G.R. No.

82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.
The petition herein seeks the review and reversal of the decision 1 of respondent Court
of Appeals 2 affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for
damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of his mother who
was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the
taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident
into one complaint. The erring taxicab was allegedly covered by a third-party liability
insurance policy issued by petitioner Travellers Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name
of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral.
While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a
taxi that was running fast. Several persons witnessed the accident, among whom were
Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman
was seen sprawled on the pavement. Right away, the good Samaritan that he was,
Mavilla ran towards the old woman and held her on his lap to inquire from her what had
happened, but obviously she was already in shock and could not talk. At this moment, a
private jeep stopped. With the driver of that vehicle, the two helped board the old woman
on the jeep and brought her to the Mary Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from
Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his
return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who were
crying near the scene of the accident. Upon learning that the two were the sons of the old
woman, Lopez told them what had happened. The Mendoza brothers were then able to
trace their mother at the Mary Johnston Hospital where they were advised by the
attending physician that they should bring the patient to the National Orthopedic Hospital
because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital
where she expired at 9:00 o'clock that same morning. Death was caused by "traumatic
shock" as a result of the severe injuries she sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the
latter was running fast, so much so that because of the strong impact the old woman was
thrown away and she fell on the pavement. . . . In truth, in that related criminal case
against defendant Dumlao . . . the trial court found as a fact that therein accused "was
driving the subject taxicab in a careless, reckless and imprudent manner and at a speed
greater than what was reasonable and proper without taking the necessary precaution to
avoid accident to persons . . . considering the condition of the traffic at the place at the
time aforementioned" . . . Moreover, the driver fled from the scene of the accident and
without rendering assistance to the victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved,
though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just
after the bumping which, when it passed by him, said witness noticed to be a Lady Love
Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage
compartment and with an antenae [sic] attached at the right rear side. The same
descriptions were revealed by Ernesto Lopez, who further described the taxi to have . . .
reflectorized decorations on the edges of the glass at the back . . . A third witness in the
person of Eulogio Tabalno . . . made similar descriptions although, because of the fast
speed of the taxi, he was only able to detect the last digit of the plate number which is
"8". . . . [T]he police proceeded to the garage of Lady Love Taxi and then and there they
took possession of such a taxi and later impounded it in the impounding area of the
agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that Lady
Love Taxi with Plate No. 438, obviously the vehicle involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of Lady
Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle
was driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this
affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao,
and consequently to have him prosecuted and eventually convicted of the offense . . . . . .
. [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation
6
of the judgment therein so much so that he is now a fugitive from justice.

Private respondent filed a complaint for damages against Armando Abellon as the
owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab
that bumped private respondent's mother. Subsequently, private respondent amended
his complaint to include petitioner as the compulsory insurer of the said taxicab under
Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly
the "Heirs of the late Feliza Vineza de Mendoza," and against defendants Rodrigo
Dumlao, Armando Abellon and Travellers Insurance and Surety Corporation, by ordering
the latter to pay, jointly and severally, the former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with
interest thereon at the rate of 12% per annum from October 17, 1980,
when the complaint was filed, until the said amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation
expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals.
The decision of the trial court was affirmed by respondent appellate court. Petitioner's
Motion for Reconsideration 8 of September 22, 1987 was denied in a Resolution 9 dated
February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory
insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed covered
said taxicab for third-party liability insurance, private respondent failed to file a written
notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise
known as the Insurance Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner as party
defendant and therein alleged that petitioner was the third-party liability insurer of the
Lady Love taxicab that fatally hit private respondent's mother, private respondent did not
attach a copy of the insurance contract to the amended complaint. Private respondent
does not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the
insurer depends on whether the contract of insurance is intended to benefit third
persons also or only the insured.
[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . .
which the Insured shall become legally liable to pay in respect of: a. death of or bodily
injury to any person . . . is one for indemnity against liability; from the fact then that the
insured is liable to the third person, such third person is entitled to sue the insurer.
The right of the person injured 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 on the
insured And the test applied has been this: Where the contract provides for indemnity
against liability to third persons, then third persons to whom the insured is liable can sue
the insurer. Where 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
10
persons' recourse being thus limited to the insured alone.

Since private respondent failed to attach a copy of the insurance contract to his
complaint, the trial court could not have been able to apprise itself of the real nature and
pecuniary limits of petitioner's liability. More importantly, the trial court could not have
possibly ascertained the right of private respondent as third person to sue petitioner as
insurer of the Lady Love taxicab because the trial court never saw nor read the
insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering
the Lady Love taxicab that fatally hit private respondent's mother, considering that
petitioner precisely presented the defense of lack of insurance coverage before the trial
court. Neither did the trial court issue a subpoena duces tecum to have the insurance
contract produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found
petitioner liable jointly and severally with the owner and the driver of the Lady Love
taxicab, for damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private respondent's cause of
action against the owner and the driver of the Lady Love taxicab and his cause of action
against petitioner. The former is based on torts and quasi-delicts while the latter is
based on contract. Confusing these two sources of obligations as they arise from the
same act of the taxicab fatally hitting private respondent's mother, and in the face of
overwhelming evidence of the reckless imprudence of the driver of the Lady Love
taxicab, the trial court brushed aside its ignorance of the terms and conditions of the
insurance contract and forthwith found all three the driver of the taxicab, the owner of
the taxicab, and the alleged insurer of the taxicab jointly and severally liable for
actual, moral and exemplary damages as well as attorney's fees and litigation
expenses. This is clearly a misapplication of the law by the trial court, and respondent
appellate court grievously erred in not having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against liability to
third persons, such third persons can directly sue the insurer, however, the direct liability
of the insurer under indemnity contracts against third-party liability does not mean that
the insurer can be held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is based on tort.
11

Applying this principle underlying solidary obligation and insurance contracts, we

ruled in one case that:
In solidary obligation, the creditor may enforce the entire obligation against one of the
solidary debtors. On the other hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and
San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of
P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the
context of a solidary obligation, petitioner may be compelled by respondent Vallejos to
pay the entire obligation of P29,103.00, notwithstanding the qualification made by the trial
court. But, how can petitioner be obliged to pay the entire obligation when the amount
stated in its insurance policy with respondent Sio Choy for indemnity against third-party
liability is only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a
12
solidary obligation.

The above principles take on more significance in the light of the counter-allegation of
petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in
question, its liability is limited to only P50,000.00, this being its standard amount of
coverage in vehicle insurance policies. It bears repeating that no copy of the insurance
contract was ever proffered before the trial court by the private respondent,
notwithstanding knowledge of the fact that the latter's complaint against petitioner is one
under a written contract. Thus, the trial court proceeded to hold petitioner liable for an
award of damages exceeding its limited liability of P50,000.00. This only shows beyond
doubt that the trial court was under the erroneous presumption that petitioner could be
found liable absent proof of the contract and based merely on the proof of reckless
imprudence on the part of the driver of the Lady Love taxicab that fatally hit private
respondent's mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court
that, assuming arguendo that it had issued the insurance contract over the Lady Love
taxicab, private respondent's cause of action against petitioner did not successfully
accrue because he failed to file with petitioner a written notice of claim within six (6)
months from the date of the accident as required by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent's
mother, during which time the Insurance Code had not yet been amended by Batas
Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a written
notice of claim setting forth the amount of his loss, and/or the nature, extent and duration
of the injuries sustained as certified by a duly licensed physician. Notice of claim must be
filed within six months from date of the accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to loss or injury must be brought in
proper cases, with the Commission or the Courts within one year from date of accident,
otherwise the claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we
ruled that the one year prescription period to bring suit in court against the insurer
should be counted from the time that the insurer rejects the written claim filed therewith
by the insured, the beneficiary or the third person interested under the insurance policy.
We explained:
It is very obvious that petitioner company is trying to use Section 384 of the Insurance
Code as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect
the deliberate efforts of petitioner company to prevent the filing of a formal action against
it. Bearing in mind that if it succeeds in doing so until one year lapses from the date of the
accident it could set up the defense of prescription, petitioner company made private
respondents believe that their claims would be settled in order that the latter will not find it
necessary to immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate prompt, fair
and equitable settlement of claims, and with manifest bad faith, petitioner company

devised means and ways of stalling the settlement proceeding . . . [N]o steps were taken
to process the claim and no rejection of said claim was ever made even if private
respondent had already complied with all the requirements. . . .
This Court has made the observation that some insurance companies have been
inventing excuses to avoid their just obligations and it is only the State that can give the
14
protection which the insuring public needs from possible abuses of the insurers.

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to
categorically provide that "action or suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commissioner or the Courts within one year
from denial of the claim, otherwise the claimant's right of action shall prescribe"
[emphasis ours]. 15
We have certainly ruled with consistency that the prescriptive period to bring suit in
court under an insurance policy, begins to run from the date of the insurer's rejection of
the claim filed by the insured, the beneficiary or any person claiming under an insurance
contract. This ruling is premised upon the compliance by the persons suing under an
insurance contract, with the indispensable requirement of having filed the written claim
mandated by Section 384 of the insurance Code before and after its amendment.
Absent such written claim filed by the person suing under an insurance contract, no
cause of action accrues under such insurance contract, considering that it is the
rejection of that claim that triggers the running of the one-year prescriptive period to
bring suit in court, and there can be no opportunity for the insurer to even reject a claim
if none has been filed in the first place, as in the instant case.
The one-year period should instead be counted from the date of rejection by the insurer
as this is the time when the cause of action accrues. . . .
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiff's cause of action did not accrue until his claim was finally rejected by the
insurance company. This is because, before such final rejection, there was no real
necessity for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA vs.
Alpha Insurance and Surety Co., viz:
Since a cause of action requires, as essential elements, not only a legal right of the
plaintiff and a correlative obligation of the defendant but also an act or omission of the
defendant in violation of said legal right, the cause of action does not accrue until the
16
party obligated refuses, expressly or impliedly, to comply with its duty.

When petitioner asseverates, thus, that no written claim was filed by private respondent
and rejected by petitioner, and private respondent does not dispute such asseveration
through a denial in his pleadings, we are constrained to rule that respondent appellate
court committed reversible error in finding petitioner liable under an insurance contract
the existence of which had not at all been proven in court. Even if there were such a
contract, private respondent's cause of action can not prevail because he failed to file

the written claim mandated by Section 384 of the Insurance Code. He is deemed, under
this legal provision, to have waived his rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil
Case No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance &
Surety Corporation was found jointly and severally liable to pay actual, moral and
exemplary damages, death indemnity, attorney's fees and litigation expenses in Civil
Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in
said case is hereby ordered dismissed.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 156167

May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.
DECISION
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by
petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE
CORPORATION. Petitioner assails the appellate court decision1 which dismissed its two appeals
and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the scope of the
insurance companys liability for earthquake damage to petitioners properties. Petitioner avers
that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all
damages to the properties within its resort caused by earthquake. Respondent contends that the
rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company
(AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85;
1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3"
and "4" respectively), the risk of loss from earthquake shock was extended only to
plaintiffs two swimming pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; D-1", "E" and "F1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. "1-B",
"2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in plaintiffs favor Policy
No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. "G"
also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits
"C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with
AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 2064568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at Time of
Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the
amount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof,
computed as follows:
Item

P7,691,000.00 -

on the Clubhouse only

@ .392%;

1,500,000.00 -

on the furniture, etc. contained in the building

above-mentioned@ .490%;
-

393,000.00 -

on the two swimming pools, only (against the

peril of earthquake shock only) @ 0.100%

116,600.00

other buildings include as follows:

a) Tilter House

P19,800.00 -

0.551%

b) Power House

P41,000.00 -

0.551%

c) House Shed

P55,000.00 -

0.540%

P100,000.00 -

for furniture, fixtures, lines air-con and operating

equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU)
Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in said
policy be copied in the policy to be issued by defendant; that defendant issued Policy No.
31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for
P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of
the premium, defendants Policy No. 31944 (Exh. "I"), which is the policy in question,
contained on the right-hand upper portion of page 7 thereof, the following:
Rate-Various
Premium

P37,420.60 F/L

2,061.52

Typhoon

1,030.76

EC

393.00

ES

Doc. Stamps

3,068.10

F.S.T.

