General Concepts Cases

8/12/2019 General Concepts Cases

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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, appliedfor a health care coverage with petitioner Philamcare Health Systems,Inc. In the standard application form, he answered no to the followingquestion:

Have you or any of your family members ever consulted orbeen treated for high blood pressure, heart trouble, diabetes,cancer, liver disease, asthma or peptic ulcer? (If Yes, givedetails).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, respondent’s husbandwas entitled to avail of hospitalization benefits, whether ordinary oremergency, listed therein. He was also entitled to avail of "out-patientbenefits" such as annual physical examinations, preventive health careand other out-patient services.

Upon the termination of the agreement, the same was extended foranother 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 amaximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack andwas confined at the Manila Medical Center (MMC) for one monthbeginning 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 concealmentregarding Ernani’s medical history. Doctors at the MMC allegedlydiscovered at the time of Ernani’s confinement that he washypertensive, diabetic and asthmatic, contrary to his answer in theapplication form. Thus, respondent paid the hospitalization expensesherself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended bya physical therapist at home. Later, he was admitted at the ChineseGeneral Hospital. Due to financial difficulties, however, respondentbrought her husband home again. In the morning of April 13, 1990,Ernani had fever and was feeling very weak. Respondent wasconstrained to bring him back to the Chinese General Hospital wherehe died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court ofManila, Branch 44, an action for damages against petitioner and itspresident, Dr. Benito Reverente, which was docketed as Civil Case No.90-53795. She asked for reimbursement of her expenses plus moraldamages and attorney’s fees. After trial, the lower court ruled againstpetitioners, 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 hospitalcoverage of the late Ernani Trinos in the amount ofP76,000.00 plus interest, until the amount is fully paid toplaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damagesof P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 asexemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, pluscosts of suit.

SO ORDERED.3

On appeal, the Court of Appeals affirmed the decision of the trial courtbut deleted all awards for damages and absolved petitionerReverente.4 Petitioner’s motion for reconsideration wasdenied.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 theInsurance Code6 does not apply.1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such asmedical check-ups and hospitalization which a member mayimmediately enjoy so long as he is alive upon effectivity of theagreement until its expiration one-year thereafter. Petitioner also pointsout that only medical and hospitalization benefits are given under theagreement without any indemnification, unlike in an insurance contractwhere the insured is indemnified for his loss. Moreover, since HealthCare Agreements are only for a period of one year, as compared toinsurance contracts which last longer,7 petitioner argues that theincontestability clause does not apply, as the same requires aneffectivity period of at least two years. Petitioner further argues that it isnot an insurance company, which is governed by the InsuranceCommission, but a Health Maintenance Organization under theauthority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance asan agreement whereby one undertakes for a consideration toindemnify another against loss, damage or liability arising from anunknown or contingent event. An insurance contract exists where thefollowing 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 todistribute actual losses among a large group of personsbearing a similar risk; and

5. In consideration of the insurer’s promise, the insured paysa premium.8

Section 3 of the Insurance Code states that any contingent or unknownevent, whether past or future, which may damnify a person having aninsurable interest against him, may be insured against. Every person

has an insurable interest in the life and health of himself. Section 10provides:

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 foreducation or support, or in whom he has a pecuniaryinterest;

(3) of any person under a legal obligation to him for thepayment of money, respecting property or service, of whichdeath or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interestvested in him depends.

In the case at bar, the insurable interest of respondent’s husband inobtaining the health care agreement was his own health. The healthcare agreement was in the nature of non-life insurance, which isprimarily a contract of indemnity.9 Once the member incurs hospital,medical or any other expense arising from sickness, injury or otherstipulated contingent, the health care provider must pay for the sameto the extent agreed upon under the contract.

Petitioner argues that respondent’s husband concealed a material factin his application. It appears that in the application for health coverage,petitioners required respondent’s husband to sign an expressauthorization for any person, organization or entity that has any record

or knowledge of his health to furnish any and all information relative toany hospitalization, consultation, treatment or any other medical adviceor examination.10 Specifically, the Health Care Agreement signed byrespondent’s husband states:

We hereby declare and agree that all statement andanswers contained herein and in any addendum annexed tothis application are full, complete and true and bind allparties in interest under the Agreement herein applied for,that there shall be no contract of health care coverageunless and until an Agreement is issued on this applicationand the full Membership Fee according to the mode of



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payment applied for is actually paid during the lifetime andgood health of proposed Members; that no informationacquired by any Representative of PhilamCare shall bebinding upon PhilamCare unless set out in writing in theapplication;that any physician is, by these presents,

expressly authorized to disclose or give testimony at anytimerelative to any information acquired by him in his

professional capacity upon any question affecting theeligibility for health care coverage of the ProposedMembers and that the acceptance of any Agreement issuedon this application shall be a ratification of any correction inor 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 theapplicant for authorization to inquire about the applicant’s medicalhistory, thus:

I hereby authorize any person, organization, or entity thathas 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 orexamination. This authorization is in connection with theapplication for health care coverage only. A photographiccopy of this authorization shall be as valid as theoriginal.12 (Underscoring ours)

Petitioner cannot rely on the stipulation regarding "Invalidation ofagreement" which reads:

Failure to disclose or misrepresentation of any materialinformation by the member in the application or medicalexamination, whether intentional or unintentional, shallautomatically invalidate the Agreement from the verybeginning and liability of Philamcare shall be limited to returnof all Membership Fees paid. An undisclosed ormisrepresented information is deemed material if itsrevelation would have resulted in the declination of theapplicant by Philamcare or the assessment of a higherMembership 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 onopinion rather than fact, especially coming from respondent’s husbandwho was not a medical doctor. Where matters of opinion or judgmentare called for, answers made in good faith and without intent todeceive 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 notavoid the policy if there is no actual fraud in inducing theacceptance of the risk, or its acceptance at a lower rate ofpremium, and this is likewise the rule although the statementis material to the risk, if the statement is obviously of theforegoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated tomake further inquiry. There is a clear distinction betweensuch a case and one in which the insured is fraudulently and

intentionally states to be true, as a matter of expectation orbelief, that which he then knows, to be actually untrue, or theimpossibility of which is shown by the facts within hisknowledge, since in such case the intent to deceive theinsurer is obvious and amounts to actualfraud.15 (Underscoring ours)

The fraudulent intent on the part of the insured must be established towarrant rescission of the insurance contract.16 Concealment as adefense for the health care provider or insurer to avoid liability is anaffirmative defense and the duty to establish such defense bysatisfactory and convincing evidence rests upon the provider orinsurer. In any case, with or without the authority to investigate,petitioner is liable for claims made under the contract. Having assumeda responsibility under the agreement, petitioner is bound to answer thesame to the extent agreed upon. In the end, the liability of the health

care provider attaches once the member is hospitalized for the diseaseor injury covered by the agreement or whenever he avails of thecovered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles theinjured party to rescind a contract of insurance." The right to rescindshould be exercised previous to the commencement of an action onthe contract.17 In this case, no rescission was made. Besides, thecancellation of health care agreements as in insurance policies requirethe concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of thepolicy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the addressshown in the policy;

4. Must state the grounds relied upon provided in Section 64 of theInsurance Code and upon request of insured, to furnish facts on whichcancellation is based.18

None of the above pre-conditions was fulfilled in this case. When theterms of insurance contract contain limitations on liability, courts shouldconstrue them in such a way as to preclude the insurer from non-compliance with his obligation.19 Being a contract of adhesion, theterms of an insurance contract are to be construed strictly against theparty which prepared the contract – the insurer.20 By reason of theexclusive control of the insurance company over the terms andphraseology of the insurance contract, ambiguity must be strictlyinterpreted 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 servicecontracts, such as the one at bar, must be liberally construed in favorof the subscriber, and if doubtful or reasonably susceptible of twointerpretations 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 respondent’s husband,we quote with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, thedefendant Philamcare Health Systems Inc. had twelvemonths from the date of issuance of the Agreement withinwhich to contest the membership of the patient if he hadprevious ailment of asthma, and six months from theissuance of the agreement if the patient was sick of diabetesor hypertension. The periods having expired, the defense ofconcealment 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, thedeceased was previously married to another woman who was stillalive. The health care agreement is in the nature of a contract ofindemnity. Hence, payment should be made to the party who incurredthe expenses. It is not controverted that respondent paid all thehospital and medical expenses. She is therefore entitled toreimbursement. The records adequately prove the expenses incurredby respondent for the deceased’s hospitalization, medication and theprofessional fees of the attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. Theassailed decision of the Court of Appeals dated December 14, 1995is AFFIRMED.

SO ORDERED.



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G.R. No. 167330 June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

CORONA, J .:

Is a health care agreement in the nature of an insurance contract andtherefore subject to the documentary stamp tax (DST) imposed underSection 185 of Republic Act 8424 (Tax Code of 1997)?

This is an issue of first impression. The Court of Appeals (CA)answered it affirmatively in its August 16, 2004 decision1 in CA-G.R.SP No. 70479. Petitioner Philippine Health Care Providers, Inc.believes otherwise and assails the CA decision in this petition forreview under Rule 45 of the Rules of Court.

Petitioner is a domestic corporation whose primary purpose is "[t]oestablish, maintain, conduct and operate a prepaid group practicehealth care delivery system or a health maintenance organization totake care of the sick and disabled persons enrolled in the health careplan and to provide for the administrative, legal, and financialresponsibilities of the organization."2 Individuals enrolled in its healthcare programs pay an annual membership fee and are entitled tovarious preventive, diagnostic and curative medical services providedby its duly licensed physicians, specialists and other professionaltechnical staff participating in the group practice health delivery systemat a hospital or clinic owned, operated or accredited by it.3

The pertinent part of petitioner's membership or health careagreement4 provides:

VII BENEFITS

Subject to paragraphs VIII [on pre-existing medical condition]and X [on claims for reimbursement] of this Agreement,Members shall have the following Benefits under this Agreement:

In-Patient Services. In the event that a Member contract[s]sickness or suffers injury which requires confinement in aparticipating Hospital[,] the services or benefits stated belowshall be provided to the Member free of charge, but in nocase shall [petitioner] be liable to pay more than P75,000.00in benefits with respect to anyone sickness, injury or relatedcauses. If a member has exhausted such maximum benefitswith respect to a particular sickness, injury or related causes,all accounts in excess of P75,000.00 shall be borne by theenrollee. It is[,] however, understood that the payment by[petitioner] of the said maximum in In-Patient Benefits to anyone member shall preclude a subsequent payment ofbenefits to such member in respect of an unrelated sickness,injury or related causes happening during the remainder ofhis membership term.

(a) Room and Board

(b) Services of physician and/or surgeon orspecialist

(c) Use of operating room and recovery room

(d) Standard Nursing Services

(e) Drugs and Medication for use in the hospitalexcept those which are used to dissolve bloodclots in the vascular systems (i.e., trombolyticagents)

(f) Anesthesia and its administration

(g) Dressings, plaster casts and othermiscellaneous supplies

(h) Laboratory tests, x-rays and other necessarydiagnostic services

(i) Transfusion of blood and other blood elements

Condition for in-Patient Care. The provision of the servicesor benefits mentioned in the immediately precedingparagraph shall be subject to the following conditions:

(a) The Hospital Confinement must be approvedby [petitioner's] Physician, Participating Physicianor [petitioner's] Medical Coordinator in thatHospital prior to confinement.

(b) The confinement shall be in a ParticipatingHospital and the accommodation shall be in

accordance with the Member[']s benefitclassification.

(c) Professional services shall be provided only bythe [petitioner's] Physicians or ParticipatingPhysicians.

(d) If discharge from the Hospital has beenauthorized by [petitioner's] attending Physician orParticipating Physician and the Member shall failor refuse to do so, [petitioner] shall not beresponsible for any charges incurred afterdischarge has been authorized.

Out-Patient Services. A Member is entitled free of charge

to the following services or benefits which shall be renderedor administered either in [petitioner's] Clinic or in aParticipating Hospital under the direction or supervision of[petitioner's] Physician, Participating Physician or[petitioner's] Medical Coordinator.

(a) Gold Plan Standard Annual PhysicalExamination on the anniversary date ofmembership, to be done at [petitioner's]designated hospital/clinic, to wit:

(i) Taking a medical history

(ii) Physical examination

(iii) Chest x-ray

(iv) Stool examination

(v) Complete Blood Count

(vi) Urinalysis

(vii) Fasting Blood Sugar (FBS)

(viii) SGPT

(ix) Creatinine

(x) Uric Acid

(xi) Resting Electrocardiogram

(xii) Pap Smear (Optional for women 40years and above)

(b) Platinum Family Plan/Gold Family Plan andSilver Annual Physical Examination.

The following tests are to be done as part of theMember[']s Annual check-up program at[petitioner's] designated clinic, to wit:

1) Routine Physical Examination

2) CBC (Complete Blood Count)

* Hemoglobin * Hematocrit

* Differential * RBC/WBC

3) Chest X-ray

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4) Urinalysis

5) Fecalysis

(c) Preventive Health Care, which shall include:

(i) Periodic Monitoring of HealthProblems

(ii) Family planning counseling

(iii) Consultation and advices on diet,exercise and other healthy habits

(iv) Immunization but excluding drugsfor vaccines used

(d) Out-Patient Care, which shall include:

(i) Consultation, including specialistevaluation

(ii) Treatment of injury or illness

(iii) Necessary x-ray and laboratoryexamination

(iv) Emergency medicines needed forthe immediate

relief of symptoms

(v) Minor surgery not requiringconfinement

Emergency Care. Subject to the conditions and limitationsin this Agreement and those specified below, a Member isentitled to receive emergency care [in case of emergency.

For this purpose, all hospitals and all attending physician(s)in the Emergency Room automatically become accredited. Inparticipating hospitals, the member shall be entitled to thefollowing services free of charge: (a) doctor's fees, (b)emergency room fees, (c) medicines used for immediaterelief and during treatment, (d) oxygen, intravenous fluidsand whole blood and human blood products, (e) dressings,casts and sutures and (f) x-rays, laboratory and diagnosticexaminations and other medical services related to theemergency treatment of the patient.]5 Provided, however,that in no case shall the total amount payable by [petitioner]for said Emergency, inclusive of hospital bill and professionalfees, exceed P75,000.00.

If the Member received care in a non-participating hospital,[petitioner] shall reimburse [him]6 80% of the hospital bill or

the amount of P5,000.00[,] whichever is lesser, and 50% ofthe professional fees of non-participating physicians basedon [petitioner's] schedule of fees provided that the totalamount[,] inclusive of hospital bills and professional fee shallnot exceed P5,000.00.

