte. However, the counsel for the Donifacio Dros. Inc., ,yala ,uto Parts -o. and State Donding S Insurance -o. Inc. submitted a stipulation of facts, on the basis of which are )unicipal -ourt rendered a decision declaring the H.S. Beyes, Inc. as having a better right to the disputed amount and ordering State Donding S Insurance -o. Inc. to pay to the H. S. Beyes, Inc. the said sum of P:,//:.8A. Erom this decision, the appellants elevated the case to the -ourt of Eirst Instance of )anila which the stipulation of facts was reproduced. Cn Cctober '*, '*>: the latter court rendered a decision, affirming the decision of the )unicipal -ourt. The Donifacio Dros. Inc. and the ,yala ,uto Parts -o. moved for reconsideration of the decision, but the trial court denied the motion. Hence, this appeal. The main issue raised is whether there is privity of contract between the Donifacio Dros. Inc. and the ,yala ,uto Parts -o. on the one hand and the insurance company on the other. The appellants argue that the insurance company and Enri ue )ora are parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 0 of the insurance contract which provides that Othe insured may authori3e the repair of the )otor Lehicle necessitated by damage for which the company may be liable under the policy provided that #a% the estimated cost of such repair does not e7ceed the ,uthori3ed Bepair ?imit, and #b% a detailed estimate of the cost is forwarded to the company without delay.O It is stressed that the H.H. Dayne ,dFustment -ompanyNs recommendation of payment of the appellantsN bill for materials and repairs for which the latter drew a chec< for P:,//:.8A indicates that )ora and the H.H. Dayne ,dFustment -o. acted for and in representation of the insurance company. This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the appellantsN alleged cause of action rests e7clusively upon the terms of the insurance contract. The appellants see< to recover the insurance proceeds, and for this purpose, they rely upon paragraph 0 of the insurance contract document e7ecuted by and between the State Donding S Insurance -ompany, Inc. and Enri ue )ora. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts ta<e effect only between the parties thereto, e7cept in some specific instances provided by law where the contract contains some stipulation in favor of a third person.' Such stipulation is <nown as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. 1nder this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person.: -onse uently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same.A The uestion of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this -ourt has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.0 In the instant case the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in uestion. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. Cn the other hand, the Oloss payableO clause of the insurance policy stipulates that O?oss, if any, is payable to H.S. Beyes, Inc.O indicating that it was only the H.S. Beyes, Inc. which they intended to benefit. =e li<ewise observe from the brief of the State Donding S Insurance -ompany that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to ma<e itself liable to the repair shop or materialmen, it could

have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would re uire us to ignore the indespensable re uisite that a stipulation pour autrui must be clearly e7pressed by the parties, which we cannot do. ,s regards paragraph 0 of the insurance contract, a perusal thereof would show that instead of establishing privity %et+een the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into e7istence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom. ,nother cogent reason for not recogni3ing a right of action by the appellants against the insurance company is that Oa policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of e uity, or in a court of law, to the proceeds of it, unless there be some contract of trust, e7pressed or implied between the insured and third person.O9 In this case, no contract of trust, e7pressed or implied e7ists. =e, therefore, agree with the trial court that no cause of action e7ists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellantsN claim, if at all, is merely e uitable in nature and must be made effective through Enri ue )ora who entered into a contract with the Donifacio Dros. Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the e7press provisions of section 9/ of the Insurance ,ct which read! The insurance shall be applied e7clusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy. The policy in uestion has been so framed that O?oss, if any, is payable to H.S. Beyes, Inc.,O which unmista<ably shows the intention of the parties. The final contention of the appellants is that the right of the H.S. Beyes, Inc. to the insurance proceeds arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between OlossO and OdamageO is uncalled for, because the word OlossO in insurance law embraces inFury or damage. 3oss in insurance, "e$ine". T The inFury or damage sustained by the insured in conse uence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has underta<en to indemnify the insured. #' Douv. Ins. .o. ':'9G Dlac<Ns ?aw ;ictionaryG -yclopedic ?aw ;ictionary, cited in )artinNs Phil. -ommercial ?aws, Lol. ', '*>' ed. p. >/+%. Indeed, according to sec. ':/ of the Insurance ,ct, a loss may be either total or partial. ,ccordingly, the Fudgment appealed from is hereby affirmed, at appellantsN cost.

JUANITA P. PINEDA, a''$'t!d 10 !" )'1and, CRISPIN PINEDA, and LILIA SAYOC, petitioners, vs. COURT OF APPEALS and TERESITA A. GONFALES, a''$'t!d 10 !" )'1and, FRANCISCO G. GONFALES, respondents. DECISION CARPIO, J.: The -ase This petition for review on certiorari&'( see<s to reverse the ;ecision&:( of the -ourt of ,ppeals dated :> ,ugust '**A in -,5@.B. SP .o. :+>9' as well as the Besolution dated 0 )arch '**0 denying the motion for reconsideration. In its assailed decision, the -ourt of ,ppeals declared void the orders&A( of the Begional Trial -ourt&0( of -avite -ity dated '/ January '**:, 9 Eebruary '**: and A/ ,pril '**:, and made the preliminary inFunction permanent. In the first order, the trial court declared that Teresita ,. @on3ales, despite notice, failed to appear at the hearing of the motion to surrender Transfer

