1

G.R. No. 125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J .:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied
for a health care coverage with petitioner Philamcare Health Systems,
Inc. In the standard application form, he answered no to the following
question:
Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).
1

The application was approved for a period of one year from March 1,
1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband
was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient
benefits" such as annual physical examinations, preventive health care
and other out-patient services.
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.
2

During the period of his coverage, Ernani suffered a heart attack and
was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly
discovered at the time of Ernanis confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the
application form. Thus, respondent paid the hospitalization expenses
herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by
a physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where
he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of
Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente, which was docketed as Civil Case No.
90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of
P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages
of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of

P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus
costs of suit.
SO ORDERED.
3

On appeal, the Court of Appeals affirmed the decision of the trial court
but deleted all awards for damages and absolved petitioner
Reverente.
4
Petitioners motion for reconsideration was
denied.
5
Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not an
insurance contract; hence the "incontestability clause" under the
Insurance Code
6
does not apply.1wphi1.nt
Petitioner argues that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points
out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract
where the insured is indemnified for his loss. Moreover, since Health
Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,
7
petitioner argues that the
incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is
not an insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under the
authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as
an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays
a premium.
8

Section 3 of the Insurance Code states that any contingent or unknown
event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person
has an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which
death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.
9
Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same
to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact
in his application. It appears that in the application for health coverage,
petitioners required respondents husband to sign an express
authorization for any person, organization or entity that has any record
or knowledge of his health to furnish any and all information relative to
any hospitalization, consultation, treatment or any other medical advice
or examination.
10
Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed to
this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for,
that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application
and the full Membership Fee according to the mode of
2

payment applied for is actually paid during the lifetime and
good health of proposed Members; that no information
acquired by any Representative of PhilamCare shall be
binding upon PhilamCare unless set out in writing in the
application;that any physician is, by these presents,
expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his
professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed
Members and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in
or addition to this application as stated in the space for
Home Office Endorsement.
11
(Underscoring ours)
In addition to the above condition, petitioner additionally required the
applicant for authorization to inquire about the applicants medical
history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems,
Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.
12
(Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of
agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return
of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.
13

The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband
who was not a medical doctor. Where matters of opinion or judgment
are called for, answers made in good faith and without intent to
deceive will not avoid a policy even though they are untrue.
14
Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not
avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the statement
is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not
justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or
belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual
fraud.
15
(Underscoring ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.
16
Concealment as a
defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed
a responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health
care provider attaches once the member is hospitalized for the disease
or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance." The right to rescind
should be exercised previous to the commencement of an action on
the contract.
17
In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require
the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.
18

None of the above pre-conditions was fulfilled in this case. When the
terms of insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-
compliance with his obligation.
19
Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the
party which prepared the contract the insurer.
20
By reason of the
exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.
21
This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor
of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted,
and exclusionary clauses of doubtful import should be strictly
construed against the provider.
22

Anent the incontestability of the membership of respondents husband,
we quote with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie.
23

Finally, petitioner alleges that respondent was not the legal wife of the
deceased member considering that at the time of their marriage, the
deceased was previously married to another woman who was still
alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred
the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses incurred
by respondent for the deceaseds hospitalization, medication and the
professional fees of the attending physicians.
24

WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.
SO ORDERED.











3

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 and
therefore subject to the documentary stamp tax (DST) imposed under
Section 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 decision
1
in CA-G.R.
SP No. 70479. Petitioner Philippine Health Care Providers, Inc.
believes otherwise and assails the CA decision in this petition for
review under Rule 45 of the Rules of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance organization to
take care of the sick and disabled persons enrolled in the health care
plan and to provide for the administrative, legal, and financial
responsibilities of the organization."
2
Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services provided
by its duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system
at a hospital or clinic owned, operated or accredited by it.
3

The pertinent part of petitioner's membership or health care
agreement
4
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 a
participating Hospital[,] the services or benefits stated below
shall be provided to the Member free of charge, but in no
case shall [petitioner] be liable to pay more than P75,000.00
in benefits with respect to anyone sickness, injury or related
causes. If a member has exhausted such maximum benefits
with respect to a particular sickness, injury or related causes,
all accounts in excess of P75,000.00 shall be borne by the
enrollee. It is[,] however, understood that the payment by
[petitioner] of the said maximum in In-Patient Benefits to any
one member shall preclude a subsequent payment of
benefits to such member in respect of an unrelated sickness,
injury or related causes happening during the remainder of
his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or
specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital
except those which are used to dissolve blood
clots in the vascular systems (i.e., trombolytic
agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other
miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary
diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services
or benefits mentioned in the immediately preceding
paragraph shall be subject to the following conditions:
(a) The Hospital Confinement must be approved
by [petitioner's] Physician, Participating Physician
or [petitioner's] Medical Coordinator in that
Hospital prior to confinement.
(b) The confinement shall be in a Participating
Hospital and the accommodation shall be in
accordance with the Member[']s benefit
classification.
(c) Professional services shall be provided only by
the [petitioner's] Physicians or Participating
Physicians.
(d) If discharge from the Hospital has been
authorized by [petitioner's] attending Physician or
Participating Physician and the Member shall fail
or refuse to do so, [petitioner] shall not be
responsible for any charges incurred after
discharge has been authorized.
Out-Patient Services. A Member is entitled free of charge
to the following services or benefits which shall be rendered
or administered either in [petitioner's] Clinic or in a
Participating Hospital under the direction or supervision of
[petitioner's] Physician, Participating Physician or
[petitioner's] Medical Coordinator.
(a) Gold Plan Standard Annual Physical
Examination on the anniversary date of
membership, 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 40
years and above)
(b) Platinum Family Plan/Gold Family Plan and
Silver Annual Physical Examination.
The following tests are to be done as part of the
Member[']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
4

4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health
Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet,
exercise and other healthy habits
(iv) Immunization but excluding drugs
for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist
evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory
examination
(iv) Emergency medicines needed for
the immediate
relief of symptoms
(v) Minor surgery not requiring
confinement
Emergency Care. Subject to the conditions and limitations
in this Agreement and those specified below, a Member is
entitled 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. In
participating hospitals, the member shall be entitled to the
following services free of charge: (a) doctor's fees, (b)
emergency room fees, (c) medicines used for immediate
relief and during treatment, (d) oxygen, intravenous fluids
and whole blood and human blood products, (e) dressings,
casts and sutures and (f) x-rays, laboratory and diagnostic
examinations and other medical services related to the
emergency 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 professional
fees, 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% of
the professional fees of non-participating physicians based
on [petitioner's] schedule of fees provided that the total
amount[,] inclusive of hospital bills and professional fee shall
not exceed P5,000.00.
On January 27, 2000, respondent Commissioner of Internal Revenue
sent petitioner a formal demand letter and the corresponding
assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and 1997
in the total amount of P224,702,641.18. 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 health
care agreement with the members of its health care program pursuant
to 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 or
obligations of the nature of indemnity for loss, damage,
or liability made or renewed by any person, association
or company or corporation transacting the business
of accident, fidelity, employer's liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or
position, for the doing or not doing of anything therein
specified, and on all obligations guaranteeing the validity or
legality of any bond or other obligations issued by any
province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to
any real estate, or guaranteeing any mercantile credits,
which may be made or renewed by any such person,
company or corporation, there shall be collected a
documentary stamp tax of fifty centavos (P0.50) on each
four pesos (P4.00), or fractional part thereof, of the premium
charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23,
2000. As respondent did not act on the protest, petitioner filed a
petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,
7
the dispositive portion
of which read:
WHEREFORE, in view of the foregoing, the instant Petition
for Review is PARTIALLY GRANTED. Petitioner is hereby
ORDERED to PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996
VAT deficiency and P31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until fully
paid for the 1997 VAT deficiency. Accordingly, VAT Ruling
No. [231]-88 is declared void and without force and effect.
The 1996 and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED AND SET ASIDE.
Respondent is ORDERED to DESIST from collecting the
said DST deficiency tax.
SO ORDERED.
8

Respondent appealed the CTA decision to the CA
9
insofar as it
cancelled the DST assessment. He claimed that petitioner's health
care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.
10
It held that
petitioner's health care agreement was in the nature of a non-life
insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED. The
Decision of the Court of Tax Appeals, insofar as it cancelled
and set aside the 1996 and 1997 deficiency documentary
stamp tax assessment and ordered petitioner to desist from
collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts
of P55,746,352.19 and P68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively,
plus 25% surcharge for late payment and 20% interest per
annum from January 27, 2000, pursuant to Sections 248 and
249 of the Tax Code, until the same shall have been fully
paid.
SO ORDERED.
11

Petitioner moved for reconsideration but the CA denied it. Hence, this
petition.
Petitioner essentially argues that its health care agreement is not a
contract of insurance but a contract for the provision on a prepaid basis
of medical services, including medical check-up, that are not based on
loss or damage. Petitioner also insists that it is not engaged in the
insurance business. It is a health maintenance organization regulated
by the Department of Health, not an insurance company under the
jurisdiction of the Insurance Commission. For these reasons, petitioner
asserts 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 privileges
conferred by law for the creation, revision, or termination of specific
5

legal relationships through the execution of specific instruments.
12
It is
an excise upon the privilege, opportunity, or facility offered at
exchanges for the transaction of the business.
13
In particular, the DST
under Section 185 of the 1997 Tax Code is imposed on the
privilege of making or renewing any policy of insurance (except
life, marine, inland and fire insurance), bond or obligation in the
nature of indemnity for loss, damage, or liability.
Under the law, a contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.
14
The
event insured against must be designated in the contract and must
either 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
this
Court ruled that a health care agreement is in the nature of a non-life
insurance policy.
Contrary to petitioner's claim, its health care agreement is not a
contract for the provision of medical services. Petitioner does not
actually provide medical or hospital services but merely arranges for
the same
17
and pays for them up to the stipulated maximum amount of
coverage. It is also incorrect to say that the health care agreement is
not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital,
medical and related expenses (such as professional fees of
physicians). The term "loss or damage" is broad enough to cover the
monetary expense or liability a member will incur in case of illness or
injury.
Under the health care agreement, the rendition of hospital, medical
and professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling)
is the contingent event which gives rise to liability on the part of the
member. In case of exposure of the member to liability, he would be
entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from
liability by paying for expenses arising from the stipulated
contingencies belies its claim that its services are prepaid. The
expenses to be incurred by each member cannot be predicted
beforehand, if they can be predicted at all. Petitioner assumes the risk
of paying for the costs of the services even if they are significantly and
substantially more than what the member has "prepaid." Petitioner
does not bear the costs alone but distributes or spreads them out
among a large group of persons bearing a similar risk, that is, among
all the other members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that
involved in Philamcare Health Systems, Inc. v. CA.
18
The health care
agreement in that case entitled the subscriber to avail of the
hospitalization benefits, whether ordinary or emergency, listed therein.
It also provided for "out-patient benefits" such as annual physical
examinations, 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 the
health care agreement was his own health. The health care
agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingency,
the health care provider must pay for the same to the extent
agreed upon under the contract.
19
(emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health
care program in obtaining the health care agreement is his own health.
Under the agreement, petitioner is bound to indemnify any member
who incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingency to the extent agreed
upon under the contract.
Petitioner's contention that it is a health maintenance organization and
not an insurance company is irrelevant. Contracts between companies
like petitioner and the beneficiaries under their plans are treated as
insurance contracts.
20

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

WHEREFORE, the petition is hereby DENIED. The August 16, 2004
decision of the Court of Appeals in CA-G.R. SP
No. 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.






