776.89

Prem. Tax

409.05

TOTAL

45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as
premium against earthquake shock (ES); that in all the six insurance policies (Exhs. "C",
"D", "E", "F", "G" and "H"), the premium against the peril of earthquake shock is the
same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and
"4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G"
and "H") and in Policy No. 31944 issued by defendant, the shock endorsement
provide(sic):
In consideration of the payment by the insured to the company of the sum
included additional premium the Company agrees, notwithstanding what is stated
in the printed conditions of this policy due to the contrary, that this insurance
covers loss or damage to shock to any of the property insured by this Policy

occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D",

"3-A", "4-B", "5-A", "6-D" and "7-C");
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that
on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs
properties covered by Policy No. 31944 issued by defendant, including the two
swimming pools in its Agoo Playa Resort were damaged.2
After the earthquake, petitioner advised respondent that it would be making a claim under its
Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to
file a formal claim, then assigned the investigation of the claim to an independent claims
adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through its
adjuster, requested petitioner to submit various documents in support of its claim. On August 7,
1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4 rendered a
preliminary report5 finding extensive damage caused by the earthquake to the clubhouse and to
the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all affected
items have no coverage for earthquake shocks."6 On August 11, 1990, petitioner filed its formal
demand7 for settlement of the damage to all its properties in the Agoo Playa Resort. On August
23, 1990, respondent denied petitioners claim on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort.8 Petitioner and
respondent failed to arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a
complaint10 with the regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties,
with interest thereon, as computed under par. 29 of the policy (Annex "B") until fully
paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by
plaintiff on account of defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;
5.) Costs.11
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory
Counterclaims.12
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against
the peril of earthquake shock, the same premium it paid against earthquake shock only on
the two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D",
"E", "F" and "G"). From this fact the Court must consequently agree with the position of

defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming
pools were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence,
where the language used in an insurance contract or application is such as to create
ambiguity the same should be resolved against the party responsible therefor, i.e., the
insurance company which prepared the contract. To the mind of [the] Court, the language
used in the policy in litigation is clear and unambiguous hence there is no need for
interpretation or construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had
earthquake shock coverage and were heavily damaged by the earthquake which struck on
July 16, 1990. Defendant having admitted that the damage to the swimming pools was
appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the
contract of insurance, pay plaintiff said amount.
Because it is the finding of the Court as stated in the immediately preceding paragraph
that defendant is liable only for the damage caused to the two (2) swimming pools and
that defendant has made known to plaintiff its willingness and readiness to settle said
liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to
the counterclaims of defendant, the Court does not agree that the action filed by plaintiff
is baseless and highly speculative since such action is a lawful exercise of the plaintiffs
right to come to Court in the honest belief that their Complaint is meritorious. The prayer,
therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of
THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing
damage to the two (2) swimming pools, with interest at 6% per annum from the date of
the filing of the Complaint until defendants obligation to plaintiff is fully paid.
No pronouncement as to costs.13
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the
Court of Appeals based on the following assigned errors:14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN
ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER
ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF
JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS
RIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944;
EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY
ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND

THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16,

1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFFAPPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST
COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award it
attorneys fees and damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are not
convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the
plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contract
with Philippine Charter Insurance Corporation is said to have been based and copied
(Exh. "I"), covered an extended earthquake shock insurance on all the insured properties.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellants
prayer for the imposition of interest 24% on the insurance claim and 6% on loss of
income allegedly amounting to P4,280,000.00. Since the defendant-appellant has
expressed its willingness to pay the damage caused on the two (2) swimming pools, as
the Court a quo and this Court correctly found it to be liable only, it then cannot be said
that it was in default and therefore liable for interest.
Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the
rule that the award thereof is subject to the sound discretion of the court. Thus, if such
discretion is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al.,
G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather
than a rule, it is necessary for the court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award (Country Bankers
Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No.
136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is not
baseless and highly speculative, We find that the Court a quo did not err in granting the
same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and
judgment of the Trial Court hereby AFFIRMED in toto. No costs.15
Petitioner filed the present petition raising the following issues:16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER
RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2)

SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED

THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS
PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED,
ATTORNEYS FEES AND EXPENSES OF LITIGATION.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of the properties insured
and not only the swimming pools. It used the words "any property insured by this policy," and it
should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is
confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt.,
FEA Warranty & Annual Payment Agreement On Long Term Policies."17
Third, that the qualification referring to the two swimming pools had already been deleted in the
earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission
when it deleted the said qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the wording
of the insurance policy, because the rider is the more deliberate expression of the agreement of
the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of
petitioner and against respondent. It was respondent which caused the ambiguity when it made
the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should
be interpreted as a caveat on the standard fire insurance policy, such as to remove the two
swimming pools from the coverage for the risk of fire. It should not be used to limit the
respondents liability for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not paid
under the extended coverage. The premium for the earthquake shock coverage was already
included in the premium paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy from

respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy
from American Home Assurance Company (AHAC-AIU), which covered all the resorts
properties for earthquake shock damage and respondent agreed. After the July 16, 1990
earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents
insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit
the necessary documents for its building claims and other repair costs. Thus, under the doctrine
of equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of
the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of
the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in
order to establish the facts upon which this petition is based.
On the other hand, respondent made the following counter arguments:18
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended
coverage against earthquake shock to petitioners insured properties other than on the two
swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were
insured against earthquake shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no increase in the premium paid.
AHAC-AIU, in a letter19 by its representative Manuel C. Quijano, categorically stated that its
previous policy, from which respondents policy was copied, covered only earthquake shock for
the two swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00 shows that the
policy only covered earthquake shock damage on the two swimming pools. The amount was the
same amount paid by petitioner for earthquake shock coverage on the two swimming pools from
1990-1991. No additional premium was paid to warrant coverage of the other properties in the
resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the earthquake
shock coverage to all of petitioners properties. As per its agreement with petitioner, respondent
copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five
policies contained the said qualification in their riders title, in the last two policies, this
qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such
deletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor did
it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any
ambiguity in the policy can be easily resolved by looking at the other provisions, specially the
enumeration of the items insured, where only the two swimming pools were noted as covered for
earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the
phrase "Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake
shock only)" meant that only the swimming pools were insured for earthquake damage. The

same phrase is used in toto in the policies from 1989 to 1990, the only difference being the
designation of the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for
all the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as
premium for coverage of the swimming pools against earthquake shock. No other premium was
paid for earthquake shock coverage on the other properties. In addition, the use of the qualifier
"ANY" instead of "ALL" to describe the property covered was done deliberately to enable the
parties to specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
included in the earthquake shock coverage. Petitioners own evidence shows that it only required
respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent
complied with this requirement. Respondents only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With regard to the issue
under litigation, the riders of the old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from
maintaining that only the two swimming pools were covered for earthquake shock. The
adjusters letter notifying petitioner to present certain documents for its building claims and
repair costs was given to petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase "Item 5 Only"
after the descriptive name or title of the Earthquake Shock Endorsement. However, the words of
the policy reflect the parties clear intention to limit earthquake shock coverage to the two
swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not
object to any deficiency nor did it institute any action to reform the policy. The policy binds the
petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses.
Since respondent was willing and able to pay for the damage caused on the two swimming pools,
it cannot be considered to be in default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as
included, viz:
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of
earthquake shock only)20
Second, under the breakdown for premium payments,21 it was stated that:

PREMIUM RECAPITULATION
ITEM NOS.

AMOUNT

RATES

PREMIUM

393,000.00

0.100%-E/S

393.0022]

xxx
3

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly of any of the following occurrences, namely:-(a) Earthquake, volcanic eruption or other convulsion of nature. 23
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the
Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE
SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF
A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBY
UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED
x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . .
. . . . . . . . additional premium the Company agrees, notwithstanding what is stated in the
printed conditions of this Policy to the contrary, that this insurance covers loss or damage
(including loss or damage by fire) to any of the property insured by this Policy
occasioned by or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as they
may be hereby expressly varied) and that any reference therein to loss or damage by fire
should be deemed to apply also to loss or damage occasioned by or through or in
consequence of Earthquake.24
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the
insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.25 All its parts are reflective of the true intent of the parties. The
policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made
to control; neither do particular words or phrases necessarily determine its character. Petitioner

cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All
the provisions and riders, taken and interpreted together, indubitably show the intention of the
parties to extend earthquake shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the
parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the
Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.26
(Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.27 In fire, casualty, and marine insurance, the premium payable
becomes a debt as soon as the risk attaches.28 In the subject policy, no premium payments were
made with regard to earthquake shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to earthquake shock.
This is consistent with the history of petitioners previous insurance policies from AHAC-AIU.
As borne out by petitioners witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy
during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake
shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,
there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange
for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance
to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14,
1989, did you give written instruction to Forte Insurance Agency advising it that the
earthquake shock coverage must extend to all properties of Agoo Playa Resort in La
Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction
to that effect of extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there
was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is
that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions
with respect to your instructions that all properties must be covered again by earthquake
shock endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit "G"?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I was
contented already that the previous limitation pertaining to the two swimming pools was
already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to
the insurance policy as proof of the intent of the parties to extend the coverage for earthquake
shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,
clauses, warranties or endorsements to which the policy is subject, as required under Section 50,
paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As
explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you
have occasion to review of (sic) these six (6) policies issued by your company [in
favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the
basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent
of the coverage [against] the peril of earthquake shock as provided for in each of the six
(6) policies?
xxx

WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming pools
only?
WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis.
For swimming pools we do cover earthquake shock. For building we covered it
for full earthquake coverage which includes earthquake shock
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for
other things other than swimming pool? You are covering building? They are
covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or
another we can issue earthquake shock solely but that the moment I see this, the
thing that comes to my mind is either insuring a swimming pool, foundations,
they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E
and F inclusive [remained] its coverage against earthquake shock to two (2) swimming
pools only but that Exhibits G and H respectively entend the coverage against earthquake
shock to all the properties indicated in the respective schedules attached to said policies,
what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the
other half of it. I assure you that this one covers the two swimming pools with
respect to earthquake shock endorsement. Based on it, if we are going to look at
the premium there has been no change with respect to the rates. Everytime (sic)
there is a renewal if the intention of the insurer was to include the earthquake
shock, I think there is a substantial increase in the premium. We are not only
going to consider the two (2) swimming pools of the other as stated in the policy.
As I see, there is no increase in the amount of the premium. I must say that the
coverage was not broaden (sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are
going to do some computation based on the rates you will arrive at the same
premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was
placed, is it not?
A. Yes, sir.
ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H which you
have pointed to during your direct-examination, the phrase "Item no. 5 only"
meaning to (sic) the two (2) swimming pools was deleted from the policies issued
by AIU, is it not?
xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of
the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent.
Being a company underwriter, we do not cover. . it was inadvertent because of the
previous policies that we have issued with no specific attachments, premium rates
and so on. It was inadvertent, sir.
The Court also rejects petitioners contention that respondents contemporaneous and subsequent
acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage
of the earthquake shock endorsement included all its properties in the resort. Respondent only
insured the properties as intended by the petitioner. Petitioners own witness testified to this
agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did
you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy
from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same provisions as
this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they will
be charging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions
and scope of coverage of Exhibits "I" and "H" sometime in the third week of March,
1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy
wordings as well as scope of coverage of Exhibits "I" and "H" respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that
the policy wordings and rates were copied from the insurance policy I sent them but it
was only when this case erupted that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit "I" and those indicated in
Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the
same P393,000.00 on the two (2) swimming pools only against the peril of earthquake
shock which I understood before that this provision will have to be placed here because
this particular provision under the peril of earthquake shock only is requested because
this is an insurance policy and therefore cannot be insured against fire, so this has to be
placed.
The verbal assurances allegedly given by respondents representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters
and Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement
for earthquake shock covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors,
Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of
the insurance coverage policy and it was indicated under Item 3 specifically that the
coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas
(sic), and I relayed to him what I had found out in the policy and he confirmed to me
indeed only Item 3 which were the two swimming pools have coverage for earthquake
shock.
xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except
for the swimming pools all affected items have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my examination of the policy I
found out that under Item 3 it was specific on the wordings that on the two swimming
pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only),
and secondly, when I examined the summary of premium payment only Item 3 which
refers to the swimming pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on
the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually prepares
it.31 A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his "adhesion"
thereto. Through the years, the courts have held that in these type of contracts, the parties do not
bargain on equal footing, the weaker party's participation being reduced to the alternative to take
it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of
justice must protect.32 Consequently, any ambiguity therein is resolved against the insurer, or
construed liberally in favor of the insured.33
The case law will show that this Court will only rule out blind adherence to terms where facts
and circumstances will show that they are basically one-sided.34 Thus, we have called on lower
courts to remain careful in scrutinizing the factual circumstances behind each case to determine
the efficacy of the claims of contending parties. In Development Bank of the Philippines v.
National Merchandising Corporation, et al.,35 the parties, who were acute businessmen of
experience, were presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot
claim it did not know the provisions of the policy. From the inception of the policy, petitioner
had required the respondent to copy verbatim the provisions and terms of its latest insurance
policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in
securing the insurance policy of petitioner, is reflective of petitioners knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36

TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact provisions of
the previous insurance policy we had with American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in
the American Home Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I
specifically told him that the policy and wordings shall be copied from the AIU Policy
No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 2064568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the principal provisions of the policy
remained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fine
print" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the
policy to the two swimming pools only is not ambiguous.37
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for
certiorari is dismissed. No costs.
SO ORDERED.

G.R. No. 171468

August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD),
LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES,
INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and
SEABOARD-EASTERN INSURANCE CO., INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.
DECISION
ABAD, J.:
These consolidated petitions involve a cargo owners right to recover damages from the loss of
insured goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit
International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to
Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by
NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila.
NYK issued a bill of lading, declaring that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it
also owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon
Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5,
1993 respecting the loss and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling
operator, received the shipment on October 7, 1993. Upon inspection of the three container vans
separately carrying the generator sets, two vans bore signs of external damage while the third van
appeared unscathed. The shipment remained at Pier 3s Container Yard under Marinas care
pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs

authorities allowed petitioners customs broker, Serbros Carrier Corporation (Serbros), to

withdraw the shipment and deliver the same to petitioner New Worlds job site in Makati City.
An examination of the three generator sets in the presence of petitioner New Worlds
representatives, Federal Builders (the project contractor) and surveyors of petitioner New
Worlds insurer, SeaboardEastern Insurance Company (Seaboard), revealed that all three sets
suffered extensive damage and could no longer be repaired. For these reasons, New World
demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP
International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged
receipt of the demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a
formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required
petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories,
with corresponding values, for the processing of the claim. But petitioner New World did not
submit what was required of it, insisting that the insurance policy did not include the submission
of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process
the claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages
against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in
Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from
liability with the exception of NYK. The RTC found that the generator sets were damaged during
transit while in the care of NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to
exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner
NYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New
World filed its complaint on October 11, 1994 when the deadline for filing the action (on or
before October 7, 1994) had already lapsed. The RTC held that the one-year period should be
counted from the date the goods were delivered to the arrastre operator and not from the date
they were delivered to petitioners job site.1
As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC held that the
latter cannot be faulted for denying the claim against it since New World refused to submit the
itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the
belated filing of the complaint prejudiced Seaboards right to pursue a claim against NYK in the
event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the
RTCs rulings except with respect to Seaboards liability. The CA held that petitioner New
World can still recoup its loss from Seaboards marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b) that the one-year
prescriptive period under the COGSA did not affect New Worlds right under the insurance

policy since it was the Insurance Code that governed the relation between the insurer and the
insured.
Although petitioner New World promptly filed a petition for review of the CA decision before
the Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision.
On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing was a reasonable
requirement that Seaboard asked of New World. Further, the CA held that the one-year
prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New
Worlds right against the vessel owner. New Worlds failure to comply promptly with what was
required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review
before the Court in G.R. 174241, assailing the CAs amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTCs release from
liability of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were
at one time or another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards request from
petitioner New World for an itemized list is a reasonable imposition and did not violate
the insurance contract between them; and 2) whether or not the CA erred in failing to rule
that the one-year COGSA prescriptive period for marine claims does not apply to
petitioner New Worlds prosecution of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 -Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit,
Marina and Serbros in handling and transporting its shipment from Wisconsin to Manila
collectively resulted in the damage to the same, rendering such respondents solidarily liable with
NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not
a proper subject of a petition for review on certiorari. And petitioner New World has been unable
to make out an exception to this rule.3 Consequently, the Court will not disturb the finding of the
RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which
beset the vessels voyage from Hong Kong to Manila and that it was her negligence in
continuing with that journey despite the adverse condition which caused petitioner New Worlds
loss.

That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil
Code, does not automatically relieve the common carrier of liability. The latter had the burden of
proving that the typhoon was the proximate and only cause of loss and that it exercised due
diligence to prevent or minimize such loss before, during, and after the disastrous typhoon.4 As
found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 -One. The Court does not regard as substantial the question of reasonableness of Seaboards
additional requirement of an itemized listing of the damage that the generator sets suffered. The
record shows that petitioner New World complied with the documentary requirements
evidencing damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy
insured against all causes of conceivable loss or damage except when otherwise excluded or
when the loss or damage was due to fraud or intentional misconduct committed by the insured.
The policy covered all losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New Worlds loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New
Worlds goods suffered going by the documents that it already submitted, namely, (1) copy of
the Suppliers Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy
of Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and
Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of
Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina
Port Services, Inc.; and c) Serbros Carrier Corporation.7 Notably, Seaboards own marine
surveyor attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in
the policy that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMTs
local agent. Petitioner New World should not be made to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and
the ship shall be discharged from all liability in case of loss or damage unless the suit is brought
within one year after delivery of the goods or the date when the goods should have been
delivered.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court
on time? The last day for filing such a suit fell on October 7, 1994. The record shows that
petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it
had the right to take, as early as November 16, 1993 or about 11 months before the suit against
NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would
have been subrogated to petitioner New Worlds right to recover from NYK. And it could have
then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable
demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories,
with corresponding values when it appeared settled that New Worlds loss was total and when
the insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard
against whom a formal claim was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it unsubstantiated by documents if
that were the case, and formally rejected it. That would have at least given petitioner New World
a clear signal that it needed to promptly file its suit directly against NYK and the others.
Ultimately, the fault for the delayed court suit could be brought to Seaboards doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the
Philippines shall refuse without just cause to pay or settle claims arising under coverages
provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is
received and ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days
to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed
time, the insured shall be entitled to interest on the proceeds of the policy for the duration of
delay at the rate of twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim
as Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in
payment of the claim is created by the failure of the insurer to pay the claim within the time fixed
in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the
delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary
Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of
12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9
Section 244 of the Insurance Code also provides for an award of attorneys fees and other
expenses incurred by the assured due to the unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court
regarded as proper an award of 10% of the insurance proceeds as attorneys fees. Such amount is
fair considering the length of time that has passed in prosecuting the claim.11 Pursuant to the
Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum

from the finality of judgment until full satisfaction of the claim should likewise be imposed, the
interim period equivalent to a forbearance of credit.1avvphi1
Petitioner New World is entitled to the value stated in the policy which is commensurate to the
value of the three emergency generator sets or US$721,500.00 with double interest plus
attorneys fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of
Appeals decision of January 31, 2006 insofar as petitioner New World International
Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation,
Advatech Industries, Inc., LEP International Philippines, Inc., LEP Profit International, Inc.,
Marina Port Services, Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS
ASIDE the Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS
Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International
Development (Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24% interest per
annum for the duration of delay in accordance with Sections 243 and 244 of the Insurance Code
and attorneys fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from
finality of judgment, a 12% interest per annum on the total amount due to petitioner until its full
satisfaction.
SO ORDERED.

G.R. No. 154514. July 28, 2005

WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CAG.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in
I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of the Insurance
Code and the respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer also issued receipts
evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections 302
and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need
not obtain another license as insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already
superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS
NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . .
. ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN
INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS
IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE
BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER
OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This
relationship is reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To
buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v.
Court of Appeals10 as "an association composed of shipowners in general who band together for
the specific purpose of providing insurance cover on a mutual basis against liabilities incidental
to shipowning that the members incur in favor of third parties." It stresses that as a P & I Club,
Steamship Mutuals primary purpose is to solicit and provide protection and indemnity coverage
and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to shipowning.11

Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received
therefor, shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of
the occurrence, contingency, or circumstances under which the performance becomes requisite.
It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such
as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where the
profits are divided among themselves, in proportion to their interest.17 Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18

A P & I Club is "a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members."19 By definition then, Steamship Mutual as a
P & I Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 18720 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment
of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration22
issued by the Insurance Commission. It has been licensed to do or transact insurance business by
virtue of the certificate of authority23 issued by the same agency. However, a Certification from
the Commission states that Pioneer does not have a separate license to be an agent/broker of
Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act
as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six months
thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is
hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses
and to secure proper authorizations to do business as insurer and insurance agent, respectively.
The petitioners prayer for the revocation of Pioneers Certificate of Authority and removal of its
directors and officers, is DENIED. Costs against respondents.

