Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26,
2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an
agreement denominated as Creditor Group Life Policy No. P-1920 2 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis
would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by
the Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration
of good health shall be required for all Lot Purchasers as part of the application. The Company reserves the
right to require further evidence of insurability satisfactory to the Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of
his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or
the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser
dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the
Company.3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of
the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In
relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982, 4 containing a list of
insurable balances of its lot buyers for October 1982. One of those included in the list as "new business" was a certain
John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984 5 to Philamlife, which served as an insurance claim for Chuang’s death.
Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending
Physician; and (5) Assured’s Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured,
Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by
Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This
prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. 8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 a
portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No application
for Group Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a
declaration of good health shall be required for all Lot Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if
the application is not approved by the Company." Since no application had been submitted by the
Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after
his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens
being the Assured was a party to the Contract and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have been
met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against
Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to
pay the sum of P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, as
testified to by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl:
Phil-Am Life Insurance Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the
submission of the requirements of the group insurance on December 29, 1982 to Chuang’s death on August 2, 1984,
as well as Philamlife’s acceptance of the premiums during the same period, Philamlife was deemed to have approved
Chuang’s application. The RTC said that since the contract is a group life insurance, once proof of death is submitted,
payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED
and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated
December 29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section
26 of the Insurance Code. Thus, the CA concluded, there being no application form, Chuang was not covered by
Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in
holding that:
I. The application for insurance was not duly submitted to respondent PhilamLife before the death of
John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first
level courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject
to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings [of the CA] are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted
by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different conclusion. 12(Emphasis
supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy
of the insurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of
insurable interests of buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal
added it was noted at the bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally, Eternal
alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before
his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must
present evidence showing that Philamlife received a copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the
insurance forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with the attachments. Such receipt is an admission by
Philamlife against its own interest.13 The burden of evidence has shifted to Philamlife, which must prove
that the letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus,
Philamlife is deemed to have received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the
contents of the letter are correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses, because it
has the opportunity to observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of the trial court on
such matters are binding and conclusive on the appellate court, unless some facts or circumstances of weight and
substance have been overlooked, misapprehended, or misinterpreted, 14 that, if considered, might affect the result of
the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of
substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as
shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of
this is submitted to Philamlife together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does
not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached
therein.16
In other words, the witness admitted not knowing where the original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes
that minor inconsistencies are too trivial to affect the credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies have been rehearsed. 17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a
whole or reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential facts and
whether the respective versions corroborate and substantially coincide with each other so as to make a
consistent and coherent whole.18
In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is
whether the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by
Philamlife are minor and do not affect the credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-
1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with
the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.
An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became effective
upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and
must be construed in such a way as to preclude the insurer from noncompliance with its
obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating
that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such a
way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the party which prepared the contract, the
insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be
construed in favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is
created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date
of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice
the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience
in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of
adhesion containing technical terms and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and obligations of the insurer and
the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid, binding, and effective insurance
contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810
is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of
extra-judicial demand by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17,
1996;
 (3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17,
1996 until full payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
No costs.
SO ORDERED.
G.R. No. 150094 August 18, 2004
FEDERAL EXPRESS CORPORATION, petitioner,
vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.

