Case No. G.R. No. L-2910 June 29, 1951 said premium.
said premium. In which event the company will, without
Case Name: THE MANUFACTURERS LIFE INSURANCE
CO., petitioner
vs.
BIBIANO L. MEER, in the capacity as Collector of
Internal Revenue, respondent
Ponente: Bengzon, J.
Doctrine: In the application of the automatic premium
loans, he policy holder/insured becomes a debtor of the
insurer, which he could repay by later remitting the money
to the insurer or by letting the cash value compensate for it.
The debt may also be deducted from the amount of the
policy should he die thereafter during the continuance of the
policy.
QUICK SUMMARY OF FACTS
Petitioner Manufacturer Life Insurance appealed decision of
CFI Manila dismissing their complaint to recover money it
paid under protest for taxes on insurance premiums. SC said
that the automatic premium loans led to payment of
premiums (thus taxable) and dismissed the petition.
RELEVANT FACTS
Petitioner Manufacturer Life Insurance Company
(Manufacturer) is a Canadian corporation duly registered
and licensed to engage in life insurance business in the
Philippines. It issued a number of life-insurance policies
containing stipulations referred to as non-forfeiture clauses,
as follows:
8. Automatic Premium Loan. — This Policy shall not
lapse for non-payment of any premium after it has been
three full years in force, if, at the due date of such
premium, the Cash Value of this Policy and of any bonus
additions and dividends left on accumulation (after
deducting any indebtedness to the Company and the
interest accrued thereon) shall exceed the amount of
further request, treat the premium then due as paid,
and the amount of such premium, with interest from its
actual due date at six per cent per annum, compounded
yearly, and one per cent, compounded yearly, for
expenses, shall be a first lien on this Policy in the
Company's favour in priority to the claim of any
assignee or any other person. The accumulated lien
may at any time, while the Policy is in force, be paid in
whole or in part.
"When the premium falls due and is not paid in cash
within the month's grace, if the Cash Value of this
policy and of any bonus addition and dividends left on
accumulation (after deducting any accumulated
indebtedness) be less than the premium then due, the
Company will, without further requests, continue this
insurance in force for a period .. . .
"10. Cash and Paid-Up Insurance Values. — At the end
of the third policy year or thereafter, upon the legal
surrender of this Policy to the Company while there is
no default in premium payments or within two months
after the due date of the premium in default, the
Company will (1) grant a cash value as specified in
Column (A) increased by the cash value of any bonus
additions and dividends left on accumulation, which
have been alloted to this Policy, less all indebtedness to
the Company on this Policy on the date of such
surrender, or (2) endorse this Policy as a Non-
Participating Paid-up Policy for the amount as specified
in Column (B) of the Table of Guaranteed Values . . ..
"11. Extended Insurance. — After the premiums for
three or more full years have been paid hereunder in
cash, if any subsequent premium is not paid when due,
and there is no indebtness to the Company, on the
written request of the Insured.
 Manufacturer was forced to close its Manila branch during
WWII from 1942-1945. Upon its return, it sought to apply
the provisions of the said ‘automatic premium loan’ clauses
to insured individuals who failed to pay premiums for one or
more years from 1942 to 1946. While the advanced or
loaned premiums reached P P1,069,254.98, the respondent
Collector of Internal Revenue assessed a P17, 917 tax on
these insurance premiums, following Section 255* of the
National Internal Revenue Code.
Manufacturer paid the amount, but filed a complaint at the
CFI Manila to recover what it paid. The CFI sided with
respondent and dismissed the complaint. At the SC,
petitioner Manufacturer argued that when it made premium
loans or premium advances, by virtue of the non-forfeiture
clauses, it did not collect premiums within the meaning of
the NIRC Sec. 255* and thus not subject to taxes under such
law.
corresponding taxes. Suppose the cash value at that point
amounts to P1,000. If during the 11 th year, A is unable to pay
the annual premium even after the grace month, the insurer
may treat the overdue premium as paid from the cash value.
The amount becomes a loan to A, who can discharge by
paying the amount with a 6 percent interest. Because of this
arrangement, the insurance contract continues.”
Simply put, under automatic premium loans, it was the
insurance company such as petitioner Manufacturer who
loaned to the policy holder the amount for the uncollected
annual premium, in the process of “collecting” the premium.
The policy holder/insured becomes a debtor of the company,
which he could repay
by later remitting the money to the insurer or by letting the
cash value compensate for it. The debt may also be deducted
from the amount of the policy should "A" die thereafter
during the continuance of the policy.

