Insurance Cases Sept

8/13/2019 Insurance Cases Sept

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G.R. No. L-9374 February 16, 1915

FRANCISCO DEL VAL, ET AL.,plaintiffs-appellants,vs.ANDRES DEL VAL,defendant-appellee.

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the city of Manila dismissing thecomplaint with costs.

The pleadings set forth that the plaintiffs and defendant are brother and sisters; that they are the only heirsat law and next of kin of Gregorio Nacianceno del Val, who died in Manila on August 4, 1910, intestate;that an administrator was appointed for the estate of the deceased, and, after a partial administration, itwas closed and the administrator discharged by order of the Court of First Instance dated December 9,1911; that during the lifetime of the deceased he took out insurance on his life for the sum of P40,000 andmade it payable to the defendant as sole beneficiary; that after his death the defendant collected the faceof the policy; that of said policy he paid the sum of P18,365.20 to redeem certain real estate which thedecedent had sold to third persons with a right to repurchase; that the redemption of said premises wasmade by the attorney of the defendant in the name of the plaintiff and the defendant as heirs of thedeceased vendor; that the redemption of said premises they have had the use and benefit thereof; thatduring that time the plaintiffs paid no taxes and made no repairs.

It further appears from the pleadings that the defendant, on the death of the deceased, took possession ofmost of his personal property, which he still has in his possession, and that he has also the balance on saidinsurance policy amounting to P21,634.80.

Plaintiffs contend that the amount of the insurance policy belonged to the estate of the deceased and not tothe defendant personally; that, therefore, they are entitled to a partition not only of the real and personal

property, but also of the P40,000 life insurance. The complaint prays a partition of all the property, bothreal and personal, left by the deceased; that the defendant account for P21,634.80, and that that sum bedivided equally among the plaintiffs and defendant along with the other property of deceased.

The defendant denies the material allegations of the complaint and sets up as special defense andcounterclaim that the redemption of the real estate sold by his father was made in the name of theplaintiffs and himself instead of in his name alone without his knowledge or consent; and that it was nothis intention to use the proceeds of the insurance policy for the benefit of any person but himself, healleging that he was and is the sole owner thereof and that it is his individual property. He, therefore, asksthat he be declared the owner of the real estate redeemed by the payment of the P18,365.20, the owner ofthe remaining P21,634.80, the balance of the insurance policy, and that the plaintiff's account for the useand occupation of the premises so redeemed since the date of the redemption.

The learned trial court refused to give relief to either party and dismissed the action.

It says in its opinion: "This purports to be an action for partition, brought against an heir by his coheirs.The complaint, however, fails to comply with Code Civ., Pro. sec. 183, in that it does not 'contain anadequate description of the real property of which partition is demanded.' Because of this defect (whichhas not been called to our attention and was discovered only after the cause was submitted) it is more thandoubtful whether any relief can be awarded under the complaint, except by agreement of all the parties."


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This alleged defect of the complaint was made one of the two bases for the dismissal of the action.

We do not regard this as sufficient reason for dismissing the action. It is the doctrine of this court, setdown in several decisions, Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504, that, even though thecomplaint is defective to the extent of failing in allegations necessary to constitute a cause of action, if, onthe trial of the cause, evidence is offered which establishes the cause of action which the complaint

intended to allege, and such evidence is received without objection, the defect is thereby cured and cannotbe made the ground of a subsequent objection. If, therefore, evidence was introduced on the trial in thiscase definitely and clearly describing the real estate sought to be partitioned, the defect in the complaintwas cured in that regard and should not have been used to dismiss the action. We do not stop to inquirewhether such evidence was or was not introduced on the trial, inasmuch as this case must be turned for anew trial with opportunity to both parties to present such evidence as is necessary to establish theirrespective claims.

The court in its decision further says: "It will be noticed that the provision above quoted refers exclusivelyto real estate. . . . It is, in other words, an exclusive real property action, and the institution thereof givesthe court no jurisdiction over chattels. . . . But no relief could possibly be granted in this action as to anyproperty except the last (real estate), for the law contemplated that all the personal property of an estate be

distributed before the administration is closed. Indeed, it is only in exceptional cases that the partition ofthe real estate is provided for, and this too is evidently intended to be effected as a part of theadministration, but here the complaint alleges that the estate was finally closed on December 9, 1911, andwe find upon referring to the record in that case that subsequent motion to reopen the same were denied;so that the matter of the personal property at least must be considered res judicata (for the final judgmentin the administration proceedings must be treated as concluding not merely what was adjudicated, butwhat might have been). So far, therefore, as the personal property at least is concerned, plaintiffs' onlyremedy was an appeal from said order."

We do not believe that the law is correctly laid down in this quotation. The courts of the Islands havejurisdiction to divide personal property between the common owners thereof and that power is as full andcomplete as is the power to partition real property. If an actual partition of personal property cannot be

made it will be sold under the direction of the court and the proceeds divided among the owners after thenecessary expenses have been deducted.

The administration of the estate of the decedent consisted simply, so far as the record shows, in thepayment of the debts. No division of the property, either real or personal, seems to have been made. Onthe contrary, the property appears, from the record, to have been turned over to the heirs in bulk. Thefailure to partition the real property may have been due either to the lack of request to the court by one ormore of the heirs to do so, as the court has no authority to make a partition of the real estate without suchrequest; or it may have been due to the fact that all the real property of decedent had been sold under

pacto de retro and that, therefore, he was not the owner of any real estate at the time of his death. As tothe personal property, it does not appear that it was disposed of in the manner provided by law. (Sec. 753,Code of Civil Procedure.) So far as this action is concerned, however, it is sufficient for us to know that

none of the property was actually divided among the heirs in the administration proceeding and that theyremain coowners and tenants-in- common thereof at the present time. To maintain an action to partitionreal or personal property it is necessary to show only that it is owned in common.

The order finally closing the administration and discharging the administrator, referred to in the opinionof the trial court, has nothing to do with the division of either the real or the personal property. The heirshave the right to ask the probate court to turn over to them both the real and personal property withoutdivision; and where that request is unanimous it is the duty of the court to comply with it, and there is


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nothing in section 753 of the Code of Civil Procedure which prohibits it. In such case an order finallysettling the estate and discharging the administrator would not bar a subsequent action to require adivision of either the real or personal property. If, on the other hand, an order had been made in theadministration proceedings dividing the personal or the real property, or both, among the heirs, then it isquite possible that, to a subsequent action brought by one of the heirs for a partition of the real or personalproperty, or both, there could have been interposed a plea of res judicatabased on such order. As the

matter now stands, however, there is no ground on which to base such a plea. Moreover, no such plea hasbeen made and no evidence offered to support it.

With the finding of the trial court that the proceeds of the life-insurance policy belong exclusively to thedefendant as his individual and separate property, we agree. That the proceeds of an insurance policybelong exclusively to the beneficiary and not to the estate of the person whose life was insured, and thatsuch proceeds are the separate and individual property of the beneficiary, and not of the heirs of theperson whose life was insured, is the doctrine in America. We believe that the same doctrine obtains inthese Islands by virtue of section 428 of the Code of Commerce, which reads:

The amount which the underwriter must deliver to the person insured, in fulfillment of thecontract, shall be the property of the latter, even against the claims of the legitimate heirs or

creditors of any kind whatsoever of the person who effected the insurance in favor of the former.