DECISION

PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must give
the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision 2 and
the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed Decision
disposed as follows:
"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The
appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95-
1219, entitled 'American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS
CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),' is
hereby AFFIRMED and REITERATED.
"Costs against the [petitioner and Cargohaus, Inc.]." 4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to
Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of
109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company
in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the
words, 'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. That
same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance
Company (AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express
which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on
January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.'s] warehouse.
While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994, in Flight No.
0071-30NRT which was likewise immediately stored at Cargohaus' warehouse. Prior to the arrival of the
cargoes, Federal Express informed GETC Cargo International Corporation, the customs broker hired by the
consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its
client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the cargoes arrived in
Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the release of the subject
cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were] stored
only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator. When he
asked an employee of Cargohaus why the cargoes were stored in the 'cool room' only, the latter told him that
the cartons where the vaccines were contained specifically indicated therein that it should not be subjected to
hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the
withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal
Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it
was discovered that the 'ELISA reading of vaccinates sera are below the positive reference serum.'
 "As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the
shipment and, declaring 'total loss' for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam Insurance Co., Inc. ('PHILAM') which recompensed
SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY
NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner]
imputing negligence on either or both of them in the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable
for the loss as follows:
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-
Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from
the time of the filing of the complaint to the time the same is fully paid.
2. Attorney's fees in the amount of P50,000.00 and
3. Costs of suit.
'SO ORDERED.'
"Aggrieved, [petitioner] appealed to [the CA]."5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection Service)
was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that the shipping
Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. We quote
from the ruling as follows:
"Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the carrier
in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged
condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier, and
this casts upon the carrier the burden of showing that the goods were not in good condition when delivered to
the carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability.
This the [petitioner] failed to discharge. x x x."6
Found devoid of merit was petitioner's claim that respondents had no personality to sue. This argument was
supposedly not raised in the Answer or during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for our consideration:
"I.
Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the
Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals – petitioner's claim that respondents have no personality
to sue because the payment was made by the respondents to Smithkline when the insured under the policy is
Burlington Air Express is devoid of merit – correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, correct
or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
 "V.
Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own admission that
petitioner is not liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal
Express liable for damage to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law
cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions drawn
from such facts. Hence, this case is a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the
payment made to Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance 10 ("Certificate") that both opposing parties cite in support of their
respective positions. They differ only in their interpretation of what their rights are under its terms. The determination
of those rights involves a question of law, not a question of fact. "As distinguished from a question of law which exists
'when the doubt or difference arises as to what the law is on a certain state of facts' -- 'there is a question of fact when
the doubt or difference arises as to the truth or the falsehood of alleged facts'; or when the 'query necessarily invites
calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific
surrounding circumstance, their relation to each other and to the whole and the probabilities of the situation.'" 11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x upon surrender of this
Certificate." Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were
covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified
for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name
of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was
the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt 12 in favor of
respondents. The latter were thus authorized "to file claims and begin suit against any such carrier, vessel, person,
corporation or government." Undeniably, the consignee had a legal right to receive the goods in the same condition it
was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against
the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurer's
entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a
contractual breach or negligence.13 "Further, the insurer's subrogatory right to sue for recovery under the bill of lading
in case of loss of or damage to the cargo is jurisprudentially upheld."14
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and purposes, it
stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee are bound by the
contractual stipulations under the bill of lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents'
claim and right of action are already barred. The latter, and even the consignee, never filed with the carrier any written
notice or complaint regarding its claim for damage of or loss to the subject cargo within the period required by the
Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly
evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
"6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written
notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the
details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the
date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss
(including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill]." 16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within
fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue of
the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or
to the first carrier or to the last carrier or to the carrier who performed the transportation during which the
loss, damage or delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be
prima facie evidence that the same have been delivered in good condition and in accordance with the
document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7
days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest
within 14 days from the date on which the baggage or goods have been placed at his disposal.
(3) Every complaint must be made in writing upon the document of transportation or by separate notice in
writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of
fraud on his part."18
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods. 19 The
shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action.20
The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons
for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with
liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. "This protects the
carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily
investigated so as to safeguard itself from false and fraudulent claims."21
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim for
loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented and the
liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is not liable if
notice is not given in accordance with the stipulation. 22 Failure to comply with such a stipulation bars recovery for the
loss or damage suffered.23
Being a condition precedent, the notice must precede a suit for enforcement. 24 In the present case, there is neither an
allegation nor a showing of respondents' compliance with this requirement within the prescribed period. While
respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with the
aforesaid condition precedent.
In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in respondents'
Complaint below -- has been adjudged by the trial court as liable for, inter alia, "actual damages in the amount of the
peso equivalent of US $39,339." 25 This judgment was affirmed by the Court of Appeals and is already final and
executory.26
WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner
Federal Express Corporation. No pronouncement as to costs.
SO ORDERED.
G.R. No. 167330 September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.