-ertificate of Title .o. T5'>/+0 and to file opposition to the motion. In the second order, the trial court declared void the original and owner2s duplicate of Transfer -ertificate of Title .o. T5'>/+0 and ordered the reinstatement of Transfer -ertificate of Title .o. T5+A>'. In the third order, the trial court denied the motions to lift the first order and to reconsider the second order. The Eacts Cn 0 January '*+:, the Spouses Lirgilio and ,dorita Denite3 #4Spouses Denite36% mortgaged a house and lot #4Property6% covered by Transfer -ertificate of Title .o. T5+A>' #4T-T +A>'6% in favor of Juanita P. Pineda #4Pineda6% and ?eila P. Sayoc #4Sayoc6%. The real estate mortgage secured the Spouses Denite32s loan of P:0A,/// with a one5year maturity period.&9( Pineda and Sayoc did not register the mortgage with the Begister of ;eeds. The Spouses Denite3 delivered the owner2s duplicate of T-T +A>' to Pineda. Cn * .ovember '*+A, with the consent of Pineda, the Spouses Denite3 sold the house,&>( which was part of the Property, to Clivia @. )oFica #4)oFica6%. Cn the same date, )oFica filed a petition for the issuance of a second owner2s duplicate of T-T +A>' alleging that she 4purchased a parcel of land6&8( and the 4owner2s duplicate copy of T-T .o. T5+A>' was lost.6&+( Cn 8 ;ecember '*+A, the trial court granted the petition. The Begister of ;eeds of -avite -ity issued the second owner2s duplicate of T-T +A>' in the name of the Spouses Denite3. Cn ': ;ecember '*+A, the Spouses Denite3 sold the lot&*( covered by T-T +A>' to )oFica. =ith the registration of the deed of sale and presentation of the second owner2s duplicate of T-T +A>', the Begister of ;eeds cancelled T-T +A>' and issued Transfer -ertificate of Title .o. T5'A'A+ #4T-T 'A'A+6% in the name of )oFica. Cn :: Eebruary '*+9, )oFica obtained a loan of P:*/,/// from Teresita ,. @on3ales #4@on3ales6%. )oFica e7ecuted a promissory note and a deed of mortgage over the Property in favor of @on3ales. @on3ales registered this deed of mortgage with the Begister of ;eeds of -avite -ity who annotated the mortgage on T-T 'A'A+ as Entry .o. AA:/*. )eanwhile, on + )ay '*+9, Pineda and Sayoc filed a complaint before the Begional Trial -ourt&'/( of -avite -ity, doc<eted as -ivil -ase .o. 0>90, against the Spouses Denite3 and )oFica. The complaint prayed for the cancellation of the second owner2s duplicate of T-T +A>' and the award of moral damages and attorney2s fees. In their answer, the Spouses Denite3 admitted selling to )oFica the Property which was already subFect to a previous mortgage in favor of Pineda and Sayoc. The Spouses Denite3 claimed that under the Ac no+le"!ment o$ In"e%te"ness,&''( )oFica, with the conformity of Pineda and Sayoc, agreed to assume the balance of the mortgage debt of the Spouses Denite3 to Pineda and Sayoc. The Spouses Denite3 denied any <nowledge of )oFica2s petition for the issuance of a second owner2s duplicate of T-T +A>'. The Spouses Denite3 prayed for the dismissal of the complaint and the award of moral damages and attorney2s fees. The Spouses Denite3 also prayed that in case the court would render Fudgment in favor of Pineda and Sayoc, only )oFica should be held liable. Cn the other hand, )oFica denied conspiring with the Spouses Denite3 and committing fraud in filing the petition for the issuance of a second owner2s duplicate of T-T +A>'. )oFica stated that the Spouses Denite3 sold to her the Property. )oFica claimed that upon the e7ecution of the deed of sale, the Spouses Denite3 delivered to her the owner2s duplicate of T-T +A>'. However, )oFica alleged that the owner2s duplicate of T-T +A>' was lost. )oFica also asserted that she verified with the Begister of ;eeds of -avite -ity the provision in the deed of sale that the Property was free from all liens and encumbrances and found the same to be true. )oFica added that on learning of the Spouses Denite32s mortgage with Pineda and Sayoc, she signed the Ac no+le"!ment o$ In"e%te"ness. )oFica contended that since Pineda, for herself and Sayoc, conformed to this agreement, Pineda and Sayoc had no personality to file the complaint. )oFica further alleged that Pineda and Sayoc were in estoppel from challenging the validity of the second owner2s duplicate of T-T +A>' because Pineda and Sayoc, despite notice, failed to oppose

the reconstitution of the title. )oFica maintained that the Spouses Denite3 are indispensable parties because T-T +A>' was in their name. )oFica also asserted that she did not breach the Ac no+le"!ment o$ In"e%te"ness since she had paid the Spouses Denite3 an amount more than their debt to Pineda and Sayoc. )oFica contended that had the Spouses Denite3 paid the amount to Pineda and Sayoc, there would have been no obligation to assume. )oFica prayed for the dismissal of the complaint and the award of moral and e7emplary damages and attorney2s fees. ;uring the pendency of the case, Pineda caused the annotation on '+ ,ugust '*+> of a notice of lis pen"ens on the original of T-T +A>' with the Begister of ;eeds. ,fter trial, the trial court rendered a ;ecision dated '9 June '*+8, the dispositive portion of which reads! =HEBEECBE, in view of the foregoing, the -ourt hereby renders Fudgment declaring the second owner2s duplicate of T-T .o. T5+A>' of the land records of -avite as null and void and the Begister of ;eeds of -avite -ity is hereby ordered upon payment of the corresponding legal fees the annotation of this pronouncement in its record and the revival of the first owner2s duplicate with the same faith and credit before its alleged loss. The counterclaim of defendants Denite3es is hereby dismissed. .o pronouncement as to costs. SC CB;EBE;.&':( Cn 8 ;ecember '*+8, )oFica defaulted in paying her obligation to @on3ales. Hence, @on3ales e7traFudicially foreclosed the mortgage. Cn :8 January '*++, @on3ales purchased at public auction the Property for P0:A,:00.++. Eor failure of )oFica to redeem the Property, @on3ales consolidated the title to the Property. Cn :* )arch '*+*, @on3ales e7ecuted the corresponding ,ffidavit of -onsolidation. Cn A/ )arch '*+*, the Begister of ;eeds of -avite -ity cancelled T-T 'A'A+, which was in )oFica2s name, and issued Transfer -ertificate of Title .o. T5'>/+0 #4T-T '>/+06% in the name of @on3ales. T-T '>/+0 contained Entry .o. A99:/, the notice of lis pen"ens dated '+ ,ugust '*+> in relation to -ivil -ase .o. 0>90.&'A( The Begister of ;eeds annotated on T-T '>/+0 the notice of lis pen"ens, even though T-T 'A'A+ did not contain such annotation. )eanwhile, dissatisfied with the trial court2s decision, the Spouses Denite3 and )oFica appealed to the -ourt of ,ppeals, doc<eted as -,5@.B. -L .o. '90'8. Cn :* January '**', the -ourt of ,ppeals rendered a ;ecision&'0( affirming the trial court2s decision declaring void the second owner2s duplicate of T-T +A>'. The decision of the -ourt of ,ppeals became final and was entered in the Doo< of Entries of Judgments on '8 June '**'. The -ourt of ,ppeals returned the records of the case to the trial court on '/ July '**'. Cn motion of Pineda and Sayoc, the trial court issued a writ of e7ecution to enforce the Fudgment. However, the writ of e7ecution was returned unsatisfied. The Sheriff2s Beturn of ': September '**' stated that the Begister of ;eeds could not implement the writ of e7ecution. The Sheriff2s Beturn showed that the Begister of ;eeds had already cancelled T-T +A>' and issued T-T '>/+0 in the name of @on3ales by virtue of the consolidation of title dated :* )arch '*+*. -onse uently, on > ;ecember '**', Pineda and Sayoc filed a motion with the trial court for the issuance of an order re uiring @on3ales to surrender the owner2s duplicate of T-T '>/+0 to the Begister of ;eeds of -avite -ity. In its Crder dated '/ January '**: #4first order6%, the trial court declared that @on3ales, despite notice, failed to appear at the hearing and to oppose the motion to surrender T-T '>/+0. In the same order, the trial court directed @on3ales to file a memorandum. @on3ales received this order on :/ January '**:.