SO ORDERED.

G.R. No. 156956

October 9, 2006

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as

Insurance Commissioner, petitioner,
vs.
DEL MONTE MOTORS, INC., respondent.

DECISION

PANGANIBAN, CJ.:
The securities required by the Insurance Code to be deposited with the Insurance Commissioner
are intended to answer for the claims of all policy holders in the event that the depositing
insurance company becomes insolvent or otherwise unable to satisfy their claims. The security
deposit must be ratably distributed among all the insured who are entitled to their respective
shares; it cannot be garnished or levied upon by a single claimant, to the detriment of the others.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the
January 16, 2003 Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil
Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo T. Malinis guilty of
indirect contempt for refusing to comply with the December 18, 2002 Resolution3 of the lower
court. The January 16, 2003 Order states in full:
"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T.
Malinis of the Office of the Insurance Commission in Contempt of Court because of his
failure and refusal to obey the lawful order of this court embodied in a Resolution dated
December 18, 2002 directing him to allow the withdrawal of the security deposit of
Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to
Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a
Decision of this Court which has become final and executory.
"During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his
counsel or his duly authorized representative failed to appear despite notice in utter
disregard of the order of this Court. However, Commissioner Malinis filed on January 15,
2003 a written Comment reiterating the same grounds already passed upon and rejected
by this Court. This Court finds no lawful justification or excuse for Commissioner
Malinis' refusal to implement the lawful orders of this Court.
"Wherefore, premises considered and after due hearing, Commissioner Eduardo T.
Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of]

Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to
implement and obey a lawful order of this Court."4
The Facts
On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the
defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable
to pay Del Monte Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liner's
service contracts with respondent. The trial court further ordered the execution of the Decision
against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital
Insurance and Surety Co., Inc. (CISCO).
On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that
the latter had no record or document regarding the alleged issuance of the counterbond; thus, the
bond was not valid and enforceable.
On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ.
Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO.
He also issued a Notice of Garnishment on several depository banks of the insurance company.
Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on
the security deposit filed by CISCO with the Commission in accordance with Section 203 of the
Insurance Code.
On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice
of Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court
added that the letter and spirit of the law made the security deposit answerable for contractual
obligations incurred by CISCO under the insurance contracts the latter had entered into. The
RTC resolved thus:
"Furthermore, the Commissioner of the Office of the Insurance Commission is hereby
ordered to comply with its obligations under the Insurance Code by upholding the
integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance
Companies; and to safeguard the public interest by insuring the faithful performance to
enforce contractual obligations under existing bonds. Accordingly said office is ordered
to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the
amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the
Notice of Garnishment served on August 16, 2002."5
On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in
contempt of court for his refusal to obey the December 18, 2002 Resolution of the trial court.
Ruling of the Trial Court
The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its
Order. It explained that the commissioner had no legal justification for his refusal to allow the
withdrawal of CISCO's security deposit.

Hence, this Petition.6

Issues
Petitioner raises this sole issue for the Court's consideration:
"Whether or not the security deposit held by the Insurance Commissioner pursuant to
Section 203 of the Insurance Code may be levied or garnished in favor of only one
insured."7
The Court's Ruling
The Petition is meritorious.
Preliminary Issue:
Propriety of Review
Before discussing the principal issue, the Court will first dispose of the question of mootness.
Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of
the Philippines a letter dated March 26, 2003, stating that the former had no objection to the
release of the security deposit to Del Monte Motors. Portions of the fund were consequently
released to respondent in July, October, and December 2003. Thus, the issue arises: whether
these circumstances render the case moot.
Petitioner, however, contends that the partial releases should not be construed as an
abandonment of its stand that security deposits under Section 203 of the Insurance Code are
exempt from levy and garnishment. The Republic claims that the releases were made pursuant to
the commissioner's power of control over the fund, not to the lower court's Order of garnishment.
Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of
whether security deposits made with the Insurance Commission may be levied and garnished.
The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and
the Insurance Commission has required CISCO to replenish the latter's security deposit.
Respondent, therefore, may one day decide to further garnish the security deposit, once
replenished. Moreover, after the questioned Order of the lower court was issued, similar claims
on the security deposits of various insurance companies have been made before the Insurance
Commission. To set aside the resolution of the issue will only postpone a task that is certain to
crop up in the future.
Besides, the business of insurance is imbued with public interest. It is subject to regulation by the
State, with respect not only to the relations between the insurer and the insured, but also to the
internal affairs of insurance companies.8 As this case is undeniably endowed with public interest
and involves a matter of public policy, this Court shall not shirk from its duty to educate the
bench and the bar by formulating guiding and controlling principles, precepts, doctrines and
rules.9

Principal Issue:
Exemption of Security Deposit from Levy or Garnishment
Section 203 of the Insurance Code provides as follows:
"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in
value to twenty-five per centum of the minimum paid-up capital required under section
one hundred eighty-eight, invest its funds only in securities, satisfactory to the
Commissioner, consisting of bonds or other evidences of debt of the Government of the
Philippines or its political subdivisions or instrumentalities, or of government-owned or
controlled corporations and entities, including the Central Bank of the Philippines:
Provided, That such investments shall at all times be maintained free from any lien or
encumbrance; and Provided, further, That such securities shall be deposited with and
held by the Commissioner for the faithful performance by the depositing insurer of all its
obligations under its insurance contracts. The provisions of section one hundred
ninety-two shall, so far as practicable, apply to the securities deposited under this section.
"Except as otherwise provided in this Code, no judgment creditor or other claimant
shall have the right to levy upon any of the securities of the insurer held on deposit
pursuant to the requirement of the Commissioner." (Emphasis supplied)
Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and
garnishment of the security deposit. It contends that the law requires the deposit, precisely to
ensure faithful performance of all the obligations of the depositing insurer under the latter's
various insurance contracts. Hence, respondent claims that the security deposit should be
answerable for the counterbond issued by CISCO.
The Court is not convinced. As worded, the law expressly and clearly states that the security
deposit shall be (1) answerable for all the obligations of the depositing insurer under its
insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from
levy by any claimant.
To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its
policy holders have a right under the law to be equally protected by its security deposit. To allow
the garnishment of that deposit would impair the fund by decreasing it to less than the percentage
of paid-up capital that the law requires to be maintained. Further, this move would create, in
favor of respondent, a preference of credit over the other policy holders and beneficiaries.
Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme
Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States
Life Assurance Co.11 held that the money required to be deposited by a mutual assessment
insurance company with the state treasurer was "a trust fund to be ratably distributed amongst all
the claimants entitled to share in it. Such a distribution cannot be had except in an action in the
nature of a creditors' bill, upon the hearing of which, and with all the parties interested in the
fund before it, the court may make equitable distribution of the fund, and appoint a receiver to
carry that distribution into effect."12

Basic is the statutory construction rule that provisions of a statute should be construed in
accordance with the purpose for which it was enacted.13 That is, the securities are held as a
contingency fund to answer for the claims against the insurance company by all its policy
holders and their beneficiaries. This step is taken in the event that the company becomes
insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay
stake on the securities to the exclusion of all others. The other parties may have their own claims
against the insurance company under other insurance contracts it has entered into.
Respondent's Inchoate Right
The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all
other obligations of the company arising from its insurance contracts. Thus, respondent's interest
is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is
nonexistent and may never exist.14 Hence, it would be premature to make the security deposit
answerable for CISCO's present obligation to Del Monte Motors.
Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be
impossible to establish at this time which claimants are entitled to the security deposit and in
what pro-rated amounts. Only after all other claimants under subsisting policies issued by
CISCO have been heard can respondent's share be determined.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance Commission with both regulatory and
adjudicatory authority over insurance matters.15
The general regulatory authority of the insurance commissioner is described in Section 414 of
the Code as follows:
"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit associations,
and trusts for charitable uses are faithfully executed and to perform the duties imposed
upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have
sole and exclusive authority to regulate the issuance and sale of variable contracts as
defined in section two hundred thirty-two and to provide for the licensing of persons
selling such contracts, and to issue such reasonable rules and regulations governing the
same.
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions
as he may deem necessary to secure the enforcement of the provisions of this Code,
subject to the approval of the Secretary of Finance. Except as otherwise specified,
decisions made by the Commissioner shall be appealable to the Secretary of Finance."
(Emphasis supplied)
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to
issue) certificates of authority to persons or entities desiring to engage in insurance business in

the Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds for
the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or
officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for
failing to comply with the Code or with any of the commissioner's orders, instructions,
regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.18
Included in the above regulatory responsibilities is the duty to hold the security deposits under
Sections 19119 and 203 of the Code, for the benefit and security of all policy holders. In relation
to these provisions, Section 192 of the Insurance Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the
benefit and security of all the policyholders of the company depositing the same, but shall
as long as the company is solvent, permit the company to collect the interest or dividends
on the securities so deposited, and, from time to time, with his assent, to withdraw any of
such securities, upon depositing with said Commissioner other like securities, the market
value of which shall be equal to the market value of such as may be withdrawn. In the
event of any company ceasing to do business in the Philippines the securities deposited
as aforesaid shall be returned upon the company's making application therefor and
proving to the satisfaction of the Commissioner that it has no further liability under any
of its policies in the Philippines." (Emphasis supplied)
Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate
the insurance industry so as to protect the insuring public. The law specifically confers custody
over the securities upon the commissioner, with whom these investments are required to be
deposited. An implied trust20 is created by the law for the benefit of all claimants under
subsisting insurance contracts issued by the insurance company.21
As the officer vested with custody of the security deposit, the insurance commissioner is in the
best position to determine if and when it may be released without prejudicing the rights of other
policy holders. Before allowing the withdrawal or the release of the deposit, the commissioner
must be satisfied that the conditions contemplated by the law are met and all policy holders
protected.
Commissioner's Actions
Entitled to Great Respect
In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing
that the funds were exempt from execution as provided by law, he sought to protect other policy
holders. His interpretation of the provisions of the law carries great weight and consideration,22
as he is the head of a specialized body tasked with the regulation of insurance matters and
primarily charged with the implementation of the Insurance Code.
The emergence of the multifarious needs of modern society necessitates the establishment of
diverse administrative agencies. In addressing these needs, the administrative agencies charged
with applying and implementing particular statutes have accumulated experience and specialized
capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a

statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be
in sharp conflict with the governing statute or the Constitution and other laws.23
Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit
of CISCO. It follows that without the issuance of a valid order, the insurance commissioner
could not have been in contempt of court.24
WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.
SO ORDERED.