ARTICLE XIII
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the people
at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled,
women, and children. The State shall endeavor to provide free medical care to paupers.1

For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and
July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc. 2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid
group practice health care delivery system or a health maintenance organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of
the organization." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and
other professional technical staff participating in the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and
the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest,
for the taxable years 1996 and 1997 in the total amount of ₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (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 xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT
and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is
hereby ORDERED to PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87 inclusive of 25%
surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT
Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting
the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He
claimed that 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. 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 ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary Stamp
Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January
27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held that
petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a
contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares 3 and Philamcare Health Systems, Inc. v. CA.4We
also ruled that petitioner’s contention that it is a health maintenance organization (HMO) and not an insurance
company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege,
opportunity or facility offered at exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for
reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company
engaged in the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service
provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA’s
disposition that health care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the
light of the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not those
contemplated under Section 185.
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health insurance is not
covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA 5 9480 for the taxable year 2005 and all prior years.
Therefore, the questioned assessments on the DST are now rendered moot and academic. 6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA
94807(also known as the "Tax Amnesty Act of 2007") by fully paying the amount of ₱5,127,149.08 representing 5%
of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30,
1987.9 It is engaged in the dispensation of the following medical services to individuals who enter into health care
agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation
and advices on diet, exercise and other healthy habits, and immunization;

Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and

Curative medical services which pertain to the performing of other remedial and therapeutic processes
in the event of an injury or sickness on the part of the enrolled member.10