Subse uently, @on3ales filed a motion to lift the first order alleging that since she was not a party in -ivil -ase .o. 0>90, the decision did not bind her. @on3ales also claimed that she did not receive notice of the hearing, copy of the motion to surrender T-T '>/+0 and the order resetting the hearing because she was in the 1nited States of ,merica. @on3ales finally alleged that she was an innocent purchaser for value. In an Crder dated 9 Eebruary '**: #4second order6%, the trial court declared void the original and the owner2s duplicate of T-T '>/+0 in the name of @on3ales. The trial court ordered the reinstatement of T-T +A>' in the name of the Spouses Denite3. @on3ales filed a motion for reconsideration of the second order. Cn A/ ,pril '**:, the trial court issued an Crder #4third order6% denying @on3ales2 motions to lift the first order and to reconsider the second order. ,ggrieved by the trial court2s orders, @on3ales filed with the -ourt of ,ppeals a petition for the issuance of a writ of prohibitory inFunction. Cn :> ,ugust '**A, the -ourt of ,ppeals rendered a decision disposing as follows! =HEBEECBE, the petition is granted. The assailed orders dated '/ January '**:, 9 Eebruary '**:, and A/ ,pril '**: are hereby declared .1?? and LCI;, and the preliminary prohibitory inFunction is made permanent. SC CB;EBE;.&'9( Hence, the instant petition. The Buling of the -ourt of ,ppeals In the -ourt of ,ppeals, @on3ales maintained that the trial court had no Furisdiction over her person and property because Pineda and Sayoc did not implead her as a party in -ivil -ase .o. 0>90. Insisting that the uestioned orders were procured through e7trinsic or collateral fraud, @on3ales claimed that the orders of the trial court were void. @on3ales further alleged that she was an innocent purchaser for value ma<ing her title to the Property indefeasible and imprescriptible. Pineda and Sayoc, on the other hand, argued that the notice of lis pen"ens annotated on the title of the Property bound @on3ales, as subse uent purchaser of the Property, to the outcome of the case. Pineda and Sayoc contended that @on3ales was not a purchaser in good faith because @on3ales had constructive notice of the pending litigation when she purchased the Property. )oreover, Pineda and Sayoc argued that no separate action is necessary to cancel the title because @on3ales is bound by the outcome of the litigation. They contended that there was no e7trinsic fraud because the notice of lis pen"ens warned @on3ales of the pendency of -ivil -ase .o. 0>90 where she could have intervened. Pineda and Sayoc further alleged that foreclosure and sale, not a mortgage, vest title on a mortgagee. Eoreclosure and sale, however, are always subFect to a notice of lis pen"ens. In granting the petition, the -ourt of ,ppeals ruled that the trial court erred when it voided T-T '>/+0 upon a mere motion for the surrender of the owner2s duplicate of T-T '>/+0. The -ourt of ,ppeals further held that the trial court erred in ordering the reinstatement of T-T +A>' in the name of the Spouses Denite3. The -ourt of ,ppeals held that Pineda and Sayoc should have filed the petition to surrender T-T '>/+0 in the original case where the decree of registration of T-T '>/+0 was entered and not in -ivil -ase .o. 0>90. The second paragraph of Section '/+ of Presidential ;ecree .o. '9:*&'>( #4P; '9:*6% re uires the filing of such separate petition. The appellate court stated that it was beyond the trial court2s authority to act on the matter on a mere motion to surrender T-T '>/+0. The -ourt of ,ppeals li<ewise ruled that the trial court did not ac uire Furisdiction over the person of @on3ales because she was not a party in -ivil -ase .o. 0>90. The appellate court found that @on3ales could not have <nown of, and appeared at, the hearing of the motion to surrender T-T

'>/+0 because @on3ales was then out of the country. ,ssuming that the trial court could validly act on the motion of Pineda and Sayoc, the -ourt of ,ppeals declared that the orders nevertheless contravened Section '/8 of P; '9:*. This provision of law re uires a hearing before the court can act on a petition to surrender a duplicate certificate of title. The Issues Petitioners raise the following issues for resolution! '. =hether a notice of lis pen"ens binds a subse uent purchaser of the property to the outcome of the pending case. :. =hether T-T 'A'A+ and T-T '>/+0, being derived from the void second owner2s duplicate of T-T +A>', are also void. A. 0. 9. =hether a separate action should be filed to cancel T-T '>/+0. =hether @on3ales was an innocent purchaser for value. =hether @on3ales was denied due process of law.