On January 27, 2000, respondent Commissioner of Internal Revenuesent petitioner a formal demand letter and the correspondingassessment notices demanding the payment of deficiency taxes,including surcharges and interest, for the taxable years 1996 and 1997in the total amount of P224,702,641.18. The assessment represented

the following:

Value Added Tax (VAT) DST

1996 P 45,767,596.23 P 55,746,352.19

1997 54,738,434.03 68,450,258.73

P 100,506,030.26 P 124,196,610.92

The deficiency DST assessment was imposed on petitioner's healthcare agreement with the members of its health care program pursuantto Section 185 of the 1997 Tax Code which provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds orobligations of the nature of indemnity for loss, damage,

or liability made or renewed by any person, associationor company or corporation transacting the businessof accident, fidelity, employer's liability, plate, glass, steamboiler, burglar, elevator, automatic sprinkler, or otherbranch of insurance (except life, marine, inland, and fireinsurance), and all bonds, undertakings, or recognizances,conditioned for the performance of the duties of any office orposition, for the doing or not doing of anything thereinspecified, and on all obligations guaranteeing the validity orlegality of any bond or other obligations issued by anyprovince, city, municipality, or other public body ororganization, 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 adocumentary stamp tax of fifty centavos (P0.50) on each

four pesos (P4.00), or fractional part thereof, of the premium

charged. (emphasis supplied)

Petitioner protested the assessment in a letter dated February 23,2000. As respondent did not act on the protest, petitioner filed apetition for review in the Court of Tax Appeals (CTA) seeking thecancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision,7 the dispositive portionof which read:

WHEREFORE, in view of the foregoing, the instant Petitionfor Review is PARTIALLY GRANTED. Petitioner is herebyORDERED to PAY the deficiency VAT amountingto P22,054,831.75 inclusive of 25% surcharge plus 20%

interest from January 20, 1997 until fully paid for the 1996VAT deficiency and P31,094,163.87 inclusive of 25%

surcharge plus 20% interest from January 20, 1998 until fullypaid for the 1997 VAT deficiency. Accordingly, VAT RulingNo. [231]-88 is declared void and without force and effect.The 1996 and 1997 deficiency DST assessment againstpetitioner is hereby CANCELLED AND SET ASIDE.Respondent is ORDERED to DESIST from collecting thesaid DST deficiency tax.

SO ORDERED.8

Respondent appealed the CTA decision to the CA9 insofar as itcancelled the DST assessment. He claimed that petitioner's healthcare agreement was a contract of insurance subject to DST underSection 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision.10 It held thatpetitioner's health care agreement was in the nature of a non-lifeinsurance contract subject to DST:

WHEREFORE, the petition for review is GRANTED. TheDecision of the Court of Tax Appeals, insofar as it cancelledand set aside the 1996 and 1997 deficiency documentarystamp tax assessment and ordered petitioner to desist fromcollecting the same is REVERSED and SET ASIDE.

Respondent is ordered to pay the amountsof 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 perannum from January 27, 2000, pursuant to Sections 248 and249 of the Tax Code, until the same shall have been fullypaid.

SO ORDERED.11

Petitioner moved for reconsideration but the CA denied it. Hence, thispetition.

Petitioner essentially argues that its health care agreement is not acontract of insurance but a contract for the provision on a prepaid basis

of medical services, including medical check-up, that are not based onloss or damage. Petitioner also insists that it is not engaged in theinsurance business. It is a health maintenance organization regulatedby the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission. For these reasons, petitionerasserts that the health care agreement is not subject to DST.

We do not agree.

The DST is levied on the exercise by persons of certain privilegesconferred by law for the creation, revision, or termination of specific






























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legal relationships through the execution of specific instruments.12 It isan excise upon the privilege, opportunity, or facility offered atexchanges for the transaction of the business.13 In particular, the DSTunder Section 185 of the 1997 Tax Code is imposed on theprivilege of making or renewing any policy of insurance (exceptlife, marine, inland and fire insurance) , bond or obligation in thenature of indemnity for loss, damage, or liability.

Under the law, a contract of insurance is an agreement whereby oneundertakes for a consideration to indemnify another against loss,damage or liability arising from an unknown or contingent event.14 Theevent insured against must be designated in the contract and musteither be unknown or contingent.15

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares,16 thisCourt ruled that a health care agreement is in the nature of a non-lifeinsurance policy.

Contrary to petitioner's claim, its health care agreement is not acontract for the provision of medical services. Petitioner does notactually provide medical or hospital services but merely arranges forthe same17 and pays for them up to the stipulated maximum amount ofcoverage. It is also incorrect to say that the health care agreement isnot 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 themonetary expense or liability a member will incur in case of illness orinjury.

Under the health care agreement, the rendition of hospital, medicaland professional services to the member in case of sickness, injury oremergency or his availment of so-called "out-patient services"(including physical examination, x-ray and laboratory tests, medicalconsultations, vaccine administration and family planning counseling)is the contingent event which gives rise to liability on the part of themember. In case of exposure of the member to liability, he would beentitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member fromliability by paying for expenses arising from the stipulatedcontingencies belies its claim that its services are prepaid. The

expenses to be incurred by each member cannot be predictedbeforehand, if they can be predicted at all. Petitioner assumes the riskof paying for the costs of the services even if they are significantly andsubstantially more than what the member has "prepaid." Petitionerdoes not bear the costs alone but distributes or spreads them outamong a large group of persons bearing a similar risk, that is, amongall the other members of the health care program. This is insurance.

Petitioner's health care agreement is substantially similar to thatinvolved in Philamcare Health Systems, Inc . v. CA.18 The health careagreement in that case entitled the subscriber to avail of thehospitalization benefits, whether ordinary or emergency, listed therein.It also provided for "out-patient benefits" such as annual physicalexaminations, preventive health care and other out-patient services.This Court ruled in Philamcare Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in obtaining thehealth care agreement was his own health. The health careagreement was in the nature of non-life insurance,which is primarily a contract of indemnity. Once themember incurs hospital, medical or any other expensearising from sickness, injury or other stipulated contingency,the health care provider must pay for the same to the extentagreed upon under the contract.19 (emphasis supplied)

Similarly, the insurable interest of every member of petitioner's healthcare program in obtaining the health care agreement is his own health.Under the agreement, petitioner is bound to indemnify any memberwho incurs hospital, medical or any other expense arising fromsickness, injury or other stipulated contingency to the extent agreedupon under the contract.

Petitioner's contention that it is a health maintenance organization andnot an insurance company is irrelevant. Contracts between companieslike petitioner and the beneficiaries under their plans are treated asinsurance contracts.20

Moreover, DST is not a tax on the business transacted but an exciseon the privilege, opportunity, or facility offered at exchanges for thetransaction of the business.21 It is an excise on the facilities used inthe transaction of the business, separate and apart from thebusiness itself .22

WHEREFORE, the petition is hereby DENIED. The August 16, 2004decision of the Court of Appeals in CA-G.R. SPNo. 70479 is AFFIRMED.

Petitioner 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 until full payment thereof.

Costs against petitioner.

SO ORDERED.















































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G.R. No. L-22042 August 17, 1967

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO allsurnamed GUINGON, plaintiffs-appellees,vs.ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITALINSURANCE and SURETY CO., INC., defendants.CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.

Generoso Almario and Associates for plaintiffs-appellees. Achacoso and Associates for defendant-appellant.

BENGZON, J.P., J .:

Julio Aguilar owned and operated several jeepneys in the City ofManila among which was one with plate number PUJ-206-Manila,1961. He entered into a contract with the Capital Insurance & SuretyCo., Inc. insuring the operation of his jeepneys against accidents withthird-party liability. As a consequence thereof an insurance policy wasexecuted by the Capital Insurance & Surety Co., Inc., the pertinentprovisions of which in so far as this case is concerned contains thefollowing:

Section II—LIABILITY TO THE PUBLIC

1. The Company, will, subject to the limits of liability,indemnify the Insured in the event of accident caused by orarising out of the use of the Motor Vehicle/s or in connectionwith the loading or unloading of the Motor Vehicle/s, againstall sums including claimant's costs and expenses which theInsured shall become legally liable to pay in respect of:

a. death of or bodily injury to any person

b. damage to property

During the effectivity of such insurance policy on February 20, 1961Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, while driving along the intersection of Juan Luna and Morostreets, City of Manila, bumped with the jeepney abovementioned oneGervacio Guingon who had just alighted from another jeepney and as

a consequence the latter died some days thereafter.

A corresponding information for homicide thru reckless imprudencewas filed against Iluminado del Monte, who pleaded guilty. A penalty offour months imprisonment was imposed on him.

As a corollary to such action, the heirs of Gervacio Guingon filed anaction for damages praying that the sum of P82,771.80 be paid tothem jointly and severally by the defendants, driver Iluminado delMonte, owner and operator Julio Aguilar, and the Capital Insurance &Surety Co., Inc. For failure to answer the complaint, Del Monte and Aguilar were declared in default. Capital Insurance & Surety Co., Inc.answered, alleging that the plaintiff has no cause of action against it.During the trial the following facts were stipulated:

COURT: The Court wants to find if there is a stipulation inthe policy whereby the insured is insured against liability tothird persons who are not passengers of jeeps.

ALMARIO: As far as I know, in my honest belief, there is noparticularization as to the passengers, whether thepassengers of the jeep insured or a passenger of another jeep or whether it is a pedestrian. With those, we can submitthe stipulation.

SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65Rec. on Appeal)

On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the following dispositive portion:

WHEREFORE, judgment is rendered sentencing Iluminadodel Monte and Julio Aguilar jointly and severally to payplaintiffs the sum of P8,572.95 as damages for the death oftheir father, plus P1,000.00 for attorney's fees plus costs.

The defendant Capital Insurance and Surety Co., Inc. ishereby sentenced to pay the plaintiffs the sum of FiveThousand (P5,000.00) Pesos plus Five Hundred (P500.00)Pesos as attorney's fees and costs. These sums ofP5,000.00 and P500.00 adjudged against Capital Insurance

and Surety Co., Inc. shall be applied in partial satisfaction ofthe judgment rendered against Iluminado del Monte andJulio Aguilar in this case.

SO ORDERED.

The case was appealed to the Court of Appeals which appellate courton September 30, 1963 certified the case to Us because the appealraises purely questions of law.

The issues raised before Us in this appeal are (1) As the companyagreed to indemnify the insured Julio Aguilar, is it only the insured towhom it is liable? (2) Must Julio Aguilar first show himself to be entitledto indemnity before the insurance company may be held liable for thesame? (3) Plaintiffs not being parties to the insurance contract, do theyhave a cause of action against the company; and (4) Does the fact thatthe insured is liable to the plaintiffs necessarily mean that the insurer isliable to the insured?

In the discussion of the points thus raised, what is paramount is theinterpretation of the insurance contract with the aim in view of attainingthe objectives for which the insurance was taken. The Rules of Courtprovide that parties may be joined either as plaintiffs or defendants, asthe right to relief in respect to or arising out of the same transactions isalleged to exist (Sec. 6, Rule 3). The policy, on the other hand,contains a clause stating:

E. Action Against Company

No action shall lie against the Company unless, as acondition precedent thereto, the Insured shall have fullycomplied with all of the terms of this Policy, nor until theamount of the Insured's obligation to pay shall have beenfinally determined either by judgment against the Insuredafter actual trial or by written agreement of the Insured, theclaimant, and the Company.

Any person or organization or the legal representativethereof who has secured such judgment or writtenagreement shall thereafter be entitled to recover under thispolicy to the extent of the insurance afforded by the Policy.Nothing contained in this policy shall give any person or

organization any right to join the Company as a co-defendant in any action against the Insured to determine theInsured's liability.

Bankruptcy or insolvency of the Insured or of the Insured'sestate shall not relieve the Company of any of its obligationshereunder.

Appellant contends that the "no action" clause in the policy closes theavenue to any third party which may be injured in an accident whereinthe jeepney of the insured might have been the cause of the injury ofthird persons, alleging the freedom of contracts. Will the mere fact thatsuch clause was agreed upon by the parties in an insurance policyprevail over the Rules of Court which authorizes the joining of partiesplaintiffs or defendants?

The foregoing issues raise two principal: questions: (1) Can plaintiffssue the insurer at all? (2) If so, can plaintiffs sue the insurer jointly withthe insured?

The policy in the present case, as aforequoted, is one whereby theinsurer agreed to indemnify the insured "against all sums . . . which theInsured shall become legally liable to pay in respect of: a. death of orbodily injury to any person . . . ." Clearly, therefore, it is one forindemnity against liability;1 from the fact then that the insured is liableto the third person, such third person is entitled to sue theinsurer.1äwphï1.ñët

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 only the insured. And the test applied hasbeen this: Where the contract provides for indemnity against liability tothird persons, then third persons to whom the insured is liable, can suethe insurer. Where the contract is for indemnity against actual loss orpayment, then third persons cannot proceed against the insurer, thecontract being solely to reimburse the insured for liability actuallydischarged by him thru payment to third persons, said third persons'recourse being thus limited to the insured alone.2

The next question is on the right of the third person to sue the insurer jointly with the insured. The policy requires, as afore-stated, that suitand final judgment be first obtained against the insured; that only



7

"thereafter" can the person injured recover on the policy; it expresslydisallows suing the insurer as a co-defendant of the insured in a suit todetermine the latter's liability. As adverted to before, the query is whichprocedure to follow — that of the insurance policy or the Rules ofCourt.

The "no action" clause in the policy of insurance cannot prevail overthe Rules of Court provision aimed at avoiding multiplicity of suits. In acase squarely on the point, American Automobile Ins. Co. vs. Struwe,218 SW 534 (Texas CCA), it was held that a "no action" clause in apolicy of insurance cannot override procedural rules aimed atavoidance of multiplicity of suits. We quote:

Appellants filed a plea in abatement on the grounds that thesuit had been prematurely brought against the insurancecompany, and that it had been improperly joined withZunker, as said insurance company, under the terms of thepolicy, was only liable after judgment had been awardedagainst Zunker. . . .

* * * That plea was properly overruled, because under thelaws of Texas a dual suit will always be avoided wheneverall parties can have a fair trial when joined in one suit. Appellee, had he so desired, could have prosecuted hisclaim to judgment as against Zunker and then have sued onthat judgment against the insurance company, but the lawdoes not make it imperative that he should do so, but would

permit him to dispose of the whole matter in one suit.

The rule has often been announced in Texas that when twocauses of action are connected with each other, or grow outof the same transaction, they may be properly joined, and insuch suit all parties against whom the plaintiff asserts acommon or an alternative liability may be joined asdefendants. . . . Even if appellants had presented any plea inabatement as to joinder of damages arising from a tort withthose arising from a contract, it could not, under the facts ofthis case, be sustained, for the rule is that a suit may includean action for breach of contract and one for tort, providedthey are connected with each other or grew out of the sametransaction.

Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of

action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannotbe superseded, at least with respect to third persons not a party to thecontract , as herein, by a "no action" clause in the contract of insurance.

Wherefore, the judgment appealed from is affirmed in toto. Costsagainst appellant. So ordered.



8

G.R. No. L-20853 May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,vs.ENRIQUE MORA, ET AL., defendants-appellees.

CASTRO, J .:

This is an appeal from the decision of the Court of First Instance ofManila, Branch XV, in civil case 48823, affirming the decision of theMunicipal Court of Manila, declaring the H.S. Reyes, Inc. as having abetter right than the Bonifacio Bros., Inc. and the Ayala Auto PartsCompany, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding &Insurance Co. Inc., and directing payment of the said amount to the H.Reyes, Inc.

Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plateNo. QC- mortgaged the same to the H.S. Reyes, Inc., with thecondition that the former would insure the automobile with the latter asbeneficiary. The automobile was thereafter insured on June 23, 1959with the State Bonding & Insurance Co., Inc., and motor car insurancepolicy A-0615 was issued to Enrique Mora, the pertinent provisions ofwhich read:

1. The Company (referring to the State Bonding & Insurance

Co., Inc.) will, subject to the Limits of Liability, indemnify theInsured against loss of or damages to the Motor Vehicle andits accessories and spare parts whilst thereon; (a) byaccidental collision or overturning or collision or overturningconsequent upon mechanical breakdown or consequentupon wear and tear,

x x x x x x x x x

2. At its own option the Company may pay in cash theamount of the loss or damage or may repair, reinstate, orreplace the Motor Vehicle or any part thereof or itsaccessories or spare parts. The liability of the Company shallnot exceed the value of the parts whichever is the less. TheInsured's estimate of value stated in the schedule will be themaximum amount payable by the Company in respect of any

claim for loss or damage.1äwphï1.ñët

x x x x x x x x x

4. The Insured may authorize the repair of the Motor Vehiclenecessitated by damage for which the Company may beliable under this Policy provided that: — (a) The estimatedcost of such repair does not exceed the Authorized RepairLimit, (b) A detailed estimate of the cost is forwarded to theCompany without delay, subject to the condition that "Loss, ifany is payable to H.S. Reyes, Inc.," by virtue of the fact thatsaid Oldsmobile sedan was mortgaged in favor of the saidH.S. Reyes, Inc. and that under a clause in said insurancepolicy, any loss was made payable to the H.S. Reyes, Inc.as Mortgagee;

x x x x x x x x x

During the effectivity of the insurance contract, the car met with anaccident. The insurance company then assigned the accident to theBayne Adjustment Co. for investigation and appraisal of the damage.Enrique Mora, without the knowledge and consent of the H.S. Reyes,Inc., authorized the Bonifacio Bros. Inc. to furnish the labor andmaterials, some of which were supplied by the Ayala Auto Parts Co.For the cost of labor and materials, Enrique Mora was billed atP2,102.73 through the H.H. Bayne Adjustment Co. The insurancecompany after claiming a franchise in the amount of P100, drew acheck in the amount of P2,002.73, as proceeds of the insurance policy,payable to the order of Enrique Mora or H.S. Reyes,. Inc., andentrusted the check to the H.H. Bayne Adjustment Co. for dispositionand delivery to the proper party. In the meantime, the car was

delivered to Enrique Mora without the consent of the H.S. Reyes, Inc.,and without payment to the Bonifacio Bros. Inc. and the Ayala AutoParts Co. of the cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly tothem, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed onMay 8, 1961 a complaint with the Municipal Court of Manila againstEnrique Mora and the State Bonding & Insurance Co., Inc. for thecollection of the sum of P2,002.73 The insurance company filed itsanswer with a counterclaim for interpleader, requiring the BonifacioBros. Inc. and the H.S. Reyes, Inc. to interplead in order to determinewho has better right to the insurance proceeds in question. Enrique

Mora was declared in default for failure to appear at the hearing, andevidence against him was received ex parte. However, the counsel forthe Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding &Insurance Co. Inc. submitted a stipulation of facts, on the basis ofwhich are Municipal Court rendered a decision declaring the H.S.Reyes, Inc. as having a better right to the disputed amount andordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes,Inc. the said sum of P2,002.73. From this decision, the appellantselevated the case to the Court of First Instance of Manila which thestipulation of facts was reproduced. On October 19, 1962 the lattercourt rendered a decision, affirming the decision of the MunicipalCourt. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved

for reconsideration of the decision, but the trial court denied themotion. Hence, this appeal.

The main issue raised is whether there is privity of contract betweenthe Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one handand the insurance company on the other. The appellants argue that theinsurance company and Enrique Mora are parties to the repair of thecar as well as the towage thereof performed. The authority for thisassertion is to be found, it is alleged, in paragraph 4 of the insurancecontract which provides that "the insured may authorize the repair ofthe Motor Vehicle necessitated by damage for which the company maybe liable under the policy provided that (a) the estimated cost of suchrepair does not exceed the Authorized Repair Limit, and (b) a detailedestimate of the cost is forwarded to the company without delay." It isstressed that the H.H. Bayne Adjustment Company's recommendationof payment of the appellants' bill for materials and repairs for which the

latter drew a check for P2,002.73 indicates that Mora and the H.H.Bayne Adjustment Co. acted for and in representation of the insurancecompany.

This argument is, in our view, beside the point, because from theundisputed facts and from the pleadings it will be seen that theappellants' alleged cause of action rests exclusively upon the terms ofthe insurance contract. The appellants seek to recover the insuranceproceeds, and for this purpose, they rely upon paragraph 4 of theinsurance contract document executed by and between the StateBonding & Insurance Company, Inc. and Enrique Mora. The appellantsare not mentioned in the contract as parties thereto nor is there anyclause or provision thereof from which we can infer that there is anobligation on the part of the insurance company to pay the cost ofrepairs directly to them. It is fundamental that contracts take effect onlybetween the parties thereto, except in some specific instances

provided by law where the contract contains some stipulation in favorof a third person.1Such stipulation is known as stipulation pour autrui ora provision in favor of a third person not a pay to the contract. Underthis doctrine, a third person is allowed to avail himself of a benefitgranted to him by the terms of the contract, provided that thecontracting parties have clearly and deliberately conferred a favor uponsuch person.2 Consequently, a third person not a party to the contracthas no action against the parties thereto, and cannot generallydemand the enforcement of the same.3 The question of whether a thirdperson has an enforcible interest in a contract, must be settled bydetermining whether the contracting parties intended to tender himsuch an interest by deliberately inserting terms in their agreement withthe avowed purpose of conferring a favor upon such third person. Inthis connection, this Court has laid down the rule that the fairest test todetermine whether the interest of a third person in a contract is astipulation pour autrui or merely an incidental interest, is to rely uponthe intention of the parties as disclosed by their contract. 4 In the instant

case the insurance contract does not contain any words or clauses todisclose an intent to give any benefit to any repairmen or materialmenin case of repair of the car in question. The parties to the insurancecontract omitted such stipulation, which is a circumstance that supportsthe said conclusion. On the other hand, the "loss payable" clause ofthe insurance policy stipulates that "Loss, if any, is payable to H.S.Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which theyintended to benefit.

We likewise observe from the brief of the State Bonding & InsuranceCompany that it has vehemently opposed the assertion or pretensionof the appellants that they are privy to the contract. If it were theintention of the insurance company to make itself liable to the repairshop or materialmen, it could have easily inserted in the contract astipulation to that effect. To hold now that the original parties to theinsurance contract intended to confer upon the appellants the benefit

claimed by them would require us to ignore the indespensablerequisite that a stipulation pour autrui must be clearly expressed by theparties, which we cannot do.

As regards paragraph 4 of the insurance contract, a perusal thereofwould show that instead of establishing privity between the appellantsand the insurance company, such stipulation merely establishes theprocedure that the insured has to follow in order to be entitled toindemnity for repair. This paragraph therefore should not be construedas bringing into existence in favor of the appellants a right of actionagainst the insurance company as such intention can never be inferredtherefrom.



9

Another cogent reason for not recognizing a right of action by theappellants against the insurance company is that "a policy of insuranceis a distinct and independent contract between the insured and insurer,and third persons have no right either in a court of equity, or in a courtof law, to the proceeds of it, unless there be some contract of trust,expressed or implied between the insured and third person."5 In thiscase, no contract of trust, expressed or implied exists. We, therefore,agree with the trial court that no cause of action exists in favor of theappellants in so far as the proceeds of insurance are concerned. Theappellants' claim, if at all, is merely equitable in nature and must bemade effective through Enrique Mora who entered into a contract withthe Bonifacio Bros. Inc. This conclusion is deducible not only from the

principle governing the operation and effect of insurance contracts ingeneral, but is clearly covered by the express provisions of section 50of the Insurance Act which read:

The insurance shall be applied exclusively to the properinterests of the person in whose name it is made unlessotherwise specified in the policy.

The policy in question has been so framed that "Loss, if any, is payableto H.S. Reyes, Inc.," which unmistakably shows the intention of theparties.

The final contention of the appellants is that the right of the H.S.Reyes, Inc. to the insurance proceeds arises only if there was loss andnot where there is mere damage as in the instant case. Suffice it to say

that any attempt to draw a distinction between "loss" and "damage" isuncalled for, because the word "loss" in insurance law embraces injuryor damage.

Loss in insurance, defined . — The injury or damagesustained by the insured in consequence of the happening ofone or more of the accidents or misfortune against which theinsurer, in consideration of the premium, has undertaken toindemnify the insured. (1 Bouv. Ins. No. 1215; Black's LawDictionary; Cyclopedic Law Dictionary, cited in Martin's Phil.Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may beeither total or partial.

Accordingly, the judgment appealed from is hereby affirmed, atappellants' cost.



10

G.R. No. L-23248 February 28, 1969

MANUEL UY, plaintiff-appellee,vs.ENRICO PALOMAR, in his capacity as PostmasterGeneral, defendant-appellant.

ZALDIVAR, J .:

Manuel Uy filed a complaint with the Court of First Instance of Manila(Civil Case No. 55678) against the Postmaster General, praying for aninjunction to restrain said Postmaster General and his subordinates,agents or representatives from enforcing Fraud Order No. 3, datedNovember 22, 1963, declaring Manuel Uy Sweepstakes Agency asconducting a lottery or gift enterprise and directing all postmasters andother employees of the Bureau of Posts concerned to return to thesender any mail matter addressed to Manuel Uy Sweepstakes Agencyor to any of its agents or representatives with the notation "Fraudulent"stamped upon the cover of such mail matter, and prohibiting theissuance or payment of any money order or telegraphic transfer to thesaid agency or to any of its agents and representatives.

As prayed for in the complaint, a writ of preliminary injunction wasissued ex parte by the lower court. The Postmaster General moved forthe dissolution of the writ of preliminary injunction, but the motion wasdenied.

The Postmaster General filed an answer to the complaint, setting upthe defense that Manuel Uy was conducting a lottery or gift enterprisethat is prohibited by law; that as Postmaster General he has theauthority to issue the fraud order in question and he did not abuse hisdiscretion in doing so; and that Manuel Uy had not exhausted all theadministrative remedies before invoking judicial intervention.

The lower court, on the basis of the stipulation of facts submitted bythe parties declared Fraud Order No. 3 contrary to law and violative ofthe rights of the plaintiff and made permanent the preliminary injunctionpreviously issued.

The Postmaster General appealed to this Court.

The salient facts gathered from the stipulation of facts and culled fromthe briefs of the parties are as follows:

Manuel Uy (appellee, for short) is a duly authorized agent of thePhilippine Charity Sweepstakes Office (PCSO for short), a governmententity created and empowered by law to hold sweepstakes draws andlotteries for charitable and public purposes. As such agent of thePCSO appellee is engaged in the sale and distribution of sweepstakesand lottery tickets which the PCSO prints and issues for each andevery one of the not less than twenty draws that said office annuallyholds. To carry out its business of selling sweepstakes and lotterytickets issued by the PCSO appellee, upon authority of the said office,employs sub-agents throughout the Philippines, through which sub-agents not less than 70% of appellee's total sales for each draw aremade; and, with the consent of the PCSO appellee agrees to give 50%of the agent's prize to the sub-agent selling the prize-winning ticket.

The agent's prize is 10% of the prize won by the ticket sold.

For the Grand Christmas Sweepstakes Draw which would be held onDecember 15, 1963, the PCSO fixed the first, second and third prizesat P700,000.00, P350,000.00, and P175,000.00, respectively, and seta sale goal, of P6,000,000.00 worth of tickets. The PCSO directed itsduly authorized agents to undertake every means possible to helpachieve the six-million-peso sales goal. In compliance with saiddirective, appellee devised and, through his representatives, offered tothe public, the "Grand Christmas Bonus Award" plan. The plan wasdesigned to boost the sales of tickets for the PCSO Grand ChristmasSweepstakes Draw. According to said plan, the appellee's sub-agentsand purchasers of whole sweepstakes tickets sold by appellee and hissub-agents may, in addition to the regular prize money of theDecember 15, 1963 draw, win bonuses and awards as follows: for thesub-agent and buyer of the ticket winning the first prize, one 1963

Volkswagen sedan each; for the sub-agent and buyer of the ticketwinning the second prize, one Radiowealth 23-inch television set each;for the sub-agent and buyer of the ticket winning the third prize, oneRadiowealth refrigerator each; for the sub-agents and buyers of thetickets winning any of the six fourth prizes, one Radiowealth sewingmachine each; and for the sub-agent and buyer of the ticket winningthe charity prize, one Radiowealth Fiesta "hi-fi" radio set each. Exceptfor the amount paid for the authorized prize of the sweepstakes tickets,those entitled to benefit from the plan did not have to pay any otheramount in consideration of the right to benefit from the plan. Theawards may be claimed by presenting to the appellee the sales invoiceof the winning tickets, in the case of the sellers, and the eight shares ofthe winning tickets, in the case of the buyers.

The aforementioned plan is a modification (or alternative plan, as theappellee calls it) of the original scheme presented by the appellee, thrucounsel, to the Assistant Postmaster General in a letter dated October15, 1963, and which the latter, in his answer dated October 18, 1963,considered as violative of the Postal Law.

The appellee advertised his "Grand Christmas Bonus Award" plan, asdescribed above, in the metropolitan newspapers of nationwidecirculation, the first of such advertisements appearing in seven suchnewspapers in their issues of November 18, 1963. The newspaperadvertisements were repeated almost every week after November 18,1963, with the last of them published in the issue of the "Daily Mirror"of December 7, 1963.

As already stated, the fraud order in question was issued by thePostmaster-General (appellant, for short) under date of November 22,1963. However, it was only on December 10, 1963 that the appelleecame to know of the issuance and context thereof when he soughtclarification from the Manila Post Office why his parcels containingsweepstakes tickets for his sub-agents, as well as his other mailmatters of purely personal nature, were refused acceptance for mailingthe day previous.