It is claimed by the attorney for the plaintiffs that the section just quoted is subordinate to the provisionsof the Civil Code as found in article 1035. This article reads:

An heir by force of law surviving with others of the same character to a succession must bringinto the hereditary estate the property or securities he may have received from the deceasedduring the life of the same, by way of dowry, gift, or for any good consideration, in order tocompute it in fixing the legal portions and in the account of the division.

Counsel also claim that the proceeds of the insurance policy were a donation or gift made by the fatherduring his lifetime to the defendant and that, as such, its ultimate destination is determined by thoseprovisions of the Civil Code which relate to donations, especially article 819. This article provides that"gifts made to children which are not betterments shall be considered as part of their legal portion."

We cannot agree with these contentions. The contract of life insurance is a special contract and thedestination of the proceeds thereof is determined by special laws which deal exclusively with that subject.The Civil Code has no provisions which relate directly and specifically to life- insurance contracts or tothe destination of life insurance proceeds. That subject is regulated exclusively by the Code of Commercewhich provides for the terms of the contract, the relations of the parties and the destination of theproceeds of the policy.

The proceeds of the life-insurance policy being the exclusive property of the defendant and he having

used a portion thereof in the repurchase of the real estate sold by the decedent prior to his death with rightto repurchase, and such repurchase having been made and the conveyance taken in the names of all of theheirs instead of the defendant alone, plaintiffs claim that the property belongs to the heirs in common andnot to the defendant alone.

We are not inclined to agree with this contention unless the fact appear or be shown that the defendantacted as he did with the intention that the other heirs should enjoy with him the ownership of the estatein other words, that he proposed, in effect, to make a gift of the real estate to the other heirs. If it isestablished by the evidence that that was his intention and that the real estate was delivered to the


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plaintiffs with that understanding, then it is probable that their contention is correct and that they areentitled to share equally with the defendant therein. If, however, it appears from the evidence in the casethat the conveyances were taken in the name of the plaintiffs without his knowledge or consent, or that itwas not his intention to make a gift to them of the real estate, then it belongs to him. If that facts are asstated, he has two remedies. The one is to compel the plaintiffs to reconvey to him and the other is to letthe title stand with them and to recover from them the sum he paid on their behalf.

For the complete and proper determination of the questions at issue in this case, we are of the opinion thatthe cause should be returned to the trial court with instructions to permit the parties to frame such issuesas will permit the settlement of all the questions involved and to introduce such evidence as may benecessary for the full determination of the issues framed. Upon such issues and evidence taken thereunderthe court will decide the questions involved according to the evidence, subordinating his conclusions oflaw to the rules laid down in this opinion.

We do not wish to be understood as having decided in this opinion any question of fact which will ariseon the trial and be there in controversy. The trial court is left free to find the facts as the evidencerequires. To the facts as so found he will apply the law as herein laid down.

The judgment appealed from is set aside and the cause returned to the Court of First Instance whence itcame for the purpose hereinabove stated. So ordered.

Arellano, C.J., and Carson, J.,concur.Torres, J.,concurs in the result.

G.R. No. L-34583 October 22, 1931

THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe

Oscar Schuetze,plaintiff-appellant,vs.

JUAN POSADAS, JR., Collector of Internal Revenue,defendant-appellee.

Araneta, De Joya, Zaragoza and Araneta for appellant.

Attorney-General Jaranilla for appellee.

VILLA-REAL, J.:

The Bank of the Philippine Islands, as administrator of the estate of the deceased Adolphe OscarSchuetze, has appealed to this court from the judgment of the Court of First Instance of Manila absolvingthe defendant Juan Posadas, Jr., Collector of Internal Revenue, from the complaint filed against him by

said plaintiff bank, and dismissing the complaint with costs.

The appellant has assigned the following alleged errors as committed by the trial court in itsjudgment, to wit:

1. The lower court erred in holding that the testimony of Mrs. Schuetze was inefficient toestablished the domicile of her husband.


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2. The lower court erred in holding that under section 1536 of the Administrative Code the taximposed by the defendant is lawful and valid.

3. The lower court erred in not holding that one-half () of the proceeds of the policy in questionis community property and that therefore no inheritance tax can be levied, at least on one-half ()of the said proceeds.

4. The lower court erred in not declaring that it would be unconstitutional to impose aninheritance tax upon the insurance policy here in question as it would be a taking of propertywithout due process of law.

The present complaint seeks to recover from the defendant Juan Posadas, Jr., Collector of InternalRevenue, the amount of P1,209 paid by the plaintiff under protest, in its capacity of administrator of theestate of the late Adolphe Oscar Schuetze, as inheritance tax upon the sum of P20,150, which is theamount of an insurance policy on the deceased's life, wherein his own estate was named the beneficiary.

At the hearing, in addition to documentary and parol evidence, both parties submitted the followingagreed statement of facts of the court for consideration:

It is hereby stipulated and agreed by and between the parties in the above-entitled action throughtheir respective undersigned attorneys:

1. That the plaintiff, Rosario Gelano Vda. de Schuetze, window of the late Adolphe OscarSchuetze, is of legal age, a native of Manila, Philippine Islands, and is and was at all timeshereinafter mentioned a resident of Germany, and at the time of the death of her husband, the lateAdolphe Oscar Schuetze, she was actually residing and living in Germany;

2. That the Bank of the Philippine Islands, is and was at all times hereinafter mentioned a bankinginstitution duly organized and existing under and by virtue of the laws of the Philippine Islands;

3. That on or about August 23, 1928, the herein plaintiff before notary public Salvador Zaragoza,drew a general power appointing the above-mentioned Bank of the Philippine Islands as herattorney-in-fact, and among the powers conferred to said attorney-in-fact was the power torepresent her in all legal actions instituted by or against her;

4. That the defendant, of legal age, is and at all times hereinafter mentioned the duly appointedCollector of Internal Revenue with offices at Manila, Philippine Islands;

5. That the deceased Adolphe Oscar Schuetze came to the Philippine Islands for the first time ofMarch 31, 1890, and worked in the several German firms as a mere employee and that from theyear 1903 until the year 1918 he was partner in the business of Alfredo Roensch;

6. That from 1903 to 1922 the said Adolphe Oscar Schuetze was in the habit of making varioustrips to Europe;

7. That on December 3, 1927, the late Adolphe Oscar Schuetze coming from Java, and with theintention of going to Bremen, landed in the Philippine Islands where he met his death onFebruary 2, 1928;


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8. That on March 31, 1926, the said Adolphe Oscar Schuetze, while in Germany, executed a will,in accordance with its law, wherein plaintiff was named his universal heir;

9. That the Bank of the Philippine Islands by order of the Court of First Instance of Manila underdate of May 24, 1928, was appointed administrator of the estate of the deceased Adolphe OscarSchuetze;

10. That, according to the testamentary proceedings instituted in the Court of First Instance ofManila, civil case No. 33089, the deceased at the time of his death was possessed of not only realproperty situated in the Philippine Islands, but also personal property consisting of shares of stockin nineteen (19) domestic corporations;

11. That the fair market value of all the property in the Philippine Islands left by the deceased atthe time of his death in accordance with the inventory submitted to the Court of First Instance ofManila, civil case No. 33089, was P217,560.38;

12. That the Bank of the Philippine Islands, as administrator of the estate of the deceasedrendered its final account on June 19, 1929, and that said estate was closed on July 16, 1929;