The Buling of the -ourt =e deny the petition. ;ali"ity o$ -C- /</<= an" -C- />?=@ )oFica filed a petition for reconstitution&'8( of the owner2s duplicate of T-T +A>' claiming that this owner2s duplicate was lost. However, contrary to )oFica2s claims, the owner2s duplicate of T-T +A>' was not lost but in Pineda2s possession. Since the owner2s duplicate of T-T +A>' was in fact not lost or destroyed, there was obviously nothing to reconstitute or replace. Therefore, the trial court correctly ruled that the reconstitution proceedings and the second owner2s duplicate of T-T +A>' are void.&'+( ,s the -ourt held in New Durawood Co., Inc. v. Court of Appeals!&'*( In the instant case, the owner2s duplicate certificates of title were in the possession of ;y Wuim Pong, the petitioner2s chairman of the board and whose family controls the petitioner5corporation. Since said certificates were not in fact 4lost or destroyed6, there was no necessity for the petition filed in the trial court for the 4Issuance of .ew Cwner2s ;uplicate -ertificates of Title . . .6 In fact, the said court never acquired jurisdiction to order the issuance of new certificates. Hence, the newly issued duplicates are the selves null and void. #Emphasis supplied% )oFica registered with the Begister of ;eeds the deed of sale e7ecuted by the Spouses Denite3 conveying the Property to her. )oFica also presented to the Begister of ;eeds the second owner2s duplicate of T-T +A>'. The Begister of ;eeds cancelled T-T +A>' and issued on '0 ;ecember '*+A T-T 'A'A+ in the name of )oFica. However, since T-T 'A'A+ is derived from the void second owner2s duplicate of T-T +A>', T-T 'A'A+ is also void. .o valid transfer certificate of title can issue from a void transfer certificate of title, unless an innocent purchaser for value has intervened.&:/( )oFica was not a purchaser in good faith. )oFica alleged that the Spouses Denite3 gave her the owner2s duplicate of T-T +A>' on * .ovember '*+A, the day the Spouses Denite3 sold to her the house. However, in her petition for reconstitution, which she also filed on the same day, * .ovember '*+A, )oFica claimed that the owner2s duplicate of T-T +A>' was lost. In effect, )oFica claimed that she received the owner2s duplicate of T-T +A>' from the Spouses Denite3, lost the same, and filed the petition for reconstitution, all on the same day, * .ovember '*+A. In her petition for reconstitution, )oFica also claimed that she 4purchased a parcel of land6 when in fact she only purchased on * .ovember '*+A the house, and not the lot covered by T-T +A>'. Cbviously, )oFica procured the reconstitution of the second owner2s duplicate of T-T +A>' through misrepresentation. Hence, )oFica was not a purchaser in good faith when she later purchased on ': ;ecember '*+A the lot since she <new of the irregularity in the reconstitution of the second owner2s

duplicate of T-T +A>'. Therefore, T-T 'A'A+ issued in the name of )oFica is void. However, what is void is the transfer certificate of title and not the title over the Property. The title refers to the ownership of the Property covered by the transfer certificate of title while the transfer certificate of title merely evidences that ownership. , certificate of title is not e uivalent to title as the -ourt e7plained in !ee "e# $hen% v. Court of Appeals!&:'( 777 "he certificate referred to is that docu ent issued &y the 'e%ister of Deeds #nown as the "ransfer Certificate of "itle ("C"). *y title, the law refers to ownership which is represented &y that docu ent. Petitioner apparently confuses certificate with title. Placing a parcel of land under the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed. Cwnership is different from a certificate of title. The T-T is only the best proof of ownership of a piece of land. Desides, the certificate cannot always be considered as conclusive evidence of ownership. )ere issuance of the certificate of title in the name of any person does not foreclose the possibility that the real property may be under co5ownership with persons not named in the certificate or that the registrant may only be a trustee or that other parties may have ac uired interest subse uent to the issuance of the certificate of title. "o repeat, re%istration is not the equivalent of title, &ut is only the &est evidence thereof. "itle as a concept of ownership should not &e confused with the certificate of title as evidence of such ownership althou%h &oth are interchan%ea&le. 777 #Emphasis supplied% .o0ica*s -itle The prior mortgage of the Property by the Spouses Denite3 to Pineda and Sayoc did not prevent the Spouses Denite3, as owners of the Property, from selling the Property to )oFica. , mortgage is merely an encumbrance on the property and does not e7tinguish the title of the debtor who does not lose his principal attribute as owner to dispose of the property.&::( The law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable.&:A( Since the Spouses Denite3 were the undisputed owners of the Property, they could validly sell and deliver the Property to )oFica. The e7ecution of the notari3ed deed of sale between the Spouses Denite3 and )oFica had the legal effect of actual or physical delivery. Cwnership of the Property passed from the Spouses Denite3 to )oFica.&:0( The nullity of the second owner2s duplicate of T-T +A>' did not affect the validity of the sale as between the Spouses Denite3 and )oFica. )onzales* -itle ,fter the sale of the Property to her, )oFica obtained a loan from @on3ales secured by a real estate mortgage over the Property. @on3ales registered this mortgage on :: Eebruary '*+9 with the Begister of ;eeds who annotated the mortgage on the void T-T 'A'A+ in )oFica2s name. The nullity of T-T 'A'A+ did not automatically carry with it the nullity of the annotation of @on3ales2 mortgage. The rule is that a mortgage annotated on a void title is valid if the mortgagee registered the mortgage in good faith.&:9( In *lanco v. +squierdo,&:>( the -ourt held! That the certificate of title issued in the name of Eructuosa Es uierdo is a nullity, the same having been secured thru fraud, is not here in uestion. The only uestion for determination is whether the defendant ban< is entitled to the protection accorded to 4innocent purchasers for value6, which phrase, according to sec. A+ of the ?and Begistration ?aw, includes an innocent ort%a%ee for value. The uestion, in our opinion, must be answered in the affirmative. The trial court, in the decision complained of, made no finding that the defendant mortgagee ban< was a party to the fraudulent transfer of the land to Eructuosa Es uierdo. Indeed, there is nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or Fustify a finding that it acted in bad faith. Cn the other hand, the certificate of title was in the name of the mortgagor Eructuosa Es uierdo when the land was mortgaged by her to the defendant ban<. Such being the case, the said defendant ban<, as mortgagee, had the right to rely on what appeared in the certificate and, in the absence of anything to e7cite suspicion, was under no obligation to loo< beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. #;e ?ara,