6

G.R. No. L-22042 August 17, 1967
DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all
surnamed GUINGON, plaintiffs-appellees,
vs.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL
INSURANCE 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 of
Manila among which was one with plate number PUJ-206-Manila,
1961. He entered into a contract with the Capital Insurance & Surety
Co., Inc. insuring the operation of his jeepneys against accidents with
third-party liability. As a consequence thereof an insurance policy was
executed by the Capital Insurance & Surety Co., Inc., the pertinent
provisions of which in so far as this case is concerned contains the
following:
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 or
arising out of the use of the Motor Vehicle/s or in connection
with the loading or unloading of the Motor Vehicle/s, against
all sums including claimant's costs and expenses which the
Insured 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, 1961
Iluminado del Monte, one of the drivers of the jeepneys operated by
Aguilar, while driving along the intersection of Juan Luna and Moro
streets, City of Manila, bumped with the jeepney abovementioned one
Gervacio 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 imprudence
was filed against Iluminado del Monte, who pleaded guilty. A penalty of
four months imprisonment was imposed on him.
As a corollary to such action, the heirs of Gervacio Guingon filed an
action for damages praying that the sum of P82,771.80 be paid to
them jointly and severally by the defendants, driver Iluminado del
Monte, 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 in
the policy whereby the insured is insured against liability to
third persons who are not passengers of jeeps.
ALMARIO: As far as I know, in my honest belief, there is no
particularization as to the passengers, whether the
passengers of the jeep insured or a passenger of another
jeep or whether it is a pedestrian. With those, we can submit
the stipulation.
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65
Rec. 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 Iluminado
del Monte and Julio Aguilar jointly and severally to pay
plaintiffs the sum of P8,572.95 as damages for the death of
their father, plus P1,000.00 for attorney's fees plus costs.
The defendant Capital Insurance and Surety Co., Inc. is
hereby sentenced to pay the plaintiffs the sum of Five
Thousand (P5,000.00) Pesos plus Five Hundred (P500.00)
Pesos as attorney's fees and costs. These sums of
P5,000.00 and P500.00 adjudged against Capital Insurance
and Surety Co., Inc. shall be applied in partial satisfaction of
the judgment rendered against Iluminado del Monte and
Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court
on September 30, 1963 certified the case to Us because the appeal
raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company
agreed to indemnify the insured Julio Aguilar, is it only the insured to
whom it is liable? (2) Must Julio Aguilar first show himself to be entitled
to indemnity before the insurance company may be held liable for the
same? (3) Plaintiffs not being parties to the insurance contract, do they
have a cause of action against the company; and (4) Does the fact that
the insured is liable to the plaintiffs necessarily mean that the insurer is
liable to the insured?
In the discussion of the points thus raised, what is paramount is the
interpretation of the insurance contract with the aim in view of attaining
the objectives for which the insurance was taken. The Rules of Court
provide that parties may be joined either as plaintiffs or defendants, as
the right to relief in respect to or arising out of the same transactions is
alleged 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 a
condition precedent thereto, the Insured shall have fully
complied with all of the terms of this Policy, nor until the
amount of the Insured's obligation to pay shall have been
finally determined either by judgment against the Insured
after actual trial or by written agreement of the Insured, the
claimant, and the Company.
Any person or organization or the legal representative
thereof who has secured such judgment or written
agreement shall thereafter be entitled to recover under this
policy 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 the
Insured's liability.
Bankruptcy or insolvency of the Insured or of the Insured's
estate shall not relieve the Company of any of its obligations
hereunder.
Appellant contends that the "no action" clause in the policy closes the
avenue to any third party which may be injured in an accident wherein
the jeepney of the insured might have been the cause of the injury of
third persons, alleging the freedom of contracts. Will the mere fact that
such clause was agreed upon by the parties in an insurance policy
prevail over the Rules of Court which authorizes the joining of parties
plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs
sue the insurer at all? (2) If so, can plaintiffs sue the insurer jointly with
the insured?
The policy in the present case, as aforequoted, is one whereby the
insurer agreed to indemnify the insured "against all sums . . . which the
Insured shall become legally liable to pay in respect of: a. death of or
bodily injury to any person . . . ." Clearly, therefore, it is one for
indemnity against liability;
1
from the fact then that the insured is liable
to the third person, such third person is entitled to sue the
insurer.1wph1.t
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 has
been this: Where the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is liable, can sue
the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually
discharged by him thru payment to third persons, said third 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 suit
and final judgment be first obtained against the insured; that only
7

"thereafter" can the person injured recover on the policy; it expressly
disallows suing the insurer as a co-defendant of the insured in a suit to
determine the latter's liability. As adverted to before, the query is which
procedure to follow that of the insurance policy or the Rules of
Court.
The "no action" clause in the policy of insurance cannot prevail over
the Rules of Court provision aimed at avoiding multiplicity of suits. In a
case squarely on the point, American Automobile Ins. Co. vs. Struwe,
218 SW 534 (Texas CCA), it was held that a "no action" clause in a
policy of insurance cannot override procedural rules aimed at
avoidance of multiplicity of suits. We quote:
Appellants filed a plea in abatement on the grounds that the
suit had been prematurely brought against the insurance
company, and that it had been improperly joined with
Zunker, as said insurance company, under the terms of the
policy, was only liable after judgment had been awarded
against Zunker. . . .
* * * That plea was properly overruled, because under the
laws of Texas a dual suit will always be avoided whenever
all parties can have a fair trial when joined in one suit.
Appellee, had he so desired, could have prosecuted his
claim to judgment as against Zunker and then have sued on
that judgment against the insurance company, but the law
does 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 two
causes of action are connected with each other, or grow out
of the same transaction, they may be properly joined, and in
such suit all parties against whom the plaintiff asserts a
common or an alternative liability may be joined as
defendants. . . . Even if appellants had presented any plea in
abatement as to joinder of damages arising from a tort with
those arising from a contract, it could not, under the facts of
this case, be sustained, for the rule is that a suit may include
an action for breach of contract and one for tort, provided
they are connected with each other or grew out of the same
transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of
action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot
be superseded, at least with respect to third persons not a party to the
contract, as herein, by a "no action" clause in the contract of insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs
against 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 of
Manila, Branch XV, in civil case 48823, affirming the decision of the
Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a
better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts
Company, 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 plate
No. QC- mortgaged the same to the H.S. Reyes, Inc., with the
condition that the former would insure the automobile with the latter as
beneficiary. The automobile was thereafter insured on June 23, 1959
with the State Bonding & Insurance Co., Inc., and motor car insurance
policy A-0615 was issued to Enrique Mora, the pertinent provisions of
which read:
1. The Company (referring to the State Bonding & Insurance
Co., Inc.) will, subject to the Limits of Liability, indemnify the
Insured against loss of or damages to the Motor Vehicle and
its accessories and spare parts whilst thereon; (a) by
accidental collision or overturning or collision or overturning
consequent upon mechanical breakdown or consequent
upon wear and tear,
x x x x x x x x x
2. At its own option the Company may pay in cash the
amount of the loss or damage or may repair, reinstate, or
replace the Motor Vehicle or any part thereof or its
accessories or spare parts. The liability of the Company shall
not exceed the value of the parts whichever is the less. The
Insured's estimate of value stated in the schedule will be the
maximum amount payable by the Company in respect of any
claim for loss or damage.1wph1.t
x x x x x x x x x
4. The Insured may authorize the repair of the Motor Vehicle
necessitated by damage for which the Company may be
liable under this Policy provided that: (a) The estimated
cost of such repair does not exceed the Authorized Repair
Limit, (b) A detailed estimate of the cost is forwarded to the
Company without delay, subject to the condition that "Loss, if
any is payable to H.S. Reyes, Inc.," by virtue of the fact that
said Oldsmobile sedan was mortgaged in favor of the said
H.S. Reyes, Inc. and that under a clause in said insurance
policy, 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 an
accident. The insurance company then assigned the accident to the
Bayne 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 and
materials, some of which were supplied by the Ayala Auto Parts Co.
For the cost of labor and materials, Enrique Mora was billed at
P2,102.73 through the H.H. Bayne Adjustment Co. The insurance
company after claiming a franchise in the amount of P100, drew a
check 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., and
entrusted the check to the H.H. Bayne Adjustment Co. for disposition
and 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 Auto
Parts Co. of the cost of repairs and materials.
Upon the theory that the insurance proceeds should be paid directly to
them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on
May 8, 1961 a complaint with the Municipal Court of Manila against
Enrique Mora and the State Bonding & Insurance Co., Inc. for the
collection of the sum of P2,002.73 The insurance company filed its
answer with a counterclaim for interpleader, requiring the Bonifacio
Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine
who has better right to the insurance proceeds in question. Enrique
Mora was declared in default for failure to appear at the hearing, and
evidence against him was received ex parte. However, the counsel for
the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding &
Insurance Co. Inc. submitted a stipulation of facts, on the basis of
which are Municipal Court rendered a decision declaring the H.S.
Reyes, Inc. as having a better right to the disputed amount and
ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes,
Inc. the said sum of P2,002.73. From this decision, the appellants
elevated the case to the Court of First Instance of Manila which the
stipulation of facts was reproduced. On October 19, 1962 the latter
court rendered a decision, affirming the decision of the Municipal
Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved
for reconsideration of the decision, but the trial court denied the
motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between
the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand
and the insurance company on the other. The appellants argue that the
insurance company and Enrique Mora are parties to the repair of the
car as well as the towage thereof performed. The authority for this
assertion is to be found, it is alleged, in paragraph 4 of the insurance
contract which provides that "the insured may authorize the repair of
the Motor Vehicle necessitated by damage for which the company may
be liable under the policy provided that (a) the estimated cost of such
repair does not exceed the Authorized Repair Limit, and (b) a detailed
estimate of the cost is forwarded to the company without delay." It is
stressed that the H.H. Bayne Adjustment Company's recommendation
of 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 insurance
company.
This argument is, in our view, beside the point, because from the
undisputed facts and from the pleadings it will be seen that the
appellants' alleged cause of action rests exclusively upon the terms of
the insurance contract. The appellants seek to recover the insurance
proceeds, and for this purpose, they rely upon paragraph 4 of the
insurance contract document executed by and between the State
Bonding & Insurance Company, Inc. and Enrique Mora. The appellants
are not mentioned in the contract as parties thereto nor is there any
clause or provision thereof from which we can infer that there is an
obligation on the part of the insurance company to pay the cost of
repairs directly to them. It is fundamental that contracts take effect only
between the parties thereto, except in some specific instances
provided by law where the contract contains some stipulation in favor
of a third person.
1
Such stipulation is known as stipulation pour autrui or
a provision in favor of a third person not a pay to the contract. Under
this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon
such person.
2
Consequently, a third person not a party to the contract
has no action against the parties thereto, and cannot generally
demand the enforcement of the same.
3
The question of whether a third
person has an enforcible interest in a contract, must be settled by
determining whether the contracting parties intended to tender him
such an interest by deliberately inserting terms in their agreement with
the avowed purpose of conferring a favor upon such third person. In
this connection, this Court has laid down the rule that the fairest test to
determine whether the interest of a third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely upon
the intention of the parties as disclosed by their contract.
4
In the instant
case the insurance contract does not contain any words or clauses to
disclose an intent to give any benefit to any repairmen or materialmen
in case of repair of the car in question. The parties to the insurance
contract omitted such stipulation, which is a circumstance that supports
the said conclusion. On the other hand, the "loss payable" clause of
the 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 they
intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance
Company that it has vehemently opposed the assertion or pretension
of the appellants that they are privy to the contract. If it were the
intention of the insurance company to make itself liable to the repair
shop or materialmen, it could have easily inserted in the contract a
stipulation to that effect. To hold now that the original parties to the
insurance contract intended to confer upon the appellants the benefit
claimed by them would require us to ignore the indespensable
requisite that a stipulationpour autrui must be clearly expressed by the
parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof
would show that instead of establishing privity between the appellants
and the insurance company, such stipulation merely establishes the
procedure that the insured has to follow in order to be entitled to
indemnity for repair. This paragraph therefore should not be construed
as bringing into existence in favor of the appellants a right of action
against the insurance company as such intention can never be inferred
therefrom.
9