13. That among the personal property of the deceased was found life-insurance policy No.194538 issued at Manila, Philippine Islands, on January 14, 1913, for the sum of $10,000 by theSun Life Assurance Company of Canada, Manila branch, a foreign corporation duly organizedand existing under and by virtue of the laws of Canada, and duly authorized to transact businessin the Philippine Islands;

14. That in the insurance policy the estate of the said Adolphe Oscar Schuetze was named thebeneficiary without any qualification whatsoever;

15. That for five consecutive years, the deceased Adolphe Oscar Schuetze paid the premiums of

said policy to the Sun Life Assurance Company of Canada, Manila branch;

16. That on or about the year 1918, the Sun Life Assurance Company of Canada, Manila branch,transferred said policy to the Sun Life Assurance Company of Canada, London branch;

17. That due to said transfer the said Adolphe Oscar Schuetze from 1918 to the time of his deathpaid the premiums of said policy to the Sun Life Assurance Company of Canada, London Branch;

18. That the sole and only heir of the deceased Adolphe Oscar Schuetze is his widow, the plaintiffherein;

19. That at the time of the death of the deceased and at all times thereafter including the date

when the said insurance policy was paid, the insurance policy was not in the hands or possessionof the Manila office of the Sun Life Assurance Company of Canada, nor in the possession of theherein plaintiff, nor in the possession of her attorney-in-fact the Bank of the Philippine Islands,but the same was in the hands of the Head Office of the Sun Life Assurance Company of Canada,at Montreal, Canada;

20. That on July 13, 1928, the Bank of the Philippine Islands as administrator of the decedent'sestate received from the Sun Life Assurance Company of Canada, Manila branch, the sum of


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P20,150 representing the proceeds of the insurance policy, as shown in the statement of incomeand expenses of the estate of the deceased submitted on June 18, 1929, by the administrator to theCourt of First Instance of Manila, civil case No. 33089;

21. That the Bank of the Philippine Islands delivered to the plaintiff herein the said sum ofP20,150;

22. That the herein defendant on or about July 5, 1929, imposed an inheritance tax upon thetransmission of the proceeds of the policy in question in the sum of P20,150 from the estate of thelate Adolphe Oscar Schuetze to the sole heir of the deceased, or the plaintiff herein, whichinheritance tax amounted to the sum of P1,209;

23. That the Bank of the Philippine Islands as administrator of the decedent's estate and asattorney-in-fact of the herein plaintiff, having been demanded by the herein defendant to payinheritance tax amounting to the sum of P1,209, paid to the defendant under protest the above-mentioned sum;

24. That notwithstanding the various demands made by plaintiff to the defendant, said defendanthas refused and refuses to refund to plaintiff the above mentioned sum of P1,209;

25. That plaintiff reserves the right to adduce evidence as regards the domicile of the deceased,and so the defendant, the right to present rebuttal evidence;

26. That both plaintiff and defendant submit this stipulation of facts without prejudice to theirright to introduce such evidence, on points not covered by the agreement, which they may deemproper and necessary to support their respective contentions.

In as much as one of the question raised in the appeal is whether an insurance policy on saidAdolphe Oscar Schuetze's life was, by reason of its ownership, subject to the inheritance tax, it would be

well to decide first whether the amount thereof is paraphernal or community property.

According to the foregoing agreed statement of facts, the estate of Adolphe Oscar Schuetze is thesole beneficiary named in the life-insurance policy for $10,000, issued by the Sun Life AssuranceCompany of Canada on January 14, 1913. During the following five years the insured paid the premiumsat the Manila branch of the company, and in 1918 the policy was transferred to the London branch.

The record shows that the deceased Adolphe Oscar Schuetze married the plaintiff-appellant RosarioGelano on January 16, 1914.

With the exception of the premium for the first year covering the period from January 14, 1913 toJanuary 14, 1914, all the money used for paying the premiums, i. e., from the second year, or January 16,

1914, or when the deceased Adolphe Oscar Schuetze married the plaintiff-appellant Rosario Gelano, untilhis death on February 2, 1929, is conjugal property inasmuch as it does not appear to have exclusivelybelonged to him or to his wife (art. 1407, Civil Code). As the sum of P20,150 here in controversy is aproduct of such premium it must also be deemed community property, because it was acquired for avaluable consideration, during said Adolphe Oscar Schuetze's marriage with Rosario Gelano at theexpense of the common fund (art. 1401, No. 1, Civil Code), except for the small part corresponding to thefirst premium paid with the deceased's own money.


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In his Commentaries on the Civil Code, volume 9, page 589, second edition, Manresa treats of lifeinsurance in the following terms, to wit:

The amount of the policy represents the premiums to be paid, and the right to it arises themoment the contract is perfected, for at the moment the power of disposing of it may beexercised, and if death occurs payment may be demanded. It is therefore something acquired for a

valuable consideration during the marriage, though the period of its fulfillment, depend upon thedeath of one of the spouses, which terminates the partnership. So considered, the question may besaid to be decided by articles 1396 and 1401: if the premiums are paid with the exclusive propertyof husband or wife, the policy belongs to the owner; if with conjugal property, or if the moneycannot be proved as coming from one or the other of the spouses, the policy is communityproperty.

The Supreme Court of Texas, United States, in the case of Martin vs. Moran (11 Tex. Civ. A., 509)laid down the following doctrine:

COMMUNITY PROPERTYLIFE INSURANCE POLICY.A husband took out anendowment life insurance policy on his life, payable "as directed by will." He paid the premiumsthereon out of community funds, and by his will made the proceeds of the policy payable to hisown estate. Held, that the proceeds were community estate, one-half of which belonged to thewife.

InIn reStan's Estate, Myr. Prob. (Cal.), 5, the Supreme Court of California laid down the followingdoctrine:

A testator, after marriage, took out an insurance policy, on which he paid the premiumsfrom his salary. Held that the insurance money was community property, to one-half of which,the wife was entitled as survivor.

InIn reWebb's Estate, Myr. Prob. (Cal.), 93, the same court laid down the following doctrine:

A decedent paid the first third of the amount of the premiums on his life-insurance policyout of his earnings before marriage, and the remainder from his earnings received after marriage.Held, that one-third of the policy belonged to his separate estate, and the remainder to thecommunity property.

Thus both according to our Civil Code and to the ruling of those North American States where theSpanish Civil Code once governed, the proceeds of a life-insurance policy whereon the premiums werepaid with conjugal money, belong to the conjugal partnership.

The appellee alleges that it is a fundamental principle that a life-insurance policy belongs

exclusively to the beneficiary upon the death of the person insured, and that in the present case, as the lateAdolphe Oscar Schuetze named his own estate as the sole beneficiary of the insurance on his life, uponhis death the latter became the sole owner of the proceeds, which therefore became subject to theinheritance tax, citingDel Val vs. Del Val (29 Phil., 534), where the doctrine was laid down that an heirappointed beneficiary to a life-insurance policy taken out by the deceased, becomes the absolute owner ofthe proceeds of such policy upon the death of the insured.

The estate of a deceased person cannot be placed on the same footing as an individual heir. Theproceeds of a life-insurance policy payable to the estate of the insured passed to the executor or


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administrator of such estate, and forms part of its assets (37 Corpus Juris, 565, sec. 322); whereas theproceeds of a life-insurance policy payable to an heir of the insured as beneficiary belongs exclusively tosaid heir and does not form part of the deceased's estate subject to administrator. (Del Val vs. Del Val,

supra; 37 Corpus Juris, 566, sec. 323, and articles 419 and 428 of the Code of Commerce.)