et al. vs. ,yroso, *9 Phil., '+9G 9/ Cff. @a3., &'/( 0+A+, Joa uin vs. )adrid, et al., '/> Phil., '/>/%. *ein% thus an innocent ort%a%ee for value, its ri%ht or lien upon the land ort%a%ed ust &e respected and protected, even if the ort%a%or o&tained her title thereto thru fraud. The remedy of the persons preFudiced is to bring an action for damages against those causing the fraud, 777. #Emphasis supplied% Thus, the annotation of @on3ales2 mortgage on T-T 'A'A+ was valid and operated to bind the Property and the world, despite the invalidity of T-T 'A'A+. @on3ales registered her mortgage in good faith. @on3ales had no actual notice of the prior unregistered mortgage in favor of Pineda and Sayoc. To bind third parties to an unregistered encumbrance, the law re uires actual notice.&:8( The fact that )oFica, who sold the Property to @on3ales, had actual notice of the unregistered mortgage did not constitute actual notice to @on3ales, absent proof that @on3ales herself had actual notice of the prior mortgage. Thus, @on3ales ac uired her rights as a mortgagee in good faith. =hen )oFica defaulted in paying her debt, @on3ales caused the e7traFudicial foreclosure of the mortgaged Property. @on3ales purchased the mortgaged Property as the sole bidder at the public auction sale. Eor )oFica2s failure to redeem the foreclosed Property within the prescribed period, @on3ales consolidated her title to the Property. ,bsent any evidence to the contrary, the sale at public auction of the Property to @on3ales was valid. Thus, the title or ownership of the Property passed from )oFica to @on3ales. ,t this point, therefore, @on3ales became the owner of the Property. =hen @on3ales purchased the Property at the auction sale, Pineda and Sayoc had already annotated the lis pen"ens on the original of T-T +A>', which remained valid. However, the mortgage of @on3ales was validly registered prior to the notation of the lis pen"ens. The subse uent annotation of the lis pen"ens could not defeat the rights of the mortgagee or the purchaser at the auction sale who derived their rights under a prior mortgage validly registered. The settled rule is that the auction sale retroacts to the date of the registration of the mortgage,&:+( putting the auction sale beyond the reach of any intervening lis pen"ens, sale or attachment. ,s the -ourt e7plained in Caviles, Jr. v. *autista!&:*( =e have also consistently ruled that an auction or e7ecution sale retroacts to the date of levy of the lien of attachment. =hen the subFect property was sold on e7ecution to the petitioners, this sale retroacted to the date of inscription of petitioners2 notice of attachment on Cctober >, '*+:. The earlier registration of the petitioners2 levy on preliminary attachment gave them superiority and preference in rights over the attached property as against respondents. ,ccordingly, we rule that the e7ecution sale in favor of the petitioner -aviles spouses was anterior and superior to the sale of the same property to the respondent Dautista spouses on Cctober '+, '*+:. The right of petitioners to the surrender of the owner2s duplicate copy of T-T .o. 98//> covering the subFect property for inscription of the certificate of sale, and for the cancellation of said certificate of title and the issuance of a new title in favor of petitioners cannot be gainsaid. , contrary rule would ma<e a prior registration of a mortgage or any lien meaningless.&A/( The prior registered mortgage of @on3ales prevails over the subse uent notice of lis pen"ens, even if the auction sale too< place after the notation of the lis pen"ens. -onse uently, T-T '>/+0, issued to @on3ales after she presented the sheriff2s certificate of sale and her affidavit of consolidation, is valid. =hat remained with Pineda and Sayoc after the foreclosure was the mortgagor2s residual rights over the foreclosed Property, which rights are the e uity of redemption&A'( and a share in the surplus fund, if any.&A:( Since )oFica was not a purchaser in good faith, the residual rights of )oFica were subFect to the claim of Pineda and Sayoc. Cf course, Pineda and Sayoc may still file an action to recover the outstanding debt of the Spouses Denite3, and even go after )oFica for her assumption of obligation under the Ac no+le"!ment o$ In"e%te"ness. -he 5'uities ,avor )onzales over Pine"a an" Sayoc

Pineda and Sayoc were negligent in not registering their mortgage, which ultimately led to this controversy. Had Pineda and Sayoc registered their mortgage, their rights as prior mortgagees would have prevailed over that of @on3ales. Pineda and Sayoc were also negligent in not foreclosing their mortgage ahead of @on3ales, when they could have done so as early as 0 January '*+A after the Spouses Denite3 defaulted on their loan.&AA( In contrast, the loan of )oFica fell due only on 8 ;ecember '*+8. Since @on3ales vigilantly e7ercised her right to foreclose the mortgaged Property ahead of Pineda and Sayoc, @on3ales2 mortgage would still prevail over the mortgage of Pineda and Sayoc even if @on3ales2 mortgage was not validly registered. The unregistered mortgage of Pineda and Sayoc was e7tinguished upon foreclosure of @on3ales2 mortgage even assuming for the sa<e of argument that the latter mortgage was unregistered. Detween two unregistered mortgagees, both being in good faith, the first to foreclose his mortgage prevails over the other. Even assuming that @on3ales2 mortgage was not validly registered, the notice of lis pen"ens could still not defeat @on3ales2 right under the foreclosure sale. The effect of the notice of lis pen"ens was to subFect @on3ales, as the subse uent purchaser of the Property, to the outcome of the case. The outcome of the case is the cancellation of the second owner2s duplicate of T-T +A>'. The complaint of Pineda and Sayoc simply prayed for the cancellation of the second owner2s duplicate of T-T +A>' and the award of damages.&A0( The notice of lis pen"ens would only bind @on3ales to the declaration of nullity of the second owner2s duplicate of T-T +A>'. @on3ales could not use T-T 'A'A+, as a void issue of the void second owner2s duplicate of T-T +A>', to secure a new T-T in her name. This is the legal conse uence of the notice of lis pen"ens, which would have bound @on3ales had the registration of her mortgage been void. However, the declaration of nullity of T-T 'A'A+ would still not ma<e the mortgage of Pineda and Sayoc preferred over that of @on3ales. Since @on3ales foreclosed her mortgage ahead of Pineda and Sayoc, she would still have a better right than Pineda and Sayoc who slept on their rights as mortgagees. Conclusion The nullity of T-T 'A'A+ did not affect the validity of the title or ownership of )oFica or @on3ales as subse uent transferees of the Property. =hat is void is the transfer certificate of title, not the title or ownership itself of )oFica or @on3ales. The notice of lis pen"ens could not defeat @on3ales2 rights over the Property for two reasons. Eirst, @on3ales registered in good faith her mortgage before the notation of the lis pen"ens, ma<ing the registration of her mortgage valid despite the invalidity of T-T 'A'A+. Second, since @on3ales2 mortgage was valid, the auction sale retroacted to the date of registration of her mortgage, ma<ing the auction sale prior in time to the notice of lis pen"ens. Thus, T-T '>/+0, issued to @on3ales as a result of the foreclosure sale, is valid. WHEREFORE, the petition is ;E.IE;. The ;ecision dated :> ,ugust '**A and the Besolution dated 0 )arch '**0 of the -ourt of ,ppeals in -,J@.B. SP .o. :+>9' are ,EEIB)E;. Petitioners Juanita P. Pineda and ?ilia Sayoc are directed to surrender the owner2s duplicate of Transfer -ertificate of Title .o. +A>' to the Begister of ;eeds of -avite -ity for cancellation. Transfer -ertificate of Title .o. '>/+0 in the name of Teresita ,. @on3ales is declared valid. This is without preFudice to any action petitioners Juanita P. Pineda and ?ilia Sayoc may file against the Spouses Lirgilio and ,dorita Denite3 as well as Clivia @. )oFica. .o pronouncement as to costs. SC CB;EBE;.