Another cogent reason for not recognizing a right of action by the
appellants against the insurance company is that "a policy of insurance
is a distinct and independent contract between the insured and insurer,
and third persons have no right either in a court of equity, or in a court
of law, to the proceeds of it, unless there be some contract of trust,
expressed or implied between the insured and third person."
5
In this
case, no contract of trust, expressed or implied exists. We, therefore,
agree with the trial court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are concerned. The
appellants' claim, if at all, is merely equitable in nature and must be
made effective through Enrique Mora who entered into a contract with
the Bonifacio Bros. Inc. This conclusion is deducible not only from the
principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50
of the Insurance Act which read:
The insurance shall be applied exclusively to the proper
interests of the person in whose name it is made unless
otherwise specified in the policy.
The policy in question has been so framed that "Loss, if any, is payable
to H.S. Reyes, Inc.," which unmistakably shows the intention of the
parties.
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 and
not 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" is
uncalled for, because the word "loss" in insurance law embraces injury
or damage.
Loss in insurance, defined. The injury or damage
sustained by the insured in consequence of the happening of
one or more of the accidents or misfortune against which the
insurer, in consideration of the premium, has undertaken to
indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law
Dictionary; 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 be
either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at
appellants' cost.





















































10

G.R. No. L-23248 February 28, 1969
MANUEL UY, plaintiff-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster
General, 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 an
injunction to restrain said Postmaster General and his subordinates,
agents or representatives from enforcing Fraud Order No. 3, dated
November 22, 1963, declaring Manuel Uy Sweepstakes Agency as
conducting a lottery or gift enterprise and directing all postmasters and
other employees of the Bureau of Posts concerned to return to the
sender any mail matter addressed to Manuel Uy Sweepstakes Agency
or to any of its agents or representatives with the notation "Fraudulent"
stamped upon the cover of such mail matter, and prohibiting the
issuance or payment of any money order or telegraphic transfer to the
said agency or to any of its agents and representatives.
As prayed for in the complaint, a writ of preliminary injunction was
issued ex parte by the lower court. The Postmaster General moved for
the dissolution of the writ of preliminary injunction, but the motion was
denied.
The Postmaster General filed an answer to the complaint, setting up
the defense that Manuel Uy was conducting a lottery or gift enterprise
that is prohibited by law; that as Postmaster General he has the
authority to issue the fraud order in question and he did not abuse his
discretion in doing so; and that Manuel Uy had not exhausted all the
administrative remedies before invoking judicial intervention.
The lower court, on the basis of the stipulation of facts submitted by
the parties declared Fraud Order No. 3 contrary to law and violative of
the rights of the plaintiff and made permanent the preliminary injunction
previously issued.
The Postmaster General appealed to this Court.
The salient facts gathered from the stipulation of facts and culled from
the briefs of the parties are as follows:
Manuel Uy (appellee, for short) is a duly authorized agent of the
Philippine Charity Sweepstakes Office (PCSO for short), a government
entity created and empowered by law to hold sweepstakes draws and
lotteries for charitable and public purposes. As such agent of the
PCSO appellee is engaged in the sale and distribution of sweepstakes
and lottery tickets which the PCSO prints and issues for each and
every one of the not less than twenty draws that said office annually
holds. To carry out its business of selling sweepstakes and lottery
tickets 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 are
made; 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 on
December 15, 1963, the PCSO fixed the first, second and third prizes
at P700,000.00, P350,000.00, and P175,000.00, respectively, and set
a sale goal, of P6,000,000.00 worth of tickets. The PCSO directed its
duly authorized agents to undertake every means possible to help
achieve the six-million-peso sales goal. In compliance with said
directive, appellee devised and, through his representatives, offered to
the public, the "Grand Christmas Bonus Award" plan. The plan was
designed to boost the sales of tickets for the PCSO Grand Christmas
Sweepstakes Draw. According to said plan, the appellee's sub-agents
and purchasers of whole sweepstakes tickets sold by appellee and his
sub-agents may, in addition to the regular prize money of the
December 15, 1963 draw, win bonuses and awards as follows: for the
sub-agent and buyer of the ticket winning the first prize, one 1963
Volkswagen sedan each; for the sub-agent and buyer of the ticket
winning the second prize, one Radiowealth 23-inch television set each;
for the sub-agent and buyer of the ticket winning the third prize, one
Radiowealth refrigerator each; for the sub-agents and buyers of the
tickets winning any of the six fourth prizes, one Radiowealth sewing
machine each; and for the sub-agent and buyer of the ticket winning
the charity prize, one Radiowealth Fiesta "hi-fi" radio set each. Except
for the amount paid for the authorized prize of the sweepstakes tickets,
those entitled to benefit from the plan did not have to pay any other
amount in consideration of the right to benefit from the plan. The
awards may be claimed by presenting to the appellee the sales invoice
of the winning tickets, in the case of the sellers, and the eight shares of
the winning tickets, in the case of the buyers.
The aforementioned plan is a modification (or alternative plan, as the
appellee calls it) of the original scheme presented by the appellee, thru
counsel, to the Assistant Postmaster General in a letter dated October
15, 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, as
described above, in the metropolitan newspapers of nationwide
circulation, the first of such advertisements appearing in seven such
newspapers in their issues of November 18, 1963. The newspaper
advertisements 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 the
Postmaster-General (appellant, for short) under date of November 22,
1963. However, it was only on December 10, 1963 that the appellee
came to know of the issuance and context thereof when he sought
clarification from the Manila Post Office why his parcels containing
sweepstakes tickets for his sub-agents, as well as his other mail
matters of purely personal nature, were refused acceptance for mailing
the day previous.
In the afternoon of December 10, 1963, appellee filed the complaint,
mentioned at the beginning of this opinion, alleging among others, that
in issuing Fraud Order No. 3 the appellant "has acted arbitrarily or
gravely exceeded his authority, and/or committed an error of law".
1

Disclaiming that in issuing the fraud order he acted arbitrarily, or
gravely 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 of
which read:
SEC. 1954. Absolutely nonmailable matter. No matter
belonging to any of the following classes, whether sealed as
first class matter or not, shall be imported into the Philippines
through the mails, or be deposited in or carried by the mails
of the Philippines, or be delivered to its addressee by any
officer 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 or
purporting to convey any information concerning any lottery,
gift enterprise, or similar scheme depending in whole or in
part upon lot or chance, or any scheme, device, or enterprise
for obtaining money or property of any kind by means of
false or fraudulent pretenses, representations, or promises.
x x x x x x x x x
SEC. 1982. Fraud orders. Upon satisfactory evidence that
any person or company is engaged in conducting any lottery,
gift enterprise, or scheme or the distribution of money, or of
any real or personal property by lot, chance, or drawing of
any kind, or that any person or company is conducting any
scheme, device, or enterprise for obtaining money or
property of any kind through the mails by means of false or
fraudulent pretenses, representations, or promises, the
Director of Posts may instruct any postmaster or other officer
or employee of the Bureau of Posts to return to the person
depositing 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 to
such person or company or the representative or agent of
such person or company....
SEC. 1983. Deprivation of use of money order system and
telegraphic transfer service. Director of Posts may, upon
evidence satisfactory to him that any person or company is
engaged in conducting any lottery, gift enterprise, or scheme
for the distribution of money or of any real or personal
property by lot, chance, or drawing of any kind, or that any
person or company is conducting any scheme, device, or
enterprise for obtaining money or property of any kind
through the mails by means of false or fraudulent pretenses,
representations, or promise, forbid the issue or payment by
any postmaster of any postal money order or telegraphic
transfer to said person or company, or to the agent of any
such person or company, whether such agent is acting as an
individual or as a firm, bank, corporation, or association of
any kind, and may provide by regulation for the return to the
remitters of the sums named in money orders or telegraphic
transfers drawn in favor of such person or company or its
agent.... (Emphasis supplied).
11