In the afternoon of December 10, 1963, appellee filed the complaint,mentioned at the beginning of this opinion, alleging among others, thatin issuing Fraud Order No. 3 the appellant "has acted arbitrarily orgravely exceeded his authority, and/or committed an error of law". 1

Disclaiming that in issuing the fraud order he acted arbitrarily, orgravely exceeded his authority and/or committed an error of law,appellant, in his answer to the complaint, cites as basis of his action,the provisions of Sections 1954(a), 1982, and 1983 of the Postal Law(Chapter 52 of the Revised Administrative Code), pertinent portions ofwhich read:

SEC. 1954. Absolutely nonmailable matter . — No matterbelonging to any of the following classes, whether sealed asfirst class matter or not, shall be imported into the Philippinesthrough the mails, or be deposited in or carried by the mailsof the Philippines, or be delivered to its addressee by anyofficer or employee of the Bureau of Posts:

(a) Written or printed matter in any form, advertising,describing, or in any manner pertaining to, or conveying orpurporting to convey any information concerning any lottery,gift enterprise, or similar scheme depending in whole or inpart upon lot or chance, or any scheme, device, or enterprisefor obtaining money or property of any kind by means offalse or fraudulent pretenses, representations, or promises.

x x x x x x x x x

SEC. 1982. Fraud orders. — Upon satisfactory evidence thatany person or company is engaged in conducting any lottery,gift enterprise, or scheme or the distribution of money, or ofany real or personal property by lot, chance, or drawing ofany kind, or that any person or company is conducting anyscheme, device, or enterprise for obtaining money or

property of any kind through the mails by means of false orfraudulent pretenses, representations, or promises, theDirector of Posts may instruct any postmaster or other officeror employee of the Bureau of Posts to return to the persondepositing same in the mails, with the word "fraudulent"plainly written or stamped upon the outside cover thereof,any mail matter of whatever class mailed by or addressed tosuch person or company or the representative or agent ofsuch person or company....

SEC. 1983. Deprivation of use of money order system andtelegraphic transfer service. — Director of Posts may, uponevidence satisfactory to him that any person or company isengaged in conducting any lottery, gift enterprise, or schemefor the distribution of money or of any real or personalproperty by lot, chance, or drawing of any kind, or that any

person or company is conducting any scheme, device, orenterprise for obtaining money or property of any kindthrough the mails by means of false or fraudulent pretenses,representations, or promise, forbid the issue or payment byany postmaster of any postal money order or telegraphictransfer to said person or company, or to the agent of anysuch person or company, whether such agent is acting as anindividual or as a firm, bank, corporation, or association ofany kind, and may provide by regulation for the return to theremitters of the sums named in money orders or telegraphictransfers drawn in favor of such person or company or itsagent.... (Emphasis supplied).



11

Invoking the phrase "upon evidence satisfactory to him the appellantcontends that the fraud order in question was legally issued becausehe had been satisfied with the evidence presented to him that appelleewas conducting a lottery or gift enterprise. 2 We note that the appelleedoes not question the authority of the appellant, under Sections1954(a), 1982 and 1983 aforequoted, to prohibit the use of the mails,the money order system and the telegraphic transfer service for thepromotion of lotteries, gift enterprises or fraudulent schemes. 3 Indeed,appellant would be remiss in the performance of his duties should hefail to exercise his authority under the Postal Law if and when themails, the money order system, and the telegraphic transfer serviceare utilized for the promotion of lotteries, gift enterprises and similar

schemes prohibited by law. Appellant's authority, however, is notabsolute. Neither does the law give him unlimited discretion. Theappellant may only exercise his authority if there is a clear showingthat the mails, the money order system and the telegraphic transferservice are used to promote a scheme or enterprise prohibited by law.

In the present case, therefore, the question that must be resolved iswhether appellee's "Grand Christmas Bonus Award" plan constitutes alottery, gift enterprise, or similar scheme proscribed by the Postal Law,aforequoted, as would authorize the appellant to issue the fraud orderin question.

Before we resolve the question, however, we wish to advert to theclaim of the appellant that he had made his decision based uponsatisfactory evidence that the "Grand Christmas Bonus Award" plan ofappellee is a lottery or gift enterprise for the distribution of gifts by

chance, and his decision in this regard cannot be reviewed by thecourt. 4 Thus, the appellant, in his brief, 5 says:

It is respectfully submitted that corollary to the rule thatcourts cannot interfere in the performance of ordinary dutiesof the executive department is the equally compelling rulethat decisions of the defendant on questions of fact are finaland conclusive and generally cannot be reviewed by thecourts. For it cannot be denied that the Postmaster Generalis charged with quasi-judicial functions and vested withdiscretion in determining what is mailable matter and inwithholding from the plaintiff the privilege of using the mail,the money order system and the telegraphic transferservice... As the disputed, Fraud Order No. 3 was issuedpursuant to the powers vested in the defendant by the PostalLaw and in accordance with satisfactory evidence presented

to him, it cannot be said that the defendant was palpablywrong or that his decision had no reasonable basiswhatever. Neither can it be said that he exceeded hisauthority nor that he abused his discretion.

In this connection it may be stated that the Postal Law contains noprovision for judicial review of the decision of the Postmaster General.This Court, however, in Reyes vs. Topacio

6 had stated that the actionof the Director of Posts (now Postmaster General) is subject to revisionby the courts in case he exceeded his authority or his act is palpablywrong. And in "El Debate" Inc. vs. Topacio

7 this Court said that thecourts will not interfere with the decision of the Director of Post(Postmaster General) as to what is, and what is not, mailable matterunless clearly of opinion that it was wrong. In other words, the courtswill interfere with the decision of the Postmaster General if it clearlyappears that the decision is wrong. This Court, by said rulings,

recognizes the availability of judicial review over the action of thePostmaster General, notwithstanding the absence of statutoryprovision for judicial review of his action. It may not be amiss to statethat said rulings are in consonance with American jurisprudence to theeffect that the absence of statutory provisions for judicial review doesnot necessarily mean that access to the courts is barred. The silenceof the Congress is not to be construed as indicating a legislative intentto preclude judicial review. 8 In American School of Magnetic Healingvs. McAnnulty , 9 the U.S. Supreme Court, speaking on the power of thecourts to review the action of the Postmaster General under a statutesimilar to our Postal Law, 10said:

That the conduct of the post office is a part of theadministrative department of the government is entirely true,but that does not necessarily and always oust the courts of jurisdiction to grant relief to a party aggrieved by any action

by the head, or one of the subordinate officials, of thatDepartment, which is unauthorized by the statute underwhich he assumes to act. The acts of all its officers must be justified by some law, and in case an official violates the lawto the injury of an individual the courts generally have jurisdiction to grant relief.

Appellant also invokes the doctrine of exhaustion of administrativeremedies, and asserts that the action of the appellee in the presentcase was premature because he had not first appealed the fraud orderto higher administrative authorities. This assertion of appellant has nomerit. The rule on exhaustion of administrative remedies is not a hard

and fast one. It admits of exceptions, amongst which are: (1) where thequestion involved is purely a legal one, 11 and (2) where there arecircumstances indicating the urgency of judicial intervention. 12 Thequestion involved in the present case is legal — whether or not the"Grand Christmas Bonus Award" plan of appellee, based upon thefacts as stipulated, is a lottery or gift enterprise. We take note that theGrand Christmas Sweepstakes draw in conjunction with whichappellee's plan was offered, was scheduled for December 15, 1963, orbarely five days from December 10, 1963, the date when appelleelearned of the issuance of the fraud order. Time was of the essence tothe appellee.

We now resolve the main question in this case, namely, whether or notappellee's "Grand Christmas Bonus Award" plan constitutes a lottery ora gift enterprise. There is no statutory definition of the terms "lottery"and "gift enterprise". This Court, in the case of "El Debate" Inc. vs.Topacio, supra, referring to lottery, said:

... while countless definitions of lottery have been attempted,the authoritative one for this jurisdiction is that of the UnitedStates Supreme Court, in analogous cases having to do withthe power of the United States Postmaster General, viz : Theterm "lottery" extends to all schemes for the distribution ofprizes by chance, such as policy playing, gift exhibitions,prize concerts, raffles at fairs, etc., and various forms ofgambling. The three essential elements of a lottery are: First,consideration; second, prize; and third. chance (Horner vs.United States [1902] 147 U.S. 449; Public Clearing House

vs. Coyne [1903] 194 U.S., 497; U.S. vs. Filart and Singson[1915] 30 Phil. 80; U.S. vs. Olsen and Marker [1917] 36 Phil.395; U.S. Vs. Baguio [1919] 39 Phil. 962: Valhalla HotelConstruction Company vs. Carmona, p. 233, ante.)

Thus, for lottery to exist, three elements must concur, namely:consideration, prize, and chance.

Appellant maintains that all the elements are present in the "GrandChristmas Bonus Award" plan of the appellee, to wit:"(1) consideration, because to participate and win in the contest onemust buy and resell (in case of sub-agents) or buy (in case of ticketbuyers) only 'Manuel Uy' tickets; (2) prize, because of the goods to beawarded to the winners; and (3) chance, because the determination ofthe winners depends upon the results of the sweepstakes draw which

is decidedly a game of chance."

13

With particular emphasis on theelement of consideration, appellant likens this case to the "El Debate"case, supra, and paraphrasing the ruling therein says that "By analogythere is consideration with respect to persons who will buy 'Manuel Uy'tickets (in preference to tickets sold by other authorized agents, likeTagumpay, Pelagia Viray, Marcela Meer Millar, etc.) merely to winprizes in addition to the regular sweepstakes prizes (and it is to suchpersons that the scheme is directed); moreover, the personspatronizing the Manuel Uy Sweepstakes Agency do not all receivesame amount and some may receive more than the value paid for theirtickets through chance and the prizes awarded by the PhilippineCharity Sweepstakes Office." 14

As against this contention, appellee maintains that there is absence ofthe element of consideration because except for paying the authorizedpurchase price of the corresponding sweepstakes tickets, those

entitled to participate in and to benefit from appellee's "GrandChristmas Bonus Award" plan do not part with any other considerationfor the right to take part and benefit therefrom, which fact is admittedby the appellant. 15 Further, appellee contends that even under the testlaid down in the "El Debate" case, the element of consideration islacking because appellee's sub-agents would have continued to selland the general public would have continued to buy 'Manuel Uy' ticketsregardless of appellee's "Grand Christmas Bonus Award"plan. 16 Moreover, appellee advances the view that under another testadopted by American courts as shown by a review of comparativecase law in the United States, there can be no consideration under theplan in question because the participants pay no money or itsequivalent into a fund which pays for the prize. 17

Speaking of the element of consideration, this Court in theaforementioned "El Debate" case, and quoted in Caltex (Phil.) Inc. vs.Postmaster General , 18 said:

In respect to the last element of consideration, the law doesnot condemn the gratuitous distribution of property bychance, if no consideration is derived directly or indirectlyfrom the party receiving the chance, but does condemn ascriminal, schemes in which a valuable consideration of somekind is paid directly or indirectly for the chance to draw aprize.

In the "Grand Christmas Bonus Award" plan of the appellee We do notsee the presence of the element of consideration, that is, payment of



12

something of value, or agreement to pay, for the chance to win thebonus or award offered. True, that to be a participant in said plan, onemust have to buy a whole sweepstakes ticket (8 shares) sold by theManuel Uy Sweepstakes Agency or by its sub-agents. But the paymentfor the price of the sweepstakes ticket is the consideration for thechance to win any of the prizes offered by the PCSO in thesweepstakes draw of December 15, 1963. Wholly or partly, saidpayment cannot be deemed as a consideration also for the chance towin the prizes offered by the appellee. For nothing is asked of, orreceived from, the buyer of the ticket more than the authorized pricethereof, and which price appears on the face of the ticket. In fact,appellant admits that except for the price of the ticket, those entitled to

participate and benefit from the plan do not part with any otherconsideration for the right to take part and benefit therefrom. 19 Indeed,as correctly observed by the lower court, "there is absolutely noseparate consideration for the right to win any of the offered bonusesor awards."

The analogy drawn by the appellant from the "El Debate" case is notpersuasive. On the contrary, the "reason" or "inducement" test laiddown in said case in determining the presence of the element ofconsideration seems to favor the appellee. Paraphrased, the test asexpressed in the "El Debate" case is: if the reason for the subscriptionof the "El Debate" was the desire to subscribe regardless of any prizeoffered, then there was no consideration insofar as the prize plan isconcerned; upon the other hand, if the reason for the subscription wasto win the prize offered, then the payment of the subscription feeconstituted a consideration for the chance to win the prize. In the

instant case, there are two groups of participants, in appellee's plan,namely: the sub-agents and the ticket buyers. It cannot be denied thatthe sub-agents who, as stated in the stipulation of facts, areresponsible for not less than 70% of appellee's total sales for everydraw, would have continued to be appellee's sub-agents and wouldhave sold "Manuel Uy" tickets regardless of the plan in question. Anyway, they stood to receive 50% of the agent's prize for any of theprize-winning ticket they could sell. Upon the other hand, theprobability is that the general public would have purchased "ManuelUy" tickets in their desire to win any of the prizes offered by the PCSOregardless of the inducement offered by the appellee to win additionalprizes. This conclusion finds support from the admitted fact that theappellee has consistently sold the greatest number of tickets amongthe PCSO'S authorized agents. 20 And undoubtedly, every person whopurchased sweepstakes tickets from the Manuel Uy Sweepstakes Agency for the December 15, 1963 draw must have been induced, notby the prizes offered by the appellee but by the substantial prizes

offered by the PCSO to wit: First prize, P700,000.00; Second prizeP350,000.00; and Third prize, P175,000.00.

It may not be amiss to state at this juncture that the comparative caselaw in the United States indicates that there is another test fordetermining whether or not the element of consideration exists in agiven scheme or plan so as to constitute the same a lottery underparallel antilottery legislation. In Post Publishing Co. vs. Murray , 21 itwas held:

The advertisement or scheme in question does not seem tobe like any of the kinds or types of wrong against which the Act of Congress was directed. It did not present a lotteryscheme because a lottery involves a scheme for raisingmoney by selling chances to share in the distribution of

prizes — a scheme for the distribution of prizes by chanceamong persons purchasing tickets. It was not a giftenterprise because a gift enterprise contemplates a schemein which publishers or sellers give presents as inducementsto members of the public to part with their money. (Emphasissupplied.)