7iFRANCISCA GALLARDO, -*a$nt$..-a--!**!!, #'. HERMENEGILDA S. MORALES, d!.!ndant-a--!**ant.

Ca9)*$' and D&*&".$n& .&" a--!**!!. F$*!/&n Ca9at&" .&" a--!**ant.

CONCEPCION, J.:

The issue before us is whether a personal accident insurance which Oinsures for inFuries andHor death as a result of murder or assault or attempt thereatO is a life insurance, within the purview of Bule A*, section ':, subdivision #<% of the Bules of -ourt, e7empting from e7ecution.

,ll moneys, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance, if the annual premiums paid do not e7ceed five hundred pesos, and if they e7ceed that sum a li<e e7emption shall e7ist which shall bear the same proportion to the moneys, benefits, privileges, and annuities so accruing or growing out of such insurance that said five hundred pesos bears to the whole annual premiums paid.

In accordance with a compromise agreement between the parties in the above5entitled case, a decision was rendered therein by the -ourt of Eirst Instance of )anila, on Eebruary A, '*9>, sentencing defendant Hermenegilda S. )orales to pay to plaintiff Erancisca @allardo the sum of Seven Thousand Pesos #P8,///.//%. In due course, the corresponding writ of e7ecution was issued and delivered to the Sheriff of )anila, who, on ,ugust +, '*9>, garnished and levied e7ecution on the sum of P8,///.//, out of the PA/,///.// a due from the -apital Insurance S Surety -o., Inc., to said defendant, as beneficiary under a personal accident policy issued by said company to defendantNs husband, ?uis )orales, who died, on ,ugust :>, '*9/, by assassination. Invo<ing the above5 uoted provision of the Bules of -ourt, defendant as<ed the sheriff to uash and lift said garnishment or levy on e7ecution. 1pon denial of this re uest by the sheriff, defendant filed a motion praying that the aforementioned sum of P8,///.// be declared e7empt from e7ecution under said provision of the Bules of -ourt, and that the Sheriff of )anila be ordered to uash or lift said garnishment or levy on e7ecution. This motion was denied by an order dated Cctober '+, '*9>. Hence, the present appeal by the defendant, who maintains that the policy in uestion is a life insurance policy, within the purview of the aforementioned e7emption, for it insured her husband O. . . for inFuries andHor death as a result of murder or assault or attempt thereat.O

In its order denying the claim for e7emption set up by the defendant, the lower court e7pressed itself as follows!

1pon a perusal of the authorities cited by the parties, this -ourt is fully convinced that there is a fundamental distinction between life insurance, and accident insurance, and the insurance policy issued to ?uis @. )orales, husband of herein defendant, was undoubtedly an accident insurance, as distinguished from a life insurance. ,s conceded by the facts appearing in the pleadings, the personal accident policy, part of the proceeds of which is under garnishment, was for P9/,///.// and yet the annual premium was for P'9.//. If it were an ordinary life insurance policy, ta<ing into account that the insured, ?uis @. )orales, was A+ years of age and the amount of the policy was for P9/,///.// the annual premium would have been around P',:/>.//. Desides, the period for the policy was stipulated for one year, and considerations as to age, health, occupation and other personal circumstances were not ta<en into account in an accident insurance policy. Even the certification issued by the insurance commissioner on ,ugust :A, '*9>, mar<ed as ,nne7 O'O of the opposition, shows that the -apital Insurance and Surety -ompany Inc. is a non5life insurance company and that the only authority

granted to it to transact business covers fire, marine, surety, fidelity, accident, motor car, and miscellaneous insurance, e7cept life insurance. Erom this circumstance alone, not to mention many others, there are abundant indications that there e7ists a fundamental distinction between life insurance and accident insurance. ,s counsel for oppositor has clearly pointed out, an accident policy merely insures the person from inFury and or death resulting from murder, assault, or an attempt thereat, while in life insurance policy, what is insured is the life of the subFect for a definite number of years. Erom the authorities uoted by the oppositor, this -ourt is fully convinced that an accident policy is fundamentally different from a life insurance policy, especially if this -ourt ta<es into account that accident insurance is an indemnity or casualty contract, while life insurance is an investment contract.

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

O?ife insuranceO is a contract whereby one party insures a person against loss by the death of another. Petition of Bobbins, '0/ ,. A>>, A>8, ':> )e. 999.

,n insurance on life is a contract by which the insurer, for a stipulated sum, engages to pay a certain amount of money if another dies within the time limited by the policy. -ason vs. Cwens, :> S. E. 89, 8>, '// @a. '0:.

?ife insurance includes in which the payment of the insurance money is contingent upon the loss of life. Dowless vs. )utual Den. Health S ,ccident ,ssNn, -.-.,. La. **E. :d 00. 0+, 0*.

, contract for life insurance is really a contract for insurance for one year in consideration of an advanced premium, with the right of assured to continue it from year to year upon payment of a premium as stipulated. )utual ?ife Ins. -o. '// Pa '8:, '+/.

In its broader sense, Olife insuranceO includes accident insurance, since life is insured under either contract. ,merican Trust S Dan<ing -o. vs. ?essly, '/> S.=. :d. 99', 99:, '8' Tenn. 9>', ''' ,.?.B. 9*.

1nder statute providing that Nany life insuranceN on life of husband shall insure to benefit of widow and children e7empt from husbandNs debt, proceeds of policy insuring against death by accident insured to widowNs benefit free from husbandNs debts. -ode '*A:, D +09>. ,merican Trust S Dan<ing -o. vs. ?essly, '/> S.=. :d 99', '8' Tenn. 9'' III ,.?.B. 9*.