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis.
The medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by
petitioner, through physicians, medical and dental practitioners under contract with it. It negotiates with such health
care practitioners regarding payment schemes, financing and other procedures for the delivery of health services.
Except in cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e. those
directly employed by it11 or whose services are contracted by it. 12 Petitioner also provides hospital services such as
room and board accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care. 13 If
and when a member avails of the benefits under the agreement, petitioner pays the participating physicians and other
health care providers for the services rendered, at pre-agreed rates. 14
To avail of petitioner’s health care programs, the individual members are required to sign and execute a standard
health care agreement embodying the terms and conditions for the provision of the health care services. The same
agreement contains the various health care services that can be engaged by the enrolled member, i.e., preventive,
diagnostic and curative medical services. Except for the curative aspect of the medical service offered, the enrolled
member may actually make use of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its
agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege,
opportunity or facility used in the transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to
determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are
meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association
or company or corporation transacting the business of accident, fidelity, 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 (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium charged.
(Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders
every word operative is preferred over that which makes some words idle and nugatory. 17 This principle is expressed
in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the
statute – its every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1)
the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should
be transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an
entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed
prepaid premium."19 The payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years?
We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance
business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed
to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions or that no separate or direct consideration is received therefore, shall not be
deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance
business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, 21 have determined
that HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not
insurance.
Applying the "principal object and purpose test," 22 there is significant American case law supporting the argument
that a corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the
members of a group with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association 23 wherein the Court of Appeals of the District of
Columbia Circuit held that Group Health Association should not be considered as engaged in insurance activities since
it was created primarily for the distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from illness
or accident more truly they constitute the quantity purchase of well-rounded, continuous medical service by its
members. xxx The functions of such an organization are not identical with those of insurance or indemnity
companies. The latter are concerned primarily, if not exclusively, with risk and the consequences of its descent, not
with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of
living. Hazard is predominant. On the other hand, the cooperative is concerned principally with getting service
rendered to its members and doing so at lower prices made possible by quantity purchasing and economies in
operation. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the service
to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday
incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting against the
financial loss caused by extraordinary and unusual occurrences, such as death, disaster at sea, fire and
tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary bodily
discomforts as well as the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and patient together, the
preventive features, the regularization of service as well as payment, the substantial reduction in cost by
quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to these
features, the indemnification for cost after the services is rendered. Except the last, these are not distinctive or
generally characteristic of the insurance arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the contingency that it be needed, and contracting merely
to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If
attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement
and economic function becomes faint, if not extinct. This is especially true when the contract is for the sale of goods
or services on contingency. But obviously it was not the purpose of the insurance statutes to regulate all arrangements
for assumption or distribution of risk. That view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in looking only at the risk element, to the
exclusion of all others present or their subordination to it. The question turns, not on whether risk is involved
or assumed, but on whether that or something else to which it is related in the particular plan is its principal
object purpose.24 (Emphasis supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation
as a whole of the corporation, it was service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining its
status. The question, more broadly, is whether, looking at the plan of operation as a whole, ‘service’ rather than
‘indemnity’ is its principal object and purpose. Certainly the objects and purposes of the corporation organized and
maintained by the California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income.
The medical profession unitedly is endeavoring to meet that need. Unquestionably this is ‘service’ of a high
order and not ‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through participating physicians while insurance
companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey 27 is clear on this
point:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former
undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any
further financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will
render services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical
service corporation’s plan, not only will the subscribers be deprived of the protection which they might
reasonably have expected would be provided, but the corporation will, in effect, be doing business solely as a
health and accident indemnity insurer without having qualified as such and rendering itself subject to the more
stringent financial requirements of the General Insurance Laws….
A participating provider of health care services is one who agrees in writing to render health care services to or for
persons covered by a contract issued by health service corporation in return for which the health service
corporation agrees to make payment directly to the participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to
provide medical services as needed, with payment made directly to the provider of these services. 29 In short, even if
petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has
prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of emergency by
non-participating health providers would still be incidental to petitioner’s purpose of providing and arranging for
health care services and does not transform it into an insurer. To fulfill its obligations to its members under the
agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services. This
indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to
keep members from developing medical conditions or diseases. 30 As an HMO, it is its obligation to maintain the good
health of its members. Accordingly, its health care programs are designed to prevent or to minimize
thepossibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify
its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical
services), but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect
of petitioner’s business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides
health care services rather than insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are
not saying that petitioner’s operations are identical in every respect to those of the HMOs or health providers which
were parties to those cases. What we are stating is that, for the purpose of determining what "doing an insurance
business" means, we have to scrutinize the operations of the business as a whole and not its mere components. This is
of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that
there are other American authorities who have found particular HMOs to be actually engaged in insurance activities. 32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact
that it is not supervised by the Insurance Commission but by the Department of Health. 33 In fact, in a letter dated
September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business.
This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an
administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the
interpretation of laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of
Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing
society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also
relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged
with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court
stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to
the meaning and purpose of the law, and to have formed an independent, conscientious and competent expert opinion
thereon. The courts give much weight to the government agency officials charged with the implementation of the law,
their competence, expertness, experience and informed judgment, and the fact that they frequently are the drafters of
the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of
1997
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity for
loss, damage, or liability…." In our decision dated June 12, 2008, we ruled that petitioner’s health care agreements are
contracts of indemnity and are therefore insurance contracts:
It is … incorrect to say that the health care agreement is not based on loss or damage because, under the said
agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses
(such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense
or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of
sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-
ray and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the
contingent event which gives rise to liability on the part of the member. In case of exposure of the member to liability,
he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the
stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member
cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of
the services even if they are significantly and substantially more than what the member has "prepaid." Petitioner does
not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that
is, among all the other members of the health care program. This is insurance. 37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the
taxing authority.38 This is because taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support of the government. 39 Hence, tax
laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as
to embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature
of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the
interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under
the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of
the member and strictly against the HMO. For this reason, we reconsider our ruling that Blue
Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium. 41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an
insurance contract. The primary purpose of the parties in making the contract may negate the existence of an
insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of
periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the
insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a
contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a
physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as
engaged in the business of insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is
not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To begin with,
there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO.
Under the agreement, the member pays petitioner a predetermined consideration in exchange for the hospital, medical
and professional services rendered by the petitioner’s physician or affiliated physician to him. In case of availment by
a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter
does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care
providers for the services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the
member to any third party-provider of medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There
is no indemnity precisely because the member merely avails of medical services to be paid or already paid in advance
at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory
services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family
planning counseling, even in the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-
participating physician or hospital. However, this is only a very minor part of the list of services available. The
assumption of the expense by petitioner is not confined to the happening of a contingency but includes incidents even
in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts
called for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this
did not make defendant an insurer. Citing Jordan, the Court determined that "the primary activity of the defendant
(was) the provision of podiatric services to subscribers in consideration of prepayment for such services." 44 Since
indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member
at an affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient
to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual
insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it
might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance
companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher
than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the
insured.45
However, assuming that petitioner’s commitment to provide medical services to its members can be construed as an
acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract
because petitioner’s objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an insurance
contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care agreements
under Section 185 of the NIRC of 1997 is the provision’s legislative history. The text of Section 185 came into U.S.
law as early as 1904 when HMOs and health care agreements were not even in existence in this jurisdiction. It was
imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of
1904")46enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of
the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock and indebtedness, and other documents, instruments, matters, and
things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper
upon which such instrument, matters, or things or any of them shall be written or printed by any person
 or persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five,
the several taxes following:

xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association, company, or corporation
transacting the business of accident, fidelity, employer’s liability, plate glass, steam boiler, burglar,
elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the
laws relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was
completely reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of
items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article
IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision
became Section 1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all
the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate
was increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977)
as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate
was again increased.1avvphi1

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as
Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became Section
185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject
legal provision was retained as the present Section 185. In 2004, amendments to the DST provisions were introduced
by RA 924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health
Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care
Services, Inc. (or Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO industry
pioneer, having set foot in the Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more
than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law
imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various
amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in fact
already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements,
it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that
the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were
already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was
assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO. 50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health
care agreements were never, at any time, recognized as insurance contracts or deemed engaged in the business of
insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency who is to pay it. 51 So potent indeed is the power that it was once opined that "the
power to tax involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to ₱376 million 53 is way beyond its net worth of ₱259
million.54 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on
petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. On the
contrary, the government ought to encourage private enterprise. 55 Petitioner, just like any concern organized for a
lawful economic activity, has a right to maintain a legitimate business. 56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of
a tax imposition may be an acceptable consequence but killing the business of an entity is another matter and should
not be allowed. It is counter-productive and ultimately subversive of the nation’s thrust towards a better economy
which will ultimately benefit the majority of our people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot
and academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08
representing 5% of its net worth as of the year ended December 31, 2005 and complied with all requirements of the
tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions
thereto, and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from
the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. 61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the
tax involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax
liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as
discussed above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This
admission, however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been
granted under circumstances amounting to tax fraud under Section 10 of said amnesty law. 62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA
9480.63 There is no other conclusion to draw than that petitioner’s liability for DST for the taxable years 1996 and
1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling
of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare Health Systems is not an
insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal
in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute
resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a health care
agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of
the case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our
ruling in that case has already become final. 67 When a minute resolution denies or dismisses a petition for failure to
comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal
conclusions, are deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res
judicata.69 However, if other parties or another subject matter (even with the same parties and issues) is involved, the
minute resolution is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR
v. Baier-Nickel71 involving the same parties and the same issues, was previously disposed of by the Court thru a
minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the
previous case "ha(d) no bearing" on the latter case because the two cases involved different subject matters as they
were concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The
constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and
the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to
minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a
decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are
not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision.73Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in
a decision duly signed by the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its health
care agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute
resolution in that case (which is not even binding precedent) in its favor. Nonetheless, in view of the reasons already
discussed, this does not detract in any way from the fact that petitioner’s health care agreements are not subject to
DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there
was never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and
unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the
average wage earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the
goal of providing a more efficient and inexpensive health care system made possible by quantity purchasing of
services and economies of scale. They offer advantages over the pay-for-service system (wherein individuals are
charged a fee each time they receive medical services), including the ability to control costs. They protect their
members from exposure to the high cost of hospitalization and other medical expenses brought about by a fluctuating
economy. Accordingly, they play an important role in society as partners of the State in achieving its constitutional
mandate of providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its imposition will elevate the
cost of health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing
health services beyond the reach of the ordinary wage earner or driving the industry to the ground. At the end of the
day, neither side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of
Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said
tax.
No costs.
SO ORDERED.