Just as an individual beneficiary of a life-insurance policy taken out by a married person becomes

the exclusive owner of the proceeds upon the death of the insured even if the premiums were paid by theconjugal partnership, so, it is argued, where the beneficiary named is the estate of the deceased whose lifeis insured, the proceeds of the policy become a part of said estate upon the death of the insured even if thepremiums have been paid with conjugal funds.

In a conjugal partnership the husband is the manager, empowered to alienate the partnershipproperty without the wife's consent (art. 1413, Civil Code), a third person, therefore, named beneficiary ina life-insurance policy becomes the absolute owner of its proceeds upon the death of the insured even ifthe premiums should have been paid with money belonging to the community property. When a marriedman has his life insured and names his own estate after death, beneficiary, he makes no alienation of theproceeds of conjugal funds to a third person, but appropriates them himself, adding them to the assets ofhis estate, in contravention of the provisions of article 1401, paragraph 1, of the Civil Code cited above,

which provides that "To the conjugal partnership belongs" (1) Property acquired for a valuableconsideration during the marriage at the expense of the common fund, whether the acquisition is made forthe partnership or for one of the spouses only." Furthermore, such appropriation is a fraud practised uponthe wife, which cannot be allowed to prejudice her, according to article 1413, paragraph 2, of said Code.Although the husband is the manager of the conjugal partnership, he cannot of his own free will convertthe partnership property into his own exclusive property.

As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze,were paid out of the conjugal funds, with the exceptions of the first, the proceeds of the policy, excludingthe proportional part corresponding to the first premium, constitute community property, notwithstandingthe fact that the policy was made payable to the deceased's estate, so that one-half of said proceedsbelongs to the estate, and the other half to the deceased's widow, the plaintiff-appellant Rosario Gelano

Vda. de Schuetze.

The second point to decide in this appeal is whether the Collector of Internal Revenue hasauthority, under the law, to collect the inheritance tax upon one-half of the life-insurance policy taken outby the late Adolphe Oscar Schuetze, which belongs to him and is made payable to his estate.

According to the agreed statement of facts mentioned above, the plaintiff-appellant, the Bank of thePhilippine Islands, was appointed administrator of the late Adolphe Oscar Schuetze's testamentary estateby an order dated March 24, 1928, entered by the Court of First Instance of Manila. On July 13, 1928, theSun Life Assurance Company of Canada, whose main office is in Montreal, Canada, paid Rosario GelanoVda. de Schuetze upon her arrival at Manila, the sum of P20,150, which was the amount of the insurancepolicy on the life of said deceased, payable to the latter's estate. On the same date Rosario Gelano Vda. deSchuetze delivered the money to said Bank of the Philippine Islands, as administrator of the deceased'sestate, which entered it in the inventory of the testamentary estate, and then returned the money to saidwidow.

Section 1536 of the Administrative Code, as amended by section 10 of Act No. 2835 and section 1of Act No. 3031, contains the following relevant provision:


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SEC. 1536. Conditions and rate of taxation.Every transmission by virtue of inheritance,devise, bequest, gift mortis causaor advance in anticipation of inheritance, devise, or bequest ofreal property located in the Philippine Islands and real rights in such property; of any franchisewhich must be exercised in the Philippine Islands; of any shares, obligations, or bonds issued byany corporation orsociedad anonima organized or constituted in the Philippine Islands inaccordance with its laws; of any shares or rights in any partnership, business or industry

established in the Philippine Islands or of any personal property located in the Philippine Islandsshall be subject to the following tax:

x x x x x x x x x

In as much as the proceeds of the insurance policy on the life of the late Adolphe Oscar Schuetzewere paid to the Bank of the Philippine Islands, as administrator of the deceased's estate, for managementand partition, and as such proceeds were turned over to the sole and universal testamentary heiressRosario Gelano Vda. de Schuetze, the plaintiff-appellant, here in Manila, the situs of said proceeds is thePhilippine Islands.

In his work "The Law of Taxation," Cooley enunciates the general rule governing the levying oftaxes upon tangible personal property, in the following words:

GENERAL RULE.The suits of tangible personal property, for purposes of taxation maybe where the owner is domiciled but is not necessarily so. Unlike intangible personal property, itmay acquire a taxation situs in a state other than the one where the owner is domiciled, merelybecause it is located there. Its taxable situs is where it is more or less permanently located,regardless of the domicile of the owner. It is well settled that the state where it is more or lesspermanently located has the power to tax it although the owner resides out of the state, regardlessof whether it has been taxed for the same period at the domicile of the owner, provided there isstatutory authority for taxing such property. It is equally well settled that the state where theowner is domiciled has no power to tax it where the property has acquired an actual situs inanother state by reason of its more or less permanent location in that state. ... (2 Cooley, The Lawof Taxation, 4th ed., p. 975, par. 451.)

With reference to the meaning of the words "permanent" and "in transit," he has the following tosay:

PERMANENCY OF LOCATION; PROPERTY IN TRANSIT.In order to acquire asitus in a state or taxing district so as to be taxable in the state or district regardless of thedomicile of the owner and not taxable in another state or district at the domicile of the owner,tangible personal property must be more or less permanently located in the state or district. Inother words, the situs of tangible personal property is where it is more or less permanently locatedrather than where it is merely in transit or temporarily and for no considerable length of time. Iftangible personal property is more or less permanently located in a state other than the one wherethe owner is domiciled, it is not taxable in the latter state but is taxable in the state where it islocated. If tangible personal property belonging to one domiciled in one state is in another statemerely in transitu or for a short time, it is taxable in the former state, and is not taxable in thestate where it is for the time being. . . . .

Property merely in transit through a state ordinarily is not taxable there. Transit beginswhen an article is committed to a carrier for transportation to the state of its destination, or startedon its ultimate passage. Transit ends when the goods arrive at their destination. But intermediate


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these points questions may arise as to when a temporary stop in transit is such as to make theproperty taxable at the place of stoppage. Whether the property is taxable in such a case usuallydepends on the length of time and the purpose of the interruption of transit. . . . .

. . . It has been held that property of a construction company, used in construction of arailroad, acquires a situs at the place where used for an indefinite period. So tangible personal

property in the state for the purpose of undergoing a partial finishing process is not to be regardedas in the course of transit nor as in the state for a mere temporary purpose. (2 Cooley, The Law ofTaxation, 4th ed., pp. 982, 983 and 988, par. 452.)

If the proceeds of the life-insurance policy taken out by the late Adolphe Oscar Schuetze and madepayable to his estate, were delivered to the Bank of the Philippine Islands for administration anddistribution, they were not in transit but were more or less permanently located in the Philippine Islands,according to the foregoing rules. If this be so, half of the proceeds which is community property, belongsto the estate of the deceased and is subject to the inheritance tax, in accordance with the legal provisionquoted above, irrespective of whether or not the late Adolphe Oscar Schuetze was domiciled in thePhilippine Islands at the time of his death.