Insurance policy, providing for payment in case of accidental death, is Olife insurance policyO to such e7tent within state statue prescribing in5contestable period for policies. -ode S.-. '*A: ss 8*+>, 8*+8. Pacific )ut. ?ife Ins. -o. of -alifornia vs. Par<er, -.-.,.S.-., 8' E. :d +8:, +89.

O?ife insuranceO includes all policies of insurance in which payment of insurance money is contingent upon loss of life. . . . Smith vs. E uitable ?ife ,ssur. Soc. of 1.S., +* S.=. :d '>9, '>8, '>* Tenn. 088.

Insurance policy including a death benefit and a health or accident disability benefit constituted a Olife insurance policyO within meaning of laws '*:>, c. ''+, S. 'A0, imposing privilege ta7 on insurance companies with different rates as between life insurance companies and other companies, in view of provisions of -ode '*/>, ss :98>, :9*+ #HemingwayNs -ode '*:8, ss 9+A/, 9+9>%, and ?aw '*:0, c. '*', s I #HemingwayNs -ode '*:8, s 9**9%G it being immaterial that in some policy forms the health and disability feature was more valuable asent a showing that death provision was inserted to avoid the higher ta7. 1niversal ?ife Ins. -o. vs. State, ':' So. +0*, +9/, '99 )iss. A9+.O #:9 =ords S Phrases :>/, :>', :>:.%

=hen the application was made, Harris =. Bimmer carried life insurance with the E uitable ?ife ,ssurance Society, for M'/,///, payable upon proof of death, with a provision that upon death by accident the amount of insurance payable would be increased to M:/,///. The plaintiff insisted that this was life insurance, a disclosure of which was not called for in uestion '/, while the defendant insisted it was accident insurance that should have been disclosed and further insisted that, it being a fact material to the ris< the failure to disclose the policy in the E uitable ?ife ,ssurance Society rendered the policy issued to the applicant void. . . .

The court might have gone further and held that the failure of the applicant to characteri3e the insurance in the E uitable ?ife ,ssurance Society as accident insurance did not constitute a false answer to the in uiry of what accident or health insurance he was carrying. The policy in the E uitable ?ife ,ssurance Society covered loss of life from natural as well as e7ternal and accidental causes, and was life insurance. The mere addition of the double indemnity clause providing for increased insurance upon proof of death by accident did not divest the policy of its character of insurance on life, or ma<e the contract other than life insurance, for insurance on life includes all policies of insurance in which the payment of the insurance money is contingent upon the loss of life. ?ogan vs. Eidelity S -asualty -o., '0> )o. ''0, 08 S.=. *0+. See also Johnson vs. Eidelity S @uaranty -o., '0+ )ich. 0/>, '9' ..=. 9*A, ?.B.,. '*'>,, 089G Uimmer vs. -entral ,ccidental -o., :/8 Pa. 08:, 9> ,. '//AG =right vs. Eraternities Health S ,ccident ,ssNn. '/8 )e. 0'+, 8+,. 089, A: ?.B.,. #..S.%0>'G )etropolitan ?ife Ins. -o. vs. Ins. -omNr :/+ )ass. A+>, *0 ..E. 088G Standard ?ife S ,ccident Ins. -o. vs. -aroll, +> E. 9>8, 0' ?.B.,. '*0G =ahl vs. Interstate Dusiness )enNs ,ccident ,ssNn :/' IowaG 'A99, :/8 ..=. A*9, 9/ ,.?.B. 'A88.O #Provident ?ife S ,ccident Ins. -o. vs. Bimmer, ': S. =. :d Series, A>9, A>8.%

Eor this reason, and because the above5 uoted provision of the Bules of -ourt ma<es reference to Oany life insurance,O we are inclined to believe that the e7emption there established applies to ordinary life insurance contracts, as well as to those which, although intended primarily to indemnify for ris<s arising from accident, li<ewise, insure against loss of life due, either to accidental causes, or to the willful and criminal act of another, which, as such, is not strictly accidental in nature. Indeed, it has been held that statutes of this nature see< to enable the head of the family to secure his widow and children from becoming a burden upon the community and, accordingly, should merit a liberal interpretation.

The obFect of this statue was to enable a husband, when death deprived wife and children of his support, to secure them from want and to prevent them from becoming a charge upon the public. .ecessities of the wife and children and the public interest are none the less if the death of the husband be brought about by accident rather than by disease. The intent of the legislature in the

enactment of this statute would not be advanced by the construction of the law upon which the petitioners insist. #,merican Trust S Dan<ing -o. vs. ?essly et al., Supreme -ourt of Tenn., '/> S.=. :d, 99', 99:.%

1nder statutes providing to that effect, the proceeds of life insurance are e7empt from the claims of creditors, a limitation being sometimes imposed as to amount, see infra Sec. 0/, or as to the beneficiaries entitled to the e7emption, see infra subdivision of this section. Statutes e7empting life insurance are regarded as e7emption laws, and not as part of the insurance from law of the state, nor as designed simply to protect insurer from harassing litigation. Such statutes should be construed liberally and in the light of, and to give effect to, their purpose of enabling an individual to provide a fund after his death for his family which will be free from the claims of creditors. The e7emption privilege is created not by contract but by legislative grant, and grounds for the e7emption of the proceeds of insurance policies must be found in the statutes. #A9 -.J.S. pp. 9A590.%

Dy weight of authority, e7emption statutes or rules should be liberally construed with a view to giving effect to their beneficent and humane purpose. To this end, every reasonable doubt as to whether a given property is or is not e7empt should be resolved in favor of e7emption. #-omments on the Bules of -ourt by )oran &'*98 ed.( Lol. ', p. 9>0.%

=herefore, the order appealed from is reversed, and the garnishment in dispute hereby set aside and uashed, with the costs of this instance against plaintiff Erancisca @allardo. It is so ordered. 7ii 7iii 7iv 7v 7vi 7vii 7viiiSUN INSURANCE OFFICE, LTD., petitioner, vs. THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUF, J.: The petitioner issued Personal ,ccident Policy .o. /9>+8 to Eeli7 ?im, Jr. with a face value of P://,///.//. Two months later, he was dead with a bullet wound in his head. ,s beneficiary, his wife .erissa ?im sought payment on the policy but her claim was reFected. The petitioner agreed that there was no suicide. It argued, however that there was no accident either. Pilar .alagon, ?imNs secretary, was the only eyewitness to his death. It happened on Cctober >, '*+:, at about '/ oNcloc< in the evening, after his motherNs birthday party. ,ccording to .alagon, ?im was in a happy mood #but not drun<% and was playing with his handgun, from which he had previously removed the maga3ine. ,s she watched television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then pointed it to his temple. The ne7t moment there was an e7plosion and ?im slumped to the floor. He was dead before he fell. <

