[02] REPUBLIC vs.
DEL MONTE MOTORS ● Included in this is the duty to hold the security deposits under Sec. 191 and
G.R. No. 156956 | 9 October 2006 | Panganiban, C.J.
SUMMARY:
Vilfran Liner was found liable to pay the balance of its service contracts to Del Monte.
It has a counterbond w/ CISCO, and CISCO has security deposit w/ the Office of the
Insurance Commission. The RTC ordered the garnishment of the security deposit, but
Commissioner Malinis refused to release it. The RTC held him in contempt. The SC
nullified the order of garnishment, arguing that Sec. 203 of the Insurance Code is
clear that the security deposit is exempt from levy and garnishment by any one of the
policy holders.
DOCTRINE:
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 by ratably distributed among all the insured; it
cannot be garnished or levied upon by a single claimant to the detriment of
others
As a rule, the right to lay claim on the fund is dependent on the solvency of the
insurer.
● In this case, since there are no insolvency proceedings yet, Del Monte’s
interest is merely inchoate or a mere expectancy and thus has no attribute of
property
The Insurance Code has vested the Office of the Insurance Commission w/ both
regulatory (Sec. 414) and adjudicatory authority over insurance matters
● Pursuant to its regulatory powers, the Commissioner is entitled to:
○ issue (or to refuse to issue) certificates of authority to persons or
entities desiring to engage in insurance business in the Philippines
○ revoke or suspend these certificates of authority upon finding
grounds for the revocation or suspension
○ 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
203. He also has the discretion to be first satisfied that the conditions set by
law are met and all policy holders protected before allowing allowing the
withdrawal of the deposit.
● In this regard, an implied trust if created by law for the benefit of all
claimants under subsisting insurance contracts issued by the insurance
company
PROVISIONS APPLICABLE:
Sec. 203, Insurance Code. 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.
FACTS:
● RTC found Vilfran Liner, Inc., and Hilaria and Maura Villegas jointly and
severally liable to pay Del Monte Motors Inc. in the amount (P11.8M) of the
balance of their service contracts with the latter
○ RTC ordered the execution against the counterbond posted by
Vilfran Liner which is issued by Capital Insurance and Surety Co.
(CISCO)
● Sheriff Paguyo proceeded to levy on the properties of CISCO and served
notices of garnishment on depository banks of CISCO and on the Insurance
Commission (so as to enforce the writ on the security deposit filed by CISCO
w/ the Commission in accordance to Sec. 203 of the Insurance Code)
● RTC ordered Insurance Commissioner Malinis to allow the withdrawal of the
security deposit of CISCO to be paid to Sheriff Paguyo in satisfaction of
 garnishment w/c had become final and executory principles
● RTC found Malinis guilty of indirect contempt for refusing to comply w/ its
directive RULING:
The assailed Order of Garnishment is set aside.
ISSUES/HOLDING/RATIO:
1. W/N the security deposit may be levied or garnished in favor of only one insured in
light of Sec. 203 of the Insurance Code -- NO
● Respondent argues that Sec. 203 is not an absolute prohibition and is
designed precisely to ensure faithful performance of all the obligations of
the depositing insurer; hence, the security deposit should be answerable for
the counterbond
● SC disagrees. As worded, the law states that the security deposit shall be:
○ answerable for all the obligations of the depositing insurer under its
insurance contracts;
○ at all times free from any liens or encumbrance;
○ Exempt from levy by any claimant
● The policy holders of CISCO have a right 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.
○ This would also create a preference of credit in favor of Del Monte
to the detriment of others
● Since our Insurance Code is patterned after that of California, Engwicht v.
Pacific States Life Assurance Co. is also instructive:
○ Money deposited w/ the state treasurer is a trust fund to be ratably
distributed among all the claimants upon an action in the nature of
a creditors’ bill, w/c requires the presence of all the claimants
● In StatCon, provisions of a statute should be construed in accordance w/ its
purpose
○ Thus, the securities are held as contingency fund to answer for the
claims against the insurance company by all its policy holders

2. W/N the issue is now moot by the fact that the security deposit was partially
released to Del Monte -- NO
● Since only a portion was released, Del Monte should not be prevented to
later on further garnish the rest of the deposit
● Further, the business of insurance is imbued w/ public interest and subject
to State regulation. As a matter of public policy, the Court shall not shirk
from its duty to educate the bench and the bar and formulate guiding