Invoking the phrase "upon evidence satisfactory to him the appellant
contends that the fraud order in question was legally issued because
he had been satisfied with the evidence presented to him that appellee
was conducting a lottery or gift enterprise.
2
We note that the appellee
does not question the authority of the appellant, under Sections
1954(a), 1982 and 1983 aforequoted, to prohibit the use of the mails,
the money order system and the telegraphic transfer service for the
promotion of lotteries, gift enterprises or fraudulent schemes.
3
Indeed,
appellant would be remiss in the performance of his duties should he
fail to exercise his authority under the Postal Law if and when the
mails, the money order system, and the telegraphic transfer service
are utilized for the promotion of lotteries, gift enterprises and similar
schemes prohibited by law. Appellant's authority, however, is not
absolute. Neither does the law give him unlimited discretion. The
appellant may only exercise his authority if there is a clear showing
that the mails, the money order system and the telegraphic transfer
service are used to promote a scheme or enterprise prohibited by law.
In the present case, therefore, the question that must be resolved is
whether appellee's "Grand Christmas Bonus Award" plan constitutes a
lottery, gift enterprise, or similar scheme proscribed by the Postal Law,
aforequoted, as would authorize the appellant to issue the fraud order
in question.
Before we resolve the question, however, we wish to advert to the
claim of the appellant that he had made his decision based upon
satisfactory evidence that the "Grand Christmas Bonus Award" plan of
appellee is a lottery or gift enterprise for the distribution of gifts by
chance, and his decision in this regard cannot be reviewed by the
court.
4
Thus, the appellant, in his brief,
5
says:
It is respectfully submitted that corollary to the rule that
courts cannot interfere in the performance of ordinary duties
of the executive department is the equally compelling rule
that decisions of the defendant on questions of fact are final
and conclusive and generally cannot be reviewed by the
courts. For it cannot be denied that the Postmaster General
is charged with quasi-judicial functions and vested with
discretion in determining what is mailable matter and in
withholding from the plaintiff the privilege of using the mail,
the money order system and the telegraphic transfer
service... As the disputed, Fraud Order No. 3 was issued
pursuant to the powers vested in the defendant by the Postal
Law and in accordance with satisfactory evidence presented
to him, it cannot be said that the defendant was palpably
wrong or that his decision had no reasonable basis
whatever. Neither can it be said that he exceeded his
authority nor that he abused his discretion.
In this connection it may be stated that the Postal Law contains no
provision for judicial review of the decision of the Postmaster General.
This Court, however, in Reyes vs. Topacio
6
had stated that the action
of the Director of Posts (now Postmaster General) is subject to revision
by the courts in case he exceeded his authority or his act is palpably
wrong. And in "El Debate" Inc. vs. Topacio
7
this Court said that the
courts will not interfere with the decision of the Director of Post
(Postmaster General) as to what is, and what is not, mailable matter
unless clearly of opinion that it was wrong. In other words, the courts
will interfere with the decision of the Postmaster General if it clearly
appears that the decision is wrong. This Court, by said rulings,
recognizes the availability of judicial review over the action of the
Postmaster General, notwithstanding the absence of statutory
provision for judicial review of his action. It may not be amiss to state
that said rulings are in consonance with American jurisprudence to the
effect that the absence of statutory provisions for judicial review does
not necessarily mean that access to the courts is barred. The silence
of the Congress is not to be construed as indicating a legislative intent
to preclude judicial review.
8
In American School of Magnetic Healing
vs. McAnnulty,
9
the U.S. Supreme Court, speaking on the power of the
courts to review the action of the Postmaster General under a statute
similar to our Postal Law,
10
said:
That the conduct of the post office is a part of the
administrative 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 that
Department, which is unauthorized by the statute under
which he assumes to act. The acts of all its officers must be
justified by some law, and in case an official violates the law
to the injury of an individual the courts generally have
jurisdiction to grant relief.
Appellant also invokes the doctrine of exhaustion of administrative
remedies, and asserts that the action of the appellee in the present
case was premature because he had not first appealed the fraud order
to higher administrative authorities. This assertion of appellant has no
merit. The rule on exhaustion of administrative remedies is not a hard
and fast one. It admits of exceptions, amongst which are: (1) where the
question involved is purely a legal one,
11
and (2) where there are
circumstances indicating the urgency of judicial intervention.
12
The
question involved in the present case is legal whether or not the
"Grand Christmas Bonus Award" plan of appellee, based upon the
facts as stipulated, is a lottery or gift enterprise. We take note that the
Grand Christmas Sweepstakes draw in conjunction with which
appellee's plan was offered, was scheduled for December 15, 1963, or
barely five days from December 10, 1963, the date when appellee
learned of the issuance of the fraud order. Time was of the essence to
the appellee.
We now resolve the main question in this case, namely, whether or not
appellee's "Grand Christmas Bonus Award" plan constitutes a lottery or
a 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 United
States Supreme Court, in analogous cases having to do with
the power of the United States Postmaster General, viz: The
term "lottery" extends to all schemes for the distribution of
prizes by chance, such as policy playing, gift exhibitions,
prize concerts, raffles at fairs, etc., and various forms of
gambling. 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 Hotel
Construction 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 "Grand
Christmas Bonus Award" plan of the appellee, to wit:
"(1) consideration, because to participate and win in the contest one
must buy and resell (in case of sub-agents) or buy (in case of ticket
buyers) only 'Manuel Uy' tickets; (2) prize, because of the goods to be
awarded to the winners; and (3) chance, because the determination of
the winners depends upon the results of the sweepstakes draw which
is decidedly a game of chance."
13
With particular emphasis on the
element of consideration, appellant likens this case to the "El Debate"
case, supra, and paraphrasing the ruling therein says that "By analogy
there is consideration with respect to persons who will buy 'Manuel Uy'
tickets (in preference to tickets sold by other authorized agents, like
Tagumpay, Pelagia Viray, Marcela Meer Millar, etc.) merely to win
prizes in addition to the regular sweepstakes prizes (and it is to such
persons that the scheme is directed); moreover, the persons
patronizing the Manuel Uy Sweepstakes Agency do not all receive
same amount and some may receive more than the value paid for their
tickets through chance and the prizes awarded by the Philippine
Charity Sweepstakes Office."
14

As against this contention, appellee maintains that there is absence of
the element of consideration because except for paying the authorized
purchase price of the corresponding sweepstakes tickets, those
entitled to participate in and to benefit from appellee's "Grand
Christmas Bonus Award" plan do not part with any other consideration
for the right to take part and benefit therefrom, which fact is admitted
by the appellant.
15
Further, appellee contends that even under the test
laid down in the "El Debate" case, the element of consideration is
lacking because appellee's sub-agents would have continued to sell
and the general public would have continued to buy 'Manuel Uy' tickets
regardless of appellee's "Grand Christmas Bonus Award"
plan.
16
Moreover, appellee advances the view that under another test
adopted by American courts as shown by a review of comparative
case law in the United States, there can be no consideration under the
plan in question because the participants pay no money or its
equivalent into a fund which pays for the prize.
17

Speaking of the element of consideration, this Court in the
aforementioned "El Debate" case, and quoted in Caltex (Phil.) Inc. vs.
Postmaster General,
18
said:
In respect to the last element of consideration, the law does
not condemn the gratuitous distribution of property by
chance, if no consideration is derived directly or indirectly
from the party receiving the chance, but does condemn as
criminal, schemes in which a valuable consideration of some
kind is paid directly or indirectly for the chance to draw a
prize.
In the "Grand Christmas Bonus Award" plan of the appellee We do not
see the presence of the element of consideration, that is, payment of
12

something of value, or agreement to pay, for the chance to win the
bonus or award offered. True, that to be a participant in said plan, one
must have to buy a whole sweepstakes ticket (8 shares) sold by the
Manuel Uy Sweepstakes Agency or by its sub-agents. But the payment
for the price of the sweepstakes ticket is the consideration for the
chance to win any of the prizes offered by the PCSO in the
sweepstakes draw of December 15, 1963. Wholly or partly, said
payment cannot be deemed as a consideration also for the chance to
win the prizes offered by the appellee. For nothing is asked of, or
received from, the buyer of the ticket more than the authorized price
thereof, 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 other
consideration for the right to take part and benefit therefrom.
19
Indeed,
as correctly observed by the lower court, "there is absolutely no
separate consideration for the right to win any of the offered bonuses
or awards."
The analogy drawn by the appellant from the "El Debate" case is not
persuasive. On the contrary, the "reason" or "inducement" test laid
down in said case in determining the presence of the element of
consideration seems to favor the appellee. Paraphrased, the test as
expressed in the "El Debate" case is: if the reason for the subscription
of the "El Debate" was the desire to subscribe regardless of any prize
offered, then there was no consideration insofar as the prize plan is
concerned; upon the other hand, if the reason for the subscription was
to win the prize offered, then the payment of the subscription fee
constituted 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 that
the sub-agents who, as stated in the stipulation of facts, are
responsible for not less than 70% of appellee's total sales for every
draw, would have continued to be appellee's sub-agents and would
have sold "Manuel Uy" tickets regardless of the plan in question.
Anyway, they stood to receive 50% of the agent's prize for any of the
prize-winning ticket they could sell. Upon the other hand, the
probability is that the general public would have purchased "Manuel
Uy" tickets in their desire to win any of the prizes offered by the PCSO
regardless of the inducement offered by the appellee to win additional
prizes. This conclusion finds support from the admitted fact that the
appellee has consistently sold the greatest number of tickets among
the PCSO'S authorized agents.
20
And undoubtedly, every person who
purchased sweepstakes tickets from the Manuel Uy Sweepstakes
Agency for the December 15, 1963 draw must have been induced, not
by the prizes offered by the appellee but by the substantial prizes
offered by the PCSO to wit: First prize, P700,000.00; Second prize
P350,000.00; and Third prize, P175,000.00.
It may not be amiss to state at this juncture that the comparative case
law in the United States indicates that there is another test for
determining whether or not the element of consideration exists in a
given scheme or plan so as to constitute the same a lottery under
parallel antilottery legislation. In Post Publishing Co. vs. Murray,
21
it
was held:
The advertisement or scheme in question does not seem to
be like any of the kinds or types of wrong against which the
Act of Congress was directed. It did not present a lottery
scheme because a lottery involves a scheme for raising
money by selling chances to share in the distribution of
prizes a scheme for the distribution of prizes by chance
among persons purchasing tickets. It was not a gift
enterprise because a gift enterprise contemplates a scheme
in which publishers or sellers give presents as inducements
to members of the public to part with their money. (Emphasis
supplied.)
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 case
induces the belief that the consideration requisite to a lottery
is a contribution in kind to the fund or property to be
distributed. (Emphasis supplied)
The test indicated in the foregoing rulings simply means that unless the
participants pay money or its equivalent into a fund which pays for the
prizes, there is no lottery. Stated differently, there is consideration or
price paid if it appears that the prizes offered, by whatever name they
may be called, came out of the fund raised by the sale of chances
among the participants in order to win the prizes. Conversely, if the
prizes 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 by
the 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 ticket
sold.
24
Therefore, since none of the prizes (awards and bonuses)
offered in appellee's plan were to come directly from the aggregate
price of the sweepstakes tickets sold by appellee, as a part thereof, no
consideration 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" tickets
constitutes a consideration because from the increased sales, appellee
would derive benefits in the form of "returns on his quite substantial
investment." This suggestion is without merit. The question of
consideration is not to be determined from the standpoint of the
appellee, or the proponent of the scheme, but rather from that of the
sub-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, being
admittedly for sales promotion, would naturally benefit the
sponsor in the way of increased patronage by those who will
be encouraged to prefer Caltex products "if only to get the
chance to draw a prize by securing entry blanks". The
required element of consideration does not consist of the
benefit derived by the proponent of the contest. The true
test, as laid down in People vs. Cardas 28 P. 2d. 99, 137
Cal. App. (Supp.) 788, is whether the participant pays a
valuable consideration for the chance, and not whether
those conducting the enterprise received something of value
in return for the distribution of the prize. Perspective properly
oriented, 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 expects
thereby to receive, some benefit in the way of
patronage 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 of
the court in the case of State vs. Hundling:
25

The question is not whether the donor of the prize makes a
profit in some remote and indirect way, but, rather, whether
those who have a chance at the prize pay anything of value
for that chance. Every scheme of advertising, including the
giving away of premiums and prizes, naturally has for its
objects, not purely a philanthropic purpose, but increased
business. Even the corner grocer who gives candy to the
children of the neighborhood may be prompted by that
motive, but that does not make the gift unlawful. And if the
grocery instead of giving candy to all the children, gives it
only to some as determined by lot, that circumstance does
not make the gift made unlawful by the further circumstance
that the business of the grocer in the neighborhood may be
thereby increased. Profit accruing remotely and indirectly to
the person who gives the prize is not a substitute for the
requirement that he who has the chance to win the prize
must pay a valuable consideration therefor, in order to make
the scheme a lottery. (Emphasis supplied.)
Based on the foregoing rulings, therefore, it is clear that there is no
consideration or price for the chance to win any of the prizes offered by
the appellee in his "Grand Christmas Bonus Award" plan. There being
no consideration, there is no lottery.
26

Even in the light of the mischief or evil sought to be redressed by the
Postal Law, or the ratio legis, the appellee's scheme cannot be
condemned as a lottery. It is merely a scheme set up to promote the
sale of tickets for the Grand Christmas Sweepstakes Draw held on
December 15, 1963. Should any question be raised it would be:
whether or not sweepstakes draws cultivate or stimulate the gambling
spirit among the people. It should be so, because it cannot be doubted
that sweepstakes tickets purchasers are induced to buy said tickets
because of the desire to win any of the substantial prizes offered by
the PCSO. This question, however, is at once rendered moot and
academic because sweepstakes draws are authorized by law.
But appellant presents as an alternative argument the contention that
even if assuming that "the element of consideration is lacking the
scheme is still a gift enterprise which is also prohibited by the Postal
Law." And in support of this contention or proposition, appellant relies
solely on Opinion No. 217, series of 1953 of the Secretary of Justice,
which, according to the appellant, "ruled that the elements of gift
enterprise, as distinguished from the lottery, are only chance and
prize."
13