By virtue of the foregoing, we are of opinion and so hold: (1) That the proceeds of a life-insurancepolicy payable to the insured's estate, on which the premiums were paid by the conjugal partnership,constitute community property, and belong one-half to the husband and the other half to the wife,exclusively; (2) that if the premiums were paid partly with paraphernal and partly conjugal funds, theproceeds are likewise in like proportion paraphernal in part and conjugal in part; and (3) that the proceedsof a life-insurance policy payable to the insured's estate as the beneficiary, if delivered to the testamentaryadministrator of the former as part of the assets of said estate under probate administration, are subject tothe inheritance tax according to the law on the matter, if they belong to the assured exclusively, and it isimmaterial that the insured was domiciled in these Islands or outside.1awphil.net

Wherefore, the judgment appealed from is reversed, and the defendant is ordered to return to theplaintiff the one-half of the tax collected upon the amount of P20,150, being the proceeds of the insurancepolicy on the life of the late Adolphe Oscar Schuetze, after deducting the proportional part correspondingto the first premium, without special pronouncement of costs. So ordered.

Avancea, C.J., Johnson, Street, Malcolm, Villamor, and Ostrand, JJ., concur.

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD.,plaintiff-appellee,vs.

CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the lifeinsurance policy of a legally married man claim the proceeds thereof in case of death of the latter?


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On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., PolicyNo. 009929 on a whole-life for P5,882.00 with a, rider for Accidental Death for the same amountBuenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as hiswife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch

of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in thetotal amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus theadditional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid forthe premium due November, 1969, minus the unpaid premiums and interest thereon due for January andFebruary, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designatedbeneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merelyliving as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she isthe one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co.,Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trialorder was entered reading as follows: +.wph!1

During the pre-trial conference, the parties manifested to the court. that there is nopossibility of amicable settlement. Hence, the Court proceeded to have the parties submittheir evidence for the purpose of the pre-trial and make admissions for the purpose ofpretrial. During this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed

and stipulated: 1) that the deceased Buenaventura Ebrado was married to PascualaEbrado with whom she has six(legitimate) namely; Hernando, Cresencio, Elsa,Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of thedeceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider foraccidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for thedefendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of

Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, withwhom she had 2 children although he was not legally separated from his legal wife; 4)that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3and affidavit of the police report of his death Exhibit 5; 5) that complainant CarponiaEbrado filed claim with the Insular Life Assurance Co. which was contested by PascualaEbrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverseclaims the insurance company filed this action against the two herein claimants Carponiaand Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. asproceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in thepolicy is Carponia Ebrado and the insured made reservation to change the beneficiary butalthough the insured made the option to change the beneficiary, same was never changedup to the time of his death and the wife did not have any opportunity to write thecompany that there was reservation to change the designation of the parties agreed that a


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decision be rendered based on and stipulation of facts as to who among the two claimantsis entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneousmemoranda from the receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebradodisqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing thepayment of the insurance proceeds to the estate of the deceased insured. The trial court held: +.wph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminalconviction for adultery or concubinage is not essential in order to establish thedisqualification mentioned therein. Neither is it also necessary that a finding of such guiltor commission of those acts be made in a separate independent action brought for thepurpose. The guilt of the donee (beneficiary) may be proved by preponderance ofevidence in the same proceeding (the action brought to declare the nullity of thedonation).

It is, however, essential that such adultery or concubinage exists at the time defendantCarponia T. Ebrado was made beneficiary in the policy in question for thedisqualification and incapacity to exist and that it is only necessary that such fact beestablished by preponderance of evidence in the trial. Since it is agreed in theirstipulation above-quoted that the deceased insured and defendant Carponia T. Ebradowere living together as husband and wife without being legally married and that themarriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid andstill existing at the time the insurance in question was purchased there is no question thatdefendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policyin question and as such she is not entitled to the proceeds of the insurance upon the deathof the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, theAppellate Court certified the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code(PD No. 612, as amended) does not contain any specific provision grossly resolutory of the primequestion at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be appliedexclusively to the proper interest of the person in whose name it is made" 1cannot be validly seized upon

to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refersonly to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2Otherwise, the prohibitory laws against illicit relationships especially on property and descent will berendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the generalrules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the NewCivil Code states: "The contract of insurance is governed by special laws.Matters not expressly provided

for in such special laws shall be regulated by this Code." When not otherwise specifically provided for bythe Insurance Law, the contract of life insurance is governed by the general rules of the civil lawregulating contracts. 3And under Article 2012 of the same Code, "any person who is forbidden from


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receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by theperson who cannot make a donation to him. 4Common-law spouses are, definitely, barred from receivingdonations from each other. Article 739 of the new Civil Code provides: +.wph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time ofdonation;

Those made between persons found guilty of the same criminal offense, in considerationthereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of hisoffice.

In the case referred to in No. 1, the action for declaration of nullity may be brought by thespouse of the donor or donee; and the guilt of the donee may be proved by preponderance

of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary isconcerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,because from the premiums of the policy which the insured pays out of liberality, the beneficiary willreceive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of thenew Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot belaid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurancepolicy of the person who cannot make the donation. 5Under American law, a policy of life insurance isconsidered as a testament and in construing it, the courts will, so far as possible treat it as a will anddetermine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier betweencommon law spouses in record to Property relations since such hip ultimately encroaches upon the nuptialand filial rights of the legitimate family There is every reason to hold that the bar in donations betweenlegitimate spouses and those between illegitimate ones should be enforced in life insurance policies sincethe same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policyis no different from a donee. Both are recipients of pure beneficence. So long as manage remains thethreshold of family laws, reason and morality dictate that the impediments imposed upon married coupleshould likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed bythese legal disabilities, with more reason should an illicit relationship be restricted by these disabilities.Thus, inMatabuena v. Cervantes, 7this Court, through Justice Fernando, said: +.wph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes

of that court (Court of Appeals), 'to prohibit donations in favor of the other consort andhis descendants because of and undue and improper pressure and influence upon thedonor, a prejudice deeply rooted in our ancient law;" por-que no se enganendesponjandose el uno al otro por amor que han de consuno' (According to) the Partidas(Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicemspoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there isvery reason to apply the same prohibitive policy to persons living together as husbandand wife without the benefit of nuptials. For it is not to be doubted that assent to suchirregular connection for thirty years bespeaks greater influence of one party over the


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other, so that the danger that the law seeks to avoid is correspondingly increased.Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it wouldnot be just that such donations should subsist, lest the condition 6f those who incurredguilt should turn out to be better.' So long as marriage remains the cornerstone of ourfamily law, reason and morality alike demand that the disabilities attached to marriageshould likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, anyother conclusion cannot stand the test of scrutiny. It would be to indict the frame of theCivil Code for a failure to apply a laudable rule to a situation which in its essentialscannot be distinguished. Moreover, if it is at all to be differentiated the policy of the lawwhich embodies a deeply rooted notion of what is just and what is right would benullified if such irregular relationship instead of being visited with disabilities would beattended with benefits. Certainly a legal norm should not be susceptible to such areproach. If there is every any occasion where the principle of statutory construction thatwhat is within the spirit of the law is as much a part of it as what is written, this is it.Otherwise the basic purpose discernible in such codal provision would not be attained.Whatever omission may be apparent in an interpretation purely literal of the language

used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilitiesmentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons whowere guilty of adultery or concubinage at the time of the donation," Article 739 itself provides:+.wph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by thespouse of the donor or donee; and the guilty of the donee may be proved by

preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a conditionprecedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On thecontrary, the law plainly states that the guilt of the party may be proved "in the same acting fordeclaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt ofthe consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and thebeneficiary has been conveniently supplied by the stipulations between the parties in the pre-trialconference of the case. It case agreed upon and stipulated therein that the deceased insured BuenaventuraC. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during hislifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he hastwo children. These stipulations are nothing less thanjudicial admissions which, as a consequence, nolonger require proof and cannot be contradicted. 8Afortiori, on the basis of these admissions, a judgmentmay be validly rendered without going through the rigors of a trial for the sole purpose of proving theillicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "thata decision be rendered based on this agreement and stipulation of facts as to who among the twoclaimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado ishereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance


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policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceasedinsured. Costs against Carponia T. Ebrado.