G.R. No. 167330

September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make 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 sick, elderly, disabled, women, and children. The State shall endeavor to provide
free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration
dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care
Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the organization."
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.
xxx

xxx

xxx

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the
total amount of P224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health
care agreement with the members of its health care program pursuant to Section 185 of the 1997
Tax Code xxxx
xxx

xxx

xxx

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking
the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to
P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully
paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT
Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency
DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is
ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the
DST assessment. He claimed that petitioners health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioners health care agreement
was in the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax
Appeals, insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp
tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET
ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment
and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax
Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx

xxx

xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision.
We held that petitioners health care agreement during the pertinent period was in the nature of
non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioners contention
that it is a health maintenance organization (HMO) and not an insurance company is irrelevant
because contracts between companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an
excise on the privilege, opportunity or facility offered at exchanges for the transaction of the
business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only
on a company engaged in the business of fidelity bonds and other insurance policies.
Petitioner, as an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in
effect the CAs disposition that health care services are not in the nature of an insurance
business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is
clear, especially in the light of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they are
not those contemplated under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health insurance, health
insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in
Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year
2005 and all prior years. Therefore, the questioned assessments on the DST are now
rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their
memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax
amnesty under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully paying the

amount of P5,127,149.08 representing 5% of its net worth as of the year ending December 31,
2005.8
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange
Commission on June 30, 1987.9 It is engaged in the dispensation of the following medical
services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and
immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on
a year-to-year 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. Except in
cases of emergency, the professional services are to be provided only by petitioner's physicians,
i.e. those directly employed by it11 or whose services are contracted by it.12 Petitioner also
provides hospital services such as room and board accommodation, laboratory services,
operating rooms, x-ray facilities and general nursing care.13 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 pre-agreed rates.14
To avail of petitioners health care programs, the individual members are required to sign and
execute 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.
Except for the curative aspect of the medical service offered, the enrolled member may actually
make use of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as insurance contracts and the DST is not a tax on the
business but an excise on the privilege, opportunity or facility used in the transaction of the
business.15

Petitioner, however, submits that it is of critical importance to characterize the business it is

engaged in, that is, to determine whether it is an HMO or an insurance company, as this
distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health
care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments
of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, 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 organization, 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 tax of fifty centavos (P0.50) on each four pesos (P4.00), 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 makes
some words idle and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam
pereat, that is, we choose the interpretation which gives effect to the whole of the statute its
every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST
can apply, namely: (1) the document must be a policy of insurance or an obligation in the
nature of indemnity and (2) the maker should be transacting the business of accident,
fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of
1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health
services needed by plan members for a fixed prepaid premium."19 The payments do not vary
with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years? We rule that it was not.

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what
constitutes "doing an insurance business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the
making 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 making
thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test that they
have applied is whether the assumption of risk and indemnification of loss (which are elements
of an insurance business) are the principal object and purpose of the organization or whether they
are merely incidental to its business. If these are the principal objectives, the business is that of
insurance. But if they are merely incidental and service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals
of the District of Columbia Circuit held that Group Health Association 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 risk.
xxx Although Group Healths activities may be considered in one aspect as creating security
against loss from illness or accident more truly they constitute the quantity purchase of wellrounded, continuous medical service by its members. xxx The functions of such an
organization are not identical with those of insurance or indemnity companies. The latter
are concerned primarily, if not exclusively, with risk and the consequences of its descent, not
with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not
the daily routine of living. Hazard is predominant. On the other hand, the cooperative is
concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation. Its primary

purpose is to reduce the cost rather than the risk of medical care; to broaden the service to
the individual in kind and quantity; to enlarge the number receiving it; to regularize it as
an everyday incident of living, like purchasing food and clothing or oil and gas, rather than
merely protecting against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care
of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as
the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and patient
together, the preventive features, the regularization of service as well as payment, the
substantial reduction in cost by quantity purchasing in short, getting the medical job done
and paid for; not, except incidentally to these features, the indemnification for cost after
the services is rendered. Except the last, these are not distinctive or generally characteristic
of the insurance arrangement. 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 risk 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
extinct. This is especially true when the contract is for the sale of goods or services on
contingency. But obviously it was not the purpose of the insurance statutes to regulate all
arrangements for assumption or distribution of risk. That view would cause them to engulf
practically all contracts, particularly conditional sales and contingent service agreements. The
fallacy is in looking only at the risk element, to the exclusion of all others present or their
subordination to it. The question turns, not on whether risk is involved or assumed, but on
whether that or something else to which it is related in the particular plan is its principal
object purpose.24 (Emphasis supplied)
In California Physicians Service v. Garrison,25 the California court felt that, after scrutinizing
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. Absence or presence of assumption of risk or peril is not the sole test to
be applied in determining its status. The question, more broadly, is whether, looking at the
plan of operation as a whole, service rather than indemnity is its principal object and
purpose. Certainly the objects and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social service. Probably there is no
more impelling need than that of adequate medical care on a voluntary, low-cost basis for
persons of small income. The medical profession unitedly is endeavoring to meet that need.
Unquestionably this is service of a high order and not indemnity.26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services
through participating physicians while insurance companies simply undertake to indemnify the

insured for medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates,
P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident
insurers is that the former undertake to provide prepaid medical services through participating
physicians, thus relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of
rates contained in the policy.
xxx

xxx

xxx

The primary purpose of a medical service corporation, however, is an undertaking to provide

physicians who will render services to subscribers on a prepaid basis. Hence, if there are no
physicians participating in the medical service corporations plan, not only will the
subscribers be deprived of the protection which they might reasonably have expected
would be provided, but the corporation will, in effect, be doing business solely as a health
and accident indemnity insurer without having qualified as such and rendering itself subject to
the more stringent financial requirements of the General Insurance Laws.
A 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 for
which the health service corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)
Consequently, the mere presence of risk 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.29 In short, even if petitioner assumes the risk 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.
By the same token, any indemnification resulting from the payment for services rendered in case
of emergency by non-participating health providers would still be incidental to petitioners
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 required to set
up a system and the facilities for the delivery of such medical services. This indubitably shows
that indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases.30 As an
HMO, it is its obligation to maintain the good health of its members. Accordingly, its health
care programs are designed to prevent or to minimize the possibility of any assumption of
risk on its part. Thus, its undertaking 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.31

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its
curative medical services), but these are incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of petitioners 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 emphasize that, in adopting the "principal purpose test" used in the abovequoted U.S. cases, we are not saying that petitioners operations are identical in every respect to
those of the HMOs or health providers which were parties to those cases. What we are stating is
that, for the purpose of determining what "doing an insurance business" means, we have to
scrutinize the operations of the business as a whole and not its mere components. This is of
course only prudent and appropriate, taking into account the burdensome and strict laws, rules
and regulations applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American authorities who have found
particular HMOs to be actually engaged in insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.33 In fact, in a letter dated September 3, 2000, the Insurance Commissioner
confirmed that petitioner is not engaged in the insurance business. This determination of the
commissioner must be accorded great weight. It is well-settled that the interpretation of an
administrative agency which is tasked to implement a statute is accorded great respect and
ordinarily controls the interpretation of laws by the courts. The reason behind this rule was
explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies for
addressing and satisfying those needs; it also relates to the accumulation of experience and
growth of specialized capabilities by the administrative agency charged with implementing a
particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court
stressed that executive officials are presumed to have familiarized themselves with all the
considerations pertinent to the meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon. The courts give much weight
to the government agency officials charged with the implementation of the law, their
competence, expertness, experience and informed judgment, and the fact that they frequently are
the drafters of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185
Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance or obligations of the
nature of indemnity for loss, damage, or liability." In our decision dated June 12, 2008, we
ruled that petitioners health care agreements are contracts of indemnity and are therefore
insurance contracts:

It is 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 expenses (such as professional fees of physicians). The term "loss
or damage" is broad enough to cover the monetary expense or liability a member will incur in
case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to
the member in case of sickness, injury or emergency or his availment of so-called "out-patient
services" (including physical examination, x-ray 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 exposure of the member to liability, he would be
entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for
expenses arising from the stipulated contingencies belies its claim that its services are prepaid.
The expenses to be incurred by each member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are
significantly and substantially more than what the member has "prepaid." Petitioner does not
bear the costs alone but distributes or spreads them out among a large group of persons bearing a
similar risk, that is, among all the other members of the health care program. This is insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting the business
of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), xxxx
(Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly
construed against the taxing authority.38 This is because taxation is a destructive power which
interferes with the personal and property rights of the people and takes from them a portion of
their property for the support of the government.39 Hence, tax laws may not be extended by
implication beyond the clear import of their language, nor their operation enlarged so as to
embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
However, those cases did not involve the interpretation of a tax 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 HMO. For this reason, we reconsider our ruling that Blue Cross
and Philamcare are applicable here.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. An insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk and
5. In consideration of the insurers promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, 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. The primary purpose of the parties in
making the contract may negate the existence of an insurance contract. For example, 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. On the other
hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its
own expense 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. Unlike
the lawyers 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.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioners
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 HMO. Under the agreement, the member pays
petitioner a predetermined consideration in exchange for the hospital, medical and professional
services rendered by the petitioners 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 preagreed rates. The member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability
on the part of the member to any third party-provider of medical services which might in turn
necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" 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 pre-agreed
price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination 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.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care
from a non-participating physician or hospital. However, this is only a very minor part of the list
of services available. The assumption of the expense by petitioner is not confined to the
happening of a contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the
health care contracts called for the defendant to partially reimburse a subscriber for treatment
received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the provision of podiatric
services to subscribers in consideration of prepayment for such services."44 Since indemnity of
the insured was not the focal point of the agreement but the extension of medical services to the
member at an affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that
risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation
always bears a certain degree of financial risk. Consequently, there is a need to distinguish
prepaid service contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the risk that it might fail to earn a reasonable return on its investment. But it is not the
risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial
risk, is the risk 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.45
However, assuming that petitioners commitment to provide medical services to its members can
be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still
will not qualify as an insurance contract because petitioners objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude that it
is not an insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs

Furthermore, militating in convincing fashion against the imposition of DST on petitioners

health care agreements under Section 185 of the NIRC of 1997 is the provisions legislative
history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care
agreements were not even in existence in this jurisdiction. It was imposed under Section 116,
Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")46 enacted
on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185
of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock 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 make, sign, or issue the same, on and after January
first, nineteen hundred and five, the several taxes following:
xxx

xxx

xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association, company, or
corporation transacting the business of accident, fidelity, employers liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except
life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising
and consolidating the laws relating to internal revenue. The aforecited pertinent portion of
Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III
of Act No. 2339. The very detailed and exclusive enumeration of items subject to DST was thus
retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as
Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on
March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained
substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD
1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and
October 10, 1984 respectively, the DST rate was again increased.1avvphi1

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977
was renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was
again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect
to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC
of 1997), the subject legal provision was retained as the present Section 185. In 2004,
amendments to the DST provisions were introduced by RA 924348 but Section 185 was
untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation
of Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and
renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim
that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as
early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated
quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2
million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the
other) that when the law imposing the DST was first passed, HMOs were yet unknown in the
Philippines. However, when the various amendments to the DST law were enacted, they were
already in existence in the Philippines and the term had in fact already been defined by RA 7875.
If it had been the intent of the legislature to impose DST on health care agreements, it could have
done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact
that the NIRC contained no specific provision on the DST liability of health care agreements of
HMOs at a time they were already known as such, belies any legislative intent to impose it on
them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000,
after more than a decade in the business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be
safe to say that health care agreements were never, at any time, recognized as insurance contracts
or deemed engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging 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 tax on the constituency who is to pay
it.51 So potent indeed is the power that it was once opined that "the power to tax involves the
power to destroy."52
Petitioner claims that the assessed DST to date which amounts to P376 million53 is way beyond
its net worth of P259 million.54 Respondent never disputed these assertions. Given the realities
on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose

of the government to throttle private business. On the contrary, the government ought to
encourage private enterprise.55 Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et
al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing the
business of an entity is another matter and should not be allowed. It is counter-productive and
ultimately subversive of the nations thrust towards a better economy which will ultimately
benefit the majority of our people.59
Petitioners Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996
and 1997 became moot and academic60 when it availed of the tax amnesty under RA 9480 on
December 10, 2007. It paid P5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a)
of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising
from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity
from payment of the tax involved, including the civil, criminal, or administrative penalties
provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits
of this case as discussed above, respondent concedes that such tax amnesty extinguishes the
tax liabilities of petitioner. 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
tax fraud under Section 10 of said amnesty law.62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty
program under RA 9480.63 There is no other conclusion to draw than that petitioners liability for
DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?

Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is
bound by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care
agreement of Philamcare Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that
the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA 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. When we dismissed the petition, we effectively affirmed the
CA ruling being questioned. As a result, our ruling in that case has already become final.67 When
a minute resolution denies or dismisses a petition for failure to comply with formal and
substantive requirements, the challenged decision, together with its findings of fact and legal
conclusions, are deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v.
Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same
parties and the same issues, was previously disposed of by the Court thru a minute resolution
dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the
previous case "ha(d) no bearing" on the latter case because the two cases involved different
subject matters as they were concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of
the Constitution that the facts and the law on which the judgment is based must be expressed
clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is
signed only by the clerk of court by authority of the justices, unlike a decision. It does not require
the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not
published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of
a decision.73 Indeed, as a rule, this Court lays down doctrines or principles of law which
constitute binding precedent in a decision duly signed by the members of the Court and certified
by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability
for DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner
cannot successfully invoke the minute resolution in that case (which is not even binding
precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does not
detract in any way from the fact that petitioners health care agreements are not subject to DST.
A Final Note

Taking into account that health care agreements are clearly not within the ambit of Section 185
of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical
services at a cost which the average wage earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance of the goal of providing a more efficient and
inexpensive health care system made possible by quantity purchasing of services and economies
of scale. They offer advantages over the pay-for-service system (wherein individuals are charged
a fee each time they receive medical services), including the ability to control costs. They protect
their members from exposure to the high cost of hospitalization and other medical expenses
brought about by a fluctuating economy. Accordingly, they play an important role in society as
partners of the State in achieving its constitutional mandate of providing its citizens with
affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 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. At the end of the day, neither side wins,
considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision
of the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996
and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.

G.R. No. 125678

March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
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 question:
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 Yes,
give details).1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1,
1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While 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 Care Agreement was void. According to
petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC
allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Respondent was constrained to bring him back to the
Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an
action for damages against petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the
plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff
who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to
plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente.4 Petitioners motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code6 does not apply.1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter. Petitioner also points out that only medical
and hospitalization benefits are given under the agreement without any indemnification, unlike in
an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance
Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. An insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured pays a premium.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) 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 performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.9 Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondents husband to
sign an express authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination.10 Specifically, the Health
Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall be no contract of health
care coverage unless and until an Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing
in the application; that any physician is, by these presents, expressly authorized to
disclose or give testimony at anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in or addition to this application as
stated in the space for Home Office Endorsement.11 (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization
to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of
my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any
and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination. This authorization is in connection with the application
for health care coverage only. A photographic copy of this authorization shall be as valid
as the original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An 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 Membership Fee
for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from
respondents husband who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not avoid a policy even
though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. 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 expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the insurer is obvious and amounts
to actual fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.16 Concealment 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 extent agreed
upon. In the end, the liability of the health care provider attaches once the member is hospitalized

for the disease or injury covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance." The right to rescind should be exercised previous to the commencement
of an action on the contract.17 In this case, no rescission was made. Besides, the cancellation of
health care agreements as in insurance policies require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation.19 Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract the
insurer.20 By reason of the exclusive 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.21 This is equally applicable to
Health Care Agreements. 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 exclusionary clauses of doubtful import should be strictly construed against the
provider.22
Anent the incontestability of the membership of respondents husband, we quote with approval
the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the Agreement within which to
contest the membership of the patient if he had previous ailment of asthma, and six
months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.23
Finally, 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 expenses. It is not controverted

that respondent paid all the hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.

G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set
aside the November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810
is the query: May the inaction of the insurer on the insurance application be considered as
approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with
petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of
Eternal who purchased burial lots from it on installment basis would be insured by Philamlife.
The amount of insurance coverage depended upon the existing balance of the purchased burial
lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is
indebted to the Assured for the unpaid balance of his loan with the Assured, and is
accepted for Life Insurance coverage by the Company on its effective date is eligible for
insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00.
However, a declaration of good health shall be required for all Lot Purchasers as part of
the application. The Company reserves the right to require further evidence of
insurability satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the
unpaid balance of his loan (including arrears up to but not exceeding 2 months) as
reported by the Assured to the Company or the sum of P100,000.00, whichever is
smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured
under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective
unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,4 containing a list of insurable balances of its lot
buyers for October 1982. One of those included in the list as "new business" was a certain John
Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for
Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate
of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring Eternal to submit
the following documents relative to its insurance claim for Chuangs death: (1) Certificate of
Claimant (with form attached); (2) Assureds Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984,7 which
was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latters
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for
PhP 100,000 on April 25, 1986.8
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated
May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with
Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount
of P100,000.00 each. No application for Group Insurance was submitted in our office
prior to his death on August 2, 1984.

In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of
Insurability provision, "a declaration of good health shall be required for all Lot
Purchasers as party of the application." We cite further the provision on Effective Date of
Coverage under the policy which states that "there shall be no insurance if the application
is not approved by the Company." Since no application had been submitted by the
Insured/Assured, prior to his death, for our approval but was submitted instead on
November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the
Policy. We wish to point out that Eternal Gardens being the Assured was a party to the
Contract and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of
the insurance coverage but are held by us in trust for the payor until the prerequisites for
insurance coverage shall have been met. We will however, return all the premiums which
have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum
of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor
of Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff
ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to
pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang,
plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorneys
fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which he
accomplished before his death, as testified to by Eternals witness and evidenced by the letter
dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application
Forms & Cert."10 It further ruled that due to Philamlifes inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuangs death on August 2,
1984, as well as Philamlifes acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuangs application. The RTC said that since the contract is a group
life insurance, once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No.
57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuangs application was not enclosed in
Eternals letter dated December 29, 1982. It further ruled that the non-accomplishment of the

submitted application form violated Section 26 of the Insurance Code. Thus, the CA concluded,
there being no application form, Chuang was not covered by Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore
determined by this Honorable Court, or has decided it in a way not in accord with law or
with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife
before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated
May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
before the CA and first level courts, considering their findings of facts are conclusive and
binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v.
Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the [CA]
went beyond the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings [of the CA] are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the respondent; (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may
review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that
it submitted a copy of the insurance application of Chuang before his death. In Eternals letter
dated December 29, 1982, a list of insurable interests of buyers for October 1982 was attached,
including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said
letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed

in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal
alleged that it provided a copy of the insurance application which was signed by Chuang himself
and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient,
arguing that Eternal must present evidence showing that Philamlife received a copy of Chuangs
insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were attached to
the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against its own interest.13 The
burden of evidence has shifted to Philamlife, which must prove that the letter did not contain
Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed
to have received Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is
stamped as received, the contents of the letter are correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to
inconsistencies is groundless. The trial court is in the best position to determine the reliability
and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses
demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of weight and substance
have been overlooked, misapprehended, or misinterpreted,14 that, if considered, might affect the
result of the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals
no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance
application of Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new
coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this
form and the original of this is submitted to Philamlife together with the monthly
remittances and the second copy is remained or retained with the marketing department
of Eternal Gardens.

Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for
the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that
payment together with the new clients all the originals I see to it before I sign the
transmittal letter the originals are attached therein.16
In other words, the witness admitted not knowing where the original insurance application was,
but believed that the application was transmitted to Philamlife as an attachment to a transmittal
letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or
two insurance application forms were accomplished and the testimony of Mendoza on who
actually filled out the application form, these are minor inconsistencies that do not affect the
credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are
too trivial to affect the credibility of witnesses, and these may even serve to strengthen their
credibility as these negate any suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the
prosecutions evidence as a whole or reflect on the witnesses honesty. The test is
whether the testimonies agree on essential facts and whether the respective versions
corroborate and substantially coincide with each other so as to make a consistent and
coherent whole.18
In the present case, the number of copies of the insurance application that Chuang executed is
not at issue, neither is whether the insurance application presented by Eternal has been falsified.
Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of
Eternals witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving
the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a
loan with the Assured. However, there shall be no insurance if the application of the Lot
Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The
first sentence appears to state that the insurance coverage of the clients of Eternal already
became effective upon contracting a loan with Eternal while the second sentence appears to
require Philamlife to approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held
that:
Indemnity and liability insurance policies are construed in accordance with the general
rule of resolving any ambiguity therein in favor of the insured, where the contract or
policy is prepared by the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved against the
insurer; in other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance with his
obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the insurer. By reason of
the exclusive 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.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated
December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of
the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
partys purchase of a memorial lot on installment from Eternal, an insurance contract covering
the lot purchaser is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition
which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the

insurer on the insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the insurance contract
by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing
is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be considered
whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the same, or otherwise be
bound to honor the application as a valid, binding, and effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R.
CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City
RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life
Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000
from the time of extra-judicial demand by Eternal until Philamlifes receipt of the May
29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP
100,000 from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.