In the Caltex (Phil.) case, supra, this Court, rejecting a similar
contention of the appellant, emphatically held:
[W]e note that in the Postal Law the term in question (gift
enterprise) is used in association with the word "lottery". With
the 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 only
in so far as the clement of chance is concerned it is only
logical that the term under construction should be accorded
no other meaning than that which is consistent with the
nature of the word associated therewith. Hence, if lottery is
prohibited only if it involves a consideration, so also must the
term "gift enterprise" be so construed. Significantly, there is
not in the law the slightest indicium of any intent to eliminate
that element of consideration from the "gift enterprise"
therein included.
This conclusion firms up in the light of the mischief sought to
be remedied by the law, resort to the determination thereof
being an accepted extrinsic aid in statutory construction. Mail
fraud orders, it is axiomatic, are designed to prevent the use
of the mails as a medium for disseminating printed matters
which 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 their
tendency to inflame the gambling spirit and to corrupt public
morals (Com. vs. Lund 15 A. 2d., 839, 143 Pa. Super. 208).
Since in gambling it is inherent that something of value be
hazarded for a chance to gain a larger amount, it follows
ineluctably that where no consideration is paid by the
contestant to participate, the reason behind the law can
hardly be said to obtain. If, as it has been held
Gratuitous distribution of property by lot or chance does not
constitute "lottery", if it is not resorted to as a device to
evade the law and no consideration is derived, directly or
indirectly, from the party receiving the chance, gambling
spirit not being cultivated or stimulated thereby. (City of
Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258.') (25 Words
and 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, under
the prohibitive provisions of the Postal Law which we have
heretofore examined, gift enterprise and similar schemps
therein contemplated are condemnable only if, like lotteries,
they involve the element of consideration....
Considered in the light of the foregoing elucidations the conclusion is
irresistible that since in the instant case the element of consideration is
lacking, the plan or scheme in question is also not a "gift enterprise" or
a "similar scheme" proscribed by the Postal Law.
Not being a lottery, gift enterprise or similar scheme, appellee's "Grand
Christmas Bonus Award" plan can be considered a scheme for the
gratuitous distribution of personal property by chance which the Postal
Law does not condemn. Thus, in labelling said scheme as a lottery or
gift enterprise when it is not, appellant not only committed a palpable
error of law but also exceeded his statutory authority in issuing the
fraud order in question. The power of the appellant to issue a fraud
order under the Postal Law is dependent upon the existence of a
lottery, gift enterprise or similar scheme.
Accordingly, the lower court did not err in declaring the fraud order in
question contrary to law and in substituting its judgement for that of the
appellant. The lower court did not also err in issuing the writ of
injunction, the remedy adequate, speedy and appropriate under the
circumstances.lawphi1.nt
... The Postmaster General's order being the result of a
mistaken view of the law, could not operate as a defense to
his action on the part of the defendant, though it might justify
his obedience thereto until some action of the court. In such
a case as the one before us there is no adequate remedy at
law, the injunction to prohibit the further withholding of the
mail from complaint being the only remedy at all adequate to
the 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 dead
with a bullet wound in his head. As beneficiary, his wife Nerissa Lim
sought payment on the policy but her claim was rejected. The
petitioner agreed that there was no suicide. It argued, however that
there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It
happened on October 6, 1982, at about 10 o'clock in the evening, after
his mother's birthday party. According to Nalagon, Lim was in a happy
mood (but not drunk) and was playing with his handgun, from which he
had previously removed the magazine. As she watched television, he
stood in front of her and pointed the gun at her. She pushed it aside
and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and
Lim slumped to the floor. He was dead before he fell.
1

The widow sued the petitioner in the Regional Trial Court of
Zamboanga City and was sustained.
2
The petitioner was sentenced to
pay her P200,000.00, representing the face value of the policy, with
interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as
exemplary damages; P5,000.00 as actual and compensatory
damages; and P5,000.00 as attorney's fees, plus the costs of the suit.
This decision was affirmed on appeal, and the motion for
reconsideration was denied.
3
The petitioner then came to this Court to
fault the Court of Appeals for approving the payment of the claim and
the 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 contract
are to be construed and considered according to the ordinary
understanding 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, and
unforeseen. The definition that has usually been adopted by the courts
is that an accident is an event that takes place without one's foresight
or expectation an event that proceeds from an unknown cause, or is
an 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 the
circumstances, is unusual to and not expected by the person to whom
it happens. It has also been defined as an injury which happens by
reason 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 that
resulted in Lim's death was indeed an accident. The petitioner,
invoking the case of De la Cruz v. Capital Insurance,
6
says that "there
is no accident when a deliberate act is performed unless some
additional, unexpected, independent and unforeseen happening occurs
which produces or brings about their injury or death." There was such
a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to
the insured person's death.
The petitioner also cites one of the four exceptions provided for in the
insurance contract and contends that the private petitioner's claim is
barred 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 suicide
or willfully exposing himself to needless peril
except 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 exposed
himself to needless peril and thus removed himself from the coverage
of the insurance policy.
It should be noted at the outset that suicide and willful exposure to
needless peril are in pari materia because they both signify a disregard
for one's life. The only difference is in degree, as suicide imports a
positive act of ending such life whereas the second act indicates a
reckless risking of it that is almost suicidal in intent. To illustrate, a
person who walks a tightrope one thousand meters above the ground
and without any safety device may not actually be intending to commit
suicide, but his act is nonetheless suicidal. He would thus be
considered as "willfully exposing himself to needless peril" within the
meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to hip
temple, Lim had willfully exposed himself to needless peril and so
came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every
case.
That posture is arguable. But what is not is that, as the secretary
testified, Lim had removed the magazine from the gun and believed it
was no longer dangerous. He expressly assured her that the gun was
not loaded. It is submitted that Lim did not willfully expose himself to
needless peril when he pointed the gun to his temple because the fact
is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never intended
to reward the insured for his tendency to show off
or for his miscalculations. They were intended to
provide for contingencies. Hence, when I
miscalculate and jump from the Quezon Bridge
into the Pasig River in the belief that I can
overcome the current, I have wilfully exposed
myself to peril and must accept the consequences
of my act. If I drown I cannot go to the insurance
company to ask them to compensate me for my
failure to swim as well as I thought I could. The
insured in the case at bar deliberately put the gun
to his head and pulled the trigger. He wilfully
exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the
insurance company to ask for compensation. That might frighten the
insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on
the insurance policy for it is clear that when he braved the currents
below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she
says the analogy fails. The petitioner's hypothetical swimmer knew
when he dived off the Quezon Bridge that the currents below were
dangerous. By contrast, Lim did not know that the gun he put to his
head was loaded.
Lim was unquestionably negligent and that negligence cost him his
own life. But it should not prevent his widow from recovering from the
insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to pay
the indemnity agreed upon if the insured is shown to have contributed
to his own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to
relieve the insurer from liability, and none of these exceptions is
applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be
interpreted liberally in favor of the assured. There is no reason to
deviate from this rule, especially in view of the circumstances of this
case as above analyzed.
On the second assigned error, however, the Court must rule in favor of
the petitioner. The basic issue raised in this case is, as the petitioner
correctly observed, one of first impression. It is evident that the
petitioner was acting in good faith then it resisted the private
respondent's claim on the ground that the death of the insured was
covered by the exception. The issue was indeed debatable and was
15

clearly not raised only for the purpose of evading a legitimate
obligation. We hold therefore that the award of moral and exemplary
damages and of attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the
payment of moral damages, the law requires that
his act be wrongful. The adverse result of an
action does not per se make the act wrongful and
subject the act or to the payment of moral
damages. The law could not have meant to
impose a penalty on the right to litigate; such right
is so precious that moral damages may not be
charged on those who may exercise it
erroneously. For these the law taxes costs.
7

The fact that the results of the trial were adverse
to Barreto did not alone make his act in bringing
the action wrongful because in most cases one
party will lose; we would be imposing an unjust
condition or limitation on the right to litigate. We
hold that the award of moral damages in the case
at bar is not justified by the facts had
circumstances as well as the law.
If a party wins, he cannot, as a rule, recover
attorney's fees and litigation expenses, since it is
not the fact of winning alone that entitles him to
recover such damages of the exceptional
circumstances enumerated in Art. 2208.
Otherwise, every time a defendant wins,
automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate
which should not be so. For those expenses, the
law 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 private
respondent in the sum of P200,000.00 representing the face value of
the insurance contract, with interest at the legal rate from the date of
the filing of the complaint until the full amount is paid, but MODIFIED
with 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 and
appellant.
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 Civ
Case No. U-265), ordering it to indemnify therein plaintiff Simon de la
Cruz for the death of the latter's son, to pay the burial expenses, and
attorney'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 the
New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing contest
for general entertainment wherein the insured Eduardo de la Cruz, a
non-professional boxer participated. In the course of his bout with
another person, likewise a non-professional, of the same height,
weight, and size, Eduardo slipped and was hit by his opponent on the
left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as
hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the insurance
company for payment of the indemnity under the insurance policy. As
the claim was denied, De la Cruz instituted the action in the Court of
First Instance of Pangasinan for specific performance. Defendant
insurer set up the defense that the death of the insured, caused by his
participation in a boxing contest, was not accidental and, therefore, not
covered by insurance. After due hearing the court rendered the
decision in favor of the plaintiff which is the subject of the present
appeal.
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 to
the ropes. That must have caused the cranial injury that led to his
death. Eduardo was insured "against death or disability caused by
accidental means". Appellant insurer now contends that while the
death of the insured was due to head injury, said injury was sustained
because of his voluntary participation in the contest. It is claimed that
the participation in the boxing contest was the "means" that produced
the injury which, in turn, caused the death of the insured. And, since
his inclusion in the boxing card was voluntary on the part of the
insured, he cannot be considered to have met his death by "accidental
means".1wph1.t
The terms "accident" and "accidental", as used in insurance contracts,
have not acquired any technical meaning, and are construed by the
courts 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, and
unforeseen. An accident is an event that takes place without one's
foresight or expectation an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not
expected.
1

Appellant however, would like to make a distinction between "accident
or accidental" and "accidental means", which is the term used in the
insurance policy involved here. It is argued that to be considered within
the protection of the policy, what is required to be accidental is
the means that caused or brought the death and not the death itself. It
may be mentioned in this connection, that the tendency of court
decisions in the United States in recent years is to eliminate the fine
distinction between the terms "accidental" and "accidental means" and
to 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 still
be entitled to indemnification under the policy. The generally accepted
rule is that, death or injury does not result from accident or accidental
means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or
injury.
3
There is no accident when a deliberate act is performed unless
some additional, unexpected, independent, and unforeseen happening
occurs which produces or brings about the result of injury or death.
4
In
other words, where the death or injury is not the natural or probable
result of the insured's voluntary act, or if something unforeseen occurs
in the doing of the act which produces the injury, the resulting death is
within the protection of policies insuring against death or injury from
accident.
In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to
the ropes of the ring. Without this unfortunate incident, that is, the
unintentional slipping of the deceased, perhaps he could not have
received that blow in the head and would not have died. The fact that
boxing is attended with some risks of external injuries does not make
any injuries received in the course of the game not accidental. In
boxing as in other equally physically rigorous sports, such as
basketball or baseball, death is not ordinarily anticipated to result. If,
therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in
this case.
Furthermore, the policy involved herein specifically excluded from its
coverage
(e) Death or disablement consequent upon the Insured
engaging in football, hunting, pigsticking, steeplechasing,
polo-playing, racing of any kind, mountaineering, or
motorcycling.
Death or disablement resulting from engagement in boxing contests
was not declared outside of the protection of the insurance contract.
Failure of the defendant insurance company to include death resulting
from a boxing match or other sports among the prohibitive risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself
from liability for such death.
5

Wherefore, in view of the foregoing considerations, the decision
appealed from is hereby affirmed, with costs against appellant. so
ordered.





