The more recent case of Garden City Chamber of Commerce vs.Wagnet

22 laid down the test in more definitive terms, as follows:

The examination of authorities made in the present caseinduces the belief that the consideration requisite to a lotteryis a contribution in kind to the fund or property to bedistributed . (Emphasis supplied)

The test indicated in the foregoing rulings simply means that unless theparticipants pay money or its equivalent into a fund which pays for theprizes, there is no lottery. Stated differently, there is consideration orprice paid if it appears that the prizes offered, by whatever name theymay be called, came out of the fund raised by the sale of chancesamong the participants in order to win the prizes. Conversely, if theprizes do not come out of the fund or contributions by the participants,no consideration has been paid, and consequently there is no lottery.

In the instant case, as stated by the lower court, the prizes offered bythe appellee were to be taken from his share in the agent's prize 23 ,which was 10% of the amount of the prize won by each ticketsold. 24 Therefore, since none of the prizes (awards and bonuses)

offered in appellee's plan were to come directly from the aggregateprice of the sweepstakes tickets sold by appellee, as a part thereof, noconsideration exists for the chance to win said prizes, there being no"contribution in kind to the fund or property to be distributed."

Appellant, however, urges that the patronage of "Manuel Uy" ticketsconstitutes a consideration because from the increased sales, appelleewould derive benefits in the form of "returns on his quite substantialinvestment." This suggestion is without merit. The question ofconsideration is not to be determined from the standpoint of theappellee, or the proponent of the scheme, but rather from that of thesub-agents and the ticket buyers. Said this Court in Caltex (Phil.)case, supra, on this point:

Off-tangent, too, is the suggestion that the scheme, beingadmittedly for sales promotion, would naturally benefit thesponsor in the way of increased patronage by those who willbe encouraged to prefer Caltex products "if only to get thechance to draw a prize by securing entry blanks". Therequired element of consideration does not consist of thebenefit derived by the proponent of the contest. The truetest, as laid down in People vs. Cardas 28 P. 2d. 99, 137Cal. App. (Supp.) 788, is whether the participant pays avaluable consideration for the chance, and not whetherthose conducting the enterprise received something of valuein return for the distribution of the prize. Perspective properlyoriented, the standpoint of the contestant is all that matters,not that of the sponsor. The following, culled from Corpus

Juris Secundum, should set the matter at rest:

The fact that the holder of the drawing expectsthereby to receive, some benefit in the way ofpatronage or otherwise, as a result of the drawing,does not supply the element of consideration. — Griffith Amusement Co. v. Morgan, Tex. Civ App.,98 S.W. 2d., 844. (54 C.J.S., p. 849).

Equally enlightening in this connection is the following dissertation ofthe court in the case of State vs. Hundling: 25

The question is not whether the donor of the prize makes aprofit in some remote and indirect way, but, rather, whetherthose who have a chance at the prize pay anything of value

for that chance. Every scheme of advertising, including thegiving away of premiums and prizes, naturally has for itsobjects, not purely a philanthropic purpose, but increasedbusiness. Even the corner grocer who gives candy to thechildren of the neighborhood may be prompted by thatmotive, but that does not make the gift unlawful. And if thegrocery instead of giving candy to all the children, gives itonly to some as determined by lot, that circumstance doesnot make the gift made unlawful by the further circumstancethat the business of the grocer in the neighborhood may bethereby increased. Profit accruing remotely and indirectly tothe person who gives the prize is not a substitute for therequirement that he who has the chance to win the prizemust pay a valuable consideration therefor, in order to makethe scheme a lottery . (Emphasis supplied.)

Based on the foregoing rulings, therefore, it is clear that there is noconsideration or price for the chance to win any of the prizes offered bythe appellee in his "Grand Christmas Bonus Award" plan. There beingno consideration, there is no lottery. 26

Even in the light of the mischief or evil sought to be redressed by thePostal Law, or the ratio legis, the appellee's scheme cannot becondemned as a lottery. It is merely a scheme set up to promote thesale of tickets for the Grand Christmas Sweepstakes Draw held onDecember 15, 1963. Should any question be raised it would be:whether or not sweepstakes draws cultivate or stimulate the gamblingspirit among the people. It should be so, because it cannot be doubtedthat sweepstakes tickets purchasers are induced to buy said ticketsbecause of the desire to win any of the substantial prizes offered bythe PCSO. This question, however, is at once rendered moot andacademic because sweepstakes draws are authorized by law.

But appellant presents as an alternative argument the contention thateven if assuming that "the element of consideration is lacking thescheme is still a gift enterprise which is also prohibited by the PostalLaw." And in support of this contention or proposition, appellant reliessolely on Opinion No. 217, series of 1953 of the Secretary of Justice,which, according to the appellant, "ruled that the elements of giftenterprise, as distinguished from the lottery, are only chance andprize."



13

In the Caltex (Phil.) case, supra, this Court, rejecting a similarcontention of the appellant, emphatically held:

[W]e note that in the Postal Law the term in question (giftenterprise) is used in association with the word "lottery". Withthe meaning of lottery settled, and consonant to the well-known principle of legal hermeneutics noscitu a sociis — which Opinion 217 aforesaid also relied upon although onlyin so far as the clement of chance is concerned — it is onlylogical that the term under construction should be accordedno other meaning than that which is consistent with thenature of the word associated therewith. Hence, if lottery isprohibited only if it involves a consideration, so also must theterm "gift enterprise" be so construed. Significantly, there isnot in the law the slightest indicium of any intent to eliminatethat element of consideration from the "gift enterprise"therein included.

This conclusion firms up in the light of the mischief sought tobe remedied by the law, resort to the determination thereofbeing an accepted extrinsic aid in statutory construction. Mailfraud orders, it is axiomatic, are designed to prevent the useof the mails as a medium for disseminating printed matterswhich on grounds of public policy are declared non-mailable. As applied to lotteries, gift enterprises and similar schemes, justification lies in the recognized necessity to suppress theirtendency to inflame the gambling spirit and to corrupt publicmorals (Com. vs. Lund 15 A. 2d., 839, 143 Pa. Super. 208).

Since in gambling it is inherent that something of value behazarded for a chance to gain a larger amount, it followsineluctably that where no consideration is paid by thecontestant to participate, the reason behind the law canhardly be said to obtain. If, as it has been held —

Gratuitous distribution of property by lot or chance does notconstitute "lottery", if it is not resorted to as a device toevade the law and no consideration is derived , directly orindirectly, from the party receiving the chance, gamblingspirit not being cultivated or stimulated thereby . (City ofRoswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258.') (25 Wordsand Phrases, perm. ed., p. 695, emphasis)

We find no obstacle in saying the same respecting a gift

enterprise. In the end, we are persuaded to hold that, underthe prohibitive provisions of the Postal Law which we haveheretofore examined, gift enterprise and similar schempstherein contemplated are condemnable only if, like lotteries,they involve the element of consideration....

Considered in the light of the foregoing elucidations the conclusion isirresistible that since in the instant case the element of consideration islacking, the plan or scheme in question is also not a "gift enterprise" ora "similar scheme" proscribed by the Postal Law.

Not being a lottery, gift enterprise or similar scheme, appellee's "GrandChristmas Bonus Award" plan can be considered a scheme for thegratuitous distribution of personal property by chance which the PostalLaw does not condemn. Thus, in labelling said scheme as a lottery orgift enterprise when it is not, appellant not only committed a palpable

error of law but also exceeded his statutory authority in issuing thefraud order in question. The power of the appellant to issue a fraudorder under the Postal Law is dependent upon the existence of alottery, gift enterprise or similar scheme.

Accordingly, the lower court did not err in declaring the fraud order inquestion contrary to law and in substituting its judgement for that of theappellant. The lower court did not also err in issuing the writ ofinjunction, the remedy adequate, speedy and appropriate under thecircumstances.lawphi1.nêt

... The Postmaster General's order being the result of amistaken view of the law, could not operate as a defense tohis action on the part of the defendant, though it might justifyhis obedience thereto until some action of the court. In such

a case as the one before us there is no adequate remedy atlaw, the injunction to prohibit the further withholding of themail from complaint being the only remedy at all adequate tothe full relief to which the complainants are entitled.... 27

WHEREFORE, the decision appealed from should be, as it is hereby,affirmed. No pronouncement as to costs. It is so ordered.



14

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,vs.THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J .:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim,Jr. with a face value of P200,000.00. Two months later, he was deadwith a bullet wound in his head. As beneficiary, his wife Nerissa Limsought payment on the policy but her claim was rejected. Thepetitioner agreed that there was no suicide. It argued, however thatthere was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. Ithappened on October 6, 1982, at about 10 o'clock in the evening, afterhis mother's birthday party. According to Nalagon, Lim was in a happymood (but not drunk) and was playing with his handgun, from which hehad previously removed the magazine. As she watched television, hestood in front of her and pointed the gun at her. She pushed it asideand said it might he loaded. He assured her it was not and thenpointed it to his temple. The next moment there was an explosion andLim slumped to the floor. He was dead before he fell. 1

The widow sued the petitioner in the Regional Trial Court ofZamboanga City and was sustained. 2

The petitioner was sentenced topay her P200,000.00, representing the face value of the policy, withinterest at the legal rate; P10,000.00 as moral damages; P5,000.00 asexemplary damages; P5,000.00 as actual and compensatorydamages; and P5,000.00 as attorney's fees, plus the costs of the suit.This decision was affirmed on appeal, and the motion forreconsideration was denied. 3

The petitioner then came to this Court tofault the Court of Appeals for approving the payment of the claim andthe award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any

technical signification in law, and when used in an insurance contractare to be construed and considered according to the ordinaryunderstanding and common usage and speech of people generally. In-substance, the courts are practically agreed that the words "accident"and "accidental" mean that which happens by chance or fortuitously,without intention or design, and which is unexpected, unusual, andunforeseen. The definition that has usually been adopted by the courtsis that an accident is an event that takes place without one's foresightor expectation — an event that proceeds from an unknown cause, or isan unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or,if happening through human agency, an event which, under thecircumstances, is unusual to and not expected by the person to whomit happens. It has also been defined as an injury which happens byreason of some violence or casualty to the injured without his design,

consent, or voluntary co-operation.

5

In light of these definitions, the Court is convinced that the incident thatresulted in Lim's death was indeed an accident. The petitioner,invoking the case of De la Cruz v. Capital Insurance, 6 says that "thereis no accident when a deliberate act is performed unless someadditional, unexpected, independent and unforeseen happening occurswhich produces or brings about their injury or death." There was sucha happening. This was the firing of the gun, which was the additionalunexpected and independent and unforeseen occurrence that led tothe insured person's death.

The petitioner also cites one of the four exceptions provided for in theinsurance contract and contends that the private petitioner's claim isbarred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicideor willfully exposing himself to needless perilexcept in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide.Nevertheless, the petitioner contends that the insured willfully exposedhimself to needless peril and thus removed himself from the coverageof the insurance policy.

It should be noted at the outset that suicide and willful exposure toneedless peril are in pari materia because they both signify a disregard

for one's life. The only difference is in degree, as suicide imports apositive act of ending such life whereas the second act indicates areckless risking of it that is almost suicidal in intent. To illustrate, aperson who walks a tightrope one thousand meters above the groundand without any safety device may not actually be intending to commitsuicide, but his act is nonetheless suicidal. He would thus beconsidered as "willfully exposing himself to needless peril" within themeaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hiptemple, Lim had willfully exposed himself to needless peril and socame under the exception. The theory is that a gun is perse dangerous and should therefore be handled cautiously in everycase.

That posture is arguable. But what is not is that, as the secretary

testified, Lim had removed the magazine from the gun and believed itwas no longer dangerous. He expressly assured her that the gun wasnot loaded. It is submitted that Lim did not willfully expose himself toneedless peril when he pointed the gun to his temple because the factis that he thought it was not unsafe to do so. The act was preciselyintended to assure Nalagon that the gun was indeed harmless.

The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intendedto reward the insured for his tendency to show offor for his miscalculations. They were intended toprovide for contingencies. Hence, when Imiscalculate and jump from the Quezon Bridgeinto the Pasig River in the belief that I can

overcome the current, I have wilfully exposedmyself to peril and must accept the consequencesof my act. If I drown I cannot go to the insurancecompany to ask them to compensate me for myfailure to swim as well as I thought I could. Theinsured in the case at bar deliberately put the gunto his head and pulled the trigger. He wilfullyexposed himself to peril.

The Court certainly agrees that a drowned man cannot go to theinsurance company to ask for compensation. That might frighten theinsurance people to death. We also agree that under thecircumstances narrated, his beneficiary would not be able to collect onthe insurance policy for it is clear that when he braved the currentsbelow, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where shesays the analogy fails. The petitioner's hypothetical swimmer knewwhen he dived off the Quezon Bridge that the currents below weredangerous. By contrast, Lim did not know that the gun he put to hishead was loaded.

Lim was unquestionably negligent and that negligence cost him hisown life. But it should not prevent his widow from recovering from theinsurance policy he obtained precisely against accident. There isnothing in the policy that relieves the insurer of the responsibility to paythe indemnity agreed upon if the insured is shown to have contributedto his own accident. Indeed, most accidents are caused by negligence.There are only four exceptions expressly made in the contract torelieve the insurer from liability, and none of these exceptions isapplicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to beinterpreted liberally in favor of the assured. There is no reason todeviate from this rule, especially in view of the circumstances of thiscase as above analyzed.

On the second assigned error, however, the Court must rule in favor ofthe petitioner. The basic issue raised in this case is, as the petitionercorrectly observed, one of first impression. It is evident that thepetitioner was acting in good faith then it resisted the privaterespondent's claim on the ground that the death of the insured wascovered by the exception. The issue was indeed debatable and was



15

clearly not raised only for the purpose of evading a legitimateobligation. We hold therefore that the award of moral and exemplarydamages and of attorney's fees is unjust and so must be disapproved.

In order that a person may be made liable to thepayment of moral damages, the law requires thathis act be wrongful. The adverse result of anaction does not per se make the act wrongful andsubject the act or to the payment of moraldamages. The law could not have meant toimpose a penalty on the right to litigate; such rightis so precious that moral damages may not becharged on those who may exercise iterroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverseto Barreto did not alone make his act in bringingthe action wrongful because in most cases oneparty will lose; we would be imposing an unjustcondition or limitation on the right to litigate. Wehold that the award of moral damages in the caseat bar is not justified by the facts hadcircumstances as well as the law.

If a party wins, he cannot, as a rule, recoverattorney's fees and litigation expenses, since it isnot the fact of winning alone that entitles him to

recover such damages of the exceptionalcircumstances enumerated in Art. 2208.Otherwise, every time a defendant wins,automatically the plaintiff must pay attorney's feesthereby putting a premium on the right to litigatewhich should not be so. For those expenses, thelaw deems the award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the petitioner liable to the privaterespondent in the sum of P200,000.00 representing the face value ofthe insurance contract, with interest at the legal rate from the date ofthe filing of the complaint until the full amount is paid, but MODIFIEDwith the deletion of all awards for damages, including attorney's fees,except the costs of the suit.