ISSUE & RATIO DECIDENDI
1. Can premium advances under the “automatic premium
loan clause” of insurance policies be considered as
payment of premiums (and thus taxable?)
Yes. The application of the automatic loan clause
ensures that there is payment of premium to
petitioner Manufacturer. Thus, taxes are due since
premiums were collected.
To explain what automatic premium loans are, the SC
cited the illustration by petitioner:
“A” secures a 20-year endowment policy for P5,000 from a
company, which he pays an annual premium of P250. He
pays the first ten annual premiums (P2,500) and the
SC thus denies petitioners’s claim that its assets remained
the same after the application of the automatic premium
loan clause. Through the “loan” made by the insured, there
was new credit for the benefit of Manufacturer. While
Manufacturer cannot sure to enforce the credit, it can do so
with the cash surrender value.
Cash surrender value as applied to life insurance
policy, is the “amount of money the company agrees to
pay to the holder of the policy if he surrenders it and
releases his claims upon it. The more premiums the
insured has paid the greater will be the surrender
value; but the surrender value is always a lesser sum
than the total amount of premiums paid." (Cyclopedia
Law Dictionary 3d. ed. 1077.) The cash value or cash
surrender value is an amount which the insurance
company holds in trust for the insured to be delivered

*NIRC SEC. 255. Taxes on insurance premiums. — There shall be collected from every person, company, or corporation (except purely
cooperative companies or associations) doing business of any sort in the Philippines a tax of one per centum of the total premiums
collected .. whether such premiums are paid in money, notes credits, or any substitute for money but premiums refunded within six months
after payment on account of rejection of risk or returned for other reason to person insured shall not be included in the taxable receipts .
 to him upon demand. It is a liability of the company to Manufacturer is also mistaken in its second assertion b.) as
the insured. So when the company's credit for it was practically and legally, operating in this country by
advances is paid out of the cash value or cash collecting premiums on its outstanding policies during that
surrender value, that value and the company's liability period, incurring the risks and/or enjoying the benefits
is thereby dismissed pro tanto. Thus, the net assets of consequent thereto, without indicating any sign of
the insurance company increased correspondingly; for withdrawal.
it is plain mathematics that the decrease of a person's
liabilities means a corresponding increase in his net DISPOSITIVE
assets. Wherefore, finding no prejudicial error in the appealed
decisions, we hereby affirm it with costs.
Even if Manufacturer claims that it earns no additional
assets/cash in the operation of the automatic loan provision,
it is undeniable that Manufacturer as the insurer agreed to
consider the premium paid on the strength of the automatic
loan. The premium was therefore paid by means of a "note"
or "credit" or "other substitute for money". Ergo, taxes are
due because the tax code levies taxes according to the total
premiums collected by the insurer "whether such premiums
are paid in money, notes, credits or any substitutes for
money.”

2. Is the petitioner exempted from payment of premium

taxes from 1942 to 1946 since a.) the collection of
premiums were done in Canada and b.)
Manufacturer’s office was closed and not doing any
business in the country during that period?

No. Petitioner overlooks the fact that for a.) the loans are
made to policyholders in the Philippines, who in turn paid
premiums to the insurer thru the Manila branch. The law
does not contemplate premiums collected in the
Philippines. It is enough that the insurer is doing insurance
business in the Philippines, irrespective of the place of its
organization or establishment.

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