SO ORDERED.

G.R. No. L-2910 June 29, 1951

THE MANUFACTURERS LIFE INSURANCE CO.,plaintiff-appellant,vs.BIBIANO L. MEER, in the capacity as Collector of Internal Revenue,defendant-appellee.

Camus, Zavalla, Bautista and Nueves for appellant.First Assistant Solicitor General Roberto A. Gianzon, Office of the Solicitor Felix V. Makasiar andSolicitor Jose P. Alejandro for appellee.

BENGZON, J.:

Appeal from a decision of the Honorable Buenaventura Ocampo, then judge of the Manila court of firstinstance, dismissing plaintiff's complaint to recover money paid under protest for taxes. The case wassubmitted upon a stipulation of facts, supplemented by documentary evidence.

The plaintiff, the Manufacturer Life Insurance Company in a corporation duly organized in Canada withhead office at Toronto. It is duly registered and licensed to engage in life insurance business in thePhilippines, and maintains a branch office in Manila. It was engaged in such business in the Philippinesfor more than five years before and including the year 1941. But due to the exigencies of the war it closedthe branch office at Manila during 1942 up to September 1945.

In the course of its operations before the war, plaintiff issued a number of life insurance policies in thePhilippines containing stipulations referred to as non-forfeiture clauses, as follows:

'8.Automatic Premium Loan.This Policy shall not lapse for non-payment of any premiumafter it has been three full years in force, if, at the due date of such premium, the Cash Value ofthis Policy and of any bonus additions and dividends left on accumulation (after deducting anyindebtedness to the Company and the interest accrued thereon) shall exceed the amount of saidpremium. In which event the company will, without further request, treat the premium then due aspaid, and the amount of such premium, with interest from its actual due date at six per cent perannum, compounded yearly, and one per cent, compounded yearly, for expenses, shall be a firstlien on this Policy in the Company's favour in priority to the claim of any assignee or any otherperson. The accumulated lien may at any time, while the Policy is in force, be paid in whole or inpart.

"When the premium falls due and is not paid in cash within the month's grace, if the Cash Valueof this policy and of any bonus addition and dividends left on accumulation (after deducting anyaccumulated indebtedness) be less than the premium then due, the Company will, without furtherrequests, continue this insurance in force for a period .. . .

"10. Cash and Paid-Up Insurance Values.At the end of the third policy year or thereafter,upon the legal surrender of this Policy to the Company while there is no default in premiumpayments or within two months after the due date of the premium in default, the Company will(1) grant a cash value as specified in Column (A) increased by the cash value of any bonus


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additions and dividends left on accumulation, which have been alloted to this Policy,less allindebtedness to the Company on this Policy on the date of such surrender, or (2) endorse thisPolicy as a Non-Participating Paid-up Policy for the amount as specified in Column (B) of theTable of Guaranteed Values . . ..

"11.Extended Insurance.After the premiums for three or more full years have been paid

hereunder in cash, if any subsequent premium is not paid when due, and there is no indebtness tothe Company, on the written request of the Insured . . ..

From January 1, 1942 to December 31, 1946 for failure of the insured under the above policies to pay thecorresponding premiums for one or more years, the plaintiff's head office of Toronto, applied theprovision of the automatic premium loan clauses; and the net amount of premiums so advanced or loanedtotalled P1,069,254.98. On this sum the defendant Collector of Internal Revenue assessed P17,917.12which plaintiff paidsupraprotest. The assessment was made pursuant to section 255 of the NationalInternal Revenue Code as amended. which partly provides:

SEC. 255. Taxes on insurance premiums.There shall be collected from every person,company, or corporation (except purely cooperative companies or associations) doing business ofany sort in the Philippines a tax of one per centum of the total premiums collected .. whether suchpremiums are paid in money, notes credits, or any substitute for money but premiums refundedwithin six months after payment on account of rejection of risk or returned for other reason toperson insured shall not be included in the taxable receipts . . ..

It is the plaintiff's contention that when it made premium loans or premium advances, as above stated, byvirtue of the non-forfeiture clauses, it did not collect premiums within the meaning of the above sectionsof the law, and therefore it is not amendable to the tax therein provided.

The plaintiff conveniently divides that issue into five minor issues, to wit:

(a) Whether or not premium advances made by plaintiff-appellant under the automatic premiumloan clause of its policies are "premium collected" by the Company subject to tax;

(b) Whether or not, in the application of the automatic premium loan clause of plaintiff-appellant's policies, there is "payment in money, notes, credit, or any substitutes for money";

(c) Whether or not the collection of the alleged deficiency premium taxes constitutes doubletaxation;

(d) Whether the making of premium advances, granting for the sake of argument that it amountedto collection of premiums, were done in Toronto, Canada, or in the Philippines; and

(e) Whether or not the fact that plaintiff-appellant was not doing business in the Philippinesduring the period from January 1, 1942 to September 30, 1945, inclusive, exempts it frompayment of premium taxes corresponding to said period.

These points will be considered in their order. The first two may best taken up together in the light of apractical illustration offered by appellant:


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"Suppose that "A" years of age, secures a 20-years endowment policy for P5,000 from plaintiff-appellantCompany and pays an annual premium of P250. 'A' pays the first ten yearly premiums amounting toP2,500 and on this amount plaintiff-appellant pays the corresponding taxes under section 255 of theNational Internal Revenue Code. Suppose also that the cash value of said policy after the payment of the10th annual premium amounts to P1,000." When on the eleventh year the annual premium fell due andthe insured remitted no money within the months grace, the insurer treated the premium then over due as

paid from the cash value, the amount being loan to the policyholder1who could discharged it at anytimewith interest at 6 per cent. The insurance contract, therefore, continued in force for the eleventh year.

Under the circumstances described, did the insurer collect the amount of P250 as the annual premium forthe eleventh year on the said policy? The plaintiff says no; but the defendant and the lower court say yes.The latter have, in our opinion, the correct view. In effect the Manufacturers Life Insurance Co.loaned to"A" on the eleventh year, the sum of P250 and the latter in turnpaid with that sum the annual premium onhis policy. The Company thereforecollected the premium for the eleventh year.

"How could there be such a collection "plaintiff argues "when as a result thereof, insurer becomes acreditor, acquires a lien on the policy and is entitled to collect interest on the amount of the unpaidpremiums?".

Wittingly, the "premium" and the "loan" have been interchanged in the argument. The insurer "became acreditor"of the loan,but not of the premium that had already been paid. And it is entitled to collectinterest on the loan,not on the premium.

In other words, "A" paid the premium for the eleventh; but in turn he became a debtor of the company forthe sum of P250. This debt he could repay either by later remitting the money to the insurer or by lettingthe cash value compensate for it. The debt may also be deducted form the amount of the policy should"A" die thereafter during the continuance of the policy.