SO ORDERED.



16

G.R. No. L-21574 June 30, 1966

SIMON DE LA CRUZ, plaintiff and appellee,vs.THE CAPITAL INSURANCE and SURETY CO., INC., defendant andappellant.

BARRERA, J .:

This is an appeal by the Capital Insurance & Surety Company, Inc.,from the decision of the Court of First Instance of Pangasinan (in CivCase No. U-265), ordering it to indemnify therein plaintiff Simon de laCruz for the death of the latter's son, to pay the burial expenses, andattorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines,Inc. in Baguio, was the holder of an accident insurance policy (No.ITO-BFE-170) underwritten by the Capital Insurance & Surety Co.,Inc., for the period beginning November 13, 1956 to November 12,1957. On January 1, 1957, in connection with the celebration of theNew Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing contestfor general entertainment wherein the insured Eduardo de la Cruz, anon-professional boxer participated. In the course of his bout withanother person, likewise a non-professional, of the same height,weight, and size, Eduardo slipped and was hit by his opponent on theleft part of the back of the head, causing Eduardo to fall, with his headhitting the rope of the ring. He was brought to the Baguio General

Hospital the following day. The cause of death was reported ashemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was namedbeneficiary under the policy, thereupon filed a claim with the insurancecompany for payment of the indemnity under the insurance policy. Asthe claim was denied, De la Cruz instituted the action in the Court ofFirst Instance of Pangasinan for specific performance. Defendantinsurer set up the defense that the death of the insured, caused by hisparticipation in a boxing contest, was not accidental and, therefore, notcovered by insurance. After due hearing the court rendered thedecision in favor of the plaintiff which is the subject of the presentappeal.

It is not disputed that during the ring fight with another non-professional

boxer, Eduardo slipped, which was unintentional. At this opportunity,his opponent landed on Eduardo's head a blow, which sent the latter tothe ropes. That must have caused the cranial injury that led to hisdeath. Eduardo was insured "against death or disability caused byaccidental means". Appellant insurer now contends that while thedeath of the insured was due to head injury, said injury was sustainedbecause of his voluntary participation in the contest. It is claimed thatthe participation in the boxing contest was the "means" that producedthe injury which, in turn, caused the death of the insured. And, sincehis inclusion in the boxing card was voluntary on the part of theinsured, he cannot be considered to have met his death by "accidentalmeans".1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts,have not acquired any technical meaning, and are construed by thecourts in their ordinary and common acceptation. Thus, the terms have

been taken to mean that which happen by chance or fortuitously,without intention and design, and which is unexpected, unusual, andunforeseen. An accident is an event that takes place without one'sforesight or expectation — an event that proceeds from an unknowncause, or is an unusual effect of a known cause and, therefore, notexpected.1

Appellant however, would like to make a distinction between "accidentor accidental" and "accidental means", which is the term used in theinsurance policy involved here. It is argued that to be considered withinthe protection of the policy, what is required to be accidental isthe means that caused or brought the death and not the death itself. Itmay be mentioned in this connection, that the tendency of courtdecisions in the United States in recent years is to eliminate the finedistinction between the terms "accidental" and "accidental means" andto consider them as legally synonymous.2 But, even if we take

appellant's theory, the death of the insured in the case at bar would stillbe entitled to indemnification under the policy. The generally acceptedrule is that, death or injury does not result from accident or accidentalmeans within the terms of anaccident-policy if it is the natural result of the insured's voluntary act,unaccompanied by anything unforeseen except the death orinjury.3 There is no accident when a deliberate act is performed unlesssome additional, unexpected, independent, and unforeseen happeningoccurs which produces or brings about the result of injury or death. 4 Inother words, where the death or injury is not the natural or probableresult of the insured's voluntary act, or if something unforeseen occursin the doing of the act which produces the injury, the resulting death is

within the protection of policies insuring against death or injury fromaccident.

In the present case, while the participation of the insured in the boxingcontest is voluntary, the injury was sustained when he slid, givingoccasion to the infliction by his opponent of the blow that threw him tothe ropes of the ring. Without this unfortunate incident, that is, theunintentional slipping of the deceased, perhaps he could not havereceived that blow in the head and would not have died. The fact thatboxing is attended with some risks of external injuries does not makeany injuries received in the course of the game not accidental. Inboxing as in other equally physically rigorous sports, such asbasketball or baseball, death is not ordinarily anticipated to result. If,therefore, it ever does, the injury or death can only be accidental orproduced by some unforeseen happening or event as what occurred inthis case.

Furthermore, the policy involved herein specifically excluded from itscoverage —

(e) Death or disablement consequent upon the Insuredengaging in football, hunting, pigsticking, steeplechasing,polo-playing, racing of any kind, mountaineering, ormotorcycling.

Death or disablement resulting from engagement in boxing contestswas not declared outside of the protection of the insurance contract.

Failure of the defendant insurance company to include death resultingfrom a boxing match or other sports among the prohibitive risks leadsinevitably to the conclusion that it did not intend to limit or exempt itselffrom liability for such death.5

Wherefore, in view of the foregoing considerations, the decisionappealed from is hereby affirmed, with costs against appellant. soordered.



17

G.R. No. 100970 September 2, 1992

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,vs.THE HONORABLE COURT OF APPEALS and JULIASURPOSA, respondents.

NOCON, J .:

This is a petition for certiorari with a prayer for the issuance of arestraining order and preliminary mandatory injunction to annul and setaside the decision of the Court of Appeals dated July 11,1991, 1 affirming the decision dated March 20, 1990 of the InsuranceCommission 2 in ordering petitioner Finman General AssuranceCorporation to pay private respondent Julia Surposa the proceeds ofthe personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, CarlieSurposa was insured with petitioner Finman General AssuranceCorporation under Finman General Teachers Protection Plan MasterPolicy No. 2005 and Individual Policy No. 08924 with his parents,spouses Julia and Carlos Surposa, and brothers Christopher, Charles,Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured,Carlie Surposa, died on October 18, 1988 as a result of a stab wound

inflicted by one of the three (3) unidentified men without provocationand warning on the part of the former as he and his cousin, WinstonSurposa, were waiting for a ride on their way home along Rizal-LocsinStreets, Bacolod City after attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of saidinsurance policy filed a written notice of claim with the petitionerinsurance company which denied said claim contending that murderand assault are not within the scope of the coverage of the insurancepolicy.

On February 24, 1989, private respondent filed a complaint with theInsurance Commission which subsequently rendered a decision, thepertinent portion of which reads:

In the light of the foregoing. we find respondentliable to pay complainant the sum of P15,000.00representing the proceeds of the policy withinterest. As no evidence was submitted to provethe claim for mortuary aid in the sum of P1,000.00,the same cannot be entertained.

WHEREFORE, judgment is hereby renderedordering respondent to pay complainant the sumof P15,000.00 with legal interest from the date ofthe filing of the complaint until fully satisfied. Withcosts. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretionon the part of the appellate court in applying the principle of " expressounius exclusio alterius" in a personal accident insurance policy sincedeath resulting from murder and/or assault are impliedly excluded insaid insurance policy considering that the cause of death of the insuredwas not accidental but rather a deliberate and intentional act of theassailant in killing the former as indicated by the location of the lonestab wound on the insured. Therefore, said death was committed withdeliberate intent which, by the very nature of a personal accidentinsurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used ininsurance contracts have not acquired any

technical meaning, and are construed by thecourts in their ordinary and common acceptation.Thus, the terms have been taken to mean thatwhich happen by chance or fortuitously, withoutintention and design, and which is unexpected,unusual, and unforeseen. An accident is an eventthat takes place without one's foresight orexpectation — an event that proceeds from anunknown cause, or is an unusual effect of a knowncause and, therefore, not expected.

. . . The generally accepted rule is that, death orinjury does not result from accident or accidentalmeans within the terms of an accident-policy if it isthe natural result of the insured's voluntary act,unaccompanied by anything unforeseen exceptthe death or injury. There is no accident when adeliberate act is performed unless someadditional, unexpected, independent, andunforeseen happening occurs which produces orbrings about the result of injury or death. In otherwords, where the death or injury is not the naturalor probable result of the insured's voluntary act, or

if something unforeseen occurs in the doing of theact which produces the injury, the resulting deathis within the protection of the policies insuringagainst death or injury from accident. 5

As correctly pointed out by the respondent appellate court in itsdecision:

In the case at bar, it cannot be pretended thatCarlie Surposa died in the course of an assault ormurder as a result of his voluntary act consideringthe very nature of these crimes. In the first place,the insured and his companion were on their wayhome from attending a festival. They wereconfronted by unidentified persons. The record isbarren of any circumstance showing how the stab

wound was inflicted. Nor can it be pretended thatthe malefactor aimed at the insured preciselybecause the killer wanted to take his life. In anyevent, while the act may not exempt the unknownperpetrator from criminal liability, the fact remainsthat the happening was a pure accident on thepart of the victim. The insured died from an eventthat took place without his foresight or expectation,an event that proceeded from an unusual effect ofa known cause and, therefore, not expected.Neither can it be said that where was a capriciousdesire on the part of the accused to expose his lifeto danger considering that he was just going homeafter attending a festival. 6

Furthermore, the personal accident insurance policy involved herein

specifically enumerated only ten (10) circumstances wherein no liabilityattaches to petitioner insurance company for any injury, disability orloss suffered by the insured as a result of any of the stimulated causes.The principle of " expresso unius exclusio alterius" — the mention ofone thing implies the exclusion of another thing — is thereforeapplicable in the instant case since murder and assault, not havingbeen expressly included in the enumeration of the circumstances thatwould negate liability in said insurance policy cannot be considered byimplication to discharge the petitioner insurance company from liabilityfor, any injury, disability or loss suffered by the insured. Thus, thefailure of the petitioner insurance company to include death resultingfrom murder or assault among the prohibited risks leads inevitably tothe conclusion that it did not intend to limit or exempt itself from liabilityfor such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulationsin a contract shall not favor the party who causedthe obscurity.

Moreover,

it is well settled that contracts of insurance are tobe construed liberally in favor of the insured andstrictly against the insurer. Thus ambiguity in thewords of an insurance contract should beinterpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the

respondent Court of Appeals, the petition for certiorari with restrainingorder and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.



18

G.R. No. L-12189 April 29, 1960

FRANCISCA GALLARDO, plaintiff-appellee,vs.HERMENEGILDA S. MORALES, defendant-appellant.

CONCEPCION, J .:

The issue before us is whether a personal accident insurance which"insures for injuries and/or death as a result of murder or assault orattempt thereat" is a life insurance, within the purview of Rule 39,section 12, subdivision (k) of the Rules of Court, exempting fromexecution.

All moneys, benefits, privileges, or annuities accruing or inany manner growing out of any life insurance, if the annualpremiums paid do not exceed five hundred pesos, and ifthey exceed that sum a like exemption shall exist which shallbear the same proportion to the moneys, benefits, privileges,and annuities so accruing or growing out of such insurancethat said five hundred pesos bears to the whole annualpremiums paid.

In accordance with a compromise agreement between the parties inthe above-entitled case, a decision was rendered therein by the Courtof First Instance of Manila, on February 3, 1956, sentencing defendant

Hermenegilda S. Morales to pay to plaintiff Francisca Gallardo the sumof Seven Thousand Pesos (P7,000.00). In due course, thecorresponding writ of execution was issued and delivered to the Sheriffof Manila, who, on August 8, 1956, garnished and levied execution onthe sum of P7,000.00, out of the P30,000.00 a due from the CapitalInsurance & Surety Co., Inc., to said defendant, as beneficiary under apersonal accident policy issued by said company to defendant'shusband, Luis Morales, who died, on August 26, 1950, byassassination. Invoking the above-quoted provision of the Rules ofCourt, defendant asked the sheriff to quash and lift said garnishment orlevy on execution. Upon denial of this request by the sheriff, defendantfiled a motion praying that the aforementioned sum of P7,000.00 bedeclared exempt from execution under said provision of the Rules ofCourt, and that the Sheriff of Manila be ordered to quash or lift saidgarnishment or levy on execution. This motion was denied by an orderdated October 18, 1956. Hence, the present appeal by the defendant,who maintains that the policy in question is a life insurance policy,

within the purview of the aforementioned exemption, for it insured herhusband ". . . for injuries and/or death as a result of murder or assaultor attempt thereat."

In its order denying the claim for exemption set up by the defendant,the lower court expressed itself as follows:

Upon a perusal of the authorities cited by the parties, thisCourt is fully convinced that there is a fundamentaldistinction between life insurance, and accident insurance,and the insurance policy issued to Luis G. Morales, husbandof herein defendant, was undoubtedly an accident insurance,as distinguished from a life insurance. As conceded by thefacts appearing in the pleadings, the personal accidentpolicy, part of the proceeds of which is under garnishment,

was for P50,000.00 and yet the annual premium was forP15.00. If it were an ordinary life insurance policy, taking intoaccount that the insured, Luis G. Morales, was 38 years ofage and the amount of the policy was for P50,000.00 theannual premium would have been around P1,206.00.Besides, the period for the policy was stipulated for oneyear, and considerations as to age, health, occupation andother personal circumstances were not taken into account inan accident insurance policy. Even the certif ication issued bythe insurance commissioner on August 23, 1956, marked as Annex "1" of the opposition, shows that the CapitalInsurance and Surety Company Inc. is a non-life insurancecompany and that the only authority granted to it to transactbusiness covers fire, marine, surety, fidelity, accident, motorcar, and miscellaneous insurance, except life insurance.From this circumstance alone, not to mention many others,there are abundant indications that there exists a

fundamental distinction between life insurance and accidentinsurance. As counsel for oppositor has clearly pointed out,an accident policy merely insures the person from injury andor death resulting from murder, assault, or an attemptthereat, while in life insurance policy, what is insured is thelife of the subject for a definite number of years. From theauthorities quoted by the oppositor, this Court is fullyconvinced that an accident policy is fundamentally differentfrom a life insurance policy, especially if this Court takes intoaccount that accident insurance is an indemnity or casualtycontract, while life insurance is an investment contract.

It is not disputed that a life insurance is, generally speaking, distinctand different from an accident insurance. However, when one of therisks insured in the latter is the death of the insured by accident, thenthere are authorities to the effect that such accident insurance may,also, be regarded as a life insurance.

"Life insurance" is a contract whereby one party insures aperson against loss by the death of another. Petition ofRobbins, 140 A. 366, 367, 126 Me. 555.

An insurance on life is a contract by which the insurer, for a

stipulated sum, engages to pay a certain amount of money ifanother dies within the time limited by the policy.Cason vs. Owens, 26 S. E. 75, 76, 100 Ga. 142.