17

G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA
SURPOSA, respondents.
NOCON, J .:
This is a petition for certiorari with a prayer for the issuance of a
restraining order and preliminary mandatory injunction to annul and set
aside the decision of the Court of Appeals dated July 11,
1991,
1
affirming the decision dated March 20, 1990 of the Insurance
Commission
2
in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of
the personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie
Surposa was insured with petitioner Finman General Assurance
Corporation under Finman General Teachers Protection Plan Master
Policy 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 provocation
and warning on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home along Rizal-Locsin
Streets, Bacolod City after attending the celebration of the "Maskarra
Annual Festival."
Thereafter, private respondent and the other beneficiaries of said
insurance policy filed a written notice of claim with the petitioner
insurance company which denied said claim contending that murder
and assault are not within the scope of the coverage of the insurance
policy.
On February 24, 1989, private respondent filed a complaint with the
Insurance Commission which subsequently rendered a decision, the
pertinent portion of which reads:
In the light of the foregoing. we find respondent
liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with
interest. As no evidence was submitted to prove
the claim for mortuary aid in the sum of P1,000.00,
the same cannot be entertained.
WHEREFORE, judgment is hereby rendered
ordering respondent to pay complainant the sum
of P15,000.00 with legal interest from the date of
the filing of the complaint until fully satisfied. With
costs.
4

On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion
on the part of the appellate court in applying the principle of "expresso
unius exclusio alterius" in a personal accident insurance policy since
death resulting from murder and/or assault are impliedly excluded in
said insurance policy considering that the cause of death of the insured
was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone
stab wound on the insured. Therefore, said death was committed with
deliberate intent which, by the very nature of a personal accident
insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in
insurance contracts have not acquired any
technical meaning, and are construed by the
courts 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, and unforeseen. An accident is an event
that takes place without one's foresight or
expectation an event that proceeds from an
unknown cause, or is an unusual effect of a known
cause and, therefore, not expected.
. . . The generally accepted rule is that, death or
injury does not result from accident or accidental
means within the terms of an accident-policy if it is
the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except
the death or injury. There is no accident when a
deliberate act is performed unless some
additional, unexpected, independent, and
unforeseen happening occurs which produces or
brings about the result of injury or death. In other
words, where the death or injury is not the natural
or probable result of the insured's voluntary act, or
if something unforeseen occurs in the doing of the
act which produces the injury, the resulting death
is within the protection of the policies insuring
against death or injury from accident.
5

As correctly pointed out by the respondent appellate court in its
decision:
In the case at bar, it cannot be pretended that
Carlie Surposa died in the course of an assault or
murder as a result of his voluntary act considering
the very nature of these crimes. In the first place,
the insured and his companion were on their way
home from attending a festival. They were
confronted by unidentified persons. The record is
barren of any circumstance showing how the stab
wound was inflicted. Nor can it be pretended that
the malefactor aimed at the insured precisely
because the killer wanted to take his life. In any
event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains
that the happening was a pure accident on the
part of the victim. The insured died from an event
that took place without his foresight or expectation,
an event that proceeded from an unusual effect of
a known cause and, therefore, not expected.
Neither can it be said that where was a capricious
desire on the part of the accused to expose his life
to danger considering that he was just going home
after attending a festival.
6

Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no liability
attaches to petitioner insurance company for any injury, disability or
loss suffered by the insured as a result of any of the stimulated causes.
The principle of " expresso unius exclusio alterius" the mention of
one thing implies the exclusion of another thing is therefore
applicable in the instant case since murder and assault, not having
been expressly included in the enumeration of the circumstances that
would negate liability in said insurance policy cannot be considered by
implication to discharge the petitioner insurance company from liability
for, any injury, disability or loss suffered by the insured. Thus, the
failure of the petitioner insurance company to include death resulting
from murder or assault among the prohibited risks leads inevitably to
the conclusion that it did not intend to limit or exempt itself from liability
for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations
in a contract shall not favor the party who caused
the obscurity.
Moreover,
it is well settled that contracts of insurance are to
be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the
words of an insurance contract should be
interpreted in favor of its beneficiary.
7

WHEREFORE, finding no irreversible error in the decision of the
respondent Court of Appeals, the petition forcertiorari with restraining
order 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 or
attempt thereat" is a life insurance, within the purview of Rule 39,
section 12, subdivision (k) of the Rules of Court, exempting from
execution.
All moneys, benefits, privileges, or annuities accruing or in
any manner growing out of any life insurance, if the annual
premiums paid do not exceed five hundred pesos, and if
they exceed that sum a like exemption shall exist which shall
bear the same proportion to the moneys, benefits, privileges,
and annuities so accruing or growing out of such insurance
that said five hundred pesos bears to the whole annual
premiums paid.
In accordance with a compromise agreement between the parties in
the above-entitled case, a decision was rendered therein by the Court
of First Instance of Manila, on February 3, 1956, sentencing defendant
Hermenegilda S. Morales to pay to plaintiff Francisca Gallardo the sum
of Seven Thousand Pesos (P7,000.00). In due course, the
corresponding writ of execution was issued and delivered to the Sheriff
of Manila, who, on August 8, 1956, garnished and levied execution on
the sum of P7,000.00, out of the P30,000.00 a due from the Capital
Insurance & Surety Co., Inc., to said defendant, as beneficiary under a
personal accident policy issued by said company to defendant's
husband, Luis Morales, who died, on August 26, 1950, by
assassination. Invoking the above-quoted provision of the Rules of
Court, defendant asked the sheriff to quash and lift said garnishment or
levy on execution. Upon denial of this request by the sheriff, defendant
filed a motion praying that the aforementioned sum of P7,000.00 be
declared exempt from execution under said provision of the Rules of
Court, and that the Sheriff of Manila be ordered to quash or lift said
garnishment or levy on execution. This motion was denied by an order
dated 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 her
husband ". . . for injuries and/or death as a result of murder or assault
or 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, this
Court is fully convinced that there is a fundamental
distinction between life insurance, and accident insurance,
and the insurance policy issued to Luis G. Morales, husband
of herein defendant, was undoubtedly an accident insurance,
as distinguished from a life insurance. As conceded by the
facts appearing in the pleadings, the personal accident
policy, part of the proceeds of which is under garnishment,
was for P50,000.00 and yet the annual premium was for
P15.00. If it were an ordinary life insurance policy, taking into
account that the insured, Luis G. Morales, was 38 years of
age and the amount of the policy was for P50,000.00 the
annual premium would have been around P1,206.00.
Besides, the period for the policy was stipulated for one
year, and considerations as to age, health, occupation and
other personal circumstances were not taken into account in
an accident insurance policy. Even the certification issued by
the insurance commissioner on August 23, 1956, marked as
Annex "1" of the opposition, shows that the Capital
Insurance and Surety Company Inc. is a non-life insurance
company and that the only authority granted to it to transact
business covers fire, marine, surety, fidelity, accident, motor
car, 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 accident
insurance. As counsel for oppositor has clearly pointed out,
an accident policy merely insures the person from injury and
or death resulting from murder, assault, or an attempt
thereat, while in life insurance policy, what is insured is the
life of the subject for a definite number of years. From the
authorities quoted by the oppositor, this Court is fully
convinced that an accident policy is fundamentally different
from a life insurance policy, especially if this Court takes into
account that accident insurance is an indemnity or casualty
contract, while life insurance is an investment contract.
It is not disputed that a life insurance is, generally speaking, distinct
and different from an accident insurance. However, when one of the
risks insured in the latter is the death of the insured by accident, then
there are authorities to the effect that such accident insurance may,
also, be regarded as a life insurance.
"Life insurance" is a contract whereby one party insures a
person against loss by the death of another. Petition of
Robbins, 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 if
another 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 the
insurance 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 insurance
for one year in consideration of an advanced premium, with
the right of assured to continue it from year to year upon
payment of a premium as stipulated. Mutual Life Ins. Co. 100
Pa 172, 180.
In its broader sense, "life insurance" includes accident
insurance, 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 of
husband shall insure to benefit of widow and children
exempt from husband's debt, proceeds of policy insuring
against death by accident insured to widow's benefit free
from 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 accidental
death, is "life insurance policy" to such extent within state
statue prescribing in-contestable period for policies. Code
S.C. 1932 ss 7986, 7987. Pacific Mut. Life Ins. Co. of
California vs. Parker, C.C.A.S.C., 71 F. 2d 872, 875.
"Life insurance" includes all policies of insurance in which
payment of insurance money is contingent upon loss of life. .
. . Smith vs. Equitable Life Assur. Soc. of U.S., 89 S.W. 2d
165, 167, 169 Tenn. 477.
Insurance policy including a death benefit and a health or
accident disability benefit constituted a "life insurance policy"
within meaning of laws 1926, c. 118, S. 134, imposing
privilege tax on insurance companies with different rates as
between life insurance companies and other companies, in
view 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 being
immaterial that in some policy forms the health and disability
feature was more valuable asent a showing that death
provision was inserted to avoid the higher tax. Universal Life
Ins. Co. vs. State, 121 So. 849, 850, 155 Miss. 358." (25
Words & Phrases 260, 261, 262.)
When the application was made, Harris W. Rimmer carried
life insurance with the Equitable Life Assurance Society, for
$10,000, payable upon proof of death, with a provision that
upon death by accident the amount of insurance payable
would be increased to $20,000. The plaintiff insisted that this
was life insurance, a disclosure of which was not called for in
question 10, while the defendant insisted it was accident
insurance that should have been disclosed and further
insisted that, it being a fact material to the risk the failure to
disclose the policy in the Equitable Life Assurance Society
rendered the policy issued to the applicant void. . . .
The court might have gone further and held that the failure of
the applicant to characterize the insurance in the Equitable
Life Assurance Society as accident insurance did not
constitute a false answer to the inquiry of what accident or
health insurance he was carrying. The policy in the Equitable
Life Assurance Society covered loss of life from natural as
well as external and accidental causes, and was life
insurance. The mere addition of the double indemnity clause
providing for increased insurance upon proof of death by
19

