Filipinas Compania de Seguros vs Christern Huenefeld and Co

GR L-2294; May 25 1951

Topic: Exceptions to the rule of incorporation test

 Christern Huenefeld Co (COMPANY) obtained a fire insurance policy valued at P1

Million covering merchandise from Filipinas Seguros (INSURER). During the Japanese
military occupation in 1942, the building and merchandise burned, so the Company
submitted a claim under such policy.
 The Insurer refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against
Germany, the Company (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the Insurer being a company
under American jurisdiction when said policy was issued on October 1, 1941.
 Nevertheless, the Insurer paid the Company P92,000 upon the order of the Director of
Bureau of Financing.
 Thereafter, the Insurer filed an action to recover from the Company the P92,000 it
previously paid because such was made under pressure and that at the time the
merchandise was burned, the policy had become ineffective due to the war declared a
year prior.
 CFI and CA dismissed the case. On appeal, the Insurer claims that the Company
became an enemy when the US declared war on Germany because the Company’s
nationality is German since that is the citizenship of its controlling stockholders. Hence,
it’s not entitled to the insurance proceeds.
ISSUE+ RULING: Whether the Company is a German Company, hence, an “enemy
corporation” that is not entitled to the insurance proceeds
YES. It is an enemy corporation not entitled to insurance proceeds. In a paper entitled “Enemy
Corporation” presented by Martin Domke in the Conference for Legal Profession in 1948, he
said “A corporation was subject to enemy legislation when it was controlled by enemies,
namely managed under the influence of individuals or corporations, themselves
considered as enemies.”
There is no question that majority of the stockholders of the respondent corporation were
German subjects. This being so, we have to rule that said respondent became an enemy
corporation upon the outbreak of the war between the United States and Germany.
Further, the Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that
"anyone except a public enemy may be insured." It stands to reason that an insurance policy
ceases to be allowable as soon as an insured becomes a public enemy.
Xxx It further prohibits insurance upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the subjects of one country cannot
be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The
purpose of war is to cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay in
insurance the value of what has been so destroyed, or that it should in such manner
increase the resources of the enemy, or render it aid, and the commencement of war
determines, for like reasons, all trading intercourse with the enemy, which prior thereto may
have been lawful. Xxx
The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforceable, and since the insured goods were burned after December
10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy
from the petitioner. However, elementary rules of justice (in the absence of specific provision in
the Insurance Law) require that the premium paid by the respondent for the period covered by
its policy from December 11, 1941, should be returned by the petitioner.