G.R. No. L-2294

May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.
Ramirez and Ortigas for petitioner.
Ewald Huenefeld for respondent.
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment
of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy
No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at No.
711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military
occupation, the building and insured merchandise were burned. In due time the respondent
submitted to the petitioner its claim under the policy. The salvage goods were sold at public
auction and, after deducting their value, the total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against Germany,
the respondent Corporation (though organized under and by virtue of the laws of the Philippines)
being controlled by the German subjects and the petitioner being a company under American
jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in
pursuance of the order of the Director of Bureau of Financing, Philippine Executive
Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of
the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of the outbreak of the war
between the United States and Germany on December 10, 1941, and that the payment made by
the petitioner to the respondent corporation during the Japanese military occupation was under
pressure. After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of
First Instance of Manila was affirmed, with costs. The case is now before us on appeal by
certiorari from the decision of the Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the respondent corporation
became an enemy when the United States declared war against Germany, relying on English and
American cases which held that a corporation is a citizen of the country or state by and under the
laws of which it was created or organized. It rejected the theory that nationality of private
corporation is determine by the character or citizenship of its controlling stockholders.
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany. The English

and American cases relied upon by the Court of Appeals have lost their force in view of the latest
decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz Korporation,
decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the
controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to
the Second International Conference of the Legal Profession held at the Hague (Netherlands) in
August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations has been
discussion in many countries, belligerent and neutral. A corporation was subject to enemy
legislation when it was controlled by enemies, namely managed under the influence of
individuals or corporations, themselves considered as enemies. It was the English courts
which first the Daimler case applied this new concept of "piercing the corporate veil,"
which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established
after the First World War.
The United States of America did not adopt the control test during the First World War.
Courts refused to recognized the concept whereby American-registered corporations
could be considered as enemies and thus subject to domestic legislation and
administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and other enemy
interests were cloaked by domestic corporation structure. It was not only by legal
ownership of shares that a material influence could be exercised on the management of
the corporation but also by long term loans and other factual situations. For that reason,
legislation on enemy property enacted in various countries during World War II adopted
by statutory provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such newly enacted
statutory provisions in determining enemy character of domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy Act during
the last war, include as did other legislations the applications of the control test and again,
as in World War I, courts refused to apply this concept whereby the enemy character of
an American or neutral-registered corporation is determined by the enemy nationality of
the controlling stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and other
administrative practice in the treatment of foreign-owned property in the United States
allowed to large degree the determination of enemy interest in domestic corporations and
thus the application of the control test. Court decisions sanctioned such administrative
practice enacted under the First War Powers Act of 1941, and more recently, on
December 8, 1947, the Supreme Court of the United States definitely approved of the
control theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss
corporation allegedly controlled by German interest, the Court: "The property of all
foreign interest was placed within the reach of the vesting power (of the Alien Property
Custodian) not to appropriate friendly or neutral assets but to reach enemy interest which
masqueraded under those innocent fronts. . . . The power of seizure and vesting was

extended to all property of any foreign country or national so that no innocent appearing
device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the
appealed decision. However, we may add that, in Haw Pia vs. China Banking Corporation,* 45
Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the
meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries
not only because it was incorporated under the laws of an enemy country but because it was
controlled by enemies.
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent powers which
is inconsistent with a state of war is prohibited by the law of nations. Such prohibition
includes all negotiations, commerce, or trading with the enemy; all acts which will
increase, or tend to increase, its income or resources; all acts of voluntary submission to
it; or receiving its protection; also all acts concerning the transmission of money or
goods; and all contracts relating thereto are thereby nullified. It further prohibits
insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in
service with the enemy; this for the reason that the subjects of one country cannot be
permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The
purpose of war is to cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay in insurance
the value of what has been so destroyed, or that it should in such manner increase the
resources of the enemy, or render it aid, and the commencement of war determines, for
like reasons, all trading intercourse with the enemy, which prior thereto may have been
lawful. All individuals therefore, who compose the belligerent powers, exist, as to each
other, in a state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year, or for some
other specified term it is plain that when the parties become alien enemies, the
contractual tie is broken and the contractual rights of the parties, so far as not vested. lost.
(Vance, the Law on Insurance, Sec. 44, p. 112.)
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December 10,
1941, and during the war, the respondent was not entitled to any indemnity under said policy
from the petitioner. However, elementary rules of justice (in the absence of specific provision in
the Insurance Law) require that the premium paid by the respondent for the period covered by its
policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of
whether the policy in question became null and void upon the declaration of war between the
United States and Germany on December 10, 1941, and its judgment in favor of the respondent
corporation was predicated on its conclusion that the policy did not cease to be in force. The
Court of Appeals necessarily assumed that, even if the payment by the petitioner to the
respondent was involuntary, its action is not tenable in view of the ruling on the validity of the
policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the
appellee was not unjust but the exercise of its lawful right to claim for and received the payment
of the insurance policy," and that the ruling of the Bureau of Financing to the effect that "the
appellee was entitled to payment from the appellant was, well founded." Factually, there can be
no doubt that the Director of the Bureau of Financing, in ordering the petitioner to pay the claim
of the respondent, merely obeyed the instruction of the Japanese Military Administration, as may
be seen from the following: "In view of the findings and conclusion of this office contained in its
decision on Administrative Case dated February 9, 1943 copy of which was sent to your office
and the concurrence therein of the Financial Department of the Japanese Military
Administration, and following the instruction of said authority, you are hereby ordered to pay the
claim of Messrs. Christern, Huenefeld & Co., Inc. The payment of said claim, however, should
be made by means of crossed check." (Emphasis supplied.)
It results that the petitioner is entitled to recover what paid to the respondent under the
circumstances on this case. However, the petitioner will be entitled to recover only the
equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with
the rate fixed in the Ballantyne scale.
Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to
pay to the petitioner the sum of P77,208.33, Philippine currency, less the amount of the
premium, in Philippine currency, that should be returned by the petitioner for the unexpired term
of the policy in question, beginning December 11, 1941. Without costs. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-1669

August 31, 1950

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-1670

August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
Mariano Lozada for appellant Constantino.
Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.
BENGZON, J.:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the
question whether the beneficiary in a life insurance policy may recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated premiums, such failure
having been caused by the last war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia
Life Insurance Company (a foreign corporation incorporated under the laws of Delaware,
U.S.A.), issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the
life of Arcadio Constantino for a term of twenty years. The first premium covered the period up
to September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed
beneficiary. The policy contained these stipulations, among others:
This POLICY OF INSURANCE is issued in consideration of the written and printed
application here for a copy of which is attached hereto and is hereby made a part hereof
made a part hereof, and of the payment in advance during the lifetime and good health of
the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine
currency1 and of the payment of a like amount upon each twenty-seventh day of

September hereafter during the term of Twenty years or until the prior death of the
Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such
payment shall cause this policy to lapse unless and except as kept in force by the Grace
Period condition or under Option 4 below. (Grace of 31 days.)
After that first payment, no further premiums were paid. The insured died on September 22,
1944.
It is admitted that the defendant, being an American corporation , had to close its branch office in
Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy
No. 78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the
lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual
premium stipulated in the policy was regularly paid from August 1, 1938, up to and including
September 30, 1941. Effective August 1, 1941, the mode of payment of premiums was changed
from annual to quarterly, so that quarterly premiums were paid, the last having been delivered on
November 18, 1941, said payment covering the period up to January 31, 1942. No further
payments were handed to the insurer. Upon the Japanese occupation, the insured and the insurer
became separated by the lines of war, and it was impossible and illegal for them to deal with
each other. Because the insured had borrowed on the policy an mount of P234.00 in January,
1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up
to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina Peralta is
his beneficiary. Her demand for payment met with defendant's refusal, grounded on nonpayment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written and printed
application herefor, a copy of which is attached hereto and is hereby made apart hereof,
and of the payment in advance during the life time and good health of the Insured of the
annual premium of Two hundred and 43/100 pesos Philippine currency and of the
payment of a like amount upon each first day of August hereafter during the term of
Twenty years or until the prior death of either of the Insured. (Emphasis supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in making any such
payment shall cause this policy to lapse unless and except as kept in force by the Grace
Period condition or under Option 4 below. (Grace of days.) . . .

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies
minus all sums due for premiums in arrears. They allege that non-payment of the premiums was
caused by the closing of defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in
accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has
had the benefit of extensive and exhaustive memoranda including those of amici curiae. The
matter has received careful consideration, inasmuch as it affects the interest of thousands of
policy-holders and the obligations of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended,
and the Civil Code.2 Act No. 2427 was largely copied from the Civil Code of California.3 And
this court has heretofore announced its intention to supplement the statutory laws with general
principles prevailing on the subject in the United State.4
In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance
are contracts of indemnity upon the terms and conditions specified in the policy. The parties have
a right to impose such reasonable conditions at the time of the making of the contract as they
may deem wise and necessary. The rate of premium is measured by the character of the risk
assumed. The insurance company, for a comparatively small consideration, undertakes to
guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and
upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly
insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions
of the policy, he is not entitled for the loss. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover the insured must show himself within those terms; and
if it appears that the contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the insured with the terms
of the contract is a condition precedent to the right of recovery."
Recall of the above pronouncements is appropriate because the policies in question stipulate that
"all premium payments are due in advance and any unpunctuality in making any such payment
shall cause this policy to lapse." Wherefore, it would seem that pursuant to the express terms of
the policy, non-payment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a policy, are binding
upon the parties and should be enforced by the courts, if the evidence brings the case
clearly within their meaning and intent. It tends to bring the law itself into disrepute
when, by astute and subtle distinctions, a plain case is attempted to be taken without the
operation of a clear, reasonable and material obligation of the contract. Mack vs.
Rochester German Ins. Co., 106 N.Y., 560, 564. (Young vs. Midland Textile Ins. Co., 30
Phil., 617, 622.)

In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided
because the premium had not been paid within the time fixed, since by its express terms, nonpayment of any premium when due or within the thirty-day period of grace, ipso facto caused the
policy to lapse. This goes to show that although we take the view that insurance policies should
be conserved5 and should not lightly be thrown out, still we do not hesitate to enforce the
agreement of the parties.
Forfeitures of insurance policies are not favored, but courts cannot for that reason alone
refuse to enforce an insurance contract according to its meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect
of non-payment of premiums occasioned by war, the American cases may be divided into three
groups, according as they support the so-called Connecticut Rule, the New York Rule, or the
United States Rule.
The first holds the view that "there are two elements in the consideration for which the annual
premium is paid First, the mere protection for the year, and second, the privilege of renewing
the contract for each succeeding year by paying the premium for that year at the time agreed
upon. According to this view of the contract, the payment of premiums is a condition precedent,
the non-performance would be illegal necessarily defeats the right to renew the contract."
The second rule, apparently followed by the greater number of decisions, hold that "war between
states in which the parties reside merely suspends the contracts of the life insurance, and that,
upon tender of all premiums due by the insured or his representatives after the war has
terminated, the contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended, but is abrogated by
reason of non-payments is peculiarly of the essence of the contract. It additionally holds that it
would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess
of the premiums paid over the actual risk carried during the years when the policy had been in
force. This rule was announced in the well-known Statham6 case which, in the opinion of
Professor Vance, is the correct rule.7
The appellants and some amici curiae contend that the New York rule should be applied here.
The appellee and other amici curiae contend that the United States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different theories. Besides the respect
and high regard we have always entertained for decisions of the Supreme Court of the United
States, we cannot resist the conviction that the reasons expounded in its decision of the Statham
case are logically and judicially sound. Like the instant case, the policy involved in the Statham
decision specifies that non-payment on time shall cause the policy to cease and determine.
Reasoning out that punctual payments were essential, the court said:

. . . it must be conceded that promptness of payment is essential in the business of life

insurance. All the calculations of the insurance company are based on the hypothesis of
prompt payments. They not only calculate on the receipt of the premiums when due, but
on compounding interest upon them. It is on this basis that they are enabled to offer
assurance at the favorable rates they do. Forfeiture for non-payment is an necessary
means of protecting themselves from embarrassment. Unless it were enforceable, the
business would be thrown into confusion. It is like the forfeiture of shares in mining
enterprises, and all other hazardous undertakings. There must be power to cut-off
unprofitable members, or the success of the whole scheme is endangered. The insured
parties are associates in a great scheme. This associated relation exists whether the
company be a mutual one or not. Each is interested in the engagements of all; for out of
the co-existence of many risks arises the law of average, which underlies the whole
business. An essential feature of this scheme is the mathematical calculations referred to,
on which the premiums and amounts assured are based. And these calculations, again, are
based on the assumption of average mortality, and of prompt payments and compound
interest thereon. Delinquency cannot be tolerated nor redeemed, except at the option of
the company. This has always been the understanding and the practice in this department
of business. Some companies, it is true, accord a grace of thirty days, or other fixed
period, within which the premium in arrear may be paid, on certain conditions of
continued good health, etc. But this is a matter of stipulation, or of discretion, on the part
of the particular company. When no stipulation exists, it is the general understanding that
time is material, and that the forfeiture is absolute if the premium be not paid. The
extraordinary and even desperate efforts sometimes made, when an insured person is in
extremes to meet a premium coming due, demonstrates the common view of this matter.
The case, therefore, is one in which time is material and of the essence and of the essence
of the contract. Non-payment at the day involves absolute forfeiture if such be the terms
of the contract, as is the case here. Courts cannot with safety vary the stipulation of the
parties by introducing equities for the relief of the insured against their own negligence.
In another part of the decision, the United States Supreme Court considers and rejects what is, in
effect, the New York theory in the following words and phrases:
The truth is, that the doctrine of the revival of contracts suspended during the war is one
based on considerations of equity and justice, and cannot be invoked to revive a contract
which it would be unjust or inequitable to revive.
In the case of Life insurance, besides the materiality of time in the performance of the
contract, another strong reason exists why the policy should not be revived. The parties
do not stand on equal ground in reference to such a revival. It would operate most
unjustly against the company. The business of insurance is founded on the law of
average; that of life insurance eminently so. The average rate of mortality is the basis on
which it rests. By spreading their risks over a large number of cases, the companies
calculate on this average with reasonable certainty and safety. Anything that interferes
with it deranges the security of the business. If every policy lapsed by reason of the war
should be revived, and all the back premiums should be paid, the companies would have

the benefit of this average amount of risk. But the good risks are never heard from; only
the bar are sought to be revived, where the person insured is either dead or dying. Those
in health can get the new policies cheaper than to pay arrearages on the old. To enforce a
revival of the bad cases, whilst the company necessarily lose the cases which are
desirable, would be manifestly unjust. An insured person, as before stated, does not stand
isolated and alone. His case is connected with and co-related to the cases of all others
insured by the same company. The nature of the business, as a whole, must be looked at
to understand the general equities of the parties.
The above consideration certainly lend themselves to the approval of fair-minded men.
Moreover, if, as alleged, the consequences of war should not prejudice the insured, neither
should they bear down on the insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the
insured to pay premiums was excused during the war owing to impossibility of performance, and
that consequently no unfavorable consequences should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after
the first, is not an obligation of the insured, so much so that it is not a debt enforceable by action
of the insurer.
Under an Oklahoma decision, the annual premium due is not a debt. It is not an
obligation upon which the insurer can maintain an action against insured; nor is its
settlement governed by the strict rule controlling payments of debts. So, the court in a
Kentucky case declares, in the opinion, that it is not a debt. . . . The fact that it is payable
annually or semi-annually, or at any other stipulated time, does not of itself constitute a
promise to pay, either express or implied. In case of non-payment the policy is forfeited,
except so far as the forfeiture may be saved by agreement, by waiver, estoppel, or by
statute. The payment of the premium is entirely optional, while a debt may be enforced at
law, and the fact that the premium is agreed to be paid is without force, in the absence of
an unqualified and absolute agreement to pay a specified sum at some certain time. In the
ordinary policy there is no promise to pay, but it is optional with the insured whether he
will continue the policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the insured by an
observance of the conditions may hold the insurer to his contract, the latter has not the
power or right to compel the insured to maintain the contract relation with it longer than
he chooses. Whether the insured will continue it or not is optional with him. There being
no obligation to pay for the premium, they did not constitute a debt. (Noble vs. Southern
States M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis ours.)
It should be noted that the parties contracted not only for peacetime conditions but also for times
of war, because the policies contained provisions applicable expressly to wartime days. The
logical inference, therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.

For the plaintiffs, it is again argued that in view of the enormous growth of insurance business
since the Statham decision, it could now be relaxed and even disregarded. It is stated "that the
relaxation of rules relating to insurance is in direct proportion to the growth of the business. If
there were only 100 men, for example, insured by a Company or a mutual Association, the death
of one will distribute the insurance proceeds among the remaining 99 policy-holders. Because
the loss which each survivor will bear will be relatively great, death from certain agreed or
specified causes may be deemed not a compensable loss. But if the policy-holders of the
Company or Association should be 1,000,000 individuals, it is clear that the death of one of them
will not seriously prejudice each one of the 999,999 surviving insured. The loss to be borne by
each individual will be relatively small."
The answer to this is that as there are (in the example) one million policy-holders, the "losses" to
be considered will not be the death of one but the death of ten thousand, since the proportion of 1
to 100 should be maintained. And certainly such losses for 10,000 deaths will not be "relatively
small."
After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is
such a vital defense of insurance companies that since the very beginning, said Act no. 2427
expressly preserved it, by providing that after the policy shall have been in force for two years, it
shall become incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment
of premiums, and military or naval service in time of war (sec. 184 [b], Insurance Act). And
when Congress recently amended this section (Rep. Act No. 171), the defense of fraud was
eliminated, while the defense of nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high importance of the defense of nonpayment thereof, was specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule,
which is in effect a variation of the Connecticut rule for the sake of equity. In this connection, it
appears that the first policy had no reserve value, and that the equitable values of the second had
been practically returned to the insured in the form of loan and advance for premium.
For all the foregoing, the lower court's decision absolving the defendant from all liability on the
policies in question, is hereby affirmed, without costs.

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1
dated May 17, 1993, of the Court of Appeals and its Resolution 2 dated January 4, 1994
in CA-G.R. CV No. 18341. The appellate court affirmed in toto the judgment of the
Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private
respondent against Great Pacific Life Assurance Co. The dispositive portion of the trial
court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE
ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation
to Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE
PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX
THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages,
attorney's fees and litigation expenses in the complaint and counterclaim, with costs
against the defendant and dismissing the complaint in respect to the plaintiffs, other than
3
the widow-beneficiary, for lack of cause of action.

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

A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines
(hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan
mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr.
Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition,
high blood pressure, cancer, diabetes, lung; kidney or stomach disorder
or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance

coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred (P86,200.00) pesos.1wphi1.nt
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he
had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18,
against Grepalife for "Specific Performance with Damages." 5 During the trial, Dr.
Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia's
findings, based partly from the information given by the respondent widow, stated that
Dr. Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow
and against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial court's
decision. Hence, the present petition. Petitioners interposed the following assigned
errors:
1. THE LOWER COURT ERRED IN HOLDING DEFENDANTAPPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR
PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION
INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF
DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT
[Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR
WANT OF JURISDICTION OVER THE SUBJECT OR NATURE OF THE
ACTION AND OVER THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANTAPPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN THE
ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE
ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS
GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO
CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF
WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN
THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANTAPPELLANT OF THE INSURANCE CLAIM ARISING FROM THE
6
DEATH OF WILFREDO LEUTERIO.

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP
as beneficiary in a group life insurance contract from a complaint filed by
the widow of the decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would vitiate the insurance
contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the
amount of eighty six thousand, two hundred (P86,200.00) pesos without
proof of the actual outstanding mortgage payable by the mortgagor to
DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the
real party in interest, hence the trial court acquired no jurisdiction over the case. It
argues that when the Court of Appeals affirmed the trial court's judgment, Grepalife was
held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable
party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties
and the parties to this type of contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption insurance," is a device for
the protection of both the mortgagee and the mortgagor. On the part of the mortgagee,
it has to enter into such form of contract so that in the event of the unexpected demise
of the mortgagor during the subsistence of the mortgage contract, the proceeds from
such insurance will be applied to the payment of the mortgage debt, thereby relieving
the heirs of the mortgagor from paying the obligation. 7 In a similar vein, ample
protection is given to the mortgagor under such a concept so that in the event of death;
the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 8 Consequently, where the mortgagor pays the
insurance premium under the group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to
be a party to the contract. In this type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by the
mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests
in the insurance, the policy stating that: "In the event of the debtor's death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies designated by the
debtor." 10 When DBP submitted the insurance claim against petitioner, the latter denied
payment thereof, interposing the defense of concealment committed by the insured.
Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek
Tong Lin Fire & Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the
benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon
in his own name, especially where the mortgagee's interest is less than the full amount
recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any judgment
13
he may obtain.

And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person
may recover it whatever the insured might have recovered, 14 the widow of the decedent
Dr. Leuterio may file the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that Dr.
Leuterio failed to disclose that he had hypertension, which might have caused his death.
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the
assured, but he designedly and intentionally withholds the same. 15
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia,
as supported by the information given by the widow of the decedent. Grepalife asserts
that Dr. Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow's declaration that her husband had
"possible hypertension several years ago" should not be considered as hearsay, but as
part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. As the attending physician, Dr. Mejia
stated that he had no knowledge of Dr. Leuterio's any previous hospital confinement. 16

Dr. Leuterio's death certificate stated that hypertension was only "the possible cause of
death." The private respondent's statement, as to the medical history of her husband,
was due to her unreliable recollection of events. Hence, the statement of the physician
was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly answered by the appellate
court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in good
health and that he had not consulted a doctor or any of the enumerated ailments,
including hypertension; when he died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage, probably secondary to
hypertension. From this report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had concealed the fact that he had
hypertension.
Contrary to appellant's allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who was not
even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had
not proven nor produced any witness who could attest to Dr. Leuterio's medical history . .
.
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment made
17
by the insured, hence, it cannot refuse payment of the claim.

The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. 18 Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the insurer. 19 In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance.1wphi1.nt
And that brings us to the last point in the review of the case at bar. Petitioner claims that
there was no evidence as to the amount of Dr. Leuterio's outstanding indebtedness to
DBP at the time of the mortgagor's death. Hence, for private respondent's failure to
establish the same, the action for specific performance should be dismissed. Petitioner's
claim is without merit. A life insurance policy is a valued policy. 20 Unless the interest of
a person insured is susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum fixed in the policy. 21
The mortgagor paid the premium according to the coverage of his insurance, which
states that:
The policy states that upon receipt of due proof of the Debtor's death during the terms of
this insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the

Creditor and the balance of the Sum Assured, if there is any shall then be paid to the
22
beneficiary/ies designated by the debtor." (Emphasis omitted)

However, we noted that the Court of Appeals' decision was promulgated on May 17,
1993. In private respondent's memorandum, she states that DBP foreclosed in 1995
their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it
cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The
proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein
private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the
petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six
thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo
Leuterio (deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs against
petitioner.1wphi1.nt
SO ORDERED.