accident did not divest the policy of its character of insurance
on life, or make the contract other than life insurance,for
insurance on life includes all policies of insurance in which
the payment of the insurance money is contingent upon the
loss of life. 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; Standard
Life & 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 Rules
of Court makes reference to "any life insurance," we are inclined to
believe that the exemption there established applies to ordinary life
insurance contracts, as well as to those which, although intended
primarily to indemnify for risks arising from accident, likewise, insure
against loss of life due, either to accidental causes, or to the willful and
criminal act of another, which, as such, is not strictly accidental in
nature. Indeed, it has been held that statutes of this nature seek to
enable the head of the family to secure his widow and children from
becoming a burden upon the community and, accordingly, should merit
a liberal interpretation.
The object of this statue was to enable a husband, when
death deprived wife and children of his support, to secure
them from want and to prevent them from becoming a
charge upon the public. Necessities of the wife and children
and the public interest are none the less if the death of the
husband be brought about by accident rather than by
disease. The intent of the legislature in the enactment of this
statute would not be advanced by the construction of the law
upon which the petitioners insist. (American Trust & Banking
Co. vs.Lessly et al., Supreme Court of Tenn., 106 S.W. 2d,
551, 552.)
Under statutes providing to that effect, the proceeds of life
insurance are exempt from the claims of creditors, a
limitation being sometimes imposed as to amount, see infra
Sec. 40, or as to the beneficiaries entitled to the exemption,
see infra subdivision of this section. Statutes exempting life
insurance are regarded as exemption laws, and not as part
of the insurance from law of the state, nor as designed
simply to protect insurer from harassing litigation. Such
statutes should be construed liberally and in the light of, and
to give effect to, their purpose of enabling an individual to
provide a fund after his death for his family which will be free
from the claims of creditors. The exemption privilege is
created not by contract but by legislative grant, and grounds
for the exemption of the proceeds of insurance policies must
be found in the statutes. (35 C.J.S. pp. 53-54.)
By weight of authority, exemption statutes or rules should
be liberally construed with a view to giving effect to their
beneficent and humane purpose. To this end, every
reasonable doubt as to whether a given property is or is not
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 garnishment
in dispute hereby set aside and quashed, with the costs of this
instance 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 LUCIA
LONTOK, petitioners,
vs.
HON. COURT OF APPEALS and THE INSULAR LIFE ASSURANCE
COMPANY, LIMITED, respondents.
DAVIDE, JR., J .:
This is an appeal by certiorari to review and set aside the Decision of
the public respondent Court of Appeals in CA-G.R. SP No. 22950
1
and
its Resolution denying the petitioners' motion for reconsideration.
2
The
challenged decision modified the decision of the Insurance
Commission in IC Case
No. RD-058.
3

The petitioners were the complainants in IC Case No. RD-058, an
administrative complaint against private respondent Insular Life
Assurance Company, Ltd. (hereinafter Insular Life), which was filed
with the Insurance Commission on 20 September 1989.
4
They prayed
therein that after due proceedings, Insular Life "be ordered to pay the
claimants their insurance claims" and that "proper sanctions/penalties
be imposed on" it "for its deliberate, feckless violation of its contractual
obligations to the complainants, and of the Insurance Code."
5
Insular
Life's motion to dismiss the complaint on the ground that "the claims of
complainants are all respectively beyond the jurisdiction of the
Insurance Commission as provided in Section 416 of the Insurance
Code,"
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 the
respondent company to:
a) Pay a fine of FIVE HUNDRED PESOS
(P500.00) a day from the receipt of a copy of this
Decision until actual payment thereof;
b) Pay and settle the claims of DINA AYO and
LUCIA LONTOK, for P50,000.00 and P40,000.00,
respectively;
c) Notify henceforth it should notify individual
beneficiaries designated under any Group Policy,
in the event of the death of insured(s), where the
corresponding claims are filed by the Policyholder;
d) Show cause within ten days why its other
responsible officers who have handled this case
should not be subjected to disciplinary and other
administrative sanctions for deliberately releasing
to Capt. Nuval the check intended for spouses
ALARCON, in the absence of any Special Power
of Attorney for that matter, and for negligence with
respect to the release of the other five checks.
SO ORDERED.
10

In holding for the petitioners, the Insurance Commission made the
following findings and conclusions:
After taking into consideration the evidences [sic],
testimonial and documentary for the complainants
and the respondent, the Commission finds that;
First: The respondent erred in appreciating that
the powers of attorney executed by five (5) of the
several beneficiaries convey absolute authority to
Capt. Nuval, to demand, receive, receipt and take
delivery of insurance proceeds from respondent
Insular Life. A cursory reading of the questioned
powers of authority would disclosed [sic] that they
do not contain in unequivocal and clear terms
authority to Capt. Nuval to obtain, receive, receipt
from respondent company insurance proceeds
arising from the death of the seaman-insured. On
the contrary, the said powers of attorney are
couched in terms which could easily arouse
suspicion of an ordinary
man. . . .
Second: The testimony of the complainants'
rebuttal witness,
Mrs. Trinidad Alarcon, who declared in no
uncertain terms that neither she nor her husband,
executed a special power of attorney in favor of
Captain Rosendo Nuval, authorizing him to claim,
receive, receipt and take delivery of any insurance
proceeds from Insular Life arising out of the death
of their insured/seaman son, is not convincingly
refuted.
Third: Respondent Insular Life did not observe
Section 180 of the Insurance Code, when it issued
or released two checks in the amount of
P150,000.00 for the three minor children
(P50,000.00 each) of complainant, Dina Ayo and
another check of P40,000.00 for minor beneficiary
Marissa Lontok, daughter of another complainant
Lucia Lontok, there being no showing of any court
authorization presented or the requisite bond
posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a
judicial guardian, the father, or
in the latter's absence or
incapacity, the mother of any
minor, who is an insured or a
beneficiary under a contract of
life, health or accident
insurance, may exercise, in
behalf of said minor, any right,
under the policy, without
necessity of court authority or
the giving of a bond where the
interest of the minor in the
particular act involved does
not exceed twenty thousand
pesos . . . .
11

Insular Life appealed the decision to the public respondent which
docketed the case as CA-G.R. SP No. 22950. The appeal urged the
appellate court to reverse the decision because the Insurance
Commission (a) had no jurisdiction over the case considering that the
claims exceeded P100,000.00,
(b) erred in holding that the powers of attorney relied upon by Insular
Life were insufficient to convey absolute authority to Capt. Nuval to
demand, receive and take delivery of the insurance proceeds
pertaining to the petitioners, (c) erred in not giving credit to the version
of Insular Life that the power of attorney supposed to have been
executed in favor of the Alarcons was missing, and
(d) erred in holding that Insular Life was liable for violating Section 180
of the Insurance Code for having released to the surviving mothers the
insurance proceeds pertaining to the beneficiaries who were still
minors despite the failure of the former to obtain a court authorization
or 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 is
modified by eliminating therefrom the award to
Dina Ayo and Lucia Lontok in the amounts of
P50,000.00 and P40,000.00, respectively.
13

It found the following facts to have been duly established:
It appears that on 23 September 1983, Prime
Marine Services, Inc. (PMSI, for brevity), a
crewing/manning outfit, procured Group PoIicy
No. G-004694 from respondent-appellant Insular
Life Assurance Co., Ltd. to provide life insurance
coverage to its sea-based employees enrolled
under the plan. On 17 February 1986, during the
effectivity of the policy, six covered employees of
the PMSI perished at sea when their vessel, M/V
Nemos, a Greek cargo vessel, sunk somewhere in
El Jadida, Morocco. They were survived by
complainants-appellees, the beneficiaries under
the policy.
Following the tragic demise of their loved ones,
complainants-appellees sought to claim death
benefits due them and, for this purpose, they
approached the President and General Manager
21

of PMSI, Capt. Roberto Nuval. The latter evinced
willingness to assist complainants-appellees to
recover Overseas Workers Welfare Administration
(OWWA) benefits from the POEA and to work for
the increase of their PANDIMAN and other
benefits arising from the deaths of their
husbands/sons. They were thus made to execute,
with the exception of the spouses Alarcon, special
powers of attorney authorizing Capt. Nuval to,
among others, "follow up, ask, demand, collect
and receive" for their benefit indemnities of sums
of money due them relative to the sinking of M/V
Nemos. By virtue of these written powers of
attorney, complainants-appellees were able to
receive their respective death benefits. Unknown
to them, however, the PMSI, in its capacity as
employer and policyholder of the life insurance of
its deceased workers, filed with respondent-
appellant formal claims for and in behalf of the
beneficiaries, through its President, Capt. Nuval.
Among the documents submitted by the latter for
the processing of the claims were five special
powers of attorney executed by complainants-
appellees. On the basis of these and other
documents duly submitted, respondent-appellant
drew against its account with the Bank of the
Philippine Islands on 27 May 1986 six (6) checks,
four for P200,00.00 each, one for P50,000.00 and
another for P40,00.00, payable to the order of
complainants-appellees. These checks were
released to the treasurer of PMSI upon
instructions of
Capt. Nuval over the phone to Mr. Mariano
Urbano, Assistant Department Manager for Group
Administration Department of respondent-
appellant. Capt. Nuval, upon receipt of these
checks from the treasurer, who happened to be
his son-in-law, endorsed and deposited them in
his account with the Commercial Bank of Manila,
now Boston Bank.
On 3 July 1989, after complainants-appellees
learned that they were entitled, as beneficiaries, to
life insurance benefits under a group policy with
respondent-appellant, they sought to recover
these benefits from Insular Life but the latter
denied their claim on the ground that the liability to
complainants-appellees was already extinguished
upon 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 Insurance
Commission had jurisdiction over the case on the ground that although
some of the claims exceed P100,000.00, the petitioners had asked for
administrative sanctions against Insular Life which are within the
Commission's jurisdiction to grant; hence, "there was merely a
misjoinder of causes of action . . . and, like misjoinder of parties, it is
not a ground for the dismissal of the action as it does not affect the
other reliefs prayed for."
15
It also rejected Insular Life's claim that the
Alarcons had submitted a special power of attorney which they (Insular
Life) later misplaced.
On the other hand, the public respondent ruled that the powers of
attorney, Exhibits "1" to "5," relied upon by Insular Life were sufficient
to authorize Capt. Nuval to receive the proceeds of the insurance
pertaining to the beneficiaries. It stated:
When the officers of respondent-appellant read
these written powers, they must have assumed
Capt. Nuval indeed had authority to collect the
insurance proceeds in behalf of the beneficiaries
who duly affixed their signatures therein. The
written power is specific enough to define the
authority of the agent to collect any sum of money
pertaining to the sinking of the fatal vessel.
Respondent-appellant interpreted this power to
include the collection of insurance proceeds in
behalf of the beneficiaries concerned. We believe
this is a reasonable interpretation even by an
officer of respondent-appellant unschooled in the
law. Had respondent appellant, consulted its legal
department it would not have received a contrary
view. There is nothing in the law which mandates
a specific or special power of attorney to be
executed to collect insurance proceeds. Such
authority is not included in the enumeration of Art.
1878 of the New Civil Code. Neither do we
perceive collection of insurance claims as an act
of strict dominion as to require a special power of
attorney. Moreover, respondent-appellant had no
reason to doubt Capt. Nuval. Not only was he
armed with a seemingly genuine authorization, he
also appeared to be the proper person to deal with
respondent-appellant being the President and
General Manager of the PMSI, the policyholder
with whom respondent-appellant always dealt. The
fact that there was a verbal agreement between
complainants-appellees and Capt. Nuval limiting
the authority of the latter to claiming specified
death benefits cannot prejudice the insurance
company which relied on the terms of the powers
of attorney which on their face do not disclose
such limitation. Under the circumstances, it
appearing that complainants-appellees have failed
to point to a positive provision of law or stipulation
in the policy requiring a specific power of attorney
to be presented, respondents-appellant's reliance
on the written powers was in order and it cannot
be penalized for such an act.
16