Life insurance includes in which the payment of theinsurance money is contingent upon the loss of life.Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A.Va. 99F. 2d 44. 48, 49.

A contract for life insurance is really a contract for insurancefor one year in consideration of an advanced premium, withthe right of assured to continue it from year to year uponpayment of a premium as stipulated. Mutual Life Ins. Co. 100Pa 172, 180.

In its broader sense, "life insurance" includes accidentinsurance, since life is insured under either contract. American Trust & Banking Co. vs. Lessly, 106 S.W. 2d. 551,552, 171 Tenn. 561, 111 A.L.R. 59.

Under statute providing that 'any life insurance' on life ofhusband shall insure to benefit of widow and childrenexempt from husband's debt, proceeds of policy insuringagainst death by accident insured to widow's benefit freefrom husband's debts. Code 1932, B 8456. American Trust &Banking Co. vs. Lessly, 106 S.W. 2d 551, 171 Tenn. 511 III A.L.R. 59.

Insurance policy, providing for payment in case of accidentaldeath, is "life insurance policy" to such extent within statestatue prescribing in-contestable period for policies. Code

S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co. ofCalifornia vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.

"Life insurance" includes all policies of insurance in whichpayment of insurance money is contingent upon loss of life. .. . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d165, 167, 169 Tenn. 477.

Insurance policy including a death benefit and a health oraccident disability benefit constituted a "life insurance policy"within meaning of laws 1926, c. 118, S. 134, imposingprivilege tax on insurance companies with different rates asbetween life insurance companies and other companies, inview of provisions of Code 1906, ss 2576, 2598(Hemingway's Code 1927, ss 5830, 5856), and Law 1924, c.

191, s I (Hemingway's Code 1927, s 5995); it beingimmaterial that in some policy forms the health and disabilityfeature was more valuable asent a showing that deathprovision was inserted to avoid the higher tax. Universal LifeIns. Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25Words & Phrases 260, 261, 262.)

When the application was made, Harris W. Rimmer carriedlife insurance with the Equitable Life Assurance Society, for$10,000, payable upon proof of death, with a provision thatupon death by accident the amount of insurance payablewould be increased to $20,000. The plaintiff insisted that thiswas life insurance, a disclosure of which was not called for inquestion 10, while the defendant insisted it was accidentinsurance that should have been disclosed and furtherinsisted that, it being a fact material to the risk the failure to

disclose the policy in the Equitable Life Assurance Societyrendered the policy issued to the applicant void. . . .

The court might have gone further and held that the failure ofthe applicant to characterize the insurance in the EquitableLife Assurance Society as accident insurance did notconstitute a false answer to the inquiry of what accident orhealth insurance he was carrying. The policy in the EquitableLife Assurance Society covered loss of life from natural aswell as external and accidental causes, and was lifeinsurance. The mere addition of the double indemnity clauseproviding for increased insurance upon proof of death by



19

accident did not divest the policy of its character of insuranceon life, or make the contract other than life insurance,forinsurance on life includes all policies of insurance in whichthe payment of the insurance money is contingent upon theloss of life. Logan vs. Fidelity & Casualty Co., 146 Mo. 114,47 S.W. 948. See also Johnson vs. Fidelity & Guaranty Co.,148 Mich. 406, 151 N.W. 593, L.R.A. 1916A, 475;Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A. 1003;Wright vs. Fraternities Health & Accident Ass'n. 107 Me.418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life Ins.Co. vs. Ins. Com'r 208 Mass. 386, 94 N.E. 477; StandardLife & Accident Ins. Co. vs. Caroll, 86 F. 567, 41 L.R.A. 194;

Wahl vs. Interstate Business Men's Accident Ass'n 201 Iowa;1355, 207 N.W. 395, 50 A.L.R. 1377." (Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. W. 2d Series, 365, 367.)

For this reason, and because the above-quoted provision of the Rulesof Court makes reference to "any life insurance," we are inclined tobelieve that the exemption there established applies to ordinary lifeinsurance contracts, as well as to those which, although intendedprimarily to indemnify for risks arising from accident, likewise, insureagainst loss of life due, either to accidental causes, or to the willful andcriminal act of another, which, as such, is not strictly accidental innature. Indeed, it has been held that statutes of this nature seek toenable the head of the family to secure his widow and children frombecoming a burden upon the community and, accordingly, should merita liberal interpretation.

The object of this statue was to enable a husband, whendeath deprived wife and children of his support, to securethem from want and to prevent them from becoming acharge upon the public . Necessities of the wife and childrenand the public interest are none the less if the death of thehusband be brought about by accident rather than bydisease. The intent of the legislature in the enactment of thisstatute would not be advanced by the construction of the lawupon which the petitioners insist. (American Trust & BankingCo. vs.Lessly et al., Supreme Court of Tenn., 106 S.W. 2d,551, 552.)

Under statutes providing to that effect, the proceeds of lifeinsurance are exempt from the claims of creditors, alimitation being sometimes imposed as to amount, see infraSec. 40, or as to the beneficiaries entitled to the exemption,

see infra subdivision of this section. Statutes exempting lifeinsurance are regarded as exemption laws, and not as partof the insurance from law of the state, nor as designedsimply to protect insurer from harassing litigation. Suchstatutes should be construed liberally and in the light of, andto give effect to, their purpose of enabling an individual to

provide a fund after his death for his family which will be freefrom the claims of creditors. The exemption privilege iscreated not by contract but by legislative grant, and groundsfor the exemption of the proceeds of insurance policies mustbe found in the statutes. (35 C.J.S. pp. 53-54.)

By weight of authority, exemption statutes or rules shouldbe liberally construed with a view to giving effect to theirbeneficent and humane purpose. To this end, everyreasonable doubt as to whether a given property is or is not

exempt should be resolved in favor of exemption.(Comments on the Rules of Court by Moran [1957 ed.] Vol.1, p. 564.)

Wherefore, the order appealed from is reversed, and the garnishmentin dispute hereby set aside and quashed, with the costs of thisinstance against plaintiff Francisca Gallardo. It is so ordered.



20

G.R. No. 105562 September 27, 1993

LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON,DINA LORENA AYO, CELIA CALUMBAG and LUCIALONTOK, petitioners,vs.HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCECOMPANY, LIMITED, respondents.

DAVIDE, JR., J. :

This is an appeal by certiorari to review and set aside the Decision ofthe public respondent Court of Appeals in CA-G.R. SP No. 22950 1

andits Resolution denying the petitioners' motion for reconsideration. 2 Thechallenged decision modified the decision of the InsuranceCommission in IC CaseNo. RD-058. 3

The petitioners were the complainants in IC Case No. RD-058, anadministrative complaint against private respondent Insular Life Assurance Company, Ltd. (hereinafter Insular Life), which was filedwith the Insurance Commission on 20 September 1989. 4

They prayedtherein that after due proceedings, Insular Life "be ordered to pay theclaimants their insurance claims" and that "proper sanctions/penaltiesbe imposed on" it "for its deliberate, feckless violation of its contractualobligations to the complainants, and of the Insurance Code." 5

InsularLife's motion to dismiss the complaint on the ground that "the claims of

complainants are all respectively beyond the jurisdiction of theInsurance Commission as provided in Section 416 of the InsuranceCode," 6

having been denied in the Order of 14 November 1989, 7 it

filed its answer on 5 December 1989. 8 Thereafter, hearings were

conducted on various dates.

On 20 June 1990, the Commission rendered its decision 9 in favor of

the complainants, the dispositive portion of which reads as follows:

WHEREFORE, this Commission merely orders therespondent company to:

a) Pay a fine of FIVE HUNDRED PESOS(P500.00) a day from the receipt of a copy of thisDecision until actual payment thereof;

b) Pay and settle the claims of DINA AYO andLUCIA LONTOK, for P50,000.00 and P40,000.00,respectively;

c) Notify henceforth it should notify individualbeneficiaries designated under any Group Policy,in the event of the death of insured(s), where thecorresponding claims are filed by the Policyholder;

d) Show cause within ten days why its otherresponsible officers who have handled this caseshould not be subjected to disciplinary and otheradministrative sanctions for deliberately releasingto Capt. Nuval the check intended for spouses

ALARCON, in the absence of any Special Powerof Attorney for that matter, and for negligence withrespect to the release of the other f ive checks.

SO ORDERED. 10

In holding for the petitioners, the Insurance Commission made thefollowing findings and conclusions:

After taking into consideration the evidences [sic ],testimonial and documentary for the complainantsand the respondent, the Commission finds that;First: The respondent erred in appreciating thatthe powers of attorney executed by five (5) of theseveral beneficiaries convey absolute authority to

Capt. Nuval, to demand, receive, receipt and takedelivery of insurance proceeds from respondentInsular Life. A cursory reading of the questionedpowers of authority would disclosed [sic ] that theydo not contain in unequivocal and clear termsauthority to Capt. Nuval to obtain, receive, receiptfrom respondent company insurance proceedsarising from the death of the seaman-insured. Onthe contrary, the said powers of attorney arecouched in terms which could easily arousesuspicion of an ordinaryman. . . .

Second: The testimony of the complainants'rebuttal witness,Mrs. Trinidad Alarcon, who declared in nouncertain terms that neither she nor her husband,executed a special power of attorney in favor ofCaptain Rosendo Nuval, authorizing him to claim,receive, receipt and take delivery of any insuranceproceeds from Insular Life arising out of the deathof their insured/seaman son, is not convincinglyrefuted.

Third: Respondent Insular Life did not observeSection 180 of the Insurance Code, when it issuedor released two checks in the amount ofP150,000.00 for the three minor children(P50,000.00 each) of complainant, Dina Ayo andanother check of P40,000.00 for minor beneficiaryMarissa Lontok, daughter of another complainantLucia Lontok, there being no showing of any courtauthorization presented or the requisite bondposted.

Section 180 is quotes [sic ] partly as follows:

. . . In the absence of a judicial guardian, the father, orin the latter's absence or

incapacity, the mother of anyminor, who is an insured or abeneficiary under a contract oflife, health or accidentinsurance, may exercise, inbehalf of said minor, any right,under the policy, withoutnecessity of court authority orthe giving of a bond where theinterest of the minor in the

particular act involved doesnot exceed twenty thousand

pesos . . . . 11

Insular Life appealed the decision to the public respondent whichdocketed the case as CA-G.R. SP No. 22950. The appeal urged the

appellate court to reverse the decision because the InsuranceCommission (a) had no jurisdiction over the case considering that theclaims exceeded P100,000.00,(b) erred in holding that the powers of attorney relied upon by InsularLife were insufficient to convey absolute authority to Capt. Nuval todemand, receive and take delivery of the insurance proceedspertaining to the petitioners, (c) erred in not giving credit to the versionof Insular Life that the power of attorney supposed to have beenexecuted in favor of the Alarcons was missing, and(d) erred in holding that Insular Life was liable for violating Section 180of the Insurance Code for having released to the surviving mothers theinsurance proceeds pertaining to the beneficiaries who were stillminors despite the failure of the former to obtain a court authorizationor to post a bond.

On 10 October 1991, the public respondent rendered a decision, 12 the

decretal portion of which reads:

WHEREFORE, the decision appealed from ismodified by eliminating therefrom the award toDina Ayo and Lucia Lontok in the amounts ofP50,000.00 and P40,000.00, respectively. 13

It found the following facts to have been duly established:

It appears that on 23 September 1983, PrimeMarine Services, Inc. (PMSI, for brevity), acrewing/manning outfit, procured Group PoIicyNo. G-004694 from respondent-appellant InsularLife Assurance Co., Ltd. to provide life insurancecoverage to its sea-based employees enrolled

under the plan. On 17 February 1986, during theeffectivity of the policy, six covered employees ofthe PMSI perished at sea when their vessel, M/VNemos, a Greek cargo vessel, sunk somewhere inEl Jadida, Morocco. They were survived bycomplainants-appellees, the beneficiaries underthe policy.

Following the tragic demise of their loved ones,complainants-appellees sought to claim deathbenefits due them and, for this purpose, theyapproached the President and General Manager



21

of PMSI, Capt. Roberto Nuval. The latter evincedwillingness to assist complainants-appellees torecover Overseas Workers Welfare Administration(OWWA) benefits from the POEA and to work forthe increase of their PANDIMAN and otherbenefits arising from the deaths of theirhusbands/sons. They were thus made to execute,with the exception of the spouses Alarcon, specialpowers of attorney authorizing Capt. Nuval to,among others, "follow up, ask, demand, collectand receive" for their benefit indemnities of sumsof money due them relative to the sinking of M/V

Nemos. By virtue of these written powers ofattorney, complainants-appellees were able toreceive their respective death benefits. Unknownto them, however, the PMSI, in its capacity asemployer and policyholder of the life insurance ofits deceased workers, filed with respondent-appellant formal claims for and in behalf of thebeneficiaries, through its President, Capt. Nuval. Among the documents submitted by the latter forthe processing of the claims were five specialpowers of attorney executed by complainants-appellees. On the basis of these and otherdocuments duly submitted, respondent-appellantdrew against its account with the Bank of thePhilippine Islands on 27 May 1986 six (6) checks,four for P200,00.00 each, one for P50,000.00 andanother for P40,00.00, payable to the order of

complainants-appellees. These checks werereleased to the treasurer of PMSI uponinstructions ofCapt. Nuval over the phone to Mr. MarianoUrbano, Assistant Department Manager for Group Administration Department of respondent-appellant. Capt. Nuval, upon receipt of thesechecks from the treasurer, who happened to behis son-in-law, endorsed and deposited them inhis account with the Commercial Bank of Manila,now Boston Bank.

On 3 July 1989, after complainants-appelleeslearned that they were entitled, as beneficiaries, tolife insurance benefits under a group policy withrespondent-appellant, they sought to recover

these benefits from Insular Life but the latterdenied their claim on the ground that the liability tocomplainants-appellees was already extinguishedupon delivery to and receipt by PMSI of the six (6)checks issued in their names. 14

On the basis thereof, the public respondent held that the InsuranceCommission had jurisdiction over the case on the ground that althoughsome of the claims exceed P100,000.00, the petitioners had asked foradministrative sanctions against Insular Life which are within theCommission's jurisdiction to grant; hence, "there was merely amisjoinder of causes of action . . . and, like misjoinder of parties, it isnot a ground for the dismissal of the action as it does not affect theother reliefs prayed for." 15

It also rejected Insular Life's claim that the Alarcons had submitted a special power of attorney which they (InsularLife) later misplaced.