Proceeding along the same line of argument counsel for plaintiff observes "that there is no change, muchless an increase, in the amount of the assets of plaintiff-appellant after the application of the automaticpremium loan clause. Its assets remain exactly the same after making the advances in question. It beingso, there could have been no collection of premium . . .. "We cannot assent to this view, becausetherewas an increase. There was thenew credit for the advances made. True, the plaintiff could not sue theinsured to enforce that credit. But it has means of satisfaction out of the cash surrender value.

Here again it may be urged that if the credit is paid out of the cash surrender value, there were no newfunds added to the company's assets. Cash surrender value "as applied to life insurance policy, is theamount of money the company agrees to pay to the holder of the policy if he surrenders it and releases hisclaims upon it. The more premiums the insured has paid the greater will be the surrender value; but thesurrender value is always a lesser sum than the total amount of premiums paid." (Cyclopedia LawDictionary 3d. ed. 1077.)

The cash value or cash surrender value is therefore an amount which the insurance company holds intrust2for the insured to be delivered to him upon demand. It is therefore aliability of the company to theinsured. Now then, when the company's credit for advances is paid out of the cash value or cash surrendervalue, that value and the company's liability is thereby dismissedpro tanto. Consequently, the net assetsof the insurance company increasedcorresponding; for it is plain mathematics that the decrease of aperson's liabilities means a corresponding increase in his net assets.


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Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed noadditional cash to the funds of the insurer. Yet it must be admitted that the insureragreed to consider thepremium paid on the strength of the automatic loan. The premium was therefore paid by means of a"note" or "credit" or "other substitute for money" and the taxis due because section 255 above quotedlevies taxes according to the total premiums collected by the insurer "whether such premiums are paid inmoney,notes, credits or any substitutes for money.

In connection with the third issue, appellant refers to its example about "A" who failed to pay thepremium on the eleventh year and the insurer advanced P250 from the cash value. Then it reasons out that"if the amount P250 is deducted from the cash value of P1,000 of the policy, then taxing this P250 anewas premium collected, as was done in the present case, will amount to double taxation since taxes hadalready been collected on the cash value of P1,000 as part of the P2,500 collected as premiums for thefirst ten years." The trouble with the argument is that it assumes all advances are necessarily repaid fromthe cash value. That is true in some cases. In others the insured subsequentlyremits the money to repaythe advance and to keep unimpaired the cash reserve of his policy.

As to a matter of fact of the total amount advanced (P1,069,254.998) P158,666.63 had actually beenrepaid at the time of assessment notice. Besides, the premiums paid and on which taxes had already been

collected, were those for the ten years. The tax demanded is on the premium for the eleventh year.

In any event there is no constitutional prohibition against double taxation.

On the fourth issue the appellant takes the position that as advances of premiums were made in Toronto,such premiums are deemed to have been paid therenot in the Philippinesand therefore thosepayments are not subject to local taxation. The thesis overlooks the actual fact that the loans are made topolicyholders in the Philippines, who in turn pay therewith the premium to the insurer thru the Manilabranch. Approval of appellants position will enable foreign insurers to evade the tax by contriving torequire that premium payments shall be made at their head offices. What is important, the law does notcontemplate premiums collected in the Philippines.It is enough that the insurer is doing insurancebusiness in the Philippines, irrespective of the place of its organization or establishment.

This brings forth the appellant's last contention that it was "engaged in business" in the Philippines duringthe years 1942 to September 1945, and that as section 255 applies only to companies "doing insurancebusiness in the Philippines" this tax was improperly demanded.

It is our opinion that although during those years the appellant was not open for new business because itsbranch office was closed, still it was practically and legally, operating in this country by collectingpremiums on its outstanding policies, incurring the risks and/or enjoying the benefits consequent thereto,without having previously taken any steps indicating withdrawal in good faith field of economic activity3.

As a matter of fact, in objecting to the payment of the tax, plaintiff-appellant never insisted, before the

Bureau of Internal Revenue, that it was not engaged in business in this country during those years.

Wherefore, finding no prejudicial error in the appealed decisions, we hereby affirm it with costs.

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES,petitioner,vs.

COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by


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CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL,respondents.

Office of the Legal Counsel for petitioner.

Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:

This is a petition for review on certiorariunder Rule 45 of the Revised Rules of Court to reverse and setaside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denyingreconsideration thereof.

We affirm the decision of the Court of Appeals with modification.

I

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for aloan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As theprincipal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemptioninsurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released onAugust 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment forthe MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application forInsurance" and the "Health Statement for DBP MRI Pool."

On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited byDBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of thecredit.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to theDBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible forMRI coverage, being over the acceptance age limit of 60 years at the time of application.

On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRIapplication. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, butCandida Dans refused to accept the same, demanding payment of the face value of the MRI or an amountequivalent to the loan. She, likewise, refused to accept anex gratiasettlement of P30,000.00, which the

DBP later offered.

On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint withthe Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of Sumof Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI Poolwhen DBP, with full knowledge of Dans' age at the time of application, required him to apply for MRI,and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that the sum


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of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage debt of thedeceased be declared fully paid; and (3) that damages be awarded.

The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claimagainst the latter.

At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted byrespondent Estate. As a result of these admissions, the trial court narrowed down the issues and, withoutopposition from the parties, found the case ripe for summary judgment. Consequently, the trial courtordered the parties to submit their respective position papers and documentary evidence, which may serveas basis for the judgment.

On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP.The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity ofcontract between it and the deceased. The trial court declared DBP in estoppel for having led Dans intoapplying for MRI and actually collecting the premium and the service fee, despite knowledge of his ageineligibility. The dispositive portion of the decision read as follows:

WHEREFORE, in view of the foregoing consideration and in the furtherance of justiceand equity, the Court finds judgment for the plaintiff and against Defendant DBP,ordering the latter:

1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interestas amortization payment paid under protest;

2. To consider the mortgage loan of P300,000.00 including all interest accumulated orotherwise to have been settled, satisfied or set-off by virtue of the insurance coverage ofthe late Juan B. Dans;

3. To pay plaintiff the amount of P10,000.00 as attorney's fees;

4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses,and other relief just and equitable.

The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. TheCross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)

The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate courtaffirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in aresolution dated April 20, 1993.

Hence, this recourse.

II

When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool"(Exh. "5-Bank") with the following declaration:


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I hereby declare and agree that all the statements and answers contained herein are true,complete and correct to the best of my knowledge and belief and form part of myapplication for insurance. It is understood and agreed that no insurance coverage shall beeffected unless and until this application is approved and the full premium is paid duringmy continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shallbe approved by the insurance pool; and (2) when the full premium is paid during the continued goodhealth of the applicant. These two conditions, being joined conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,however, did not approve the application of Dans. There is also no showing that it accepted the sum ofP1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan'spremium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot beheld liable on a contract that does not exist.

The liability of DBP is another matter.

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage.Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy,DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was releasedon August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter,DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP latersubmitted both the application form and health statement to the DBP MRI Pool at the DBP MainBuilding, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by itfrom Dans.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as aninsurance agent.

As an insurance agent, DBP made Dans go through the motion of applying for said insurance, therebyleading him and his family to believe that they had already fulfilled all the requirements for the MRI andthat the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan'sapplication was never going to be approved. The maximum age for MRI acceptance is 60 years as clearlyand specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in1984 by all the insurance companies concerned (Exh. "1-Pool").

Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personallyliable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of hisauthority without giving such party sufficient notice of his powers."

The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age(Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of hisadvanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI bycollecting the insurance premium, and deducting its agent's commission and service fee.

The liability of an agent who exceeds the scope of his authority depends upon whether the third person isaware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP'sauthority to solicit applications for MRI.


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If the third person dealing with an agent is unaware of the limits of the authority conferred by theprincipal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent,then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the CivilCode of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that theagent is liable when he acts without authority is founded upon the supposition that there has been somewrong or omission on his part either in misrepresenting, or in affirming, or concealing the authority under

which he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75).Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deceptionwas perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code ofthe Philippines come into play.

Article 19 provides:

Every person must, in the exercise of his rights and in the performance of his duties, actwith justice give everyone his due and observe honesty and good faith.


Every person who, contrary to law, willfully or negligently causes damage to another,shall indemnify the latter for the same.


Any person, who willfully causes loss or injury to another in a manner that is contrary tomorals, good customs or public policy shall compensate the latter for the damage.

The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that wereit not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from anotherinsurance company, and therefore would have been fully insured by the time he died, is highly

speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain aninsurance coverage from another company. It must also be noted that Dans died almost immediately, i.e.,on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release ofhis loan.

One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has dulyproved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capableof proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v.Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34Phil. 447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).

While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof ofpecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art.2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.

The assessment of moral damages is left to the discretion of the court according to the circumstances ofeach case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00to respondent Estate in ex gratiasettlement of its claim and that DBP's non-disclosure of the limits of itsauthority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00would be reasonable.


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The award of attorney's fees is also just and equitable under the circumstances (Civil Code of thePhilippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals in CA G.R.-CVNo. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate ofJuan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until

fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moraldamages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs againstpetitioner.

SO ORDERED.

G.R. Nos. 152505-06 September 13, 2007

PRUDENTIAL GUARANTEE and ASSURANCE, INC.,petitioner,vs.EQUINOX LAND CORPORATION,respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the instant Petition for Review on Certiorariassailing the Decision1of the

Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SPNo. 57335.

The undisputed facts of the case, as established by the Construction Industry Arbitration Commission(CIAC) and affirmed by the Court of Appeals, are:

Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5)additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. Itthen sent invitations to bid to various building contractors. Four (4) building contractors, includingJMarc Construction & Development Corporation (JMarc), responded.

Finding the bid of JMarc to be the most advantageous, Equinox offered the construction project to it. On

February 22, 1997, JMarc accepted the offer. Two days later, Equinox formally awarded to JMarc thecontract to build the extension for a consideration of P37,000,000.00.

On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued byPrudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00to guarantee the unliquidated portion of the advance payment payable to JMarc; and (2) a performance

bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee JMarcs faithfulperformance of its obligations under the construction agreement.

On March 17, 1997, Equinox and JMarc signed the contract and related documents. Under the terms ofthe contract, JMarc would supply all the labor, materials, tools, equipment, and supervision required tocomplete the project.
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In accordance with the terms of the contract, Equinox paid JMarc a downpayment of P9,250,000.00equivalent to 25% of the contract price.

JMarc did not adhere to the terms of the contract. It failed to submit the required monthly progressbillings for the months of March and April 1997. Its workers neglected to cover the drainpipes, hence,they were clogged by wet cement. This delayed the work on the project.

On May 23, 1997, JMarcrequested an unscheduled cash advance of P300,000.00 from Equinox,

explaining it had encountered cash problems. Equinox granted JMarcs request to prevent delay.

On May 31, 1997, JMarc submitted its first progress billing showing that it had accomplishe d only7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced payments,

the net amount payable to JMarc was only P1,285,959.12. Of this amount, Equinox paid JMarc onlyP697,005.12 because the former paid EXAN P588,954.00 for concrete mix.

Shortly after Equinox paid JMarc based on its first progress billing, the latter again requested anadvanced payment of P150,000.00. Again Equinox paid JMarc this amount. Eventually, Equinox foundthat the amount owing to JMarcs laborers was only P121,000.00, not P150,000.00.

In June 1997, EXAN refused to deliver concrete mix to the project site due to JMarcs recurring failureto pay on time. Faced with a looming delay in the project schedule, Equinox acceded to EXANs requestthat payments for the concrete mix should be remitted to it directly.

On June 30, 1997, JMarc submitted its second progress billing showing that it accomplished only16.0435% of the project after 4 months of construction work. Based on the contract and its own schedule,

JMarc should have accomplished at least 37.70%.

Faced with the problem of delay, Equinox formally gave JMarc one final chance to take remedial steps inorder to finish the project on time. However, JMarc failed to undertake any corrective measure.

Consequently, on July 10, 1997, Equinox terminated its contract with JMarc and took over the project.On the same date, Equinox sent Prudential a letter claiming relief from JMarcs violations of thecontract.

On July 11, 1997, the work on the project stopped. The personnel of both Equinox and JMarc jointlyconducted an inventory of all materials, tools, equipment, and supplies at the construction site. They alsomeasured and recorded the amount of work actually accomplished. As of July 11, 1997, JMarcaccomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract.

The cost of JMarcs accomplishment was only P7,051,201.00. In other words, Equinox overpaid JMarcin the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting toP273,152.50. In addition, Equinox also paid the wages of JMarcs laborers, the billings for unpaid

supplies, and the amounts owing to subcontractors of JMarc in the total sum of P664,998.09.

On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City

a complaint for sum of money and damages against JMarc and Prudential. Equinox prayed that JMarcbe ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and unliquidatedportion of its downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to payits liability under the bonds.


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In its answer, JMarc alleged that Equinox has no valid ground for terminating their contract. For its part,Prudential denied Equinoxs claims and instituted a cross-claim against JMarc for any judgment thatmight be rendered against its bonds.

During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant toExecutive Order No. 1008, it is the CIAC which has jurisdiction over it.

On February 12, 1999, the trial court granted Prudentials motion and dismissed the case.

On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it since it isnot a privy to the construction contract between Equinox and JMarc; and that its surety and performancebonds are not construction agreements, thus, any action thereon lies exclusively with the proper court.

On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against JMarc andPrudential, thus:

AWARD

After considering the evidence and the arguments of the parties, we find that:

1. JMarc has been duly notified of the filing and pendency of the arbitration proceeding

commenced by Equinox against JMarc and that CIAC has acquired jurisdiction over JMarc;

2. The construction Contract was validly terminated by Equinox due to JMarcs failure toprovide a timely supply of adequate labor, materials, tools, equipment, and technical services andto remedy its inability to comply with the construction schedule;

3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the

absence of adequate proof of actual and compensatory damages, we award to Equinox nominal ortemperate damages in the amount of P500,000.00;

4. The percentage of accomplishment of JMarc at the time of the termination of the Contract was19.0573% of the work valued at P7,051,201.00. This amount should be credited to JMarc. Onthe other hand, Equinox [i] had paid JMarc 25% of the contract price as down or advance

payment, [ii] had paid JMarc its first progress billing, [iii] had made advances for payroll of theworkers, and for unpaid supplies and the works of JMarcs subcontractors, all in the total sum ofP11,690,483.34. Deducting the value of JMarcs accomplishment f

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