Insofar as the minor children of Dina Ayo and Lucia Lontok were
concerned, it ruled that the requirement in Section 180 of the
Insurance Code which provides in part that:
In the absence of a judicial guardian, the father, or
in the latter's absence or incapacity, the mother, of
any minor, who is an insured or a beneficiary
under a contract of life, health or accident
insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of
court authority or the giving of a bond, where the
interest of the minor in the particular act involved
does not exceed twenty thousand pesos. Such a
right, may include, but shall not be limited to,
obtaining a policy loan, surrendering the policy,
receiving the proceeds of the policy, and giving the
minor'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 property
of their unemancipated common child without the necessity
of a court appointment; however, when the market value of
the property or the annual income of the child exceeds
P50,000.00, the parent concerned shall be required to put up
a bond in such amount as the court may determine.
Hence, this petition for review on certiorari which we gave due course
after the private respondent had filed the required comment thereon
and 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
18
and uniformly granted to Capt.
Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt for
my benefit indemnities or sum of money due me
relative to the sinking of M.V. NEMOS in the
vicinity of El Jadida, Casablanca, Morocco on the
evening of February 17, 1986; and
To sign receipts, documents, pertinent waivers of
indemnities or other writings of whatsoever nature
with any and all third persons, concerns and
entities, upon terms and conditions acceptable to
my said attorney.
We agree with the Insurance Commission that the special powers of
attorney "do not contain in unequivocal and clear terms authority to
Capt. Nuval to obtain, receive, receipt from respondent company
insurance proceeds arising from the death of the seaman-insured. On
the contrary, the said powers of attorney are couched in terms which
could easily arouse suspicion of an ordinary man."
19
The holding of
the public respondent to the contrary is principally premised on its
opinion that:
[t]here is nothing in the law which mandates a
specific or special power of attorney to be
executed to collect insurance proceeds. Such
authority is not included in the enumeration of art.
1878 of the New Civil Code. Neither do we
perceive collection of insurance claims as an act
22

of strict dominion as to require a special power of
attorney.
If this be so, then they could not have been meant to be a
general power of attorney since Exhibits "1" to "5"
are special powers of attorney. The execution by the
principals of special powers of attorney, which clearly
appeared to be in prepared forms and only had to be filled
up with their names, residences, dates of execution, dates of
acknowledgment and others, excludes any intent to grant a
general power of attorney or to constitute a universal
agency. Being special powers of attorney, they must be
strictly construed.
Certainly, it would be highly imprudent to read into the special powers
of attorney in question the power to collect and receive the insurance
proceeds due the petitioners from Group Policy No. G-004694. Insular
Life knew that a power of attorney in favor of Capt. Nuval for the
collection and receipt of such proceeds was a deviation from its
practice with respect to group policies. Such practice was testified to
by Mr. Marciano Urbano, Insular Life's Assistant Manager of the Group
Administrative Department, thus:
ATTY. CAGUIOA:
Can you explain to us why in
this case, the claim was filed
by a certain Capt. Noval [sic]?
WITNESS:
a The practice of our
company in claim pertaining
to group insurance, the
policyholder is the one who
files the claim for the
beneficiaries of the deceased.
At that time, Capt. Noval [sic]
is the President and General
Manager of Prime Marine.
q What is the reason why
policyholders are the ones
who file the claim and not the
designated beneficiaries of
the employees of the
policyholders?
a Yes because group
insurance is normally taken by
the employer as an employee-
benefit program and as such,
the benefit should be awarded
by the policyholder to make it
appear that the benefit really
is 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 corporate
concept of group insurance
insofar as Insular Life is
concerned?
WITNESS:
a Group insurance is a
contract where a group of
individuals are covered under
one master contract. The
individual underwriting
characteristics of each
individual is not considered in
the determination of whether
the individual is insurable or
not. The contract is between
the policyholder and the
insurance company. In our
case, it is Prime Marine and
Insular Life. We do not have
contractual obligations with
the individual employees; it is
between Prime Marine and
Insular Life.
q And so it is part of that
concept that all inquiries,
follow-up, payment of claims,
premium billings, etc. should
always 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 of
attorney to be presented by
the policyholder or not?
a Not necessarily.
q In other words, under a
group insurance policy like the
one in this case, Insular Life
could pay the claims to the
policyholder himself even
without the presentation of
any power of attorney from
the designated beneficiaries?
xxx xxx xxx
WITNESS:
a No. Sir.
ATTY. AMPIL:
q Why? Is this case, the
present case different from
the cases which you
answered that no power of
attorney is necessary in
claims payments?
WITNESS:
a We did not pay Prime
Marine; we paid the
beneficiaries.
q Will you now tell the
Honorable Commission why
you did not pay Prime Marine
and instead paid the
beneficiaries, the designated
beneficiaries?
xxx xxx xxx
ATTY. AMPIL:
I will
rephrase
the
question.
q Will you tell the Commission
what circumstances led you to
pay the designated
beneficiaries, the
complainants in this case,
instead of the policyholder
when as you answered a
while ago, it is your practice in
group insurance that claims
payments, etc., are coursed
thru the policyholder?
WITNESS:
a It is coursed but, it is not
paid to the policyholder.
23

q And so in this case, you
gave the checks to the
policyholder only coursing
them thru said policyholder?
a That is right, Sir.
q Not directly to the
designated beneficiaries?
a Yes, Sir.
21

This practice is usual in the group insurance business and is consistent
with the jurisprudence thereon in the State of California from whose
laws our Insurance Code has been mainly patterned which holds
that the employer-policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the
United States, the first modern group insurance policies appear to
have been issued in 1911 by the Equitable Life Assurance
Society.
22
Group insurance is essentially a single insurance contract
that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a master
agreement or policy that is issued by the insurer to a representative of
the group or to an administrator of the insurance program, such as an
employer.
23
The employer acts as a functionary in the collection and
payment of premiums and in performing related duties. Likewise falling
within the ambit of administration of a group policy is the disbursement
of insurance payments by the employer to the employees.
24
Most
policies, such as the one in this case, require an employee to pay a
portion of the premium, which the employer deducts from wages while
the remainder is paid by the employer. This is known as a contributory
plan as compared to a non-contributory plan where the premiums are
solely paid by the employer.
Although the employer may be the titular or named insured, the
insurance is actually related to the life and health of the employee.
Indeed, the employee is in the position of a real party to the master
policy, and even in a non-contributory plan, the payment by the
employer of the entire premium is a part of the total compensation paid
for the services of the employee.
25
Put differently, the labor of the
employees is the true source of the benefits, which are a form of
additional compensation to them.
It has been stated that every problem concerning group insurance
presented to a court should be approached with the purpose of giving
to it every legitimate opportunity of becoming a social agency of real
consequence considering that the primary aim is to provide the
employer with a means of procuring insurance protection for his
employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the
employees to carry a larger amount of insurance than they could
otherwise, and helps to attract and hold a permanent class of
employees.
26

In Elfstrom vs. New York Life Insurance Company,
27
the California
Supreme Court explicitly ruled that in group insurance policies, the
employer is the agent of the insurer. Thus:
We are convinced that the employer is the agent
of the insurer in performing the duties of
administering group insurance policies. It cannot
be said that the employer acts entirely for its own
benefit or for the benefit of its employees in
undertaking administrative functions. While a
reduced premium may result if the employer
relieves the insurer of these tasks, and this, of
course, is advantageous to both the employer and
the employees, the insurer also enjoys significant
advantages from the arrangement. The reduction
in the premium which results from employer-
administration permits the insurer to realize a
larger volume of sales, and at the same time the
insurer's own administrative costs are markedly
reduced.
xxx xxx xxx
The most persuasive rationale for adopting the
view that the employer acts as the agent of the
insurer, however, is that the employee has no
knowledge of or control over the employer's
actions in handling the policy or its administration.
An agency relationship is based upon consent by
one person that another shall act in his behalf and
be subject to his control. It is clear from the
evidence regarding procedural techniques here
that the insurer-employer relationship meets this
agency test with regard to the administration of the
policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer
directs the performance of the employer's
administrative acts, and if these duties are not
undertaken properly the insurer is in a position to
exercise more constricted control over the
employer'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 of
good faith and due care in attending to the policy,
and that the employer should make clear to the
employee anything required of him to keep the
policy in effect, and the time that the obligations
are due. In its position as administrator of the
policy, we feel also that the employer should be
considered as the agent of the insurer, and any
omission of duty to the employee in its
administration should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases of Bass
vs. John Hancock Mutual Life Insurance Co.
29
and Metropolitan Life
Insurance Co. vs. State Board of Equalization.
30

In the light of the above disquisitions and after an examination of the
facts of this case, we hold that PMSI, through its President and
General Manager, Capt. Nuval, acted as the agent of Insular Life. The
latter 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 without
question on the special power of attorney. In Strong vs. Repide,
31
this
Court 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 deal
with agents at their peril and are bound to inquire as to the extent of
the power of the agent with whom they contract. And in Harry E. Keller
Electric Co. vs. Rodriguez,
32
this Court, quoting Mechem on
Agency,
33
stated that:
The person dealing with an agent must also act
with ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to
believe that the agent is exceeding his authority,
he cannot claim protection. So if the suggestions
of probable limitations be of such a clear and
reasonable quality, or if the character assumed by
the agent is of such a suspicious or unreasonable
nature, or if the authority which he seeks to
exercise is of such an unusual or improbable
character, as would suffice to put an ordinarily
prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of
the case, but should either refuse to deal with the
agent at all, or should ascertain from the principal
the true condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of
attorney were in due form, Insular Life was grossly negligent in
delivering the checks, drawn in favor of the petitioners, to a party who
is not the agent mentioned in the special power of attorney.
Nor can we agree with the opinion of the public respondent that since
the shares of the minors in the insurance proceeds are less than
P50,000.00, then under Article 225 of the Family Code their mothers
could receive such shares without need of either court appointments
as guardian or the posting of a bond. It is of the view that said Article
had repealed the third paragraph of Section 180 of the Insurance
Code.
34
The pertinent portion of Article 225 of the Family Code reads
as follows:
Art. 225. The father and the mother shall jointly
exercise legal guardianship over the property of
their unemancipated common child without the
necessity of a court appointment. In case of
disagreement, the father's decision shall prevail,
unless there is judicial order to the contrary.
24

Where the market value of the property or the
annual income of the child exceeds P50,000, the
parent concerned shall be required to furnish a
bond in such amount as the court may determine,
but not less than ten per centum (10%) of the
value of the property or annual income, to
guarantee the performance of the obligations
prescribed for general guardians.
It is clear from the said Article that regardless of the value of the
unemancipated common child's property, the father and mother ipso
jure become the legal guardian of the child's property. However, if the
market value of the property or the annual income of the child exceeds
P50,000.00, a bond has to be posted by the parents concerned to
guarantee the performance of the obligations of a general guardian.
It must, however, be noted that the second paragraph of Article 225 of
the Family Code speaks of the "market value of the property or the
annual income of the child," which means, therefore, the aggregate of
the child's property or annual income; if this exceeds P50,000.00, a
bond is required. There is no evidence that the share of each of the
minors in the proceeds of the group policy in question is the minor's
only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.
WHEREFORE, the instant petition is GRANTED. The Decision of
10 October 1991 and the Resolution of 19 May 1992 of the public
respondent in CA-G.R. SP No. 22950 are SET ASIDE and the
Decision of the Insurance Commission in IC Case No. RD-058 is
REINSTATED.
Costs against the private respondent.
SO ORDERED.