The widow sued the petitioner in the Begional Trial -ourt of Uamboanga -ity and was sustained. A The petitioner was sentenced to pay her P://,///.//, representing the face value of the policy, with interest at the legal rateG P'/,///.// as moral damagesG P9,///.// as e7emplary damagesG P9,///.// as actual and compensatory damagesG and P9,///.// as attorneyNs fees, plus the costs of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. H The petitioner then came to this -ourt to fault the -ourt of ,ppeals for approving the payment of the claim and the award of damages. The term OaccidentO has been defined as follows! The words OaccidentO and OaccidentalO have never ac uired any technical signification in law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and common usage and speech of people generally. In5substance, the courts are practically agreed that the words OaccidentO and OaccidentalO mean that which happens by chance or fortuitously, without intention or design, and which is une7pected, unusual, and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that ta<es place without oneNs foresight or e7pectation T an event that proceeds from an un<nown cause, or is an unusual effect of a <nown case, and therefore not e7pected. C ,n accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not e7pected by the person to whom it happens. It has also been defined as an inFury which happens by reason of some violence or casualty to the inFured without his design, consent, or voluntary co5operation. > In light of these definitions, the -ourt is convinced that the incident that resulted in ?imNs death was indeed an accident. The petitioner, invo<ing the case of :e la Cruz v. Capital Insurance, I says that Othere is no accident when a deliberate act is performed unless some additional, une7pected, independent and unforeseen happening occurs which produces or brings about their inFury or death.O There was such a happening. This was the firing of the gun, which was the additional une7pected and independent and unforeseen occurrence that led to the insured personNs death. The petitioner also cites one of the four e7ceptions provided for in the insurance contract and contends that the private petitionerNs claim is barred by such provision. It is there stated! E7ceptions T The company shall not be liable in respect of '. Dodily inFury 777 777 777 b. conse uent upon i% The insured person attempting to commit suicide or willfully e7posing himself to needless peril e7cept in an attempt to save human life. To repeat, the parties agree that ?im did not commit suicide. .evertheless, the petitioner contends that the insured willfully e7posed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset that suicide and willful e7posure to needless peril are in pari materia because they both signify a disregard for oneNs life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a rec<less ris<ing of it that is almost suicidal in intent. To illustrate, a person who wal<s a tightrope one thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus be considered as Owillfully e7posing himself to needless perilO within the meaning of the e7ception in uestion. The petitioner maintains that by the mere act of pointing the gun to hip temple, ?im had willfully e7posed himself to needless peril and so came under the e7ception. The theory is that a gun is per se

dangerous and should therefore be handled cautiously in every case. That posture is arguable. Dut what is not is that, as the secretary testified, ?im had removed the maga3ine from the gun and believed it was no longer dangerous. He e7pressly assured her that the gun was not loaded. It is submitted that ?im did not willfully e7pose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure .alagon that the gun was indeed harmless. The contrary view is e7pressed by the petitioner thus! ,ccident insurance policies were never intended to reward the insured for his tendency to show off or for his miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and Fump from the Wue3on Dridge into the Pasig Biver in the belief that I can overcome the current, I have wilfully e7posed myself to peril and must accept the conse uences of my act. If I drown I cannot go to the insurance company to as< them to compensate me for my failure to swim as well as I thought I could. The insured in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully e7posed himself to peril. The -ourt certainly agrees that a drowned man cannot go to the insurance company to as< for compensation. That might frighten the insurance people to death. =e also agree that under the circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is clear that when he braved the currents below, he "eli%erately e7posed himself to a no+n peril. The private respondent maintains that ?im did not. That is where she says the analogy fails. The petitionerNs hypothetical swimmer <new when he dived off the Wue3on Dridge that the currents below were dangerous. Dy contrast, ?im did not <now that the gun he put to his head was loaded. ?im was un uestionably negligent and that negligence cost him his own life. Dut it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four e7ceptions e7pressly made in the contract to relieve the insurer from liability, and none of these e7ceptions is applicable in the case at bar. JJ It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule, especially in view of the circumstances of this case as above analy3ed. Cn the second assigned error, however, the -ourt must rule in favor of the petitioner. The basic issue raised in this case is, as the petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith then it resisted the private respondentNs claim on the ground that the death of the insured was covered by the e7ception. The issue was indeed debatable and was clearly not raised only for the purpose of evading a legitimate obligation. =e hold therefore that the award of moral and e7emplary damages and of attorneyNs fees is unFust and so must be disapproved. In order that a person may be made liable to the payment of moral damages, the law re uires that his act be wrongful. The adverse result of an action does not per se ma<e the act wrongful and subFect the act or to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigateG such right is so precious that moral damages may not be charged on those who may e7ercise it erroneously. Eor these the law ta7es costs. @ The fact that the results of the trial were adverse to Darreto did not alone ma<e his act in bringing the action wrongful because in most cases one party will loseG we would be imposing an unFust condition or limitation on the right to litigate. =e hold that the award of moral damages in the case at bar is not Fustified by the facts had circumstances as well as the law. If a party wins, he cannot, as a rule, recover attorneyNs fees and litigation e7penses, since it is not the fact of winning alone that entitles him to recover such damages of the e7ceptional circumstances enumerated in ,rt. ::/+. Ctherwise, every time a defendant wins, automatically the plaintiff must pay attorneyNs fees thereby putting a premium on the right to litigate which should not be so. Eor those

e7penses, the law deems the award of costs as sufficient. = =HEBEECBE, the challenged decision of the -ourt of ,ppeals is ,EEIB)E; in so far as it holds the petitioner liable to the private respondent in the sum of P://,///.// representing the face value of the insurance contract, with interest at the legal rate from the date of the filing of the complaint until the full amount is paid, but )C;IEIE; with the deletion of all awards for damages, including attorneyNs fees, e7cept the costs of the suit. SC CB;EBE;.

7i7 77 77i 77ii 77iii 77iv