On the other hand, the public respondent ruled that the powers ofattorney, Exhibits "1" to "5," relied upon by Insular Life were sufficientto authorize Capt. Nuval to receive the proceeds of the insurancepertaining to the beneficiaries. It stated:

When the officers of respondent-appellant readthese written powers, they must have assumedCapt. Nuval indeed had authority to collect theinsurance proceeds in behalf of the beneficiarieswho duly affixed their signatures therein. Thewritten power is specific enough to define theauthority of the agent to collect any sum of moneypertaining to the sinking of the fatal vessel.Respondent-appellant interpreted this power toinclude the collection of insurance proceeds inbehalf of the beneficiaries concerned. We believethis is a reasonable interpretation even by anofficer of respondent-appellant unschooled in thelaw. Had respondent appellant, consulted its legaldepartment it would not have received a contraryview. There is nothing in the law which mandatesa specific or special power of attorney to beexecuted to collect insurance proceeds. Suchauthority is not included in the enumeration of Art.1878 of the New Civil Code. Neither do weperceive collection of insurance claims as an actof strict dominion as to require a special power of

attorney. Moreover, respondent-appellant had noreason to doubt Capt. Nuval. Not only was hearmed with a seemingly genuine authorization, healso appeared to be the proper person to deal withrespondent-appellant being the President andGeneral Manager of the PMSI, the policyholderwith whom respondent-appellant always dealt. Thefact that there was a verbal agreement betweencomplainants-appellees and Capt. Nuval limitingthe authority of the latter to claiming specifieddeath benefits cannot prejudice the insurancecompany which relied on the terms of the powers

of attorney which on their face do not disclosesuch limitation. Under the circumstances, itappearing that complainants-appellees have failedto point to a positive provision of law or stipulationin the policy requiring a specific power of attorneyto be presented, respondents-appellant's relianceon the written powers was in order and it cannotbe penalized for such an act. 16

Insofar as the minor children of Dina Ayo and Lucia Lontok wereconcerned, it ruled that the requirement in Section 180 of theInsurance Code which provides in part that:

In the absence of a judicial guardian, the father, orin the latter's absence or incapacity, the mother, ofany minor, who is an insured or a beneficiary

under a contract of life, health or accidentinsurance, may exercise, in behalf of said minor,any right under the policy, without necessity ofcourt authority or the giving of a bond, where theinterest of the minor in the particular act involveddoes not exceed twenty thousand pesos. Such aright, may include, but shall not be limited to,obtaining a policy loan, surrendering the policy,receiving the proceeds of the policy, and giving theminor's consent to any transaction on the policy.

has been amended by the Family Code 17 which grants the

father and mother joint legal guardianship over the propertyof their unemancipated common child without the necessityof a court appointment; however, when the market value ofthe property or the annual income of the child exceeds

P50,000.00, the parent concerned shall be required to put upa bond in such amount as the court may determine.

Hence, this petition for review on certiorari which we gave due courseafter the private respondent had filed the required comment thereonand the petitioners their reply to the comment.

We rule for the petitioners.

We have carefully examined the specific powers of attorney, Exhibits"1" to "5," which were executed by petitioners Luz Pineda, Lucia B.Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro,respectively, on 14 May 1986 18and uniformly granted to Capt.Rosendo Nuval the following powers:

To follow-up, ask, demand, collect and receipt formy benefit indemnities or sum of money due merelative to the sinking of M.V. NEMOS in thevicinity of El Jadida, Casablanca, Morocco on theevening of February 17, 1986; and

To sign receipts, documents, pertinent waivers ofindemnities or other writings of whatsoever naturewith any and all third persons, concerns andentities, upon terms and conditions acceptable tomy said attorney.

We agree with the Insurance Commission that the special powers ofattorney "do not contain in unequivocal and clear terms authority toCapt. Nuval to obtain, receive, receipt from respondent company

insurance proceeds arising from the death of the seaman-insured. Onthe contrary, the said powers of attorney are couched in terms whichcould easily arouse suspicion of an ordinary man." 19

The holding ofthe public respondent to the contrary is principally premised on itsopinion that:

[t]here is nothing in the law which mandates aspecific or special power of attorney to beexecuted to collect insurance proceeds. Suchauthority is not included in the enumeration of art.1878 of the New Civil Code. Neither do weperceive collection of insurance claims as an act



22

of strict dominion as to require a special power ofattorney.

If this be so, then they could not have been meant to be ageneral power of attorney since Exhibits "1" to "5"are special powers of attorney . The execution by theprincipals of special powers of attorney , which clearlyappeared to be in prepared forms and only had to be filledup with their names, residences, dates of execution, dates ofacknowledgment and others, excludes any intent to grant ageneral power of attorney or to constitute a universalagency. Being special powers of attorney, they must bestrictly construed.

Certainly, it would be highly imprudent to read into the special powersof attorney in question the power to collect and receive the insuranceproceeds due the petitioners from Group Policy No. G-004694. InsularLife knew that a power of attorney in favor of Capt. Nuval for thecollection and receipt of such proceeds was a deviation from itspractice with respect to group policies. Such practice was testified toby Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative Department, thus:

ATTY. CAGUIOA:

Can you explain to us why inthis case, the claim was filed

by a certain Capt. Noval [sic ]?

WITNESS:

a The practice of ourcompany in claim pertainingto group insurance, thepolicyholder is the one whofiles the claim for thebeneficiaries of the deceased. At that time, Capt. Noval [sic ]is the President and GeneralManager of Prime Marine.

q What is the reason why

policyholders are the oneswho file the claim and not thedesignated beneficiaries ofthe employees of thepolicyholders?

a Yes because groupinsurance is normally taken bythe employer as an employee-benefit program and as such,the benefit should be awardedby the policyholder to make itappear that the benefit reallyis given by the employer. 20

On cross-examination, Urbano further elaborated that even payments,among other things, are coursed through the policyholder:

q What is the corporateconcept of group insuranceinsofar as Insular Life isconcerned?

WITNESS:

a Group insurance is acontract where a group ofindividuals are covered underone master contract. Theindividual underwriting

characteristics of eachindividual is not considered inthe determination of whetherthe individual is insurable ornot. The contract is betweenthe policyholder and theinsurance company. In ourcase, it is Prime Marine andInsular Life. We do not havecontractual obligations withthe individual employees; it isbetween Prime Marine andInsular Life.

q And so it is part of thatconcept that all inquiries,follow-up, payment of claims,

premium billings, etc . shouldalways be coursed thru the

policyholder?

a Yes that is our practice.

q And when you say claim payments should always be

coursed thru the policyholder,do you require a power ofattorney to be presented bythe policyholder or not?

a Not necessarily.

q In other words, under agroup insurance policy like theone in this case, Insular Lifecould pay the claims to thepolicyholder himself evenwithout the presentation ofany power of attorney fromthe designated beneficiaries?

xxx xxx xxx

WITNESS:

a No. Sir.

ATTY. AMPIL:

q Why? Is this case, thepresent case different fromthe cases which youanswered that no power ofattorney is necessary inclaims payments?

WITNESS:

a We did not pay PrimeMarine; we paid thebeneficiaries.

q Will you now tell theHonorable Commission whyyou did not pay Prime Marineand instead paid thebeneficiaries, the designatedbeneficiaries?

xxx xxx xxx

ATTY. AMPIL:

I willrephrasethequestion.

q Will you tell the Commissionwhat circumstances led you topay the designatedbeneficiaries, thecomplainants in this case,instead of the policyholder

when as you answered awhile ago, it is your practice ingroup insurance that claimspayments, etc., are coursedthru the policyholder?

WITNESS:

a It is coursed but, it is notpaid to the policyholder.



23

q And so in this case, yougave the checks to thepolicyholder only coursingthem thru said policyholder?

a That is right, Sir.

q Not directly to thedesignated beneficiaries?

a Yes, Sir. 21

This practice is usual in the group insurance business and is consistentwith the jurisprudence thereon in the State of California — from whoselaws our Insurance Code has been mainly patterned — which holdsthat the employer-policyholder is the agent of the insurer.

Group insurance is a comparatively new form of insurance. In theUnited States, the first modern group insurance policies appear tohave been issued in 1911 by the Equitable Life AssuranceSociety. 22

Group insurance is essentially a single insurance contractthat provides coverage for many individuals. In its original and mostcommon form, group insurance provides life or health insurancecoverage for the employees of one employer.

The coverage terms for group insurance are usually stated in a masteragreement or policy that is issued by the insurer to a representative ofthe group or to an administrator of the insurance program, such as anemployer. 23The employer acts as a functionary in the collection andpayment of premiums and in performing related duties. Likewise fallingwithin the ambit of administration of a group policy is the disbursementof insurance payments by the employer to the employees. 24

Mostpolicies, such as the one in this case, require an employee to pay aportion of the premium, which the employer deducts from wages whilethe remainder is paid by the employer. This is known as a contributoryplan as compared to a non-contributory plan where the premiums aresolely paid by the employer.

Although the employer may be the titular or named insured, theinsurance is actually related to the life and health of the employee.Indeed, the employee is in the position of a real party to the masterpolicy, and even in a non-contributory plan, the payment by the

employer of the entire premium is a part of the total compensation paidfor the services of the employee. 25

Put differently, the labor of theemployees is the true source of the benefits, which are a form ofadditional compensation to them.

It has been stated that every problem concerning group insurancepresented to a court should be approached with the purpose of givingto it every legitimate opportunity of becoming a social agency of realconsequence considering that the primary aim is to provide theemployer with a means of procuring insurance protection for hisemployees and their families at the lowest possible cost, and in sodoing, the employer creates goodwill with his employees, enables theemployees to carry a larger amount of insurance than they couldotherwise, and helps to attract and hold a permanent class ofemployees. 26

In Elfstrom vs. New York Life Insurance Company , 27 the California

Supreme Court explicitly ruled that in group insurance policies, theemployer is the agent of the insurer. Thus:

We are convinced that the employer is the agentof the insurer in performing the duties ofadministering group insurance policies. It cannotbe said that the employer acts entirely for its ownbenefit or for the benefit of its employees inundertaking administrative functions. While areduced premium may result if the employerrelieves the insurer of these tasks, and this, ofcourse, is advantageous to both the employer andthe employees, the insurer also enjoys significantadvantages from the arrangement. The reduction

in the premium which results from employer-administration permits the insurer to realize alarger volume of sales, and at the same time theinsurer's own administrative costs are markedlyreduced.

xxx xxx xxx

The most persuasive rationale for adopting theview that the employer acts as the agent of theinsurer, however, is that the employee has noknowledge of or control over the employer's

actions in handling the policy or its administration. An agency relationship is based upon consent byone person that another shall act in his behalf andbe subject to his control. It is clear from theevidence regarding procedural techniques herethat the insurer-employer relationship meets thisagency test with regard to the administration of thepolicy, whereas that between the employer and itsemployees fails to reflect true agency. The insurerdirects the performance of the employer'sadministrative acts, and if these duties are notundertaken properly the insurer is in a position to

exercise more constricted control over theemployer's conduct.

In Neider vs. Continental Assurance Company , 28 which was cited

in Elfstrom, it was held that:

[t]he employer owes to the employee the duty ofgood faith and due care in attending to the policy,and that the employer should make clear to theemployee anything required of him to keep thepolicy in effect, and the time that the obligationsare due. In its position as administrator of thepolicy, we feel also that the employer should beconsidered as the agent of the insurer, and anyomission of duty to the employee in itsadministration should be attributable to the insurer .

The ruling in Elfstrom was subsequently reiterated in the cases of Bassvs. John Hancock Mutual Life Insurance Co. 29

and Metropolitan LifeInsurance Co. vs. State Board of Equalization. 30

In the light of the above disquisitions and after an examination of thefacts of this case, we hold that PMSI, through its President andGeneral Manager, Capt. Nuval, acted as the agent of Insular Life. Thelatter is thus bound by the misconduct of its agent.

Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of the petitioners. Unfortunately, through its official, Mr. Urbano,it acted imprudently and negligently in the premises by relying withoutquestion on the special power of attorney. In Strong vs. Repide, 31

thisCourt ruled that it is among the established principles in the civil law of

Europe as well as the common law of American that third persons dealwith agents at their peril and are bound to inquire as to the extent ofthe power of the agent with whom they contract. And in Harry E . KellerElectric Co. vs. Rodriguez ,32

this Court, quoting Mechem on Agency , 33

stated that:

The person dealing with an agent must also actwith ordinary prudence and reasonable diligence.Obviously, if he knows or has good reason tobelieve that the agent is exceeding his authority,he cannot claim protection. So if the suggestionsof probable limitations be of such a clear andreasonable quality, or if the character assumed bythe agent is of such a suspicious or unreasonablenature, or if the authority which he seeks toexercise is of such an unusual or improbable

character, as would suffice to put an ordinarilyprudent man upon his guard, the party dealingwith him may not shut his eyes to the real state ofthe case, but should either refuse to deal with theagent at all, or should ascertain from the principalthe true condition of affairs. (emphasis supplied)

Even granting for the sake of argument that the special powers ofattorney were in due form, Insular Life was grossly negligent indelivering the checks, drawn in favor of the petitioners, to a party whois not the agent mentioned in the special power of attorney.

Nor can we agree with the opinion of the public respondent that sincethe shares of the minors in the insurance proceeds are less thanP50,000.00, then under Article 225 of the Family Code their mothers

could receive such shares without need of either court appointmentsas guardian or the posting of a bond. It is of the view that said Articlehad repealed the third paragraph of Section 180 of the InsuranceCode. 34

The pertinent portion of Article 225 of the Family Code readsas follows:

Art. 225. The father and the mother shall jointlyexercise legal guardianship over the property oftheir unemancipated common child without thenecessity of a court appointment. In case ofdisagreement, the father's decision shall prevail,unless there is judicial order to the contrary.



Where the market value of the property or theannual income of the child exceeds P50,000, theparent concerned shall be required to furnish abond in such amount as the court may determine,but not less than ten per centum (10%) of thevalue of the property or annual income, toguarantee the performance of the obligationsprescribed for general guardians.

It is clear from the said Article that regardless of the value of theunemancipated common child's property, the father and mother ipso

jure become the legal guardian of the child's property. However, if themarket value of the property or the annual income of the child exceedsP50,000.00, a bond has to be posted by the parents concerned toguarantee the performance of the obligations of a general guardian.

It must, however, be noted that the second paragraph of Article 225 ofthe Family Code speaks of the "market value of the property or theannual income of the child," which means, therefore, the aggregate ofthe child's property or annual income; if this exceeds P50,000.00, abond is required. There is no evidence that the share of each of theminors in the proceeds of the group policy in question is the minor'sonly property. Without such evidence, it would not be safe to concludethat, indeed, that is his only property.

WHEREFORE, the instant petition is GRANTED. The Decision of10 October 1991 and the Resolution of 19 May 1992 of the public

respondent in CA-G.R. SP No. 22950 are SET ASIDE and theDecision of the Insurance Commission in IC Case No. RD-058 isREINSTATED.

Costs against the private respondent.

SO ORDERED.

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